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 2017
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-35890
________________________________________________________________________________________________________________
Tempest Therapeutics, Inc.
(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)
___________________________________________________________________________________________________________________
Delaware | 45-1472564 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
2000 Sierra Point Parkway, Suite 400 Brisbane, California | 94005 | |
(Address of | (Zip Code) |
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of | Trading Symbol(s) | Name of Each Exchange on |
Common Stock, $0.001 par value | TPST | The Nasdaq Stock Market LLC |
Series A Junior Participating Preferred Purchase Rights | N/A | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act:
None_________________________________________________________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes
Indicate by check mark whether the registrant: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
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)submit). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company"company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicated 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 Exchange Act). Yes o¨ No ý
The aggregate market value of the voting stockand non-voting common equity of the registrant held by non-affiliates of the registrant as of June 30, 20172023 (the last business day of the registrant'sregistrant’s most recently completed second fiscal quarterquarter), based on a closing price of 2017) was: $50.9$1.27 per share of the registrant’s common stock as reported on The Nasdaq Stock Market LLC on June 30, 2023, was approximately $16.0 million.
As of March 13, 2018, there were 35,725,2302024, the registrant had 22,192,026 shares of the registrant's Common Stock,common stock, $0.001 par value $0.001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the information required by Part III of Form 10-K will appear in the registrant'sregistrant’s definitive proxy statement on Schedule 14AProxy Statement for the 2018its 2024 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K are hereby incorporated by reference into Part III of this report.Annual Report on Form 10-K.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K and the information incorporated by reference in this Annual Report contain(this "Annual Report"), contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, or Exchange Act,as amended, (the "Exchange Act"), that involve substantial risks and uncertainties. AllThe forward-looking statements are contained principally in Part I, Item 1. “Business,” Part I, Item 1A. “Risk Factors,” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere in this Annual Report. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other thancomparable terminology intended to identify statements relatedabout the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to present facts, current conditionsbe materially different from the information expressed or historical facts,implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Annual Report, we caution you that these statements are based on Form 10-K, including but not limiteda combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain. Forward-looking statements include statements about:
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You should refer to Item 1A. “Risk Factors” in this Annual Report for a discussion of important risks and uncertaintiesfactors that couldmay cause our actual results to differ materially from the results discussed in thethose expressed or implied by our forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements, include, but are not limited to, the possibility that we may not succeed in developing EggPC cell derived eggs that can be fertilized; the risks implicit in the development process of preparing bovine and human EggPC derived eggs for fertilization; regulatory risks associated with obtaining authorization to fertilize human EggPCSM cells for research; the possibility that international in vitro fertilization (“IVF”) clinics that we work with may determine not to provide or continue providing the OvaPrime or AUGMENT treatments, or to delay providing such treatments, or to limit the population of patients receiving the treatments based on clinical efficacy, safety or commercial, logistic, economic, available data, regulatory or other reasons; challenges associated with enrolling and completing clinical trials, and the possibility that the results may not be favorable; the science underlying our treatments (including OvaPrime treatment, OvaTure treatment and AUGMENT treatment), which is unproven; scientific and regulatory challenges associated with characterizing and fertilizing an EggPC cell-derived egg; our ability to obtain regulatory approval or licenses where necessary for our treatments; risks associated with reliance on third parties, in particular our partner IVF clinics and the contract research organizations and academic partners that we plan to work with in our OvaTure development efforts; our ability to develop our treatments on the timelines we expect, if at all; our ability to commercialize our treatments on the timelines we expect, if at all, as well as other risks described under "Risk Factors" and elsewhere in this Annual Report on Form 10-K and other filings with the Securities and Exchange Commission, or SEC. As a result of these and other factors, we may not actually achievecannot assure you that the plans, intentions or expectations disclosedforward-looking statements in this Annual Report will prove to be accurate. Furthermore, if our forward-looking statements andprove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not place undue reliance onregard these statements as a representation or warranty by us or any other person that we will achieve our forward-looking statements. Ourobjectives and plans in any specified time frame, or at all. The forward-looking statements do not reflectin this Annual Report represent our views as of the potential impactdate of any future acquisitions, mergers, dispositions, joint ventures or investmentsthis Annual Report. We anticipate that subsequent events and developments may cause our views to change. However, while we may make. We do not assume anyelect to update these forward-looking statements at some point in the future, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Annual Report.
As used herein, the words “Tempest,” “we,” “us,” “our,” and "company" refer to Tempest Therapeutics, Inc. and its direct and indirect subsidiaries, as applicable.
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PART I
ITEM 1. BUSINESS
Overview
We are a clinical-stage biotechnology company moving into late-stage development with a diverse portfolio of novel targeted and immune-mediated product candidates with the potential to be first-in-class treatments for a wide range of cancers. The company’s programs range from early research to the lead program, TPST-1120, that is poised to begin a pivotal study in first-line liver cancer. Our philosophy is to build a company based upon not only good ideas and creative science, but also upon the efficient translation of those ideas into therapies that will improve patients’ lives. Each of our programs are designed to provide different and independent approaches to fighting cancer, providing a portfolio of truly diversified assets.
Our two clinical-stage therapeutic product candidates are TPST-1120 and TPST-1495, which we believe are the first clinical-stage molecules designed to inhibit their respective targets.
TPST-1120 is a company focused onselective antagonist of peroxisome proliferator-activated receptor alpha (“PPARα”). On October 11, 2023, we announced new and updated positive results from the discoveryplanned data analysis of the ongoing global randomized Phase 1b/2 trial of TPST-1120 combined with the standard-of-care first-line regimen of atezolizumab and development of new treatment options for women and families strugglingbevacizumab in patients with infertility. OvaScience is leveraging the breakthrough discovery of egg precursor,advanced or EggPC
In addition to the overall data, the new biomarker subpopulation findings are poor, however,consistent with the mechanism of action of TPST-1120: patients with b-catenin activating mutations (21% in this study or n=7) showed a confirmed ORR of 43% and a disease control rate (“DCR”) of 100% in the TPST-1120 arm; and distinct from the control arm, the TPST-1120 arm was consistently active across PD-L1 negative tumors with a confirmed ORR of 27% in the TPST-1120 arm, compared to a reduced ORR of 7% for the control arm.
These randomized data build upon clinical data from Phase 1 trials that were reported at a podium presentation at the American Society of Clinical Oncology (“ASCO”) annual meeting in June 2022. RECIST responses were also observed in this study at the two highest TPST-1120 doses, administered in combination with nivolumab, for an average live birth rate per cycleORR of 28 percentthose cohorts of 30% (3 of 10 patients), including in patients who previously progressed on anti-PD-1 (-L1) therapy. We believe the next step in TPST-1120 development is a pivotal Phase 3 trial in first-line HCC and are planning to meet with the FDA in 2024 in order to advance that goal. In addition, given the totality of the data, we are considering pursuing development of TPST-1120 for use in kidney cancer (“RCC”) and potentially other indications.
Our second clinical program, TPST-1495, a dual antagonist of the EP2 and EP4 receptors of prostaglandin E2, is in an ongoing Phase 1 combination trial in patients with endometrial cancer. Data from the TPST-1495 Phase 1 trial was presented at the ASCO annual meeting in June 2023. Additionally, we are planning to advance TPST-1495 in a new indication, Familial Adenomatous Polyposis (“FAP”), for which there are no approved therapies. Given that prostaglandin signaling is implicated in FAP and based on positive preclinical data in a CDC report. For womenrelevant mouse model, we believe there is strong mechanistic support for this approach. We are working with Diminished Ovarian Reserve, including those with Primary Ovarian Insufficiency (POI) or Poor Ovarian Reserve (POR), IVF is largely ineffective. In these women, the average live birth rate per cycle is only six percent. Market research suggests that many patients with POI or POR resort to a donor egg or adoption, with some giving up on having a child altogether (Fulcrum Research Group). Other women are unable or unwilling to undergo hormone stimulation, which is a required component of standard IVF treatment. The EggPC cell technology has the potential to offer new treatment options to these women.
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Beyond these clinical programs, we plan to continue to leverage our drug development and matured in vitro into healthy, fertilizable eggs. This potential treatment may be an option for all women undergoing IVF, which represents approximately 1.9 million women per year globally.
Our Pipeline
Our product development pipeline consists of the ovary usingfollowing orally-available therapies, which if approved by the U.S. Food and Drug Administration (the "FDA"), we believe will be first in class:
1. Timing is an antibody that binds specificallyestimate based on current projections and status of programs
2. Estimated for either year-end 2024 or the first quarter of 2025, subject to discussions with FDA.
3. Received initial approval from NCI; study start subject to final approval.
Strategy
Our team has come together to build an integrated company to deliver meaningful therapies to cancer patients by leveraging our collective capabilities and experience. We expect to build value for our stockholders with the following over-arching strategy:
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Clinical Programs
TPST-1120: PPARαTranscription Factor Antagonist
TPST-1120, a restorepotentially first-in-class oral small molecule antagonist of PPARα, has completed a woman’s egg production,Phase 1a/b trial, and is currently being studied in clinical development. With OvaPrime,an ongoing randomized Phase 1b/2 trial. The Phase 1a/b trial was a woman’s own EggPC cells are isolated frommulticenter, open-label, dose-escalation, that evaluated TPST-1120 as both a niche within her ovary where they are
Tumors evolve to promote their own survival by alternating energy sources, promoting angiogenesis and evading immune recognition. PPARα is a transcription factor that is activated through binding of long-chain fatty acid ligands, which in turn regulates the expression of genes that control glucose and lipid homeostasis, inflammation, proliferation, differentiation and cell death. Included among these regulated genes are those that enable fatty acid oxidation, or FAO, and β-oxidation metabolic pathways in cellular peroxisomes and in mitochondria. An FAO metabolic profile is associated with tumor proliferation, induction of angiogenesis and immune suppression. Published studies and internal Tempest analyses of over 9,000 primary ovarian insufficiency (POI)or metastatic tumor samples in the Human Cancer Genome public database reveal a metabolic gene expression profile characterized by increased PPARα, FAO genes and secondarily, assess changeslipogenesis associated with increased metastatic potential and reduced survival enrichment among multiple cancers, including HCC, CCA, breast carcinoma, colorectal adenocarcinoma, RCC, lung adenocarcinoma and prostate adenocarcinoma. TPST-1120 is designed to block the pathways that support tumor cell proliferation, angiogenesis and immune suppression, resulting in women’s hormone levels, follicular developmentreduced disease and occurrencepatient benefit.
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Summary of pregnancy.
We have conducted pre-clinical pharmacology studies along with pharmacokinetics, or PK, and toxicology studies with TPST-1120 to the EggPC cells, while the other ovary is exposed to the EggPC vehicle as a means to have each subject serve as her own control. Results betweensupport its ongoing evaluation for the treatment and control ovary are examined for relevant endpoints such as antral follicle counts.
Immune checkpoint blockade enhances anti-tumor immunity by restoring the activity of cytotoxic T (Teff) cells. Emerging experimental results suggest that inhibiting FAO with a PPARα antagonist may target resistance mechanisms to both anti-PD-L1/PD-1 and anti-VEGF therapies, supporting the combination of TPST-1120 with either or both therapies. We have conducted preclinical studies showing that while both TPST-1120 or anti-PD-1 monotherapy inhibited outgrowth of established flank MC38 tumors, the combination of these two agents resulted in synergistic anti-tumor activity. In addition, MC38 tumor-bearing mice cured by the combination therapy, unlike age-matched naïve control mice, were completely resistant to tumor growth when rechallenged with autologous MC38 tumor cells, demonstrating that TPST-1120 in combination with anti-PD-1 induced lasting tumor-specific immune memory. In addition, activating mutations in the Wnt/B-catenin pathway represent the most frequently dysregulated pathway in HCC. Such mutations render a tumor cell reintroduction, OvaPrime was generally safedependent upon FAO for its energy source, and well-tolerated. Amongin preclinical studies, Tempest has shown reduction and long-term durable cures in mice bearing Wnt/B-catenin activated HCC tumors treated with TPST-1120 and an immune checkpoint inhibitor. The promise of these pre-clinical results have been observed in the first 20 patients evaluable for safety six-months post-EggPC cell reintroduction, there were no treatment related serious adverse events (SAEs) and no adverse events (AEs) related to the EggPC cells. There were seven mild AEs, four of which were deemed unrelated to OvaPrime and three of which were related to the standard laparoscopic procedure used to reintroduce EggPC cells into the ovary. No patients discontinued treatment because of an AE. The mean duration of follow-up among these 20 patients was nine months.
Efficacy in Syngeneic β-Catenin-driven Hepatocellular Carcinoma Model
Tumor resistance to anti-angiogenic drugs is also associated with elevated lipogenesis and FAO, primarily through the vascular regression and hypoxic environment that this class of therapies engenders. In response, tumor cells can switch to FAO as a readoutmechanism of secondary endpoints byresistance against anti-angiogenic therapy. In a preclinical study, we confirmed that combination of TPST-1120 with tyrosine kinase inhibitor-, or TKI-, based anti-angiogenesis therapy confers potent anti-tumor activity.
The preclinical data for TPST-120 are consistent with the end of the third quarter of 2019. However, based on preliminary blinded data we do not expect this Phase 1 clinical trial to produce strong signals on any of our secondary endpoints. We believe this may be due to the delivery of a sub-optimal EggPC cell dose.
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the potential evaluation of developmental competence.
Overview of TPST-1120 Clinical Trials
We completed a Phase 1a/b study of TPST-1120 and a randomized Phase 1b/2 clinical study is ongoing. We have released positive data from both studies and expect updated data from the OvaTure Collaboration rather than underPhase 1b/2 clinical study in 2024. The Phase 1a/b trial evaluated both monotherapy and combination therapy with the OvaXon joint venture. We areanti-PD-1 agent nivolumab in discussionspatients with Intrexon regardingadvanced solid tumors that our PPARα-dependent transcriptome analysis of diverse human cancers revealed favor the futureusage of FAO. Results from both the monotherapy and the combination arms were presented in an oral presentation at the ASCO conference in 2022.
TPST-1120 demonstrated monotherapy clinical benefit in patients with late-line, treatment-refractory cancers where objective responses (RECIST v1.1) would not be expected, including pancreatic, CCA, and colorectal cancers ("CRC"). Results showed that 53% (10/19) of patients experienced clinical benefit in the form of disease control, including tumor shrinkage in 21% of the OvaXon joint venture.
In the combination therapy portion of the OvaTure Collaboration, effective 90 days following notice.trial, 15 evaluable patients with heavily pretreated RCC, HCC and CCA were treated with oral twice-daily TPST-1120 and the anti-PD-1 therapy, nivolumab. All the HCC and RCC patients had received an approved anti-PD-1 therapy in at least one prior line of therapy and discontinued that treatment due to disease progression. We believe thatobserved objective responses (RECIST v1.1) in two patients with late-line RCC who had previously progressed on anti-PD-1 therapy without having achieved an objective response (ORR 50%, n=2/4, in evaluable RCC patients), and we can best continueobserved mixed response in a third RCC IO-refractory patient with significant reduction (>30%) in the target lesion, but the appearance of new disease precluded designation as a RECIST PR. A third RECIST response was observed in a patient with late-line, heavily pre-treated CCA, a tumor type generally not responsive to anti-PD-1 therapy alone. All the RECIST responses were observed at the two highest doses.
Notably, one RCC patient who achieved a response after treatment with TPST-1120 and nivolumab had previously been treated with nivolumab in combination with ipilimumab without experiencing an objective response and progressed on treatment, followed by further progression of cancer on both cabozantinib and everolimus. The initial RECIST PR was seen at the first on-study assessment at eight weeks and included a response in all target lesions as well as complete radiographic resolution of multiple sites of metastatic disease (see CT scan below) and has been confirmed at subsequent assessments beyond 12 months.
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Partial Response in Late-Line RCC Patient Treated with TPST-1120
and Nivolumab Combination Therapy
Randomized Data in HCC
On October 11, 2023, we announced updated positive results from the planned data analysis from the ongoing global randomized Phase 1b/2 trial of TPST-1120, combined with the standard-of-care first-line regimen of atezolizumab and bevacizumab, in patients with advanced or metastatic HCC. The study is comparing the TPST-1120 arm to standard of care alone, and enrolled 40 patients randomized to the TPST-1120 arm and 30 patients randomized to the control arm. With a median follow-up of 9.2 and 9.9 months for the TPST-1120 arm and standard-of-care arm, respectively, the data showed a 30% confirmed ORR achieved in the TPST-1120 arm compared to 13.3% for atezolizumab and bevacizumab in the control arm, a substantial increase specific to the TPST-1120 arm as compared to the previously released interim data cut of 17.5% in the TPST-1120 arm versus 10.3% in the control arm. The results also showed a favorable progression free survival and OS hazard ratio for the TPST-1120 arm as compared to the standard-of-care control arm. In the TPST-1120 arm 40% of patients remained on treatment versus 16.7% in the control arm, while 72.5% of the TPST-1120 arm patients remained on study versus 46.7% in the control arm.
1. Data not provided by Roche
New biomarker subpopulation findings are consistent with the mechanism of action of TPST-1120. Patients with b-catenin activating mutations (21% in this study (n=7)) showed an increased confirmed ORR of 43% and a disease control rate (“DCR”) of 100% in the TPST-1120 arm. In addition, and distinct from the control arm, the TPST-1120 arm was consistently active across
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PD-L1 negative tumors with a confirmed ORR of 27% in the TPST-1120 arm, compared to a reduced ORR of 7% for the control arm. We expect updated data to be available in 2024.
Early in the development of OvaTureTPST-1120, given the expression profile and attributes of PPARα, we selected HCC, RCC and CAA as cancers of interest and checkpoint inhibitors and anti-angiogenic therapeutics as potential companion therapies with the goal
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to maximize the opportunity to bring meaningful benefit to patients with these cancers. Based on the pre-clinical and clinical data released to date, we believe that the emerging clinical benefit profile of TPST-1120 for patients shows alignment with these predictions, and we look forward to the potential benefit TPST-1120 could bring to patients with these cancers.
We own worldwide rights to TPST-1120, and have filed and been issued patents, including composition of matter, pharmaceutical compositions, and related methods of use, which are expected to expire between December 2033 and November 2043, without giving effect to any patent term extensions.
TPST-1495: Dual EP2/EP4 Prostaglandin Receptor Antagonist
Our second clinical molecule is TPST-1495, a potentially first-in-class, oral, small molecule dual antagonist of the prostaglandin E2, or PGE2, receptors, EP2 and EP4. TPST-1495 is engineered to inhibit only these receptors while sparing the homologous - but differentially active - EP1 and EP3 receptors.
There is extensive literature demonstrating that PGE2 both enhances tumor proliferation and inhibits anti-cancer immune function; it is known from the scientific literature that many tumors express elevated levels of the cyclooxygenase enzymes that produce PGE2. Elevated expression of COX-2 and overproduction of PGE2 is correlated with progression of diverse malignancies by building out our internal capabilitiesstimulating tumor cell proliferation, survival, evasion and expertise undermetastasis as well as host angiogenesis. In addition, PGE2 suppresses anti-tumor immunity by inhibiting the leadershipfunction of Dr. James Lillie, our Chief Scientific Officer,critical anti-tumor immune effector cell populations such as dendritic cells, natural killer ("NK cells"), T cells, and engagingM1 macrophages, while promoting the activity of suppressive immune cell populations including myeloid-derived suppressor cells ("MDSCs"), M2 macrophages, and regulatory T cells. Recent studies have also shown that increased expression of COX-2 and production of PGE2 can play a role in the effectiveness of immune checkpoint inhibitor therapy and in the development of adaptive resistance to therapy. This body of literature provides the scientific rationale for developing therapeutics that maximally inhibit the prostaglandin pathway, as well as for combining TPST-1495 with immune checkpoint inhibitor monoclonal antibodies.
We conducted preclinical studies to evaluate TPST-1495, including its ability to reverse PGE2-mediated suppression of primary human monocyte to dendritic cell differentiation and activation in vitro, as well as comparisons to other agents designed to operate in the same pathway such as a single EP4 antagonist and, as described, COX2.
We have also conducted preclinical studies to evaluate TPST-1495 in a spontaneous APCMin/+ mouse model of FAP that demonstrated a significant survival advantage in comparison to other inhibitors in the prostaglandin pathway.
Source: Francica et al., Cancer Res Commun; 3(8) August 2023 https://doi.org/10.1158/2767-9764.CRC-23-0249
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Overview of Ongoing TPST-1495 Clinical Trials
TPST-1495 was evaluated in a first-in-human, Phase 1, multicenter, open-label, schedule and dose optimization trial in subjects with late-stage solid tumor cancers that are deemed incurable. Study objectives include evaluation of safety, tolerability, PK, PD, and preliminary anti-tumor activity of TPST-1495 as monotherapy and in combination with the checkpoint inhibitor, pembrolizumab. TPST-1495 has been evaluated on a once daily (“QD”) or twice daily (“BID”) schedule and with continuous or intermittent administration as monotherapy and in combination with pembrolizumab. Results from the Phase 1 study were presented at ASCO 2023. The data showed that in a diverse and treatment-refractory patient population, treatment with TPST-1495 as a monotherapy and in combination with pembrolizumab resulted in tumor shrinkage and prolonged stable disease in certain patients, as well as a durable confirmed partial response (“PR”) in a combination therapy patient with microsatellite stable colorectal cancer (“MSS CRC”), an indication not normally responsive to immunotherapy. The safety profile for TPST-1495 monotherapy on the recommended once-daily schedule was tolerable, with predominantly Grade 1-2 treatment related adverse events (“TRAEs”), including abdominal pain (17.9% All Grade and 0% Grade 3+), nausea (20.5% All Grade and 0% Grade 3+), and diarrhea (15.4% All Grade and 2.6% Grade 3+). For the combination with pembrolizumab, the most common TRAEs were nausea (29.2% All Grade and 0% Grade 3+), fatigue (20.8% All Grade and 4.2% Grade 3+) and diarrhea (20.8% All Grade, 0% Grade 3+). No TRAEs of Grade ≥4 were reported. On the recommended once-daily schedule, the DCR by RECIST v1.1 was 44% for patients on monotherapy TPST-1495 and 40.9% for patients on TPST-1495 with pembrolizumab (including a confirmed PR in a patient with MSS CRC and a stable disease rate of 36.4%). An ongoing combination arm in patients with endometrial cancer is expected to complete and data will be reported in 2024.
Our preclinical results in the APCMin/+ lead us to consider the application of TPST-1495 in familial adenomatous polyposis syndrome (“FAP”). FAP is a hereditary condition characterized by the development of numerous polyps in the colon and rectum. These polyps have the potential to become cancerous if left untreated. FAP is caused by mutations in the APC gene, which normally helps regulate cell growth and division in the intestinal lining. Individuals with FAP have a significantly increased risk of developing colorectal cancer at a young age, often before the age of 40. Additionally, FAP can lead to the development of polyps in other parts of the gastrointestinal tract, as well as other non-gastrointestinal tumors. Management of FAP typically involves regular surveillance with colonoscopies and surgical intervention to remove the polyps and reduce the risk of cancer. Currently, there are no systemic therapies approved to treat FAP. We are working with the Cancer Prevention Clinical Trials Network on a National Cancer Institute (“NCI”)-funded Phase 2 study, and subject to final approval of NCI, plan to start the study in 2024.
We own worldwide rights to TPST-1495, and have filed and been issued patents, including composition of matter and pharmaceutical compositions, which are expected to expire between April 2038 and October 2042, without giving effect to any patent term extensions.
Discovery Research
Our Discovery Research team is dedicated to identifying and validating novel therapeutic targets in oncology. We are not bound to a single technology platform, which allows us the scientific freedom to pursue targets and modalities that we believe have the highest probability to benefit patients. Rigorous medicinal chemistry and a broad set of preclinical validation studies are conducted to further evaluate lead compounds and inform decision-making for advancement into clinical development. Collaboration with academic institutions, contract research organizations that have specific, complementary capabilities(“CROs”), and strategic partners provides opportunity to enrich our own,pipeline, as well, asenhancing our academic collaborators.
License Agreements
In February 2018,2021, we provided Intrexon with written notice of termination of the OvaTure Collaboration, effective 90 days following notice. The OvaTure Collaboration provided for Intrexon to deliver laboratory and animal data to support OvaTure development, and provided that upon the delivery of laboratory and animal data, we would incur an obligation to pay Intrexon a mid-single digit royalty on net sales of any OvaTure fertility treatment in the future, and the exact royalty will depend upon the timing of the completion of the milestone. The royalty will apply if Intrexon intellectual property is utilized in the continued development of OvaTure.
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trial, and we retain global development and commercialization rights to TPST-1120. Pursuant to the agreement, Roche provides us with notice of the amount of TPST-1120 required and the delivery timeline, and we supply the TPST-1120. All rights to invention and discoveries relating solely to TPST-1120 or biomarkers solely related to TPST-1120 made during any study will be our technologyexclusive property. All data generated in the field utilizing Intrexon's synthetic biology platform.
The agreement applies on a study-by-study basis until the futurelast treatment of the OvaXon joint venture.
Sales and Marketing
We recordedintend to retain significant development and commercial rights to our initial investment in OvaXon as an equity method investment in December 2013. As of December 31, 2017product candidates and, 2016,if marketing approval is obtained, to commercialize our equity investment in OvaXon was $0.1 million and included within other current assetsproduct candidates on our consolidated balance sheets. We and Intrexon both made additional contributions of $1.1 million and $1.8 million for the years ending December 31, 2017 and 2016, respectively.
Manufacturing
We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinical and clinical testing, as well as for commercial manufacture if any of our product candidates obtain marketing approval. We also rely, and expect to continue to rely, on third parties to package, label, store and distribute our investigational product candidates, as well as for our commercial products if marketing approval is obtained. We have internal personnel and utilize consultants with extensive technical, manufacturing, analytical and quality experience to oversee contract manufacturing and testing activities. We will continue to workexpand and strengthen our network of third-party providers but may also consider investing in internal manufacturing capabilities in the future if there is a technical need, or a strategic or financial benefit.
Manufacturing is subject to extensive regulations that impose procedural and documentation requirements. At a minimum these regulations govern record keeping, manufacturing processes and controls, personnel, quality control and quality assurance. Our systems, procedures and contractors are required to comply with these regulations and are assessed through regular monitoring and formal audits.
Competition
The biopharmaceutical and immuno-oncology industries are characterized by intense competition and rapid innovation. Any product candidates that we successfully develop and commercialize will have to compete with existing and future new therapies. While we believe that our technology, development experience and scientific knowledge provide us with competitive advantages, we face potential competition from many different sources, including large and specialty pharmaceutical and biotechnology companies, academic research institutions, government agencies and public and private research institutions that conduct research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing and commercialization.
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If our TPST-1120, TPST-1495, or any future product candidates are approved for the FDA under its available procedurestreatment of tumors, they may compete with other products used to determinetreat such diseases. There are a variety of treatments used for cancerous tumors that include chemotherapy drugs, small molecules, monoclonal antibodies, antibody-drug conjugates, bi-specific antibodies, cell therapies, oncolytic viruses and vaccines, as well as other approaches. In addition, there are several competitors in clinical development for the most appropriate regulatory pathway for potential entry intotreatment of HCC, RCC, cholangiocarcinoma, and other indications that we may be targeting with TPST-1120 and TPST-1495, including companies such as Ono, Adlai Nortye, Merck, Roche, Exelixis, and AstraZeneca.
TPST-1120, our small molecule designed to be a selective antagonist of PPARα, is the U.S. market.
Many of our competitors, either alone or (ii)with strategic partners, have substantially greater financial, technical and human resources than we do. Accordingly, our competitors may be more successful than us in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining approval for treatments and achieving widespread market acceptance, rendering our treatments obsolete or non-competitive. Merger and acquisition activity in the eventbiotechnology and biopharmaceutical industries may result in even more resources being concentrated among a smaller number of a material breach that is not cured within 30 days. During the Initial Term, IVF Japan Group will payour competitors. These companies also compete with us a fixed amount of $1,000 per AUGMENT cyclein recruiting and will reimburse usretaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for all lab operationsclinical trials and personnel costs, which we anticipateacquiring technologies complementary to, or necessary for, our programs. Smaller or early-stage companies may also prove to be approximately $0.2 million forsignificant competitors, particularly through collaborative arrangements with large and established companies.
Our commercial opportunity could be substantially limited if our competitors develop and commercialize products that are more effective, safer, less toxic, more convenient or less expensive than our comparable products. In geographies that are critical to our commercial success, competitors may also obtain regulatory approvals before us, resulting in our competitors building a strong market position in advance of the Initial Term,entry of our products. The key competitive factors affecting the success of all our programs are likely to be their efficacy, safety, convenience and are payableavailability of reimbursement. In addition, our ability to compete may be affected in nonrefundable quarterly installments on the first day of each quarter. The IVF Japan Group is also responsible to reimburse us for the cost of materials for AUGMENT for all cycles in excess of 100 which are estimated at $2,000 per cycle. We will retain the worldwide commercialization rights for AUGMENT outside of Japan.
Intellectual Property
We strive to use AUGMENTprotect and enhance the proprietary technology, inventions and improvements that are commercially important to our business, including obtaining, maintaining, and defending our patent rights. Our policy is to seek to protect our proprietary position by, among other methods, filing patent applications and obtaining issued patents in Japan was made by the Japan Society of Obstetrics and Gynecology (JSOG). In some other countries, there
As of February 20, 2018, we own or have exclusively licensed 65December 31, 2023, our patent portfolio consisted of issued patents in 44 countries and jurisdictions and have more than 170 applications pending in more than 130 countries (including applications directly filed in countries and applications filed in regional patent offices); communications indicating allowance have been received for three of these applications.
With respect to TPST-1120, as of December 31, 2023, we own issued patents and pending patent applications pending with patent officesin the United States, Europe, China, Japan, and other markets outside of the U.S. whichUnited States as well as one pending PCT application. The issued
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United States patents covering TPST-1120 as composition of matter, pharmaceutical compositions, and related methods of use are owned by MGH, twoexpected to expire in December 2033, absent any patent term extensions for regulatory delay. Any additional patents that may issue from these pending patent applications are expected to expire between December 2033 and November 2043, absent any patent term adjustments or patent term extensions for regulatory delay.
With respect to TPST-1495, as of December 31, 2023, we own issued patents including one U.S.and pending patent co-owned by MGHapplications in the United States, Europe, China, Japan, and The President and Fellows of Harvard College, or Harvard, one pending U.S. non-provisional application co-owned by MGH and Harvard, and seventeen applications pending in patent officesother markets outside of the U.S. whichUnited States as well as one pending PCT application. The issued United State patents covering TPST-1495 as composition of matter, pharmaceutical composition, and related methods of use are co-ownedexpected to expire between April 2038 and April 2039, absent any patent term extensions for regulatory delay. Any additional patents that may issue from these pending patent applications are expected to expire between April 2038 and November 2043, absent any patent term adjustments or patent term extensions for regulatory delay.
As of December 31, 2023, our patent portfolio also included pending patent applications in the United States and Europe that are exclusively licensed to us by MGHthe University of California at Berkeley. The licensed patent applications do not cover any of our current product candidates.
We also possess substantial know-how and Harvard.
With respect to our product candidates and processes that we have licensed from MGH is directedintend to female germline stem cells, includingdevelop and commercialize in the normal course of business, we intend to pursue patent protection covering, when possible, compositions, methods of isolating such female germline stem cellsuse, dosing, and various usesformulations. We may also pursue patent protection with respect to manufacturing and drug development processes and technologies.
Issued patents can provide protection for such female germline stem cells, including methods for IVF, methods for egg production, methods to treat infertilityvarying periods of time, depending upon the date of filing of the patent application, the date of patent issuance and methods to restore ovarian function. This family includes issuedthe legal term of patents in the U.S., Canada and 30 European countries allin which they are obtained. In general, patents issued for patent applications filed in the United States can provide exclusionary rights for 20 years from the earliest effective filing date. The term of which will expireUnited States patents may be extended by delays encountered during prosecution that are caused by the USPTO, also known as patent term adjustment. In addition, in May 2025. We believecertain instances, the term of an issued United States patent that somecovers or claims an FDA approved product can be extended to recapture a portion of the term effectively lost as a result of the FDA regulatory review period, which is called patent term extension. The restoration period cannot be longer than five years and the total patent term, including the restoration period, must not exceed 14 years following FDA approval. The term of patents outside of this family providethe United States varies in accordance with the laws of the foreign jurisdiction, but typically is also 20 years from the earliest effective filing date. However, the actual protection for therapeutic compositions comprising EggPC cells, whichafforded by a patent varies on a product-by-product basis, from country-to-country and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent.
The patent positions of companies like ours are referred togenerally uncertain and involve complex legal and factual questions. No consistent policy regarding the scope of claims allowable in patents in the patents as female germline stem cells,field of oncology has emerged in the United States. The relevant patent laws and that sometheir interpretation outside of the United States are also uncertain. Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our technology or product candidates and could affect the value of such intellectual property. In particular, our ability to stop third parties from making, using, selling, offering to sell, or importing products that infringe our intellectual property will depend in part on our success in obtaining and enforcing patent claims that cover our technology, inventions, and improvements. We cannot guarantee that patents will be granted with respect to any of this family provide protection for elements of the manufacturing process for obtaining such therapeutic compositions.
Moreover, even its issued patents and any additional patents claiming prioritymay not guarantee us the right to practice our technology in relation to the underlying provisional applications, will expire in April 2032 unless patent term extension is granted. We believe that these patents,commercialization of its products. Patent and any patents issuing from this family, provide protection for AUGMENT and several important aspects thereof.
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commercializing our product candidates and know-how. Trade secrets and know-how can be difficult to protect. We seek to protectpracticing our proprietary technology, and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measuresissued patents may be breached andchallenged, invalidated, or circumvented, which could limit our ability to stop competitors from marketing related products or could limit the term of patent protection that otherwise may exist for its product candidates. In addition, the scope of the rights granted under any issued patents may not provide us with protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies that are outside the scope of the rights granted under any issued patents. For these reasons, we may not have adequate remedies for any breach. In addition, our trade secrets and know-how may otherwise become known or may be independently discovered by competitors. To the extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
Government Regulation
Government authorities in the need for hormonal hyperstimulation for egg retrieval. We anticipate that price also will be an important competitive factor for all our fertility treatment options. At this time, we cannot evaluate how our
FDA Approval Process
In the United States, pharmaceutical products are subject to extensive regulation by the FDA, the Federal Food, Drug, and Cosmetic Act (“FFDCA”), 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 drugs, biologicspharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as clinical hold, FDA refusal to approve pending a New Drug Applications ("NDA") warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and medical devices, as well as other types of medical productscriminal prosecution.
Our investigational medicines and procedures. Most countries also have rules relatingany future investigational medicines must be approved by the FDA pursuant to procurement and use of human tissues or cells, and rules relating to assisted human reproduction. Although the specific rules vary country by country, in general different levels of regulation are applicable depending on the nature of the treatment, the level of risk involved, and/or its intended uses. Some classes of products (e.g., treatments regulated as drugs or biologicsan NDA before they may be legally marketed in the United States, or treatments regulated as medicinal products inStates. The process generally involves the EU) requirefollowing:
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The preclinical and clinical testing and approval requirements. In these jurisdictions,process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely basis, or at all.
Preclinical Studies
Before testing any drug product candidates in humans, the developmentproduct candidate must undergo rigorous preclinical testing. Preclinical tests include laboratory evaluation of product chemistry, formulation and marketing of such therapies generally do not requiretoxicity, as well as in vitro and animal studies to assess the potential for adverse events and in some cases to establish a rationale for therapeutic use. The conduct of the preclinical tests must comply with federal regulations and requirements, including GLP. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical trialsdata or pre-reviewliterature and approval of a marketing application by the relevant regulatory authority. In addition, although many such therapies are still subject to post-marketing requirements, these requirements typically are substantially reduced as comparedplans for clinical studies, among other things, to the requirementsFDA as part of an IND. An IND is a request for drugs, biologics, medicinal products or medical devices.
Clinical Trials
Clinical trials involve the administration of the United States. We metinvestigational new drug to healthy volunteers or patients under the supervision of a qualified investigator, generally a physician not employed by or under the trial sponsor’s control. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with GCP, an international standard meant to protect the FDArights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors; as well as (iii) under protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated in the second quarter of 2017 regarding AUGMENT,trial. Each protocol involving testing on U.S. patients and will continue to work with the FDA under its available procedures to determine the most appropriate regulatory pathway for potential entry into the U.S. market. We cannot provide any assurance, however, that the FDA will ultimately change the position taken in the "untitled" letter. In March 2018, Health Canada informed us that performing AUGMENT violates Canada's Assisted Human Reproduction Act, and requested that we cease offering AUGMENT in Canada. Accordingly, we are no longer making AUGMENT available in Canada while we consider next steps.
Furthermore, each EU member state inclinical trial must be reviewed and approved by an IRB for each institution at which the clinical trial will be conducted. Underconducted to ensure that the new Regulation on Clinical Trials, which is expectedrisks to take effectindividuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or after October 2018, there will be a centralized application procedure where one
There also are requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Information about certain clinical trials, including clinical trial results, must be notifiedsubmitted within specific timeframes for publication on the www.clinicaltrials.gov website. Information related to the product, patient population, phase of investigation, clinical trial sites and investigators and other aspects of the clinical trial is then made public as part of the registration. Disclosure of the results of these clinical trials can be delayed in certain circumstances for up to two years after the date of completion of the trial.
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A sponsor who wishes to conduct a clinical trial outside of the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to the FDA in support of an NDA. The FDA will accept a well-designed and well-conducted foreign clinical trial not conducted under an IND if the clinical trial was conducted in accordance with GCP requirements, and the FDA is able to validate the data through an onsite inspection if deemed necessary.
Clinical trials are generally conducted in three sequential phases, known as Phase 1, Phase 2 and Phase 3:
These Phases may overlap or be combined. For example, a Phase 1/2 clinical trial may contain both a dose-escalation stage and a dose expansion stage, the latter of which may confirm tolerability at the recommended dose for expansion in future clinical trials (as in traditional Phase 1 clinical trials) and provide insight into the anti-tumor effects of the investigational therapy in selected subpopulation(s).
Typically, during the development of oncology therapies, all subjects enrolled in Phase 1 clinical trials are disease-affected patients and, as a medicinal product EMA,result, considerably more information on clinical activity may be collected during such trials than during Phase 1 clinical trials for non-oncology therapies. A single Phase 3 or Phase 2 trial with other confirmatory evidence may be sufficient in rare instances to provide substantial evidence of effectiveness (generally subject to the requirement of additional post-approval studies). The manufacturer of an investigational drug in a phase 2 or 3 clinical trial for a serious or life-threatening disease is required to make available, such as by posting on its website, its policy on evaluating and national medicines regulatorsresponding to requests for expanded access.
Phase 1, Phase 2, Phase 3 and other types of clinical trials may not be completed successfully within any specified period, if at all. The FDA, the EU provideIRB, or the opportunity for dialogue and guidancesponsor may suspend or terminate a clinical trial at any time on various grounds, including non-compliance with regulatory requirements or a finding that the development program. Atpatients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the EMA level, thisclinical trial is usually donenot being conducted in accordance with the formIRB’s requirements or if the drug has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen by an independent group of scientific advice, which is givenqualified experts organized by the Scientific Advice Working Partyclinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether a trial may move forward at designated checkpoints based on access to certain data from the trial.
Concurrent with clinical trials, companies usually complete additional animal studies and must develop additional information about the chemistry and physical characteristics of the Committeedrug as well as finalize a process for Medicinal Products for Human Use, or CHMP. A fee is incurredmanufacturing the product in commercial quantities in accordance with each scientific advice procedure. Advice from the EMA is typically provided based on questions concerning, for example,cGMP requirements. The manufacturing process must be capable of consistently producing quality (chemistry, manufacturing and controls testing), nonclinical testing and clinical studies, and pharmacovigilance plans and risk-management programs. Advice is not legally binding with regard to any future marketing authorization applicationbatches of the product concerned. To date, we haveand, among other things, companies must develop methods for testing the identity, strength, quality, potency and purity of the final product. Additionally, appropriate packaging must be selected and tested, and
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stability studies must be conducted to demonstrate that the investigational medicines do not initiated any scientific advice procedures or other discussions with the EMA or any national regulatory authorities in the EU.
FDA Review Process
After completion of the required clinical testing, we must obtain aan NDA is prepared and submitted to the FDA. FDA approval of an NDA is required before marketing authorization before weof the product may place a medicinal product on the marketbegin in the EU. ThereU.S. An NDA must include the results of all preclinical, clinical and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture and controls. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the investigational product to the satisfaction of the FDA. FDA approval of an NDA must be obtained before a drug may be marketed in the United States. The cost of preparing and submitting an NDA is substantial. Under the Prescription Drug User Fee Act (“PDUFA”), each NDA must be accompanied by a substantial user fee. The FDA adjusts the PDUFA user fees on an annual basis. Fee waivers or reductions are variousavailable in certain circumstances, including a waiver of the application procedures available,fee for the first application filed by a small business. Additionally, no user fees are assessed on NDAs for products designated as orphan drugs, unless the product also includes a non-orphan indication. The applicant under an approved NDA is also subject to an annual program fee.
The FDA reviews each submitted NDA before it determines whether to file it and may request additional information. The FDA must make a decision on whether to file an NDA within 60 days of receipt, and such decision could include a refusal to file by the FDA. Once the submission is filed, the FDA begins an in-depth review of an NDA. The FDA has agreed to certain performance goals in the review of an NDA. Most applications for standard review drug products are reviewed within ten to twelve months; most applications for priority review drugs are reviewed in six to eight months. Priority review can be applied to drugs that the FDA determines may offer significant improvement in safety or effectiveness compared to marketed products or where no adequate therapy exists. The review process for both standard and priority review may be extended by the FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission. The FDA does not always meet its goal dates for standard and priority timeframes for an NDA, and the review process can be extended by FDA requests for additional information or clarification.
The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an outside advisory committee—typically a panel that includes clinicians and other experts—for review, evaluation and a recommendation as to whether the application should be approved and under what conditions, if any. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations.
Before approving an NDA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether they comply with cGMP requirements. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. The FDA also typically inspects clinical trial sites to ensure compliance with GCP requirements and the integrity of the data supporting safety and efficacy.
After the FDA evaluates an NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter ("CRL"), generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application, such as additional clinical data, additional pivotal clinical trial(s), and/or other significant and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. If a CRL is issued, the applicant may resubmit an NDA addressing all of the deficiencies identified in the letter, withdraw the application, engage in formal dispute resolution or request an opportunity for a hearing. The FDA has committed to reviewing resubmissions in two or six months depending on the type of information included. Even if such data and information are submitted, the FDA may decide that an NDA does not satisfy the criteria for approval.
As a potential condition of an NDA approval, the FDA may require a REMS to help ensure that the benefits of the drug outweigh the potential risks to patients. A REMS can include medication guides, communication plans for healthcare professionals and elements to assure a product’s safe use ("ETASU"). An ETASU can include, but is not limited to, special training or certification
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for prescribing or dispensing the product, involved. Alldispensing the product only under certain circumstances, special monitoring and the use of patient-specific registries. The requirement for a REMS can materially affect the potential market and profitability of the product. Moreover, the FDA may require substantial post-approval testing and surveillance to monitor the product’s safety or efficacy.
Changes to some of the conditions established in an approved application, proceduresincluding changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of an applicationNDA supplement or, in some case, a new NDA, before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the common technical document,original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or CTD, format,condition, which includes the submission of detailed information about the manufacturing and quality of the product, and non-clinical and clinical trial information. There is an increasing trendgenerally a disease or condition that affects fewer than 200,000 individuals in the EU towards greater transparency and, while the manufacturing or quality information is currently generally protected as confidential information, the EMA and national regulatory authorities are now liable to disclose much of the non-clinical and clinical information in marketing authorization dossiers, including the full clinical trial reports, in response to freedom of information requests after the marketing authorization has been granted. Clinical trial reports will also be posted on the EMA's website following the grant, denial or withdrawal of a marketing authorization application, subject to procedures for limited redactions and protection against unfair commercial use.
Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
If a product that has orphan designation subsequently receivedreceives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to a seven-year exclusive marketing period in the U.S. for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity by means of greater effectiveness, greater safety, or providing a major contribution to patient care, or in instances of drug supply issues. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. Other benefits of orphan drug designation include tax credits for certain research and an exemption from the NDA user fee.
Expedited Development and Review Programs
The FDA is authorized to designate certain products for expedited review if they are intended to address an "untitled" letter questioningunmet medical need in the statustreatment of AUGMENTa serious or life-threatening disease or condition.
Fast Track Designation
Fast track designation may be granted for products that are intended to treat a serious or life-threatening disease or condition for which there is no effective treatment and preclinical or clinical data demonstrate the potential to address unmet medical needs for the condition. Fast track designation applies to both the product and the specific indication for which it is being studied. The sponsor of an investigational drug product may request that the FDA designate the drug candidate for a specific indication as a section 361 HCT/P,fast track drug concurrent with, or after, the submission of the IND for the drug candidate. The FDA must determine if the drug candidate qualifies for fast track designation within 60 days of receipt of the sponsor’s request. For fast track products, sponsors may have greater interactions with the FDA and advising usthe FDA may initiate review of sections of a fast track product’s NDA before the application is complete. This rolling review is available if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a fast track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees. At the time of an NDA filing, the FDA will determine whether to filegrant priority review designation. Additionally, fast track designation may be withdrawn if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
Breakthrough Therapy Designation
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Breakthrough therapy designation may be granted for products that are intended, alone or in combination with one or more other products, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over currently approved therapies on one or more clinically significant endpoints. Under the breakthrough therapy program, the sponsor of a new drug candidate may request that the FDA designate the candidate for a specific indication as a breakthrough therapy concurrent with, or after, the submission of an IND for the potential fertility treatment, following which we suspended our commercialization effortsdrug candidate. The FDA must determine if the drug product qualifies for breakthrough therapy designation within 60 days of receipt of the sponsor’s request. The FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the development process, providing timely advice to the product sponsor regarding development and approval, involving more senior staff in the United States. We believereview process, assigning a cross-disciplinary project lead for the review team and taking other steps to design the clinical studies in an efficient manner.
Priority Review
Priority review may be granted for products that AUGMENTare intended to treat a serious or life-threatening condition and, if approved, would provide a significant improvement in safety and effectiveness compared to available therapies. The FDA will attempt to direct additional resources to the evaluation of an application designated for priority review in an effort to facilitate the review.
Accelerated Approval
Accelerated approval may be granted for products that are intended to treat a serious or life-threatening condition and that generally provide a meaningful therapeutic advantage to patients over existing treatments. A product eligible for accelerated approval may be approved on the basis of either 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 prevalence of the condition and the availability or lack of alternative treatments. In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels, functions or survives. The accelerated approval pathway is most often used in settings in which the course of a disease is long, and an extended period of time is required to measure the intended clinical benefit of a product, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. Thus, accelerated approval has been used extensively in the development and approval of products for treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large studies to demonstrate a clinical or survival benefit. The accelerated approval pathway is contingent on a sponsor’s agreement to conduct additional post-approval confirmatory studies to verify and describe the product’s clinical benefit. These confirmatory trials must be completed with due diligence and, in some cases, the FDA may require that the trial be designed, initiated and/or fully enrolled prior to approval. Failure to conduct required post-approval studies, or to confirm a clinical benefit during post-marketing studies, would allow the FDA to withdraw the product from the market on an expedited basis. All promotional materials for product candidates approved under accelerated regulations are subject to prior review by the FDA.
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 the time period for FDA review or approval may not be shortened. Furthermore, 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.
Pediatric Information
Under the Pediatric Research Equity Act ("PREA"), an NDA or supplements to an NDA must contain data to assess the safety and effectiveness of the drug 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, with certain exceptions.
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The Best Pharmaceuticals for Children Act ("BPCA"), provides NDA holders a six-month extension of any exclusivity—patent or nonpatent—for a drug if certain conditions are met. Conditions for exclusivity include the FDA’s determination that information relating to the use of a new drug in the pediatric population may produce health benefits in that population, the FDA making a written request for pediatric studies, and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all of the benefits that designation confers.
Post-Approval Requirements
Once an NDA 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, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. Drugs may be marketed only for the approved indications and in a manner consistent with the approved labeling.
Adverse event reporting and submission of periodic reports are required following FDA approval of an NDA. 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 meetrestrict the criteriadistribution or use of the product. In addition, quality control, drug manufacture, packaging and labeling procedures must continue to conform to cGMP after approval. Drug 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 cGMP. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality-control to maintain compliance with cGMP. 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.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information, imposition of post-market studies or clinical studies to assess new safety risks or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:
The Hatch-Waxman Act Orange Book Listing
Under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch Waxman Amendments, NDA applicants are required to identify to the FDA each patent whose claims cover the applicant’s drug or approved method of using the drug. Upon approval of a drug, the applicant must update its listing of patents to the NDA in timely fashion and each of the patents listed in the application for regulationthe drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book.
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Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application ("ANDA"). An ANDA provides for marketing of a drug product that has the same active ingredient(s), strength, route of administration, and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. An approved ANDA product is considered to be therapeutically equivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, pre-clinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved under the ANDA pathway are commonly referred to as “generic equivalents” to the listed drug and can often be substituted by pharmacists under prescriptions written for the original listed drug pursuant to each state’s laws on drug substitution.
The ANDA applicant is required to certify to the FDA concerning any patents identified for the reference listed drug in the Orange Book. Specifically, the applicant must certify to each patent in one of the following ways: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. A certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. For patents listed that claim an approved method of use, under certain circumstances the ANDA applicant may also elect to submit a section 361 HCT/P, butviii statement certifying that its proposed ANDA label does not contain (or carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. If the applicant does not challenge the listed patents through a Paragraph IV certification, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA-holder and patentee(s) once the ANDA has been accepted for filing by the FDA (referred to as the “notice letter”). The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice letter. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months from the date the notice letter is received, expiration of the patent, the date of a settlement order or consent decree signed and entered by the court stating that the patent that is the subject of the certification is invalid or not infringed, or a decision in the patent case that is favorable to the ANDA applicant.
The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired. In some instances, an ANDA applicant may receive approval prior to expiration of certain non-patent exclusivity if the applicant seeks, and the FDA permits, the omission of such exclusivity-protected information from the ANDA prescribing information.
Exclusivity
Upon an NDA approval of a new chemical entity ("NCE"), which is a drug that contains no active moiety that has been approved by the FDA in any other NDA, that drug receives five years of marketing exclusivity during which the FDA cannot receive any ANDA seeking approval of a generic version of that drug unless the application contains a Paragraph IV certification, in which case the application may be submitted one year prior to expiration of the NCE exclusivity. If there is no guaranteelisted patent in the Orange Book, there may not be a Paragraph IV certification, and, thus, no ANDA for a generic version of the drug may be filed before the expiration of the exclusivity period.
Certain changes to an approved drug, such as the approval of a new indication, the approval of a new strength, and the approval of a new condition of use, are associated with a three-year period of exclusivity from the date of approval during which the FDA cannot approve an ANDA for a generic drug that includes the change. In some instances, an ANDA applicant may receive approval prior to expiration of the three-year exclusivity if the applicant seeks, and the FDA would agreepermits, the omission of such exclusivity-protected information from the ANDA package insert.
Patent Term Extension
The Hatch Waxman Amendments permit a patent term extension as compensation for patent term lost during the FDA regulatory review process. Patent term extension, however, cannot extend the remaining term of a patent beyond a total of 14 years from the
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product’s approval date. After an NDA approval, owners of relevant drug patents may apply for the extension. The allowable patent term extension is calculated as half of the drug’s testing phase (the time between an IND application and an NDA submission) and all of the review phase (the time between an NDA submission and approval) up to a maximum of five years. The time can be reduced for any time the FDA determines that the applicant did not pursue approval with our classification of AUGMENT or any of our potential fertility treatments. We metdue diligence.
The United States Patent and Trademark Office ("USPTO"), in consultation with the FDA, inreviews and approves the second quarterapplication for any patent term extension or restoration. However, the USPTO may not grant an extension because of, 2017 regarding AUGMENT,for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than requested.
The total patent term after the extension may not exceed 14 years, and will continueonly one patent can be extended. The application for the extension must be submitted prior to work with the FDA under its available procedures to determine the most appropriate regulatory pathway for potential entry into the U.S. market.
Coverage, Pricing, and local authorities in addition to the FDA or EMA. Reimbursement
In the United States this likely includesand in foreign markets, sales of pharmaceutical products depend, in part, on the extent to which third-party payors provide coverage and establish adequate reimbursement levels for such products. In the United States, third-party payors include federal and state healthcare programs, private managed care providers, health insurers and other organizations. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid in the United States, and commercial payors are critical to new product acceptance.
There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved products. In the United States, for example, principal decisions about reimbursement for new products are typically made by the Centers for Medicare and& Medicaid Services, ("CMS"), other divisions ofor CMS, an agency within the U.S. Department of Health and Human Services such as the Office of Inspector General,(“HHS”). CMS decides whether and the U.S. Department of Justiceto what extent a new product will be covered and individual U.S. Attorney offices within the Department of Justice, as well as statereimbursed under Medicare, and local governments,private third-party payors often follow CMS’s decisions regarding coverage and ex-US equivalents. Our operations in the relevant jurisdictions must comply with all of these applicable requirements or we may be unablereimbursement to conduct our business or may face civil or criminal sanctions.
Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Further, such third party payors are increasingly challenging the price, and examining the medical necessity and cost-effectiveness,reviewing the cost effectiveness of medical product candidates. There may be especially significant delays in obtaining coverage and reimbursement for newly approved drugs. Third-party payors may limit coverage to specific product candidates on an approved list, known as a formulary, which might not include all FDA-approved drugs for a particular indication.
Outside the United States, the commercialization of therapeutics is generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost containment initiatives in Europe, Canada and other countries has, and will continue to, put pressure on the pricing and usage of therapeutics such as our product candidates.
Other Healthcare Laws
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In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain general business and marketing practices in the safetypharmaceutical industry in recent years. These laws include anti-kickback statutes, false claims statutes and efficacy,other healthcare laws and regulations.
The federal 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 medicalany 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, among others, on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exceptions 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 exception or safe harbor. 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 commit a violation.
Federal civil and criminal false claims laws, including the federal civil False Claims Act, prohibit any person or entity 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. This includes claims made to programs where the federal government reimburses, such as Medicare and Medicaid, as well as programs where the federal government is a direct purchaser, such as when it purchases off the Federal Supply Schedule. 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, including off-label promotion, may also violate false claims laws. Additionally, 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 federal civil False Claims Act. Most states also have statutes or regulations similar to the federal Anti-Kickback Statute and civil False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.
Other federal statutes pertaining to healthcare fraud and abuse include the civil monetary penalties statute, which prohibits, among other things, the offer or payment of remuneration to a Medicaid or Medicare beneficiary that the offerer or payor knows or should know is likely to influence the beneficiary to order a receive a reimbursable item or service from a particular supplier, and the additional federal criminal statutes created by the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), which prohibits, among other things, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program or obtain by means of false or fraudulent pretenses, representations or promises any money or property owned by or under the control of any healthcare benefit program 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 commit a violation.
Further, pursuant to the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation (the “Affordable Care Act” or the “ACA”), CMS has issued a final rule that requires manufacturers of prescription drugs to collect and report information on certain payments or transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals (such as physicians assistants and nurse practitioners), and teaching hospitals, as well as investment interests held by physicians and their immediate family members. The reports must be submitted on an annual basis. The reported data is made available in searchable form on a public website on an annual basis. Failure to submit required information may result in civil monetary penalties.
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, imposes obligations, including mandatory contractual terms, on covered entities, business associates and their covered subcontractors with respect to safeguarding the privacy, security and transmission of individually identifiable health information.
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In addition, several states now require prescription drug companies to report certain expenses relating to the marketing and promotion of drug products and procedures.
Efforts to ensure that business arrangements with third parties comply with applicable healthcare laws and regulations involve substantial costs. If a drug company’s operations are found to be in violation of any such requirements, it may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, the curtailment or restructuring of its operations, loss of eligibility to obtain approvals from the FDA, exclusion from participation in government contracting, healthcare reimbursement or other federal or state government healthcare programs, including Medicare and Medicaid, integrity oversight and reporting obligations, imprisonment, and reputational harm. Although effective compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any action for an alleged or suspected violation can cause a drug company to incur significant legal expenses and divert management’s attention from the operation of the business, even if such action is successfully defended.
U.S. Healthcare Reform
In the EUUnited States there have been, and elsewhere,continue to be, proposals by the federal government, state governments, influenceregulators and third-party payors to control or manage the increased costs of health care and, more generally, to reform the U.S. healthcare system. The pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. For example, in March 2010, the ACA was enacted, which intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms, substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The ACA, among other things, (i) subjected therapeutic biologics to potential competition by lower-cost biosimilars by creating a licensure framework for follow-on biologic products, (ii) proscribed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs and therapeutic biologics that are inhaled, infused, instilled, implanted or injected, (iii) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, (iv) established annual nondeductible fees and taxes on manufacturers of certain branded prescription drugs and therapeutic biologics, apportioned among these entities according to their market share in certain government healthcare programs, (v) established a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (now 70%) point of-sale discounts off negotiated prices of applicable brand drugs and therapeutic biologics to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs and therapeutic biologics to be covered under Medicare Part D, (vi) expanded eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability, (vii) expanded the entities eligible for discounts under the Public Health program, (viii) created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research, and (ix) established a Center for Medicare Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.
There have been judicial, executive brand, and Congressional challenges to certain aspects of the ACA, to repeal or replace certain aspects, of the ACA. By way of example, the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), was enacted and included,
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among other things, a provision that repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” There have been subsequent challenges to the constitutionality of the ACA following the repeal of the individual mandate. On June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the individual mandate was repealed by Congress. In addition, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or IRA, into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. The IRA also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and creating a new manufacturer discount program. However, it is possible that the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how such challenges will impact the ACA. Tempest cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on its business.
In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted to reduce healthcare expenditures. On August 2, 2011, the Budget Control Act of 2011, was enacted which, among other things, included aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute will remain in effect through 2031, unless additional Congressional action is taken. Under current legislation, the actual reduction in Medicare payments will vary from 1% in 2022 to up to 4% in the final fiscal year of this sequester.
Moreover, 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. If federal spending is further reduced, anticipated budgetary shortfalls may also impact the ability of relevant agencies, such as the FDA or the National Institutes of Health to continue to function at current levels. Amounts allocated to federal grants and contracts may be reduced or eliminated. These reductions may also impact the ability of relevant agencies to timely review and approve research and development, manufacturing, and marketing activities, which may delay Tempest’s ability to develop, market and sell any products Tempest may develop.
Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”), changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic class. While the MMA only applies to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.
Recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. At the federal level, in July 2021, the Biden administration released an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions HHS can take to advance these principles. In addition, the IRA, among other things, (i) directs HHS to negotiate the price of medical productscertain high-expenditure, single-source drugs and proceduresbiologics covered under Medicare, and subject drug manufacturers to civil monetary penalties and a potential excise tax by offering a price that is not equal to or less than the negotiated “maximum fair price” for such drugs and biologics under the law, and (ii) imposes rebates with respect to certain drugs and biologics covered under Medicare Part B or Medicare Part D to penalize price increases that outpace inflation. The IRA permits HHS to implement many of these provisions through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of consumers' medical costs. Some jurisdictions operate positive and negative list systems under which treatments or procedures
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guidance, as opposed to regulation, for the initial years. These provisions will take effect progressively starting in fiscal year 2023, although they may be marketed only aftersubject to legal challenges. It is currently unclear how the IRA will be implemented but is likely to have a significant impact on the pharmaceutical industry. Further, the Biden administration released an additional executive order on October 14, 2022, directing HHS to submit a report on how the Center for Medicare and Medicaid Innovation can be further leveraged to test new models for lowering drug costs for Medicare and Medicaid beneficiaries. It is unclear whether this executive order or similar policy initiatives will be implemented in the future. At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement price has been agreed upon. To obtain reimbursement or pricing approval,constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
Additionally, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of these countries may require the completion of2017 was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials that compareand without obtaining FDA authorization under an FDA expanded access program; however, manufacturers are not obligated to provide investigational new drug products under the cost-effectiveness of our particular treatments or procedurescurrent federal right to currently available therapies. Other countries allow medical companies to fix their own prices, but monitortry law.
Employees and control company profits. The downward pressure on healthcare costs has become very intense. As a result, increasingly high barriers are being erected to the entry of new treatments and procedures.
As of December 31, 2017,2023, we had 36 full-time employees.17 employees, including 14 holding Ph.D., M.D., JD, LL.M., and/or MBA degrees, our employees have established internal expertise in chemistry, biochemistry, molecular biology, immunology, pharmacology, toxicology, pre-clinical development, regulatory and quality, translational medicine, and early-to-late-stage clinical development, as well as finance, business development and strategic transactions. None of our employees are represented by a labor union or covered by a collective bargaining agreement. agreements. We will continue to add experienced and talented scientists in areas, such as medicinal chemistry, that we believe are critical for the discovery of highly differentiated small-molecule compounds.
Compensation and Benefits
We consider a number of measures and objectives in managing our relationship withhuman capital assets, including, among others, employee engagement, development and training, talent acquisition and retention, employee safety and wellness, diversity and inclusion, and compensation and pay equity. We provide our employees with salaries and bonuses intended to be good.
Diversity, Equity and Inclusion (DEI)
We were incorporated underbelieve that a diverse workforce is important to our success and we are fundamentally committed to creating and maintaining a work environment in which employees are treated fairly, with dignity, decency, respect and in accordance with all applicable laws. We understand that varied perspectives lead to the lawsbest ideas and outcomes. We believe that by creating a workplace where every individual can feel welcome and valued, we will be better able to achieve our corporate objectives. All employees must adhere to a code of the State of Delaware in April 2011 under the name Ovastem, Inc.business conduct and changed our name to OvaScience, Inc. in May 2011. Our principal executive offices are located at 9 4th Avenue, Waltham, Massachusetts 02451,ethics and our telephone numberemployee handbook, which combined, define standards for appropriate behavior. Our recruitment, hiring, development, training, compensation, and advancement is (617) 500-2802. based on qualifications, performance, skills, and experience without regard to gender, gender identity, sexual orientation, race, or ethnicity. People of color and those who are part of underrepresented groups in the biotech industry are encouraged to apply for open positions.
Available Information
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Our internet website address is www.ovascience.com. Thewww.Tempesttx.com. In addition to the information about us and our subsidiaries contained on, or thatin this Annual Report, information about us can be accessed through,found on our website. Our website and information included in or linked to our website isare not a part of this Annual Report on Form 10-K. We have included our website address in this Annual Report solely as an inactive textual reference.
Our annual reports on Form 10-K, Quarterly Reportsquarterly reports on Form 10-Q, and Current Reportscurrent reports on Form 8-K and amendments to those 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 through our website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). Additionally, the SEC onmaintains an internet site that contains reports, proxy and information statements and other information. The address of the Investors section of ourSEC’s website at www.ovascience.com or by contacting our Corporate Communications department at (617) 500-2802. The contents of our website are not incorporated by reference into this report and you should not consider information provided on our website to be part of this report.
ITEM 1A. Risk Factors
Our business is subjectinvolves significant risks, some of which are described below. You should carefully consider the risks described below, together with all of the other information contained in this Annual Report on Form 10-K, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and the related notes. Any of these events could cause the trading price of our common stock to numerous risks. We cautiondecline, which would cause you thatto lose all or part of your investment. The occurrence of any of the following important factors, among others,risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects or cause our actual results to differ materially from those expressedcontained in forward-looking statements we have made by us or onmay make from time to time.
Summary of Selected Risks Associated with Our Business
Our business is subject to numerous risks and uncertainties, any one of which could materially adversely affect our behalf in filingsbusiness, financial condition, operating results, and prospects. You should read this summary together with the SEC, press releases, communicationsmore detailed description of each risk factor contained below.
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Risks Related to Our Financial Position and NeedCapital Needs
We have a history of operating losses, and we may not achieve or sustain profitability. We anticipate that we will continue to incur losses for Additional Capitalthe foreseeable future. If we fail to obtain additional funding to conduct our planned research and
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development efforts, we could be forced to delay, reduce or eliminate our product development programs or commercial development efforts.
We are a clinical-stage biotechnology company with a limited operating history. Biotechnology product development is a highly speculative undertaking and involves a substantial degree of risk. Our earlyoperations to date have been limited primarily to organizing and staffing, business planning, raising capital, acquiring and developing product and technology rights, manufacturing, and conducting research and development activities for our product candidates. We have never generated any revenue from product sales and we have not obtained regulatory approvals for any of our product candidates. We incurred net losses of $29.5 million and $35.7 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had an accumulated deficit of $165.3 million. Substantially all of our operating losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant expenses and operating losses over the next several years and for the foreseeable future as we continue to conduct research and development, clinical testing, regulatory compliance activities, manufacturing activities, and, if any of our product candidates is approved, sales and marketing activities. Our prior losses, combined with our expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.
We will need to raise additional funding to finance our operations, which may not be available on acceptable terms or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.
Our operations have consumed significant amounts of cash since inception. We expect our expenses to continue to increase in connection with our ongoing activities, particularly as we conduct clinical trials of, and seek marketing approval for, our product candidates, including later stage clinical trials such as our potential pivotal Phase 3 trial in first-line HCC, subject to our discussions with the FDA, and advance our other programs. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a very time-consuming, expensive and uncertain process that takes years to complete. Other unanticipated costs may also arise. Because the design and outcome of our ongoing and anticipated clinical trials are highly uncertain, we cannot reasonably estimate the actual amount of resources and funding that will be necessary to successfully complete the development and commercialization of any product candidate we develop. Moreover, we will need to obtain substantial additional funding in connection with our continuing operations and planned research and clinical development activities. Our future capital requirements will depend on many factors, including:
the timing, progress, costs and results of our ongoing preclinical studies and clinical trials of our product candidates;
the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials of other product candidates that we may pursue;
• our ability to establish collaborations on favorable terms, if at all;
• the costs, timing and outcome of regulatory review of our product candidates;
• the costs and timing of future commercialization activities, including product manufacturing, marketing, sales, reimbursement and distribution, for any of our product candidates for which we may receive marketing approval;
• the revenue, if any, received from commercial sales of our product candidates for which we may receive marketing approval;
• the cost of any milestone and royalty payments with respect to any approved product candidates;
• the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;
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• the costs of operating as a public company; and
• the extent to which we acquire or in-license other product candidates and technologies.
We may never generate the necessary data or results required to obtain regulatory approval in order to generate revenue from product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for several years, if at all. Accordingly, we will need to continue to rely on our cash and cash equivalents and additional financing to achieve our business objectives.
As of December 31, 2023, we had cash and cash equivalents of $39.2 million. We believe that our cash and cash equivalents as of December 31, 2023, will fund our current operating plans through at least the next 12 months from the date the financial statements were issued. We have based this assessment on assumptions that may prove to be wrong, and it is possible that we will not achieve the progress that we expect with these funds because the actual costs and timing of clinical development and regulatory and commercial activities are difficult to predict and are subject to substantial risks and delays, and that we will use our capital resources sooner than we currently expect. This estimate does not reflect any additional expenditures that may result from any further strategic transactions to expand and diversify our product pipeline, including acquisitions of assets, businesses, rights to products, product candidates or technologies or strategic alliances or collaborations that we may pursue.
Accordingly, we will require substantial additional capital to develop our product candidates. Adequate additional financing may not be available to us on acceptable terms, or at all. If we require additional capital at a time when investment in our industry or in the marketplace in general is limited, we might not be able to raise funding on favorable terms, if at all. Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions, inflation expectations, and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from public health crises and geopolitical tensions, such as the Russia-Ukraine war and the war in Israel. If we are unable to raise capital when needed or on acceptable terms, we could be forced to delay, reduce, or explore other strategic options for our research and development programs or other opportunities, or even our operations. If we do not obtain additional financing and are required to terminate our operations, our stockholders will lose their investment.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish proprietary rights.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through public or private equity or debt financings, third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. We do not have any committed external source of funds. In July 2021, we entered into Sales Agreement, or the ATM Agreement, with Jefferies LLC, for an at-the-market offering program that allows us to sell up to an aggregate of $100 million of our common stock. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be further diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. In addition, we may issue equity or debt securities as consideration for obtaining rights to additional compounds.
Debt and equity financings, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as redeeming our shares, making investments, incurring additional debt, making capital expenditures, declaring dividends or placing limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could negatively impact our ability to conduct our business. For example, our obligations under the loan and security agreement, or Loan Agreement, with Oxford Finance LLC, or Oxford Finance, are secured by a security interest in all of our assets, including our intellectual property. In addition, the Loan Agreement contains customary covenants that, subject to specific exceptions, restrict our ability to, among other things, declare dividends or redeem or repurchase equity interests, incur additional liens, make loans and investments, incur additional indebtedness, engage in mergers, acquisitions and asset sales, transact with affiliates, undergo a change in control, add or change business locations, or engage in businesses that are not related to its existing business.
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In addition, if we raise additional capital through future collaborations, strategic alliances or third-party licensing arrangements, we may have to relinquish 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 capital when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise develop and market ourselves.
The terms of the Loan Agreement with Oxford Finance provide Oxford with a lien against all of our assets, including our intellectual property, and contains financial covenants and other restrictions on our actions that may limit our operational flexibility or otherwise adversely affect our results of operations.
In January 2021, we entered into a Loan Agreement with Oxford Finance that provided us with up to $35.0 million of borrowing capacity across three potential tranches, which was subsequently amended in December 2022. The initial tranche of $15.0 million was funded at the closing of the Loan Agreement. As of December 31, 2023, a total of $10.0 million in borrowing capacity remained available at the option of Oxford Finance. Our overall leverage and certain obligations and affirmative and negative covenants contained in the related documentation could adversely affect our financial health and business and future operations by limiting our ability to, among other things, satisfy our obligations under the Loan Agreement, refinance our debt on terms acceptable to us or at all, plan for and adjust to changing business, industry and market conditions, use our available cash flow to fund future acquisitions and make dividend payments, and obtain additional financing for working capital, to fund growth or for general corporate purposes, even when necessary to maintain adequate liquidity.
If we default under the Loan Agreement, Oxford Finance may accelerate all of our repayment obligations and exercise all of their rights and remedies under the Loan Agreement and applicable law, potentially requiring us to renegotiate our agreement on terms less favorable to us. In addition, since the borrowings under the Loan Agreement are secured by a lien on our assets, including our intellectual property, Oxford Finance would be able to foreclose on our assets if we do not cure any default or pay any amounts due and payable under the Loan Agreement. Further, if we are liquidated, the lenders’ right to repayment would be senior to the rights of the holders of our common stock to receive any proceeds from the liquidation. Oxford Finance could declare a default upon the occurrence of an event of default, including events that they interpret as a material adverse change as defined in the Loan Agreement, payment defaults or breaches of certain affirmative and negative covenants, thereby requiring us to repay the loan immediately. Any declaration by Oxford Finance of an event of default could significantly harm our business and prospects and could cause the price of our common stock to decline. Additionally, if we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility.
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
Our operations to date have been limited to organizing and staffing, business planning, raising capital, acquiring our corporate strategy, including a shift to focus on the advancement of OvaPrime and OvaTure, which are in clinicaltechnology, identifying potential product candidates, undertaking research and preclinical development, respectively.studies of our product candidates, manufacturing, and establishing licensing arrangements. We cannot assure you that this shift will be successful. Anyhave not yet demonstrated the ability to complete clinical trials of our product candidates, obtain marketing approvals, manufacture a commercial scale product or conduct sales and marketing activities necessary for successful commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we were inhad a later stage of development.
In addition, as a new and rapidly evolving fields. For example, to execute our business, plan, we will need to be successful in a range of challenging activities, including clinical trials of OvaPrime, development of OvaTure, obtaining any required approvals, manufacturing, marketing and selling those potential fertility treatments that we successfully develop, and addressing the challenges of foreign operations.
Our ability to utilize our net operating loss carryforwards and tax credit carryforwards may be subject to limitations.
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Our ability to use our federal and state net operating losses (“NOLs”) to offset potential future taxable income and related income taxes that would otherwise be due is dependent upon our generation of future taxable income, and we cannot predict with certainty when, or whether, we will generate sufficient taxable income to use all of our NOLs.
Under Section 382 and Section 383 of the Code and corresponding provisions of state law, if a corporation undergoes an “ownership change,” its ability to use its pre-change NOL carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income or taxes may be limited. A Section 382 “ownership change” is generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period. We may have incurred significant losses sinceexperienced ownership changes in the past, including as a result of the merger with Millendo, and may experience ownership changes in the future due to subsequent shifts in our inception. stock ownership (some of which are outside of our control). Furthermore, the merger constituted an ownership change (within the meaning of Section 382 of the Code) of Millendo which may have eliminated or otherwise substantially limited our ability to use Millendo’s federal and state NOLs to offset our future taxable income. Consequently, even if we achieve profitability, we may not be able to utilize a material portion of Private Tempest’s, Millendo’s or our combined NOL carryforwards and other tax attributes, which could have a material adverse effect on cash flow and results of operations. Similar provisions of state tax law may also apply to limit our ability to use of accumulated state tax attributes. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities.
Risks Related to Our Business and Strategy
We expect to incur lossesexpand our development and regulatory capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of product candidate development, growing our capability to conduct clinical trials, and, if approved, through commercialization of our product candidates. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel, or contract with third parties to provide these capabilities. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The 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.
We must attract and retain highly skilled employees to succeed.
To succeed, we must recruit, retain, manage and motivate qualified clinical, scientific, technical and management personnel, and we face significant competition for experienced personnel. If we do not succeed in attracting and retaining qualified personnel, particularly at the management level, it could adversely affect our ability to execute our business plan, harm our results of operations and increase our capabilities to successfully commercialize our product candidates. In particular, we believe that our future success is highly dependent upon the contributions of our senior management, particularly our Chief Executive Officer and President, Stephen Brady and our Chief Medical Officer, Sam Whiting. The loss of services of Messrs. Brady or Whiting, or any of our other senior management, could delay or prevent the successful development of our product pipeline, completion of our planned clinical trials or the commercialization of our product candidates, if approved. The competition for qualified personnel in the biotechnology field is intense and as a result, we may be unable to continue to attract and retain qualified personnel necessary for the foreseeable futuredevelopment of our business or to recruit suitable replacement personnel.
Many of the other biotechnology companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They also may never achieve or maintain profitability.provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than
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what we have incurred significantto offer. If we are unable to continue to attract and retain high-quality personnel, the rate and success at which we can discover and develop product candidates and our business will be limited.
Future acquisitions or strategic alliances could disrupt our business and harm our financial condition and results of operations.
We may acquire additional businesses or drugs form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing and marketing any new drugs resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following any such acquisition, we will achieve the expected synergies to justify the transaction. The risks we face in connection with acquisitions, include:
Our failure to building outaddress these risks or other problems encountered in connection with our international infrastructure.
Risks Related to Our Product Development and Regulatory Approval
If we are unable to develop, obtain regulatory approval for and commercialize TPST-1495, TPST-1120, or any of our future product candidates, or if we experience significant expensesdelays in doing so, our business will be materially harmed.
We plan to invest a substantial amount of our efforts and increasing operating lossesfinancial resources in our current lead product candidates, TPST-1495, a dual EP2/EP4 prostaglandin (“PGE2”) receptor antagonist, and TPST-1120, a peroxisome proliferator-activated receptor alpha (“PPARα”) antagonist for the foreseeable future. treatment of various cancers. We have initiated Phase 1 clinical trials of TPST-1495 and
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TPST-1120 for the treatment of advanced solid tumors. We intend to request meetings with FDA during 2024 to discuss a potential pivotal Phase 3 trial design for TPST-1120 for HCC, but the FDA may not agree that we are ready for such meetings, and may require that we conduct additional dose optimization or Phase 2 development work prior to proceeding to a Phase 3 trial. Any delay in our ability to proceed to a pivotal trial for TPST-1120 will add time and expense to the development pathway and adversely impact the timing and potential for profitability. Our ability to generate product revenue will depend heavily on the successful development and eventual commercialization of TPST-1495 and TPST-1120 and any future product candidates, which may never occur. We currently generate no revenue from sales of any product and we may never be able to develop or commercialize a marketable product.
Each of our programs and product candidates will require further clinical and/or preclinical development, regulatory approval in multiple jurisdictions, obtaining preclinical, clinical and commercial manufacturing supply, capacity and expertise, building of a commercial organization, substantial investment and significant marketing efforts before we generate any revenue from product sales. TPST-1495 and TPST-1120 and any future product candidates must be authorized for marketing by the FDA, the Health Products and Food Branch of Health Canada (“HPFB”), the European Medicines Agency (“EMA”), and certain other foreign regulatory agencies before we may commercialize any of our product candidates in the United States, Canada, European Union, or other jurisdictions.
The net losses we incur may fluctuate significantly from quarter to quarter. We anticipatesuccess of TPST-1495 and TPST-1120 and any future product candidates depends on multiple factors, including:
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If we do not succeed in one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm our business. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.
Success in preclinical studies and earlier clinical trials for our product candidates may not be indicative of the results that may be obtained in later clinical trials, which may delay or prevent obtaining regulatory approval.
Clinical development is expensive and can take many years to complete, and our outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. Success in preclinical studies and early clinical trials may not be predictive of results in later-stage clinical trials, and successful results from early or small clinical trials may not be replicated or show as favorable an outcome in later-stage or larger clinical trials, even if successful. We will be required to demonstrate through adequate and well-controlled clinical trials that our product candidates are safe and effective for their intended uses before we can seek regulatory approvals for their commercial sale. The conduct of Phase 3 trials and academic partners;the submission of a New Drug Application (“NDA”) is a complicated process. We have not previously completed any pivotal clinical trials, have limited experience in preparing, submitting and supporting regulatory filings, and have not previously submitted an NDA. Consequently, we may be unable to successfully and efficiently execute and complete necessary clinical trials and other requirements in a way that leads to NDA submission and approval of any product candidate we are developing.
Even if our clinical trials demonstrate acceptable safety and efficacy of TPST-1495 and TPST-1120 or any future product candidates and such product candidates receive regulatory approval, the labeling we obtain through negotiations with the FDA or foreign regulatory authorities may not include data on secondary endpoints and may not provide us with a competitive advantage over other products approved for the same or similar indications.
Many companies in the biotechnology industry have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development, and there is a high failure rate for product candidates proceeding through clinical trials. In addition, different methodologies, assumptions and applications we utilize to assess particular safety or efficacy parameters may yield different statistical results. Even if we believe the data collected from clinical trials of our product candidates are promising, these data may not be sufficient to support approval by the FDA or foreign regulatory authorities. Preclinical and clinical data can be interpreted in different ways. Accordingly, the FDA or foreign regulatory authorities could interpret these data in different ways from us or our partners, which could delay, limit or prevent regulatory approval. If our study data does not consistently or sufficiently demonstrate the safety or efficacy of any of our product candidates, including TPST-1495 and TPST-1120, to the satisfaction of the FDA or foreign regulatory authorities, then the regulatory approvals for such product candidates could be significantly delayed as we work to meet approval requirements, or, if we are not able to meet these requirements, such approvals could be withheld or withdrawn.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
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We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with our protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until our conclusion. The enrollment of patients depends on many factors, including:
Delays or failures in planned patient enrollment or retention may result in increased costs, program delays or both, which could have a harmful effect on our ability to develop our product candidates or could render further development impossible. For example, the impact of public health crises or geopolitical tensions, such as the Russia-Ukraine war and the war in Israel, may delay or prevent patients from enrolling or from receiving treatment in accordance with the protocol and the required timelines, which could delay our clinical trials, or prevent us from completing our clinical trials at all.
In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition will reduce the number and types of patients available to us because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, some of our clinical trial sites are also being used by some of our competitors, which may reduce the number of patients who are available for our clinical trials in that clinical trial site.
Moreover, because our product candidates represent unproven methods for cancer treatment, potential patients and their doctors may be inclined to use existing therapies rather than enroll patients in our clinical trials.
Interim and preliminary data from our clinical trials that we may announce or publish from time to time may change as more patient data becomes available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publish interim or preliminary data from our clinical studies. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available.
Preliminary or interim data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data is available. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects.
We currently are investigating TPST-1120 and TPST-1495 in combination with other approved therapies, and we may in the future investigate product candidates in combination with other approved and unapproved therapies, which exposes us to additional risks.
We are currently investigating and may continue to investigate one or more of our product candidates in combination with one or more other approved or unapproved therapies to treat cancers. Even if any product candidate we develop were to receive
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marketing approval or be commercialized for use in combination with other existing therapies, we would continue to be subject to the risks that the FDA or comparable foreign regulatory authorities outside of the United States could revoke approval of the therapy used in combination with our product or that safety, efficacy, manufacturing or supply issues could arise with any of those existing therapies, including shortages of those products for use in our intended clinical trials. If the therapies we use in combination with our product candidates are replaced as the standard of care for the indications we choose for any of our product candidates, the FDA or comparable foreign regulatory authorities may require us to conduct additional clinical trials. The occurrence of any of these risks could result in our own products, if approved, being removed from the market or being less successful commercially. We also may choose to evaluate our current product candidates or any other future product candidates in combination with one or more cancer therapies that have not yet been approved for marketing by the FDA or comparable foreign regulatory authorities. We will not be able to market and sell our current product candidates or any product candidate we develop in combination with an unapproved cancer therapy for a combination indication if that unapproved therapy does not ultimately obtain marketing approval either alone or in combination with our product. In addition, unapproved cancer therapies face the same risks described with respect to our product candidates currently in development and clinical trials, including the potential for serious adverse effects, delay in their clinical trials and lack of FDA approval. If the FDA or comparable foreign regulatory authorities do not approve these other products or revoke their approval of, or if safety, efficacy, quality, manufacturing or supply issues arise with, the products we choose to evaluate in combination with our product candidate we develop, we may be unable to obtain approval of or market such combination therapy.
Even if we complete the necessary preclinical studies and clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize a product candidate and the approval may be for a narrower indication than we seek.
Prior to commercialization, TPST-1495, TPST-1120 and any future product candidates must be approved by the FDA pursuant to an NDA in the United States and pursuant to similar marketing applications by the HPFB, EMA and similar regulatory authorities outside the United States. The process of obtaining marketing approvals, both in the United States and abroad, is expensive and takes 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. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. We have not received approval to market TPST-1495, TPST-1120 or any future product candidates from regulatory authorities in any jurisdiction. We have no experience in submitting and supporting the applications necessary to gain marketing approvals, and, in the event regulatory authorities indicate that we may submit such applications, we may be unable to do so as quickly and efficiently as desired. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude us from obtaining marketing approval or prevent or limit commercial use. Regulatory authorities have substantial discretion in the approval process and may refuse to accept or file any application or may decide that our data is insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate.
Approval of TPST-1495 and TPST-1120 and any future product candidates may be delayed or refused for many reasons, including:
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Even if our product candidates meet their pre-specified safety and efficacy endpoints in clinical trials, the regulatory authorities may not complete their review processes in a timely manner and may not consider such clinical trial results sufficient to grant, or we may not be able to obtain, regulatory approval. Additional delays may result if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory authority policy during the period of product development, clinical trials and the review process.
Regulatory authorities also may approve a product candidate for more limited indications than requested or they may impose significant limitations in the form of narrow indications, warnings, contraindications or Risk Evaluation and Mitigation Strategies (“REMS”). These regulatory authorities may also grant approval subject to the performance of costly post-marketing clinical trials. In addition, regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates and adversely affect our business, financial condition, results of operations and prospects.
TPST-1495, TPST-1120 and any future product candidates may cause undesirable and/or unforeseen side effects or be perceived by the public as unsafe, which could delay or prevent their advancement into clinical trials or regulatory approval, limit the commercial potential or result in significant negative consequences.
As is the case with pharmaceuticals generally, it is likely that there may be side effects and adverse events associated with our product candidates’ use. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. As we continue developing our product candidates and initiate clinical trials of our additional product candidates, serious adverse events (“SAEs”), undesirable side effects, relapse of disease or unexpected characteristics may emerge causing us to abandon these product candidates or limit their development to more narrow uses or subpopulations in which the SAEs or undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective or in which efficacy is more pronounced or durable.
If any such adverse events occur, our clinical trials could be suspended or terminated and the FDA, the HPFB, the European Commission, the EMA or other regulatory authorities could order us to cease further development of, or deny approval of, our product candidates for any or all targeted indications. Even if we can demonstrate that all future serious adverse events are not product-related, such occurrences could affect patient recruitment or the ability of enrolled patients to complete the trial. Moreover, if we elect, or are required, to not initiate, delay, suspend or terminate any future clinical trial of any of our product candidates, the commercial prospects of such product candidates may be harmed and our ability to generate product revenues from any of these product candidates may be delayed or eliminated. Any of these occurrences may harm our ability to develop other product candidates, and may adversely affect our business, financial condition, results of operations and prospects significantly, including our ability to successfully sign collaboration or license agreements with external partners. Other treatments for cancers that utilize prostaglandin E2 antagonist or a PPARα antagonist or similar mechanism of action could also
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generate data that could adversely affect the clinical, regulatory or commercial perception of TPST-1495 and TPST-1120 and any future product candidates.
Additionally, if any of our product candidates receives marketing approval, the FDA could require us to adopt a REMS to ensure that the benefits of the product outweigh our risks, which may include, for example, a Medication Guide outlining the risks of the product for distribution to patients and a communication plan to health care practitioners, or other elements to assure safe use of the OvaPrime and OvaTure treatments;product.
Furthermore, if we or others later identify undesirable side effects caused by our product candidates, several potentially significant negative consequences could result, including:
Any of these occurrences may harm our business, financial condition, results of operations and prospects significantly.
We may not be successful in our efforts to expand our pipeline of product candidates and develop marketable products.
Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications. Our business depends on our successful development and commercialization of the limited number of internal product candidates we are researching or have in preclinical development. Even if we are successful in continuing to build our pipeline, development of the potential product candidates that we identify will require substantial investment in additional clinical development, management of clinical, preclinical and manufacturing activities, regulatory approval in multiple jurisdictions, obtaining manufacturing supply capability, building a commercial organization, and significant marketing efforts before we generate any revenue from product sales. Furthermore, such product candidates may not be suitable for clinical development, including as a result of their harmful side effects, limited efficacy or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. If we cannot develop further product candidates, we may not be able to obtain product revenue in future periods, which would adversely affect our business, prospects, financial condition and results of operations.
Although our pipeline includes multiple programs, we are primarily focused on our lead product candidates, TPST-1495 and TPST-1120, and we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. Our understanding and evaluation of biological targets for the discovery and development of new product candidates may fail to identify challenges encountered in subsequent preclinical and clinical development. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights.
Any product candidate for which we obtain marketing approval will be subject to extensive post-marketing regulatory requirements and could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to
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penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidates, when and if any of them are approved.
Our product candidates and the activities associated with their development and potential commercialization, including their testing, manufacturing, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other U.S. and international sales,regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, including current Good Manufacturing Practices (“cGMP”), quality control, quality assurance and corresponding maintenance of records and documents, including periodic inspections by the FDA and other regulatory authorities and requirements regarding the distribution of samples to providers and recordkeeping. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic, unannounced inspections by the FDA and other regulatory authorities for compliance with cGMP.
The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of any approved product. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure that they are marketed in a manner consistent with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding use of their products. If we promote our product candidates in a manner inconsistent with FDA-approved labeling or otherwise not in compliance with FDA regulations, we may be subject to enforcement action. Violations of the FFDCA relating to the promotion of prescription drugs may lead to investigations alleging violations of federal and state healthcare fraud and abuse laws, as well as state consumer protection laws and similar laws in international jurisdictions.
In addition, later discovery of previously unknown adverse events or other problems with our product candidates, manufacturers or manufacturing andprocesses, or failure to comply with regulatory requirements, may yield various results, including:
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The occurrence of any event or penalty described above may inhibit our ability to commercialize our fertility treatments;
Non-compliance with Canadian and European requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties.
Our failure to obtain regulatory approval in international jurisdictions would prevent us from marketing our product candidates outside the United States.
To market and sell TPST-1495, TPST-1120 and any future product candidates in other jurisdictions, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time and data required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, we must secure product reimbursement approvals before regulatory authorities will approve the product for sale in that country. Failure to obtain foreign regulatory approvals or non-compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our product candidates in certain countries.
If we fail to comply with the regulatory requirements in international markets and receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed and our business will be adversely affected. We may not obtain foreign regulatory approvals on a timely basis, if at all. Our failure to obtain approval of any of our product candidates by regulatory authorities in another country may significantly diminish the commercial prospects of that product candidate and our business prospects could decline.
Risks Related to Commercialization and Manufacturing
The commercial success of our product candidates, including TPST-1495 and TPST-1120, will depend upon their degree of market acceptance by providers, patients, patient advocacy groups, third-party payors and the general medical community.
Even if the requisite approvals from the FDA, the HPFB, the EMA and other regulatory authorities internationally are obtained, the commercial success of our product candidates will depend, in part, on the acceptance of providers, patients and third-party payors of drugs designed to act as a dual antagonist of EP2 and EP4 and PPARα antagonists in general, and our product candidates in particular, as medically necessary, cost-effective and safe. In addition, we may face challenges in seeking to establish and grow sales of TPST-1495 and TPST-1120 or any future product candidates. Any product that we commercialize may not gain acceptance by providers, patients, patient advocacy groups, third-party payors and the general medical community. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable.
Even if a potential product displays a favorable efficacy and safety profile in preclinical studies and clinical trials, market acceptance of the product will not be fully known until after it is launched.
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The pricing, insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for our product candidates, if approved, could limit our ability to market those products and decrease our ability to generate product revenue.
Successful sales of our product candidates, if approved, depend on the availability of coverage and adequate reimbursement from third-party payors including governmental healthcare programs, such as Medicare and Medicaid, managed care organizations and commercial payors, among others. Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we obtain regulatory approval. In addition, because our product candidates represent new approaches to the treatment of cancer, we cannot accurately estimate the potential revenue from our product candidates.
We expect that coverage and reimbursement by third-party payors will be essential for most patients to be able to afford these treatments. Accordingly, sales of our product candidates will depend substantially, both domestically and internationally, on the extent to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or will be reimbursed by government payors, private health coverage insurers and other third-party payors. Even if coverage is provided, the established reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs will be covered and reimbursed. The Medicare program covers certain individuals aged 65 or older, disabled or suffering from end-stage renal disease. The Medicaid program, which varies from state-to-state, covers certain individuals and families who have limited financial means. The Medicare and Medicaid programs increasingly are used as models for how private payors and other government payors develop their coverage and reimbursement policies for drugs. One payor’s determination to provide coverage for a drug product, however, does not assure that other payors will also provide coverage for the drug product. Further, a payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved.
In addition to government and private payors, professional organizations such as the American Medical Association, can influence decisions about coverage and reimbursement for new products by determining standards for care. In addition, many private payors contract with commercial vendors who sell software that provide guidelines that attempt to limit utilization of, and therefore reimbursement for, certain products deemed to provide limited benefit compared to existing alternatives. Such organizations may set guidelines that limit reimbursement or utilization of our product candidates, if approved. Even if favorable coverage and reimbursement status is attained for one or more product candidates for which our collaborators receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue to put pressure on the pricing and usage of therapeutics such as our product candidates. In many countries, particularly the countries of the EU, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. In general, the prices of products under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our product candidates may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenues and profits.
Moreover, increasing efforts by government and other third-party payors, in the United States and internationally, to cap or reduce healthcare costs may cause such payors to limit both coverage and the level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures
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in connection with the sale of any of our product candidates due to the trend toward managed healthcare, the increasing influence of certain third-party payors, such as health maintenance organizations, and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products into the healthcare market. Recently there have been instances in which third-party payors have refused to reimburse treatments for patients for whom the treatment is indicated in the FDA-approved product labeling. Even if we are successful in obtaining FDA approval to commercialize our product candidates, we cannot guarantee that we will be able to secure reimbursement for all patients for whom treatment with our product candidates is indicated.
If third parties on which we depend to conduct our planned preclinical studies or clinical trials do not perform as contractually required, fail to satisfy regulatory or legal requirements or miss expected deadlines, our development program could be delayed with adverse effects on our business, financial condition, results of operations and prospects.
We rely on third party CROs, CMOs, consultants and others to design, conduct, supervise and monitor key activities relating to, testing, discovery, manufacturing, preclinical studies and clinical trials of our fertility treatments;
If we cannot contract with acceptable third parties on commercially reasonable terms, or at all, or if these third parties do not carry out their contractual duties, satisfy legal and regulatory requirements for the conduct of preclinical studies or clinical trials or meet expected deadlines, our clinical development programs could be delayed and otherwise adversely affected. In all events, we are responsible for ensuring that each of our preclinical studies and clinical trials is conducted in accordance with the general investigational plan and protocols for the trial, as well as in accordance with GLP, GCP and other applicable laws, regulations and standards. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. The FDA and other regulatory authorities enforce GCP through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any required approvals fromof these third parties fails to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or similarcomparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials have complied with GCP. In addition, our clinical trials must be conducted with product produced in accordance with cGMP. Our failure to comply with these regulations may require us to repeat clinical trials, which could delay or prevent the receipt of regulatory approvals. Any such event could have an adverse effect on our business, financial condition, results of operations and prospects.
We face significant competition in an environment of rapid technological change, and it is possible that our competitors may achieve regulatory approval before us or develop therapies that are more advanced or effective than our therapies, which may harm our business, financial condition and our ability to successfully market or commercialize TPST-1495, TPST-1120, and any future product candidates.
The biopharmaceutical industry, and the immuno-oncology industry specifically, is characterized by intense competition and rapid innovation. We are aware of other companies focused on developing cancer therapies in various indications. We may also face competition from large and specialty pharmaceutical and biotechnology companies, academic research institutions, government agencies outsideand public and private research institutions that conduct research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing and commercialization.
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Many of our potential competitors, alone or with their strategic partners, may have substantially greater financial, technical and other resources than we do, such as larger research and development, clinical, marketing and manufacturing organizations. Mergers and acquisitions in the United States, whichbiotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller number of competitors. Our commercial opportunity could be reduced or eliminated if competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any product candidates that we refer to as Foreign Regulatory Authorities,may develop. Competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for our potential fertility treatments;
To become and remain profitable, we must develop and eventually commercialize our potential fertility treatmentsproduct candidates with significant market potential, including OvaPrime and OvaTure, and determine strategies to scale our treatments commercially. Thiswhich will require us to be successful in a range of challenging activities. These activities include, among other things, completing preclinical studies and initiating and completing clinical trials of our product candidates, obtaining marketing approval for our treatments, obtainingthese product candidates, manufacturing, marketing and selling those products that are approved and satisfying any necessary regulatory approvals and successfully commercializing, either alone or with partners.post marketing requirements. We may never succeed in any or all of these activities and, even if we do, we may never generate revenues that are significant or large enough to achieve profitability. 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 companycommon stock and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations.
We may fail to achieve sufficient revenues from our fertility treatments to achieve profitability on our expected timelines or at all. We will need to continue to rely on additional financingthird parties to achievemanufacture our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.
We must currently rely on outside vendors to manufacture supplies and process our product candidates. We have not yet manufactured or potential fertility treatments or grant licensesprocessed our product candidates on terms thata commercial scale and may not be favorableable to us.
We do not yet have sufficient information to reliably estimate the memberscost of the commercial manufacturing and processing of our board of directorsproduct candidates, and certain of the underwriters fromactual cost to manufacture and process our January 2015 follow-on public offeringproduct candidates could materially and adversely affect the commercial viability of our common stock by investors alleging violations of the Securities Act of 1933, as amended. The plaintiffs’ motion for class certification has been denied, and the court has entered summary judgment dismissing the claims of all but one of the plaintiffs. The remaining plaintiff has also filed a substantially similar putative class action complaint in the U.S. District Court for the District of Massachusetts. On March 24, 2017, a second purported shareholder class action lawsuit was filed against us and certain of our present and former officers alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
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Our contract manufacturers would also be successfully commercialized.
The manufacture of drugs is complex, and our third-party manufacturers may encounter difficulties in production. If any of our third-party manufacturers encounter such difficulties, our ability to provide adequate supply of our product candidates for clinical trials, our ability to obtain marketing approval, or our ability to provide supply of our product candidates for patients, if we have successfully developed fertilizable, mature eggs until we have successfully fertilized them,approved, could be delayed or stopped.
We intend to establish manufacturing relationships with a limited number of suppliers to manufacture raw materials, the drug substance and we may never succeed in fertilizing human or bovine EggPC cell-derived eggs. We may find that there are important criteriafinished product of any product candidate for developmental competence thatwhich we are responsible for preclinical or clinical development. Each supplier may require licenses to manufacture such components if such processes are not observing,owned by the supplier or that elementsin the public domain. As part of any marketing approval, a manufacturer and its processes are required to be qualified by the criteria for maturity that we have observed are inadequately developed for fertilization. To date, our effortsFDA prior to fertilize bovine EggPC cell-derived eggs have failed. Further, we will require authorizationregulatory approval. If supply from the approved vendor is interrupted, there could be a significant disruption in commercial supply. An alternative vendor would need to be qualified through an NDA supplement which could result in further delay. The FDA or other regulatory bodiesagencies outside of the United States may also require additional studies if a new supplier is relied upon for commercial production. Switching vendors may involve substantial costs and is likely to attemptresult in a delay in our desired clinical and commercial timelines.
The process of manufacturing drugs is complex, highly regulated and subject to fertilizemultiple risks. Manufacturing drugs is highly susceptible to product loss due to contamination, equipment failure, improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability in product characteristics and difficulties in scaling the production process. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered at the facilities of our manufacturers, such facilities may need to be closed for an extended period of time to investigate and remedy the contamination, which could delay clinical trials and adversely harm our business. Moreover, if the FDA determines that our CMOs are not in compliance with FDA laws and regulations, including those governing cGMP, the FDA may deny an NDA approval until the deficiencies are corrected or we replace the manufacturer in our NDA with a human Egg PC cell-derived egg before we can test any eggsmanufacturer that is in compliance. In addition, approved products and the facilities at which they are manufactured are required to maintain ongoing compliance with extensive FDA requirements and the requirements of other similar agencies, including ensuring that quality control and manufacturing procedures conform to cGMP requirements. As such, our CMOs are subject to continual review and periodic inspections to assess compliance with cGMP. Furthermore, although we do mature. Therenot have day-to-day control over the operations of our CMOs, we are significant aspects of OvaTure that will require additional innovationresponsible for us to continue its development. The recent nature of the scientific discoveries underlying OvaTure, the need for additional innovationensuring compliance with applicable laws and the absence of information about egg precursor cell technology from human clinical trials all increase theregulations, including cGMP.
In addition, there are risks associated with this potential fertility treatment. In any event, we believe that it will be costly and time consuming to develop and successfully commercialize OvaTure, and we may not succeed in doing so.
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We believe that we will rely upon a limited number of manufacturers for our product candidates, which may include single-source suppliers for the various steps of manufacture. This reliance on a limited number of manufacturers and the complexity of drug manufacturing and the difficulty of scaling up a manufacturing process could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of our other fertility treatments would result in significant delays or may requireproduct candidates, cause us to abandonincur higher costs and prevent us from commercializing our product candidates successfully. Furthermore, if our suppliers fail to deliver the required commercial quantities of materials on a timely basis and at commercially reasonable prices, and we are unable to secure one or more clinical trials altogether. Enrollment delaysreplacement suppliers capable of production in a timely manner at a substantially equivalent cost, our clinical trials may result in increased development costs for ourbe delayed or we could lose potential fertility treatments, which would cause the value of our company to decline and limit our ability to obtain additional financing.
If we are unable to establish sales and marketing capabilities or enter into additional agreements with third parties to market and sell and market our potential fertility treatments,product candidates, we may be unable to generate any revenues.
We currently do not have an organization for the sales, marketing and distribution of TPST-1495, TPST-1120 or any future product candidates, and the cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. To market any products that may be successful in commercializing them.
Any future strategic alliance partners may not dedicate sufficient resources to the commercialization of our product candidates or may otherwise fail in their commercialization due to factors beyond our control. If we are unable to establish effective alliances to enable the sale of our product candidates to healthcare professionals and in geographical regions, including the United States, that will not be covered by our marketing and sales force, or if our potential future strategic alliance partners do not successfully commercialize the product candidates, our ability to generate revenues from product sales will be adversely affected.
If we are unable to establish adequate sales, marketing and distribution services, our treatment revenuescapabilities, whether independently or the profitability of these treatment revenues to us are likely to be lower than if we were to market and sell any potential fertility treatment ourselves. In addition,with third parties, we may not be successful in entering into arrangementsable to generate sufficient product revenue and may not become profitable. We will be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third partiesparty to sellperform marketing and market our potential fertility treatments orsales functions, we may be unable to do so on terms that are favorable to us. We likely will have limited control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our potential fertility treatments effectively and in compliance with applicable laws.
We may not be successful in obtaining necessary rightsfinding strategic collaborators for continuing development of certain of our future product candidates or successfully commercializing or competing in the market for certain indications.
In the future, we may decide to additionalcollaborate with non-profit organizations, universities and pharmaceutical and biotechnology companies for the development and potential commercialization of existing and new product candidates. We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing drugs, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies or potential fertility treatments, including from our scientific founders,for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one for our development pipeline through acquisitions and in-licenses.
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We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay our development program or one or more of our other development programs, delay our potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our expense. If we elect to increase our expenditures to fund development or commercialization activities on our product candidates, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.
The success of any potential collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations. Disagreements between parties to a competitive advantage over us due to their size, cash resources and greatercollaboration arrangement regarding clinical development and commercialization capabilities.matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of such collaboration arrangements. These disagreements can be difficult to resolve if neither of the parties has final decision-making authority. Collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration, or any failure by our partners to perform their obligations under collaboration agreements, would adversely affect us financially and could harm our business reputation or negatively impact our ability to successfully develop, obtain regulatory approvals for and commercialize our product candidates.
Risks Related to Government Regulation
The FDA regulatory approval process is lengthy and time consuming, and we may experience significant delays in the clinical development and regulatory approval of our product candidates.
Obtaining FDA approval is unpredictable, typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the type, complexity and novelty of the product candidates involved. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other data. Even if we eventually complete clinical testing and receive approval for our product candidates, the FDA may approve our product candidates for a more limited indication or a narrower patient population than originally requested or may impose other prescribing limitations or warnings that limit the product’s commercial potential. We have not submitted for, or obtained, regulatory approval for any product candidate, and it is possible that none of our product candidates will ever obtain regulatory approval. Further, development of our product candidates and/or regulatory approval may be delayed for reasons beyond our control.
We may also experience delays in obtaining regulatory approvals, including but not limited to:
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We could also encounter delays if physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of our product candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may be suspended or terminated by us, the IRBs for the institutions in which such trials are being conducted or by
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the FDA or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions, lack of adequate funding to continue the clinical trial, or based on a recommendation by the Data Safety Monitoring Committee. If we experience termination of, or delays in the completion of, any clinical trial of our product candidates, the commercial prospects for our product candidates will be harmed, and our ability to generate product revenue will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenue.
Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may ultimately lead to the denial of regulatory approval of our product candidates.
We may seek Breakthrough Therapy designation or Fast Track designation by the FDA for one or more of our product candidates but may not receive such designation. Even if we secure such designation, it 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 may seek Breakthrough Therapy or Fast Track designation for some of our product candidates. If a product candidate is intended for the treatment of a serious or life-threatening condition and clinical or preclinical data demonstrate the potential to address unmet medical needs for this condition, the product candidate may be eligible for Fast Track designation. The benefits of Fast Track designation include more frequent meetings with FDA to discuss the drug’s development plan and ensure collection of appropriate data needed to support drug approval, more frequent written communication from FDA about such things as the design of the proposed clinical trials and use of biomarkers, eligibility for Accelerated Approval and Priority Review, if relevant criteria are met, and rolling review, which means that a drug company can submit completed sections of our NDA for review by FDA, rather than waiting until every section of our NDA is completed before the entire application can be reviewed. NDA review usually does not begin until the entire application has been submitted to the FDA.
A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs designated as breakthrough therapies by the FDA may be eligible for all features of Fast Track designation, intensive guidance on an efficient drug development program, beginning as early as Phase 1, and organizational commitment involving senior managers at FDA.
The FDA has broad discretion whether or not to grant these designations, so even if we believe a particular product candidate is eligible, we cannot assure that the FDA would decide to grant the designation. Even if we obtain Fast Track designation and/or Breakthrough Therapy designation for one or more of our product candidates, it may not experience a faster development process, review or approval compared to non-expedited FDA review procedures. In addition, the FDA may withdraw Fast Track designation or Breakthrough Therapy designation if it believes that the designation is no longer supported. These designations do not guarantee qualification for the FDA’s priority review procedures or a faster review or approval process.
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We may attempt to secure FDA approval of our product candidates through the accelerated approval pathway. If we are unable to obtain accelerated approval, we may be required to conduct additional preclinical studies or clinical trials beyond those that we currently contemplate, which could increase the expense of obtaining, and delay the receipt of, necessary marketing approvals.
We are developing certain product candidates for the treatment of serious conditions, and therefore may decide to seek approval of such product candidates under the FDA’s accelerated approval pathway. A product may be eligible for accelerated approval if it is designed to treat a serious or life-threatening disease or condition and provides a meaningful therapeutic benefit over existing treatments based 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 prevalence of the condition and the availability of or lack of alternative treatments. For example, we continuethe purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to work collaboratively withpredict clinical benefit, but is not itself a measure of clinical benefit.
The accelerated approval pathway may be used in cases in which the advantage of a new drug over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective. If granted, accelerated approval is usually contingent on the sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verity and describe the drug’s anticipated effect on irreversible morbidity or mortality or other clinical benefit. In some cases, the FDA may require that the trial be designed, initiated, and/or fully enrolled prior to approval. If the sponsor fails to conduct such studies in a timely manner, or if such post-approval studies fail to verify the drug’s predicted clinical benefit, or if other evidence demonstrates that our scientific founders. These scientists continueproduct candidate is not shown to be activesafe and effective under the conditions of use, the FDA may withdraw its approval of the drug on an expedited basis.
If we decide to submit an NDA seeking accelerated approval or receive an expedited regulatory designation for any of our product candidates, there can be no assurance that such submission or application will be accepted or that any expedited development, review or approval will be granted on a timely basis, or at all. If any of our competitors were to receive full approval on the basis of a confirmatory trial for an indication for which we are seeking accelerated approval before we receive accelerated approval, the indication we are seeking may no longer qualify as a condition for which there is an unmet medical need and accelerated approval of our product candidate would be more difficult or may not occur.
Failure to obtain accelerated approval or any other form of expedited development, review or approval for our product candidates would result in a longer time period to commercialization of such product candidate, if any, and could increase the cost of development of such product candidate harm our competitive position in the fieldmarketplace.
We may be unsuccessful in obtaining Orphan Drug Designation for our product candidates or transfer of infertilitydesignations obtained by others for future product candidates, and, may develop new potential fertility treatments or intellectual property based on their continued research relating to infertility. The rights to new inventions by our scientific founders generally belong to the hospitals and academic institutions at which they are employed and are not subject to license or other rights in our favor. In the event that our scientific founders, or other third party scientists or entities, develop potential fertility treatments or intellectual property that
The FDA may designate drugs intended to treat relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is intended to treat a rare disease or condition, which is defined as a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 in the United States when there is no reasonable expectation that the cost of developing and making available the drug in the United States will be recovered from sales in the United States for that drug. Orphan drug designation must be requested before submitting an NDA. In the United States, Orphan Drug Designation entitles a party to financial incentives such acquisitionas opportunities for tax credits for qualified clinical research costs and exemption from prescription drug user fees. Generally, if a drug with an Orphan Drug Designation subsequently receives the first marketing approval for the indication for which it has such designation, the drug is entitled to a period of marketing exclusivity, which precludes FDA from approving another marketing application for the same drug and indication for that time period, except in limited circumstances. If a competitor is able to obtain orphan drug exclusivity prior to us for a product that constitutes the same active moiety and treats the same indications as our product candidates, we may
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not be able to obtain approval of our drug by the applicable regulatory authority for a significant period of time unless we are able to show that our drug is clinically superior to the approved drug. The applicable period is seven years in the United States.
We may seek Orphan Drug Designation for one or in-license. Our failuremore of our product candidates in the United States as part of our business strategy. However, Orphan Drug Designation does not guarantee future orphan drug marketing exclusivity. Even after an orphan drug is approved, the FDA can also subsequently approve a later application for the same drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to reach an agreement for any applicable potential fertility treatment or intellectual property could resultbe safer in a third party acquiringsubstantial portion of the related rights and thereby harm our business.
Moreover, orphan drug exclusive marketing rights in the United States may be unwilling to assignlost if the FDA later determines that the request for designation was materially defective or license rights to us. We also may be unable to license or acquire relevant potential fertility treatments on terms that would allow us to make an appropriate return on our investment.
Enacted and future legislation may increase the difficulty and cost for us to commercialize and obtain marketing approval of our product candidates and may affect the prices we may set.
Existing regulatory policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, and we may not achieve or sustain profitability.
In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the Affordable Care Act (“ACA”), was enacted to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The ACA contains provisions that may potentially affect the profitability of our product candidates, if approved, including, for example, increased rebates for products sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs, and expansion of the entities eligible for discounts under the 340B Drug Pricing Program.
While Congress has not passed legislation to comprehensively repeal the ACA, legislation affecting the ACA has been signed into law, including the Tax Cuts and Jobs Act of 2017, which eliminated, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year, which is commonly referred to as the “individual mandate.” On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the law. In addition, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 ("IRA") into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA through plan year 2025. The IRA also reduces the "donut hole" under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and through a newly established manufacturer discount program. In the future, there may be other efforts to challenge, repeal or replace the ACA. It is unclear how many such challenges and the healthcare reform measures of the Biden administration will impact the ACA and our business. We are continuing to monitor any changes to the ACA that, in turn, may potentially impact our business in the future.
Recently, the cost of prescription pharmaceuticals has been the subject of considerable discussion in the United States at both the federal and state levels. While several proposed reform measures will require Congress to pass legislation to become effective, Congress and the Biden administration have each indicated that it will seek new legislative and/or administrative measures to address prescription drug costs. Since the Presidential inauguration, the Biden administration has taken several executive actions
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that signal changes in policy from the prior administration. For example, on July 9, 2021, President Biden signed an executive order to promote competition in the U.S. economy that included several initiatives aimed prescription drugs. Among other provisions, the executive order directed the Secretary of the U.S. Department of Health and Human Services ("HHS") to issue a report to the White House that includes a plan to, among other things, reduce prices for prescription drugs, including prices paid by the federal government for such drugs. In response to Biden’s executive order, on September 9, 2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions HHS can take to advance these principles. In addition, the IRA, among other things, (1) directs HHS to negotiate the price of certain single-source drugs and biologics covered under Medicare and (2) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. These provisions will take effect progressively starting in fiscal year 2023, although they may be subject to legal challenges. It is currently unclear how the IRA will be implemented but is likely to have a significant impact on the pharmaceutical industry. Further, the Biden administration released an additional executive order on October 14, 2022, directing HHS to submit a report on how the Center for Medicare and Medicaid Innovation can be further leveraged to test new models for lowering drug costs for Medicare and Medicaid beneficiaries. It is unclear whether this executive order or similar policy initiatives will be implemented in the future. At the state level, legislatures and agencies are increasingly passing legislation and implementing regulations designed to control spending on and patient out-of-pocket costs for drug products. These measures include constraints on pricing, discounting and reimbursement; restrictions on certain product access and marketing; cost disclosure and transparency measures that require detailed reporting of drug pricing and marketing information both at product launch and in the event of a price increase; and, in some cases, measures designed to encourage importation from other countries and bulk purchasing.
We expect that the ACA and the IRA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any 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.
Legislative and regulatory proposals have also been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
The FDA’s ability to review and approve new products may be hindered by a variety of factors, including budget and funding levels, ability to hire and retain key personnel, statutory, regulatory and policy changes and global health concerns.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. 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 may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical employees and stop critical activities.
The ability of the FDA and other government agencies to properly administer their functions is highly dependent on the levels of government funding and the ability to fill key leadership appointments, among various factors. Delays in filling or replacing key positions could significantly impact the ability of the FDA and other agencies to fulfill their functions, and could greatly impact healthcare and the pharmaceutical industry.
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We are subject to stringent and evolving U.S. and foreign laws, regulations, and rules, contractual obligations, industry standards, policies and other obligations related to data privacy and security, and our failure to comply with them could harm our business.
We collect, receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, and share (collectively, process) a large quantity of sensitive information, including confidential business and patient health information in connection with our preclinical and clinical studies. Our data processing activities subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contractual requirements, and other obligations relating to data privacy and security.
In the United States, there are numerous federal and state privacy and data security laws and regulations governing the processing of personal data, including health information privacy laws, security breach notification laws, consumer protection laws, and other similar laws (e.g., wiretapping laws). Each of these laws is subject to varying interpretations and constantly evolving. In addition, we obtain health information from third parties (including research institutions from which it obtains clinical trial data) that are subject to privacy and security requirements under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which imposes specific requirements relating to the privacy, security, and transmission of protected health information.
Certain states have also adopted comprehensive privacy laws and regulations that impose certain obligations on covered businesses, including providing specific disclosures in privacy notices and affording residents with certain rights concerning their personal data. For example, the California Consumer Privacy Act, as amended by the California Privacy Rights Act (“CPRA”) (collectively, the “CCPA”) gives California residents expanded rights to suitableaccess and delete their personal data, opt out of certain personal data sharing, and receive detailed information about how their personal information is used. 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. Although the CCPA exempts some data processed in the context of clinical trials, the CCPA may increase our compliance costs and potential fertility treatmentsliability. Similar laws are being considered in several other states, as well as at the federal and local levels, and we expect more states to pass similar laws in the future.
Outside the United States, an increasing number of laws, regulations, and industry standards govern data privacy and security. For example, in Canada, the Personal Information Protection and Electronic Documents Act (“PIPEDA”) and similar provincial laws may impose obligations with respect to processing personal data, including health-related information. PIPEDA requires companies to obtain an individual’s consent when collecting, using or disclosing that individual’s personal data. Individuals have the right to access and challenge the accuracy of their personal data held by an organization, and personal data may only be used for the purposes for which it was collected. If an organization intends to use personal data for another purpose, it must again obtain that individual’s consent. Failure to comply with PIPEDA could result in significant fines and penalties.
As another example, the European Union’s General Data Protection Regulation (the “EU GDPR”) and the United Kingdom’s GDPR (together with EU GDPR, “GDPR”) also impose strict requirements for processing personal data and substantial fines for breaches and violations (for example, under the EU GDPR, up to the greater of €20 million or 4% of our annual worldwide gross revenue). Additionally, under GDPR, companies may face temporary or definitive bans on reasonable terms,data processing and other corrective action or private litigation related to processing of personal data brought by classes of data subjects or consumer protection organizations authorized at law to represent their interests.
Further, Europe and other jurisdictions have enacted laws requiring data to be localized or limiting the transfer of personal data to other countries. In particular, the European Economic Area (EEA) and the UK have significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it generally believes are inadequate. Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws. If there is no lawful manner for us to transfer personal data from the EEA, the UK or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions (such as Europe) at significant expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to
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transfer data and work with partners, vendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business.
In addition to data privacy and security laws, we are contractually subject to industry standards adopted by industry groups and, we may become subject to such obligations in the future. We are also bound by contractual obligations related to data privacy and security, and our efforts to comply with such obligations may not be successful. We publish privacy policies, marketing materials and other statements regarding data privacy and security. If these policies, materials or statements are found to be deficient, lacking in transparency, deceptive, unfair, or misrepresentative of our practices, we may be subject to investigation, enforcement actions by regulators or other adverse consequences.
Compliance with these obligations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms designed to ensure compliance with these obligations. If we fail (or are perceived to have failed) to comply with any such obligations, we may face significant consequences, including without limitation government enforcement actions (e.g., investigations, fines and penalties, audits, inspections); litigation (including class-action claims) and mass arbitration demands); additional reporting requirements and/or oversight; bans on processing personal data; orders to destroy or not use personal data; imprisonment of company officials; or other consequences that could adversely affect our business, financial condition and prospectsresults of operations.
If our information technology systems or those of third parties upon which we rely, or our data, are or were compromised, we could experience adverse consequences, including disclosure of sensitive information, damage to our reputation, and significant financial and legal exposure.
Cyberattacks, malicious internet-based activity, online and offline fraud, and other similar activities threaten the confidentiality, integrity, and availability of our sensitive information and information technology systems, and those of the third parties upon which we rely. These threats are increasing in their frequency, sophistication and intensity, have become increasingly difficult to detect, and come from a variety of sources, including traditional computer “hackers,” threat actors, “hacktivists,” organized criminal threat actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors. Some actors now engage and are expected to continue to engage in cyberattacks, including without limitation nation-state actors for growthgeopolitical reasons and in conjunction with military conflicts and defense activities. During times of war and other major conflicts, we and the third parties upon which we rely may be vulnerable to a heightened risk of these attacks, including retaliatory cyberattacks, that could suffer.
Cyberattacks could include wrongful conduct by hostile foreign governments, industrial espionage, wire fraud and other forms of cyber fraud, the deployment of harmful malware, denial-of-service attacks, social engineering attacks (including through deep-fakes, which may be increasingly more difficult to identify as fake, and phishing attacks), malicious code (such as viruses and worms), credential stuffing attacks, credential harvesting, ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data, attacks enhanced or facilitated by artificial intelligence or other information technology assets, fraud or other means to threaten confidentiality, integrity and availability of our sensitive information. We face substantial competition, including fromand the third parties upon which we rely may also experience telecommunications failures, natural disasters, terrorism, war and other similar threats.
In particular, severe ransomware attacks are becoming increasingly prevalent and can lead to significant interruptions in our operations, ability to provide our products or services, loss of sensitive information and income, reputational harm, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments.
As more established infertility treatments,of our employees work remotely, the risk of a cybersecurity incident potentially occurring, and our investment in risk mitigations against such as standard IVF,an incident, is increasing. For example, there has been an increase in phishing and spam emails as well as advancessocial engineering attempts from “hackers.” Future or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities
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present in new artificial reproductive technologies, whichacquired or integrated entities’ systems and technologies. Furthermore, we may resultdiscover security issues that were not found during due diligence of such acquired or integrated entities, and it may be difficult to integrate companies into our information technology environment and security program.
In addition, we rely on third parties and their technology to operate critical business systems to process sensitive information, including our CROs, CMOs and other contractors, consultants and law and accounting firms. Our ability to monitor these third parties’ information security practices is limited, and these third parties may not have adequate information security measures in others discovering, developingplace. If these third parties experience a security incident or commercializing potential fertility treatments beforeother interruption, we could experience adverse consequences. While we may be entitled to damages if our third-party partners fail to satisfy their privacy or more successfully thansecurity-related obligations to us, any award may be insufficient to cover our damages, or we do.
Although we devote resources to protect our information systems, we realize that cyberattacks are a number of fertility treatmentsthreat, and there can be no assurance that are generally acceptedour efforts will prevent information security breaches. We take steps designed to detect, mitigate, and remediate vulnerabilities in our information systems (such as our and the medicalthird parties’ upon which we rely hardware and patient communities,software). We may not, however, detect and remediate all such vulnerabilities including fertility drugs, IUIon a timely basis. Further, we may experience delays in developing and IVF. Competition in the infertility market is largely based on pregnancydeploying remedial measures and live birth rates and side effects of treatment on patients. Accordingly, our success is highly dependent on our ability to develop potential fertility treatments that improve pregnancy and live birth rates and reduce risks and side effects, as compared to existing treatments. The ability of any potential fertility treatment that we successfully develop to reduce the overall costs associated with IVF also will be an important competitive factor.
Any of the shortcomingspreviously identified or similar threats could cause a security incident or other interruption that could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, IVF.or access to our sensitive information or our information technology systems, or those of the third parties upon whom we rely. A security incident or other interruption could disrupt our ability (and that of third parties upon whom we rely) to provide our services.
We may expend significant resources or modify our business activities (including our clinical trial activities) to try to protect against security incidents. Certain data privacy and security obligations may require us to implement and maintain specific security measures or industry-standard or reasonable security measures to protect our information technology systems and sensitive information. Applicable data privacy and security obligations may require us to notify relevant stakeholders, including affected individuals, customers, regulators, and investors, of security incidents. Such disclosures are costly, and the disclosure or the failure to comply with such requirements could lead to adverse consequences.
A successful or perceived security incident experienced by us or the third parties upon which we rely could cause serious negative consequences for us, including, without limitation, the disruption of operations, the misappropriation of sensitive information, disclosure of corporate strategic plans, material disruption of our development programs and our business operations, government enforcement actions (e.g., investigations, fines, penalties, audits, inspections), additional reporting requirements and/or oversight, restrictions on processing sensitive information, litigation, indemnification obligations, reputational harm, negative publicity, and other harms. For example, the loss of data from preclinical studies or clinical trials could result in significant delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security incident were to result in a loss of, or damage to, our sensitive information or applications, or inappropriate disclosure of such information, we could incur liability, our competitive position could be harmed and the further development and commercialization of our product candidates could be significantly delayed.
Our employees, principal investigators, CROs, CMOs and consultants may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners. Misconduct by these parties could include intentional failures to comply with the regulations of FDA and non-U.S. regulators, to provide accurate information to the FDA and non-U.S. regulators, to comply with healthcare fraud and abuse laws and regulations in the United States and abroad, to report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws
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and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions and could cause serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are awarenot successful in defending or asserting our rights, those actions could have a significant impact on our business, including the imposition of a numbersignificant fines or other sanctions.
Obtaining and maintaining regulatory approval of companiesour product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions.
Obtaining and laboratories that are currently developing potential fertility treatments intended to identify high quality embryos for usemaintaining regulatory approval of our product candidates in IVF, a university study of the transfer of granulosa cell mitochondria into eggs, a university study using pronuclear transfer for improvement in IVF success rates and a university study of induced pluriopotent stem cells, or iPS, shows that iPS cells can be generated from somatic cells and programmed to become differentiated cells, which can include germ line cells such as oocytes. Novocellus Ltd. is developing an embryo viability test, using culture media, to aid in the selection of embryos used in IVF. FertiliTech and Auxogyn, Inc. are developing hardware and software that analyzes embryo development against cell division timing parameters to help identify the highest quality embryo within a group of embryos. If successfully developed, these potential fertility treatments could improve outcomes and alleviate some of the other shortcomings of standard IVF, thereby decreasing the need for our potential fertility treatments. Fertility Focus, along with its strategic partner Norgenix, are developing a fertiloscope for the early diagnosis of, and immediate corrective surgery for, the physical causes of infertility. Molecular diagnostic companies like Reprogenetics are developing novel preimplantation genetic diagnosis and screening methods to detect chromosomal and genetic disorders of embryos prior to transfer back to the women. Testing embryos in this manner may increase the likelihood of pregnancy, reduce the chances of pregnancy loss, and improve the odds of delivery. At this time, we cannot evaluate how our potential fertility treatments, if successfully developed and commercialized, would compare technologically, clinically or commercially to any other potential fertility treatments being developed or to be marketed by competitors. There can be no assuranceone jurisdiction does not guarantee that we will be able to compete effectively. OvaXon is engagedobtain or maintain regulatory approval in gene editing, which isany other jurisdiction, while a rapidly evolving field. OvaXon could potentially have competitorsfailure or delay in bothobtaining regulatory approval in the United States and internationally, including major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions. Some of the pharmaceutical and biotechnology companies we expect OvaXon to compete with include GlaxoSmithKline plc, Sangamo BioSciences Inc., HemaQuest Pharmaceuticals, Inc., Merck & Co., Inc., and Novartis AG.
We may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA foralso submit marketing applications in the United States does not ensure approval by regulatoryother countries. Regulatory authorities in other countries or jurisdictions and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA.
Our operations and criminal penalties.
Healthcare providers and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we anticipate very limited third party coverage and reimbursement, including from federal healthcare programs, for any of our potential fertility treatments and services, ourobtain marketing approval. Our future arrangements with third partyproviders, third-party payors and IVF clinics and physicians may exposecustomers will subject us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute OvaPrime, OvaTure and any other future potential fertility treatments and servicesproduct candidates for which we obtain marketing approval.
Restrictions under applicable U.S. federal and state fraud and abusehealthcare laws and regulations that may be applicable to our business include the following:
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If we fail to comply with environmental, health, and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success ofharm our business.
We are subject to numerous environmental, health, and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Ourour operations also may produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannotwill not be able to eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from ourany use by us 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.
Although we maintain workers'workers’ compensation insurance to cover us for costs and expenses, we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.
In addition, we may incur substantial costs in order to comply with current or future environmental, health, and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. FailureOur failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Changes in tax laws or regulations could materially adversely affect us.
New tax laws or regulations could be enacted at any time, and commercialization. This reliance on third parties may increase the risk of failing to provide manufacturing capacity to meet our potential fertility treatments at an acceptable cost. Lack of direct control of manufacturing capacity, costs and regulatory complianceexisting tax laws or regulations could delay, preventbe interpreted, modified or impair our development and commercialization efforts.
Risks Related to Our DependenceIntellectual Property
Our success depends in part on Third Parties
Our commercial success will depend in developinglarge part on obtaining and ultimately commercializing these potential fertility treatments.
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The patenting process is expensive and time-consuming, and we may not be able to further developfile and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. In addition, we may not pursue or obtain patent protection in all relevant markets. It is also possible that we will fail to identify patentable aspects of our potential fertility treatmentsresearch and development activities before it is too late to obtain patent protection. Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or bring these potential fertility treatments to marketmaintain the patents, covering technology that we license from or license to third parties and generate revenue.
We currently and may in the future depend on intellectual property licensed from third parties, and our current or future licensors may not always act in our best interest. If we fail to comply with our obligations under our intellectual property licenses, if the licenses are terminated, or if disputes regarding these licenses arise, we could lose licensesignificant rights that aremay be important to our business.
We have an exclusivecurrently license from MGH with respect to the intellectual property that formsfrom the basisRegents of our business. The license under MGH-owned patentthe University of California and may in the future depend on patents, know-how and proprietary technology licensed from third parties. Our licenses to such patents, know-how and proprietary technology may not provide exclusive rights and know-how is for human female fertility, the treatment or prevention of inherited (including mitochondrial) diseases or defects in all animals, including humans, assisted and/or artificial reproductive technologyrelevant fields of use and in all non-human animals,territories in which we may wish to develop or commercialize our products in the future. The agreements under which we license patents, know-how and proprietary technology from others may be complex, and certain provisions in such agreements may be susceptible to multiple interpretations.
We may in the artificial creationfuture need to obtain licenses from third parties to advance our research or allow commercialization of food, research animals and/product candidates Tempest may develop. It is possible that we may be unable to obtain any licenses at a reasonable cost or animal products; and the license under the MGH and Harvard co-owned patent right is for
If our competitors could develop and commercialize technology and potential fertility treatments similarcurrent or identicalfuture licensors fail to ours, andadequately protect our licensed intellectual property, our ability to successfully commercialize product candidates could suffer. We may not have complete control over the maintenance, prosecution and litigation of our technologycurrent or future in-licensed patents and potential fertility treatmentspatent applications. For example, we cannot be certain that activities such as the maintenance and prosecution by our current or future licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. It is possible that our current or future licensors’ infringement proceedings or defense activities may be adversely affected.
In addition, the lawsresolution of foreign countriesany contract interpretation disagreement that may not protectarise could narrow what we might believe to be the scope of our rights to the samerelevant patents, know-how and proprietary technology, or increase what we believe to be our financial or other obligations under the relevant agreement. Disputes that may arise between us and our current or future licensors regarding intellectual property subject to a license agreement could include disputes regarding:
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If disputes over intellectual property that we currently license or to maintain the licensed patents covering our technology or potential fertility treatments. This could also be the case under any othermay license agreements we enter into in the future. Therefore, we rely on MGH, and may rely on other licensors in the future prevent or impair our ability to file, defend and maintain patents that are important to our business. The failure of MGH or other licensorslicensing arrangements on acceptable terms, we may be unable to successfully prosecute, defenddevelop and maintain thesecommercialize the affected technology or product candidates.
Our owned and in-licensed patents and patent applications in a manner consistent with the best interestsmay not provide sufficient protection of our business could adversely affect our ability to successfully commercialize our technology and potential fertility treatments.
The patent position of biotechnology and pharmaceuticalbiopharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our and our licensors' patent rights are highly uncertain. Our and our licensors' pending and future patent applications and those of our licensors may not result in patents being issued which protect our technologyproduct candidates or potential fertility treatments or thatwhich effectively prevent others from commercializing competitive technologiesproduct candidates.
The strength of patents in the biotechnology and potential fertility treatments. Changespharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or in-license may fail to result in either the patent lawsissued patents with claims that cover our product candidates or interpretation of the patent lawsuses thereof in the United States andor in other countries may diminish the value of our patents or narrow the scope offoreign countries. For example, while our patent protection.
Since patent applications in the United States and other countries are confidential for a period of time after filing or until issuance, at any moment in time, we cannot be certain that it was in the past or will be in the future the first to file any patent application related to our product candidates. In addition, some patent applications in the United States may be maintained in secrecy until the patents protecting such candidates might expire beforeare issued. As a result, there may be prior art of which we are not aware that may affect the validity or shortly after such candidates are commercialized. For example, certainenforceability of a patent claim, and we may be subject to priority disputes. We may be required to disclaim part or all of the U.S.term of certain patents or all of the term of certain patent applications. There also may be prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or
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enforceability of a claim. No assurance can be given that, if challenged, our patents would be declared by a court, patent office or other governmental authority to be valid or enforceable or that even if found valid and enforceable, a competitor’s technology or product would be found by a court to infringe our patents. We may analyze patents or patent applications of our competitors that we believe are relevant to our activities, and consider that we are free to operate in relation to our product candidates, but our competitors may achieve issued claims, including in patents we consider to be unrelated, that block our efforts or potentially result in our product candidates or our activities infringing such claims. It is possible that our competitors may have filed, and may in the future file, patent applications covering our products or technology similar to our products and technology. Those patent applications may have priority over our owned and in-licensed patent applications or patents, which could require us to obtain rights to issued patents covering such technologies. The possibility also exists that others will develop products that have the same effect as our product candidates on an independent basis that do not infringe our patents or other intellectual property rights, or will design around the claims of patents that we have had issued that cover our product candidates or their use. Likewise, our currently owned patents and patent applications, if issued as patents, directed to our proprietary technologies and our product candidates are expected to expire from 2033 through 2043, without taking into account any possible patent term adjustments or extensions. Our earliest patents may expire before, or soon after, our first product achieves marketing approval in the United States or foreign jurisdictions. Additionally, we cannot be assured that the USPTO or relevant foreign patent offices will grant any of the pending patent applications we exclusively licenseown or in-license currently or in the future. Upon the expiration of our current patents, we may lose the right to exclude others from MGHpracticing these inventions. The expiration of these patents could also have a similar material adverse effect on our business, financial condition, results of operations and prospects.
The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
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Any of the foregoing could have a material adverse effect on our business, financial conditions, results of operations and prospects.
Our strategy of obtaining rights to exclude otherskey technologies through in-licenses may not be successful.
The future growth of our business may depend in part on our ability to in-license or otherwise acquire the rights to additional product candidates and technologies. We cannot assure you that we will be able to in-license or acquire the rights to any product candidates or technologies from third parties on acceptable terms or at all.
For example, our agreements with certain of our third-party research partners provide that improvements developed in the course of our relationship may be owned solely by either we or our third-party research partner, or jointly between us and the third party. If we determine that exclusive rights to such improvements owned solely by a research partner or other third party with whom we collaborate are necessary to commercialize our drug candidates or maintain our competitive advantage, we may need to obtain an exclusive license from such third party in order to use the improvements and continue developing, manufacturing or marketing our drug candidates. We may not be able to obtain such a license on an exclusive basis, on commercially reasonable terms, or at all, which could prevent us from commercializing potential fertility treatments similarour drug candidates or identicalallow our competitors or others the opportunity to ours.access technology that is important to our business. We also may need the cooperation of any co-owners of our intellectual property in order to enforce such intellectual property against third parties, and such cooperation may not be provided to us.
In addition, the in-licensing and acquisition of these technologies is a highly competitive area, and a number of more established companies are also pursuing strategies to license or acquire product candidates or technologies that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to license rights to us. Furthermore, we may be unable to identify suitable product candidates or technologies within our area of focus. If we are unable to successfully obtain rights to suitable product candidates or technologies, our business and prospects could be materially and adversely affected.
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If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to patent protection, we rely upon know-how and trade secret protection, as well as non-disclosure agreements and invention assignment agreements with our employees, consultants and third-parties, to protect our confidential and proprietary information, especially where we do not believe patent protection is appropriate or obtainable.
It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual or entity during the course of the party’s relationship with us are to be kept confidential and not disclosed to third parties, except in certain specified circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual, and that are related to our current or planned business or research and development or made during normal working hours, on our premises or using our equipment or proprietary information (or as otherwise permitted by applicable law), are our exclusive property. In the case of consultants and other third parties, the agreements provide that all inventions conceived in connection with the services provided are our exclusive property. However, we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary technology and processes. We have also adopted policies and conducts training that provides guidance on our expectations, and our advice for best practices, in protecting our trade secrets. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches.
In addition to contractual measures, we try to protect the confidential nature of our proprietary information through other precautions, such as physical and technological security measures. However, trade secrets and know-how can be difficult to protect. These measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a competitor, and any recourse we might take against this type of misconduct may not provide an adequate remedy to protect our interests fully. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, trade secrets may be independently developed by others in a manner that could prevent us from receiving legal recourse. If any of our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, such as through a security incident, or if any of that information was independently developed by a competitor, our competitive position could be harmed. Additionally, certain trade secret and proprietary information may be required to initiatebe disclosed in submissions to regulatory authorities. If such authorities do not maintain the confidential basis of such information or disclose it as part of the basis of regulatory approval, our competitive position could be adversely affected.
In addition, courts outside the United States are sometimes less willing to protect trade secrets. If we choose to go to court to stop a third party from using any of our trade secrets, we may incur substantial costs. Even if we are successful, these types of lawsuits may result in substantial cost and require significant time from our scientists and management. Although we take steps to protect our proprietary information and trade secrets, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology, through legal or illegal means. As a result, we may not be able to meaningfully protect our trade secrets. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.
Third-party claims of intellectual property infringement may prevent, delay or otherwise interfere with our product discovery and development efforts.
Our commercial success depends in part on our ability to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing, misappropriating or otherwise violating the intellectual property or other proprietary rights of third parties. There is a substantial amount of litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference, derivation, inter partes review, post grant review, and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. We may be exposed to, or threatened with, future litigation by third
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parties having patent or other intellectual property rights alleging that our product candidates and/or proprietary technologies infringe, misappropriate or otherwise violate their intellectual property rights. Numerous U.S. and foreign issued patents and pending patent applications that are owned by third parties exist in the fields in which we are developing our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may give rise to claims of infringement of the patent rights of others. Moreover, it is not always clear to industry participants, including us, which patents cover various types of drugs, products or their methods of use or manufacture. Thus, because of the large number of patents issued and patent applications filed in our field, third parties may allege they have patent rights encompassing our product candidates, technologies or methods.
If a third party claims that we infringe, misappropriate or otherwise violate their intellectual property rights, we may face a number of issues, including, but not limited to:
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations or could otherwise have a material adverse effect on our business, financial condition, results of operations and prospects.
Third parties may assert that we are employing their proprietary technology without authorization, including by enforcing our patents against us by filing a patent infringement lawsuit against us. In this regard, patents issued in the United States by law enjoy a presumption of validity that can be rebutted only with evidence that is “clear and convincing,” a heightened standard of proof.
There may be third-party patents of which we are currently unaware of with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringe upon these patents.
If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of our product candidates, or materials used in or formed during the manufacturing process, or any final product itself, the holders of those patents may be able to block our ability to commercialize our product candidate unless we obtain a license under the applicable patents, or until those patents were to expire or those patents are finally determined to be invalid or unenforceable. Similarly, if
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any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy or patient selection methods, the holders of that patent may be able to block our ability to develop and commercialize the product candidate unless we obtain a license or until such patent expires or is finally determined to be invalid or unenforceable. In either case, a license may not be available on commercially reasonable terms, or at all, particularly if such patent is owned or controlled by one of our primary competitors. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, or at all, our ability to commercialize our product candidates may be impaired or delayed, which could significantly harm our business. Even if we obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. 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.
Parties making claims against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee time and resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any license of this nature would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates and we may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all.
In that event, we would be unable to further develop and commercialize our product candidates, which could significantly harm our business.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consumingtime-consuming and unsuccessful.
Competitors may infringe our patents.patents or the patents of our current or future licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming.time-consuming. In addition, in an infringement proceeding, a court may decide that a patentone or more of oursour patents is invalidnot valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse
In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Grounds for a validity challenge include an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, written description, non-enablement, or obviousness-type double patenting. Grounds for an unenforceability assertion could include an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. These types of mechanisms include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). These types of proceedings could result in any litigation proceeding could put onerevocation or more ofamendment to our patents such that they no longer cover our product candidates. The outcome for any particular patent following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we, our patent counsel and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, or if we are otherwise unable to adequately protect our rights, we would lose at riskleast part, and perhaps all, of being invalidatedthe patent protection on our product candidates. Defense of these types of claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business.
Conversely, we may choose to challenge the patentability of claims in a third party’s U.S. patent by requesting that the USPTO review the patent claims in re-examination, post-grant review, inter partes review, interference proceedings, derivation
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proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings), or interpreted narrowly. we may choose to challenge a third party’s patent in patent opposition proceedings in the Canadian Intellectual Property Office (“CIPO”), the European Patent Office (“EPO”), or another foreign patent office. Even if successful, the costs of these opposition proceedings could be substantial, and may consume our time or other resources. If we fail to obtain a favorable result at the USPTO, CIPO, EPO or other patent office then we may be exposed to litigation by a third party alleging that the patent may be infringed by our product candidates or proprietary technologies.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.
We may become partynot be able to or threatened with, future adversarial proceedings or litigation regardingprotect our intellectual property rights with respect tothroughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our potential fertility treatments and technology, including interference proceedings before the USPTO. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. If we are found to infringe a third party's intellectual property rights we couldin some countries outside the United States can be requiredless extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to obtain a license from such third party to continue developingthe same extent as federal and marketing our potential fertility treatments and technology. However,state laws in the United States. For example, patents covering methods-of-use are not available in certain foreign countries. Consequently, we may not be able to obtainprevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we do not have or have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but where enforcement is not as strong as that in the United States. These products may compete with our product candidates in jurisdictions where we do not have any required license onissued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products against third parties in violation of our proprietary rights generally. The initiation of proceedings by third parties to challenge the scope or validity of our patent rights in foreign jurisdictions could result in substantial cost and divert management’s efforts and attention from other aspects of our business. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert management’s efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially reasonable terms or at all. Even if we were ablemeaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a license, it couldsignificant commercial advantage from the intellectual property that we develop or license.
Many countries have compulsory licensing laws under which a patent owner may be non-exclusive, thereby giving our competitors accesscompelled to the same technologies licensedgrant licenses to us. We could be forced, including by court order, to cease commercializing the infringing technology or treatment.third parties. In addition, we could be found liable for monetary damages. A findingmany countries limit the enforceability of infringement could prevent us from commercializing our potential fertility treatmentspatents against government agencies or force us to cease some of our business operations,government contractors. In these countries, the patent owner may have limited remedies, which could materially harmdiminish the value of such patent. If we are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected.
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Geo-political actions in the United States and in foreign countries could increase the uncertainties and costs surrounding the prosecution or maintenance of our patent applications or those of any current or future licensors and the maintenance, enforcement or defense of our issued patents or those of any current or future licensors. For example, the United States and foreign government actions related to the Russia-Ukraine war may limit or prevent filing, prosecution and maintenance of patent applications in Russia. Government actions may also prevent maintenance of issued patents in Russia. These actions could result in abandonment or lapse of our patents or patent applications, resulting in partial or complete loss of patent rights in Russia. If such an event were to occur, it could have a material adverse effect on our business. ClaimsIn addition, a decree was adopted by the Russian government in March 2022, allowing Russian companies and individuals to exploit inventions owned by patentees that
Third parties may assert that our employees or consultants have wrongfully appropriated theused or disclosed confidential information or misappropriated trade secrets of third parties could have a similar negative impact on our business.
As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at universities or other biotechnologybiopharmaceutical or pharmaceutical companies.companies, including our competitors or potential competitors. Although we try to ensure that our employees and consultants do not appropriate or use the proprietary information or know-how of others in their work for us, we may be subject to claims that weour employees, consultants or these employeesindependent contractors have appropriated,inadvertently or otherwise used or disclosed intellectual property, including information forming the basis of patents and patent applications, trade secrets or other proprietary information, of any such employee'sa former employer. Litigationemployer or other third parties. We may be necessarythen have to pursue litigation to defend against these claims. If we fail in defending any such claims of this nature, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel and our reputation may be harmed.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign patent agencies also require compliance with a number of procedural, documentary, fee payment and other provisions during the patent application process and following the issuance of a patent. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable laws and rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. Were a noncompliance event to occur, our competitors might be able to enter the market, which would have a material adverse effect on our business financial condition, results of operations and prospects.
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Changes in patent law in the United States and in non-U.S. jurisdictions could diminish the value of patents in general, thereby impairing our ability to competeprotect our product candidates.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the marketplace.biopharmaceutical industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain.
Past or future patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. For example, in March 2013, under the Leahy-Smith America Invents Act (“America Invents Act”), the United States moved from a “first to invent” to a “first-to-file” patent system. Under a “first-to-file” system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to a patent on the invention regardless of whether another inventor had made the invention earlier. The America Invents Act includes a number of other significant changes to U.S. patent law, including provisions that affect the way patent applications are prosecuted, redefine prior art and establish a new post-grant review system. The effects of these changes continue to evolve as the USPTO continues to promulgate new regulations and procedures in connection with the America Invents Act. In addition, the courts have yet to address many of these provisions and the applicability of the act and new regulations on the specific patents discussed in this filing have not been determined and would need to be reviewed. Moreover, the America Invents Act and our implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
Additionally, recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. We cannot predict how decisions by the federal courts, the U.S. Congress or the USPTO may impact the value of our patent rights. For example, the Federal Circuit recently issued a decision involving the interaction of patent term adjustment (PTA), terminal disclaimers, and obviousness-type double patenting. This decision creates uncertainty to the patent terms of certain U.S. patents that share the same priority claim where on expires later than another due to accrued PTA. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain or license in the future. For example, in the case, Assoc. for Molecular Pathology v. Myriad Genetics, Inc., the U.S. Supreme Court held that certain claims to DNA molecules are not patent-eligible.
Similarly, other cases by the U.S. Supreme Court have held that certain methods of treatment or diagnosis are not patent-eligible. U.S. law regarding patent-eligibility continues to evolve. While we do not believe that any of our patents will be found invalid based on these changes to U.S. patent law, we cannot predict how future decisions by the courts, the U.S. Congress or the USPTO may impact the value of our patents and patent applications. Any similar adverse changes in the patent laws of other jurisdictions could also have a material adverse effect on our business, financial condition, results of operations and prospects.
As a further example, beginning June 1, 2023 European patent applications and patents may be subjected to the jurisdiction of the Unified Patent Court (UPC). Also, European patent applications will have the option, upon grant of a patent, of becoming a Unitary Patent, which will be subject to the jurisdiction of the UPC. The UPC and Unitary Patent are significant changes in European patent practice. As the UPC is a new court system, there is no precedent for the court, increasing the uncertainty of any litigation in the UPC. As a single court system can invalidate a European patent, we, where applicable, may opt out of the UPC and as such, each European patent would need to be challenged in each individual country.
Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products, including generics. Given the amount of time required for
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the development, testing and regulatory review of new product candidates, patents protecting our product candidates might expire before or shortly after we or our partners commercialize those candidates. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
If we do not obtain patent term extension for any product candidates it may develop, our business may be materially harmed.
Depending upon the timing, duration and specifics of any FDA marketing approval of any product candidates we may develop, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Amendments”). The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patent term lost during clinical trials and the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent per product may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. U.S. and ex-U.S. law concerning patent term extensions and foreign equivalents continue to evolve. Even if we were to seek a patent term extension, it may not be granted because of, for example, the failure to exercise due diligence during the testing phase or regulatory review process, the failure to apply within applicable deadlines, the failure to apply prior to expiration of relevant patents, or any other failure to satisfy applicable requirements. Moreover, the applicable time period of extension or the scope of patent protection afforded could be less than we request. If we are unable to protect the confidentialityobtain patent term extension or term of any such extension is less than it requests, our trade secrets,competitors may obtain approval of competing products following our patent expiration sooner than expected, and our business, financial condition, results of operations and competitive position wouldprospects could be materially harmed.
Intellectual property discovered through government funded programs may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies. Compliance with such regulations may limit our exclusive rights and limit our ability to contract with non-U.S. manufacturers.
Our patent application in-licensed from the Regents of the University of California has been supported through the use of U.S. government funding awarded by the National Institutes of Health. Although we do not currently own issued patents or pending patent applications that have been generated through the use of U.S. government funding, we may acquire in the future intellectual property rights that have been generated through the use of U.S. government funding or grants. Pursuant to the Bayh-Dole Act of 1980, the U.S. government has certain rights in inventions developed with government funding. These U.S. government rights include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right, under certain limited circumstances, to seeking patents for some of our technology and potential fertility treatments, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information,require us to maintain our competitive position. The protection available for trade secrets is particularly important with respectgrant exclusive, partially exclusive, or non-exclusive licenses to our process for manufacturing AUGMENT, to OvaTure, OvaPrime and to our potential fertility treatments, which will involve significant unpatented know-how. Any appropriation of our know-how, by competing contract manufacturers, collaborators or otherwise, could harm our business and we could suffer financial loss. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to such trade secrets, such as our employees, corporate collaborators, outside scientific collaborators, sponsored researchers, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Despite these efforts, any of these partiesinventions to a third party if it determines that: (1) adequate steps have not been taken to commercialize the invention; (2) government action is necessary to meet public health or safety needs; or (3) government action is necessary to meet requirements for public use under federal regulations (also referred to as march-in rights). Recently, the government released a draft framework that may breachbe used by an agency when deciding to exercise its march-in rights for public comments, and as such, the agreements and discloseframework for deciding when march-in rights are exercised may change. If the U.S. government exercised its march-in rights in our proprietary information, including our trade secrets, andcurrent or future intellectual property rights that are generated through the use of U.S. government funding or grants, we may notcould be ableforced to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosedlicense or misappropriated a trade secret is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independentlysublicense intellectual property developed by a competitor, we would have no right to prevent such competitor from using that technologyus 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.
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Risks Related to Ownership of Our Common Stock and Other General Matters
The trading price of the shares of our systems thatcommon stock has been and is likely to continue to be volatile, and purchasers of our common stock could adversely affect our business.
The market price of our common stock has been and mayis likely to continue to be volatile and may fluctuate in a way that is disproportionate to our operating performance.
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These and other market and industry factors may cause the market price and demand for our common stock to fluctuate substantially, regardless of our actual operating performance.
In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against such companies. Furthermore, market volatility may lead to increased shareholder activism if we experience a market valuation that activists believe is not reflective of our intrinsic value. Activist campaigns that contest or conflict with our strategic direction or seek changes in the composition of our board of directors could have an adverse effect on our operating results and financial condition.
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and share price.
The global economy, including credit and financial markets, has experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, increases in inflation rates and uncertainty about economic stability. For example, the macroeconomic uncertainty and volatile business environment have resulted in ongoing inflation, volatility in the capital stockmarkets, significantly reduced liquidity and credit availability, decreases in consumer demand and confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. Our general business strategy may be materially or adversely impacted by if these unpredictable and unstable market conditions continue. Additionally, the recent bank closures and geopolitical tensions, like the Russia-Ukraine war and the war in Israel, has created extreme volatility in the global capital markets and is expected to have further global economic consequences, including disruptions of the global supply chain and energy markets. Any such volatility and disruptions may have adverse consequences for us or the third parties on whom we rely. If the equity and credit markets deteriorate, including as a result of future bank closures or political unrest or war, 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. Inflation can adversely affect us by increasing our costs, including salary costs. Any significant increases in inflation and related increase in interest rates could have a material adverse effect on our business, results of operations and financial condition. A weak or declining economy could also strain our suppliers and manufacturers, possibly resulting in supply and clinical trial disruption. Any of the foregoing could harm our business and we currently intendcannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.
Our common stock is thinly traded and our stockholders may be unable to retain future earnings, if any, to fund the development and growthsell their shares quickly or at market price.
Although we have had periods of high-volume daily trading in our business.common stock, generally our stock is thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of those shares in either direction. Our common stock price could, for example, decline significantly as a result capital appreciation, if any,of sales of a large number of shares of our common stock on the market without commensurate demand, as compared to a seasoned issuer that could better absorb those sales without adverse impact on its share price, or from the perception that these sales could occur.
We are a smaller reporting company, and the reduced reporting requirements applicable to smaller reporting companies may make our common stock less attractive to investors.
We are a “smaller reporting company” as defined in Section 12 of the Exchange Act. For as long as we continue to be a smaller reporting company, we may take advantage of exemptions from various reporting requirements that are applicable to other public
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companies that are not smaller reporting companies, including not being required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Risks Related to Our Status as a Public Company and Other General Matters
We expect to continue to incur increased costs as a result of operating as a public company, and our management is required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.
We continue to incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the Nasdaq Stock Market (Nasdaq) and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel need to devote a substantial amount of time to compliance with these requirements. Moreover, these rules and regulations increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, in September 2023, we received a notice from Nasdaq notifying us that for the previous 30 consecutive business days, the bid price of the Company’s common stock had closed below $1.00 per share, the minimum closing bid price required by the continued listing requirements of Nasdaq Listing Rule 5550(a)(2). We were able to achieve compliance within the 180 calendar day compliance period, but there can be no assurance that we will remain in compliance with the requirements for listing our common stock on Nasdaq. Delisting could adversely affect our ability to raise additional capital through the public or private sale of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our common shares. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities. Also, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain directors’ and officers’ liability insurance, compared to when we were a private company, which could make it more difficult for us to attract and retain qualified members of our board of directors. We cannot predict or estimate the amount of additional costs we will continue to incur as a public company or the timing of such costs. Once we are no longer a smaller reporting company or otherwise no longer qualifies for applicable exemptions, we will be subject to additional laws and regulations affecting public companies that will increase our costs and the demands on management and could harm our operating results.
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the rules and regulations of the stock market on which our common stockholders' sole sourcestock is listed. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting and a report by management on, among other things, the effectiveness of gainour internal control over financial reporting. We will not be required to have our auditors formally attest to the effectiveness of our internal control over financial reporting until we cease to be a smaller reporting company.
We may identify weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
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If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act (“Section 404”), in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC, or other regulatory authorities.
Additionally, as a privately held company, we were not required to evaluate our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404. In connection with the preparation and audit of our financial statements as of and for the foreseeableyear ended December 31, 2020, material weaknesses were identified in our internal control over financial reporting, which have been remediated. We cannot assure you that there will not be additional material weaknesses or significant deficiencies in the internal control over financial reporting in the future. Any failure to maintain effective internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begins its reporting on internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by Nasdaq Stock Market, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
We or the third parties upon whom we depend may be adversely affected by natural disasters and other calamities, including public health crises, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Natural disasters could severely disrupt our operations and have a material adverse effect on our business, results of operations, financial condition and prospects. If a natural disaster, fire, hurricane, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as our suppliers’ manufacturing facilities, or that otherwise disrupted operations, such as data storage, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time.
Occurrences of epidemics or pandemics, depending on their scale, may cause different degrees of damage to the national and local economies within our geographic focus. Global economic conditions may be disrupted by widespread outbreaks of infectious or contagious diseases, and such disruption may adversely affect clinical development plans. The disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse effect on our business.
Our business entails a significant risk of product liability and our ability to obtain sufficient insurance coverage could have a material and adverse effect on our business, financial condition, results of operations and prospects.
We will face an inherent risk of product liability exposure related to the testing of our product candidates in clinical trials and will face an even greater risk if we commercialize any of our product candidates. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in a product, negligence, strict liability or breach of warranty. Claims could also be asserted under U.S. state consumer protection acts. If we cannot successfully defend against claims that our product candidates caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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While we currently have insurance that we believe is appropriate for our stage of development, we may need to obtain higher levels prior to clinical development or marketing any of our future product candidates. Any insurance we have or may obtain may not provide sufficient coverage against potential liabilities. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a result, we may be unable to obtain sufficient insurance at a reasonable cost to protect us against losses caused by product liability claims that could have a material and adverse effect on our business, financial condition, results of operations and prospects.
Provisions in our certificate of incorporation and by-laws 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 certificate of incorporation and by-laws may discourage, delay or prevent a merger, acquisition or other change in control of usthe company that stockholders may consider favorable, including transactions in which our common stockholders might otherwise receive a premium price for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. 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:
In addition, in October 2023, we implemented a Rights Plan, also called a “poison pill,” that may have the effect of discouraging or preventing a change of control by, among other things, making it uneconomical for a third party to acquire us without the
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consent of our board of directors. The Rights will expire on October 10, 2024, or, if the Company’s stockholders approve the Rights plan, on October 10, 2026, unless the Rights are earlier redeemed or exchanged by the Company.
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 15 percent15% or more 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 15 percent or more of our outstanding voting stock, unless the merger or combination is approved in a manner prescribed by the statute.
Our bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to maintain an effective systemobtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Our bylaws provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against it arising pursuant to any provisions of the DGCL, our certificate of incorporation or our bylaws, or any action asserting a claim against us that is governed by the internal control over financial reportingaffairs doctrine. The provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in the future,bylaws to be inapplicable or unenforceable in an action, we may not be able to accurately reportincur additional costs associated with resolving such action in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations.
We do not anticipate that we will pay any cash dividends in the foreseeable future.
The current expectation is that we will retain our future earnings, if any, to fund our growth as opposed to paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain, if any, for the foreseeable future.
We may be exposed to increased litigation, including stockholder litigation, which could have an adverse effect on our business and operations.
We may be exposed to increased litigation from stockholders, customers, suppliers, consumers and other third parties due to the combination of Millendo’s business and ours following the merger. Such litigation may have an adverse impact on our business and results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value ofcause disruptions to our common stock.
If equity research analysts do not publish research or significant deficiency inreports, or publish unfavorable research or reports, about us, our internalbusiness or our market, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that equity research analysts publish about us and our business. We have no control over financial reporting, we could lose investor confidencethe analysts or the content and opinions included in the accuracy and completeness of our financial reports, the markettheir reports. The price of our common stock could decline and weif one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage or fails to publish reports on us regularly, demand for our common stock could be subjectdecrease, which in turn could cause our stock price or trading volume to sanctions or investigations by the Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
76
Risk management and strategy
We have implemented and maintain various information security processes designed to identify, assess and manage material risks from cybersecurity threats to our critical computer networks, third party hosted services, communications systems, hardware and software, and our critical data, including intellectual property, confidential information that is proprietary, strategic or competitive in nature, and data related to our clinical trials and employees (“Information Systems and Data”).
Our information security function is led by our Vice President, Strategy & Finance (“IT Lead”), who reports to our CEO and is supported by our third party security provider, and it helps identify, assess and manage the Company’s cybersecurity threats and risks. The information security function identifies and assesses risks from cybersecurity threats by monitoring and evaluating our threat environment using various methods including, for example analyzing report of threats and threat actors and conducting periodic vulnerability assessments for certain systems. Our assessment and management of material risks from cybersecurity threats are considered as part of our risk management processes. For example, our IT Lead and certain management, including our CEO, evaluate identified material risks from cybersecurity threats against our overall business objectives and our IT Lead periodically reports to the audit committee of the board of directors, which evaluates our overall enterprise risk.
Depending on the environment, systems, and data, we implement and maintain various technical, physical, and organizational measures, processes, standards and policies designed to manage and mitigate material risks from cybersecurity threats to our Information Systems and Data, including, for example: risk assessments for certain systems, systems monitoring for certain systems, access controls, asset management, and employee training. We use third-party service providers to assist us from time to time to identify, assess, and manage material risks from cybersecurity threats, including for example our managed security provider and professional services firms, including legal counsel.
For a description of the risks from cybersecurity threats that may materially affect the Company and how they may do so, see our risk factors under Part 1. Item 1B. Unresolved Staff Comments1A. Risk Factors in this Annual Report on Form 10-K, including that if our information technology systems or those of third parties upon which we rely, or our data, are or were compromised, we could experience adverse consequences, including disclosure of sensitive information, damage to our reputation, and significant financial and legal exposure.
Governance
Our board of directors addresses the Company’s cybersecurity risk management as part of its general oversight function. The board of directors’ audit committee is responsible for overseeing Company’s cybersecurity risk management processes, including oversight and mitigation of risks from cybersecurity threats.
Our cybersecurity risk assessment and management processes are implemented and maintained by certain Company management, including the IT Lead. The IT Lead has 3 years of experience in roles that include oversight of cybersecurity risk management programs.
Our IT Lead is responsible for hiring appropriate personnel, helping to integrate cybersecurity risk considerations into the Company’s overall risk management strategy, communicating key priorities to relevant personnel, helping prepare for cybersecurity incidents, approving cybersecurity processes, and reviewing security assessments and other security-related reports.
Our cybersecurity incident response processes are designed to escalate certain cybersecurity incidents to members of management depending on the circumstances, including the CEO, who help the Company mitigate and remediate cybersecurity incidents of which they are notified. In addition, the Company’s incident response processes include reporting to the audit committee for certain cybersecurity incidents.
The audit committee receives periodic reports from our IT Lead concerning cybersecurity issues, including certain threats and risks and the processes the Company has implemented to address them, as applicable. The audit committee also has access to various reports, summaries or presentations related to cybersecurity threats, risk and mitigation.
77
ITEM 2.
In January 2022, we entered into an agreement to lease approximately 25,20020,116 square feet of laboratory and office space at 2000 Sierra Point Parkway, Brisbane, California 94005, which we occupied and laboratory spacebegan operating as our new headquarters beginning in Waltham, Massachusetts. This facility is under a lease agreement that expires in November 2020 that can be extended for an additional five-year term. December 2022.
We believe our facility isexisting facilities are sufficient tofor our needs for the foreseeable future. To meet the future needs of our current needsbusiness, we may lease additional or alternate space, and thatwe believe suitable additional or alternative space will be available if and when needed.
ITEM 3.
We are not currently a purported class action lawsuit was filedparty to any material legal proceedings. From time to time, we may be involved in legal proceedings or subject to claims incident to the Suffolk County Superior Court in the Commonwealthordinary course of Massachusetts against us, several of our officers and directors and certainbusiness. Regardless of the underwriters from our January 2015 follow-on public offeringoutcome, such proceedings or claims can have an adverse impact on us because of our common stock. The plaintiffs purport to represent those persons who purchased sharesdefense and settlement costs, diversion of our common stock pursuant or traceable to our January 2015 follow-on public offering. The plaintiffs allege, amongresources and other things, that the Company defendants made falsefactors, and misleading statements and failed to disclose material information in the Company’s January 2015 Registration Statement and incorporated offering materials. Plaintiffs allege violations of Sections 11, 12 and 15 of the Securities Act of 1933, as amended, and seek, among other relief, unspecified compensatory damages, rescission, pre-and post-judgment interest and fees, costs and disbursements. On December 7, 2015, the OvaScience defendants filed a notice of removal with the Federal District Court for the District of Massachusetts. On December 30, 2015, plaintiffs filed a motion to remand the action to the Superior Court. Oral argument on the motion to remand was held on February 19, 2016. On February 23, 2016, the District Court granted plaintiffs' motion to remand the action to the Superior Court. On February 26, 2016, a second putative class action suit was filed in the Suffolk County Superior Court in the Commonwealth of Massachusetts against the Company, several of our officers and directors and certain of the underwriters from the January 2015 follow-on public offering. The complaint is substantially similar to the complaint filed in October 2015. The two actions subsequently were consolidated and plaintiffs filed a First Amended Class Action Complaint on June 17, 2016. Defendants filed motions to dismiss the complaint. Those motions were denied by order dated December 22, 2016. On August 17, 2016, an additional plaintiff, Westmoreland County Employee Retirement System (“Westmoreland”) moved to intervene in the consolidated action. The defendants opposed Westmoreland’s motion to intervene. The Superior Court granted Westmoreland’s Motion to Intervene on October 26, 2017. On August 7, 2017, the plaintiffs filed their motion for class certification, which the defendants opposed. Oral argument on the motion for class certification was held on September 29, 2017. On November 7, 2017, the Superior Court denied the plaintiffs’ motion for class certification. On August 14, 2017, the Defendants filed their motion for summary judgment against plaintiffs Heather Carlson, Cesar Castellanos, Philipp Hofmann, and Carlos Rivas, which the plaintiffs opposed. Oral argument on the motion for summary judgment was held on October 18, 2017. On November 21, 2017, the Superior Court allowed the Defendants’ motion for summary judgment, and the claims asserted by plaintiffs Heather Carlson, Cesar Castellanos, Philipp Hofmann, and Carlos Rivas in the consolidated actions were dismissed, leaving Westmoreland as the sole remaining plaintiff. On November 22, 2017, Westmoreland filed a putative class action complaint in the U.S. District Court for the District of Massachusetts against the same defendants alleging the same claims as are alleged in the state court case (the “Westmoreland Federal Action”). On January 17, 2018, the lead plaintiff in a different case, a purported shareholder class action alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Dahhan Action”) filed a motion to intervene in the Westmoreland Federal Action and to consolidate the Westmoreland Federal Action with the Dahhan Action. We have opposed this motion, which is pending. On January 22, 2018, Westmoreland filed a motion to voluntarily dismiss the Superior Court action without prejudice. We have opposed that motion and the Court has scheduled oral argument on April 3, 2018. We believe that the complaints in both cases are without merit and intend to defend against the litigation. Therethere can be no assurance, however,assurances that wefavorable outcomes will be successful. A resolution of these lawsuits adverse to the Company or the other defendants could have a material effect on our consolidated financial position and results of operations in the period in which the lawsuit is resolved. At present, we are unable to estimate potential losses, if any, related to the lawsuit.
ITEM 4.
Not Applicable.applicable.
78
PART II
ITEM 5.
Market Information
Our common stock is tradedlisted on the Nasdaq GlobalStock Market ("Nasdaq") under the ticker symbol "OVAS."
Year Ended December 31, 2017 | High | Low | |||||
Fourth Quarter 2017 | $ | 1.56 | $ | 1.34 | |||
Third Quarter 2017 | $ | 1.67 | $ | 1.30 | |||
Second Quarter 2017 | $ | 1.74 | $ | 1.27 | |||
First Quarter 2017 | $ | 1.96 | $ | 1.37 |
Year Ended December 31, 2016 | High | Low | |||||
Fourth Quarter 2016 | $ | 7.63 | $ | 1.34 | |||
Third Quarter 2016 | $ | 8.86 | $ | 4.96 | |||
Second Quarter 2016 | $ | 11.26 | $ | 4.76 | |||
First Quarter 2016 | $ | 10.58 | $ | 5.10 |
Stockholders
As of March 13, 2018, there were 35,725,2302024, we had 22,192,026 shares of common stock outstanding which were held by approximately 8078 holders of record. The actual number of stockholders is greater than this number of record holders.
Dividend Policy
We have never declared or paid cash dividends on any of our capital stock and we currentlystock. We intend to retain ourall available funds and future earnings, if any, to fund the development and growthexpansion of our business. Webusiness, and we do not intend to payanticipate paying any cash dividends to holders of our common stock in the foreseeable future.
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the cumulative total stockholder return on our common stock, the Nasdaq Composite IndexIssuer and the Nasdaq Biotechnology Index assuming the investment of $100.00 on November 12, 2012, the day our stock began trading publicly, with dividends being reinvested. The stock price performance in the graph below is not necessarily indicative of future price performance.
None.
ITEM 6.
79
Year Ended December 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
(in thousands, except per share amounts) | |||||||||||||||||||
Consolidated Statements of Operations Data: | |||||||||||||||||||
Revenues | $ | 295 | $ | 653 | $ | 277 | $ | — | $ | — | |||||||||
Total costs and expenses (excluding restructuring) | 46,871 | 76,265 | 72,276 | 47,993 | 29,134 | ||||||||||||||
Restructuring | 4,030 | 5,400 | — | — | — | ||||||||||||||
Loss from operations | (50,606 | ) | (81,012 | ) | (71,999 | ) | (47,993 | ) | (29,134 | ) | |||||||||
Net loss | $ | (50,975 | ) | $ | (82,260 | ) | $ | (73,219 | ) | $ | (49,520 | ) | $ | (29,044 | ) | ||||
Net loss per share applicable to common stockholders—basic and diluted | $ | (1.43 | ) | $ | (2.56 | ) | $ | (2.70 | ) | $ | (2.19 | ) | $ | (1.80 | ) | ||||
Weighted average number of common shares used in net loss per share applicable to common stockholders—basic and diluted | 35,675 | 32,148 | 27,085 | 22,647 | 16,160 |
As of December 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
(in thousands) | |||||||||||||||||||
Consolidated Balance Sheet Data: | |||||||||||||||||||
Cash, cash equivalents, and short-term investments | $ | 67,203 | $ | 114,388 | $ | 126,662 | $ | 60,231 | $ | 44,427 | |||||||||
Total assets | 72,853 | 122,543 | 138,613 | 65,572 | 47,545 | ||||||||||||||
Total current liabilities | 7,804 | 13,209 | 11,243 | 10,074 | 5,774 | ||||||||||||||
Total long-term liabilities | 751 | 1,116 | 520 | 73 | 70 |
ITEM 7.
You should read the following discussion should be read in conjunction with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements. Actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in "Risk Factors" and elsewhere in this Annual Report on Form 10-K. See also "Cautionary Note Regarding Forward-Looking Statements."
Overview
We are a clinical-stage biotechnology company moving into late-stage development with a diverse portfolio of first-in-class targeted and immune-mediated product candidates with the potential to treat a wide range of cancers. The company’s novel programs range from early research to the lead program, TPST-1120, that is poised to begin a pivotal study in first-line liver cancer. Our philosophy is to build a company based upon not only good ideas and creative science, but also upon the efficient translation of those ideas into therapies that will improve patients’ lives. Each of our programs embody different and independent approaches to fighting cancer, providing a portfolio of truly diversified assets.
Our two clinical-stage therapeutics product candidates are TPST-1120 and TPST-1495, which we believe that the following accounting policies are the most criticalfirst clinical-stage molecules designed to aid youinhibit their respective targets.
TPST-1120 is a selective antagonist of peroxisome proliferator-activated receptor alpha (“PPARα”). On October 11, 2023, we announced new and updated positive results from the planned data analysis of the ongoing global randomized Phase 1b/2 trial of TPST-1120 combined with the standard-of-care first-line regimen of atezolizumab and bevacizumab in fully understandingpatients with advanced or metastatic hepatocellular carcinoma (“HCC”). The study is comparing the TPST-1120 arm to standard of care alone and enrolled 40 patients randomized to the TPST-1120 arm and 30 patients randomized to the control arm. With a median follow-up of 9.2 and 9.9 months for the TPST-1120 arm and standard-of-care arm, respectively, the data showed a 30% confirmed objective response rate (“ORR”) achieved in TPST-1120 arm compared to 13.3% for atezolizumab and bevacizumab in the control arm, a substantial increase since an earlier interim data release that is specific to the TPST-1120 arm compared to the previous data cut of 17.5% versus 10.3% in the control arm. 40% of the TPST-1120 arm patients remained on treatment versus 16.7% in the control arm, while 72.5% of the TPST-1120 arm patients remained on study versus 46.7% in the control arm. The results also showed a favorable progression free survival and overall survival (“OS”) hazard ratio for the TPST-1120 arm as compared to the standard-of-care control arm. We expect updated OS data to be available in 2024.
In addition to the overall data, the new biomarker subpopulation findings are consistent with the mechanism of action of TPST-1120: patients with b-catenin activating mutations (21% in this study (n=7)) showed a confirmed ORR of 43% and a disease control rate (“DCR”) of 100% in the TPST-1120 arm; and distinct from the control arm, the TPST-1120 arm was consistently active across PD-L1 negative tumors with a confirmed ORR of 27% in the TPST-1120 arm, compared to a reduced ORR of 7% for the control arm.
These randomized data build upon clinical data from Phase 1 trials, both as a monotherapy and in combination with an anti-PD1 therapy, nivolumab, that were reported at a podium presentation at the American Society of Clinical Oncology (“ASCO”) annual meeting in June 2022. RECIST responses were also observed in this study at the two highest TPST-1120 doses in combination with nivolumab for an ORR of those cohorts of 30% (3 of 10 patients), including in patients who previously progressed on anti-PD-1 (-L1) therapy. We believe the next step in TPST-1120 development is a pivotal Phase 3 in first-line HCC and are planning to meet with the FDA in 2024 towards that goal, and given the totality of the data, also have interest in development in kidney cancer (“RCC”) and potentially other indications.
80
Our second clinical program, TPST-1495, a dual antagonist of the EP2 and EP4 receptors of prostaglandin E2, is in an ongoing Phase 1 combination trial in patients with endometrial cancer. Data from the TPST-1495 Phase 1 trial was presented at the ASCO annual meeting in June 2023. Additionally, we are planning to advance TPST-1495 in a new indication, Familial Adenomatous Polyposis (“FAP”), for which there are no approved therapies. Given that prostaglandin signaling is implicated in FAP and based on positive preclinical data in a relevant mouse model, we believe there is strong mechanistic support for this approach. We are working with the Cancer Prevention Clinical Trials Network on a National Cancer Institute (“NCI”)-funded Phase 2 study and subject to final approval from the consortium, plan to start the study in 2024.
Beyond these clinical programs, we plan to continue to leverage our drug development and company-building experience along with academic relationships to identify promising new targets that may feed new programs into our pipeline. Our Discovery Research team employs a multidisciplinary approach to identify and validate therapeutic targets in oncology, and preclinical validation studies are then conducted to further understand the mechanism of action and potential therapeutic benefit to patients.
Potential Future Milestones
Going Concern
We have consisted solely ofno products approved for commercial sale and have not generated any revenue from product sales. From inception to December 31, 2023, we have raised $201.2 million, through sales of AUGMENT. our capital securities.
We apply the revenue recognition guidance in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 605, Revenue Recognition. We recognize revenue from AUGMENT sales when there is persuasive evidence that an arrangement exists, services have never been rendered, the price is fixed or determinable, collectability is reasonably assured and we have no further performance obligations.
We expect to incur significant expenses and increasing operating losses for at least the next several years as we initiate and continue the clinical development of, and seek regulatory approval for, our product candidates and add personnel necessary to advance our pipeline of clinical-stage product candidates. In addition, operating as a publicly traded company involves the hiring of additional financial and other personnel, upgrading our financial information and other systems, and incurring substantial costs associated with operating as a public company. We expect our operating losses will fluctuate significantly from quarter to quarter and year to year due to timing of clinical development programs and efforts to achieve regulatory approval.
Based on our business strategy, our existing cash and cash equivalents of $39.2 million as of December 31, 2023, will be sufficient to fund our operations through at least the next 12 months from the date our consolidated financial statements were available to be issued.
Components of Results of Operations
Research and Development Expense
Research and development expenses represent costs incurred to conduct research and development, such as the development of our product candidates.
81
We recognize all research and development costs as they are incurred. Research and development expenses consist primarily of the following:
Year Ended December 31, | 2017 / 2016 Comparison | 2016 / 2015 Comparison | |||||||||||||||||||||||
Increase / (Decrease) | Increase / (Decrease) | ||||||||||||||||||||||||
2017 | 2016 | 2015 | $ | % | $ | % | |||||||||||||||||||
Revenues | $ | 295 | $ | 653 | $ | 277 | $ | (358 | ) | (55 | )% | $ | 376 | 136 | % | ||||||||||
Costs of revenues | 790 | 5,401 | 2,249 | (4,611 | ) | (85 | )% | 3,152 | 140 | % | |||||||||||||||
Research and development | 18,337 | 21,641 | 18,433 | (3,304 | ) | (15 | )% | 3,208 | 17 | % | |||||||||||||||
Selling, general and administrative | 27,744 | 49,223 | 51,594 | (21,479 | ) | (44 | )% | (2,371 | ) | (5 | )% | ||||||||||||||
Restructuring | 4,030 | 5,400 | — | (1,370 | ) | (25 | )% | 5,400 | N/A | ||||||||||||||||
Interest expense, net | 752 | 659 | 436 | 93 | 14 | % | 223 | 51 | % | ||||||||||||||||
Other expense, net | (36 | ) | (164 | ) | (20 | ) | 128 | (78 | )% | (144 | ) | 720 | % | ||||||||||||
Loss from equity method investment | (1,018 | ) | (1,542 | ) | (1,561 | ) | 524 | (34 | )% | 19 | (1 | )% | |||||||||||||
Income tax expense | (67 | ) | (201 | ) | (75 | ) | 134 | (67 | )% | (126 | ) | 168 | % | ||||||||||||
Net loss | $ | (50,975 | ) | $ | (82,260 | ) | $ | (73,219 | ) | $ | 31,285 | (38 | )% | $ | (9,041 | ) | 12 | % |
The largest component of our operating expenses has historically been the investment in research and development activities. We have recorded $295,000expect research and $653,000development expenses will increase in the future as we advance our product candidates into and through clinical trials and pursues regulatory approvals, which will require a significant investment in costs of treatment revenuesclinical trials, regulatory support and contract manufacturing and inventory build-up. In addition, we continue to evaluate opportunities to acquire or in-license other product candidates and technologies, which may result in higher research and development expenses due to license fee and/or milestone payments, as well as added clinical development costs.
The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in timely developing and achieving regulatory approval for our product candidates. The probability of success of our product candidates may be affected by numerous factors, including clinical data, competition, manufacturing capability and commercial viability. As a result, we are unable to determine the duration and completion costs of our development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.
General and Administrative Expenses
General and administrative expenses consist of employee-related expenses, including salaries, benefits, travel and non-cash stock-based compensation, for our personnel in executive, finance and accounting, and other administrative functions, as well as fees paid for legal, accounting and tax services, consulting fees and facilities costs not otherwise included in research and development expenses. Legal costs include general corporate legal fees and patent costs. We expect to continue to incur expenses as a result of being a public company, including expenses related to compliance with the rules and regulations of the SEC and Nasdaq, additional insurance, investor relations and other administrative expenses and professional services.
Other (Expense) Income , Net
Other (expense) income, net consists primarily of interest expense, interest income, and various income or expense items of a non-recurring nature.
82
Results of Operations
The following table summarizes our operating results for the years ended December 31, 20172023 and 2016, respectively. Since AUGMENT is only available2022:
|
| Year Ended |
|
| Increase/ (Decrease) |
|
| Percentage Increase/ (Decrease) |
| |||||||
|
| December 31, |
|
|
|
|
|
|
| |||||||
|
| 2023 |
|
| 2022 |
|
| 2023 vs. 2022 |
|
| 2023 vs. 2022 |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
| $ | 17,498 |
|
| $ | 22,527 |
|
| $ | (5,029 | ) |
|
| (22 | )% |
General and administrative |
|
| 11,659 |
|
|
| 12,113 |
|
|
| (454 | ) |
|
| (4 | )% |
Operating loss |
|
| (29,157 | ) |
|
| (34,640 | ) |
|
| 5,483 |
|
|
| 16 | % |
Interest expense |
|
| (1,449 | ) |
|
| (1,618 | ) |
|
| 169 |
|
|
| 10 | % |
Interest income and other income (expense), net |
|
| 1,115 |
|
|
| 549 |
|
|
| 566 |
|
|
| 103 | % |
Provision for income taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0 | % |
Net loss |
| $ | (29,491 | ) |
| $ | (35,709 | ) |
| $ | 6,218 |
|
|
| (17 | )% |
Research and Development
Our research and development expenses for the years ended December 31, 2023 and 2022 were primarily incurred in connection with our most advanced product candidates, TPST-1120 and TPST-1495. We typically have various early-stage research and drug discovery projects, as well as various potential product candidates undergoing clinical trials. Our internal resources, employees and infrastructure are not directly tied to patients in Japan throughany one research and drug discovery project and our collaborative access agreement withresources are typically deployed across multiple projects. The following table shows our research and development expenses by program for the IVF Japan Group, we do not anticipate significant revenue inyears ended December 31, 2023 and 2022:
|
| Year Ended |
|
| Increase/ (Decrease) |
|
| Percentage Increase/ (Decrease) |
| |||||||
|
| December 31, |
|
|
|
|
|
|
| |||||||
|
| 2023 |
|
| 2022 |
|
| 2023 vs. 2022 |
|
| 2023 vs. 2022 |
| ||||
|
| (in thousands) |
|
|
|
|
|
|
| |||||||
TPST-1120 |
| $ | 2,691 |
|
| $ | 5,927 |
|
| $ | (3,236 | ) |
|
| (55 | )% |
TPST-1495 |
|
| 3,525 |
|
|
| 5,672 |
|
|
| (2,147 | ) |
|
| (38 | )% |
Preclinical and other |
|
| 3,398 |
|
|
| 4,638 |
|
|
| (1,240 | ) |
|
| (27 | )% |
Total candidate specific research costs |
|
| 9,614 |
|
|
| 16,237 |
|
|
| (6,623 | ) |
|
| (41 | )% |
Personnel and other costs |
|
| 6,678 |
|
|
| 5,333 |
|
|
| 1,345 |
|
|
| 25 | % |
Stock-based compensation and depreciation |
|
| 1,206 |
|
|
| 957 |
|
|
| 249 |
|
|
| 26 | % |
Total research and development expenses |
| $ | 17,498 |
|
| $ | 22,527 |
|
| $ | (5,029 | ) |
|
| (22 | )% |
The following table summarizes our research and development expenses for the near term.years ended December 31, 2023 and 2022:
83
|
| Year Ended |
|
| Increase/ (Decrease) |
|
| Percentage Increase/ (Decrease) |
| |||||||
|
| December 31, |
|
|
|
|
|
|
| |||||||
|
| 2023 |
|
| 2022 |
|
| 2023 vs. 2022 |
|
| 2023 vs. 2022 |
| ||||
|
| (in thousands) |
|
|
|
| ||||||||||
Research and development outside services |
| $ | 8,368 |
|
| $ | 14,745 |
|
| $ | (6,377 | ) |
|
| (43 | )% |
Compensation expense |
|
| 4,203 |
|
|
| 4,084 |
|
|
| 119 |
|
|
| 3 | % |
Stock-based compensation expense |
|
| 899 |
|
|
| 517 |
|
|
| 382 |
|
|
| 74 | % |
Consulting and professional services |
|
| 1,141 |
|
|
| 1,448 |
|
|
| (307 | ) |
|
| (21 | )% |
Other expenses |
|
| 2,887 |
|
|
| 1,733 |
|
|
| 1,154 |
|
|
| 67 | % |
Total research and development expense |
| $ | 17,498 |
|
| $ | 22,527 |
|
| $ | (5,029 | ) |
|
| (22 | )% |
Research and development expense decreased by $5.0 million to $17.5 million for the year ended December 31, 2017 and 20162023, which was $0.8 million and $5.4 million, respectively. Theprimarily attributable to a decrease in cost of revenues is attributablecosts incurred from contract research organizations and third-party vendors.
General and Administrative
General and administrative expenses decreased by $0.4 million to the decrease in the number of biopsies performed primarily as a result of our shift in corporate priorities related to AUGMENT resulting from our December 2016 and June 2017 restructuring activities and the related pricing programs offered. Our costs of revenues include the cost of processing patient tissue that corresponds to treatment revenues for the reporting period. Given our shift in corporate priorities and focus on research and development, we expect cost of revenues to decrease in the future.
Other Income (Expense), Net
For the years ended December 31, 2023 and 2022, interest income and other income (expense), net consisted of total interest expense of $1.4 million and $1.6 million, respectively, related to the Oxford Loan, and interest income of $1.1 million and $0.6 million, respectively.
Liquidity and Capital Resources
Overview
Since inception through December 31, 2023, our operations have been financed primarily by net cash proceeds from the sale of our common stock, convertible preferred stock and issuance of debt. As of December 31, 2023, we had $39.2 million in cash and cash equivalents and an accumulated deficit of $165.3 million. We expect that our research and development and general and administrative expenses will increase, and, as a result, we anticipate that we will continue to incur increasing losses in the foreseeable future.
We believe our cash and cash equivalents as of December 31, 2023 will fund our ongoing working capital, investing, and financing requirements for at least the next 12 months from the date our consolidated financial statements were available to be issued.
Loan Agreement with Oxford Finance
On January 15, 2021, we entered into a loan and security agreement with Oxford to borrow a term loan amount of $35.0 million to be funded in three tranches (the "Loan Agreement"). Tranche A of $15.0 million was funded on January 15, 2021. Tranche B of $10.0 million expired on March 31, 2022. Tranche C of $10.0 million is available at Oxford’s option.
On December 23, 2022, the Company entered into a First Amendment to the Loan Agreement. The amendment modified the agreement as follows: (i) each of the Company and Millendo Therapeutics US, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Millendo”), were joined as co-borrowers under the Loan Agreement, (ii) the interest-only repayment period was extended through December 31, 2023 (which interest-only period may be further extended through June 30, 2024 under certain circumstances), and (iii) a security interest in the property of the Company, TempestTx and Millendo, including
84
any intellectual property, was granted to the Lender. In addition, the Lender permitted a one-time prepayment in the amount of $5.0 million which the Company paid on December 23, 2022.
During the fourth quarter of 2023, the Company achieved the circumstances necessary to extend the interest-only repayment period through June 30, 2024.
The term loan matures on August 1, 2025 and has an annual floating interest rate of 7.15% which is an Index Rate plus 7.10%. Index Rate is the greater of (i) 1-Month CME Term SOFR or (ii) 0.05%.
At-the-Market Offering
On July 23, 2021, we entered into a sales agreement with Jefferies LLC, pursuant to which we may sell, from time to time at our sole discretion through Jefferies, as our sales agent, shares of our common stock having, up to an aggregate sales price of $100.0 million of our common stock through Jefferies (the “ATM Program”). Any shares of our common stock sold will be issued pursuant to our shelf registration statement on Form S-3 (File No. 333-257990). We will pay Jefferies a commission up to 3.0% of the gross sales proceeds of any shares of our common stock sold through Jefferies under the ATM Program and also have provided Jefferies with indemnification and contribution rights. As of December 31, 2023, we have sold an aggregate of 8,960,822 shares of our common stock for net proceeds of approximately $41.2 million, after deducting commissions and offering expenses pursuant to the ATM Program. During the year ended December 31, 2016 was primarily attributable to:
PIPE Financing
In April 2022, we completed a private investment in public equity (“PIPE”) financing from the sale of 3,149,912 shares of our common stock at a price per share of $2.36 and, in lieu of shares of common stock, pre-funded warrants to purchase up to 3,206,020 shares of our common stock at a price per pre-funded warrant of $2.359 to EcoR1 Capital, LLC and Versant Venture Capital (the “PIPE Investors”). Net proceeds from the year endedPIPE financings totaled approximately $14.5 million, after deducting offering expenses. We entered into a registration rights agreement with the PIPE Investors pursuant to which we filed a registration statement with the SEC registering the resale of the 3,149,912 shares common stock and the 3,206,020 shares of common stock underlying the pre-funded warrants issued in the PIPE financing. As of December 31, 2015 was primarily attributable to:
Cash Flows
The following table summarizes our ongoing clinical studies;
|
| 2023 |
|
| 2022 |
| ||
|
| (in thousands) |
| |||||
Cash used in operating activities |
| $ | (27,357 | ) |
| $ | (31,072 | ) |
Cash used in investing activities |
|
| (170 | ) |
|
| (562 | ) |
Cash provided by financing activities |
|
| 35,602 |
|
|
| 11,403 |
|
Net increase (decrease) in cash and cash equivalents |
| $ | 8,075 |
|
| $ | (20,231 | ) |
Cash flows from Equity Method Investment
December 31, 2017 | December 31, 2016 | ||||||
Cash, cash equivalents and short-term investments | $ | 67,203 | $ | 114,388 | |||
Working capital | 60,977 | 103,235 |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Cash (used in) provided by: | |||||||||||
Operating activities | $ | (45,551 | ) | $ | (61,734 | ) | $ | (50,286 | ) | ||
Investing activities | 17,324 | 8,292 | (38,290 | ) | |||||||
Capital expenditures (included in investing activities above) | (158 | ) | (2,586 | ) | (5,229 | ) | |||||
Financing activities | — | 54,148 | 125,386 |
Cash used in operating activities for the yearsyear ended December 31, 2017, 20162023 was $27.4 million, consisting of a net loss of $29.5 million, add back of non-cash adjustments for depreciation, stock-based compensation, non-cash operating lease expense and 2015other non-cash items totaling $4.8 million, plus changes in operating assets and liabilities of $2.7 million.
85
Cash used in operating activities for the year ended December 31, 2022 was primarily driven by our$31.1 million, consisting of a net loss. loss of $35.7 million, add back of non-cash adjustments for depreciation, stock-based compensation, non-cash operating lease expense and other non-cash items totaling $3.8 million, plus changes in operating assets and liabilities of $0.9 million.
Cash flows from operations can vary significantly due to various factors, including changesinvesting activities
Cash used in the net loss and the timing of disbursements made for accounts payable and accruals.
Cash flows from financing activities
Cash provided by the proceeds from maturities and sales of short-term investments. Cash used in investingfinancing activities for the year ended December 31, 2015 included the purchase of and2023 was related to proceeds from maturities and salethe issuance of short-term investments, as well as purchasescommon stock of property and equipment. Capital expenditures for$35.6 million from the year ended December 31, 2017 consisted primarily of laboratory equipment and for the years ending December 31, 2016 and 2015, primarily of laboratory equipment and leasehold improvements.
Cash provided by financing activities for the yearsyear ended December 31, 2016 and 2015 included the2022 was $11.4 million, primarily related to proceeds from public offeringsthe issuance of common stock of $8.9 million and stock option exercises. In June 2016, we issued and sold an aggregatepre-funded warrants of 8,222,500 shares$7.3 million related to the PIPE financing, offset by $4.7 million used in the partial repayment of our common stock at $7.00 per share in an underwritten public offering, which resulted in $53.9 million of net proceeds, after deducting underwriting discountsloan with Oxford.
Funding Requirements
We believe that our available cash and commissions and other offering expenses payable by us. In January 2015, we issued and sold an aggregate of 2,645,000 shares of our common stock at $50.00 per share in an underwritten public offering, which resulted in $124.1 million of net proceeds, after deducting underwriting discounts and commissions and other offering expenses payable by us.
Our future capitalfunding requirements will depend on many factors, including:
Further, our operating plan may change, and partnerships on favorable terms, if at all;we may need additional funds to meet operational needs and
86
Material Cash Requirements
Our material cash requirements as of December 31, 2023 primarily relate to the maturities of the principal obligations under our long-term debt, operating leases for office space, trade payables, and accrued expenses.As of December 31, 2023, we have $9.4 million payable within 12 months. Refer to Notes 5 and 6 to our Consolidated Financial Statements for additional information. We expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. In addition, subject to obtaining regulatory approval for our product candidates, we anticipate that we will need substantial additional funding in connection with our continuing operations.
Until such time, if ever, as we can generate a sufficient revenues fromamount of product revenue to finance our fertility treatments to become profitable,cash requirements, we expect to finance our future cash needs primarily through a combinationthe issuance of additional equity, offerings, debt financings, collaborations,borrowings and strategic alliances and licensing arrangements. We do not have any committed external source of funds. In addition, we may elect to raise additional funds even before we need them if the conditions for raising capital are favorable.with partner companies. To the extent that we raise additional capital through the saleissuance of additional equity or convertible debt 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 the rights of commonexisting stockholders. 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 marketing and distribution arrangements or other 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 treatmentsproduct 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 fertility treatmentproduct development or future commercialization efforts or grant rights to develop and market treatmentsproduct candidates to third parties that we would otherwise prefer to develop and market ourselves.
Critical Accounting Policies and Estimates
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments. We didbase our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not have duringreadily apparent from other sources. Actual results may differ materially from these estimates. We believe that the periods presented,accounting policies discussed below are critical to understanding our historical and we do not currently have, any off-balance sheet arrangements,future performance, as defined under SEC rules.
Payments Due by Period | ||||||||||||||||||||
Contractual Obligations | Total | Less than 1 Year | 1 - 3 Years | 3 - 5 Years | More than 5 Years | |||||||||||||||
Operating leases | 2,887 | 978 | 1,909 | — | — | |||||||||||||||
$ | 2,887 | $ | 978 | $ | 1,909 | $ | — | $ | — |
We define our critical accounting policies as those accounting principles that require us to make subjective estimates and judgments about matters that are met: (1) there is no change in the fair value of the award, (2) there is no change in the vesting conditions,uncertain and (3) there is no change in
Research and Development Expenses
We record accrued expenses for estimated costs of our consolidated financial statements.
87
We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued balance in each reporting period, which includes gathering information from multiple sources. In certain circumstances, the determination of the nature and level of services that have been received during the reporting period requires judgment because the timing and pattern of vendor invoicing did not correspond to the level of services provided and invoicing from clinical study sites and other vendors may not yet be available to us. As actual costs become known, we adjust our accrued estimates. 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, the number of patients enrolled and the rate of patient enrollment may vary from our estimates and could result in us reporting amounts that are too high or too low in any particular period. Our accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party service providers.
Stock-Based Compensation
We recognize noncash stock-based compensation expense related to stock-based awards to employees, non-employees and directors, including stock options, based on the fair value on the grant date using the Black-Scholes option pricing model. The amendmentrelated stock-based compensation is effective for annual periods beginning after December 15, 2018,recognized as expense on a straight line-basis over the employee’s, non-employee’s or director’s requisite service period (generally the vesting period). Noncash stock compensation expense is based on awards ultimately expected to vest and interim periods within those annual periods. Early adoption is permitted. We are currently assessingreduced by any forfeitures as they occur.
In determining the impact ASU 2016-02 will havefair value of stock options, we use the Black-Scholes option-pricing model. The Black-Scholes model requires the input of subjective assumptions, including expected volatility, expected dividend yield, expected term, risk-free rate of return, and the fair value of the underlying common stock on our consolidated financial statements and footnote disclosures thereto.
Recent Accounting Pronouncements
See Note 2 to our Consolidated Financial Statements for a description of recent accounting pronouncements applicable to our Consolidated Financial Statements.
Smaller Reporting Company Status
We will adopt ASU 2015-14are a smaller reporting company as defined in the Securities Exchange Act of January 1, 2018, using1934, as amended. We may take advantage of certain of the modified retrospective approachscaled disclosures available to smaller reporting companies and will applybe able to take advantage of these scaled disclosures for so long as (i) our voting and non-voting common stock held by nonaffiliates is less than $250.0 million measured on the standard only to contracts that have not yet beenlast business day of our second fiscal quarter or (ii) our annual revenue is less than $100.0 million during the most recently completed as of the adoption date. We will report new disclosures required by this guidance within our Form 10-Q for the interim period ending March 31, 2018. The impact under this methodology to our previously reported revenues is insignificant in the periods reported, with no effect to reported revenues in the fiscal year ended December 31, 2017.
ITEM 7A.
Not required for trading or speculative purposes. We maintain our cash, cash equivalents and short-term investments with a high quality, accredited financial institution. Our marketable securities are subject to interest rate risk and will fall in value if market interest rates increase.smaller reporting companies.
88
ITEM 8.
TEMPEST THERAPEUTICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID 42) | 90 |
92 | |
93 | |
94 | |
95 | |
96 |
89
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of OvaScience,Tempest Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of OvaScience,Tempest Therapeutics, Inc. (the Company) as of December 31, 20172023 and 2016,2022, the related consolidated statements of operations, and comprehensive loss, stockholders' equity and cash flows for each of the threetwo years in the period ended December 31, 2017,2023, 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, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the threetwo years in the period ended December 31, 2017,2023, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic 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. TheseThose 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, 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.
90
Accrued research and development expenses | |
Description of the Matter | As described in Note 2 to the financial statements under the caption “Research and development expenses and accrued research and development”, the Company records the cost of research and development activities as they are incurred. The Company estimates preclinical studies and clinical trial expenses based on the services performed pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on the Company’s behalf. Service fees are accrued based on the Company’s estimates of the time period over which services will be performed and the level of effort to be expended in each period. These estimates are based on communications with the third-party service providers, the Company’s estimates of accrued expenses and on information available at each balance sheet date. As of December 31, 2023, the Company’s accrued clinical trial liability was $1.0 million. Auditing the Company’s accrual for research and development expenses was challenging because of the significant volume of transactions and the use of third-party data involved in determining the accrual balance, which was accumulated from multiple sources. In certain circumstances, the determination of the nature and level of services that have been received during the reporting period requires judgment because the timing and pattern of vendor invoicing did not correspond to the level of services provided and invoicing from clinical study sites and other vendors may not yet be available to management. |
How We Addressed the Matter in Our Audit | To test the accrued research and development expenses, our audit procedures included, among others, testing the completeness and accuracy of the underlying data used in the estimate, including, but not limited to, estimated project duration, research and manufacturing services incurred to date and terms of contractual arrangements. To assess the reasonableness of the data, we corroborated the progress of the clinical trials with Company research and development personnel and obtained third-party evidence supporting the activities performed to date. We recalculated the accrual based on executed contracts with the clinical research organizations, contract manufacturing organizations, clinical study sites and collaboration partners. We also tested subsequent invoicing received from third parties to assess the impact to the accrual at the balance sheet date and compared that to the Company’s estimates. |
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2012.
Chicago, Illinois
March 15, 2018
91
Tempest Therapeutics, Inc.
Consolidated Balance Sheets
(Inin thousands, except share and per share data)
As of December 31, | |||||||
2017 | 2016 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 15,703 | $ | 43,930 | |||
Short-term investments | 51,500 | 70,458 | |||||
Prepaid expenses and other current assets | 1,578 | 2,056 | |||||
Total current assets | 68,781 | 116,444 | |||||
Property and equipment, net | 3,113 | 5,572 | |||||
Investment in joint venture | 146 | 65 | |||||
Restricted cash | 789 | 439 | |||||
Other long-term assets | 24 | 23 | |||||
Total assets | $ | 72,853 | $ | 122,543 | |||
Liabilities and stockholders' equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 2,242 | $ | 2,183 | |||
Accrued expenses and other current liabilities | 5,562 | 11,026 | |||||
Total current liabilities | 7,804 | 13,209 | |||||
Other non-current liabilities | 751 | 1,116 | |||||
Total liabilities | 8,555 | 14,325 | |||||
Commitments and contingencies (Note 14) | |||||||
Stockholders' equity: | |||||||
Preferred stock, $0.001 par value; 5,000,000 shares authorized, no shares issued and outstanding | — | ||||||
Common stock, $0.001 par value; 100,000,000 shares authorized; 35,725,230 and 35,641,505 shares issued and outstanding at December 31, 2017 and 2016, respectively | 36 | 36 | |||||
Additional paid-in capital | 365,769 | 358,419 | |||||
Accumulated other comprehensive loss | (27 | ) | (60 | ) | |||
Accumulated deficit | (301,480 | ) | (250,177 | ) | |||
Total stockholders' equity | 64,298 | 108,218 | |||||
Total liabilities and stockholders' equity | $ | 72,853 | $ | 122,543 |
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Assets |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 39,230 |
|
| $ | 31,230 |
|
Insurance recovery of legal settlement |
|
| — |
|
|
| 450 |
|
Prepaid expenses and other current assets |
|
| 1,133 |
|
|
| 1,270 |
|
Total current assets |
|
| 40,363 |
|
|
| 32,950 |
|
Property and equipment — net |
|
| 840 |
|
|
| 1,060 |
|
Operating lease right-of-use assets |
|
| 9,952 |
|
|
| 11,650 |
|
Other noncurrent assets |
|
| 448 |
|
|
| 429 |
|
Total assets |
| $ | 51,603 |
|
| $ | 46,089 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 845 |
|
| $ | 1,108 |
|
Accrued legal settlement |
|
| — |
|
|
| 450 |
|
Accrued expenses |
|
| 1,673 |
|
|
| 2,961 |
|
Current loan payable (net of discount and issuance costs of $112 and nil, respectively) |
|
| 4,285 |
|
|
| — |
|
Current operating lease liabilities |
|
| 952 |
|
|
| 1,413 |
|
Accrued compensation |
|
| 1,543 |
|
|
| 1,248 |
|
Interest payable |
|
| 113 |
|
|
| 97 |
|
Total current liabilities |
|
| 9,411 |
|
|
| 7,277 |
|
Loan payable (net of discount and issuance costs of $164 and $454, respectively) |
|
| 6,264 |
|
|
| 10,371 |
|
Operating lease liabilities, less current portion |
|
| 9,160 |
|
|
| 10,330 |
|
Total liabilities |
|
| 24,835 |
|
|
| 27,978 |
|
Commitments and contingencies (Note 5) |
|
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
|
| ||
Common stock, $0.001 par value; 100,000,000 shares authorized; 22,045,255 and 10,518,539 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively |
|
| 22 |
|
|
| 11 |
|
Additional paid-in capital |
|
| 192,009 |
|
|
| 153,872 |
|
Accumulated deficit |
|
| (165,263 | ) |
|
| (135,772 | ) |
Total stockholders’ equity |
|
| 26,768 |
|
|
| 18,111 |
|
Total liabilities and stockholders’ equity |
| $ | 51,603 |
|
| $ | 46,089 |
|
See accompanying notes are an integral part of these consolidated financial statements.Notes to Consolidated Financial Statements
92
Tempest Therapeutics, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(Inin thousands, except share and per share data)
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Revenues | $ | 295 | $ | 653 | $ | 277 | |||||
Costs and expenses: | |||||||||||
Costs of revenues | 790 | 5,401 | 2,249 | ||||||||
Research and development | 18,337 | 21,641 | 18,433 | ||||||||
Selling, general and administrative | 27,744 | 49,223 | 51,594 | ||||||||
Restructuring | 4,030 | 5,400 | — | ||||||||
Total costs and expenses | 50,901 | 81,665 | 72,276 | ||||||||
Loss from operations | (50,606 | ) | (81,012 | ) | (71,999 | ) | |||||
Interest income, net | 752 | 659 | 436 | ||||||||
Other expense, net | (36 | ) | (164 | ) | (20 | ) | |||||
Loss from equity method investment | (1,018 | ) | (1,542 | ) | (1,561 | ) | |||||
Loss before income taxes | (50,908 | ) | (82,059 | ) | (73,144 | ) | |||||
Income tax expense | 67 | 201 | 75 | ||||||||
Net loss | $ | (50,975 | ) | $ | (82,260 | ) | $ | (73,219 | ) | ||
Net loss per share—basic and diluted | $ | (1.43 | ) | $ | (2.56 | ) | $ | (2.70 | ) | ||
Weighted average number of shares used in net loss per share—basic and diluted | 35,675 | 32,148 | 27,085 | ||||||||
Net loss | $ | (50,975 | ) | $ | (82,260 | ) | $ | (73,219 | ) | ||
Other comprehensive loss: | |||||||||||
Unrealized gain (loss) on available-for-sale securities | 33 | 110 | (144 | ) | |||||||
Comprehensive loss | $ | (50,942 | ) | $ | (82,150 | ) | $ | (73,363 | ) |
|
| Year Ended December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Operating expenses: |
|
|
|
|
|
| ||
Research and development |
| $ | 17,498 |
|
| $ | 22,527 |
|
General and administrative |
|
| 11,659 |
|
|
| 12,113 |
|
Operating loss |
|
| (29,157 | ) |
|
| (34,640 | ) |
Other income (expense), net: |
|
|
|
|
|
| ||
Interest expense |
|
| (1,449 | ) |
|
| (1,618 | ) |
Interest income and other income (expense), net |
|
| 1,115 |
|
|
| 549 |
|
Other income (expense), net |
|
| (334 | ) |
|
| (1,069 | ) |
Provision for income taxes |
|
| — |
|
|
| — |
|
Net loss |
| $ | (29,491 | ) |
| $ | (35,709 | ) |
Net loss per share of common stock and pre-funded warrants, basic and diluted |
| $ | (1.91 | ) |
| $ | (3.09 | ) |
Weighted-average shares of common stock and pre-funded warrants outstanding, basic and diluted |
|
| 15,416,203 |
|
|
| 11,548,907 |
|
See accompanying notes are an integral part of these consolidated financial statements.Notes to Consolidated Financial Statements
93
Tempest Therapeutics, Inc.
Consolidated Statements of Stockholders'Stockholders’ Equity
(Inin thousands, except share data)
Common stock | Additional paid-in capital | Accumulated other comprehensive gain (loss) | Accumulated deficit | Total stockholders' equity | ||||||||||||||||||
Shares | Amount | |||||||||||||||||||||
Balance at January 1, 2015 | 24,084,637 | $ | 24 | $ | 150,025 | $ | (26 | ) | $ | (94,698 | ) | $ | 55,325 | |||||||||
Issuance of common stock under public offering, net of underwriters' discounts and issuance costs | 2,645,000 | 3 | 124,060 | — | — | 124,063 | ||||||||||||||||
Vesting of Founders stock | 329,021 | — | — | — | — | — | ||||||||||||||||
Issuance of common stock to board of directors | 15,808 | — | 165 | — | — | 165 | ||||||||||||||||
Exercise of stock options | 208,734 | — | 1,440 | — | — | 1,440 | ||||||||||||||||
Stock-based compensation expense | — | — | 19,337 | — | — | 19,337 | ||||||||||||||||
Vesting of restricted stock | 13,547 | — | (117 | ) | — | — | (117 | ) | ||||||||||||||
Unrealized loss on investments | — | — | — | (144 | ) | — | (144 | ) | ||||||||||||||
Net loss | — | — | — | — | (73,219 | ) | (73,219 | ) | ||||||||||||||
Balance at December 31, 2015 | 27,296,747 | $ | 27 | $ | 294,910 | $ | (170 | ) | $ | (167,917 | ) | $ | 126,850 | |||||||||
Issuance of common stock under public offering, net of underwriters' discounts and issuance costs | 8,222,500 | 9 | 53,916 | — | — | 53,925 | ||||||||||||||||
Issuance of common stock to board of directors | 42,047 | — | 154 | — | — | 154 | ||||||||||||||||
Exercise of stock options | 63,961 | — | 224 | — | — | 224 | ||||||||||||||||
Stock-based compensation expense | — | — | 9,215 | — | — | 9,215 | ||||||||||||||||
Vesting of restricted stock | 16,250 | — | — | — | — | — | ||||||||||||||||
Unrealized gain on investments | — | — | — | 110 | — | 110 | ||||||||||||||||
Net loss | — | — | — | — | (82,260 | ) | (82,260 | ) | ||||||||||||||
Balance at December 31, 2016 | 35,641,505 | $ | 36 | $ | 358,419 | $ | (60 | ) | $ | (250,177 | ) | $ | 108,218 | |||||||||
Issuance of common stock to board of directors | 83,725 | — | 129 | — | — | 129 | ||||||||||||||||
Stock-based compensation expense | — | — | 6,893 | — | — | 6,893 | ||||||||||||||||
Unrealized gain on investments | — | — | — | 33 | — | 33 | ||||||||||||||||
Adjustment to beginning accumulated deficit and additional paid-in capital resulting from the adoption of ASU 2016-09 | — | — | 328 | — | (328 | ) | — | |||||||||||||||
Net loss | — | — | — | — | (50,975 | ) | (50,975 | ) | ||||||||||||||
Balance at December 31, 2017 | 35,725,230 | $ | 36 | $ | 365,769 | $ | (27 | ) | $ | (301,480 | ) | $ | 64,298 |
|
| Common Stock |
|
| Additional |
|
| Deficit |
|
| Total |
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Accumulated |
|
| Equity (Deficit) |
| |||||
BALANCE — January 1, 2022 |
|
| 6,910,324 |
|
| $ | 7 |
|
| $ | 136,173 |
|
| $ | (100,063 | ) |
| $ | 36,117 |
|
Issuance of common stock for cash, net of issuance cost of $489 |
|
| 3,608,215 |
|
|
| 4 |
|
|
| 8,857 |
|
|
| — |
|
|
| 8,861 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 1,561 |
|
|
| — |
|
|
| 1,561 |
|
Issuance of pre-funded warrants, net of issuance cost $283 |
|
| — |
|
|
| — |
|
|
| 7,281 |
|
|
| — |
|
|
| 7,281 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (35,709 | ) |
|
| (35,709 | ) |
BALANCE — December 31, 2022 |
|
| 10,518,539 |
|
| $ | 11 |
|
| $ | 153,872 |
|
| $ | (135,772 | ) |
| $ | 18,111 |
|
Exercise of stock options |
|
| 713 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Issuance of common stock for cash, net of issuance cost of $1,105 |
|
| 8,323,218 |
|
|
| 8 |
|
|
| 35,590 |
|
|
| — |
|
|
| 35,598 |
|
Exercise of pre-funded warrants |
|
| 3,202,785 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 2,546 |
|
|
| — |
|
|
| 2,546 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (29,491 | ) |
|
| (29,491 | ) |
BALANCE — December 31, 2023 |
|
| 22,045,255 |
|
| $ | 22 |
|
| $ | 192,009 |
|
| $ | (165,263 | ) |
| $ | 26,768 |
|
See accompanying notes are an integral part of these consolidated financial statements.Notes to Consolidated Financial Statements
94
Tempest Therapeutics, Inc.
Consolidated Statements of Cash Flows
(Inin thousands)
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Cash flows from operating activities: | |||||||||||
Net loss | $ | (50,975 | ) | $ | (82,260 | ) | $ | (73,219 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
Depreciation and amortization | 1,650 | 2,238 | 1,286 | ||||||||
Impairment of property and equipment | — | 147 | — | ||||||||
Impairment of property and equipment related to restructuring | 422 | 1,994 | — | ||||||||
Amortization of premium on debt securities | 59 | 659 | 1,116 | ||||||||
Stock-based compensation expense | 6,893 | 9,215 | 19,337 | ||||||||
Issuance of common stock for board of directors fees | 129 | 154 | 165 | ||||||||
Net loss on equity method investment | 1,018 | 1,542 | 1,561 | ||||||||
Changes in operating assets and liabilities: | |||||||||||
Prepaid expenses and other assets | 937 | 946 | (1,113 | ) | |||||||
Accounts payable | 68 | (1,178 | ) | (171 | ) | ||||||
Accrued expenses, current and other non-current liabilities | (5,752 | ) | 4,809 | 752 | |||||||
Net cash used in operating activities | (45,551 | ) | (61,734 | ) | (50,286 | ) | |||||
Cash flows from investing activities: | |||||||||||
Investment in joint venture | (1,100 | ) | (1,750 | ) | (1,500 | ) | |||||
Purchases of property and equipment | (158 | ) | (2,586 | ) | (5,229 | ) | |||||
Maturities of short-term investments | 87,789 | 72,013 | 53,528 | ||||||||
Sales of short-term investments | — | 23,089 | 10,817 | ||||||||
Purchases of short-term investments | (68,857 | ) | (82,671 | ) | (95,225 | ) | |||||
(Decrease) increase in restricted cash | (350 | ) | 197 | (681 | ) | ||||||
Net cash provided by (used in) by investing activities | 17,324 | 8,292 | (38,290 | ) | |||||||
Cash flows from financing activities: | |||||||||||
Net proceeds from the issuance of common stock | — | 53,925 | 124,063 | ||||||||
Issuances of common stock under benefit plans, net of withholding taxes paid | — | 223 | 1,323 | ||||||||
Net cash provided by financing activities | — | 54,148 | 125,386 | ||||||||
Net (decrease) increase in cash and cash equivalents | (28,227 | ) | 706 | 36,810 | |||||||
Cash and cash equivalents at beginning of period | 43,930 | 43,224 | 6,414 | ||||||||
Cash and cash equivalents at end of period | $ | 15,703 | $ | 43,930 | $ | 43,224 | |||||
Supplemental disclosure of non-cash investing activity | |||||||||||
Additions of property and equipment included in accounts payable and accrued liabilities | $ | 25 | $ | 55 | $ | 1,003 |
|
| Year Ended December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (29,491 | ) |
| $ | (35,709 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
| ||
Depreciation expense |
|
| 381 |
|
|
| 638 |
|
Stock-based compensation expense |
|
| 2,546 |
|
|
| 1,561 |
|
Noncash lease expense |
|
| 1,698 |
|
|
| 1,176 |
|
Noncash interest and other expense, net |
|
| 186 |
|
|
| 394 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Prepaid expenses and other assets |
|
| 193 |
|
|
| 915 |
|
Accounts payable |
|
| (263 | ) |
|
| 1 |
|
Accrued expenses and other liabilities |
|
| (992 | ) |
|
| 1,709 |
|
Interest payable |
|
| 16 |
|
|
| (256 | ) |
Operating lease liabilities |
|
| (1,631 | ) |
|
| (1,501 | ) |
Cash used in operating activities |
|
| (27,357 | ) |
|
| (31,072 | ) |
Investing activities: |
|
|
|
|
|
| ||
Purchase of property and equipment |
|
| (170 | ) |
|
| (562 | ) |
Repayment of related party note receivable |
|
| — |
|
|
| — |
|
Cash used in investing activities |
|
| (170 | ) |
|
| (562 | ) |
Financing activities: |
|
|
|
|
|
| ||
Proceeds from the issuance of common stock, net of issuance costs |
|
| 35,602 |
|
|
| 8,861 |
|
Proceeds from issuance of pre-funded warrants, net of issuance costs |
|
| — |
|
|
| 7,281 |
|
Repayment of loan |
|
| — |
|
|
| (4,739 | ) |
Cash provided by financing activities |
|
| 35,602 |
|
|
| 11,403 |
|
Net increase in cash and cash equivalents |
|
| 8,075 |
|
|
| (20,231 | ) |
Cash, cash equivalents and restricted cash at beginning of period |
|
| 31,598 |
|
|
| 51,829 |
|
Cash, cash equivalents and restricted cash at end of period |
|
| 39,673 |
|
|
| 31,598 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
| ||
Cash paid for interest |
| $ | 1,249 |
|
| $ | 1,539 |
|
Cash paid for business taxes |
| $ | 191 |
|
| $ | 18 |
|
Operating lease right-of-use assets recognized in exchange for lease liabilities |
| $ | — |
|
| $ | 10,660 |
|
Non-cash operating activities: Lease modification |
| $ | — |
|
| $ | 884 |
|
Non-cash investing activities: Property and equipment in accounts payable |
| $ | — |
|
| $ | 93 |
|
See accompanying notes are an integral part of these consolidated financial statement.
95
Tempest Therapeutics, Inc.
Notes to Consolidated Financial Statements
As of and For the Years Ended December 31, 2023 and 2022
(In Thousands, Except Share and Per Share Amount)
1. Organization
Description of Business
Tempest Therapeutics, Inc., incorporated on April 5, 2011 (“Tempest” or the “Company”) is a clinical-stage oncology company advancing small molecules that combine both tumor-targeted and immune-mediated mechanisms with the potential to treat a wide range of tumors. The Company’s two novel clinical programs are TPST-1120 and TPST-1495, antagonists of PPARα and EP2/EP4, respectively. Both programs are advancing through clinical trials designed to study the agents as monotherapies and in combination with other approved agents. Tempest is also developing other product candidates currently in our Discovery Research portfolio. Tempest is headquartered in Brisbane, California.
Liquidity and Management Plans
The accompanying financial statements have been prepared assuming the Company will continue as a Delaware corporation,going concern. The Company has incurred operating losses since inception. As of December 31, 2023, the Company had cash and cash equivalents of $39.2 million, which is sufficient to fund operations beyond 12 months from the issuance of the financial statements. The Company’s ability to fund continued development will require additional capital, and Tempest intends to raise such capital through the issuance of additional debt or equity including in connection with potential merger opportunities, or through business development activities. The Company’s ability to continue as a global fertility company developing proprietary potential treatmentsgoing concern is dependent upon its ability to successfully accomplish these plans and secure sources of financing and ultimately attain profitable operations. If the Company are unable to obtain adequate capital, it could be forced to cease operations.
ATM Program
On July 23, 2021, the Company entered into a sales agreement with Jefferies LLC, pursuant to which the Company may sell, from time to time at its sole discretion through Jefferies, as its sales agent, shares of its common stock having, up to an aggregate sales price of $100.0 million of its common stock through Jefferies (the “ATM Program”). Any shares of its common stock sold will be issued pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-257990). The Company will pay Jefferies a commission up to 3.0% of the gross sales proceeds of any shares of its common stock sold through Jefferies under the ATM Program and also has provided Jefferies with indemnification and contribution rights. As of December 31, 2023, the Company has sold an aggregate of 8,960,822 shares of its common stock for female fertilitynet proceeds of approximately $41.2 million, after deducting commissions and expenses pursuant to the ATM Program. During the year ended December 31, 2023, the Company has sold an aggregate of 8,260,479 shares of its common stock for net proceeds of approximately $35.6 million, after deducting commissions and expenses. As of December 31, 2023, approximately $57.6 million remained available under the ATM Program.
PIPE Financing
On April 29, 2022, the Company completed a private investment in public equity (“PIPE”) financing from the sale of 3,149,912 shares of its common stock at a price per share of $2.36 and, and in lieu of shares of common stock, pre-funded warrants to purchase up to 3,206,020 shares of its common stock at a price per pre-funded warrant of $2.359 to EcoR1 Capital, LLC and Versant Venture Capital (the “PIPE Investors”). Net proceeds from the PIPE financings totaled approximately $14.5 million, after deducting offering expenses. The Company entered into a registration rights agreement
96
with the PIPE Investors pursuant to which the Company filed a registration statement with the SEC registering the resale of the 3,149,912 shares common stock and the 3,206,020 shares of common stock underlying the pre-funded warrants issued in the PIPE financing. As of December 31, 2023, all pre-funded warrants had been exercised.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation—The accompanying Consolidated Financial Statements have been prepared in accordance with US generally accepted accounting principles ("GAAP") and necessarily include amounts based on scientific discoveriesestimates and assumptions by management.
Use of Estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to research and development accruals, recoverability of long-lived assets, right-of-use assets, lease obligations, stock-based compensation and income taxes uncertainties and valuation allowances. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the existencecarrying values of egg precursor, or EggPCSM, cells. As used in these consolidated financial statements, the terms “OvaScience,” “theassets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.
Segment Information—The Company” “we,” “us,” operates and “our” refer tomanages its business as one reportable and operating segment, which is the business of OvaScience, Inc. and its wholly owned subsidiaries. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, identifying potential fertility treatments, developing the OvaPrimeSM treatment, the OvaTureSM treatment and the AUGMENTSM treatment, introducing AUGMENT in select international in vitro fertilization ("IVF") clinics and determining the regulatorydiscovery and development path for our fertility treatments. We have generated limited revenuesof small molecule drugs to date,treat cancers. All assets and do not anticipate significant revenuesoperations are in the near term. On June 21, 2017, we announced that we will continue to focusU.S. The Company’s Chief Executive Officer, who is the chief operating decision maker, reviews financial information on advancing OvaPrime in clinical developmentan aggregate basis for purposes of allocating resources and OvaTure in preclinical developmentevaluating financial performance.
Risks and will discontinue ongoing efforts related to the AUGMENT treatment outside of North America. To better align our organization with these strategic priorities, we restructured our workforce and reduced our workforce by approximately 50%. On January 3, 2018, we announced we will further restructure our organization and will reduce our workforce by approximately 50% in order to execute our corporate strategy more efficiently with a leaner and more nimble organization.
Concentration of Credit Risk—Financial instruments, which potentially subject the Company to generate treatment revenueconcentration of risk, consist principally of cash and money market fund. All of the Company’s cash and money market fund are deposited in accounts with a major financial institution in excess of federally insured limits. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash and cash equivalents to the extent recorded in the balance sheets. While the Company has not experienced any losses in such accounts, the recent failure of Silicon Valley Bank (SVB), at which the Company held cash and cash equivalents in multiple accounts, exposed the Company to significant credit risk prior to the completion by the Federal Deposit Insurance Corporation of the resolution of SVB in a manner that fully protected all depositors. The Company had subsequently transferred its accounts to one or achieve profitability.more alternate depository institutions. The Company has no off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.
97
Cash and Cash Equivalents—The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisitions to be cash equivalents. As of December 31, 2017 we had an accumulated deficit of approximately $301.5 million.
Leases—The Company determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys to the customer the right to control the use of approximately $67.2 millionidentified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property, plant, and equipment), and (2) the customer has the right to control the use of the identified asset.
The lease liabilities are initially and subsequently measured at December 31, 2017,the present value of the unpaid lease payments at the lease commencement date. When readily determinable, the Company uses the implicit rate in determining the present value of lease payments. When leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date, including the lease term.
The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Property and Equipment—Property and equipment is recorded at cost and depreciated over the estimated useful lives of the related assets using the straight-line method. Upon disposal of an asset, the related cost and accumulated depreciation are removed from the asset accounts and any resulting gain or loss is included in the consolidated statements of operations. Repair and maintenance costs are expensed as incurred, whereas major improvements are capitalized as additions to property and equipment.The estimated useful lives of the Company’s respective assets are as follows:
Computer equipment and software | 3 years |
Furniture and fixtures | 7 years |
Laboratory equipment | 5 years |
Leasehold improvements | Shorter of the useful life of the asset or the life of the lease |
Impairment of Long-Lived Assets—Long-lived assets are reviewed for impairment if events or circumstances indicate the carrying amount of these assets may not be recoverable. If this review indicates that these assets will not be recoverable, based on the forecasted undiscounted future operating cash flows expected to result from the use of long-lived assets and their eventual disposition, the Company’s carrying value of the long-lived assets is reduced to fair value based on a discounted future cash flow approach or quoted market values.
Research and Development Expenses and Accrued Research and Development—Research and development expenses are charged to expense as incurred. Research and development expenses include certain payroll and personnel expenses including stock-based compensation, laboratory supplies, consulting costs, external contract research and development expenses and facility or lease expenses. In-licensing fees and other costs to acquire technologies that are utilized in research and development, and that are not expected to have alternative future use, are expensed when incurred. Advance payments for goods or services for future research and development activities are deferred and expensed as the goods are delivered or the related services are performed.
The Company estimates preclinical studies and clinical trial expenses based on the services performed pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on the Company’s behalf. In accruing service fees, the Company estimates the time period over which services will be sufficient to fund our current operating plan for at leastperformed and the next 12 months. There can be no assurances, however, that the current operating plan will be achieved or that additional funding, if needed, will be available on terms acceptable to us, or at all.
98
providers, the Company’s estimates of money market funds, are stated at fair value.
Patent Costs—Costs related to filing and pursuing patent applications are expensed as available-for-sale. We carry available-for-sale securities at fair value, with the unrealized gains and lossesincurred, as recoverability of such expenditures is uncertain. These patent-related legal costs are reported in accumulated other comprehensive loss, which isas a separate component of stockholders' equity.general and administrative expenses.
General and Administrative Expenses—General and administrative costs are expensed as incurred and include employee-related expenses including salaries, benefits, travel and stock-based compensation for the Company’s personnel in executive, finance and accounting, and other administrative functions, as well as fees paid for legal, accounting and tax services, consulting fees and facilities costs not otherwise included in research and development expenses. Legal costs include general corporate legal fees and patent costs.
Fair Value Measurements
Stock-Based Compensation Expense—The Company accounts for stock-based compensation by measuring and short-term investments are the only financial instruments we have that are subject to concentration of credit risk. Cash and cash equivalents are primarily maintained with two major financial institutions in the United States. Deposits at banks may exceed the insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk. Short-term investments consist of investment grade corporate debt securities that mature within one to two years. Our investment policy, which has been approved by our board of directors, limits the amount we may invest in any one issuer of investments, thereby reducing credit risk concentrations.
The Company estimates the fair value of stock options.
Net Loss per Share Attributable to Common Stockholders—The Company follows the two-class method when computing net loss per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net loss per share for each class of common and recorded a cumulative catch-upparticipating securities according to increasedividends declared or accumulated deficitand participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.
99
Basic net loss per share attributable to common stockholders is computed by approximately $0.3 million asdividing the net loss attributable to common stockholders by the weighted average number of January 1, 2017.common shares outstanding for the period. Diluted net loss attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities.
Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares. For purpose of this calculation, outstanding stock options, convertible preferred stock and warrants to purchase shares of convertible preferred stock are considered potential dilutive common shares.
Income Taxes
In evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In the event the Company determines that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation allowance that would reduce the provision for income taxes. Conversely, in the event that all or part of the net deferred tax assets are reduced by adetermined not to be realizable in the future, an adjustment to the valuation allowance would be charged to reflect the uncertainty associated with their ultimate realization. The effect of a change in tax rate on deferred taxes is recognized in income or lossearnings in the period that includeswhen such determination is made. As of December 31, 2023 and 2022, the enactment date.
Tax benefits related to uncertain tax positions are recognized when it is more likely than not that a tax position taken or expected towill be taken in a tax return. We recognize any material interestsustained during an audit. Interest and penalties related to unrecognized tax benefits in income tax expense.
3. FAIR VALUE MEASUREMENTS
The following tables present the years ending December 31, 2017 and 2016, respectively. Our maximum exposure to loss with respect to our joint venture is limited to the carrying amount of the investment and any unfunded commitment.
|
| As of December 31, 2023 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Cash and cash equivalents |
| $ | 39,230 |
|
| $ | — |
|
| $ | — |
|
| $ | 39,230 |
|
Total |
| $ | 39,230 |
|
| $ | — |
|
| $ | — |
|
| $ | 39,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| As of December 31, 2022 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Cash and cash equivalents |
| $ | 31,230 |
|
| $ | — |
|
| $ | — |
|
| $ | 31,230 |
|
Total |
| $ | 31,230 |
|
| $ | — |
|
| $ | — |
|
| $ | 31,230 |
|
Description | Balance as of December 31, 2017 | Level 1 | Level 2 | Level 3 | |||||||||||
Assets: | |||||||||||||||
Cash and money market funds | $ | 15,703 | $ | 15,703 | $ | — | $ | — | |||||||
Corporate debt securities (including commercial paper) | 35,531 | — | 35,531 | — | |||||||||||
U.S. government securities | 15,969 | — | 15,969 | — | |||||||||||
Total assets | $ | 67,203 | $ | 15,703 | $ | 51,500 | $ | — |
4. BALANCE SHEET ITEMS
Description | Balance as of December 31, 2016 | Level 1 | Level 2 | Level 3 | |||||||||||
Assets: | |||||||||||||||
Cash and money market funds | $ | 43,930 | $ | 43,930 | $ | — | $ | — | |||||||
Corporate debt securities (including commercial paper) | 48,466 | — | 48,466 | — | |||||||||||
U.S. government securities | 21,992 | — | 21,992 | — | |||||||||||
Total assets | $ | 114,388 | $ | 43,930 | $ | 70,458 | $ | — |
December 31, 2017 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||
Cash and money market funds | $ | 15,703 | $ | — | $ | — | $ | 15,703 | |||||||
Corporate debt securities: | |||||||||||||||
Due in one year or less | 38,053 | — | (21 | ) | 38,032 | ||||||||||
U.S. government securities: | |||||||||||||||
Due in one year or less | 13,474 | — | (6 | ) | 13,468 | ||||||||||
Total | $ | 67,230 | $ | — | $ | (27 | ) | $ | 67,203 | ||||||
Reported as: | |||||||||||||||
Cash and cash equivalents | $ | 15,703 | $ | — | $ | — | $ | 15,703 | |||||||
Short-term investments | 51,527 | — | (27 | ) | 51,500 | ||||||||||
Total | $ | 67,230 | $ | — | $ | (27 | ) | $ | 67,203 |
December 31, 2016 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||
Cash and money market funds | $ | 43,930 | $ | — | $ | — | $ | 43,930 | |||||||
Corporate debt securities: | |||||||||||||||
Due in one year or less | 48,492 | 3 | (29 | ) | 48,466 | ||||||||||
U.S. government securities: | |||||||||||||||
Due in one year or less | 14,013 | — | (16 | ) | 13,997 | ||||||||||
Due in two years or less | 8,013 | — | (18 | ) | 7,995 | ||||||||||
Total | $ | 114,448 | $ | 3 | $ | (63 | ) | $ | 114,388 | ||||||
Reported as: | |||||||||||||||
Cash and cash equivalents | $ | 43,930 | $ | — | $ | — | $ | 43,930 | |||||||
Short-term investments | 70,518 | 3 | (63 | ) | 70,458 | ||||||||||
Total | $ | 114,448 | $ | 3 | $ | (63 | ) | $ | 114,388 |
As of December 31, | |||||||
2017 | 2016 | ||||||
Laboratory equipment | $ | 3,480 | $ | 5,184 | |||
Furniture | 371 | 793 | |||||
Computer equipment | 208 | 208 | |||||
Leasehold improvements | 2,754 | 2,815 | |||||
Total property and equipment, gross | 6,813 | 9,000 | |||||
Less: accumulated depreciation and amortization | (3,700 | ) | (3,428 | ) | |||
Total property and equipment, net | $ | 3,113 | $ | 5,572 |
Prepaid expenses and other current liabilitiesasset consist of the following as of December 31, 20172023 and 20162022 (in thousands):
|
| 2023 |
|
| 2022 |
| ||
Prepaid expenses |
| $ | 700 |
|
| $ | 703 |
|
Prepaid research and development costs |
|
| 337 |
|
|
| 304 |
|
Other current assets |
|
| 96 |
|
|
| 263 |
|
Total |
| $ | 1,133 |
|
| $ | 1,270 |
|
100
December 31, 2017 | December 31, 2016 | ||||||
Compensation and related benefits | $ | 2,215 | $ | 5,869 | |||
Development, site costs, and contract manufacturing | 519 | 524 | |||||
Legal, audit and tax services | 1,542 | 1,280 | |||||
Consulting | 160 | 888 | |||||
Deferred rent | 334 | 309 | |||||
Other accrued expenses and other current liabilities | 792 | 2,156 | |||||
$ | 5,562 | $ | 11,026 |
Property and equipment, net, consists of accrued costs related to travel, equipment purchases, lab supplies and other miscellaneous costs.
December 31, 2017 | December 31, 2016 | ||||
Outstanding stock options | 5,746 | 4,611 | |||
Outstanding restricted stock units | — | 50 |
Shares | Weighted average exercise price per share | Weighted average remaining contractual term (years) | Aggregate intrinsic value (in thousands) | |||||||||
Outstanding at December 31, 2016 | 4,611,392 | $ | 14.42 | 8.23 | $ | 45 | ||||||
Granted | 4,386,856 | 1.51 | ||||||||||
Forfeited / Canceled | (3,252,433 | ) | 9.63 | |||||||||
Outstanding at December 31, 2017 | 5,745,815 | 7.28 | 8.32 | 43 | ||||||||
Exercisable at December 31, 2017 | 2,370,335 | 13.37 | 7.08 | 42 | ||||||||
Vested and expected to vest at December 31, 2017 | 5,745,815 | 7.28 | 8.32 | 43 |
December 31, | |||||
2017 | 2016 | 2015 | |||
Risk-free interest rate | 1.3%-2.2% | 1.3%-2.0% | 1.6%-2.3% | ||
Dividend yield | — | — | — | ||
Volatility | 87%-109% | 78%-89% | 72%-78% | ||
Expected term (years) | 2.0-6.9 | 5.3-9.9 | 5.3-9.9 |
Shares | Weighted average grant date fair value | |||||
Outstanding at December 31, 2016 | 50,000 | $ | 7.15 | |||
Granted | — | — | ||||
Vested | — | — | ||||
Forfeited | (50,000 | ) | 7.15 | |||
Outstanding at December 31, 2017 | — | $ | — |
Award Type | Number of RSUs Granted | Grant Date Fair Value | RSUs Vested as of December 31, 2015 | ||||||
Service-based | 30,902 | $ | 32.36 | 15,450 | |||||
Performance-based - Year 1 | 11,588 | $ | 43.47 | 4,635 | |||||
Performance-based - Year 2 | 11,588 | $ | — | — |
|
| 2023 |
|
| 2022 |
| ||
Computer equipment and software |
| $ | 169 |
|
| $ | 168 |
|
Furniture and fixtures |
|
| 328 |
|
|
| 310 |
|
Lab equipment |
|
| 1,133 |
|
|
| 1,061 |
|
Leasehold improvements |
|
| 235 |
|
|
| 882 |
|
Property and equipment |
|
| 1,865 |
|
|
| 2,421 |
|
Less accumulated depreciation |
|
| (1,025 | ) |
|
| (1,361 | ) |
Property and equipment—net |
| $ | 840 |
|
| $ | 1,060 |
|
Accrued restructuring balance as of December 31, 2016 | 3,406 | |||
Plus: | ||||
Severance | 3,048 | |||
Other | 500 | |||
Less: | ||||
Payments: | (6,551 | ) | ||
Accrued restructuring balance as of December 31, 2017 | $ | 403 |
Year Ended Year ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Current: | |||||||||||
Federal | $ | — | $ | — | $ | — | |||||
State | 11 | 18 | 21 | ||||||||
Foreign | 56 | 183 | 54 | ||||||||
Total income tax expense | 67 | 201 | 75 |
Year Ended Year ended December 31, | ||||||||
2017 | 2016 | 2015 | ||||||
Income tax benefit using U.S. federal statutory rate | 34.00 | % | 34.00 | % | 34.00 | % | ||
State income taxes, net of federal benefit | 5.08 | % | 4.86 | % | 5.23 | % | ||
Research and development tax credits | 1.51 | % | 0.90 | % | 0.83 | % | ||
Permanent items - stock based compensation | (7.60 | )% | (2.66 | )% | (8.15 | )% | ||
Foreign differential | (11.67 | )% | (11.03 | )% | (14.25 | )% | ||
Other adjustments | (0.52 | )% | (0.11 | )% | (0.94 | )% | ||
Impact of Tax Reform | (39.42 | )% | — | % | — | % | ||
Change in the valuation allowance | 18.49 | % | (26.21 | )% | (16.82 | )% | ||
(0.13 | )% | (0.25 | )% | (0.10 | )% |
2017 | 2016 | ||||
Deferred Tax Assets: | |||||
Net operating loss carryforwards | 53,228 | 53,654 | |||
Tax credit carryforwards | 3,944 | 3,034 | |||
Accrued expenses | 687 | 1,737 | |||
Stock based compensation | 4,591 | 7,750 | |||
Intangibles | 2,240 | 3,366 | |||
Other | 903 | 1,181 | |||
Gross deferred tax assets | 65,593 | 70,722 | |||
Valuation allowance | (65,593 | ) | (70,722 | ) | |
Net deferred tax assets | — | — |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Net loss applicable to common stockholders | $ | (50,975 | ) | $ | (82,260 | ) | $ | (73,219 | ) | ||
Weighted average number of common shares used in net loss per share applicable to common stockholders—basic and diluted | 35,675 | 32,148 | 27,085 | ||||||||
Net loss per share applicable to common stockholders—basic and diluted | $ | (1.43 | ) | $ | (2.56 | ) | $ | (2.70 | ) |
Year Ended December 31, | ||||||||
2017 | 2016 | 2015 | ||||||
Outstanding stock options and restricted stock units | 5,746 | 4,661 | 4,751 |
Year | |||
2018 | $ | 978 | |
2019 | 985 | ||
2020 | 924 | ||
$ | 2,887 |
Depreciation expense for the years ended December 31, 20172023 and 2016,2022 were $381 and $638, respectively.
Accrued liabilities as of December 31, 2023 and 2022 consist of the following (in thousands):
|
| 2023 |
|
| 2022 |
| ||
Accrued other liabilities |
| $ | 626 |
|
| $ | 756 |
|
Accrued clinical trial liability |
|
| 1,047 |
|
|
| 2,205 |
|
Total |
| $ | 1,673 |
|
| $ | 2,961 |
|
5. COMMITMENTS AND CONTINGENCIES
Facilities Lease Agreements—In February 2019, the Company entered into a 5-year office lease agreement for a 9,780 square feet facility in South San Francisco, California. The original lease term expires on February 29, 2024. In June 2022, the lease was $0.8 million,amended to terminate early on January 31, 2023. The amendment was not accounted for as a separate contract and $0.9 millionthe lease liability and the right-of-use asset were remeasured on the lease modification date.
In January 2022, the Company entered into a new 8-year office lease agreement for a 20,116 square feet facility in Brisbane, California ("Brisbane Lease"). The lease commenced in December 2022.
As of December 31, 2023 and 2022, the balance of the operating lease right of use assets were $9,952 and $11,650, respectively, and the related operating lease liability were $10,112 and $11,744, respectively, as shown in the accompanying consolidated balance sheets.
Rent expense was $2,738 and $1,445 for the yearyears ended December 31, 2015.2023 and 2022, respectively.
As of December 31, 2023, future minimum annual lease payments under the Company’s operating lease liabilities were as follows:
|
| Total Commitment |
| |
Year Ending |
| (in thousands) |
| |
2024 |
| $ | 2,100 |
|
2025 |
|
| 1,861 |
|
2026 |
|
| 1,926 |
|
2027 |
|
| 1,994 |
|
2028 and beyond |
|
| 6,410 |
|
Total minimum lease payments |
|
| 14,291 |
|
Less: imputed interest |
|
| (4,179 | ) |
Present value of operating lease obligations |
|
| 10,112 |
|
Less: current portion |
|
| (952 | ) |
Noncurrent operating lease obligations |
| $ | 9,160 |
|
101
Related to this Brisbane Lease agreement, the Company entered into a purported class action lawsuit was filedletter of credit with a bank to deposit $388 in a separate account that is restricted cash to serve as security rent deposit. This amount is included in other noncurrent assets in the Suffolk County Superior Court inaccompanying Consolidated Balance Sheets as of December 31, 2023.
Guarantees and Indemnifications—In the Commonwealthnormal course of Massachusetts against us, several of our officers and directors and certain of the underwriters from our January 2015 follow-on public offering of our common stock. The plaintiffs purport to represent those persons who purchased shares of our common stock pursuant or traceable to our January 2015 follow-on public offering. The plaintiffs allege, among other things, thatbusiness, the Company defendantsenters into agreements that contain a variety of representations and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made false and misleading statements and failed to disclose material information in the Company’s January 2015 Registration Statement and incorporated offering materials. Plaintiffs allege violations of Sections 11, 12 and 15 of the Securities Act of 1933, as amended, and seek, among other relief, unspecified compensatory damages,
Legal Proceedings—Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. As a result of the underwriters frommerger with Millendo, the January 2015 follow-on public offering. The complaintCompany is substantially similarparty to various litigation matters given Millendo’s role as successor to OvaScience, Inc. (“OvaScience”). OvaScience merged with Millendo in 2018. Prior to the complaint filedmerger with Millendo, OvaScience was sued in October 2015. The two actions subsequently were consolidated and plaintiffs filed a First Amended Class Action Complaint on June 17, 2016. Defendants filed motions to dismiss the complaint. Those motions were denied by order dated December 22, 2016. On August 17, 2016, an additional plaintiff, Westmoreland County Employee Retirement System (“Westmoreland”) moved to intervene in the consolidated action. The defendants opposed Westmoreland’s motion to intervene. The Superior Court granted Westmoreland’s Motion to Intervene on October 26, 2017. On August 7, 2017, the plaintiffs filed their motion for class certification, which the defendants opposed. Oral argument on the motion for class certification was held on September 29, 2017. On November 7, 2017, the Superior Court denied the plaintiffs’ motion for class certification. On August 14, 2017, the Defendants filed their motion for summary judgment against plaintiffs Heather Carlson, Cesar Castellanos, Philipp Hofmann, and Carlos Rivas, which the plaintiffs opposed. Oral argument on the motion for summary judgment was held on October 18, 2017. On November 21, 2017, the Superior Court allowed the Defendants’ motion for summary judgment, and the claims asserted by plaintiffs Heather Carlson, Cesar Castellanos, Philipp Hofmann, and Carlos Rivas in the consolidated actions were dismissed, leaving Westmoreland as the sole remaining plaintiff. On November 22, 2017, Westmoreland filed a putative class action complaint in the U.S. District Court for the District of Massachusetts against the same defendants alleging the same claims asthree matters that are alleged in the state court case (the “Westmoreland Federal Action”). On January 17, 2018, the lead plaintiff in a different case, a purported shareholder class action alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Dahhan Action”) filed a motion to intervene in the Westmoreland Federal Action and to consolidate the Westmoreland Federal Action with the Dahhan Action. We have opposed this motion, which is pending. On January 22, 2018, Westmoreland filed a motion to voluntarily dismiss the Superior Court action without prejudice. We have opposed that motion and the Court has scheduled oral argument on April 3, 2018. We believe that the complaints in both cases are without merit and intend to defend against the litigation. There can be no assurance, however, that we will be successful. A resolution of these lawsuits adverse to the Company or the other defendants could have a material effect on our consolidated financial position and results of operations in the period in which the lawsuit is resolved. At present, we are unable to estimate potential losses, if any, related to the lawsuit.
On November 9, 2016, a purported shareholder derivative action was filed in the Business Litigation Session of the Suffolk County Superior Court in the Commonwealth of Massachusetts State court (Cima v. Dipp) against OvaScience and certain of our present and former officers and directors of OvaScience and OvaScience alleging breachesbreach of fiduciary duty,duties, unjust enrichment, abuse of control, gross mismanagement and waste of corporate wasteassets for purported actions related to theOvaScience’s January 2015 follow-on public offering. As of September 12, 2022, the parties have reached an agreement in principle and have executed a term sheet in connection with a settlement. On September 13, 2022, the parties filed a joint motion to stay the case pending settlement. On September 15, 2022, the court issued a 90-day nisi order. On December 14, 2022, the court extended that order for 60 days to February 20, 2023. On February 23, 2017,17, 2023, the court approvedextended the parties’ joint stipulation to stay all proceedings in the actionorder until further notice. FollowingMarch 22, 2023 and set a status conference in December 2017, the stay was lifted.court appearance for March 23, 2023. On January 25, 2018, at the parties’ request,March 23, 2023, the court entered a second order staying all proceedings in the action under further ordergranted preliminary approval of the court. We believe thatsettlement and set a final fairness hearing for June 12, 2023. By order dated June 12, 2023, the complaint is without merit and intend to defend against the litigation. There can be no assurance, however, that we will be successful. A resolution of this lawsuit adverse to the Company or the other defendants could have a material effect on our consolidated financial position and results of operations in the period in which the lawsuit is resolved. At present, we are unable to estimate potential losses, if any, related to the lawsuit.
On July 27, 2017, a purported shareholder derivative complaint was filed in the U.S. District Court for the DistrictMassachusetts Federal court (Chiu v. Dipp) against OvaScience and certain former officers and directors of Massachusetts against certain of our present and former directors and the Company as a nominal defendant,OvaScience alleging breach of fiduciary duty,duties, unjust enrichment and violations of Section 14(a) of the Securities Exchange Act of 1934 alleging that compensation awarded to the director defendants was excessive and seeking redress for purported actionsAct. related to the Company’sOvaScience’s January 2015 follow-on public offering and other public statements. On September 26, 2017,statements concerning OvaScience’s AUGMENT treatment. Following the plaintiffs filedcourt’s dismissal of an amended complaint, which eliminated all claims regarding allegedly excessive director pay.the parties agreed that plaintiffs could file a second amended complaint and that the case would be stayed pending the resolution of the Dahhan Action. In May 2018, the court entered an order staying this case pending the resolution of the Dahhan Action. As of September 12, 2022, the parties have reached an agreement in principle and have executed a term sheet in connection with the settlement. On October 27, 2017,February 14, 2023, the defendantsparties informed the court that, subject to court approval, they had reached an agreement to settle Chiu v. Dipp as well as Cima v. Dipp. The parties requested a 90-day stay in order to present the settlement to the state court in Cima v. Dipp first. On February 16, 2023, the court granted the 90-day stay. On May 2, 2023, the court extended the stay through July 12, 2023. After final approval of the Cima settlement, the parties filed a motionstipulation and proposed order to dismiss the amended complaint,Chiu Action with prejudice on June 27, 2023. By order dated July 5, 2023, the court dismissed the Chiu Action with prejudice.
6. LOAN PAYABLE
On January 15, 2021, the Company entered into a loan agreement with Oxford Finance LLC (the "Lender") to borrow a term loan amount of $35,000 to be funded in three tranches. Tranche A of $15,000 was wired to the Company on January 15, 2021. Tranche B of $10,000 expired on March 31, 2022. Tranche C of $10,000 is available at the Lender’s option.
On December 23, 2022, the Company entered into a First Amendment to the loan agreement. The amendment modified the agreement as follows: (i) each of the Company and Millendo, were joined as co-borrowers under the Loan Agreement; (ii) the interest-only repayment period was extended through December 31, 2023 (which interest-only period may be further extended through June 30, 2024 under certain circumstances); and (iii) a security interest in all of the assets of the Company, TempestTx
102
and Millendo, including any intellectual property, was granted to the Lender. In addition, the Lender permitted a one-time prepayment in the amount of $5.0 million, which the Company paid on December 23, 2022.
Following the amendment to the loan agreement, the term loan matures on August 1, 2025 and has an annual floating interest rate of 7.15% which is pending. We believean Index Rate plus 7.10%. Index Rate is the greater of (i) 1-Month CME Term SOFR or (ii) 0.05%. In the fourth quarter of 2023, the Company achieved the circumstances necessary to extend the interest-only repayment period through June 30, 2024. Monthly principal payments of $733 are required to begin on July 1, 2024. Related to this borrowing, the Company recorded loan discounts totaling $898 and paid $95 of debt issuance costs. These amounts would be amortized as additional interest expense over the life of the loan. As of December 31, 2023, the balance of the loan payable (net of debt issuance costs) was $10.5 million. The carrying value of the loan approximates fair value (Level 2).
For the years ended December 31, 2023 and 2022, total interest expense was $1,449 and $1,618, respectively.
7. STOCKHOLDERS' EQUITY
Common Stock
On March 29, 2021, TempestTx, Inc. (“Private Tempest”) entered into an Agreement and Plan of Merger (with Millendo Therapeutics, Inc. upon completion of the merger on June 25, 2021, the Company issued an aggregate of approximately 5,365,899 shares of its common stock to Private Tempest stockholders, based on an exchange ratio of 0.0322 shares of the Company’s common stock for each share of Private Tempest common stock outstanding immediately prior to the merger, including those shares of common stock issued upon conversion of the Private Tempest preferred stock (3,692,912 common shares) and those shares of common stock issued with its pre-merger financing of $30.0 million (1,136,849 common shares).
As of December 31, 2023 and December 31, 2022, the Company was authorized to issue 100,000,000 shares of common stock and 5,000,000 shares of preferred stock, each with a par value of $0.001 per share. Of the common stock shares authorized, 22,045,255 and 10,518,539 were issued and outstanding at December 31, 2023 and December 31, 2022, respectively. There were no shares subject to repurchase due to remaining vesting requirements. There was no preferred stock issued nor outstanding as of December 31, 2023 and December 31, 2022. Common stockholders are entitled to dividends as declared by the Board of Directors, subject to rights of holders of all classes of stock outstanding having priority rights as to dividends. There have been no dividends declared to date. The holders of each share of common stock are entitled to one vote. Except for effecting or validating certain specific actions intended to protect the preferred stockholders, the holders of common stock vote together with preferred stockholders and have the right to elect one member of the Company’s Board of Directors.
Rights Plan
On October 10, 2023, the Company’s Board of Directors adopted a limited duration stockholder rights plan (the “Rights Plan”), effective immediately, and declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of the common stock, par value $0.001 per share (the “Common Shares”), of the Company. The dividend was effective as of October 23, 2023 (the “Record Date”) with respect to stockholders of record on that date. The Rights will also attach to new Common Shares issued after the Record Date. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.001 per share, (the “Preferred Shares”), of the Company at a price of $25.00 per one one-thousandth of a Preferred Share, subject to adjustment. The descriptions and terms of the Rights are set forth in a Rights Agreement, dated as of October 10, 2023 (the “Rights Agreement"), between the Company and Computershare Trust Company, NA. The Rights will expire on October 10, 2024, or, if the Company’s stockholders approve the Rights plan, on October 10, 2026, unless the Rights are earlier redeemed or exchanged by the Company.
ATM Program
On July 23, 2021, the Company entered into a sales agreement with Jefferies LLC, pursuant to which the Company may sell, from time to time, up to an aggregate sales price of $100,000,000 of its common stock through Jefferies LLC (the "ATM
103
Program"). Our ability to sell securities under the ATM program will be limited until we are no longer subject to the SEC’s “baby shelf” limitations.
Pre-Funded Warrants
In April 2022, the Company completed a PIPE financing, which included the issuance of pre-funded warrants to purchase up to 3,206,020 shares of its common stock at a price per pre-funded warrant of $2.359 to the PIPE Investors. As of December 31, 2023, all pre-funded warrants had been exercised.
8. STOCK-BASED COMPENSATION
Equity Plans
In 2011, Private Tempest adopted the 2011 Equity Incentive Plan (the “2011 Plan), and in 2017, Private Tempest adopted the 2017 Equity Incentive Plan (the “2017 Plan”), and together with the 2011 Plan, the “Tempest Prior Plans.” The Tempest Prior Plans have been terminated and no additional grants may be made under either plan. All stock awards granted under the Tempest Prior Plans will remain subject to the terms of the applicable prior plan. As a result of the merger with Millendo, the Tempest Prior Plans were assumed by the Company.
On April 29, 2019, the Board of Millendo adopted the 2019 Equity Incentive Plan (the “2019 Plan”), subject to approval by the Company’s stockholders, and became effective with such stockholder approval on June 11, 2019. On June 17, 2022, the Company’s stockholders approved the Amended and Restated 2019 Equity Incentive Plan (the “A&R 2019 Plan”), which amended and restated the 2019 Plan and will be a successor to, and replacement of, the 2019 Plan.
The Board of Tempest adopted the Amended and Restated 2023 Equity Incentive Plan (the “2023 Plan”) on April 30, 2023, subject to approval by the Company’s stockholders. On June 15, 2023, the Company’s stockholders approved the 2023 Plan, which amended and restated the A&R 2019 Plan and will be a successor to, and replacement of, the A&R 2019 Plan. The number of shares of the Company's common stock reserved for issuance under the 2023 Plan will automatically increase on January 1st of each year, for a period of 10 years, from January 1, 2024 continuing through January 1, 2033, by 4% of the total number of shares of the Company's common stock outstanding on December 31st of the preceding calendar year, or a lesser number of shares as may be determined by the Board of Directors. Accordingly, on January 1, 2024, the common stock reserved for issuance was increased by 881,810 shares. As of December 31, 2023, there were 233,708 shares available for future grant under the 2023 Plan.
The 2023 Plan allows the Company to grant stock awards to employees, directors and consultants of the Company, including incentive stock options (“ISOs”), non-qualified stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock unit awards and other stock awards.
The Board of Tempest adopted the 2023 Inducement Plan (“2023 Inducement Plan”) on June 21, 2023, pursuant to which the Company reserved 1,150,000 shares of its common stock to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company, as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The 2023 Inducement Plan was approved by the Company’s Board of Directors without stockholder approval in accordance with such rule. As of December 31, 2023, there were 1,142,350 shares available for future grant under the 2023 Inducement Plan.
The Company measures employee and non-employee stock-based awards at grant date fair value and records compensation expense on a straight-line basis over the vesting period of the award.
Employee Stock Ownership Plan
The Board of Millendo adopted the 2019 Employee Stock Purchase Plan on April 29, 2019, which became effective upon stockholder approval on June 11, 2019. On June 17, 2022, the Company’s stockholders approved the Amended and Restated
104
2019 Employee Stock Purchase Plan (the “2019 ESPP”). The 2019 ESPP enables employees to purchase shares of the Company's common stock through offerings of rights to purchase the Company's common stock to all eligible employees.
The 2019 ESPP provides that the complaint is without meritnumber of shares of common stock reserved for issuance under the 2019 ESPP will automatically increase on January 1, 2023 and intendcontinuing through (and including) January 1, 2029, by the lesser of 1.5% of the total number of shares of Common Stock outstanding on December 31st of the preceding calendar year, (ii) 500,000 shares of Common Stock, or (iii) such lesser number of shares of Common Stock as determined by the Board of Directors (which may be zero). On January 1, 2024, the common stock reserved for issuance was increased by 330,678 shares.
As of December 31, 2023, 232,136 shares of common stock remained available for future issuance under the 2019 ESPP. During the year ended December 31, 2023, 62,739 shares of common stock had been issued under the 2019 ESPP.
Stock Options
Options to defend againstpurchase the litigation. ThereCompany’s common stock may be granted at a price not less than the fair market value in the case of both NSOs and ISOs, except for an options holder who owns more than 10% of the voting power of all classes of stock of the Company, in which case the exercise price shall be no less than 110% of the fair market value per share on the grant date. Stock options granted under the Plans generally vest over four years and expire no later than ten (10) years from the date of grant. Vested options can be no assurance, however, that we will be successful. At present, we are unable to estimate potential losses, ifexercised at any relatedtime.
Prior to the lawsuit.
The following shows the stock option activities for the years ended December 31, 2023 and reduce our workforce by approximately 50% in connection with our determination that we can execute our corporate strategy more efficiently2022:
|
|
|
| Total Options Outstanding |
|
| Weighted-Average Exercise Price |
| ||
Balance—December 31, 2021 |
|
|
|
| 790,637 |
|
| $ | 32.82 |
|
Granted |
|
|
|
| 909,527 |
|
|
| 3.34 |
|
Exercised |
|
|
|
| — |
|
|
| — |
|
Cancelled and forfeited |
|
|
|
| (147,123 | ) |
|
| 128.79 |
|
Balance—December 31, 2022 |
|
|
|
| 1,553,041 |
|
| $ | 6.66 |
|
Granted |
|
|
|
| 2,308,800 |
|
|
| 7.26 |
|
Exercised |
|
|
|
| (713 | ) |
|
| 1.23 |
|
Cancelled and forfeited |
|
|
|
| (307,016 | ) |
|
| 3.97 |
|
Balance—December 31, 2023 |
|
|
|
| 3,554,112 |
|
|
| 7.28 |
|
The following table summarizes information about stock options outstanding at December 31, 2023:
105
|
| Shares |
|
| Weighted Average Remaining Contractual Life (In Years) |
|
| Weighted Average Exercise Price |
|
| Aggregate Intrinsic Value |
| ||||
Options outstanding |
|
| 3,554,112 |
|
|
| 8.79 |
|
| $ | 7.28 |
|
| $ | 2,737,358 |
|
Vested and expected to vest |
|
| 3,554,112 |
|
|
| 8.79 |
|
| $ | 7.28 |
|
| $ | 2,737,358 |
|
Exercisable |
|
| 1,041,752 |
|
|
| 7.42 |
|
| $ | 6.52 |
|
| $ | 906,002 |
|
During the years ended December 31, 2023 and 2022, the Company granted employees and non-employees stock options to purchase 2,308,800 and 909,527 shares of common stock with a leanerweighted-average grant date fair value of $6.05 and more nimble organization. We anticipate the majority$2.82 per share, respectively. As of the reduction in personnel will be completed by the end of the first quarter of 2018. We expect to realize annualized cost savings beginning in the second quarter of 2018. We anticipate incurring one-timeDecember 31, 2023 and 2022, total unrecognized compensation costs related to our restructuring initiativesunvested employee stock options were $14,703 and $4,012, respectively. These costs are expected to be recognized over a weighted-average period of approximately $0.5 million3.5 years and 2.6 years, respectively.
The Company estimated the fair value of stock options using the Black-Scholes option pricing valuation model. The fair value of employee stock options is being amortized on the straight-line basis over the requisite service period of the awards. The fair value of employee stock options was estimated using the following assumptions for the years ended December 31, 2023 and 2022:
|
| 2023 |
|
| 2022 |
| ||
Expected term (in years) |
| 5.5 - 6.1 |
|
| 5.5 - 6.1 |
| ||
Expected volatility |
| 106% - 111% |
|
| 109% - 112% |
| ||
Risk-free interest rate |
| 3.4% - 4.5% |
|
| 1.5% - 3.9% |
| ||
Dividends |
|
| — | % |
|
| — | % |
Expected Term—The expected term of options granted represents the period of time that the options are expected to $1.0 million, which primarily consistbe outstanding. Due to thelack of severance-related termination benefits.
Expected Volatility—The expected stock price volatility assumption was determined by examining the historical volatilities for industry peers, asthe Company did not have any trading history for the Company’s common stock. The Company will continue to analyze the historical stock price volatility and expected term assumption as more historical data for the Company’s common stock becomes available.
Risk-Free Interest Rate—The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s stock options.
Dividends—The Company has not paid any cash dividends on common stock since inception and does not anticipate paying any dividends in theforeseeable future. Consequently, an expected dividend yield of zero was used.
Restricted Stock Units
The Company granted 125,000 restricted stock units ("RSUs") with a fair value of $0.60 per share during the year ended December 31, 2023. The RSUs vest on February 25, 2024.
Stock-Based Compensation Expense
The following sets forth certain unauditedtable summarizes the components of stock-based compensation expense recognized in the Company’s consolidated quarterly statements of operations data for eachthe years ended December 31, 2023 and 2022:
106
|
| 2023 |
|
| 2022 |
| ||
Research and development |
| $ | 899 |
|
| $ | 517 |
|
General and administrative |
|
| 1,647 |
|
|
| 1,044 |
|
Total |
| $ | 2,546 |
|
| $ | 1,561 |
|
9. INCOME TAXES
There was no provision for income taxes for the years ended December 31, 2023 and 2022, because the Company has incurred losses since inception. At December 31, 2023 and 2022 the Company concluded it was not more likely than not that it would realize its deferred tax assets, and therefore has recorded a full valuation allowance.
For the years ended December 31, 2023 and 2022, income tax provision (benefit) related to continuing operations differ from the amounts computed by applying the statutory income tax rate of 21% to pre-tax loss as follows (in thousands):
|
| 2023 |
|
| 2022 |
| ||
U.S. federal provision (benefit) |
|
|
|
|
|
| ||
At statutory rate |
| $ | (6,192 | ) |
| $ | (7,497 | ) |
State taxes |
|
| (2,492 | ) |
|
| (2,733 | ) |
Valuation allowance |
|
| 9,129 |
|
|
| 8,581 |
|
Tax credits |
|
| (836 | ) |
|
| (1,173 | ) |
Stock-based compensation |
|
| 371 |
|
|
| 2,606 |
|
Permanent differences |
|
| 20 |
|
|
| 216 |
|
Total |
| $ | — |
|
| $ | — |
|
Significant components of the Company’s deferred tax assets at December 31, 2023 and 2022 are shown below.
|
| 2023 |
|
| 2022 |
| ||
Deferred tax assets: |
|
|
|
|
|
| ||
Net operating losses |
| $ | 136,901 |
|
| $ | 131,346 |
|
Research and development tax credits |
|
| 19,240 |
|
|
| 18,122 |
|
Amortization |
|
| 730 |
|
|
| 916 |
|
Lease liability |
|
| 3,018 |
|
|
| 3,504 |
|
Stock based compensation |
|
| 809 |
|
|
| 576 |
|
Other |
|
| 449 |
|
|
| 378 |
|
Capitalized R&D |
|
| 6,466 |
|
|
| 4,138 |
|
Fixed assets |
|
| — |
|
|
| 10 |
|
Total gross deferred tax assets |
|
| 167,613 |
|
|
| 158,990 |
|
Less: valuation allowance |
|
| (164,643 | ) |
|
| (155,514 | ) |
Total deferred tax assets |
|
| 2,970 |
|
|
| 3,476 |
|
Deferred tax liability: |
|
|
|
|
|
| ||
Right-of-use assets |
|
| (2,970 | ) |
|
| (3,476 | ) |
Total gross deferred tax liabilities |
|
| (2,970 | ) |
|
| (3,476 | ) |
Net deferred tax assets |
| $ | — |
|
| $ | — |
|
The valuation allowance increased by $9.1 million from December 31, 2022 to December 31, 2023 due primarily to the generation of net operating losses and research and development credits.
As of December 31, 2023, the Company has net operating loss carryforwards for federal and state income tax purposes of approximately $482.1 million and $457.8 million, respectively. As of December 31, 2022, the Company has net operating loss carryforwards for federal and state income tax purposes of approximately $466.0 million and $434.4 million, respectively.
The federal and state net operating loss carryforwards begin to expire in 2031 and 2023, respectively, if not utilized. Federal net operating losses of $260.9 million are not subject to expiration.
107
As of December 31, 2023, the Company has federal and state research and development carryforwards of approximately $12.7 million and $4.0 million, respectively. The Company also has $7.4 million of Orphan Drug Credit. As of December 31, 2022, the Company has federal and state research and development carryforwards of approximately $11.7 million and $3.6 million, respectively. The federal and state credits begin to expire in 2031 and 2029, respectively, if not utilized; $2.9 million of the state credits can be carried forward indefinitely.
Utilization of some of the federal and state net operating loss and credit carryforwards may be subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization. The Company has not performed a Section 382 study as of December 31, 2023. At least $455.8 thousand of legacy Millendo federal net operating losses are expected to expire unused due to prior ownership changes.
The Company has the following activity relating to unrecognized tax benefits as of December 31, 2023 and 2022:
|
| 2023 |
|
| 2022 |
| ||
Beginning balance |
| $ | 4,650 |
|
| $ | 4,293 |
|
Gross increase - tax position in current period |
|
| 273 |
|
|
| 357 |
|
Ending balance |
| $ | 4,923 |
|
| $ | 4,650 |
|
As of December 31, 2023 and 2022, none of the unrecognized tax benefits would impact the Company's effective tax rate due to the valuation allowance. The Company does not anticipate the uncertain tax positions will materially change in the next 12 months. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest and penalties on the accompanying consolidated balance sheets as of December 31, 2023 and 2022, respectively, and has not recognized penalties and/or interest in the accompanying statements of operations for the years ended December 31, 2023 and 2022, respectively.
The Company is subject to taxation in the United States, California, Massachusetts, and Michigan. The Company’s tax years from inception are subject to examination by the IRS and state tax authorities due to the carryforward of unutilized net operating losses and research and development credits.
10. RETIREMENT PLAN
The Company participates in a qualified 401(k) Plan sponsored by its professional service organization. The retirement plan is a defined contribution plan covering eligible employees. Participants may contribute a portion of their annual compensation limited to a maximum annual amount set by the Internal Revenue Service. During the year ended December 31, 2023, the Company contributed $147 to the 401(k) Plan. During the year ended December 31, 2022, the Company contributed $126 to the 401(k) Plan.
11. NET LOSS PER SHARE
The following table sets forth the computation of the Company’s basic and diluted net loss per share for the years ended December 31, 2023 and 2022 (in thousands, except share and per share amounts):
|
| 2023 |
|
| 2022 |
| ||
Numerator: |
|
|
|
|
|
| ||
Net loss |
| $ | (29,491 | ) |
| $ | (35,709 | ) |
Denominator: |
|
|
|
|
|
| ||
Weighted-average common shares outstanding |
|
| 15,416,203 |
|
|
| 11,548,907 |
|
Less: Weighted-average unvested restricted shares and shares subject to repurchase |
|
| — |
|
|
| — |
|
Weighted-average shares used in computing basic and diluted net loss per share |
|
| 15,416,203 |
|
|
| 11,548,907 |
|
|
|
|
|
|
|
| ||
Net loss per share attributable to common stockholders—basic and diluted |
| $ | (1.91 | ) |
| $ | (3.09 | ) |
108
As of December 31, 2023 and 2022, the Company’s potentially dilutive securities included unvested stock warrants and stock options, which have been excluded from the computation of diluted net loss per share attributable to common stockholders as the effect would be anti-dilutive. The issuance of pre-funded warrants have been included in the computation of basic and diluted net loss per share attributable to common stockholders. Based on the amounts outstanding as of December 31, 2023 and 2022, the Company excluded the following potential common shares from the computation of diluted net loss per share attributable to common stockholders because including them would have had an anti-dilutive effect:
|
| 2023 |
|
| 2022 |
| ||
Options to purchase common stock |
|
| 3,554,112 |
|
|
| 1,553,041 |
|
Restricted stock units |
|
| 125,000 |
|
|
| — |
|
Common stock warrants |
|
| 6,036 |
|
|
| 6,036 |
|
|
| 3,685,148 |
|
|
| 1,559,077 |
|
109
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management, with the participation of our last eight quarters.Chief Executive Officer (principal executive officer) and Vice-President, Strategy and Finance (principal financial officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, as of December 31, 2023. Based on the evaluation of our disclosure controls and procedures as of December 31, 2023, our Chief Executive Officer and Vice-President, Strategy and Finance concluded that, as of such date, our disclosure controls and procedures were effective.
Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d (f) under the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Based on that assessment, our opinion,management concluded that, as of December 31, 2023, our internal control over financial reporting was effective.
Attestation Report of the Registered Public Accounting Firm.
We are a smaller reporting company, and therefore our independent registered public accounting firm has not issued a report on the effectiveness of internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
110
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
111
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information About Our Directors
Information regarding our Directors required by this quarterlyitem will be contained in our 2024 Proxy Statement under the caption “Information Regarding Director Nominees and Continuing Directors,” and is hereby incorporated by reference.
Information About Our Executive Officers
Information regarding our Executive Officers required by this item will be contained in our 2024 Proxy Statement under the caption “Executive Officers,” and is hereby incorporated by reference.
Identification of Audit Committee and Financial Experts
Information regarding our Audit Committee and Financial Experts required by this item will be contained in our 2024 Proxy Statement under the caption “Information Regarding the Board of Directors and Corporate Governance—Audit Committee,” and is hereby incorporated by reference.
Material Changes to Procedures for Recommending Directors
Information regarding our Procedures for Recommending Directors required by this item will be contained in our 2024 Proxy Statement under the caption “Information Regarding the Board of Directors and Corporate Governance—Nominating and Corporate Governance Committee,” and is hereby incorporated by reference.
Code of Business Conduct and Ethics
Information regarding our Code of Business Conduct and Ethics (the “Code of Conduct”) required by this item will be contained in our 2024 Proxy Statement under the caption “Information Regarding the Board of Directors and Corporate Governance—Code of Ethics,” and is hereby incorporated by reference. If we make any substantive amendments to the Code of Conduct or grant any waiver from a provision of the Code of Conduct to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on its website. The full text of our Code of Conduct is available at the investors section of our website at www.tempesttx.com. The reference to our website address does not constitute incorporation by reference of the information reflects all adjustments consistency onlycontained at or available through our website, and you should not consider it to be a part of normal recurring adjustments, necessary for a fair statement forthis Annual Report.
Delinquent Section 16(a) Reports
Information regarding compliance with Section 16(a) of the periods presented. Such quarterly resultsExchange Act required by this item will be contained in our 2024 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management—Delinquent Section 16(A) Reports,” if any, and is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding our Executive Compensation required by this item will be contained in our 2024 Proxy Statement under the caption “Executive and Director Compensation,” and is hereby incorporated by reference.
112
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Ownership of Securities
Information regarding our Ownership of Securities required by this item will be contained in our 2024 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management,” and is hereby incorporated by reference.
Equity Compensation Plan Information
Information regarding our Equity Compensation Plan required by this item will be contained in our 2024 Proxy Statement under the caption “Equity Compensation Plan Information,” and is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information regarding Related Transactions and Director Independence required by this item will be contained in our 2024 Proxy Statement under the caption “Transactions with Related Persons and Indemnification,” and “Information Regarding the Board of Directors and Corporate Governance – Independence of the Board of Directors,” and is hereby incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information regarding Accounting Fees and Services required by this item will be contained in our 2024 Proxy Statement in Proposal 3 under the captions “—Principal Accountant Fees and Services” and “—Pre-Approval Policies and Procedures,” and is hereby incorporated by reference.
113
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
We have filed the following documents as part of this Annual Report:
(a)(1) Financial Statements
The financial statements are not necessarily indicative of future results of operationsincluded in Item 8. “Financial Statements and should be readSupplementary Data.”
(a)(2) Financial Statement Schedules
All schedules are omitted as information required is inapplicable or the information is presented in conjunction with audited consolidatedthe financial statements and the notesrelated notes.
(a)(3) Exhibits
|
| Incorporation by Reference | ||||
Exhibit Number | Description of Exhibit | Form | File Number | Exhibit | Filing Date | Filed or Furnished Herewith |
2.1* | 8-K | 001-35890 | 2.1 | 3/29/2021 |
| |
3.1 | Restated Certificate of Incorporation of the Registrant, as amended | 10-Q | 001-35890 | 3.1 | 5/15/2019 |
|
3.2 | 8-K | 001-35890 | 3.1 | 6/28/2021 |
| |
3.3 | 8-K | 001-35890 | 3.2 | 6/28/2021 |
| |
3.4 | 8-K | 001-35890 | 3.1 | 10/11/2023 |
| |
3.5 | 8-K | 001-35890 | 3.1 | 9/24/2021 |
| |
4.1 | Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 |
|
|
|
| X |
4.2 | Form of Tempest Therapeutics, Inc. Warrant to Purchase Stock | S-4/A | 333-255198 | 4.2 | 5/4/2021 |
|
4.3 | 8-K | 001-35890 | 4.1 | 5/2/2022 |
| |
4.4 | 8-K | 001-35890 | 10.2 | 5/2/2022 |
| |
4.5 | 8-K | 001-35890 | 4.1 | 10/11/2023 |
| |
10.1+ | S-8 | 333-257727 | 10.2 | 7/7/2021 |
| |
10.2+ | S-8 | 333-257727 | 10.1 | 7/7/2021 |
| |
10.3+ | Form of Stock Option Agreement under the 2017 Equity Incentive Plan | 10-K | 001-35890 | 10.3 | 3/29/2022 |
|
10.13+ | 8-K | 001-35890 | 10.1 | 6/21/2022 |
| |
10.14+ | Form of Option Grant Package under 2019 Equity Incentive Plan | 10-Q | 001-35890 | 10.7 | 8/12/2019 |
|
10.15+ | 10-Q | 001-35890 | 10.8 | 8/12/2019 |
| |
10.16+ | 10-K | 001-35890 | 10.16 | 3/11/2020 |
| |
10.17+ | 10-K | 001-35890 | 10.17 | 3/11/2020 |
|
114
10.18+ | 8-K | 001-35890 | 10.2 | 6/21/2022 |
| |
10.19 | S-4/A | 333-255198 | 10.3 | 5/4/2021 |
| |
10.20+ | 8-K | 001-35890 | 10.1 | 7/07/2021 |
| |
10.21+ | Employment Agreement, dated July 7, 2021, by and between the Company and Stephen Brady | 8-K | 001-35890 | 10.2 | 7/07/2021 |
|
10.22+ | Employment Agreement, dated July 7, 2021, by and between the Company and Thomas Dubensky, Ph.D. | 8-K | 001-35890 | 10.3 | 7/07/2021 |
|
10.23+ | Employment Agreement, dated July 7, 2021, by and between the Company and Samuel Whiting, M.D., Ph.D. | 8-K | 001-35890 | 10.4 | 7/07/2021 |
|
10.24 | 10-K | 001-35890 | 10.24 | 03/22/2023 |
| |
10.25 | 8-K | 001-35890 | 10.1 | 12/29/2022 |
| |
10.26# |
|
|
|
| X | |
10.27 | Tempest Therapeutics, Inc. Amended and Restated 2023 Equity Incentive Plan | 10-Q | 001-35890 | 10.1 | 8/10/2023 |
|
10.28 | Form of Option Grant Package under the Amended and Restated 2023 Equity Incentive Plan | 10-Q | 001-35890 | 10.2 | 8/10/2023 |
|
10.29 | 10-Q | 001-35890 | 10.3 | 8/10/2023 |
| |
10.30 | 10-Q | 001-35890 | 10.4 | 8/10/2023 |
| |
10.31+ | 10-Q | 001-35890 | 10.1 | 11/8/2023 |
| |
21.1 | 10-K/A | 001-35890 | 21.1 | 4/1/2022 |
| |
23.1 | Consent of Ernst & Young LLP, independent registered public accounting firm |
|
|
|
| X |
24.1 |
|
|
|
| X | |
31.1 |
|
|
|
| X | |
31.2 |
|
|
|
| X | |
32.1^ |
|
|
|
| X | |
97.1+ |
|
|
|
| X | |
101.INS | Inline XBRL Instance Document |
|
|
|
| X |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
|
|
|
| X |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
| X |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
| X |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
| X |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
| X |
104 | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension contained in Exhibit 101). |
|
|
|
|
|
_______________________________________
* Exhibits and/or schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant hereby undertakes to furnish supplementally copies of any of the omitted exhibits and schedules upon request by the SEC.
+ Indicates management contract or compensatory plan.
115
^ These certifications are being furnished solely to accompany this Annual Report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
# Pursuant to Item 601(b)(10)(iv) of Regulation S-K, certain portions of this exhibit (indicated by ***) have been omitted because the identified information is not material and is the type that the Registrant treats as private or confidential.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
116
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.
TEMPEST THERAPEUTICS, INC. | |
By: | /s/ Stephen Brady |
Stephen Brady | |
Chief Executive Officer & President (Principal Executive Officer) | |
By: | /s/ Nicholas Maestas |
Nicholas Maestas | |
Vice-President, Strategy and Finance (Principal Financial Officer) |
Date: March 19, 2024
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Stephen Brady and Nicolas Maestas, jointly and severally, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Annual Report on Form 10-K of Tempest Therapeutics, Inc., and any or all amendments thereto, included elsewhere herein.and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises hereby ratifying and confirming all that said attorneys-in-fact and agents, or his, her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
117
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, 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/ Stephen Brady | Chief Executive Officer, President and Director (Principal Executive Officer) | March 19, 2024 | |
Stephen Brady | |||
/s/ Nicholas Maestas | Vice President, Strategy and Finance and Secretary (Principal Financial Officer) | March 19, 2024 | |
Nicholas Maestas | |||
/s/ Justin Trojanowski | Corporate Controller, Treasurer (Principal Accounting Officer) | March 19, 2024 | |
Justin Trojanowski | |||
/s/ Michael Raab | Chairman of the Board of Directors | March 19, 2024 | |
Michael Raab | |||
/s/ Geoff Nichol | Director | March 19, 2024 | |
Geoff Nichol, M.B., Ch.B., M.B.A. | |||
/s/ Christine Pellizzari | Director | March 19, 2024 | |
Christine Pellizzari | |||
/s/ Ronit Simantov | Director | March 19, 2024 | |
Ronit Simantov, M.D. |
118
Three months Ended | |||||||||||||||
March 31, 2017 | June 30, 2017 | September 30, 2017 | December 31, 2017 | ||||||||||||
(in thousands, except per share amounts) | |||||||||||||||
Revenues | $ | 63 | $ | 84 | $ | 56 | $ | 91 | |||||||
Costs of revenues | 269 | 274 | 29 | 218 | |||||||||||
Total operating expenses (excluding restructuring) | 12,893 | 15,748 | 9,072 | 8,369 | |||||||||||
Restructuring charges | 1,488 | 1,992 | 361 | 188 | |||||||||||
Loss from operations | (14,587 | ) | (17,930 | ) | (9,406 | ) | (8,684 | ) | |||||||
Net loss | (14,895 | ) | (18,186 | ) | (9,367 | ) | (8,527 | ) | |||||||
Net loss per share—basic and diluted | $ | (0.42 | ) | $ | (0.51 | ) | $ | (0.26 | ) | $ | (0.24 | ) | |||
Weighted average number of common shares used in net loss per share—basic and diluted | 35,642 | 35,664 | 35,687 | 35,706 |
Three months Ended | |||||||||||||||
March 31, 2016 | June 30, 2016 | September 30, 2016 | December 31, 2016 | ||||||||||||
(in thousands, except per share amounts) | |||||||||||||||
Revenues | $ | 146 | $ | 189 | $ | 197 | $ | 121 | |||||||
Cost of revenues | 1,176 | 1,233 | 1,559 | 1,433 | |||||||||||
Total operating expenses (excluding restructuring) | $ | 20,409 | $ | 17,197 | $ | 17,602 | $ | 15,656 | |||||||
Restructuring charges | — | — | — | 5,400 | |||||||||||
Loss from operations | (21,439 | ) | (18,241 | ) | (18,964 | ) | (22,368 | ) | |||||||
Net loss | (21,683 | ) | (18,568 | ) | (19,291 | ) | (22,644 | ) | |||||||
Net loss per share—basic and diluted | $ | (0.80 | ) | $ | (0.62 | ) | $ | (0.54 | ) | $ | (0.64 | ) | |||
Weighted average number of common shares used in net loss per share—basic and diluted | 27,301 | 30,036 | 35,568 | 35,612 |