UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to ________________
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 3, 2021, there were
FINCH THERAPEUTICS, INC.
FORM 10-Q
For the quarterly period ended September 30, 2021
Table of Contents
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ii |
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iii |
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iii |
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iv |
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PART I. |
1 |
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Item 1. |
1 |
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Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 |
1 |
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2 |
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3 |
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5 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
Item 3. |
30 |
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Item 4. |
30 |
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PART II. |
32 |
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Item 1. |
32 |
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Item 1A. |
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Item 2. |
85 |
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Item 3. |
85 |
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Item 4. |
85 |
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Item 5. |
85 |
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Item 6. |
86 |
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i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” or “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:
These forward-looking statements are based on our management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management’s beliefs and assumptions and are not guarantees of future performance or development. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described under “Risk Factors” and elsewhere in this report. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
ii
You should read the section titled “Risk Factors” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
You should read this Quarterly Report on Form 10-Q, completely and with the understanding that our actual future results may be materially different from what we expect. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in our forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to new information, actual results or changes in our expectations, except as required by law. We qualify all of our forward-looking statements by these cautionary statements.
SPECIAL NOTE REGARDING COMPANY REFERENCES
Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to “FTG,” the “Company,” “we,” “us” and “our” refer to Finch Therapeutics Group, Inc. and its subsidiaries.
SPECIAL NOTE REGARDING TRADEMARKS
All trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.
iii
RISK FACTORS SUMMARY
The following is a summary of the principal risks that could adversely affect our business, financial condition, operating results, cash flows or stock price. Discussion of the risks listed below, and other risks that we face, are discussed in the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.
iv
PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
FINCH THERAPEUTICS GROUP, INC.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except share and per share data)
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SEPTEMBER 30, |
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DECEMBER 31, |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable |
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Due from related party |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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In-process research and development |
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Goodwill |
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Deferred initial public offering costs |
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Restricted cash, non-current |
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Other assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Due to related party |
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Deferred revenue, current portion |
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Total current liabilities |
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Deferred tax liability |
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Deferred revenue, net of current portion |
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Loan payable |
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Deferred rent |
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Other liabilities |
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Total liabilities |
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Series A redeemable convertible preferred stock, $ |
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Series B redeemable convertible preferred stock, $ |
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Series C redeemable convertible preferred stock, $ |
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Series D redeemable convertible preferred stock, $ |
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STOCKHOLDERS’ EQUITY (DEFICIT): |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity (deficit) |
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( |
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TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
1
FINCH THERAPEUTICS GROUP, INC.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except share and per share data)
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THREE MONTHS ENDED |
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NINE MONTHS ENDED |
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2021 |
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2020 |
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2021 |
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2020 |
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REVENUE: |
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Collaboration revenue |
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$ |
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$ |
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$ |
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$ |
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Royalty revenue from related party |
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— |
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— |
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Total revenue |
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OPERATING EXPENSES: |
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Research and development |
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( |
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( |
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( |
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( |
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General and administrative |
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( |
) |
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( |
) |
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( |
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( |
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Total operating expenses |
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( |
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( |
) |
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( |
) |
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( |
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Net loss from operations |
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( |
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( |
) |
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( |
) |
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( |
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OTHER INCOME (EXPENSE), NET: |
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Gain on extinguishment of PPP Loan |
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— |
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— |
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— |
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Interest income (expense) |
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( |
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105 |
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Other expense, net |
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( |
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( |
) |
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( |
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( |
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Total other income (expense), net |
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( |
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( |
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Loss before income taxes |
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( |
) |
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( |
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( |
) |
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( |
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Income tax provision |
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— |
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— |
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— |
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— |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Net loss attributable to common stockholders—basic and diluted (Note 14) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Net loss per share attributable to common stockholders—basic and diluted |
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$ |
( |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Weighted-average common stock outstanding—basic and diluted |
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See notes to unaudited condensed consolidated financial statements.
2
FINCH THERAPEUTICS GROUP, INC.
Condensed Consolidated Statements of Redeemable Convertible
Preferred Stock and Stockholders’ Equity (Deficit)
(Unaudited, in thousands, except share and per share data)
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REDEEMABLE CONVERTIBLE PREFERRED STOCK |
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$ |
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$ |
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$ |
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$ |
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COMMON STOCK |
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ADDITIONAL |
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ACCUMULATED |
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TOTAL |
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SHARES |
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AMOUNT |
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SHARES |
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AMOUNT |
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SHARES |
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AMOUNT |
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SHARES |
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AMOUNT |
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SHARES |
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AMOUNT |
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CAPITAL |
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DEFICIT |
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DEFICIT |
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BALANCE, January 1, 2020 |
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$ |
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$ |
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$ |
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— |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
( |
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Exercise of common stock options |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Vesting of restricted stock |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
BALANCE, March 31, 2020 |
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$ |
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$ |
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$ |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
|
$ |
( |
) |
|||||||||
Exercise of common stock options |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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|||
Vesting of restricted stock |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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|||
Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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||
Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
BALANCE, June 30, 2020 |
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$ |
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$ |
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$ |
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|
— |
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|
$ |
— |
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|
$ |
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|
$ |
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|
$ |
( |
) |
|
$ |
( |
) |
|||||||||
Exercise of common stock options |
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|
— |
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|
|
— |
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— |
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— |
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— |
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— |
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- |
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- |
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|||||
Vesting of restricted stock |
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— |
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|
|
— |
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— |
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|
— |
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|
|
— |
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|
— |
|
|
|
— |
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— |
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|
|
|
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|
|
- |
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|
|
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- |
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|||
Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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|
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— |
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|
|
- |
|
|
|
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|
- |
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||
Net loss |
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— |
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|
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
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( |
) |
BALANCE, September 30, 2020 |
|
|
|
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$ |
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|
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$ |
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$ |
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|
|
$ |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|||||||||||
See notes to unaudited condensed consolidated financial statements.
3
FINCH THERAPEUTICS GROUP, INC.
Condensed Consolidated Statements of Redeemable Convertible
Preferred Stock and Stockholders’ Equity (Deficit) (Continued)
(Unaudited, in thousands, except share and per share data)
|
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REDEEMABLE CONVERTIBLE PREFERRED STOCK |
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||||||||||||||||||||||||||||||||||
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$ |
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$ |
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$ |
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$ |
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|
COMMON STOCK |
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ADDITIONAL |
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ACCUMULATED |
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TOTAL |
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SHARES |
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AMOUNT |
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SHARES |
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AMOUNT |
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SHARES |
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AMOUNT |
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SHARES |
|
|
AMOUNT |
|
|
|
SHARES |
|
|
AMOUNT |
|
|
CAPITAL |
|
|
DEFICIT |
|
|
EQUITY (DEFICIT) |
|
|||||||||||||
BALANCE, January 1, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|||||||||||
Conversion of redeemable convertible |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||
Initial public offering, net of |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||
Exercise of common stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
BALANCE, March 31, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Underwriters' exercise of |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Exercise of common stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Shares repurchased for |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
BALANCE, June 30, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Exercise of common stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
BALANCE, September 30, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
See notes to unaudited condensed consolidated financial statements.
4
FINCH THERAPEUTICS GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
|
|
NINE MONTHS ENDED |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization expense |
|
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
||
Gain on extinguishment of PPP Loan |
|
|
( |
) |
|
|
|
|
(Gain) loss on sale of property and equipment |
|
|
( |
) |
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
( |
) |
|
|
|
|
Due from related party |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
( |
) |
|
Other non-current assets |
|
|
( |
) |
|
|
|
|
Accounts payable |
|
|
( |
) |
|
|
|
|
Accrued expenses and other current liabilities |
|
|
|
|
|
|
||
Due to related party |
|
|
( |
) |
|
|
|
|
Deferred revenue |
|
|
( |
) |
|
|
|
|
Deferred rent |
|
|
( |
) |
|
|
|
|
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of property and equipment |
|
|
|
|
|
|
||
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
||
Proceeds from initial public offering, net of underwriting discounts, commissions and offering costs |
|
|
|
|
|
|
||
Proceeds from issuance of Series D convertible preferred stock |
|
|
|
|
|
|
||
Payment of Series D redeemable convertible preferred stock issuance costs |
|
|
|
|
|
( |
) |
|
Proceeds from underwriters' exercise of overallotment option, net of underwriting discounts and commissions and initial public offering costs |
|
|
|
|
|
|
||
Principal payments on capital lease obligation |
|
|
( |
) |
|
|
( |
) |
Proceeds from exercise of stock options, net |
|
|
|
|
|
|
||
Proceeds from PPP Loan |
|
|
|
|
|
|
||
Payment of deferred offering costs |
|
|
( |
) |
|
|
|
|
Net cash provided by financing activities |
|
|
|
|
|
|
||
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND |
|
|
|
|
|
|
||
Property and equipment in accounts payable and accrued liabilities |
|
$ |
|
|
$ |
|
||
Conversion of redeemable convertible preferred stock into common stock |
|
$ |
|
|
$ |
|
||
Forgiveness of PPP Loan |
|
$ |
|
|
$ |
|
||
5
The following table provides a reconciliation of the cash, cash equivalents and restricted cash as of each of the periods shown above:
|
|
NINE MONTHS ENDED |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Total cash, cash equivalents and restricted cash |
|
$ |
|
|
$ |
|
||
See notes to unaudited condensed consolidated financial statements.
6
FINCH THERAPEUTICS GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Business
Finch Therapeutics Group, Inc. (the “Company” or “FTG”) was incorporated in 2017 as a Delaware corporation. The Company was formed as a result of a merger and recapitalization of Finch Therapeutics, Inc. (“Finch”) and Crestovo Holdings LLC (“Crestovo”) in September 2017 (the “Merger”), in which the former owners of Finch and Crestovo were issued equivalent stakes in the newly formed company, FTG. Crestovo was renamed Finch Therapeutics Holdings LLC in November 2020 (“Finch Holdings”). Finch and Finch Holdings are both wholly-owned subsidiaries of FTG.
The Company is a clinical-stage microbiome therapeutics company leveraging its Human-First Discovery® platform to develop a novel class of orally administered biological drugs. It is developing novel therapeutics designed to deliver missing microbes and their clinically relevant biochemical functions to correct dysbiosis and the diseases that emerge from it. The Company’s Human-First Discovery platform uses reverse translation to identify diseases of dysbiosis and to design microbiome therapeutics that address them. Its lead product candidate, CP101, delivers a complete microbiome and is being developed initially for the treatment of patients with recurrent Clostridioides difficile infection, or CDI.
Initial Public Offering
On March 18, 2021, the Company completed its initial public offering (“IPO”) in which the Company issued and sold
In connection with the IPO, the Company’s board of directors (the “Board”) and stockholders approved an amended and restated certificate of incorporation to, among other things, effect a reverse stock split of the Company’s issued and outstanding shares of common stock and redeemable convertible preferred stock, as well as to effect a proportional adjustment to the existing conversion ratios for the Company’s redeemable convertible preferred stock. The reverse stock split was effected on March 12, 2021. Accordingly, all share and per share amounts of common stock for all periods presented in the accompanying unaudited interim condensed consolidated financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect this reverse stock split and adjustment of preferred stock conversion ratios. Upon the closing of the IPO, all of the then-outstanding shares of redeemable convertible preferred stock automatically converted into
COVID-19 Impact
The extent of the impact of the COVID-19 pandemic on the Company’s business, operations and clinical development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak, including with respect to variants of the virus, and its impact on clinical trial enrollment, trial sites, contract research organizations, contract manufacturing organizations, and other third parties with whom the Company does business, as well as its impact on regulatory authorities and its key scientific and management personnel. While the Company is experiencing limited financial impacts at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, the Company’s business, financial condition and results of operations ultimately could be materially adversely affected. The Company continues to closely monitor the COVID-19 pandemic as it evolves its business continuity plans, clinical development plans and response strategy.
At this time, it is unknown how long the adverse conditions associated with the COVID-19 pandemic will last and what the complete financial effect will be to the Company.
7
Liquidity and Capital Resources
Management believes that the Company’s existing cash and cash equivalents, together with the net proceeds from the IPO, will allow the Company to continue its operations for at least the next 12 months from the date these financial statements are issued and therefore the conditions raising substantial doubt raised in prior periods have been alleviated. In the absence of a significant source of recurring revenue, the continued viability of the Company beyond that point is dependent on its ability to continue to raise additional capital to finance its operations. If the Company is unable to obtain additional funding, the Company may be forced to delay, reduce or eliminate some or all of its research and development ("R&D") programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared by the Company in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and, pursuant to the rules and regulations of Article 10 of Regulation S-X of the Securities Act published by the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes the disclosures are adequate. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2020 included in the Company’s final prospectus dated March 18, 2021, filed with the SEC on March 22, 2021 pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Prospectus”).
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments that are necessary for a fair presentation of the Company’s condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020, condensed consolidated statements of stockholders’ equity (deficit) for the three and nine months ended September 30, 2021 and 2020, and condensed consolidated cash flows for the nine months ended September 30, 2021 and 2020. Such adjustments are of a normal and recurring nature. The results of operations for the nine months ended September 30, 2021 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2021.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant Accounting Policies
The significant accounting policies and estimates used in preparation of the unaudited interim consolidated financial statements are described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2020 and the notes thereto, which are included in the Prospectus. Except as detailed below, there have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2021.
Deferred Initial Public Offering Costs
The Company capitalizes certain legal, professional, accounting and other third-party fees that are directly associated with in-process equity issuances as deferred initial public offering costs until such equity issuances are consummated. After consummation of the equity issuance, these costs are recorded as a reduction in the capitalized amount associated with the equity issuance. Should the equity issuance be abandoned, the deferred initial public offering costs will be expensed immediately as a charge to operating expenses in the consolidated statement of operations and comprehensive loss. On March 18, 2021, the Company completed the IPO; accordingly, the Company recognized the deferred initial public offering costs of approximately $
8
Accordingly, there were
There have been no new accounting pronouncements or changes to accounting pronouncements that could be expected to materially impact the Company’s unaudited condensed consolidated financial statements during the nine months ended September 30, 2021, as compared to the recent accounting pronouncements described in Note 2 of the Company’s audited financial statements as of and for the year ended December 31, 2020, which are included in the Prospectus.
3. FAIR VALUE MEASUREMENTS
The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values (in thousands):
DESCRIPTION |
|
SEPTEMBER 30, |
|
|
QUOTED |
|
|
SIGNIFICANT |
|
|
SIGNIFICANT |
|
||||
Asset |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Total financial assets |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
DESCRIPTION |
|
DECEMBER 31, |
|
|
QUOTED |
|
|
SIGNIFICANT |
|
|
SIGNIFICANT |
|
||||
Asset |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Total financial assets |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
There were
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following as of September 30, 2021 and December 31, 2020 (in thousands):
|
|
SEPTEMBER 30, |
|
|
DECEMBER 31, |
|
||
Lab equipment |
|
$ |
|
|
$ |
|
||
Office furniture and fixtures |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Construction work-in-progress |
|
|
|
|
|
|
||
Software |
|
|
|
|
|
|
||
Computer equipment |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Less: Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
9
Depreciation expense was $
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following as of September 30, 2021 and December 31, 2020 (in thousands):
|
|
SEPTEMBER 30, |
|
|
DECEMBER 31, |
|
||
Accrued research and development |
|
$ |
|
|
$ |
|
||
Accrued legal and professional fees |
|
|
|
|
|
|
||
Accrued compensation and benefits |
|
|
|
|
|
|
||
Accrued other |
|
|
|
|
|
|
||
Total accrued expenses and other current liabilities |
|
$ |
|
|
$ |
|
||
6. REVENUE
Takeda Pharmaceutical Company Limited
In January 2017, the Company entered into an agreement (the “Takeda Agreement”) with Millennium Pharmaceuticals, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited (“Takeda”), pursuant to which the Company granted Takeda a worldwide, exclusive license, with the right to grant sublicenses, under certain of its patents, patent applications and know-how to develop the Company’s microbiome therapeutic candidate FIN-524, now known as TAK-524, for the prevention, diagnosis, theragnosis or treatment of diseases in humans. The Company subsequently amended and restated the Takeda Agreement in October 2019 to provide for the Company to allocate certain resources towards determining the feasibility of developing a second microbiome therapeutic candidate, FIN-525.
Under the terms of the Takeda Agreement, the Company agreed to design TAK-524, a product candidate optimized for ulcerative colitis, for Takeda based on selection criteria within a product-specific development plan. The Company also agreed to conduct a feasibility study to potentially further develop FIN-525, a product candidate optimized for the treatment of Crohn’s disease. The Company assessed this arrangement in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”) and concluded that the contract counterparty, Takeda, is a customer. [JF1] The Company identified the following material promises at the outset of the Takeda Agreement: (1) an exclusive license to use the Company’s intellectual property to conduct research activities; (2) R&D services for activities under the development plan; (3) two options to pursue different indications of research for the Company’s product candidates; (4) manufacturing and supply for the Company’s clinical trials; and (5) participation on a joint steering and joint development committee (“JSC” and “JDC”). The options were considered distinct from the other promises in the arrangement and analyzed for material rights; the Company concluded these were not material rights and the consideration related to them should be excluded as a performance obligation until the option is exercised. The Company determined that the remaining promises were not capable of being distinct from one another and were not distinct in the context of the contract. In accordance with the Company’s ASC 606 assessment, the Takeda Agreement was determined to contain a single combined performance obligation made up of the promises above, excluding the options. The FIN-525 feasibility study was determined to be part of the single combined performance obligation due to its connection to the original license and research and development activities. The FIN-525 feasibility study was completed in March 2021. Takeda can determine whether to initiate a full product specific development plan for FIN-525 following its review of the data from the Company’s feasibility study.
The Company received an upfront payment from Takeda of $10.0 million in the year ended December 31, 2017 in exchange for the exclusive license of the Company’s intellectual property. The Company has included the upfront payment and the estimable reimbursable R&D costs in the transaction price and is recognizing revenue associated with it over the period it expects to perform R&D services. Under the original agreement the estimated term for the R&D and manufacturing services for which the Company had primary responsibility, was through Phase 1 clinical trials.
10
On August 9, 2021, the Company and Takeda entered into an amendment to the Takeda Agreement (the “Amendment”). Pursuant to the Amendment, Finch and Takeda transitioned primary responsibility for such development and manufacturing activities from Finch to Takeda in accordance with an agreed upon transition plan, and Takeda also assumed sole responsibility for regulatory matters with respect to TAK-524. The Company accounted for the Amendment as a modification to the existing contract under ASC 606, as the Amendment significantly reduced the remaining performance obligations, which were then completed by September 30, 2021. As a result, the remaining revenue that had been deferred under the agreement was recognized in the third quarter of 2021
The Company recognized revenue related to the Takeda Agreement of $
Takeda reimburses the Company for certain R&D costs on a quarterly basis. The Company recorded accounts receivable of $2.4 million and $1.0 million on its condensed consolidated balance sheets as of September 30, 2021, and December 31, 2020, respectively. As of September 30, 2021, there is
The Takeda Agreement contains various milestone payments associated with development and commercialization efforts that provide for a maximum available amount of $180.0 million should all of the milestones be achieved. These milestones are constrained until the Company determines it is probable that the cumulative revenue related to the milestones will not be reversed. As of September 30, 2021, the Company has earned and received $
The Company is still eligible to receive royalties under the Amendment and Takeda is obligated to pay the Company mid-to-high single digit royalties based on annual aggregate net sales of the licensed products, on a product-by-product basis, subject to certain restrictions. The Company did not receive any payments or record any revenues related to sales-based royalties under the Takeda Agreement in the nine months ended September 30, 2021 and 2020 .
OpenBiome
The Company and OpenBiome entered into an Asset Purchase and License Agreement (the “APL Agreement”) in February 2019 that was effective through November 2020. Under the APL Agreement, the Company licensed certain intellectual property and sold certain fecal microbiota transplantation, or FMT, materials and equipment to OpenBiome (see Note 8).
The Company earned $
On November 19, 2020, the Company entered into the LMIC License Agreement (“LMIC Agreement”) with OpenBiome, pursuant to which the Company granted OpenBiome a non-exclusive license, with the right to grant sublicenses, under certain patents, patent applications, and know-how that are reasonably necessary or useful for the exploitation of products manufactured directly from donor-sourced stool without the use of culturing or replication, or certain natural products (“OpenBiome Royalty Products”). The license granted to OpenBiome excludes a license under the Company’s intellectual property to exploit a lyophilized natural product (such as CP101) where processed stool is lyophilized. The Company owns all improvements and modifications made to the licensed intellectual property throughout the term of the LMIC Agreement, while OpenBiome is responsible for all manufacturing efforts and all expenses associated with these efforts.
The LMIC Agreement was entered into separately from the asset purchase agreement with OpenBiome (the "OpenBiome Agreement") (See Note 12) and the license granted under the LMIC Agreement is unrelated to the assets acquired under the OpenBiome Agreement. The only consideration provided to the Company under the LMIC Agreement is in the form of future royalties on net sales of OpenBiome Royalty Products. The Company is entitled to receive tiered royalties on net sales of certain products, ranging from mid single digit to low second decile digits on a product-by-product and country-by-country basis. In the event that OpenBiome is required to pay a royalty to a third party to obtain rights under patents owned or controlled by such third party that are necessary for the exercise of its rights under the Company’s intellectual property pursuant to the LMIC Agreement, then OpenBiome shall have the right to deduct a portion of the amount of the royalty due to the third party against the royalties that are due from OpenBiome to the Company. The Company has
11
The LMIC Agreement will continue in perpetuity until the last royalty is earned under the LMIC Agreement unless otherwise terminated by either party. OpenBiome has the right to terminate the LMIC Agreement for convenience upon 90 days’ specified prior written notice to the Company. Either party may terminate the LMIC Agreement in the event of an uncured material breach by the other party.
The Company did
7. INCOME TAXES
8. COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
200 Inner Belt Rd
In December 2015, the Company entered into a
In July 2016, the Company entered into a
In January 2017, the Company amended the Inner Belt Road Lease to lease an additional
The Company recognizes rent expense, inclusive of a reduction to reflect the impact of lease incentives, under the Inner Belt Road Lease on a straight-line basis over the respective lease term and records deferred rent for rent expense incurred but not yet paid. The Company recognizes rent income under the sublease to OpenBiome on a straight-line basis over the sublease term and records prepaid rent for rent income received but not yet earned in due from related party on its condensed consolidated balance sheets. Gross rent expense under the Inner Belt Road Lease was $
12
Cherry Street
On March 1, 2021, the Company assumed a lease agreement (the “Cherry Street Lease”) in conjunction with the closing of the OpenBiome Agreement. The Company’s rent expense under the Cherry Street Lease for the nine months ended September 30, 2021 and 2020 was approximately $
Concord Street
On June 9, 2021, the Company entered into a lease agreement (the “Concord Street Lease”). The Company’s rent expense under the Concord Street Lease for the nine months ended September 30, 2021 and 2020 was $
100 Hood Park Drive
On August 3, 2021 (the "Execution Date"), the Company entered into a
The Hood Lease provides Finch with an option to extend the lease for
The Company posted a customary letter of credit in the amount of approximately $
Future Minimum Lease Payments
A summary of the Company’s future minimum lease payments required under non-cancellable operating agreements and the Hood Lease as of September 30, 2021 is as follows (in thousands):
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Legal Contingencies
Legal claims may arise from time to time in the normal course of business. There are
License Payments
The Company enters into contracts in the normal course of business with contract research organizations and other third parties for preclinical studies, clinical studies, and testing and manufacturing services. Most contracts do not contain minimum purchase
13
commitments and are cancelable by the Company upon prior written notice. Payments due upon cancellation consist of payments for services provided or expenses incurred, including non-cancelable obligations of our service providers up to one year after the date of cancellation. Under these agreements, in exchange for access to intellectual property the Company may be obligated to provide future minimum royalty payments and milestone payments related to regulatory approvals and sales-based events. The Company entered into the OpenBiome Agreement in November 2020 (see Note 12) and the closing of the OpenBiome Agreement occurred on March 1, 2021. Under the terms of the OpenBiome Agreement, the Company is required to make certain milestone and royalty payments to OpenBiome in conjunction with the license and purchase of certain intellectual property related to the underlying CMC process used to manufacture materials for its clinical trials. The OpenBiome Agreement also effectively terminated the APL Agreement and the obligations under the Material Access License Agreement (the “MAL Agreement”), which the Company entered into with OpenBiome in December 2016.
Under the APL Agreement, which was entered into in 2019 and effective through November 2020, the Company was obligated to make certain contingent payments for milestones and royalties to OpenBiome, subject to the occurrence of specific underlying criteria that were dependent on regulatory approvals and sales-based events. The Company was obligated to make regulatory milestone payments to OpenBiome aggregating up to $
Under the MAL Agreement, the Company was also obligated to pay to OpenBiome, a low single digit royalty on net sales of certain cultured products and a high single digit percentage of certain sublicensing revenue (including royalties) of licensed cultured products. These royalties were calculated on a product-by-product and country-by-country basis. The Company paid $
PPP Loan
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted to, amongst other provisions, provide emergency assistance for individuals, families and businesses affected by the COVID-19 pandemic. The CARES Act includes a Paycheck Protection Program (“PPP”) administered through the Small Business Association (“SBA”). Under the PPP, beginning April 3, 2020, small businesses and other entities and individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria.
In April 2020, the Company issued a promissory note to Silicon Valley Bank, pursuant to which it received loan proceeds of $
9. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Upon the completion of the IPO, all
10. STOCKHOLDERS’ EQUITY
On February 24, 2021, the Board and the Company’s stockholders approved the Company’s amended and restated certificate of incorporation, which became effective immediately prior to the closing of the IPO on March 18, 2021. The certificate authorizes the issuance of up to
14
In conjunction with the IPO, the Company issued and sold
On April 20, 2021, the Company issued
The Company has issued restricted stock to founders, employees and consultants. All restricted stock was fully vested and all expense related to these shares was recognized prior to 2020.
As of September 30, 2021 and December 31, 2020, the Company has reserved the following shares of common stock for potential conversion of outstanding preferred stock, the vesting of restricted stock and exercise of stock options and common stock warrants:
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11. STOCK-BASED COMPENSATION
2017 Equity Incentive Plan
The Company adopted the 2017 Equity Incentive Plan (the “2017 Plan”) in February 2017 for the issuance of stock options and other stock-based awards to employees, consultants, officers and directors. As of September 30, 2021, there were
2021 Equity Incentive Plan
In March 2021, the Board adopted, and the stockholders approved, the 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan became effective on the date of the underwriting agreement related to the IPO and no further grants will be made under the 2017 Plan.
The 2021 Plan provides for the grant of incentive stock options to employees, including employees of any parent or subsidiary of the Company, and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of awards to employees, directors and consultants, including employees and consultants of the Company’s affiliates.
Initially, the maximum number of shares of the Company’s common stock that may be issued under the 2021 Plan will not exceed
15
the applicable January 1. The maximum number of shares of common stock that may be issued on the exercise of incentive stock options under the 2021 Plan will be
As of September 30, 2021, there were
2021 Employee Stock Purchase Plan
In March 2021, the Board adopted the 2021 Employee Stock Purchase Plan (the “2021 ESPP”), which became effective on the date of the underwriting agreement related to the IPO. The 2021 ESPP is administered by the Board or by a committee appointed by the Board. The 2021 ESPP initially provides participating employees with the opportunity to purchase up to an aggregate of
Stock Options
The following table summarizes the activity of the Company’s stock options under the 2017 Plan and 2021 Plan for the nine months ended September 30, 2021:
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SHARES |
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Outstanding as of December 31, 2020 |
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Cancelled or forfeited |
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Outstanding as of September 30, 2021 |
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Options exercisable as of December 31, 2020 |
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Options exercisable as of September 30, 2021 |
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As of September 30, 2021, there was approximately $
Stock-Based Compensation Expense
Total stock-based compensation expense recorded as R&D and general and administrative expenses, respectively, for employees, directors and non-employees for the periods presented is as follows (in thousands):
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THREE MONTHS ENDED SEPTEMBER 30, |
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Research and development |
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16
12. RELATED PARTY TRANSACTIONS
OpenBiome Historical Agreements
Under Master Strategic Affiliation Agreement with OpenBiome (the “Strategic Agreement”), OpenBiome and the Company reimbursed one another for certain administrative expenses. The Company’s Chief Executive Officer and a member of the Board, is the spouse of the Executive Director and co-founder of OpenBiome, and certain of the OpenBiome directors are stockholders of the Company.
For the nine months ended September 30, 2021 and 2020, the Company reimbursed OpenBiome $
OpenBiome subleases office and lab space from the Company. The Company’s rent income under the sublease was $
The Company also earned a low single digit royalty on net sales of OpenBiome’s FMT materials under the Quality System and Supply Agreement with OpenBiome (the “QSS Agreement”), which was partially terminated on February 1, 2019 and, ultimately, was fully terminated in November 2020 in connection with the Company’s execution of the OpenBiome Agreement (see OpenBiome 2020 Agreements below), which closed on March 1, 2021.
OpenBiome 2020 Agreements
Clinical Supply and Services Agreement
On February 10, 2020, the Company entered into a Clinical Supply and Services Agreement (the “CSA”) with OpenBiome, which terminated upon closing of the OpenBiome Agreement in March 2021. In accordance with the CSA, OpenBiome agreed to supply the Company with certain manufactured material and to provide additional support services to the Company. In consideration for these materials and services, the Company agreed to pay a monthly platform fee of $
OpenBiome Purchase Agreement
On November 19, 2020, the Company entered into the OpenBiome Agreement in order to obtain OpenBiome’s CMC manufacturing process to enhance its current manufacturing capabilities for its lead program, CP101; the OpenBiome Agreement was fully executed and closed on March 1, 2021. Simultaneously with entering into the OpenBiome Agreement, the Company terminated the Strategic Agreement, the MAL Agreement, the QSS Agreement and the APL Agreement, as well as certain subject matter agreements. Upon closing of the OpenBiome Agreement on March 1, 2021, the CSA was also terminated and the Company will not incur any additional expense to be paid to OpenBiome. The Company also amended the Strategic Agreement as part of the OpenBiome Agreement (the “A&R Strategic Agreement”).
Pursuant to the OpenBiome Agreement, the Company acquired certain biological samples, software, and a non-exclusive license to OpenBiome’s CMC technology upon signing in November 2020, and acquired certain biological samples, a commercial lease, contract services intellectual property and capital equipment upon the closing of the transaction in March 2021. The Company previously licensed the biological samples and OpenBiome’s CMC technology under various historical agreements with OpenBiome
17
which terminated upon signing of the OpenBiome Agreement. As such, the acquisition of the CMC technology license was a continuation of previously granted rights. The OpenBiome Agreement also releases, for a one-year period from signing, a hiring restriction under the A&R Strategic Agreement (i.e. non-solicitation) such that the Company may hire, at its discretion, certain OpenBiome employees. The Company did not acquire any such employees as part of the transaction.
In connection with the OpenBiome Agreement, the Company paid $
The Company is also required to pay certain milestones up to $
The Company previously granted OpenBiome a royalty-bearing, non-exclusive license to its intellectual property under the APL Agreement, which terminated upon the signing of the OpenBiome Agreement. The Company will continue to earn royalties under the OpenBiome Agreement based on sales of FMT materials.
13. RETIREMENT PLAN
The Company has adopted a defined contribution plan intended to qualify under Section 401(k) of the Internal Revenue Code covering all eligible employees of the Company. All employees are eligible to become participants of the plan at the beginning of the next full quarter subsequent to their hire date. Each active employee may elect, voluntarily, to contribute a percentage of their compensation to the plan each year, subject to certain limitations. The Company reserves the right to make additional contributions to this plan. The Company made contributions to the plan of $
14. LOSS PER SHARE
Basic and diluted loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average common shares outstanding (in thousands, except share and per share data):
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FOR THE NINE MONTHS |
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Numerator: |
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Net loss |
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Net loss attributable to |
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The Company’s potentially dilutive securities, which include preferred stock, restricted stock, stock options, and warrants, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to
18
common stockholders is the same. The Company excluded the following from the computation of diluted net loss per share attributable to common stockholders at September 30, 2021 and 2020 because including them would have had an anti-dilutive effect:
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19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with (1) our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements and the related notes and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2020 included in our final prospectus for our initial public offering, or IPO, dated March 18, 2021, filed with the Securities and Exchange Commission, or SEC, pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, or the Securities Act, on March 22, 2021, which we refer to as the Prospectus.
Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the section titled “Risk Factors” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section titled “Special Note Regarding Forward-Looking Statements.” You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.
Overview
We are a clinical-stage microbiome therapeutics company leveraging our Human-First Discovery platform to develop a novel class of orally administered biological drugs. The microbiome consists of trillions of microbes that live symbiotically in and on every human and are essential to our health. When key microbes are lost, the resulting dysbiosis can increase susceptibility to immune disorders, infections, neurological conditions, cancer and other serious diseases. We are developing novel therapeutics designed to deliver missing microbes and their clinically relevant biochemical functions to correct dysbiosis and the diseases that emerge from it. Our Human-First Discovery platform uses reverse translation to identify diseases of dysbiosis and to design microbiome therapeutics that address them. Our lead product candidate, CP101, delivers a complete microbiome and is being developed initially for the treatment of patients with recurrent Clostridioides difficile infection, or CDI. In June 2020, we reported positive topline data from our first of two pivotal trials in recurrent CDI.
We are now enrolling our Phase 3 clinical trial, which we refer to as PRISM4, which will be our second pivotal trial of CP101 for recurrent CDI. We anticipate that topline data from PRISM4 will be available in the first half of 2023. We have decided to expand our planned Phase 1b clinical trial of CP101 in chronic hepatitis B virus, or HBV, which we refer to as RECLAIM, from two cohorts to four cohorts and we anticipate initiating RECLAIM in early 2022, with an initial safety readout expected in the first half of 2022 and topline data from an initial cohort available in the second half of 2022. Further, we anticipate initiating our Phase 1b clinical trial of FIN-211 in autism spectrum disorder, or ASD, in the first half of 2022, including a dose escalation portion (Part A) and a newly added expansion cohort (Part B), with an interim readout from Part A of the trial expected to be available in the second half of 2022 and topline data from Part B of the trial expected to be available in 2023. We believe that our differentiated platform, rich pipeline and the broad therapeutic potential of this new field of medicine position us to transform care for a wide range of unmet medical needs.
Since our inception, we have focused primarily on developing and progressing our product candidates through clinical development, organizing and staffing our company, research and development activities, establishing and protecting our intellectual property portfolio, including for our Human-First Discovery platform, and raising capital. We do not have any product candidates approved for sale and have not generated any revenue from product sales. Since our inception, we have funded our operations primarily with proceeds from the IPO, the sale of convertible preferred stock and from collaboration revenue.
On March 12, 2021, we effected a 1-for-14.444 reverse stock split of our issued and outstanding shares of common stock and redeemable convertible preferred stock, as well as effected a proportional adjustment to the existing conversion ratios for our redeemable convertible preferred stock. All historical share and per share information shown herein and in our unaudited condensed financial statements and related notes have been retroactively adjusted to give effect to the reverse stock split.
On March 18, 2021, we completed an IPO in which we issued and sold 7,500,000 shares of our common stock at a public offering price of $17.00 per share, resulting in aggregate gross proceeds of $127.5 million. On April 20, 2021, we issued and sold 192,877
20
additional shares of common stock, pursuant to the underwriters’ partial exercise of their overallotment option, at a public offering price of $17.00 per share, for aggregate gross proceeds of $3.3 million. Inclusive of the underwriters’ option to purchase additional shares, we received approximately $118.8 million in net proceeds from the IPO after deducting underwriting discounts and commissions and offering costs. Upon completion of the IPO, all 31,253,609 shares of outstanding redeemable convertible preferred stock automatically converted into 31,253,609 shares of common stock.
Since our inception, we have incurred significant operating losses. Our net losses were $39.1 million and $26.2 million for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, we had an accumulated deficit of $141.9 million. We expect to continue to generate operating losses and negative operating cash flows for the foreseeable future if and as we:
We will not generate any revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one or more of our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution.
As a result, we will need substantial additional funding to support our operating activities as we advance our product candidates through clinical development, seek regulatory approval and prepare for and, if any of our product candidates are approved, proceed to commercialization. Until such time, if ever, that we can generate substantial product revenue, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including collaborations, licenses or similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed or on favorable terms, if at all.
If we are unable to obtain funding, we will be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. Although we continue to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all.
We expect that our existing cash and cash equivalents of $149.2 million as of September 30, 2021 will enable us to fund our operating expenses and capital expenditure requirements into mid-2023. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “—Liquidity and Capital Resources.”
21
COVID-19 Business Update
In response to the ongoing global COVID-19 pandemic, we established a cross-functional task force and have implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our employees and our business, including our clinical trials. We have taken measures to secure our research and development activities, while work in laboratories and facilities has been organized to reduce risk of COVID-19 transmission. The extent of the impact of the COVID-19 pandemic, including variants of COVID-19, on our business, operations and clinical development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak, including with respect to variants of the virus, and its impact on our clinical trial enrollment, trial sites, contract research organizations, or CROs, contract manufacturing organizations, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. While we are experiencing limited financial impacts at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, our business, financial condition and results of operations ultimately could be materially adversely affected. We continue to closely monitor the COVID-19 pandemic as we evolve our business continuity plans, clinical development plans and response strategy.
Components of Our Results of Operations
Revenue
We have no products approved for commercial sale. We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of licensed products for the foreseeable future. Our revenue to date has been generated primarily through collaboration and license agreements. We recognize revenue over our expected performance period under each agreement. We expect that our revenue for the next several years will be derived primarily from our current collaboration agreement and any additional collaborations that we may enter into in the future, and any collaboration revenue we generate will fluctuate from period to period as a result of the timing and amount of milestones and other payments. To date, we have not received any royalties under our collaboration agreement with a subsidiary of Takeda Pharmaceutical Company Limited, or Takeda. However, during the nine months ended September 30, 2020, we received royalties in the aggregate of $0.3 million pursuant to our 2019 Asset Purchase and License Agreement, or APL Agreement, with OpenBiome. The APL Agreement was terminated in November 2020, and we received no royalties thereafter.
Collaboration and License Agreement with Takeda
In January 2017, we entered into a research collaboration and exclusive license agreement, or the Takeda Agreement, with Millennium Pharmaceuticals, Inc., a wholly-owned subsidiary of Takeda, pursuant to which we granted Takeda a worldwide, exclusive license, with the right to grant sublicenses, under certain of our patents, patent applications and know-how to develop, have developed, manufacture, have manufactured, make, have made, use, have used, offer for sale, sell, have sold, commercialize, have commercialized and import our microbiome therapeutic candidate FIN-524, now known as TAK-524, for the prevention, diagnosis, theragnosis or treatment of diseases in humans. We subsequently amended and restated the Takeda Agreement in October 2019 to provide a similar worldwide, exclusive license to a second microbiome therapeutic candidate, FIN-525. We further amended the Takeda Agreement in August 2021 to transition primary responsibility for early-stage development and manufacturing activities with respect to TAK-524 from us to Takeda in accordance with a transition plan, and Takeda will assume sole responsibility for regulatory matters with respect to TAK-524.
In connection with entry into the Takeda Agreement, we received a one-time, upfront payment from Takeda in the amount of $10.0 million. Additionally, we received $4.0 million in the aggregate for the achievement of certain development milestones for TAK-524 therapeutic products and are entitled to receive up to $176.0 million in the aggregate, for the achievement of specified development, regulatory and commercial sale milestones for TAK-524 therapeutic products. We are entitled to receive up to $177.7 million in the aggregate, for the achievement of specified development, regulatory and commercial sale milestones for FIN-525 therapeutic products, subject, to certain specified reductions based upon the nature of the FIN-525 product and certain additional milestones to be negotiated by the parties. We are also entitled to receive up to $10.0 million for the first diagnostic product for each of TAK-524 and FIN-525, subject to certain reductions in the event that Takeda uses a third party to develop such diagnostic products. Revenue under
22
the Takeda Agreement is recognized as our research and development services are provided and is recorded as collaboration revenue on our consolidated statement of operations.
Agreements with OpenBiome
We have historically collaborated with OpenBiome under several agreements related to, among other things, the license of various technology and intellectual property rights, and the supply of certain materials, as further described below.
In February 2017, we entered into the Quality System and Supply Agreement, or QSS Agreement, with OpenBiome, which was subsequently amended in September 2017 and was partially terminated in February 2019. Under the QSS Agreement, OpenBiome granted us an exclusive license, eligible for sublicense, of certain OpenBiome technology and intellectual property. Additionally, we acquired certain assets of OpenBiome for use in manufacturing and supplying product. The QSS Agreement allowed us to use the licensed OpenBiome technology and intellectual property for our own research and development efforts in exchange for up to $27.5 million in milestone payments associated with development and commercialization efforts. We were responsible for providing support to OpenBiome related to manufacturing product, produced to OpenBiome’s specifications, which has been included as service revenue in our consolidated statements of operations. Revenue under the QSS Agreement was recorded as either contract manufacturing revenue or royalty revenue in our consolidated statements of operations.
On November 19, 2020, we entered into the LMIC License Agreement, or the LMIC Agreement, with OpenBiome, pursuant to which we granted OpenBiome a non-exclusive royalty-bearing license, with the right to grant sublicenses, under certain patents, patent applications, and know-how that are reasonably necessary or useful for the exploitation of products manufactured directly from stool from a stool donor source without the use of culturing or replication, or certain natural products. The license granted to OpenBiome excludes a license under our intellectual property to exploit a lyophilized Natural Product (such as CP101) where processed stool is lyophilized. The only consideration provided to us under the LMIC Agreement is in the form of future royalties on net sales of these products, which are not currently commercially viable. We are entitled to receive tiered royalties on net sales of certain products, ranging from mid-single digit to low second decile digits on a product-by-product and country-by-country basis. We did not recognize any revenue related to the LMIC Agreement for the nine months ended September 30, 2021 and 2020, as there are currently no products available for sale.
Also on November 19, 2020, we entered into an asset purchase agreement with OpenBiome, or the OpenBiome Agreement, the effect of which was to terminate certain existing agreements with OpenBiome and internalize some of the functions for which we have previously relied on OpenBiome. Pursuant to the OpenBiome Agreement, we acquired certain biological samples and obtained a license to certain OpenBiome technology and, upon closing of the transaction, which occurred March 1, 2021, we acquired certain additional assets, including biological samples, capital equipment and contracts. As of September 30, 2021, we have made payments of $5.0 million to OpenBiome related to the OpenBiome Agreement, which is the full amount agreed upon. We are also required to pay certain milestones up to $26.0 million upon the occurrence of certain research and development events, regulatory approvals, and commercial sales, and low single digit royalties on net sales of products on a product-by-product and country-by-country basis, as well as a mid single digit royalties on sublicensing revenue related to such products.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates. We expense research and development costs as incurred, which include:
23
Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated financial statements as prepaid or accrued research and development expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed.
Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase for the foreseeable future as we initiate clinical trials for our product candidates and continue to discover and develop additional product candidates. If any of our product candidates enter into later stages of clinical development, they will generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. There are numerous factors associated with the successful commercialization of any product candidates we may develop in the future, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development program and plans.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include professional fees for legal, patent, accounting, auditing, tax and consulting services, travel expenses and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We expect that our general and administrative expenses will increase in the future as we increase our general and administrative headcount to support our continued research and development and potential commercialization of our product candidates and expand our corporate headquarters. We also expect to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax compliance services, director and officer insurance costs, and investor and public relations costs.
Total Other Income (Expense), Net
Gain on Extinguishment of PPP Loan
Gain on extinguishment of PPP Loan relates to the PPP loan forgiveness.
Interest Income (Expense)
Interest income primarily consists of interest earned on our cash and cash equivalents. Our interest income has not been significant due to low interest earned on cash balances related to our sweep account.
Other Income (Expense), net
Other income (expense), net consists of gains and losses on disposals of fixed asset as well as realized gains and losses on foreign exchange.
24
Results of Operations
Comparison of the Three Months Ended September 30, 2021 and 2020
The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020 (in thousands):
|
|
THREE MONTHS ENDED |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
REVENUE: |
|
|
|
|
|
|
||
Collaboration revenue |
|
$ |
11,343 |
|
|
$ |
1,733 |
|
Royalties revenue from related party |
|
|
- |
|
|
|
38 |
|
Total revenue |
|
|
11,343 |
|
|
|
1,771 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
||
Research and development |
|
|
(15,537 |
) |
|
|
(9,045 |
) |
General and administrative |
|
|
(5,739 |
) |
|
|
(2,807 |
) |
Total operating expenses |
|
|
(21,276 |
) |
|
|
(11,852 |
) |
Net operating loss |
|
|
(9,933 |
) |
|
|
(10,081 |
) |
OTHER INCOME: |
|
|
|
|
|
|
||
Interest income (expense) |
|
|
8 |
|
|
|
(7 |
) |
Other (expense) income |
|
|
(30 |
) |
|
|
(2 |
) |
Total other (expense) income |
|
|
(22 |
) |
|
|
(9 |
) |
Net loss |
|
$ |
(9,955 |
) |
|
$ |
(10,090 |
) |
Revenue
Revenue of $11.3 million and $1.8 million for the three months ended September 30, 2021 and 2020, respectively, primarily consisted of collaboration revenue earned under the Takeda Agreement. Our collaboration revenue increased by $9.6 million in the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to our completion of the single combined performance obligation under the Takeda Agreement.
Research and Development Expenses
The following table summarizes our research and development expenses for the three months ended September 30, 2021 and 2020 (in thousands):
|
|
THREE MONTHS ENDED SEPTEMBER 30, |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
Increase |
|
|||
CDI (CP101) |
|
$ |
5,491 |
|
|
$ |
5,886 |
|
|
$ |
(395 |
) |
Inflammatory Bowel Diseases (TAK-524 and FIN-525) |
|
|
596 |
|
|
|
1,563 |
|
|
|
(967 |
) |
Autism Spectrum Disorder (ASD) (FIN-211) |
|
|
1,505 |
|
|
|
877 |
|
|
|
628 |
|
Hepatitis B (HBV) (CP101) |
|
|
912 |
|
|
|
211 |
|
|
|
701 |
|
Platform |
|
|
6,131 |
|
|
|
224 |
|
|
|
5,907 |
|
Unallocated |
|
|
902 |
|
|
|
284 |
|
|
|
618 |
|
|
|
$ |
15,537 |
|
|
$ |
9,045 |
|
|
$ |
6,492 |
|
Research and development expenses for the three months ended September 30, 2021 were $15.5 million, compared to $9.0 million for the three months ended September 30, 2020. The increase of $6.5 million for the three months ended September 30, 2021 included a $5.9 million increase from manufacturing related expenses, personnel costs and early asset discovery work and a $1.3 million increase in expenses related to the expansion and development of the ASD and HBV programs. These increases were offset by a $1.0 million decrease in expenses related to our inflammatory bowel diseases, or IBD, program due to the transition of primary development and manufacturing responsibilities to Takeda in August 2021, in addition to a $0.4 million decrease in costs related to our CDI program due to a decrease in personnel-related costs.
25
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the three months ended September 30, 2021 and 2020 (in thousands):
|
|
THREE MONTHS ENDED SEPTEMBER 30, |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
Increase |
|
|||
Personnel expenses (including stock-based compensation) |
|
$ |
3,276 |
|
|
$ |
1,626 |
|
|
$ |
1,650 |
|
Facilities and supplies |
|
|
83 |
|
|
|
109 |
|
|
|
(26 |
) |
Professional fees |
|
|
992 |
|
|
|
837 |
|
|
|
155 |
|
Other expenses |
|
|
1,388 |
|
|
|
235 |
|
|
|
1,153 |
|
|
|
$ |
5,739 |
|
|
$ |
2,807 |
|
|
$ |
2,932 |
|
General and administrative expenses were $5.7 million for the three months ended September 30, 2021, compared to $2.8 million for the three months ended September 30, 2020. The increase of $2.9 million for the three months ended September 30, 2021 was primarily due to a $1.6 million increase in personnel expenses, a $1.2 million increase in other expenses, and a $0.2 million increase in professional fees. The increase in personnel expenses is related to an increase in headcount to support our operational growth as well as an increase in stock-based compensation expense. The increase in other expenses was related to an increase in business insurance, and the increase in professional fees was related to our transition to a public company in March 2021.
Comparison of the Nine Months Ended September 30, 2021 and 2020
The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020 (in thousands):
|
|
NINE MONTHS ENDED |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
REVENUE: |
|
|
|
|
|
|
||
Collaboration revenue |
|
$ |
17,726 |
|
|
$ |
5,582 |
|
Royalties revenue from related party |
|
|
- |
|
|
|
330 |
|
Total revenue |
|
|
17,726 |
|
|
|
5,912 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
||
Research and development |
|
|
(42,476 |
) |
|
|
(24,577 |
) |
General and administrative |
|
|
(16,173 |
) |
|
|
(7,639 |
) |
Total operating expenses |
|
|
(58,649 |
) |
|
|
(32,216 |
) |
Net operating loss |
|
|
(40,923 |
) |
|
|
(26,304 |
) |
OTHER INCOME (EXPENSE), NET: |
|
|
|
|
|
|
||
Gain on extinguishment of PPP Loan |
|
|
1,827 |
|
|
|
- |
|
Interest income |
|
|
14 |
|
|
|
105 |
|
Other income (expense), net |
|
|
(23 |
) |
|
|
(51 |
) |
Total other income (expense), net |
|
|
1,818 |
|
|
|
54 |
|
Net loss |
|
$ |
(39,105 |
) |
|
$ |
(26,250 |
) |
Revenue
Revenue of $17.7 million and $5.9 million for the nine months ended September 30, 2021 and 2020, respectively, primarily consisted of collaboration revenue earned under the Takeda Agreement. Our collaboration revenue increased by $12.1 million in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to our completion of the single combined performance obligation under the Takeda Agreement.
26
Research and Development Expenses
The following table summarizes our research and development expenses for the nine months ended September 30, 2021 and 2020 (in thousands):
|
|
NINE MONTHS ENDED SEPTEMBER 30, |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
Increase |
|
|||
CDI (CP101) |
|
$ |
13,525 |
|
|
$ |
15,576 |
|
|
$ |
(2,051 |
) |
Inflammatory Bowel Diseases (TAK-524 and FIN-525) |
|
|
5,498 |
|
|
|
5,673 |
|
|
|
(175 |
) |
Autism Spectrum Disorder (ASD) (FIN-211) |
|
|
4,735 |
|
|
|
2,059 |
|
|
|
2,676 |
|
Hepatitis B (HBV) (CP101) |
|
|
2,364 |
|
|
|
243 |
|
|
|
2,121 |
|
Platform |
|
|
14,596 |
|
|
|
716 |
|
|
|
13,880 |
|
Unallocated |
|
|
1,758 |
|
|
|
310 |
|
|
|
1,448 |
|
|
|
$ |
42,476 |
|
|
$ |
24,577 |
|
|
$ |
17,899 |
|
Research and development expenses for the nine months ended September 30, 2021 were $42.5 million, compared to $24.6 million for the nine months ended September 30, 2020. The increase of $17.9 million for the nine months ended September 30, 2021 included a $13.9 million increase from manufacturing related expenses, personnel costs and early discovery work, and a $4.8 million increase in expenses related to the expansion and development of the ASD and HBV programs. These increases were offset by a $2.0 million decrease in CDI driven by a decrease in contract manufacturing costs and a $0.2 million decrease IBD program expenses.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the nine months ended September 30, 2021 and 2020 (in thousands):
|
|
NINE MONTHS ENDED SEPTEMBER 30, |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
Increase |
|
|||
Personnel expenses (including stock-based compensation) |
|
$ |
8,633 |
|
|
$ |
4,645 |
|
|
$ |
3,988 |
|
Facilities and supplies |
|
|
200 |
|
|
|
498 |
|
|
|
(298 |
) |
Professional fees |
|
|
4,300 |
|
|
|
1,852 |
|
|
|
2,448 |
|
Other expenses |
|
|
3,040 |
|
|
|
644 |
|
|
|
2,396 |
|
|
|
$ |
16,173 |
|
|
$ |
7,639 |
|
|
$ |
8,534 |
|
General and administrative expenses were $16.2 million for the nine months ended September 30, 2021, compared to $7.6 million for the nine months ended September 30, 2020. The increase of $8.5 million for the nine months ended September 30, 2021 was primarily due to a $4.0 million increase in personnel expenses, a $2.5 million increase in professional fees, and a $2.4 million increase in other expenses. The increase in professional fees was related to our transition to a public company in March 2021. The increase in personnel expenses is related to an increase in headcount to support our operational growth as well as an increase in stock-based compensation expense, and the increase in other expenses is related to business insurance.
Other Income (Expense), Net
Total other income, net for the nine months ended September 30, 2021 was $1.8 million, compared to $0.1 million for the nine months ended September 30, 2020. The increase for the nine months ended September 30, 2021 was primarily due to the forgiveness of the PPP Loan of $1.8 million.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have not recognized any product revenue and have incurred operating losses and negative cash flows from our operations. We have not yet commercialized any product and we do not expect to generate revenue from sales of any products for several years, if at all. We have funded our operations primarily through equity financings and from collaboration revenue. We have raised an aggregate of approximately $177.0 million from the sale of convertible preferred stock and $14.0 million in collaboration
27
revenue from the upfront payment and milestone payments received under our collaboration agreement. In March 2021, we completed our IPO whereby we sold an aggregate of 7,500,000 shares of our common stock. In April 2021, we sold an additional 192,877 shares of our common stock, pursuant to the underwriters’ partial exercise of their overallotment option, at a public offering price of $17.00 per share, for aggregate gross proceeds of $3.3 million. In aggregate, we received approximately $118.8 million in net proceeds related to our IPO after deducting $9.2 million of underwriting discounts and commissions and $2.9 million of offering expenses.
In April 2020, we received proceeds of $1.8 million from the PPP Loan. We have used the PPP Loan to retain current employees, maintain payroll and make lease and utility payments. On May 8, 2021, we received notice from the SBA that the entirety of the PPP Loan we received was forgiven. Accordingly, we are no longer required to repay the $1.8 million in principal and approximately $19,000 in accrued interest borrowed under the PPP Loan. Gain on extinguishment of the PPP Loan is recorded in the condensed consolidated statements of operations for the nine months ended September 30, 2021.
Cash Flows
The following table summarizes our cash flows for the nine months ended September 30, 2021 and 2020 (in thousands):
|
|
NINE MONTHS ENDED |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Net cash used in operating activities |
|
$ |
(53,346 |
) |
|
$ |
(21,047 |
) |
Net cash used in investing activities |
|
|
(13,919 |
) |
|
|
(487 |
) |
Net cash provided by financing activities |
|
|
119,040 |
|
|
|
91,704 |
|
Net increase in cash and cash equivalents, and restricted cash |
|
$ |
51,775 |
|
|
$ |
70,170 |
|
Operating Activities
During the nine months ended September 30, 2020, cash used in operating activities was $21.0 million. This cash outflow was primarily related to our net loss of $26.3 million. The outflow was also impacted by a net increase in our operating assets and liabilities of $4.4 million. This net increase includes a $3.3 million increase in the balance due from related party and a $1.3 million increase in deferred revenue related to the Takeda Agreement. This increase was offset by an decrease in prepaid expenses and other current assets of $1.8 million. The cash outflow also included $0.6 million in non-cash depreciation and amortization expense for our fixed assets, including leasehold improvements and $0.2 million in stock-based compensation expense.
During the nine months ended September 30, 2021, cash used in operating activities was $53.3 million. This cash outflow was primarily related to our net loss of $39.1 million. The outflow was also impacted by a net decrease in our operating assets and liabilities of $16.8 million. The net decrease includes a $13.6 million decrease in deferred revenue, a $3.8 million decrease in other non-current assets, a $1.4 million decrease in accounts receivable, and a $1.3 million decrease in accounts payable. This was offset by a $2.8 million increase in accrued expenses and other current liabilities. The cash outflow also included $2.8 million in stock-based compensation expense and $1.6 million in non-cash depreciation and amortization.
Investing Activities
During the nine months ended September 30, 2021 and 2020, we used $13.9 million and $0.5 million, respectively, of cash in investing activities. The $13.9 million used during the nine months ended September 30, 2021 was due to $8.8 million in leasehold improvements, $3.7 million in software purchases, and $1.5 million in purchases of lab equipment. Purchases of property and equipment during the nine months ended September 30, 2021 includes $3.7 million in purchases from a related party. The $0.5 million used during the nine months ended September 30, 2020 was related to purchases of property and equipment.
Financing Activities
During the nine months ended September 30, 2020, net cash provided by financing activities was $91.7 million, primarily related to $90.0 million in proceeds from the issuance of our Series D convertible preferred stock and $1.8 million of proceeds received from the PPP Loan.
During the nine months ended September 30, 2021, net cash provided by financing activities was $119.0 million, primarily related to $118.6 million of proceeds received from the IPO, net of underwriting discounts and commissions and $3.0 million of proceeds from
28
the underwriters’ exercise of their overallotment option, net of underwriting discounts and commissions. The proceeds are partially offset by $2.7 million of payments of issuance costs related to the IPO.
Funding Requirements
As of September 30, 2021, our cash and cash equivalents were $149.2 million. We believe that our existing cash on hand will enable us to fund our operating expenses and capital expenditure requirements into mid-2023. We have based this estimate on assumptions that may prove to be wrong, and we could expend our capital resources sooner than we expect.
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates. We expect that our expenses will increase substantially if and as we:
Contractual Obligations and Commitments
During the nine months ended September 30, 2021, we entered into a new lease agreement for office and laboratory space at 100 Hood Park Drive. See Note 8 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for further details. There were no other material changes to our contractual obligations and commitments from those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Prospectus.
Critical Accounting Policies and Significant Judgments and Estimates
Our unaudited interim condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our unaudited interim condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our condensed financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. However, even though we believe we have used reasonable
29
estimates and assumptions in preparing our interim condensed consolidated financial statements, the future effects of the COVID-19 pandemic on our results of operations, cash flows, and financial position are unclear. Our actual results may differ from these estimates under different assumptions or conditions.
There have been no significant changes to our critical accounting policies from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Prospectus.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.
Recently Issued Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements.
Emerging Growth Company Status and Smaller Reporting Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. We expect to use the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company and, as a result, we will not adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
We will remain an emerging growth company until December 31, 2026 or, if earlier, (i) the last day of our first fiscal year in which we have total annual gross revenues of at least $1.07 billion, (ii) the date on which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of interest rate sensitivities.
Interest Rate Sensitivity
As of September 30, 2021 and December 31, 2020, we had cash and cash equivalents of $149.2 million and $99.7 million, respectively. Our exposure to interest rate sensitivity is impacted by changes in the underlying U.S. bank interest rates. Our surplus cash has been invested in money market fund accounts as well as interest-bearing savings accounts from time to time. We have not entered into investments for trading or speculative purposes. Due to the conservative nature of our investment portfolio, which is predicated on capital preservation of investments with short-term maturities, we do not believe an immediate one percentage point change in interest rates would have a material effect on the fair market value of our portfolio, and therefore, we do not expect our operating results or cash flows to be significantly affected by changes in market interest rates.
As of September 30, 2021 and December 31, 2020, we had no debt outstanding that is subject to interest rate variability. Therefore, we are not subject to interest rate risk related to debt.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
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We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2021. Our disclosure controls and procedures are designed to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective due to the material weakness identified in fiscal year 2019 in our internal control over financial reporting process which included (1) an ineffective control environment, including a lack of sufficient accounting personnel and personnel with financial reporting expertise; (2) ineffective controls over cutoff, recording and classification of certain accounts, and the valuation and recognition of intangible assets acquired in a business combination that occurred in 2017; (3) ineffective risk assessment controls, including those policies and practices that would identify changes in our business practices, which could significantly impact our consolidated financial statements and system of internal controls; and (4) ineffective monitoring of controls related to the financial close and reporting process.
Remediation Plan
We are committed to remediating the control deficiencies that constituted the above material weakness by implementing changes to our internal control over financial reporting. During the last quarter of 2020 and through September 30, 2021, we made enhancements to our control environment including the following:
Our remediation activities are continuing through the remainder of 2021. In addition to the above activities, we expect to engage in additional activities including:
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Changes in Internal Control Over Financial Reporting
Except for the remediation efforts with respect to the previously identified material weakness as described above, there was no change in our internal control over financial reporting that occurred during the nine months ended September 30, 2021 that materially affected, or was reasonably likely to materially affect, our internal control over financial reporting.
As a result of the COVID-19 pandemic, certain employees began working remotely in March 2020. Notwithstanding these changes to the working environment, we have not identified any material changes in our internal control over financial reporting. We will continue to monitor and assess the COVID-19 situation to determine any potential impact on the design and operating effectiveness of our internal controls over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving the desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become subject to arbitration, litigation or claims arising in the ordinary course of business. We are not currently a party to any material arbitration or legal proceedings. The results of any future claims or proceedings cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and litigation costs, diversion of management resources, and other factors.
Item 1A. Risk Factors
Our business is subject to numerous risks. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Quarterly Report on Form 10-Q as well as our other public filings with the Securities and Exchange Commission, or the SEC. Any of the following risks could have a material adverse effect on our business, financial condition, results of operations and growth prospects and cause the trading price of our common stock to decline.
Risks Related to Our Financial Position and Capital Needs
We have a limited operating history, have incurred net losses in every year since our inception and anticipate that we will continue to incur net losses in the future.
We are a clinical-stage biopharmaceutical company with a limited operating history. Since our inception, we have focused primarily on developing and progressing our product candidates through clinical development, organizing and staffing our company, research and development activities, establishing and protecting our intellectual property portfolio, including for our Human-First Discovery platform, and raising capital. Consequently, we have no meaningful operations upon which to evaluate our business and predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing drug products. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. We have not yet demonstrated the ability to progress any product candidate through clinical trials, we have no products approved for commercial sale and we have not generated any revenue from product sales to date. We continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in each period since our inception. For the nine months ended September 30, 2021 and 2020, we reported net losses of $39.1 million and $26.2 million, respectively. As of September 30, 2021, we had an accumulated deficit of $141.9 million. We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and seek
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regulatory approvals for, our lead therapeutic product candidate, CP101, for the treatment of recurrent Clostridioides difficile infection, or CDI, and any other current or future product candidates we may develop.
We anticipate that our expenses will increase substantially if, and as, we:
To become and remain profitable, we, our collaborators and any potential future collaborators must develop and eventually commercialize products with significant market potential. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials, obtaining marketing approval for product candidates, manufacturing, marketing and selling products for which we may obtain marketing approval and satisfying any post-marketing requirements. We may never succeed in any or all of these activities and, even if we do, we may never generate revenue that is 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 company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company also could cause you to lose all or part of your investment.
Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.
We will require substantial additional funding to finance our operations. If we are unable to raise capital when needed, we could be forced to delay, reduce or terminate certain of our product development programs or other operations.
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To date, we have primarily funded our operations through the IPO, private placements of equity securities and upfront and milestone payments received pursuant to our collaboration agreement with Millennium Pharmaceuticals, Inc., or Takeda. We expect to spend substantial amounts to advance our product candidates into clinical development and to complete the clinical development of, seek regulatory approvals for and commercialize our product candidates, if approved. We will require additional capital, which we may raise through equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or other sources to enable us to complete the development and potential commercialization of our product candidates. Furthermore, we expect to incur additional costs associated with operating as a public company. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative effect on our financial condition and our ability to pursue our business strategy. In addition, attempting to secure additional financing may divert the time and attention of our management from day-to-day activities and harm our product candidate development efforts. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or eliminate certain of our research and development programs.
As of September 30, 2021, our cash and cash equivalents were $149.2 million. We believe that our existing cash on hand will enable us to fund our operating expenses and capital expenditure requirements into mid-2023. However, we will need to obtain substantial additional funding in connection with our continuing operations and planned activities. Our future capital requirements will depend on many factors, including:
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Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, CP101, FIN-211 and any future 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 additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or altogether terminate our research and development programs or future commercialization efforts.
Raising additional capital will cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our product candidates.
Until such time, if ever, that 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. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt 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.
If we raise additional capital through future collaborations, strategic alliances or third-party licensing arrangements, we may have to relinquish certain valuable rights to our intellectual property, 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 clinical development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise develop and market ourselves.
Risks Related to the Development of Our Product Candidates
We are heavily dependent on the success of our product candidates, which are in clinical and preclinical development. If we are unable to advance our current or future product candidates through clinical trials, obtain marketing approval and ultimately commercialize any product candidates we develop, or experience significant delays in doing so, our business will be materially harmed.
Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates in humans. We are early in our product candidate development efforts, as CP101 is our only product candidate to reach clinical development to date. Because CP101 is our lead product candidate, if CP101 encounters safety or efficacy problems, development delays or regulatory issues or other problems, our development plans and business would be significantly harmed.
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Our ability to generate product revenues, which we do not expect will occur for several years, if ever, will depend heavily on the successful development and eventual commercialization of CP101 and any other current or future product candidates we develop, which may never occur. CP101 and any other product candidates we develop will require additional preclinical and clinical development, management of clinical, preclinical, manufacturing and quality activities, marketing approval in the United States and other jurisdictions for specific indications for use, demonstrating effectiveness to pricing and reimbursement authorities, obtaining sufficient manufacturing supply for both clinical development and commercial production, building of a commercial organization and substantial investment and significant marketing efforts before we generate any revenues from product sales. The success of our current and future product candidates will depend on several factors, including the following:
Many of these risks are beyond our control, including the risks related to clinical development, the regulatory review process, potential threats to our intellectual property rights and the manufacturing, marketing and sales efforts of any future collaborator. If we are
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unable to develop, receive regulatory approval for, or successfully commercialize our current or future product candidates, or if we experience delays as a result of any of these risks or otherwise, our business could be materially harmed.
If we are not successful with respect to one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize CP101 or any other current or future product candidates we develop, which would materially harm our business. If we do not receive marketing approvals for our current and future product candidates, we may not be able to continue our operations.
Our product candidates are based on microbiome therapeutics, which is an unproven approach to therapeutic intervention.
All of our product candidates are based on microbiome therapy, a therapeutic approach that is designed to treat disease by restoring the function of a dysbiotic microbiome. We have not, nor to our knowledge, has any other company, received regulatory approval for a therapeutic based on this approach. We cannot be certain that our approach will lead to the development of approvable or marketable products. In addition, the efficacy potential of our microbiome therapeutics may vary based on indication and use in different patient populations including geographical areas. Finally, the FDA or other regulatory agencies may lack experience in evaluating the safety and efficacy of products based on microbiome therapeutics, which could result in a longer than expected regulatory review process or evolving FDA standards and guidance, increase our expected development costs and delay or prevent commercialization of our product candidates. Regulatory requirements governing microbiome therapies are still developing and may change in the future. Regulatory authorities and advisory groups, and the new guidelines they promulgate, may lengthen the regulatory review process, require us to perform additional preclinical studies or clinical trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our current or future product candidates or lead to significant post-approval limitations or restrictions.
Microbiome therapies in general may not be successfully developed or commercialized or gain the acceptance of the public or the medical community. Our success will depend upon physicians who specialize in the treatment of diseases targeted by our product candidates that we pursue as drugs, prescribing potential treatments that involve the use of our product candidates in lieu of, or in addition to, existing treatments with which they are more familiar and for which greater clinical data may be available. Our success will also depend on consumer acceptance and adoption of our products that we commercialize. Adverse events in non-IND human clinical studies and clinical trials of our product candidates, or in non-IND human clinical studies and clinical trials of others developing similar products or products that are perceived to be similar to ours, such as fecal microbiota transplant, or FMT, materials, as well as any other adverse findings that arise in connection with research and development in the microbiome field, could result in negative publicity and a decrease in demand for any product that we may develop. In addition, responses by the federal, state or foreign governments to negative public perception or ethical concerns may result in new legislation or regulations that could limit our ability to develop or commercialize any product candidates, obtain or maintain regulatory approval, identify alternate regulatory pathways to market or otherwise achieve profitability. More restrictive statutory regimes, government regulations or negative public opinion would have an adverse effect on our business, financial condition, results of operations and prospects and may delay or impair the development and commercialization of our product candidates or demand for any products we may develop.
Our microbiome therapeutics platform relies in part on third parties for biological materials, including human stool. Some biological materials have not always met our expectations or requirements, and any disruption in the supply of these biological materials could materially adversely affect our business. For example, if any supplied biological materials are contaminated with pathogens or disease organisms, we would not be able to use such biological materials. Although we have control processes and screening procedures, biological materials are susceptible to damage and contamination and may contain active pathogens. While we screen for a broad set of pathogens as a part of our manufacturing process, the donated human stool may contain organisms of which we are not aware and that could have an adverse effect on the safety of our product candidates and on the outcomes of our preclinical studies or clinical trials. Improper storage of these materials, by us or any third-party suppliers, may require us to destroy some of our raw materials or products which could create supply shortages, interruptions or other delays or require identification and contracting of additional third-party suppliers which we may not be able to do in a timely manner or on favorable terms.
Our relationship with OpenBiome may adversely affect our ability to develop our product candidates and subject us to increased liability.
The Microbiome Health Research Institute, Inc., or OpenBiome, is a non-profit organization that was co-founded in 2012 by our Chief Executive Officer and member of our board of directors, Mark Smith, Ph.D. OpenBiome operates a stool bank and manufactures, sells, and distributes fecal microbiota transplant products, or OpenBiome FMT Materials, for clinical research and for use in treating CDI not responding to standard therapy under its interpretation of the FDA’s policy of enforcement discretion. In July 2013, the FDA
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issued guidance stating that it intended to exercise a policy of enforcement discretion regarding the IND regulatory requirements for the use of FMT used to treat CDI not responding to standard therapies, provided that the treating physician obtains appropriate informed consent from the patient or his or her legally authorized representative. We have historically had a close relationship with OpenBiome and are currently and have previously been party to several agreements with OpenBiome related to, among other things, the license of various technology and intellectual property rights. In addition, Carolyn Edelstein, the Executive Director and co-founder of OpenBiome, is married to Dr. Smith. Although we believe our agreements with OpenBiome have been negotiated at an arms-length basis, there may be a perception that the terms of any such agreements have not been fairly negotiated, which could increase regulatory scrutiny, adversely impact our reputation or otherwise impair our ability to operate effectively.
In 2016, we entered into a Master Strategic Affiliation Agreement with OpenBiome, or the Strategic Agreement, pursuant to which, among other things, we manufactured OpenBiome FMT Materials to specifications defined by OpenBiome for distribution and sale by OpenBiome through February 2019. These OpenBiome FMT Materials have been and may continue to be distributed and sold by OpenBiome, and administered to patients. The FDA may not agree with OpenBiome’s interpretation or application of the FDA’s enforcement discretion policy to its product distribution. We terminated the Strategic Agreement in 2020 as part of signing an asset purchase agreement, or the OpenBiome Agreement, and license agreement with OpenBiome, pursuant to which we acquired certain biological materials, equipment, and other assets, and cross-licensing certain intellectual property. The OpenBiome Agreement also retained certain existing intellectual property and biological materials licenses from the Master Strategic Affiliation Agreement into a stand-alone agreement. Although we are indemnified for causes of action relating to the distribution and sale of the OpenBiome FMT Materials, we may nonetheless become parties to potential product liability claims that are inherent in the research, development, manufacturing, marketing and use of pharmaceutical products such as OpenBiome FMT Materials.
Moreover, the availability of OpenBiome FMT Materials under the FDA’s policy of enforcement discretion, and for use in clinical research, may negatively prejudice and slow enrollment of clinical trials sponsored by us or our collaborators that are directed at the same or similar disease or condition, such as CDI. Additionally, while each of CP101 and FIN-211 is an orally administered biologic consisting of a complete microbiome and a distinct product from OpenBiome FMT Materials, with additional testing, manufacturing and control steps, it is possible that the FDA and others might perceive CP101, FIN-211 or any of our other product candidates as similar owing to their common raw material. The FDA has issued three safety alerts since 2019 related to the use of FMT treatment, including in March 2020 after OpenBiome reported occurrences of enteropathogenic E. coli and shigatoxin-producing E. coli in FMT recipients. This and similar adverse safety events associated with OpenBiome FMT Materials or other similar products manufactured or supplied by other third-party stool banks, physicians or others may cause the FDA to perceive CP101 or FIN-211 as unsafe and bring increased regulatory scrutiny to our clinical and manufacturing operations more broadly, lead to decreased confidence by patients and physicians in our product candidates, and result in reduced demand for any product that we may develop.
OpenBiome has also supplied us with biological materials derived from human stool, which we intend to use as raw materials, subject to additional testing, screening and processing, in the manufacture of our product candidates, such as CP101 and FIN-211, for use in our planned clinical trials. During the time we engaged OpenBiome to supply us with such human stool material, OpenBiome received a clinical hold from the FDA with respect to the need for new screening measures to mitigate the risk of transmission of SARS-CoV-2 from donor to recipient of its OpenBiome FMT materials, and the need for additional information regarding OpenBiome’s quality systems. This clinical hold was removed in January 2021. Although the OpenBiome clinical hold did not preclude us from receiving OpenBiome-supplied biological materials for our manufacturing activities, given that some materials were received while OpenBiome was under clinical hold, we may not be able to use these materials for such purposes if we determine they fail to meet our quality standards, or if the FDA or other parties perceive such materials to be unsafe. For example, the FDA or other regulatory agencies may determine that they should not be used for the same reasons underlying the clinical hold, or different reasons. In addition, while we intend to test these materials to ensure they meet our quality standards, we plan to use an assay to screen for COVID-19 that has not been reviewed or approved by the FDA on behalf of Finch. If we are unable to use the biological materials we have received from OpenBiome, or are delayed in our use of those materials, our planned clinical trials could be significantly delayed and adversely affected. In addition, we may not be able to recoup the costs associated with acquiring these biological materials from OpenBiome.
In connection with the closing of the transactions contemplated by the OpenBiome Agreement, we acquired certain capital equipment and assumed the contracts with certain service providers to which OpenBiome was a party. We may encounter difficulties assimilating or integrating the personnel, technologies and equipment contemplated by the OpenBiome Agreement. If the resulting benefits from the consummation of the transactions contemplated by the OpenBiome Agreement fail to meet our expectations, our business, results of operations and financial condition may be harmed. In addition, although the OpenBiome Agreement is structured to exclude the assumption of any liabilities of OpenBiome, we may be subject to unknown liabilities with respect to the assets we have acquired or contracts we have assumed.
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Clinical trials are difficult to design and implement, and they involve a lengthy and expensive process with uncertain outcomes. We may experience delays in completing, or ultimately be unable to complete, the development and commercialization of CP101, FIN-211 or any other current or future product candidates.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process and our future clinical trial results may not be successful. We cannot guarantee that any of our ongoing and planned clinical trials will be conducted as planned or completed on schedule, if at all. Moreover, even if these trials are initiated or conducted on a timely basis, issues may arise that could result in the suspension or termination of such clinical trials.
Although we have completed the topline readout in connection with PRISM3, our Phase 2 clinical trial of CP101, we may experience delays in our ongoing clinical trials or preclinical studies and we do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or in sufficient numbers, have sufficient drug supply for our product candidates on a timely basis or be completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing, and our ongoing and future clinical trials may not be successful. We also may experience numerous unforeseen events during our clinical trials that could delay or prevent our ability to receive marketing approval or commercialize CP101, FIN-211 or any other current or future product candidates, including:
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In addition, disruptions caused by the COVID-19 pandemic may increase the likelihood that we encounter such difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing preclinical studies and clinical trials, as applicable. We could also encounter delays if a clinical trial is suspended or terminated by us, the IRBs of the institutions in which such trials are being conducted, or the FDA or comparable foreign regulatory authorities, or recommended for suspension or termination by the Data Safety Monitoring Board for such trial. A suspension or termination may be imposed 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 comparable foreign regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product or treatment, failure to establish or achieve clinically meaningful trial endpoints, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. Further, the FDA or comparable foreign regulatory authorities may disagree with our clinical trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after they have reviewed and commented on the design for our clinical trials.
Our product development costs will increase if we experience delays in clinical testing or marketing approvals. We do not know whether any of our clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates and may allow our competitors to bring products to market before we do, potentially impairing our ability to successfully commercialize our product candidates and harming our business and results of operations. Any delays in our clinical development programs may harm our business, financial condition and results of operations significantly.
Our business and operations may be adversely affected by the evolving and ongoing COVID-19 global pandemic.
Our business and operations may be adversely affected by the effects of the ongoing COVID-19 global pandemic, which has resulted in various restrictions aimed at containing the virus, including public health directives and orders that, among other things and for various periods of time, directed individuals to shelter in place, directed businesses and governmental agencies to cease non-essential operations at physical locations, prohibited certain non-essential gatherings and events, and ordered cessation of non-essential travel. Future remote work policies and similar government orders or other restrictions on the conduct of business operations related to the COVID-19 pandemic, including as a result of variants of COVID-19, may negatively impact productivity and may disrupt our ongoing research and development activities and our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. Further, such orders also may impact the availability or cost of materials, which would disrupt our supply chain and manufacturing efforts and could affect our ability to conduct ongoing and planned clinical trials and preparatory activities.
In connection with the COVID-19 pandemic, we experienced a slowdown to enrollment in our PRISM-EXT clinical trial. We may experience additional COVID-19 related disruptions in the future that could severely impact our clinical trials, including:
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Known or unanticipated impacts of the COVID-19 pandemic, including as a result of variants of COVID-19, may have a material adverse effect on our business. While the ultimate economic impact brought by, and the duration of, the COVID-19 pandemic are difficult to assess or predict, the pandemic has resulted, and could further result, in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the COVID-19 pandemic could materially affect our business and the value of our common stock.
The COVID-19 pandemic continues to rapidly evolve. The extent to which the COVID-19 pandemic impacts our business and operations, including our clinical development and regulatory efforts, will depend on future developments that are highly uncertain and cannot be predicted with confidence at the time of this Quarterly Report on Form 10-Q, such as the ultimate geographic spread of the disease, the duration of the outbreak, the impact of emerging variants, the duration and effect of business disruptions and the short- and long-term effects and ultimate effectiveness of the travel restrictions, quarantines, social distancing requirements, occupancy limits, vaccine mandates and business closures in the United States and other countries to contain and treat the disease, and the effectiveness and acceptance of vaccines. Accordingly, we do not yet know the full extent of potential delays or impacts on our business, our clinical and regulatory activities, healthcare systems or the global economy as a whole. However, these impacts could adversely affect our business, financial condition, results of operations and growth prospects.
The demand for vaccines for COVID-19 and potential for manufacturing facilities and materials to be commandeered under the Defense Production Act of 1950, or equivalent foreign legislation, may make it more difficult to obtain materials or manufacturing slots for the products needed for our clinical trials, which could lead to delays in these trials. Moreover, since the Office of Vaccines Research and Review at FDA, which is responsible for review and approval of microbiome product candidates, is responsible for the review of COVID-19 vaccines, responses from FDA may be delayed.
In addition, to the extent the ongoing COVID-19 pandemic adversely affects our business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties described in this “Risk Factors” section.
Our clinical trials may fail to demonstrate substantial evidence of the safety and efficacy of our product candidates or any future product candidates, which would prevent or delay or limit the scope of regulatory approval and commercialization.
To obtain the requisite regulatory approvals to market and sell any of our product candidates, including CP101, FIN-211 and any other current or future product candidates, we must demonstrate through extensive preclinical studies and clinical trials that our investigational drug products are safe and effective for use in each targeted indication. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical development process. Most product candidates that begin clinical trials are never approved by regulatory authorities for commercialization. We may be unable to establish clinical endpoints that applicable regulatory authorities would consider clinically meaningful, and a clinical trial can fail at any stage of testing. Further, the process of obtaining regulatory approval is expensive, often takes many years following the commencement of clinical trials and can vary substantially based upon the type, complexity and novelty of the product candidates involved, as well as the target indications, patient population and regulatory agency. Prior to obtaining approval to commercialize CP101, FIN-211 and any other current or future product candidates in the United States or abroad, we, our collaborators or our potential future collaborators must demonstrate with substantial evidence from adequate and well-controlled clinical trials, and to the satisfaction of the FDA or comparable foreign regulatory authorities, that such product candidates are safe and effective for their intended uses. For example, we plan to have further discussions with the FDA regarding the size and make-up of the safety database for CP101 which could result in the need for additional studies or delays in our development timelines.
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Clinical trials that we conduct may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market our product candidates. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. If the results of our ongoing or future clinical trials are inconclusive with respect to the efficacy of our product candidates, if we do not meet the clinical endpoints with statistical and clinically meaningful significance, or if there are safety concerns associated with our product candidates, we may be delayed in obtaining marketing approval, if at all. Additionally, any safety concerns observed in any one of our clinical trials in our targeted indications could limit the prospects for regulatory approval of our product candidates in those and other indications.
Even if the trials are successfully completed, clinical data are often susceptible to varying interpretations and analyses, and we cannot guarantee that the FDA or comparable foreign regulatory authorities will interpret the results as we do. More trials could be required before we submit our product candidates for approval, especially for indications such as ASD, for which clinical endpoints are not well-established, or chronic HBV, for which we may propose new biomarkers as evidence of efficacy. We cannot guarantee that the FDA or comparable foreign regulatory authorities will view our product candidates as having efficacy even if positive results are observed in clinical trials. Moreover, results acceptable to support approval in one jurisdiction may be deemed inadequate by another regulatory authority to support regulatory approval in that other jurisdiction. To the extent that the results of the trials are not satisfactory to the FDA or comparable foreign regulatory authorities for support of a marketing application, approval of CP101, FIN-211 and any other current or future product candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates. Even if regulatory approval is secured for a product candidate, the terms of such approval may limit the scope and use of the specific product candidate, which may also limit its commercial potential.
The results of preclinical studies and early-stage clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Initial success in third-party studies or our ongoing clinical trials may not be indicative of results obtained when these trials are completed or in later-stage trials.
The results of nonclinical and preclinical studies and clinical trials may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. Furthermore, we have relied on third-party clinical research in order to inform certain aspects of our own clinical trials and preclinical studies. We have not independently verified the accuracy, safety or other results of such third-party studies, and we may be unable to replicate the results from such third-party studies. For example, insights gained from the use of FMT materials, including FMT clinical data, may not be predictive of our clinical trials, particularly given that the dosage form and potency, delivery mechanisms and manufacturing process vary significantly.
Accordingly, there can be no assurance that any of our clinical trials will ultimately be successful or support further clinical development of any of our product candidates. There is a high failure rate for product candidates proceeding through clinical trials. Many companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway, or safety or efficacy observations made in preclinical studies and clinical trials, including previously unreported adverse events. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA approval. Additionally, products used in small early-stage studies may be from a limited number of donors, and it is possible that efficacy might be linked to the microbial community found in a specific donor or a limited set of donors, such that the results might not apply for a broader group of donors with varying microbial compositions. Any such setbacks in our clinical development could have a material adverse effect on our business, financial condition and results of operations.
Additionally, some of the clinical trials we conduct may include open-label trials conducted at a limited number of clinical sites on a limited number of patients. An “open-label” clinical trial is one where both the patient and investigator know whether the patient is receiving the investigational product candidate or either an existing approved product or placebo. Most typically, open-label clinical trials test only the investigational product candidate and sometimes may do so at different dose levels. Open-label clinical trials are subject to various limitations that may exaggerate any therapeutic effect as patients in open-label clinical trials are aware when they are receiving treatment. Open-label clinical trials may be subject to a “patient bias” where patients perceive their symptoms to have improved merely due to their awareness of receiving an experimental treatment. In addition, open-label clinical trials may be subject to an “investigator bias” where those assessing and reviewing the physiological outcomes of the clinical trials are aware of which
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patients have received treatment and may interpret the information of the treated group more favorably given this knowledge. Given that we plan to in the future conduct open-label clinical trials, the results from these clinical trials may not be predictive of future clinical trial results with these or other product candidates for which we include an open-label clinical trial when studied in a controlled environment with a placebo or active control.
Our product candidates may be associated with serious adverse, undesirable or unacceptable side effects or other properties or safety risks, which may delay or halt their clinical development, or prevent marketing approval. If such side effects are identified during the development of our product candidates or following approval we may suspend or abandon our development of such product candidates, the commercial profile of any approved label may be limited, or we may be subject to other significant negative consequences following marketing approval.
Undesirable side effects that may be caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. While we have observed no treatment-related serious adverse events, or SAEs, to date in clinical trials of our lead product candidate CP101, the results from future preclinical studies and clinical trials of our other product candidates may identify safety concerns or other undesirable properties of our product candidates. Additionally, if we expand our product development for current or future product candidates into new patient populations or disease areas, side effects or adverse events not seen by our product candidates in earlier clinical research could emerge.
The results of our planned clinical trials of CP101, FIN-211 and future clinical trials of our other product candidates may show that our product candidates cause undesirable or unacceptable side effects or even death. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and results of operations significantly.
Moreover, if our product candidates are associated with undesirable side effects in preclinical studies or clinical trials or have characteristics that are unexpected, we may elect to abandon their development or limit their development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective, which may limit the commercial expectations for the product candidate, if approved.
Additionally, adverse developments in clinical trials of pharmaceutical and biopharmaceutical products conducted by others or with commercial products offered by others may cause the FDA or other regulatory oversight bodies to suspend or terminate our clinical trials or change the requirements for approval of any of our product candidates or otherwise adversely impact the clinical and commercial development of our product candidates. Such adverse developments may cause the FDA to perceive CP101 or other current or future product candidates as unsafe and bring increased regulatory scrutiny to our clinical operations more broadly, lead to decreased confidence by patients, physicians and contract research organizations, or CROs, in our product candidates, and result in reduced demand for any product that we may develop if approved. For example, in June 2019, the FDA issued a safety alert regarding the risk of serious adverse reactions due to the transmission of multi-drug resistant organisms in connection with FMT treatment provided by a local, hospital-based FMT program. Two immunocompromised adults, one of whom later died, received FMT treatment from this hospital-based FMT program and subsequently developed infections caused by extended-spectrum beta-lactamase-producing E. coli. In March 2020, the FDA issued another safety alert regarding the potential of serious or life-threatening infections with the use of FMT treatment after OpenBiome reported occurrences of enteropathogenic E. coli and shigatoxin-producing E. coli in FMT recipients. Also in March 2020, FDA issued a safety alert regarding the potential risks of transmission of COVID-19 by FMT.
Additionally, if any of our product candidates receives marketing approval and we or others later identify undesirable or unacceptable side effects caused by such products, a number of potentially significant negative consequences could result, including:
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Any of these events could prevent us, our collaborators or our potential future partners from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenue from the sale of our product candidates, if approved.
We may find it difficult to enroll patients in our clinical trials, which could delay or prevent us from proceeding with, or otherwise adversely affect, clinical trials of our product candidates.
Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. The timely completion of our clinical trials in accordance with their protocols depends, among other things, on our ability to recruit a sufficient number of eligible patients to participate and remain in the trial until its conclusion. Patients may be unwilling to participate in our clinical trials because of negative publicity from adverse events related to novel therapeutic approaches, competitive clinical trials for similar patient populations, the existence of current treatments, such as FMT, or for other reasons, including the ongoing COVID-19 pandemic and negative perceptions of our product candidates. Any delays related to patient enrollment could result in increased costs, delays in advancing our product candidates, delays in testing the effectiveness of our product candidates or termination of the clinical trials altogether. We may not be able to identify, recruit and enroll a sufficient number of patients, or those with the required or desired characteristics, to complete our clinical trials in a timely manner. Patient enrollment and trial completion is affected by many factors, including the:
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Enrollment risks are heightened with respect to indications that are rare or orphan diseases, which may limit the pool of patients that may be enrolled in our planned clinical trials. For example, we are developing CP101 for the treatment of recurrent CDI, which does not have a large patient population, and, as a result, we may encounter difficulties enrolling subjects in our clinical trials evaluating CP101 for the treatment of recurrent CDI due, in part, to the small size of this patient population.
In addition, our clinical trials will compete with products that are available for use in the same therapeutic areas of our product candidates, and 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. For example, the availability of FMT materials for CDI not responding to standard therapies may affect our ability to enroll patients in our studies of CP101 in CDI. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials in such clinical trial site.
Delays in patient enrollment may result in increased costs or may affect the timing or outcome of our future clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our product candidates.
Interim, topline and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publish interim, topline or preliminary data from our clinical trials. Preliminary and interim data from our clinical trials may change as more patient data become available. Preliminary or interim data from our clinical trials are not necessarily predictive of final results. Preliminary and interim data are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues, more patient data become available and we issue our final clinical trial report. Interim, topline and preliminary 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, preliminary, topline and interim data should be viewed with caution until the final data are available. Material adverse changes in the final data compared to the interim data could significantly harm our business prospects. In addition, certain patient and product samples from our clinical trials are or will be retained by third parties and used by them for further research and studies, and the data from such studies may be inconsistent or contrary to the results from our earlier clinical trials.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, interpretations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product, if any, and our company in general. For example, regulatory agencies may disagree with our inclusion or exclusion of certain trial subjects from our clinical trial data or our interpretation of such data. In addition, the information we choose to publicly disclose regarding a particular preclinical study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product, if any, product candidate or our business. If the preliminary and interim data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.
Preclinical development is uncertain. Our preclinical programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize these programs on a timely basis or at all, which would have an adverse effect on our business.
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Before we can commence clinical trials for any product candidate, we may be required to complete extensive preclinical studies that support any future Investigational New Drug, or IND, applications in the United States, or similar applications in other jurisdictions. Conducting preclinical testing is a lengthy, time-consuming and expensive process and delays associated with product candidates for which we are directly conducting preclinical testing and studies may cause us to incur additional operating expenses. We cannot be certain of the timely completion or outcome of our preclinical testing and studies for CP101, FIN-211 or our other current or future product candidates and cannot predict if the FDA will accept our proposed clinical programs or if the outcome of our preclinical testing and foreign clinical trials will ultimately support the further development of our other product candidates. As a result, we cannot be sure that we will be able to submit INDs or similar applications for our preclinical programs on the timelines we expect, if at all, and we cannot be sure that submission of INDs or similar applications will result in the FDA or comparable foreign regulatory authorities allowing clinical trials to begin.
The regulatory approval processes of the FDA and comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
The time required to obtain approval by the FDA and comparable foreign regulatory authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, laws or 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. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.
Our product candidates could fail to receive regulatory approval for many reasons, including the following:
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This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market any of our product candidates, which would significantly harm our business, financial condition and results of operations. The FDA and comparable foreign regulatory authorities have substantial discretion in the approval process, and determining when or whether regulatory approval will be obtained for any of our product candidates. Even if we believe the data collected from clinical trials of our product candidates are promising, such data may not be sufficient to support approval by the FDA or comparable foreign regulatory authorities.
In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our products, if any, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.
Even if we receive regulatory approval of a product candidate, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with such product candidate.
If any of our product candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, testing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies and submission of safety, efficacy and other post-market information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities. In addition, we will be subject to continued compliance with cGMP and GCP requirements for any clinical trials that we conduct post-approval.
Manufacturers and manufacturers’ facilities are required to comply with extensive FDA and comparable foreign regulatory authority requirements, including ensuring that quality control and manufacturing procedures conform to cGMP regulations. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any BLA, other marketing application, and previous responses to inspection observations. Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production and quality control.
Any regulatory approvals that we receive for our product candidates may be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials and surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a REMS program as a condition of approval of our product candidates, which could entail requirements for long-term patient follow-up, a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves our product candidates, we will have to comply with requirements including submissions of safety and other post-marketing information and reports and registration.
The FDA may impose consent decrees or withdraw 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 our product candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing and testing 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 trials to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:
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The FDA strictly regulates marketing, labeling, advertising, and promotion of products that are placed on the market. Products may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses and a company that is found to have improperly promoted off-label uses may be subject to significant liability including, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe, in their independent professional medical judgment, legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products. The federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use and has enjoined companies from engaging in off-label promotion. The FDA and other regulatory agencies have also required that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. However, companies may share truthful and not misleading information that is otherwise consistent with a product’s FDA approved labeling.
The holder of a BLA must submit new or supplemental applications and obtain approval for certain changes to the approved product, product labeling, or manufacturing process. We could also be asked to conduct post-marketing clinical trials to verify the safety and efficacy of our products in general or in specific patient subsets. If original marketing approval was obtained via the accelerated approval pathway, we could be required to conduct a successful post-marketing clinical trial to confirm clinical benefit for our products. An unsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of marketing approval.
The policies of the FDA and of comparable foreign regulatory authorities 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.
We may in the future conduct clinical trials for product candidates outside the United States, and the FDA and comparable foreign regulatory authorities may not accept data from such trials.
We have previously conducted, and plan in the future to conduct, one or more clinical trials outside the United States, including in, but not limited to, Canada, Europe, Australia, New Zealand and Hong Kong. The acceptance of study data from clinical trials conducted outside the United States or another jurisdiction by the FDA or comparable foreign regulatory authority may be subject to certain conditions or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless
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(i) the data are applicable to the U.S. population and U.S. medical practice; and (ii) the trials were performed by clinical investigators of recognized competence and pursuant to GCP regulations. Additionally, the FDA’s clinical trial requirements, including sufficient size of patient populations and statistical powering, must be met. Many foreign regulatory authorities have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. Results for our clinical trials may differ by jurisdiction as a result of varying standards of care or local restrictions on reimbursement from third-party payors for clinical trials, thereby affecting the willingness of the FDA or any comparable foreign regulatory authority to accept such data. There can be no assurance that the FDA or any comparable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA or any comparable foreign regulatory authority does not accept such data, it would result in the need for additional trials, which could be costly and time-consuming, and which may result in product candidates that we may develop not receiving approval for commercialization in the applicable jurisdiction.
We may pursue the development of certain of our product candidates in combination with other therapies, and regulatory approval, safety or supply issues with these other therapies may delay or prevent the development and approval of our product candidates.
In the near future, we may explore the use of our product candidates in combination with other therapies, including those that are not yet approved. If we choose to develop a product candidate for use in combination with an approved therapy, we are subject to the risk that the FDA or comparable foreign regulatory authorities could revoke approval of, or that safety, efficacy, manufacturing or supply issues could arise with, the therapy used in combination with our product candidate. If the therapies we use in combination with our product candidates are replaced as the standard of care, the FDA or comparable foreign regulatory authorities may require us to conduct additional clinical trials, or we may not be able to obtain adequate reimbursement from third-party payors. The occurrence of any of these risks could result in our product candidates, if approved, being removed from the market or being less successful commercially.
Where we develop a product candidate for use in combination with a therapy that has not been approved by the FDA or comparable foreign regulatory authorities, we will not be able to market our product candidate for use in combination with such an unapproved therapy, unless and until the unapproved therapy receives regulatory approval. These unapproved therapies face the same risks described with respect to our product candidates currently in development, including serious adverse effects and delays in their clinical trials. In addition, other companies may also develop their products or product candidates in combination with the unapproved therapies with which we are developing our product candidates for use in combination. Any setbacks in these companies’ clinical trials, including the emergence of serious adverse effects, may delay or prevent the development and approval of our product candidates.
If the FDA or comparable foreign regulatory authorities do not approve or revoke their approval of, or if safety, efficacy, manufacturing, or supply issues arise with, therapies we choose to evaluate in combination with any of our product candidates, we may be unable to obtain regulatory approval of or to commercialize such product candidates in combination with these therapies.
Risks Related to the Manufacture of Our Product Candidates
The manufacture of our product candidates is complex and we may encounter difficulties in production, particularly with respect to process development or scaling-up of our manufacturing capabilities.
Our product candidates are biologics that consist of bacteria and may include other microorganisms. The process of manufacturing our products is complex, highly regulated and subject to multiple risks. The manufacture of our product candidates involves complex processes, including obtaining biological material (human stool) from qualified third-party donors for CP101 and FIN-211. As a result of these complexities, the cost to manufacture our product candidates in particular is generally higher than traditional small molecule chemical compounds, and the manufacturing process is less reliable and is more difficult to reproduce.
Further, as our product candidates are developed through early- to late-stage clinical trials towards approval and commercialization, we may make alterations to these products and their method of manufacture and use, including changes to our manufacturing processes, in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives, and any of these changes could cause our product candidates to perform differently than they did in the past and affect the results of planned clinical trials or other future clinical trials. In such circumstances, the FDA or foreign regulatory authorities may require that we conduct bridging comparability testing to confirm the clinical relevance of prior data. For example, early prototype
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versions of CP101 were manufactured by investigators at the University of Minnesota using certain different techniques and equipment than we have used and intend to use as we continue to advance CP101.
Historically, early versions of CP101 were manufactured using unoptimized processes by third-party research collaborators that we have not used, or do not intend to use, in more advanced clinical trials or commercialization. We have, and may continue to, alter our manufacturing processes, product release criteria, dose strength or dosing regimen, and other aspects of CP101 to optimize it for late-stage clinical trials or commercialization. Although we are working to develop commercially viable processes, doing so is a difficult and uncertain task, and there are risks associated with scaling to the level required for advanced clinical trials or commercialization, including, among others, cost overruns, potential problems with process scale-out, process reproducibility, stability issues, lot consistency, and timely availability of reagents or raw materials. As a result of these challenges, we may experience delays in our clinical development and/or commercialization plans.
We are still in the process of developing and scaling-up our manufacturing processes and quality systems for certain of our other product candidates. These products contain proprietary bacterial strains that have never been manufactured in a scale sufficient for use in a clinical trial or for commercialization. We can make no assurances that we will be able to manufacture these products, or components of these products, in a cost effective manner or at the level required for clinical trials or commercialization.
We rely on third-party donors of biological material to manufacture certain product candidates such as CP101 and FIN-211, and if we do not obtain an adequate supply of acceptable material from those qualified donors, the clinical and commercial supply of these product candidates may be adversely impacted.
We use human stool from extensively-screened third-party donors as starting material in the manufacture of several of our product candidates, including CP101 and FIN-211. The stool that is received from these third-party donors is tested for certain pathogens and processed without the use of replication or culturing to form an active ingredient in our products. Our ability to manufacture CP101, FIN-211 and other product candidates using donor-derived materials at clinical and commercial scale depends on obtaining a consistent and adequate supply of stool material. There are, in general, relatively few alternative sources of supply that would be sufficient to meet our clinical and commercial needs.
In the past, we have relied on stool donor programs operated by OpenBiome and the University of Minnesota for the supply of human stool material used in the manufacture of our product candidates, including CP101. In connection with the Asset Purchase Agreement with OpenBiome, we have licensed certain technology and have acquired assets that enable our stool donor program in support of the clinical development and commercialization of CP101 and our other product candidates.
The stool donor program on which we rely involves the screening of potential human stool donors using defined screening criteria. Only a small fraction of potential human donors that we will evaluate will be able to meet these criteria and enroll in our donor program. There can be no assurances that we will have enough qualified third-party donors within our donor program, or enough material derived from donors in our program, to meet clinical or commercial demand. We may also have difficulty enrolling and retaining enough qualified donors in our donor program. If we are unable to enroll a sufficient number of qualified donors in our stool donor program, or if we are unable to retain donors within our program or receive enough stool from donors within our program, our ability to manufacture CP101, FIN-211 and other product candidates may be delayed or adversely impacted.
While the stool donor program on which we rely involves extensive screening of potential entrants, we can make no assurances that it will screen for, or be able to identify, all diseases and conditions that could adversely affect the health of persons who use or consume products that contain biological material from those donors. The screening processes may fail to identify certain existing diseases or conditions in the humans that we evaluate for entry into our donor program. In addition, donors enrolled in our donor program may develop new diseases or conditions, or the worsening of pre-existing or underlying diseases or conditions, that we may fail to identify. The use of stool material from a third-party donor who has a certain condition or disease may result in material adverse effects to our business, including supply chain disruptions resulting from the recall or destruction of affected starting material or product, or adverse reactions in patients who use or consume products derived from that donor. For example, in March 2020, the FDA required retrospective testing and the recall and destruction of the affected product after OpenBiome, a supplier of human stool material, reported occurrences of enteropathogenic E. coli and shigatoxin-producing E. coli in FMT recipients.
While we will extensively test the biological materials that we receive from qualified third-party donors or suppliers for the presence of certain pathogens and other microorganisms, there can be no assurances that we will detect all pathogens and other microorganisms in our products, which could result in an adverse reaction in persons who use or consume our products. Our testing processes may fail to identify pathogens in the stool that we receive from donors within our donor program. In addition, the emergence of new pathogens
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could affect the availability of stool donors, or require us to develop new testing processes to test both new and existing material and product, either of which could cause delays or shortage in the manufacture and distribution of our products. The presence of pathogens in the stool material that we receive from third-party donors may also result in adverse reactions in persons who use or consume products that are derived from that material. Additionally, regulatory or industry pathogen testing requirements may change over time, possibly making it more challenging to locate qualified donors, or requiring the development and validation of new test methods, which could adversely affect our ability to collect adequate supply and increase costs related to product manufacturing.
We operate our own manufacturing facility for certain product candidates, which requires significant resources and we may fail to successfully operate our facility, which could adversely affect our clinical trials and the commercial viability of our product candidates.
We recently completed construction of our manufacturing facility to support the manufacture of our product candidates, including CP101 and FIN-211, for use in clinical development or for potential commercial sale. We may not be able to manufacture enough product at this facility to meet the clinical and commercial demand for our product candidates. We also cannot be sure that the manufacturing processes employed by us will result in products that will be safe and effective. Moreover, we may run into delays or cost overruns in connection with the commissioning and qualification of our manufacturing facility, including the transfer of technology into that recently completed facility, which would increase our net losses and have an adverse effect on our stockholders’ equity and working capital. For example, the FDA may find deficiencies in our technology transfer process or require one or more comparability studies of our drug product using test methods that we would need to develop. The actual cost to manufacture and process our product candidates could be greater than we expect and could materially and adversely affect the commercial viability of our product candidates, if approved. There is a lack of third-party CMOs willing or able to manufacture whole community product candidates like CP101 and FIN-211. If we are unable to successfully manufacture and process our product candidates, we might not be able to produce some of our products at a level that would be sufficient to meet our clinical and commercial needs.
The manufacture of microbiome therapeutics is complex and requires significant expertise, including the development of advanced manufacturing techniques and process controls. Manufacturers of products derived from human biological material often encounter difficulties in production, particularly in scaling out and validating initial production and ensuring the absence of contamination. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if contaminants are discovered in our supply of raw materials or in our manufacturing facilities or manufacturing facilities operated by our third-party suppliers, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We cannot assure you that any stability or other issues relating to the manufacture of our product candidates will not occur in the future.
Our operations will remain subject to review and oversight by the FDA and the FDA could object to our use of our manufacturing facility. Prior to licensure to manufacture our product candidates, we must first receive approval from the FDA, which we may never obtain. Such approval may be contingent on a pre-approval inspection of our manufacturing facility. Should the FDA determine that an inspection is necessary for approval and an inspection cannot be completed during the review cycle due to restrictions on travel on account of the COVID-19 pandemic, the FDA has stated that it generally intends to issue a complete response letter. Further, if there is inadequate information to make a determination on the acceptability of a facility, the FDA may defer action on the application until an inspection can be completed. Regulatory authorities outside the U.S. may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic and may experience delays in their regulatory activities. Even if approved, we would be subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict compliance with cGMP and other government regulations. Our license to manufacture product candidates will be subject to continued regulatory review.
In addition, we may fail to manage the logistics of storing and shipping our product candidates, particularly as our product candidates are required to be stored at certain pre-defined refrigerated temperatures. Storage failures and shipment delays and problems caused by us, our vendors or other factors not in our control, such as weather, could result in loss of usable product or prevent or delay the delivery of product candidates to patients. We may also experience manufacturing difficulties due to resource constraints or as a result of labor disputes. If we were to encounter any of these difficulties, our ability to develop and commercialize our product candidates would be jeopardized.
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Risks Related to the Commercialization of Our Product Candidates
We have never commercialized a product candidate and may experience delays or unexpected difficulties in obtaining regulatory approval for our current or future product candidates for our initial or potential additional indications.
We have never obtained regulatory approval for, or commercialized, a drug. It is possible that the FDA may refuse to accept any or all of our planned BLAs for substantive review or may conclude after review of our data that our application is insufficient to obtain regulatory approval for any product candidates. If the FDA does not approve any of our planned BLAs, it may require that we conduct additional costly clinical, nonclinical or manufacturing validation studies before it will reconsider our applications. Depending on the extent of these or any other FDA-required studies, approval of any BLA or other application that we submit may be significantly delayed, possibly for several years, or may require us to expend more resources than we have available. Any failure or delay in obtaining regulatory approvals would prevent us from commercializing our current or future product candidates, generating revenues and achieving and sustaining profitability. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA to approve any BLA or other application that we submit. If any of these outcomes occur, we may be forced to abandon the development of our product candidates, which would materially adversely affect our business and could potentially cause us to cease operations. We face similar risks for our applications in foreign jurisdictions.
We currently have no marketing and sales organization and have no experience as a company in marketing products. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if approved, we may not be able to generate product revenue.
We currently have no sales, marketing or distribution capabilities and have no experience in marketing products. We intend to develop an in-house marketing organization and sales force, which will require significant capital expenditures, management resources and time. We will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel.
If we are unable or decide not to establish internal sales, marketing and distribution capabilities, we will pursue arrangements with third-party sales, marketing, and distribution collaborators regarding the sales and marketing of our products, if approved. However, there can be no assurance that we will be able to establish or maintain such arrangements on favorable terms or at all, or if we are able to do so, that these third-party arrangements will provide effective sales forces or marketing and distribution capabilities. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates.
There can be no assurance that we will be able to develop in-house sales and distribution capabilities or establish or maintain relationships with third-party collaborators to commercialize any product in the United States or overseas.
We have received Fast Track designation for CP101 for the prevention of recurrent CDI, and we may seek Fast Track designation for our other product candidates. Even if received, Fast Track designation may not actually lead to a faster review or approval process and does not increase the likelihood that our product candidates will receive marketing approval.
We have received Fast Track designation for CP101 for the prevention of recurrent CDI, and we may seek Fast Track designation for our other product candidates. If a drug or biologic is intended for the treatment of a serious or life-threatening condition and the product demonstrates the potential to address unmet medical needs for this condition, the sponsor may apply for Fast Track designation for a particular indication. There is no assurance that the FDA will grant this status to any of our other proposed product candidates. If granted, Fast Track designation makes a product eligible for more frequent interactions with FDA to discuss the development plan and clinical trial design, as well as rolling review of the application, which means that the company can submit completed sections of its marketing application for review prior to completion of the entire submission. Marketing applications of product candidates with Fast Track designation may qualify for priority review under the policies and procedures offered by the FDA, but the Fast Track designation does not assure any such qualification or ultimate marketing approval by the FDA. The FDA has broad discretion whether or not to grant Fast Track designation, so even if we believe a particular product candidate is eligible for this designation, there can be no assurance that the FDA would decide to grant it. Even if we do receive Fast Track designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures, and receiving a Fast Track designation does not provide any assurance of ultimate FDA approval. In addition, the FDA may withdraw Fast Track designation at any time if it believes that the designation is no longer supported by data from our clinical development program.
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We have received Breakthrough Therapy designation for CP101 for the prevention of recurrent CDI, and we may seek Breakthrough Therapy designation for our other product candidates. Even if received, Breakthrough Therapy designation may not actually lead to a faster review or approval process and does not increase the likelihood that our product candidates will receive marketing approval.
We have received Breakthrough Therapy designation for CP101 for the prevention of recurrent CDI, and may, in the future, apply for Breakthrough Therapy designation for other product candidates in the United States. A Breakthrough Therapy product candidate is defined as a product candidate that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that such product candidate may demonstrate substantial improvement on one or more clinically significant endpoints over existing therapies. The FDA will seek to ensure the sponsor of a Breakthrough Therapy product candidate receives: (i) intensive guidance on an efficient drug development program; (ii) intensive involvement of senior managers and experienced staff on a proactive, collaborative and cross-disciplinary review; and (iii) a rolling review process whereby the FDA may consider reviewing portions of a BLA before the sponsor submits the complete application. Product candidates designated as breakthrough therapies by the FDA may be eligible for priority review if supported by clinical data.
Designation as a Breakthrough Therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a Breakthrough Therapy, the FDA may disagree. In any event, the receipt of a Breakthrough Therapy designation for a product candidate may not result in a faster development process, review or approval compared to products considered for approval under conventional FDA procedures and, in any event, does not assure ultimate approval by the FDA. In addition, even though CP101 has been designated as a Breakthrough Therapy product candidate, the FDA may later decide that it no longer meets the conditions for designation or decide that the time period for FDA review or approval will not be shortened.
Due to our limited resources and access to capital, we must, and have in the past decided to, prioritize development of certain product candidates over other potential product candidates. These decisions may prove to have been wrong and may adversely affect our ability to develop our own programs, our attractiveness as a commercial partner and may ultimately have an impact on our commercial success.
Because we have limited resources and access to capital to fund our operations, we must decide which product candidates to pursue and the amount of resources to allocate to each. Our decisions concerning the allocation of research, collaboration, management and financial resources toward particular product candidates or therapeutic areas may not lead to the development of viable commercial products and may divert resources away from better opportunities. Similarly, our decisions to delay, terminate or collaborate with third parties in respect of certain product development programs may also prove not to be optimal and could cause us to miss valuable opportunities. If we make incorrect determinations regarding the market potential of our product candidates or misread trends in the biopharmaceutical industry, in particular for our lead product candidate, our business, financial condition and results of operations could be materially adversely affected and may cause us to reprioritize our planned trials and use of funds for planned trials.
Even if we obtain regulatory approval of our product candidates, the products may not gain market acceptance among physicians, patients, hospitals and others in the medical community.
The use of microbiome therapies is a recent development and may not become broadly accepted by physicians, patients, hospitals and others in the medical community. Various factors will influence whether our product candidates are accepted in the market, including:
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If our product candidates are approved for commercialization but fail to achieve market acceptance among physicians, patients, hospitals or others in the medical community, we will not be able to generate significant revenue.
In addition, although our product candidates differ in certain ways from other microbiome approaches, SAEs or deaths in other clinical trials involving the microbiome, or in clinical trials involving therapeutic approaches similar to ours, even if not ultimately attributable to our product or product candidates, could result in increased government regulation, unfavorable public perception and publicity, potential regulatory delays in the testing or licensing of our product candidates, stricter labeling requirements for those product candidates that are licensed, and a decrease in demand for any such product candidates.
Even if our products achieve market acceptance, we may not be able to maintain that market acceptance over time if new products or technologies are introduced that are more favorably received than our products, are more cost effective or render our products obsolete.
If the market opportunities for our product candidates are smaller than we believe they are, even assuming approval of a product candidate, our business may suffer.
Our projections of both the number of people who are affected by diseases within our potential target indications, as well as the subset of these people who have the potential to benefit from treatment with our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, healthcare utilization databases and market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. Likewise, the potentially addressable patient population for each of our product candidates may be limited or may not be amenable to treatment with our product candidates, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our business, financial condition and results of operations.
We face substantial competition, which may result in others developing or commercializing drugs before or more successfully than us.
The biopharmaceutical industry is characterized by intense competition and rapid innovation. Our competitors may be able to develop other drugs that are able to achieve similar or better results that our product candidates. Our potential competitors include major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies and universities and other research institutions. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations and well-established sales forces. Smaller or early-stage companies may also prove to be significant competitors, particularly as they develop novel approaches to treating disease indications that our product candidates are also focused on treating. Established pharmaceutical companies may also
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invest heavily to accelerate discovery and development of novel therapeutics or to in-license novel therapeutics that could make the product candidates that we develop obsolete. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors, either alone or with collaborative partners, may succeed in developing, acquiring or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily commercialized or less costly than our product candidates or may develop proprietary technologies or secure patent protection that we may need for the development of our technologies and products. We believe the key competitive factors that will affect the development and commercial success of our product candidates are efficacy, safety, tolerability, reliability, convenience of use, price and reimbursement.
We face competition from segments of the pharmaceutical, biotechnology and other related markets that pursue the development of microbiome therapies. We are aware of a number of companies focused on developing microbiome therapeutics in various indications. For CP101, we are aware that Seres Therapeutics, Inc., Rebiotix, Inc. and Vedanta Biosciences, Inc. each have a product candidate being evaluated in clinical trials for recurrent CDI. In addition, we face competition from other therapies which are designed to treat the indications targeted by our product candidates.
We anticipate that we will continue to face intense and increasing competition as new treatments enter the market and advanced technologies become available. There can be no assurance that our competitors are not currently developing, or will not in the future develop, products that are equally or more effective or are more economically attractive than any of our current or future product candidates. Competing products may gain faster or greater market acceptance than our products, if any, and medical advances or rapid technological development by competitors may result in our product candidates becoming non-competitive or obsolete before we are able to recover our research and development and commercialization expenses. If we or our product candidates do not compete effectively, it may have a material adverse effect on our business, financial condition and results of operations.
If either we or our collaborators obtain approval to commercialize any of our product candidates outside of the United States, a variety of risks associated with international operations could adversely affect our business.
If any of our product candidates are approved for commercialization, we may seek to enter into agreements with third parties to market them in certain jurisdictions outside the United States. We expect that we would be subject to additional risks related to international pharmaceutical operations, including:
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As an organization, we have no prior experience in these areas. In addition, there are complex regulatory, tax, labor and other legal requirements imposed by individual countries in Europe with which we may need to comply. If we are unable to successfully manage the challenges of international expansion and operations, our business and operating results could be harmed.
Coverage and adequate reimbursement may not be available for CP101 or any other current or future product candidates, which could make it difficult for us to sell profitably or at all, if approved.
Market acceptance and sales of any product candidates that we commercialize, if approved, will depend in part on the extent to which reimbursement for these drugs and related treatments will be available from third-party payors, including government health administration authorities, managed care organizations, pharmacy benefit management organizations, and other private health insurers. Microbiome therapy is a novel therapeutic approach and neither we nor, to our knowledge, any other company has received regulatory approval for a therapeutic based on this approach. We cannot be certain that third-party payors will provide sufficient reimbursement for any product candidates that we commercialize, if approved. Third-party payors decide which therapies they will pay for and establish reimbursement levels. Reimbursement by a third-party payor may depend upon a number of factors, including, but not limited to, the third-party payor’s determination that use of a product is:
While no uniform policy for coverage and reimbursement exists in the United States, third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement to be provided for any product candidates that we develop will be made on a payor-by-payor basis. Therefore, one payor’s determination to provide coverage for a drug does not assure that other payors will also provide coverage, and adequate reimbursement, for the drug. Obtaining positive Medicare coverage and reimbursement will be critical to the commercial success of CP101, if approved, as a large portion of the patient population with CDI are Medicare beneficiaries. Thus, if we are not able to secure coverage and Medicare reimbursement at sufficient levels, we may not be able to reach our intended target market for CP101, if approved, which would adversely affect our revenue and profits. Additionally, a third-party payor’s decision to provide coverage for a therapy does not imply that an adequate reimbursement rate will be approved. Each payor determines whether or not it will provide coverage for a therapy, what amount it will pay the manufacturer for the therapy, and on what tier of its formulary it will be placed. The position on a payor’s list of covered drugs, or formulary, generally determines the co-payment that a patient will need to make to obtain the therapy and can strongly influence the adoption of such therapy by patients and physicians. We expect that the price of CP101, if approved, will be substantial, so the availability of coverage and reimbursement from third-party payors will be necessary to make CP101 assessable to patients. Patients who are prescribed treatments for their conditions and providers prescribing such services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. If coverage and adequate reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.
Third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that coverage and reimbursement will be available for any drug that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Inadequate coverage and reimbursement may impact the demand for, or the price of, any drug for which we obtain marketing approval. If coverage and adequate reimbursement are not available, or are available only
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to limited levels, we may not be able to successfully commercialize CP101 or any other current or future product candidates that we develop. 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. In many countries, particularly the countries of the European Union, medical product prices 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 a product receives marketing approval. 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, product prices 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 products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.
Even if we are successful in obtaining regulatory approval, commercial success of any approved products will also depend in large part on the availability of insurance coverage and adequate reimbursement from third-party payors, including government payors, such as the Medicare and Medicaid programs, and managed care organizations, which may be affected by existing and future healthcare reform measures designed to reduce the cost of healthcare. Third-party payors could require us to conduct additional studies, including post-marketing studies related to the cost-effectiveness of a product, to qualify for reimbursement, which could be costly and divert our resources. Further, coverage policies and third-party payor reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future. If government and other healthcare payors were not to provide adequate insurance coverage and reimbursement levels for one any of our products once approved, market acceptance and commercial success would be limited.
We may become exposed to costly and damaging liability claims, either when testing our product candidates in the clinic or at the commercial stage, and our product liability insurance may not cover all damages from such claims.
We are exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing and use of biopharmaceutical products. While we currently have no products that have been approved for commercial sale, from 2017 to 2019, we manufactured FMT materials, produced to specifications defined by OpenBiome, that were and may still be distributed and sold by OpenBiome for use under its interpretation of the FDA’s policy of enforcement discretion for CDI not responding to standard therapies and for use in clinical research. This past use, as well as the current and future use of product candidates by us and our collaborators in clinical trials, and the potential sale of any approved products in the future, may expose us to liability claims. The FDA may not agree with OpenBiome’s interpretation or application of the FDA’s enforcement discretion policy to its product distribution activities, including its distributions to clinical sites without an IND in place with the FDA. These claims might be made by patients who use the product, healthcare providers, pharmaceutical companies, our collaborators or others selling such products. Any claims against us, regardless of their merit, could be difficult and costly to defend and could materially adversely affect the market for our product candidates or any prospects for commercialization of our product candidates. Although the clinical trial process is designed to identify and assess potential side effects, it is always possible that a product, even after regulatory approval, may exhibit unforeseen side effects. If any of our product candidates were to cause adverse side effects during clinical trials or after approval of the product candidate, we may be exposed to substantial liabilities. Physicians and patients may not comply with any warnings that identify known potential adverse effects and patients who should not use our product candidates. Regardless of the merits or eventual outcome, liability claims may result in:
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Although we believe we maintain adequate product liability insurance for our product candidates, it is possible that our liabilities could exceed our insurance coverage. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for any of our product candidates. However, we may not be able to maintain insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate to satisfy any liability that may arise. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired.
Should any of the events described above occur, this could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Government Regulation
Our relationships with customers, healthcare providers, including physicians, and third-party payors are subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
Healthcare providers, including physicians, and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our current and future arrangements with healthcare professionals, principal investigators, consultants, customers and third-party payors subject us to various federal and state fraud and abuse laws and other healthcare laws, including, without limitation, the federal Anti-Kickback Statute, the federal civil and criminal false claims laws and the law commonly referred to as the Physician Payments Sunshine Act and regulations promulgated under such laws. These laws will impact, among other things, our clinical research, proposed sales, marketing and educational programs, and other interactions with healthcare professionals. In addition, we may be subject to patient privacy laws by both the federal government and the states in which we conduct or may conduct our business. The laws that will affect our operations include, but are not limited to:
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Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant penalties, including, without limitation,
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civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, reputational harm, exclusion from participating in federal and state funded healthcare programs, such as Medicare and Medicaid and other federal healthcare programs, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, diminished profits and future earnings, reputational harm and the curtailment or restructuring of our operations, any of which could harm our business.
The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Any action taken against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.
Even if we obtain FDA approval of any of our product candidates, we may never obtain approval for or commercialize any of them in any other jurisdiction, which would limit our ability to realize their full market potential.
In order to market any products in any particular jurisdiction, we must establish and comply with numerous and varying regulatory requirements on a country-by-country basis regarding safety and efficacy.
Approval by the FDA in the United States does not ensure approval by regulatory authorities in other countries or jurisdictions. However, the failure to obtain approval in one jurisdiction may negatively impact our ability to obtain approval elsewhere. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country.
Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and increased costs for us and require additional preclinical studies or clinical trials that could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. We do not have any product candidates approved for sale in any jurisdiction, including in international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of any product we develop will be unrealized.
If approved, our product candidates will be regulated as biologics, and thus may face competition from biosimilars approved through an abbreviated regulatory pathway.
We anticipate that our product candidates will be regulated as biological products. The ACA includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity, and potency of the other company’s product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty.
We believe that any of our product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our investigational medicines to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of litigation. Moreover, the extent to which a biosimilar, once licensed, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
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If competitors are able to obtain marketing approval for biosimilars referencing our products, our products may become subject to competition from such biosimilars, with the attendant competitive pressure and consequences.
Healthcare legislative or regulatory reform measures may have a negative impact on our business and results of operations.
In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect our ability to profitably sell any product candidates for which we obtain marketing approval.
Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, 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 passed, which substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the United States pharmaceutical industry. The ACA, among other things: (i) established an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents apportioned among these entities according to their market share in some government healthcare programs; (ii) expanded the entities eligible for discounts under the 340B drug pricing program; (iii) increased the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for most branded and generic drugs, respectively, and capped the total rebate amount for innovator drugs at 100% of the Average Manufacturer Price, or AMP; (iv) expanded the eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability; (v) created a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for certain drugs and biologics that are inhaled, infused, instilled, implanted or injected; (vi) created a new Medicare Part D coverage gap discount program in which, as a condition of coverage of its products under Medicare Part D, manufacturers must now agree to offer 50% (increased to 70% pursuant to the Bipartisan Budget Act of 2018, or BBA, effective as of 2019); (vii) 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 (viii) established the Center for Medicare and Medicaid Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug.
There have been executive, judicial and Congressional challenges to certain aspects of the ACA. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Cuts and Jobs Act of 2017, or Tax Act, included 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.”
Further, 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. Thus, the ACA will remain in effect in its current form. Further, prior to the U.S. Supreme Court ruling, on January 28, 2021, President Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace, which began on February 15, 2021 and remained open through August 15, 2021. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is possible that the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how any such challenges and the healthcare reform efforts of the Biden Administration will impact the ACA and our business.
Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of 2% per fiscal year pursuant to the Budget Control Act of 2011, which began in 2013, and due to subsequent legislative amendments to the statute, including the BBA, will remain in effect through 2030, unless additional Congressional action is taken. However, COVID-19 relief legislation suspended the 2% Medicare sequester from May 1, 2020 through December 31, 2021. The American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Additionally, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for
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single source and innovator multiple source drugs, beginning January 1, 2024. These laws may result in additional reductions in Medicare, Medicaid and other healthcare funding, which could have an adverse effect on customers for our product candidates, if approved, and, accordingly, our financial operations.
Additionally, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent 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 products. At the federal level, the former Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. For example, on July 24, 2020 and September 13, 2020, former President Trump announced several executive orders related to prescription drug pricing that sought to implement several of the former administration’s proposals. As a result, the FDA released a final rule on September 24, 2020, effective November 30, 2020, providing guidance for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020 CMS issued an Interim Final Rule implementing the Most Favored Nation, or MFN, Model under which Medicare Part B reimbursement rates will be calculated for certain drugs and biologicals based on the lowest price drug manufacturers receive in Organization for Economic Cooperation and Development countries with a similar gross domestic product per capita. As a result of litigation challenging the MFN Model, on August 10, 2021, CMS published a proposed rule that seeks to rescind the MFN Model interim final rule. Additionally, on November 20, 2020, the Department of Health and Human Services, or HHS, finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The implementation of the rule has been delayed by the Biden administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation of which have also been delayed until January 1, 2023. 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, the 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. No legislation or administrative actions have been finalized to implement these principles. In addition, Congress is considering drug pricing as part of the budget reconciliation process. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
We expect that these and 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 drug. 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 drugs. It is also possible that additional governmental action is taken in response to the COVID-19 pandemic.
In addition, FDA regulations and guidance may be revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. The Trump administration took several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. It is difficult to predict how these requirements will be interpreted and implemented and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose restrictions on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted. Any new regulations or guidance, or revisions or reinterpretations of existing regulations or guidance, may impose additional costs or lengthen FDA review times for CP101, FIN-211 or any other current or future product candidates. We cannot determine how changes in regulations, statutes, policies, or interpretations when and if issued, enacted or adopted, may affect our business in the future. Such changes could, among other things, require:
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Such changes would likely require substantial time and impose significant costs, or could reduce the potential commercial value of CP101, FIN-211 or any other current or future product candidates, and could materially harm our business and our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for any other products would harm our business, financial condition, and results of operations.
Disruptions at the FDA, the SEC and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs or biologics to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including most recently from December 22, 2018 to January 25, 2019, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
Separately, in response to the COVID-19 pandemic, in March 2020 the FDA announced its intention to postpone most inspections and in July 2020 resumed them on a risk-based rating system. Should the FDA determine that a pre-approval inspection is necessary for approval of any of our product candidates and an inspection cannot be completed during the review cycle due to restrictions on travel, we may be issued a complete response letter. Further, if there is inadequate information to make a determination on the acceptability of a facility, the FDA may defer action on the application until an inspection can be completed. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic and may experience delays in their regulatory activities.
If we or our third-party manufacturers and suppliers fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
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 research and development activities involve the use of biological and hazardous materials and produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. We do not carry specific biological waste or hazardous waste insurance coverage, workers
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compensation or property and casualty and general liability insurance policies that include coverage for damages and fines arising from biological or hazardous waste exposure or contamination.
We are subject to U.S. anti-corruption, export control, sanctions, and other trade laws and regulations. We can face serious consequences for violations.
We are subject to anti-corruption laws, including the U.S. domestic bribery statute contained in 18 U.S.C. 201, the U.S. Travel Act, and the U.S. Foreign Corrupt Practices Act of 1977, as amended. These anti-corruption laws generally prohibit companies and their employees, agents, and intermediaries from authorizing, promising, offering, or providing, directly or indirectly, corrupt or improper payments or anything else of value to recipients in the public or private sector. We can be held liable for the corrupt or illegal activities of our agents and intermediaries, even if we do not explicitly authorize or have actual knowledge of such activities. We are also subject to other U.S. laws and regulations governing export controls, as well as economic sanctions and embargoes on certain countries and persons.
Violations of these laws can result in substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences. Likewise, any investigation of potential violations of such laws could also have an adverse impact on our reputation, our business, results of operations and financial condition.
Risks Related to Our Dependence on Third Parties
We rely, and expect to continue to rely, on third parties, including independent clinical investigators, contracted laboratories and CROs, to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
We have relied upon and plan to continue to rely upon third parties, including independent clinical investigators, contracted laboratories and third-party CROs, to conduct our preclinical studies and clinical trials in accordance with applicable regulatory requirements and to monitor and manage data for our ongoing preclinical and clinical programs. We rely on these parties for execution of our preclinical studies and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies and trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on these third parties does not relieve us of our regulatory responsibilities. We and our third-party contractors and CROs are required to comply with good laboratory practices, or GLPs, as applicable, and GCP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for all of our products in clinical development. Regulatory authorities enforce these GLPs and GCPs through periodic inspections of laboratories conducting GLP studies, trial sponsors, principal investigators and trial sites. If we, our investigators or any of our CROs or contracted laboratories fail to comply with applicable GLPs and GCPs, the clinical data generated in our clinical trials may be deemed unreliable, the statistical analysis and clinical meaning of our datasets could be compromised and the FDA or comparable foreign regulatory authorities may limit our ability to include impacted data or require us to perform additional preclinical studies or clinical trials before approving our marketing applications. For example, we identified GCP compliance issues at two clinical trial sites that participated in our PRISM3 study. In consultation with the FDA, we terminated those two sites and excluded data from the trial participants at those sites. While we monitor our clinical trial sites, we cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our preclinical studies or clinical trials comply with all applicable GLP or GCP regulations. In addition, our clinical trials must be conducted with product, including biologic product, produced in compliance with applicable cGMP regulations. Our failure or the failure of any third parties with whom we may contract comply with these regulations may require us to repeat preclinical studies or clinical trials, which would delay the regulatory approval process.
Further, these laboratories, investigators and CROs are not our employees and we will not be able to control, other than by contract, the amount of resources, including time, which they devote to our product candidates and clinical trials. If independent laboratories, investigators or CROs fail to devote sufficient resources to the development of our product candidates, or if their performance is noncompliant, fraudulent or substandard, it may delay or compromise the prospects for approval and commercialization of any product candidates that we develop. Such laboratories, investigators and CROs may make errors while conducting trials or other clinical development activities, which could render any data derived therefrom incorrect or unusable. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated.
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Our CROs have the right to terminate their agreements with us in the event of an uncured material breach. In addition, some of our CROs have an ability to terminate their respective agreements with us if we make a general assignment for the benefit of our creditors or if we are liquidated.
If any of our relationships with these third-party laboratories, CROs or clinical investigators terminate, we may not be able to enter into arrangements with alternative laboratories, CROs or investigators or to do so in a timely manner or on commercially reasonable terms. If laboratories, CROs or clinical investigators do not successfully carry out their legal, regulatory or contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our preclinical or clinical protocols, regulatory requirements, professional standards of integrity or for other reasons, our preclinical or clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.
Switching or adding additional laboratories or CROs (or investigators) involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new laboratory or CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our contracted laboratories and CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and results of operations.
In addition, clinical investigators may serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA concludes that the financial relationship may have affected the interpretation of the preclinical study or clinical trial, the integrity of the data generated at the applicable preclinical study or clinical trial site may be questioned and the integrity or validity of the preclinical study or clinical trial itself may be jeopardized, which could result in the delay or rejection by the FDA. Any such delay or rejection could prevent us from commercializing our clinical-stage product candidate or any future product candidates.
We rely on third parties to supply and manufacture our product candidates, and we expect to continue to rely on third parties to manufacture our products, if approved. The development of such product candidates and the commercialization of any products, if approved, could be stopped, delayed or made less profitable if any such third party fails to provide us with sufficient quantities of product candidates or products or fails to do so at acceptable quality levels or prices or fails to maintain or achieve satisfactory regulatory compliance. We have not, nor to our knowledge, has any other company, received regulatory approval for a therapeutic based on this approach.
We do not currently have the infrastructure or capability internally to manufacture all our product candidates for use in the conduct of our preclinical studies and clinical trials or for commercial supply, if our products are approved. We rely on, and expect to continue to rely on, contract manufacturing organizations, or CMOs. Any replacement of our CMOs could require significant effort and expertise because there may be a limited number of qualified CMOs. This could be particularly problematic where we rely on a single-source supplier. Reliance on third-party providers may expose us to more risk than if we were to manufacture our product candidates ourselves. We are dependent on our CMOs for the production of our product candidates in accordance with relevant regulations, such as cGMP, which includes, among other things, quality control, quality assurance and the maintenance of records and documentation. Moreover, many of the third parties with whom we contract may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting product development activities that could harm our competitive position.
Our third-party manufacturers may be subject to damage or interruption from, among other things, fire, natural or man-made disaster, disease outbreaks or public health pandemics, power loss, telecommunications failure, unauthorized entry, computer viruses, denial-of-service attacks, acts of terrorism, human error, vandalism or sabotage, financial insolvency, bankruptcy and similar events. For example, the extent to which COVID-19 may impact our manufacturing and supply chain will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.
If we were to experience an unexpected loss of supply of or if any supplier were unable to meet our demand for any of our product candidates, we could experience delays in our research or planned clinical trials or commercialization. We could be unable to find alternative suppliers of acceptable quality, in the appropriate volumes who could meet our timelines at an acceptable cost. Moreover,
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our suppliers are often subject to strict manufacturing requirements and rigorous testing requirements, which could limit or delay production. The long transition periods necessary to switch manufacturers and suppliers, if necessary, could significantly delay our preclinical studies, our clinical trials and the commercialization of our products, if approved, which could materially adversely affect our business, financial condition and results of operation.
In complying with the applicable manufacturing regulations of the FDA and comparable foreign regulatory authorities, we and our third-party suppliers must spend significant time, money and effort in the areas of design and development, testing, production, record-keeping and quality control to assure that the products meet applicable specifications and other regulatory requirements. The failure to comply with these requirements could result in an enforcement action against us, including the seizure of products and shutting down of production. We and any of these third-party suppliers may also be subject to audits by the FDA and comparable foreign regulatory authorities. If any of our third-party suppliers fails to comply with cGMP or other applicable manufacturing regulations, our ability to develop and commercialize the products could suffer significant interruptions. We face risks inherent in relying on CMOs, as any disruption, such as a fire, natural hazards, vandalism or an outbreak of contagious disease affecting the CMO or any supplier of the CMO could significantly interrupt our manufacturing capability. In case of a disruption, we will have to establish alternative manufacturing sources. This would require substantial capital on our part, which we may not be able to obtain on commercially acceptable terms or at all. Additionally, we would likely experience months of manufacturing delays as the CMO builds or locates replacement facilities and seeks and obtains necessary regulatory approvals. If this occurs, we will be unable to satisfy manufacturing needs on a timely basis, if at all.
Our current and future collaborations will be important to our business. If we are unable to enter into new collaborations, or if these collaborations are not successful, our business could be adversely affected.
A part of our strategy is to strategically evaluate and, as deemed appropriate, enter into partnerships in the future when strategically attractive, including potentially with major biotechnology or pharmaceutical companies. We have limited capabilities for product development and do not yet have any capability for commercialization. Accordingly, we may enter into collaborations with other companies to provide us with important technologies and funding for our programs and technology. If we fail to enter into or maintain collaborations on reasonable terms or at all, our ability to develop our existing or future research programs and product candidates could be delayed, the commercial potential of our product could change and our costs of development and commercialization could increase. Furthermore, we may find that our programs require the use of intellectual property rights held by third parties, and the growth of our business may depend in part on our ability to acquire or in-license these intellectual property rights.
For example, we are currently party to a collaboration agreement with Takeda, pursuant to which we have agreed to collaborate in the clinical development of our product candidates TAK-524 for the treatment of ulcerative colitis and FIN-525 for the treatment of Crohn’s disease. This and any future collaborations we enter into may pose a number of risks, including, but not limited to, the following:
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If our collaborations do not result in the successful discovery, development and commercialization of product candidates or if one of our collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under such collaboration. All of the risks relating to product development, regulatory approval and commercialization described in this Quarterly Report on Form 10-Q also apply to the activities of our therapeutic collaborators.
Additionally, if one of our collaborators terminates its agreement with us, we may find it more difficult to attract new collaborators and our perception in the business and financial communities could be adversely affected.
We face significant competition in seeking appropriate collaborative partners. Our ability to reach a definitive agreement for a partnership will depend, among other things, upon an assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed partnership and the proposed collaborator’s evaluation of a number of factors. These factors may include the design or results of preclinical studies or clinical trials, the likelihood of regulatory approval, 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 products, the existence of any uncertainty with respect to our ownership of technology (which can exist if there is a challenge to such ownership regardless of the merits of the challenge) and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a partnership could be more attractive than the one with us.
We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization, reduce the scope of any sales or marketing activities or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, 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 product candidates or bring them to market and generate product revenue.
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Risks Related to Our Intellectual Property
If we are unable to obtain or protect intellectual property rights related to any of our product candidates, we may not be able to compete effectively in our market.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our product candidates. Our success depends in large part on our ability to obtain and maintain patent and other intellectual property protection in the United States and in other countries with respect to our proprietary technology and product candidates.
We cannot offer any assurances about which of our patent applications will issue, the breadth of any resulting patent or whether any of the issued patents will be found to be infringed, invalid and unenforceable or will be threatened by third parties. We cannot offer any assurances that the breadth of our granted patents will be sufficient to stop a competitor from developing and commercializing a product, including a biosimilar product that would be competitive with one or more of our product candidates. Furthermore, any successful challenge to these patents or any other patents owned by or licensed to us after patent issuance could deprive us of rights necessary for the successful commercialization of any of our product candidates. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced.
The patent prosecution process is expensive and time-consuming. We may not be able to prepare, file and prosecute all necessary or desirable patent applications at a commercially reasonable cost or in a timely manner or in all jurisdictions. It is also possible that we may fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Moreover, depending on the terms of any future in-licenses to which we may become a party, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology in-licensed from third parties. Therefore, these patents and patent applications may not be prosecuted and enforced in a manner consistent with the best interests of our business.
In addition to the protection provided by our patent estate, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not amenable to patent protection. Although we generally require all of our employees to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information, or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed, or that our trade secrets and other confidential proprietary information will not be disclosed. Moreover, our competitors may independently develop knowledge, methods and know-how equivalent to our trade secrets. Competitors could purchase our products, if approved, and replicate some or all of the competitive advantages we derive from our development efforts for technologies on which we do not have patent protection. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.
We 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, our agreements or security measures may be breached, and we may not have adequate remedies for any breach. Also, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret. In addition, others may independently discover our trade secrets and proprietary information. For example, the FDA is considering whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future. If we are unable to prevent material disclosure of the non-patented intellectual property related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection, we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.
Patent terms may be inadequate to protect our competitive position on our products for an adequate amount of time, and if we do not obtain protection under the Hatch-Waxman Amendments and similar non-United States legislation for extending the term of patents covering each of our product candidates, our business may be materially harmed.
Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our United States patents may be eligible for limited
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patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, and similar legislation in the European Union. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. 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 may be extended per approved drug product, and only those claims covering the approved drug product, a method for using it, or a method for manufacturing it may be extended. However, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that product will be impacted and our competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be reduced and could have a material adverse effect on our business.
If we fail to comply with our obligations in our current and future intellectual property licenses with third parties, we could lose rights that are important to our business.
We are reliant upon licenses to certain patent rights and proprietary technology for the development of our product candidates, in particular our license agreements with University of Minnesota and Skysong Innovations LLC. These license agreements impose diligence, development and commercialization timelines and milestone payment, royalty, insurance and other obligations on us. If we fail to comply with our obligations, our licensors may have the right to terminate our licenses, in which event we might not be able to develop, manufacture or market any product that is covered by the intellectual property we in-license from such licensor and may face other penalties. Such an occurrence would materially adversely affect our business prospects.
Licenses to additional third-party technology and materials that may be required for our development programs may not be available in the future or may not be available on commercially reasonable terms, or at all, which could have a material adverse effect on our business and financial condition. We do not control the prosecution, maintenance and enforcement of all of our licensed and sublicensed intellectual property relating to our product candidates, and we thus require the cooperation of our licensors and any upstream licensor, including Skysong Innovations LLC and the University of Minnesota, which may not be forthcoming. Therefore, we cannot be certain that the prosecution, maintenance and enforcement of these patent rights will be in a manner consistent with the best interests of our business. If we or our licensor fail to maintain such patents, or if we or our licensor lose rights to those patents or patent applications, the rights we have licensed may be reduced or eliminated and our right to develop and commercialize any of our product candidates that are the subject of such licensed rights could be adversely affected. In addition to the foregoing, the risks associated with patent rights that we license from third parties will also apply to patent rights we may own in the future. Further, if we fail to comply with our development obligations under our license agreements, we may lose our patent rights with respect to such agreement on a territory-by-territory basis, which would affect our patent rights worldwide.
Termination of our current or any future license agreements would reduce or eliminate our rights under these agreements and may result in our having to negotiate new or reinstated agreements with less favorable terms or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology. Any of the foregoing could prevent us from commercializing our other product candidates, which could have a material adverse effect on our operating results and overall financial condition.
In addition, intellectual property rights that we in-license in the future may be sublicenses under intellectual property owned by third parties, in some cases through multiple tiers. The actions of our licensors may therefore affect our rights to use our sublicensed intellectual property, even if we are in compliance with all of the obligations under our license agreements. Should our licensors or any of the upstream licensors fail to comply with their obligations under the agreements pursuant to which they obtain the rights that are sublicensed to us, or should such agreements be terminated or amended, our ability to develop and commercialize our product candidates may be materially harmed.
Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our future patents.
Our ability to obtain patents is highly uncertain because, to date, some legal principles remain unresolved, and there has not been a consistent policy regarding the breadth or interpretation of claims allowed in patents in the United States. Furthermore, the specific content of patents and patent applications that are necessary to support and interpret patent claims is highly uncertain due to the complex nature of the relevant legal, scientific, and factual issues. Changes in either patent laws or interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection.
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The United States Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening 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. Depending on actions by the United States Congress, the federal courts and the United States Patent and Trademark Office, or USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we have owned or licensed or that we might obtain in the future. An inability to obtain, enforce, and defend patents covering our proprietary technologies would materially and adversely affect our business prospects and financial condition.
Similarly, changes in patent laws and regulations in other countries or jurisdictions, changes in the governmental bodies that enforce them or changes in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce patents that we may obtain in the future. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States and Europe. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. For example, if the issuance in a given country of a patent covering an invention is not followed by the issuance in other countries of patents covering the same invention, or if any judicial interpretation of the validity, enforceability or scope of the claims or the written description or enablement, in a patent issued in one country is not similar to the interpretation given to the corresponding patent issued in another country, our ability to protect our intellectual property in those countries may be limited. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may materially diminish the value of our intellectual property or narrow the scope of our patent protection.
We may be involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful.
Competitors may infringe the patents for which we have applied. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In certain circumstances it may not be practicable or cost effective for us to enforce our intellectual property rights fully, particularly in certain developing countries or where the initiation of a claim might harm our business relationships. We may also be hindered or prevented from enforcing our rights with respect to a government entity or instrumentality because of the doctrine of sovereign immunity.
If we initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our product or product candidate is invalid and/or unenforceable. In patent litigation in the United States, counterclaims alleging invalidity and/or unenforceability are common, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. In an infringement proceeding, a court may decide that the patent claims we are asserting are invalid and/or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patent claims do not cover the technology in question. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review, inter partes review and equivalent proceedings in foreign jurisdictions (for example, opposition proceedings). Such proceedings could result in revocation of or amendment to our patents in such a way that they no longer cover our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we, 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, we may lose some, and perhaps all, of the patent protection on our product candidates. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing and could have a material adverse impact on our business. Moreover, even if we are successful in any litigation, we may incur significant expense in connection with such proceedings, and the amount of any monetary damages may be inadequate to compensate us for damage as a result of the infringement and the proceedings.
Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patent applications. An unfavorable outcome could require us to cease using the related technology or force us to take a license under the patent rights of the prevailing party, if available. Furthermore, our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.
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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. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock.
We may be unsuccessful in licensing or acquiring intellectual property from third parties that may be required to develop and commercialize our product candidates.
A third party may hold intellectual property, including patent rights that are important or necessary to the development and commercialization of our product candidates. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our product candidates, in which case we would be required to acquire or obtain a license to such intellectual property from these third parties, and we may be unable to do so on commercially reasonable terms or at all. The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all. If we are unable to successfully obtain rights to required third-party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon development of the relevant program or product candidate, which could have a material adverse effect on our business.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a negative impact on the success of our business.
Our commercial success depends, in part, upon our ability and the ability of future collaborators, if any, to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights and intellectual property of third parties. The biotechnology and pharmaceutical industries are characterized by extensive and complex litigation regarding patents and other intellectual property rights. We may in the future become party to, or be threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our product candidates and technology, including interference proceedings, post grant review and inter partes review before the USPTO or equivalent foreign regulatory authority. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their merit. Numerous patents and pending applications are owned by third parties in the fields in which we are developing product candidates, both in the United States and elsewhere. Moreover, it is difficult for industry participants, including us, to identify all third-party patent rights that may be relevant to our product candidates and technologies because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. We may fail to identify relevant patents or patent applications or may identify pending patent applications of potential interest but incorrectly predict the likelihood that such patent applications may issue with claims of relevance to our technology. In addition, we may be unaware of one or more issued patents that would be infringed by the manufacture, sale or use of a current or future product candidate, or we may incorrectly conclude that a third-party patent is invalid, unenforceable or not infringed by our activities. Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our technologies, our products or the use of our products.
There is a risk that third parties may choose to engage in litigation with us to enforce or to otherwise assert their patent rights against us. Even if we believe such claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, which could have a negative impact on our ability to commercialize our current and any future product candidates. In order to successfully challenge the validity of any such U.S. patent in federal court, we would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. Foreign courts will have similar burdens to overcome in order to successfully challenge a third party claim of patent infringement.
We are aware of a patent estate with granted claims in the United States, Japan and China that may impact our competitive position with respect to one of our preclinical product candidates. While we believe that the granted claims may not be valid and that they may be reasonably challenged for validity, there can be no assurance that any such challenge would be successful. If we are found to infringe a third party’s valid and enforceable intellectual property rights, we could be required to obtain a license from such third party to continue developing, manufacturing and marketing our product candidates and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive,
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thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. We could be forced, including by court order, to cease developing, manufacturing and commercializing the infringing technology or product candidate. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. A finding of infringement could prevent us from manufacturing and commercializing our product candidates or force us to cease some or all of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business, financial condition, results of operations and prospects.
We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties.
We employ individuals who were previously employed at other biotechnology or biopharmaceutical companies. In addition, we use publications that are subject to copyright, as well as proprietary information and materials from third parties in our research. Some of the information and materials we use from third parties may be subject to agreements that include restrictions on use or disclosure. Although we strive to ensure proper safeguards, we cannot guarantee strict compliance with such agreements, nor can we be sure that our employees, consultants and advisors do not use proprietary information, materials, or know-how of others in their work for us. We may be subject to claims that we or our employees, consultants, or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees’ former employers or other third parties. We may also be subject to claims that former employers or other third parties have an ownership interest in our future patents. In addition, we may be subject to claims that we are infringing other intellectual property rights, such as trademarks or copyrights, or misappropriating the trade secrets of others, and to the extent that our employees, consultants or contractors use intellectual property or proprietary information owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and even if we are successful, litigation could result in substantial cost and be a distraction to our management and other employees.
We may be subject to claims challenging the inventorship or ownership of our future patents and other intellectual property.
We may also be subject to claims that former employees, collaborators, or other third parties have an ownership interest in our patent applications, our future patents, or other intellectual property, including as an inventor or co-inventor. We may be subject to ownership or inventorship disputes in the future arising, for example, from conflicting obligations of consultants, contractors or others who are involved in developing our product candidates. Although it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own, and we cannot be certain that our agreements with such parties will be upheld in the face of a potential challenge, or that they will not be breached, for which we may not have an adequate remedy. The assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached, and litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
Reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed to others.
If we rely on third parties to manufacture or commercialize our product candidates, or if we collaborate with additional third parties for the development of such product candidates, we may need to, at times, share trade secrets with them. We may also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development partnerships or similar agreements. We seek to protect our trade secrets and other proprietary technology in part by entering into confidentiality agreements with third parties prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure could have an adverse effect on our business and results of operations.
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In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our trade secrets. Despite our efforts to protect our trade secrets, we may not be able to prevent the unauthorized disclosure or use of our technical know-how or other trade secrets by the parties to these agreements. Moreover, we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our confidential information or proprietary technology and processes. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. If any of the collaborators, scientific advisors, employees, contractors and consultants who are parties to these agreements breaches or violates the terms of any of these agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets as a result. Moreover, if confidential information that is licensed or disclosed to us by our partners, collaborators, or others is inadvertently disclosed or subject to a breach or violation, we may be exposed to liability to the owner of that confidential information. Enforcing a claim that a third party illegally obtained and is using our trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets.
We may enjoy only limited geographical protection with respect to certain patents and we may not be able to protect our intellectual property rights throughout the world.
Filing and prosecuting patent applications and defending patents covering our product candidates in all countries throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection or where enforcement rights are not as strong as those in the United States or Europe. These products may compete with our product candidates, and our future patents or other intellectual property rights may not be effective or sufficient defend our rights adequately.
In addition, we may decide to abandon national and regional patent applications before they are granted. The examination of each national or regional patent application is an independent proceeding. As a result, patent applications in the same family may issue as patents in some jurisdictions, such as in the United States, but may issue as patents with claims of different scope or may even be refused in other jurisdictions. It is also quite common that depending on the country, the scope of patent protection may vary for the same product candidate or technology. For example, certain jurisdictions do not allow for patent protection with respect to method of treatment.
While we seek to protect our intellectual property rights in our expected significant markets, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our product candidates. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate, which may have an adverse effect on our ability to successfully commercialize our product candidates in all of our expected significant foreign markets. If we encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important for our business in such jurisdictions, the value of these rights may be diminished, and we may face additional competition from others in those jurisdictions.
The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws or rules and regulations in the United States and Europe and many companies have encountered significant difficulties in protecting and defending such rights in such jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property rights, which could make it difficult for us to stop the infringement of our future patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in other jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our future patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing as patents, 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 meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Some countries also have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, some countries limit the enforceability of patents against government agencies or government contractors. In those countries, the patent owner may have limited remedies, which could materially diminish the value of such patents. 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.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
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Periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents and/or applications will be due to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of our patents and/or applications and any patent rights we may obtain in the future. Furthermore, the USPTO and various non-United States government patent agencies require compliance with several procedural, documentary, fee payment and other similar provisions during the patent application process. In many cases, an inadvertent lapse of a patent or patent application can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patents or patent applications, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market, which could have a material adverse effect on our business.
Any trademarks we have obtained or may obtain may be infringed or otherwise violated, or successfully challenged, resulting in harm to our business.
We expect to rely on trademarks as one means to distinguish our product candidates, if approved for marketing, from the drugs of our competitors. Once we select new trademarks and apply to register them, our trademark applications may not be approved. Third parties may oppose or attempt to cancel our trademark applications or trademarks, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our drugs, which could result in loss of brand recognition and could require us to devote resources to advertising and marketing new brands. Our competitors may infringe or otherwise violate our trademarks and we may not have adequate resources to enforce our trademarks. Any of the foregoing events may have a material adverse effect on our business.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. The following examples are illustrative:
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Should any of these events occur, they could significantly harm our business, results of operations and prospects.
Risks Related to Our Business Operations, Employee Matters and Managing Growth
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on our management team, including Mark Smith, Ph.D., our Chief Executive Officer. Each of them may currently terminate their employment with us at any time. The loss of the services of any of these persons could impede the achievement of our research, development and commercialization objectives. We do not currently maintain “key person” life insurance on the lives of our executives or any of our employees.
Recruiting and retaining qualified scientific and clinical personnel and, if we progress the development of any of our product candidates, commercialization, manufacturing and sales and marketing personnel, will be critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize our product candidates. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high-quality personnel, our ability to pursue our growth strategy will be limited.
We expect to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.
As of September 30, 2021, we had 191 full-time employees, including 157 employees engaged in research and development. As our clinical development and commercialization plans and strategies develop, and as we continue operating as a public company, we expect we will need additional managerial, operational, sales, marketing, financial, legal and other personnel. Future growth would impose significant added responsibilities on members of management, including:
Our future financial performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.
We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services. The services include substantially all aspects of clinical trial management and manufacturing for certain of our product candidates. We cannot assure you that the services of independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our preclinical studies or clinical trials may be extended, delayed or terminated, and we may not be able to obtain marketing approval of our product candidates or otherwise advance our business. We cannot assure you that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all.
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If we are not able to effectively expand our organization by hiring qualified new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development and commercialization goals.
Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a significant disruption of our product development programs and our ability to operate our business effectively.
Our internal computer systems and those of our current and any future collaborators and other contractors or consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. Cyber-attacks could include the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information. Cyber-attacks also could include phishing attempts or e-mail fraud to cause payments or information to be transmitted to an unintended recipient. The COVID-19 pandemic has generally increased the attack surface available for exploitation, as more companies and individuals work online and work remotely, and as such, the risk of a cybersecurity incident potentially occurring, and our investment in risk mitigations against such an incident, is increasing. For example, there has been an increase in phishing and spam emails as well as social engineering attempts from “hackers” hoping to use the recent COVID-19 pandemic to their advantage.
While we have not experienced any significant system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information or other similar disruptions. For example, the loss of clinical trial data from completed or future clinical trials by us or our CROs could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Additionally, any such event that leads to unauthorized access, use or disclosure of personal information, including personal information regarding our patients or employees, could harm our reputation, cause us not to comply with federal and/or state breach notification laws and foreign law equivalents and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information. Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. Security breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. While we have implemented security measures to protect our information technology systems and infrastructure, such measures may not prevent service interruptions or security breaches that could adversely affect our business and to the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position could be harmed and the further development and commercialization of our product candidates could be delayed.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our operations, and those of our CROs, CMOs and other contractors and consultants, could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely on third-party manufacturers to produce certain of our product candidates. Our ability to obtain clinical supplies of our product candidates could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption.
Failure to comply with health and data protection laws and regulations could lead to government enforcement actions, including civil or criminal penalties, private litigation, and adverse publicity and could negatively affect our operating results and business.
We and any current and future collaborators may be subject to federal, state, municipal and foreign data protection laws and regulations, such as laws and regulations that address privacy and data security. In the United States, numerous federal and state laws and regulations, including federal health information privacy laws, state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws, including Section 5 of the Federal Trade Commission Act, that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations or the operations of our collaborators. In addition, we may obtain health information from third parties, including research institutions from which we obtain clinical trial data, that are subject to privacy and security requirements under HIPAA, as amended by HITECH.
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Depending on the facts and circumstances, we could be subject to civil, criminal, and administrative penalties if we obtain, use, or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.
Compliance with U.S. and international data protection laws and regulations could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions. Failure to comply with these laws and regulations could result in government enforcement actions (which could include civil, criminal and administrative penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business. Moreover, clinical trial subjects, employees and other individuals about whom we or our current or future collaborators obtain personal information, as well as the providers who share this information with us, may limit our ability to collect, use and disclose the information. Claims that we have violated individuals’ privacy rights, failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.
We are subject to a variety of privacy and data security laws, and our failure to comply with them could harm our business.
We maintain a large quantity of sensitive information, including confidential business and personal information in connection with the conduct of our clinical trials and related to our employees, and we are subject to laws and regulations governing the privacy and security of such information. In the United States, there are numerous federal and state privacy and data security laws and regulations governing the collection, use, disclosure and protection of personal information, including federal and state health information privacy laws, federal and state security breach notification laws, and federal and state consumer protection laws. Each of these laws, the requirements of which sometimes evolve with amendments, regulations and case law, can be subject to varying interpretations. In addition, new laws regulating privacy and data security continue to be passed in jurisdictions all over the world. In May 2018, a new privacy regime, the General Data Protection Regulation, or the GDPR, took effect in the European Economic Area, or the EEA. The GDPR governs the collection, use, disclosure, transfer or other processing of personal data of European persons. Among other things, the GDPR imposes requirements regarding the security of personal data and notification of data processing obligations to the competent national data processing authorities, changes the lawful bases on which personal data can be processed, expands the definition of personal data and requires changes to informed consent practices, as well as more detailed notices for clinical trial subjects and investigators. In addition, the GDPR increases the scrutiny of transfers of personal data from clinical trial sites located in the EEA to the United States and other jurisdictions that the European Commission does not recognize as having “adequate” data protection laws, and imposes substantial fines for breaches and violations (up to the greater of €20 million or 4% of our consolidated annual worldwide gross revenue). The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies and obtain compensation for damages resulting from violations of the GDPR.
In addition, within the United States, states regularly adopt new laws or amending existing laws, requiring attention to frequently changing regulatory requirements. For example, California enacted the California Consumer Privacy Act, or the CCPA, on June 28, 2018. This law, which took effect on January 1, 2020, became enforceable by the California Attorney General on July 1, 2020, and has been dubbed the first “GDPR-like” law in the United States. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used by requiring covered companies to provide new disclosures to California consumers (as that term is broadly defined) and provide such consumers new ways to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability. While there is currently an exception for protected health information that is subject to HIPAA and clinical trial regulations, as currently written, the CCPA may impact certain of our business activities. In addition, some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the United States as other states develop similar laws and we have already seen other states propose laws that are similar to the CCPA.
Compliance with these and any other applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms ensuring compliance with the new data protection rules. If we fail to comply with any such laws or regulations, we may face significant fines and penalties that could adversely affect our business, financial condition and results of operations. Furthermore, the laws are not consistent, and compliance in the event of a widespread data breach is costly.
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Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners. Misconduct by these parties could include intentional failures to comply with FDA regulations or the regulations applicable in other jurisdictions, provide accurate information to the FDA and other regulatory authorities, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct also could involve the improper use of information obtained in the course of clinical trials or interactions with the FDA or other regulatory authorities, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participating in government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm and the curtailment or restructuring of our operations, any of which could have a negative impact on our business, financial condition, results of operations and prospects.
Risks Related to Our Common Stock
An active trading market for our common stock may not develop and you may not be able to resell your shares of our common stock at an attractive price, if at all.
Prior to our IPO in March 2021, there was no public market for our common stock. Although our common stock is currently listed on The Nasdaq Global Select Market, we cannot assure you that an active trading market for our shares will develop or be sustained. If an active market for our common stock does not develop or is not sustained, it may be difficult for you to sell shares you purchased at an attractive price or at all.
The trading price of the shares of our common stock may be volatile, and purchasers of our common stock could incur substantial losses.
Our stock price may be volatile and may fluctuate as a result of a variety of factors, some of which are related in complex ways. Since shares of our common stock were sold in our IPO in March 2021 at $17.00 per share, our stock price has ranged from an intraday low of $11.56 to an intraday high of $22.50 through November 3, 2021. The market price for our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including the factors listed below and other factors described in this “Risk Factors” section:
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The stock market in general, and the Nasdaq Global Select Market and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies, including very recently in connection with the ongoing COVID-19 pandemic, which has resulted in decreased stock prices for many companies notwithstanding the lack of a fundamental change in their underlying business models or prospects. Broad market and industry factors, including potentially worsening economic conditions and other adverse effects or developments relating to the ongoing COVID-19 pandemic, may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of the above risks or any of a broad range of other risks, including those described in this section, could have a significant and material adverse impact on the market price of our common stock.
In addition, in the past, stockholders have initiated class action lawsuits against pharmaceutical and biotechnology companies following periods of volatility in the market prices of these companies’ stock. Such litigation, if instituted against us, could cause us to incur substantial costs and divert management’s attention and resources from our business.
If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business or our market, our stock price and trading volume could decline.
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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. As a newly public company, we have only limited research coverage by equity research analysts. Equity research analysts may elect not to provide research coverage of our common stock, and such lack of research coverage may adversely affect the market price of our common stock. If at any time we do have equity research analyst coverage, we do not have any control over the analysts or the content and opinions included in their reports. The price of our stock could decline if 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 of our company or fails to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.
Sales of our common stock in the public market could cause the market price of our common stock to decline.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. If our stockholders sell, or the market perceives that our stockholders intend to sell, substantial amounts of our common stock in the public market, the market price of our common stock could decline significantly. Many of our existing equity holders have substantial unrecognized gains on the value of the equity they hold, and therefore they may take steps to sell their shares or otherwise secure the unrecognized gains on those shares. We are unable to predict the timing of or the effect that such sales may have on the prevailing market price of our common stock.
In addition, on March 26, 2021, we filed a registration statement on Form S-8 under the Securities Act of 1933, as amended, or the Securities Act, registering the issuance of the shares of common stock subject to options or other equity awards issued or reserved for future issuance under our 2017 Equity Incentive Plan, as amended, or 2017 Plan, our 2021 Equity Incentive Plan, or 2021 Plan, and our 2021 Employee Stock Purchase Plan, or ESPP. Shares registered under this registration statement on Form S-8 will be available for sale in the public market subject to vesting arrangements and exercise of options or warrants and the restrictions of Rule 144 in the case of our affiliates.
Additionally, the holders of an aggregate of 31,665,929 shares of our common stock and the holders of an aggregate of 39,330,184 shares of our common stock, or their transferees, will have rights, subject to some conditions, to require us to file one or more registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders, respectively. If we were to register the resale of these shares, they could be freely sold in the public market. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.
Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.
As of September 30, 2021, our executive officers, directors and current beneficial owners of 5% or more of our common stock and their respective affiliates beneficially owned a significant percentage of our outstanding common stock. As a result, these persons, acting together, would be able to significantly influence all matters requiring stockholder approval, including the election and removal of directors, any merger, consolidation, sale of all or substantially all of our assets, or other significant corporate transactions.
Some of these persons or entities may have interests different than yours. For example, because many of these stockholders purchased their shares at prices substantially below the current market price of our common stock and have held their shares for a longer period, they may be more interested in selling our company to an acquirer than other investors, or they may want us to pursue strategies that deviate from the interests of other stockholders.
We are an “emerging growth company” and a “smaller reporting company” and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies and smaller reporting companies, our common stock may be less attractive to investors.
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we intend to take advantage of some of the exemptions from reporting requirements that are applicable to other public companies that are not emerging growth companies, including:
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We cannot predict if investors will find our common stock less attractive because we will 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. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until December 31, 2026 or, if earlier, (i) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (ii) the date on which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
Even after we no longer qualify as an emerging growth company, we may, under certain circumstances, still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
We incur significant costs and demands upon management as a result of being a public company.
As a public company listed in the United States, we incur significant legal, accounting and other costs. These costs could negatively affect our financial results. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the Securities and Exchange Commission, or SEC, and the Nasdaq Stock Market, or Nasdaq, may increase legal and financial compliance costs and make some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If notwithstanding our efforts to comply with new laws, regulations and standards, we fail to comply, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
Failure to comply with these rules might also make it more difficult for us to obtain some types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior management.
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, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations of Nasdaq. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting.
Commencing with our fiscal year ending December 31, 2022, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting in our Form 10-K filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. This will require that we incur substantial additional professional fees and internal costs to expand our accounting and finance functions and that we expend significant management efforts. Prior to our IPO in March 2021, we have never been required to test our internal control within a specified period, and, as a result, we may experience difficulty in meeting these reporting requirements in a timely manner.
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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.
If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act 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.
In preparation for our IPO in March 2021, we identified a material weakness in our internal control over financial reporting. If we are not able to remediate the material weakness or if we otherwise fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial statements in a timely manner, which may adversely affect our business, investor confidence in our company and the market value of our common stock.
Although we are not yet subject to the certification or attestation requirements of Section 404 of the Sarbanes-Oxley Act, in the course of reviewing our financial statements for our IPO in March 2021, management and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting as we did not design and maintain effective review and approval controls over certain transactions and accounts.
A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. This material weakness in our system of internal controls as of December 31, 2019 relates to (1) an ineffective control environment, including a lack of sufficient accounting personnel and personnel with financial reporting expertise; (2) ineffective controls over cutoff, recording and classification of certain accounts, and the valuation and recognition of intangible assets acquired in a business combination that occurred in 2017; (3) ineffective risk assessment controls, including those policies and practices that would identify changes in our business practices, which could significantly impact our consolidated financial statements and system of internal controls; and (4) ineffective monitoring of controls related to the financial close and reporting process. As a result, there were adjustments required in connection with closing our books and records and preparing our 2019 financial statements.
We believe progress was made through September 30, 2021, including the efforts outlined in Item 4 of this Quarterly Report on Form 10-Q to enhance and strengthen our internal control over financial reporting. However, our internal controls were not in all cases in place for a sufficient period of time to demonstrate operating effectiveness as of September 30, 2021. As a result, management has concluded that the material weakness was not fully remediated as of September 30, 2021.
There can be no assurance that we will be successful in pursuing these measures or that these measures will significantly improve or remediate the material weakness described above. There is also no assurance that we have identified all of our material weaknesses or that we will not in the future have additional material weaknesses. If we fail to remediate the material weakness or to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results, or report them within the timeframes required by law or Nasdaq. Failure to comply with Section 404 could also potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. There is no assurance that we will be able to remediate the material weakness in a timely manner, or at all, or that in the future, additional material weaknesses will not exist or otherwise be discovered. If our efforts to remediate the material weakness identified are not successful, or if other material weaknesses or other deficiencies occur, our ability to accurately and timely report our financial position could be impaired, which could result in late filings of our required reports under the Exchange Act, restatements of our consolidated financial statements, a decline in the price of our common stock, suspension or delisting of our common stock from Nasdaq, and could adversely affect our reputation, results of operations and financial condition.
Changes in U.S. tax law could adversely affect our financial condition and results of operations.
The rules dealing with U.S. federal, state, and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of our common stock. In recent years, many such changes have been made
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and changes are likely to continue to occur in the future. Future changes in U.S. tax laws could have a material adverse effect on our business, cash flow, financial condition or results of operations. We urge investors to consult with their legal and tax advisors regarding the implications of potential changes in U.S. tax laws on an investment in our common stock.
We might not be able to utilize a significant portion of our net operating loss carryforwards.
We expect to generate significant federal and state net operating loss, or NOL, carryforwards in the future. These NOL carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under the Tax Cuts and Jobs, or the Tax Act, as modified by the CARES Act, federal NOLs incurred in taxable years beginning after December 31, 2017 and in future taxable years may be carried forward indefinitely, but the deductibility of such federal NOLs incurred in the taxable year beginning after December 31, 2020 is limited. It is uncertain how various states will respond to the Tax Act and CARES Act. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. The completion of our IPO in March 2021, together with private placements and other transactions that have occurred since our inception, may trigger such an ownership change pursuant to Section 382. We have not yet completed a Section 382 analysis. We may experience ownership changes as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If an ownership change occurs and our ability to use our NOL carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations.
Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be your sole source of gains and you may never receive a return on your investment.
You should not rely on an investment in our common stock to provide dividend income. We have not declared or paid cash dividends on our common stock to date. We currently intend to retain our future earnings, if any, to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. Investors seeking cash dividends should not purchase our common stock.
While we have been recently notified of forgiveness of our PPP Loan, our application for the PPP Loan could in the future be determined to have been impermissible or could result in damage to our reputation.
In April 2020, we received proceeds of $1.8 million from the PPP Loan. We have used the PPP Loan to retain current employees, maintain payroll and make lease and utility payments. On May 8, 2021, we received notice from the SBA that the entirety of the PPP Loan we received was forgiven. Accordingly, we are no longer required to repay the $1.8 million in principal and approximately $19,000 in accrued interest borrowed under the PPP Loan.
In order to apply for the PPP Loan, we were required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan is consistent with the broad objectives of the PPP. The certification described above does not contain any objective criteria and is subject to interpretation. If, despite our good-faith belief that given our circumstances we satisfied all eligible requirements for the PPP Loan, we are later determined to have violated any of the laws or governmental regulations that apply to us in connection with the PPP Loan, such as the False Claims Act, or it is otherwise determined that we were ineligible to receive the PPP Loan, we may be subject to penalties, including significant civil, criminal and administrative penalties and could be required to repay the PPP Loan in its entirety. In addition, receipt of a PPP Loan may result in adverse publicity and damage to reputation, and a review or audit by the SBA or other government entity or claims under the False Claims Act could consume significant financial and management resources.
Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our management and hinder efforts to acquire a controlling interest in us, and the market price of our common stock may be lower as a result.
There are provisions in our certificate of incorporation and bylaws that may make it difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change of control was considered favorable by you and other stockholders. For example, our board of directors will have the authority to issue up to 10,000,000 shares of preferred stock. The board of directors can fix the price, rights, preferences, privileges, and restrictions of the preferred stock without any further vote or action by our stockholders. The
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issuance of shares of preferred stock may delay or prevent a change of control transaction. As a result, the market price of our common stock and the voting and other rights of our stockholders may be adversely affected. An issuance of shares of preferred stock may result in the loss of voting control to other stockholders.
In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions by prohibiting Delaware corporations from engaging in specified business combinations with particular stockholders of those companies. These provisions could discourage potential acquisition proposals and could delay or prevent a change of control transaction. They could also have the effect of discouraging others from making tender offers for our common stock, including transactions that may be in your best interests. These provisions may also prevent changes in our management or limit the price that investors are willing to pay for our stock.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:
The provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation will further provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause or causes of action arising under the Securities Act, including all causes of action asserted against any defendant to such complaint. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.
These exclusive forum provisions 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 lawsuits against us and our directors, officers and other employees. If a court were to find either exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Recent Sales of Unregistered Securities
None.
(b) Use of Proceeds
On March 23, 2021, we closed our IPO, in which we issued and sold an aggregate of 7,500,000 shares of common stock at a public offering price of $17.00 per share. On April 20, 2021, we issued 192,877 additional shares of common stock, pursuant to the underwriters’ partial exercise of their overallotment option, at a public offering price of $17.00 per share. All of the shares of common stock issued and sold in our IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (Registration No. 333-253622), which was declared effective by the SEC on March 18, 2021.
The aggregate net proceeds to us from the public offering, including proceeds from the sale of shares pursuant to the underwriters’ partial exercise of their overallotment option, were approximately $118.7 million, after deducting underwriting discounts and commissions and offering expenses payable by us of approximately $12.1 million.
There has been no material change in the use of proceeds from our IPO from those disclosed in the final prospectus for our IPO dated March 18, 2021 and filed with the SEC pursuant to Rule 424(b)(4) of the Securities Act on March 22, 2021.
(c) Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
On November 4, 2021, Zain Kassam, M.D., M.P.H. resigned as our Chief Medical Officer in order to attend to a family health matter. Dr. Kassam's resignation became effective on November 5, 2021.
In connection with his resignation, on November 4, 2021, we and Dr. Kassam entered into a Release Agreement, pursuant to which Dr. Kassam agreed to release us and certain related parties from any claims he may have against us and them and we agreed to pay Dr. Kassam $43,600 (less lawful deductions), which is equal to 30% of the pro-rated amount of his 2021 annual target bonus. Additionally, we have elected not to waive the non-competition provisions of Dr. Kassam’s employment agreement and, accordingly, pursuant to Section 7.4 of the employment agreement, we will pay Dr. Kassam a lump sum of $218,000 (less lawful deductions), which is equal to six times Dr. Kassam’s monthly salary. The Release Agreement also contains standard provisions related to confidentiality and non-disparagement.
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Item 6. Exhibits
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Incorporated by Reference |
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Exhibit Number |
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Description |
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Schedule Form |
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File Number |
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Exhibit |
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Filing Date |
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3.1 |
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Amended and Restated Certificate of Incorporation of Finch Therapeutics Group, Inc. |
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8-K |
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001-40227 |
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3.1 |
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March 23, 2021 |
3.2 |
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Amended and Restated Bylaws of Finch Therapeutics Group, Inc. |
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8-K |
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001-40227 |
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3.2 |
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March 23, 2021 |
10.1*# |
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10.2++ |
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Lease, dated August 3, 2021, by and between Hood Park LLC and Finch Therapeutics, Inc. |
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31.1* |
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31.2* |
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32.1+ |
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101.INS* |
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Inline XBRL Instance Document |
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101.SCH* |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL* |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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* Filed herewith.
+ This certification is being furnished solely to accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing of the registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
# Certain portions of this exhibit (indicated by asterisks) have been omitted because they are not material and would likely cause competitive harm to Finch Therapeutics Group, Inc. if publicly disclosed.
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++ Certain schedules and exhibits to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request.
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SIGNATURES
Pursuant to the requirements 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.
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FINCH THERAPEUTICS GROUP, INC. |
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Date: November 10, 2021 |
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By: |
/s/ Mark Smith |
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Mark Smith, Ph.D. |
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Chief Executive Officer (Principal Executive Officer) |
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Date: November 10, 2021 |
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By: |
/s/ Gregory D. Perry |
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Gregory D. Perry |
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Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
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Exhibit 10.1
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE FINCH THERAPEUTICS GROUP, INC. HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO FINCH THERAPEUTICS GROUP, INC. IF PUBLICLY DISCLOSED.
AMENDMENT TO AMENDED AND RESTATED AGREEMENT
This Amendment to Amended and Restated Agreement (this “Amendment”) is entered into as of August 9, 2021 (the “Amendment Effective Date”) by and between Finch Therapeutics, Inc., a Delaware corporation having its principal office at 200 Inner Belt Road, 4th Floor, Somerville, Massachusetts 02143 (“Finch”), and Takeda Development Center Americas, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited, having its principal office at 95 Hayden Avenue, Lexington, MA 02421 (“Takeda”).
Background
Finch and Millennium Pharmaceuticals, Inc. (a wholly-owned subsidiary of Takeda Pharmaceuticals USA, Inc.) (“Millennium”) entered into the Amended and Restated Agreement dated October 21, 2019 (the “Agreement”). Millennium assigned the Agreement to Takeda on or about July 1, 2021.
Under the Agreement, the parties agree that Finch has primary responsibility to perform Development and Manufacturing activities in FIN-524 Development Program until the successful completion of the first Phase II Clinical Trial in the U.S., and Takeda assumes all responsibility to further Develop FIN-524 Licensed Products following such point in time.
At the JSC meeting held on May 25, 2021, it was discussed and agreed by the parties that earlier transition of the primary Development and Manufacturing responsibility of FIN-524 Development Program from Finch to Takeda may be mutually beneficial, and the Agreement is to be negotiated and amended in order to enable and reflect such transition.
NOW THEREFORE, in consideration of mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Finch and Takeda agree as follow:
“Completion of CMC Development” means with respect to a Licensed Product, the point in time when Finch has completed all CMC activities allocated to Finch under the applicable Development Plan or otherwise authorized by the JSC and is no longer performing any CMC Development activities in support of the CMC section of a regulatory submission document for such Licensed
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Product; provided, however, with respect to a FIN-524 Licensed Product, the Completion of CMC Development shall be deemed to occur upon the later of [***].
“Development Plan” means a plan for any of the Development activities undertaken pursuant to this Agreement.
“FIN-524 Development Program” means, with respect to FIN-524, any Development activities undertaken by or on behalf of Finch or Takeda in accordance with applicable Development Plan, determination by the JSC and terms and conditions of this Agreement.
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“(ii) review and approve any material amendments or updates to the Development Plan”
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“(e) JSC Decision. Disagreements among the Joint Steering Committee will be resolved via good-faith discussions; provided, that in the event of a disagreement, Takeda shall have the right to make the final decision on such matter and such decision shall be final and binding and shall not be subject to Section 14.1 or 14.2. The Joint Steering Committee shall not have any authority to resolve disputes with respect to the interpretation, breach, termination or invalidity of the Agreement or matters concerning the prosecution or enforcement of Program Intellectual Property, which shall be addressed using the procedures specified in Section 9.”
(6-1) No Further Obligation. With respect to FIN-524 Licensed Products, upon completion of the transition activities described in Exhibit B, Takeda shall be solely responsible for Manufacturing in accordance with Section 6.2(d) of the Agreement, Section 6 of the Agreement (other than Section 6.2(d) of the Agreement) shall no longer be applicable and Finch shall have no further obligations with respect to the Manufacture of FIN-524 Licensed Products. For the avoidance of any doubt, nothing in this Section 2(6-1) of this Amendment is intended or shall be construed to limit Section 2(2-6) of this Amendment.
(6-2) Disclosure of CMC Program Data and Results. From time to time following completion of the transition of Manufacturing responsibilities, to the extent requested by Finch (provided, such request may not be made more than once per calendar quarter), Takeda shall provide and disclose to Finch CMC Pre-Transition Program Data and Results that are then-currently available to Takeda in a form mutually agreed by the parties.
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INWITNESS WHEREOF, the parties have caused this Amendment to be executed on their behalf by their duly authorized representatives as of the Amendment Effective Date.
FINCH THERAPEUTICS, INC. |
By: /s/ Mark Smith |
Name: Mark Smith |
Title: CEO |
TAKEDA DEVELOPMENT CENTER AMERICAS, INC. |
By: /s/ Chinwe Ukomadu |
Name: Chinwe Ukomadu |
Title: Head of Gastroenterology TAU |
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Exhibit A
[***]
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Exhibit B
[***]
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Exhibit C
Finch Press Release Draft
Finch Therapeutics Announces Takeda to Accelerate Leadership Role in FIN-524 Ulcerative Colitis Development Program
SOMERVILLE, Mass., [August], 2021 (GLOBE NEWSWIRE) -- Finch Therapeutics Group, Inc. (“Finch” or “Finch Therapeutics”) (Nasdaq: FNCH), a clinical-stage microbiome therapeutics company leveraging its Human-First Discovery® platform to develop a novel class of orally administered biological drugs, today announced that Takeda Pharmaceutical Company Limited (“Takeda”) has elected to accelerate the transition of development responsibility for the FIN-524 ulcerative colitis development program. Takeda will assume primary development responsibility for the program, now known as TAK-524, ahead of the planned initiation of clinical-stage development. The transition will enable Takeda to leverage its expertise in inflammatory bowel disease (IBD) throughout the clinical development of FIN-524/TAK-524.
“Microbiome research is an important pillar of our drug discovery strategy as we continue to invest in novel approaches to treat chronic GI disorders,” said Gareth Hicks, PhD, Vice President & Head of Gastroenterology Drug Discovery Unit at Takeda. “Through our successful collaboration with our expert partners Finch, TAK-524 is now poised to become Takeda’s third clinical-stage program leveraging state-of-the-art approaches to intervene in the gut microbiome for the treatment of GI disease.”
“We are thrilled that Takeda, a global leader in the treatment of IBD, has opted to accelerate its role in advancing TAK-524 for ulcerative colitis. We believe that Takeda's leadership and experience in IBD will be a critical asset for the program as Takeda prepares to advance TAK-524 into clinical development,” said Mark Smith, PhD, Chief Executive Officer of Finch Therapeutics. “We look forward to continuing our collaboration with Takeda to support the TAK-524 program along with our joint discovery work in Crohn’s disease, while we continue to advance other exciting programs in our pipeline.”
FIN-524/TAK-524 is an investigational, orally administered targeted consortia product candidate composed of both spore-forming and non-spore-forming bacterial strains selected for the treatment of ulcerative colitis. FIN-524/TAK-524 is designed to treat ulcerative colitis by harnessing the gut microbiome’s ability to modulate the host immune system.
About the Collaboration and License Agreement
In 2017, Finch entered into a worldwide collaboration agreement with Takeda to jointly develop FIN-524/TAK-524 for the treatment of inflammatory bowel disease. Under the terms of the agreement, Finch received an upfront payment of $10 million from Takeda for the exclusive worldwide rights to develop and commercialize FIN-524/TAK-524. Finch has received $4 million in milestone payments to date for FIN-524/TAK-524 and is eligible to receive up to an additional $176 million in payments upon
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achievement of certain development, regulatory, and commercial milestones, as well as tiered royalties ranging from mid to high-single digits on worldwide net sales of FIN-524/TAK-524. Under the terms of the original agreement, Finch was primarily responsible for early-stage development activities through Phase 2 clinical trials. Under the terms of an amended agreement executed in [August] 2021, Takeda will assume primary development responsibility for FIN-524/TAK-524 prior to the start of clinical-stage development. After the transition, Finch plans to provide Takeda with ongoing technical support through the anticipated Phase 1 trial of FIN-524/TAK-524 in ulcerative colitis.
About FIN-524/TAK-524 for Ulcerative Colitis
FIN-524/TAK-524 is an investigational, orally administered targeted consortia product candidate composed of both spore-forming and non-spore-forming bacterial strains selected for the treatment of ulcerative colitis. The consortia is designed to include strains that target multiple defined mechanisms of action combined with donor strains linked to remission following fecal microbiota transplantation (FMT) in patients with ulcerative colitis. The design of FIN-524/TAK-524 leverages Finch’s machine-learning based platform and data from FMT studies in ulcerative colitis. Machine learning was used to identify microbes and microbial functions deficient in patients with ulcerative colitis. Human FMT data was leveraged to identify organisms consistently enriched in ulcerative colitis patients that successfully responded to FMT. Target organisms were isolated directly from the specific donors whose samples induced response or remission in clinical studies of FMT for ulcerative colitis. The manufacture of FIN-524/TAK-524 is donor independent, with the strains grown from master cell banks.
About Ulcerative Colitis
Ulcerative colitis is one of the most common types of inflammatory bowel disease (IBD), an autoimmune condition that causes inflammation of the gastrointestinal (GI) tract. Approximately 10 million people are affected by IBD worldwide, including about three million people in the US. Symptoms of IBD include severe, chronic abdominal pain, diarrhea, GI bleeding, weight loss, and fatigue. Current treatment options are ineffective for many people with IBD.
About Finch Therapeutics
Finch Therapeutics is a clinical-stage microbiome therapeutics company leveraging its Human-First Discovery® platform to develop a novel class of orally administered biological drugs. With the capabilities to develop both complete and targeted microbiome therapeutics, Finch is advancing a rich pipeline of candidates designed to address a wide range of unmet medical needs. Finch’s lead candidate, CP101, is in late-stage clinical development for the prevention of recurrent C. difficile infection (CDI), and has received Breakthrough Therapy and Fast Track designations from the U.S. Food and Drug Administration. In June 2020, Finch announced that CP101 met its primary efficacy endpoint in PRISM3, the first of two pivotal trials to support the development of CP101 for the prevention of recurrent CDI. Finch plans to initiate a Phase 3 trial, referred to as PRISM4, as its second pivotal trial of CP101 for recurrent CDI. Finch is also developing CP101 for the treatment of chronic hepatitis B virus, and FIN-211 for the treatment of the gastrointestinal and behavioral symptoms of autism spectrum disorder. Finch has a partnership with Takeda focused on the development of targeted microbiome therapeutics for inflammatory bowel disease.
Forward-Looking Statements
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Statements contained in this press release regarding matters that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Words such as "anticipates," "believes," "expects," "intends," “plans,” “potential,” "projects,” “would” and "future" or similar expressions are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding: Finch’s ability to advance the development of a novel class of therapeutics, including with respect to FIN-524/TAK-524; the therapeutic value and development of FIN-524/TAK-524 for the treatment of ulcerative colitis, including Takeda’s ability and timing to initiate clinical trials; the results of the Collaboration and License Agreement; Finch’s pipeline and ability to develop additional product candidates; and the initiation and timing of Finch’s clinical trials. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, among others: Finch’s limited operating history and historical losses; Finch’s ability to raise additional funding to complete the development and any commercialization of its product candidates; Finch’s dependence on the success of its lead product candidate, CP101; the possibility that Finch or Takeda may be delayed in initiating, enrolling or completing any clinical trials; results of clinical trials may not be sufficient to satisfy regulatory authorities to approve product candidates in their targeted or other indications (or such authorities may request additional trials or additional information); results of clinical trials may not be indicative of final or future results from later stage or larger clinical trials (or in broader patient populations once the product is approved for use by regulatory agencies) or may not be favorable or may not support further development; Finch’s product candidates, including FIN-524/TAK-524, may not generate the benefits to patients that are anticipated; anticipated regulatory approvals may be delayed or refused; competition from third parties that are developing products for similar uses; Finch and Takeda’s ability to maintain patent and other intellectual property protection and the possibility that Finch or Takeda’s intellectual property rights may be infringed, invalid or unenforceable or will be threatened by third parties; Finch’s ability to qualify and scale its manufacturing capabilities in anticipation of commencement of multiple global clinical trials; Finch’s lack of experience in selling, marketing and distributing its product candidates; Finch’s dependence on third parties in connection with manufacturing, clinical trials and preclinical studies; and risks relating to the impact and duration of the COVID-19 pandemic on Finch’s business. These and other risks are described more fully in Finch’s filings with the Securities and Exchange Commission (“SEC”), including the section titled “Risk Factors” in Finch’s Quarterly Report on Form 10-Q filed with the SEC on May 13, 2021, as well as discussions of potential risks, uncertainties, and other important factors in Finch’s other filings with the SEC. All forward-looking statements contained in this press release speak only as of the date on which they were made. Except to the extent required by law, Finch undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they were made.
Human-First Discovery® is a registered trademark of Finch Therapeutics Group, Inc.
Media Contact:
Jenna Urban
Berry & Company Public Relations
jurban@berrypr.com
212-253-8881
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Investor Contact:
Greg Perry
ir@finchtherapeutics.com
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Exhibit D
[***]
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Exhibit 10.2
LEASE
LANDLORD: Hood Park LLC, a Massachusetts limited liability company
TENANT: Finch Therapeutics, Inc., a Delaware corporation
PREMISES: Hood Park, Charlestown, Massachusetts
DATED: August 3, 2021
TABLE OF CONTENTS
ARTICLE |
CAPTION |
PAGE |
|
|
|
ARTICLE I |
5 |
|
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(A) SUBJECTS REFERRED TO: |
5 |
|
(B) EXHIBITS |
8 |
ARTICLE II |
8 |
|
|
(A) DEMISED PREMISES |
8 |
|
(B) COMMON AREAS |
8 |
|
(C) PARKING |
9 |
ARTICLE III |
13 |
|
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(A) TERM |
13 |
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(B) DELIVERY |
13 |
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(C) TENANT’S WORK |
15 |
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(D) GENERAL CONSTRUCTION PROVISIONS |
16 |
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(E) TENANT ALLOWANCE |
16 |
ARTICLE IV |
17 |
|
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(A) LANDLORD’S COVENANTS DURING THE TERM: |
17 |
|
(B) INTERRUPTIONS |
18 |
ARTICLE V |
19 |
|
|
(A) FIXED RENT |
19 |
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(B) ADDITIONAL RENT - TAXES |
19 |
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(C) ADDITIONAL RENT - OPERATING EXPENSES |
20 |
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(D) MONTHLY PAYMENTS |
23 |
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(E) ADDITIONAL RENT - ELECTRICITY, GAS, WATER & SEWER |
25 |
ARTICLE VI |
25 |
|
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(A) TENANT’S COVENANTS DURING THE TERM |
25 |
ARTICLE VII |
31 |
|
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(A) EVENTS OF DEFAULT |
32 |
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(B) OBLIGATIONS THEREAFTER |
32 |
ARTICLE VIII |
33 |
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(A) CASUALTY AND TAKING |
33 |
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(B) RESERVATION OF AWARD |
34 |
ARTICLE IX |
34 |
|
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(A) SUBORDINATION TO MORTGAGES |
34 |
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(B) LIMITATION ON MORTGAGEE’S LIABILITY |
35 |
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(C) NO RELEASE OR TERMINATION |
35 |
ARTICLE X |
36 |
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(A) CAPTIONS |
36 |
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(B) SHORT FORM LEASE |
36 |
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(C) RELOCATION |
36 |
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(D) NOTICES |
36 |
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(E) SUCCESSORS AND ASSIGNS |
37 |
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(F) NO SURRENDER |
37 |
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(G) WAIVERS AND REMEDIES |
37 |
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(H) SELF-HELP |
38 |
|
(I) ESTOPPEL CERTIFICATE |
38 |
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(J) WAIVER OF SUBROGATION |
39 |
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(K) BROKERS |
39 |
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(L) LANDLORD’S DEFAULTS |
39 |
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(M) EFFECTIVENESS OF LEASE |
40 |
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(N) HAZARDOUS MATERIALS |
40 |
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(O) DELAYS |
42 |
ARTICLE XI |
43 |
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ARTICLE XII |
45 |
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ARTICLE XIII |
45 |
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(A) OPTION TERM |
45 |
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(B) OPTION RENT |
45 |
ARTICLE XIV |
46 |
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ARTICLE XV |
48 |
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ARTICLE XVI |
48 |
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Exhibit A |
Plan Showing Location of The Building |
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Exhibit A-1 |
Plan Showing Demised Premises |
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Exhibit B-1 |
Landlord’s Delivery Conditions |
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Exhibit B-2 |
Tenant’s Work |
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Exhibit C |
Landlord’s Services |
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Exhibit D |
Rules and Regulations |
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Exhibit E |
Legal Description of Lot |
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Exhibit F |
List of Hazardous Substances and Materials |
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Exhibit G |
Exterior Sign |
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Exhibit H |
Plan Showing Location for Nitrogen Tank Pad Area |
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Exhibit I |
Plan Showing Non-Building ROFO Spaces |
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Exhibit J |
Plan Showing Tenant’s Exclusive Biohazard Storage Area and Shared Chemical Storage Area |
Lease dated as of the 3rd day of August, 2021 (the “Effective Date”) by and between Hood Park LLC, a Massachusetts limited liability company, as landlord (“Landlord”), and Finch Therapeutics, Inc., a Delaware corporation, as tenant (“Tenant”).
ARTICLE I REFERENCE DATA
Each reference in this Lease to any of the following subjects shall be construed to incorporate the data stated for that subject in this Section 1(A):
LANDLORD’S ADDRESS: 6 Kimball Lane
Lynnfield, Massachusetts 01940
LANDLORD’S MANAGING AGENT: Nordblom Company
71 Third Avenue
Burlington, Massachusetts 01803 TENANT’S ADDRESS: Prior to the Commencement Date:
200 Inner Belt Road, Suite 400
Somerville, Massachusetts 02143 After the Commencement Date:
100 Hood Park Drive Charlestown, Massachusetts 02129
BUILDING: That certain building designated as “100 Hood Park Drive” upon Exhibit A. RENTABLE FLOOR AREA OF THE DEMISED PREMISES: Approximately 61,139
rentable square feet located on the second (2nd) floor of the Building.
TOTAL RENTABLE FLOOR AREA OF THE BUILDING: Approximately 110,729
rentable square feet, subject to addition following completion of the Landlord’s Expansion Project, if applicable.
COMMENCEMENT DATE: The Effective Date of this Lease.
INITIAL TERM: The period commencing on the Commencement Date and expiring on the last day of the one hundred twentieth (120th) full calendar month following the Rent Commencement Date.
OPTION TERM: One (1) option to extend the Term (as defined herein) for five (5) years as set forth in Article XIII below.
RENT COMMENCEMENT DATE: The earlier to occur of (i) January 1, 2022 and (ii) the date that Tenant’s Work (as defined herein) is Substantially Complete (as defined herein) and Tenant has commenced business operations in the Demised Premises, subject to Section III(B) below and the succeeding sentences of this paragraph. Notwithstanding the foregoing, in the event Tenant’s Work is not Substantially Complete by January 1, 2022, such delay is caused by a Force Majeure and prior to the existence of such Force Majeure and after the Force Majeure has been resolved Tenant has diligently proceeded with the performance and completion of the portions of the Tenant’s Work within its reasonable control, the Rent Commencement Date shall be delayed one (1) day for each day such Force Majeure was in existence, however, for purposes of calculating the number of days of such delay, the first day of such delay shall occur on the business day immediately following the date on which Tenant has provided Landlord with written notice of the existence of such Force Majeure. Additionally, throughout the existence of such Force Majeure, Tenant shall use diligent efforts to resolve such delay and shall keep Landlord reasonably informed of such diligent efforts and status of resolving such Force Majeure.
FIXED RENT: As follows, subject to adjustment as provided in Section III(E), below:
Year 1: Commencing on the Rent Commencement Date and through the last day of the twelfth (12th) full calendar month following the Rent Commencement Date -
$4,535,291.02 per annum ($74.18 per rentable square foot of the Demised Premises) payable in equal monthly installments of $377,940.92;
Year 2: Commencing on the first (1st) day of the thirteenth (13th) full calendar month following the Rent Commencement Date and through the last day of the twenty-fourth (24th) full calendar month following the Rent Commencement Date
- $4,663,071.53 per annum ($76.27 per rentable square foot of the Demised Premises) payable in equal monthly installments of $388,589.29;
Year 3: Commencing on the first (1st) day of the twenty-fifth (25th) full calendar month following the Rent Commencement Date and through the last day of the thirty-sixth (36th) full calendar month following the Rent Commencement Date -
$4,795,131.77 per annum ($78.43 per rentable square foot of the Demised Premises) payable in equal monthly installments of $399,594.31;
Year 4: Commencing on the first (1st) day of the thirty-seventh (37th) full calendar month following the Rent Commencement Date and through the last day of the forty-eighth (48th) full calendar month following the Rent Commencement Date -
$4,930,860.35 per annum ($80.65 per rentable square foot of the Demised Premises) payable in equal monthly installments of $410,905.03;
Year 5: Commencing on the first (1st) day of the forty-ninth (49th) full calendar month following the Rent Commencement Date and through the last day of the
sixtieth (60th) full calendar month following the Rent Commencement Date -
$5,070,868.66 per annum ($82.94 per rentable square foot of the Demised Premises) payable in equal monthly installments of $422,572.39;
Year 6: Commencing on the first (1st) day of the sixty-first (61st) full calendar month following the Rent Commencement Date and through the last day of the seventy-second (72nd) full calendar month following the Rent Commencement Date
- $5,215,156.70 per annum ($85.30 per rentable square foot of the Demised Premises) payable in equal monthly installments of $434,596.39;
Year 7: Commencing on the first (1st) day of the seventy-third (73rd) full calendar month following the Rent Commencement Date and through the last day of the eighty-fourth (84th) full calendar month following the Rent Commencement Date –
$5,363,724.47 per annum ($87.73 per rentable square foot of the Demised Premises) payable in equal monthly installments of $446,977.04;
Year 8: Commencing on the first (1st) day of the eighty-fifth (85th) full calendar month following the Rent Commencement Date and through the last day of the ninety-sixth (96th) full calendar month following the Rent Commencement Date –
$5,516,571.97 per annum ($90.23 per rentable square foot of the Demised Premises) payable in equal monthly installments of $459,714.33;
Year 9: Commencing on the first (1st) day of the ninety-seventh (97th) full calendar month following the Rent Commencement Date and through the last day of the one hundred eighth (108th) full calendar month following the Rent Commencement Date – $5,673,699.20 per annum ($92.80 per rentable square foot of the Demised Premises) payable in equal monthly installments of $472,808.27; and
Year 10: Commencing on the first (1st) day of the one hundred ninth (109th) full calendar month following the Rent Commencement Date and through the last day of the one hundred twentieth (120th) full calendar month following the Rent Commencement Date – $5,836,328.94 per annum ($95.46 per rentable square foot of the Demised Premises) payable in equal monthly installments of $486,360.75.
ADDITIONAL RENT FOR TAXES AND OPERATING EXPENSES: As set forth in
Article V of this Lease.
SECURITY DEPOSIT: $2,267,645.52 in the form of a letter of credit, as set forth in and subject to adjustment in accordance with Article XI hereof.
PERMITTED USE: General office, laboratory, research and development, and manufacturing uses, and, to the extent consistent with Landlord’s operation of Hood Park, as reasonably determined by Landlord on a non-discriminatory basis, such other legal uses ancillary thereto.
COMMERCIAL GENERAL LIABILITY INSURANCE LIMITS: As set forth in Section
(8) of Article VI of this Lease.
TENANT’S SHARE OF OPERATING EXPENSES: 55.21%, subject to adjustment. TENANT’S SHARE OF TAXES: 55.21%, subject to adjustment.
The exhibits listed below in this Section are incorporated in this Lease by reference and are to be construed as part of this Lease:
EXHIBIT A Plan Showing Location of the Building EXHIBIT A-1 Plan Showing Demised Premises EXHIBIT B-1 Landlord’s Delivery Conditions EXHIBIT B-2 Tenant’s Work
EXHIBIT C Landlord’s Services
EXHIBIT D Rules and Regulations
EXHIBIT E Legal Description of Lot
EXHIBIT F List of Hazardous Substances and Materials EXHIBIT G Exterior Sign
EXHIBIT H Plan Showing Location of Nitrogen Tank Pad Area EXHIBIT I Plan Showing Non-Building ROFO Spaces
EXHIBIT J Plan Showing Tenant’s Exclusive Biohazard Storage Area and Shared Chemical Storage Area
ARTICLE II PREMISES
As of the Commencement Date, subject to and with the benefit of the provisions of this Lease, Landlord hereby leases to Tenant, and Tenant leases from Landlord, Tenant’s space in the Building (as shown on Exhibit A-1), excluding exterior faces of exterior walls, all common facilities of the Building and all building service fixtures and equipment serving (exclusively or in common) other parts of the Building. As used in this Lease, “Tenant’s space” means 61,139 rentable square feet of space located on the second (2nd) floor of the Building, as shown on Exhibit A-1. The Building is outlined in red upon the plan attached as Exhibit A. Tenant’s space, with such exclusions, is hereinafter referred to collectively as the “Demised Premises”.
Tenant shall have, as appurtenant to the Demised Premises, the right to use in common with others entitled thereto, subject to the Rules and Regulations attached hereto as Exhibit D, and such other reasonable rules from time to time made by Landlord of which Tenant is given prior written notice and that do not materially interfere with Tenant’s use of the Demised Premises for
the Permitted Use (collectively, the “Common Areas”): (i) the areas for the non-exclusive use of tenants of, and facilities from time to time included in, the Building or on the parcel of land on which the Building is located (said parcel being more particularly described in Exhibit E and being hereafter referred to as the “Lot”), to the extent from time to time reasonably designated by Landlord, provided that no such designation shall unreasonably interfere with Tenant’s use or occupancy of, or access to, the Demised Premises, which shall include, without limitation, the Parking Garage (as defined below), common driveways and sidewalks on the Lot, a bicycle storage room to be located in the Building (currently anticipated to be located on the first level of the Parking Garage) on the first (1st) floor of the Building, passenger and freight elevators and loading docks serving the Building, the main tel/data entrance room located in the Building, common hallways, entrances, foyers, and stairwells, shafts, chases, roof, (for the installation of Tenant’s fixtures and equipment), and the main lobby of the Building; and (ii) the Building service fixtures and equipment serving the Demised Premises. Notwithstanding anything in this Lease to the contrary, subject to the right of Landlord, its employees, agents, contractors and representatives to use, enter or access such areas in accordance with the terms of this Lease, Tenant shall have the right to use its pro rata share, based on Tenant’s Share of Operating Expenses (as the same may adjust from time to time), of the chemical storage areas on the first (1st) floor of the Building shown on the plan attached hereto as Exhibit J and the exclusive right to use an area consisting of approximately 116 square feet on the first (1st) floor of the Building shown on the plan attached hereto as Exhibit J for Tenant’s biohazardous materials and/or waste (such area to be provided by Landlord demised from the remainder of the first (1st) floor but Tenant shall be solely responsible for any improvements or alterations required for Tenant’s use, including all costs and expenses thereof, subject to Landlord’s obligation with respect to the Allowance). The Lot is represented by the area outlined by a bold line upon said Exhibit A. It is understood and agreed that said plan is intended only to show the approximate size of the Lot as presently constituted and the approximate size and location of the Building and for no other purpose. Landlord reserves the right from time to time, in Landlord’s reasonable discretion, and provided that the same does not unreasonably interfere with Tenant’s use or occupancy of, access to, or business operations in, the Demised Premises, or Tenant’s use of the Demised Premises for the Permitted Use, or access to, any Common Areas existing as of the Commencement Date: (a) to install, repair, replace, use, maintain and relocate for service to the Demised Premises and to other parts of the Building or either, building service fixtures and equipment wherever located in the Building (provided that any such installations or relocations in the Demised Premises shall be behind finished walls, or above finished ceilings); (b) to alter, relocate or eliminate any other common facility; (c) to designate specific parking areas upon the Lot to be for the exclusive use of one or more users thereof; (d) to designate specific traffic routes for trucks and other delivery vehicles; (e) to alter the size of the Building (but without decreasing, by more than a de minimis amount, the usable square footage of the Demised Premises), including, without limitation, converting warehouse space to office or laboratory space, office space to warehouse or laboratory space, or laboratory to office or warehouse space; and (f) to increase and/or decrease the size of the Lot by the acquisition of adjacent land and/or the disposition of any portions thereof. No such increase or decrease shall be deemed to have occurred until Landlord shall give Tenant at least sixty (60) days’ prior written notice thereof.
Landlord shall make available to Tenant on a non-reserved, first come-first serve basis, at no additional cost to Tenant, one (1) parking space per one thousand (1,000) rentable square foot of floor area of the Demised Premises in the Parking Garage. To the extent available, Landlord shall provide Tenant with additional parking spaces within the Parking Garage on a month to month basis upon written request of Tenant at a monthly charge per parking space based on the fair market value of similar parking spaces in accessory, on-site parking garages located in Charlestown and Somerville, Massachusetts, which fee shall be subject to annual adjustment from time to time.
Commencing on the later of (i) January 1, 2022, or (ii) the Rent Commencement Date, Landlord shall provide, from time to time, the following amenities to the Building (the “Amenities”), which may be used, on a non-exclusive basis, by other tenants, occupants and invitees of the Lot: (i) fitness facilities, (ii) shuttle service to and from the Sullivan Square MBTA transit station, (iii) an interior bicycle storage area in the Building (currently anticipated to be located in the Parking Garage (as hereinafter defined)); and (iv) a cafeteria or other food services (which may include, without limitation, restaurants, café’s, and food trucks). Landlord shall use commercially reasonable efforts to provide such Amenities at all times during the Term from and after the Rent Commencement Date, however, with respect to item (ii) (shuttle service) herein, Landlord shall have to right to modify, adjust and/or terminate such Amenity, as Landlord may reasonably determine. The cost of the Amenities shall be included in the Building’s Share of Operating Expenses (as hereinafter defined).
Landlord has informed Tenant that it is Landlord’s intent to construct an addition, consisting of five (5) floors on top of the Building, to be used for office and laboratory and research and development uses (“Landlord’s Expansion Project”). Except in the event of an emergency, Landlord shall use commercially reasonable efforts, consistent with accepted construction best practices, to minimize any materially adverse impact on Tenant’s use and occupancy of the Demised Premises as a result of Landlord’s Expansion Project. Landlord’s Expansion Project shall be constructed in a good and workmanlike manner and in compliance with all applicable legal requirements, including without limitation, applicable noise ordinances. Tenant, without any out of pocket cost or expense, agrees to reasonably cooperate with Landlord as reasonably necessary in connection with Landlord’s Expansion Project. Subject to Landlord’s obligations under this Subsection (E), Tenant further agrees that dust, noise, vibration, temporary closures of the Common Areas, temporary interruption of services provided to the Building, or other inconvenience or annoyance resulting from the Landlord’s Expansion Project shall not be deemed to be a breach of Landlord’s obligations under the Lease. Notwithstanding the foregoing, in no event shall any space within the Demised Premises or, except as expressly set forth in this Subsection (E), Tenant’s access to and use of the Common Areas of the Building, be deprived of safe and reasonable access or rendered untenantable for the Permitted Uses by reason of the Landlord’s Expansion Project.
Landlord shall provide to Tenant not less than one hundred eighty (180) days’ prior written notice of its proposed commencement of construction of Landlord’s Expansion Project. During
such 180-day period, Landlord shall work diligently and good faith to develop a construction management plan for Landlord’s Expansion Project consistent with Landlord’s obligations under this Subsection (E), which shall include, without limitation, Landlord’s plans and procedures to minimize the impacts of Landlord’s Expansion Project (consistent with Landlord’s agreement in the immediately foregoing paragraph) on Tenant’s use and occupancy of the Demised Premises, all of which shall be at Landlord’s sole cost and expense. Landlord shall engage, at its sole cost and expense, consultants and/or engineers to advise it on such construction management plan. Landlord shall consult with Tenant on the development of such construction management plan and Landlord shall consider Tenant’s reasonable comments and input to the construction management plan. Tenant’s shall be solely responsible for any costs and expenses incurred by Tenant in its review of or participation in said construction management plan.
Notwithstanding anything in this Lease to the contrary, the impacts of Landlord’s Expansion Project on Tenant’s use and occupancy of, and regular business operations within, the Demised Premises shall be subject to the following requirements:
materially affected by the Landlord’s Expansion Project. To the extent necessary to maintain the functionality of the services Landlord is required to provide under this Lease, Landlord, at its sole cost and expense, shall either relocate such equipment or replace such equipment with new equipment having the same or better specifications and capacities as the existing equipment. Notwithstanding anything in this Lease to the contrary, such relocation work shall not result in an interruption in any utilities or services to the Demised Premises for more than forty- eight (48) consecutive hours, or occur more than three (3) times during the Expansion Project, and further provided that in no event shall there be any shutoff of electricity to the Demised Premises (other than brief temporary interruptions which may occur from time to time after Tenant has had the opportunity to install or use a back-up generator to serve the Demised Premises). Any utility or service interruption permitted by this subsection (ii) shall be scheduled at times and dates reasonably acceptable to Tenant and upon at least seven (7) days’ prior written notice to Tenant, and shall only take place outside of regular Business Hours (as defined below). Landlord agrees to use commercially reasonable efforts to keep Tenant reasonably informed of any scheduled utility or service interruptions. Notwithstanding the foregoing, Tenant hereby acknowledges and agrees that Landlord’s obligations with respect to utilities and interruptions thereof shall not apply to interruptions caused by the supplier of such utilities which are not caused by Landlord’s Expansion Project.
Landlord’s Expansion Project is not or was not the cause of such vibrations, Landlord may resume the Landlord’s Expansion Project without such mitigation plan but Landlord shall continue to monitor vibration levels at the Building and perform in accordance with the procedures set forth above. In the event that such sensors detect vibrations exceeding 7,900 mips and such vibrations were caused by the Landlord’s Expansion Project more than three (3) times in any thirty (30) day period, or for more than two (2) consecutive days, and if, as a result of such vibrations, Tenant is prevented from conducting business operations in the Demised Premises for laboratory purposes, then, in addition to any other rights or remedies Tenant may have under this Lease, or at law or in equity, Tenant shall be entitled to a per diem credit of Fixed Rent for each day that Tenant is unable to use all of the laboratory portion of the Demised Premises for laboratory purposes consistent with Tenant’s business, including, without limitation, the use of any lyophilizers that Tenant intends to install in the Demised Premises, and, if Tenant is unable to use only a portion of the laboratory portion of the Demised Premises for laboratory purposes (vs all of the laboratory portion of the Demised Premises), such per diem credit of Fixed Rent shall be equitably adjusted based on the percentage of Tenant’s laboratory use so prevented as a result of such vibration levels in relation to Tenant’s use of the entire laboratory portion of the Demised Premises. For purposes of clarity, Landlord and Tenant hereby acknowledge and agree that only Tenant’s use of the laboratory portion of the Demised Premises and the effects of vibrations thereon shall determine any abatement rights or amounts (or equitably adjusted amounts) under this paragraph and no portion of the office portion of the Demised Premises affected by such vibration levels shall be considered in connection therewith.
ARTICLE III
TERM AND CONSTRUCTION
To have and to hold for a period (the “Term”) commencing on the Commencement Date (as defined in Section (A) of Article I above) and, unless sooner terminated as provided herein, ending at the expiration of the Term; provided that if the Term (calculated as aforesaid) would expire prior to the last day of a calendar month, the Term shall be extended so as to expire on the last day of such calendar month. Promptly after the Rent Commencement Date, Landlord and Tenant shall execute a Commencement Date Agreement setting forth the commencement, rent commencement and expiration dates and the Term of this Lease.
The Demised Premises shall be delivered to the Tenant on the Commencement Date (i) with the items designated as Landlord’s responsibility on Exhibit B-1 attached hereto (the “Base Building Delivery Conditions”), substantially complete, subject only to punch list items that do not unreasonably interfere with the performance of the Tenant’s Work (as hereinafter defined) (“Substantially Complete”), and which punch list items Landlord shall diligently pursue to
completion within a reasonable time thereafter (not to exceed 60 days) without unreasonably interfering with the performance of Tenant’s Work, (ii) with the Common Areas within the Building in compliance with all applicable federal, state, and municipal laws, codes, statutes, ordinances, or other lawful rules, regulations, or ordinances of governmental authorities, including, without limitation, the Americans with Disabilities Act, as such are enforced by local authorities having applicable jurisdiction (“Applicable Laws”), (iii) with the Building systems serving the Demised Premises in good working order and condition, and in compliance with all Applicable Laws, (iv) free of all Hazardous Materials (as defined below), and (v) broom clean, vacant and free of all occupants, personal property, trash, debris, trade fixtures and equipment, and shall be accepted by Tenant without any warranty of fitness for use or occupancy, expressed or implied, except as expressly set forth in this Lease. Tenant acknowledges that is has inspected the Demised Premises and has confirmed that, except for the completion of the (i) mailroom, (ii) providing a gas line to the Demised Premises, (iii) the installation of the pH neutralization tank, and (iv) Hazardous Materials control area (the “To Be Completed Base Building Delivery Conditions”), latent defects, and the payment of the Allowance and the Restroom Allowance (both as defined below), the Landlord’s Base Building Delivery Conditions have been satisfied. It is understood and agreed that, except for the To Be Completed Base Building Delivery Conditions, Tenant will accept the Demised Premises in their existing physical condition, and Landlord shall be under no obligation to make any repairs, alterations or improvements to the Demised Premises prior to or at the commencement of the term hereof or at any time thereafter, except as otherwise set forth in this Lease; provided, however, that nothing in this sentence shall be deemed to limit Landlord’s obligations under Article IV of this Lease. Notwithstanding the foregoing, within a reasonable time following the Effective Date (but prior to January 1, 2022), Landlord shall Substantially Complete the To Be Completed Base Building Delivery Conditions at Landlord’s sole cost and expense, in a good and workmanlike manner, in compliance with all Applicable Laws, and Landlord shall diligently pursue any remaining punch list items to completion within a reasonable time thereafter. Landlord shall have access to the Demised Premises for the performance of the To Be Completed Base Building Delivery Conditions at such times and for such durations as it reasonably deems necessary to complete such work, however, Landlord shall work in good faith and use commercially reasonable efforts to coordinate the schedule of such work so as to not materially interfere with Tenant’s construction of the Tenant’s Work concurrently with the To Be Completed Base Building Delivery Conditions.
In the event that Landlord’s construction of the To Be Completed Base Building Delivery Conditions delays performance of the Tenant’s Work, and as a result thereof, is the direct cause of a delay in the substantial completion of the Tenant’s Work beyond January 1, 2022 (a “Landlord Delay”), then the Rent Commencement Date shall be extended by one (1) day for each day occurring during the period the Landlord Delay existed. Additionally, if the To Be Completed Base Building Delivery Conditions are not Substantially Complete by January 1, 2022, such delay is not otherwise caused by Tenant, the Tenant’s Work, or a Force Majeure, and, solely as a result of Landlord’s failure to Substantially Complete the To Be Completed Base Building Delivery Conditions, the Tenant is prevented from operating its business in the Demised Premises for laboratory purposes, then the Rent Commencement Date shall be extended until the date that the portion of To Be Completed Base Building Delivery Conditions which is preventing Tenant from operating its business in the Demised Premises for laboratory purposes is Substantially Complete. Notwithstanding the foregoing, a Landlord Delay shall not occur until such time as Tenant has
provided Landlord with written notice that an action or inaction of Landlord with respect to the To Be Completed Base Building Delivery Conditions has the potential to cause a Landlord Delay and Landlord has failed to remedy such action or inaction within three (3) business days of Landlord’s receipt of such written notice.
If the To Be Completed Base Building Delivery Conditions are not Substantially Complete by February 1, 2022, such delay is not otherwise caused by Tenant, the Tenant’s Work, or a Force Majeure, and, solely as a result of Landlord’s failure to Substantially Complete the To Be Completed Base Building Delivery Conditions, the Tenant is prevented from operating its business in the Demised Premises for laboratory purposes, then Tenant shall be entitled to a per diem credit of Fixed Rent for the period of incompletion between February 1, 2022 and April 30, 2022, with such credit first being applied on the Rent Commencement Date (as delayed, aforesaid). In the event the To Be Completed Base Building Delivery Conditions are not Substantially Complete by May 1, 2022, such delay is not otherwise caused by Tenant, the Tenant’s Work, or a Force Majeure, and, solely as a result of Landlord’s failure to Substantially Complete the To Be Completed Base Building Delivery Conditions, the Tenant is prevented from operating its business in the Demised Premises for laboratory purposes, then Tenant shall be entitled to a Fixed Rent credit equal to two
(2) times the per diem Fixed Rent for the period of incompletion from and after May 1, 2022. In the event that Landlord’s construction of the To Be Completed Base Building Delivery Conditions is not Substantially Complete by September 1, 2022, such delay is not otherwise caused by Tenant, the Tenant’s Work, or a Force Majeure, and, solely as a result of Landlord’s failure to Substantially Complete the To Be Completed Base Building Delivery Conditions, the Tenant is prevented from operating its business in the Demised Premises for laboratory purposes, Tenant shall have the right, at anytime following September 1, 2022 but prior to Substantial Completion of such To Be Completed Base Building Delivery Conditions which are preventing Tenant from operating its business in the Demised Premises for laboratory purposes, upon thirty (30) days’ prior notice to Landlord terminate this Lease; provided, however, if the To Be Completed Base Building Delivery Conditions are Substantially Complete during such 30-day period, then Tenant’s termination notice shall be null and void and of no force and effect.
Landlord and Tenant hereby acknowledge and agree that, in lieu of Landlord’s obligation to perform the work relating to the bathrooms in the Demised Premises described on Exhibit B-1 (the “Premises Restroom Work”), Landlord shall provide Tenant with the Restroom Allowance (described in Section (E) below) and, accordingly, Landlord shall have no obligation to perform or complete the Premises Restroom Work.
Tenant shall perform, at its own cost and expense (but subject to the Allowance and the Restroom Allowance defined below), any work (“Tenant’s Work”) required to prepare the Demised Premises for Tenant’s occupancy, such Tenant’s Work shall be performed in accordance the provisions of Exhibit B-2 attached hereto, and the Landlord’s reasonable construction rules and regulations to be provided to Tenant within a reasonable time following the execution of this Lease, and shall equip the Demised Premises with all trade fixtures and personal property suitable or appropriate to the regular and normal operation of the type of business in which Tenant is engaged. Tenant acknowledges and agrees that Tenant’s Work shall include the Premises
Restroom Work. Tenant shall commence Tenant’s Work promptly following the later of (i) Landlord’s delivery of the Demised Premises to Tenant in the condition required by this Lease, and (ii) Landlord’s approval of Tenant’s plans, budget and completion schedule for the Tenant’s Work as provided in Exhibit B-2, and shall diligently pursue same to completion.
All construction work required or permitted by this Lease, whether by Landlord or by Tenant, shall be done in a good and workmanlike manner in compliance with all Applicable Laws and insurance rating or inspection bureaus having jurisdiction over the Building. Either party may inspect the work of the other at reasonable times and shall promptly give notice of observed defects.
As an inducement for Tenant to execute this Lease and prepare the Demised Premises for Tenant’s occupancy, Landlord shall pay to Tenant an amount up to and not to exceed
$14,367,665.00 ($235.00 per rentable square foot of the Demised Premises) as reimbursement towards the cost of the design and construction of the initial Tenant’s Work (the “Allowance”) that is completed within the eighteen (18) month anniversary of the Rent Commencement Date. In addition to the Allowance, Landlord shall pay Tenant an additional amount up to and not to exceed
$443,257.75 ($7.25 per rentable square foot of the Demised Premises) (the “Restroom Allowance”) as reimbursement towards the cost of the design and construction of the Premises Restroom Work that is completed within the eighteen (18) month anniversary of the Rent Commencement Date. In no event shall Landlord have any obligation to pay any portion of the Allowance or the Restroom Allowance for any Tenant’s Work completed after the eighteenth (18th) month anniversary of the Rent Commencement Date. In addition, in no event shall Landlord have any obligation to pay any portion of the Allowance or the Restroom Allowance for any Tenant’s Work completed prior to the eighteen (18) month anniversary of the Rent Commencement Date unless Tenant has submitted a requisition for such payment within twenty-one (21) months following the Rent Commencement Date. The Allowance and the Restroom Allowance shall be utilized for so-called “hard” and “soft” costs of Tenant’s Work, however, the Restroom Allowance may only be used for such costs relating to the Premises Restroom Work and not for other portions of the Tenant’s Work. As completion of the Tenant’s Work progresses, Tenant may submit requisitions for payment to Landlord from time to time (but not more frequently than once per month) and Landlord shall pay the portion of the Allowance and/or the Restroom Allowance, as the case may be, in the amount set forth in the requisition to Tenant within thirty (30) days following receipt of Tenant’s requisition, together with partial lien waivers, third party paid invoices and other documentation reasonably requested by Landlord relating to Tenant’s Work covered by the requisition. Landlord shall pay the final payment of the Allowance and/or the Restroom Allowance, as the case may be, within thirty (30) days following Landlord’s receipt of all of the following: (1) a detailed statement, including requisitions from Tenant’s general contractor, third party paid invoices and other documentation reasonably requested by Landlord evidencing the total cost of, and payment for, actual work done in connection with the Landlord approved plans for Tenant’s Work (and Landlord shall have the right, upon reasonable advance notice to Tenant, to inspect Tenant’s books and records relating to such statement in order to verify
the amount thereof); (2) final and unconditional lien waivers relating to items, services and work performed in connection with all phases or portions of Tenant’s Work (and, if Tenant’s general contractor has recorded a Notice of Substantial Completion in Suffolk Registry of Deeds pursuant to MGL Ch. 254 and the statutory period has elapsed since such recording, and if requested, has provided Landlord with satisfactory evidence that all subcontractors and vendors have been provided with a copy of the recorded notice); (3) “as-built” plans showing the completed Tenant’s Work; (4) a certificate of Tenant’s architect in the form of AIA G-704 indicating that the Tenant’s Work has been completed in accordance with the approved plans; and (5) a copy of a final certificate of occupancy for the Demised Premises issued by the appropriate department of the City of Boston. Notwithstanding anything to the contrary contained in this Lease: (i) Landlord’s obligation to pay the Allowance and/or the Restroom Allowance shall be conditioned upon there being no then existing Event of Default by Tenant in its obligations under this Lease beyond any applicable notice and cure periods at the time that Landlord would be required to make such payment; and (ii) Landlord shall have no obligation to advance any funds or pay any amount on account of Tenant’s Work in excess of the Allowance and the Restroom Allowance (collectively, “Excess TI Costs”), such payment obligation to be Tenant’s. It is expressly understood and agreed that except for Tenant’s movable trade fixtures and equipment, furniture, and other personal property, all of Tenant’s Work shall be property of Landlord whether or not the actual cost shall exceed the Allowance and the Restroom Allowance, unless specifically stated to the contrary at the time Landlord approves any plans therefor. Notwithstanding anything in this Section 3(E) to the contrary, in addition to the Allowance and the Restroom Allowance, Landlord hereby agrees to reimburse Tenant up to $6,113.90 $0.10 per rentable square foot of the Demised Premises for costs and expenses incurred by Tenant to prepare a test fit plan for Tenant’s Work, such reimbursement to be made within thirty (30) days of Landlord’s receipt of evidence reasonably satisfactory that Tenant has incurred and paid for such costs.
ARTICLE IV LANDLORD’S COVENANTS
applicable local or state law regarding handicapped access as such are enforced by local authorities having jurisdiction over the Building, however, Tenant shall be solely responsible for the maintenance, repair and replacement of any specialty or non-office standard equipment, including without limitation, any supplemental heating, ventilation and air conditioning equipment which Tenant has elected to install or to have installed and that exclusively serves the Demised Premises (and Landlord shall have no obligation to maintain, repair or replace same).
Landlord shall not be liable to Tenant for any compensation or reduction of rent by reason of inconvenience or annoyance or for loss of business arising from (a) power losses or shortages that are not within Landlord’s reasonable ability to control, or (b) the commercially reasonable necessity of Landlord’s entering the Demised Premises for any of the purposes set forth in this Lease, including without limitation, for repairing or altering the Demised Premises or any portion of the Building as required or permitted by this Lease, or for bringing materials into and/or through the Demised Premises in connection with the making of repairs or alterations as the same may be reasonably necessary; provided, however, that Landlord shall use commercially reasonable efforts not to unreasonably interfere with Tenant’s use or occupancy of, or business operations in, the Demised Premises.
In case Landlord is prevented or delayed from making any repairs, alterations or improvements or furnishing any utility or service or performing any other covenant or duty to be performed on Landlord’s part (any such prevention, delay, interruption, suspension, or stoppage, an “Interruption”), by reason of any cause reasonably beyond Landlord’s control, Landlord shall not be liable to Tenant therefor, nor, except as expressly otherwise provided in this Section 4(B) or Article VIII, shall Tenant be entitled to any abatement or reduction of rent by reason thereof, nor shall the same give rise to a claim in Tenant’s favor that such failure constitutes actual or constructive, total or partial, eviction from the Demised Premises. Landlord reserves the right to stop any service or utility system when necessary in Landlord’s reasonable opinion by reason of accident or emergency or until necessary repairs have been completed, which Landlord shall use diligent efforts to complete as soon as reasonably practicable. Except in case of emergency repairs, Landlord will give Tenant reasonable advance notice of any contemplated stoppage and, in any event, Landlord will use commercially reasonable efforts to avoid unnecessary inconvenience to Tenant, or unreasonable interference with Tenant’s business operations, by reason thereof.
Notwithstanding anything in this Lease to the contrary, if (i) an Interruption shall occur as a result of the negligence or willful misconduct of Landlord, its agents, contractors, or employees or the failure by Landlord to perform its maintenance and repair obligations hereunder, except and to the extent due to the negligence or willful misconduct of Tenant or Tenant’s agents employees, contractors or invitees, and (ii) such Interruption continues for more than five (5) consecutive days after Landlord shall have received written notice thereof from Tenant, and (iii) as a result of such Interruption, Tenant’s normal business operations in the Demised Premises are materially and adversely affected, then there shall be an abatement of one day’s Fixed Rent, Tenant’s Share of Taxes (as defined below), and Tenant’s Share of Operating Expenses (as defined below) for each day such Interruption continues after such five (5) period; provided, however, if the entire Premises
have not been rendered unusable for the Permitted Use by the Interruption, the amount of abatement shall be equitably prorated.
ARTICLE V RENT
Tenant agrees to pay, without any offset or reduction whatever (except as made in accordance with the express provisions of this Lease), fixed monthly rent equal to 1/12th of the Fixed Rent (subject to adjustment in accordance with Section III(E)), such rent to be paid, commencing on the Rent Commencement Date, in equal installments in advance on the first day of each calendar month included in the Term; and for any portion of a calendar month at the beginning or end of the Term, a portion of such fixed monthly rent, prorated on a per diem basis. All payments of Fixed Rent and additional rent shall be made in lawful money of the United States and shall be made to Hood Park LLC and sent to Landlord’s Managing Agent at Managing Agent’s Address set forth in Section (A) of Article I above, or to such other person and/or at such other address as Landlord may from time to time designate. Notwithstanding any provision of this Lease to the contrary, Tenant shall remit the first (1st) monthly installment of Fixed Rent contemporaneously with the execution and delivery of this Lease to Landlord.
If any payment of rent or any other payment payable hereunder by Tenant to Landlord shall not be paid when the same is due and payable, the same shall bear interest from the date when the same was payable until the date paid at the lesser of (a) twelve percent (12%) per annum, or (b) the highest lawful rate of interest which Landlord may charge to Tenant without violating any Applicable Law. Such interest shall constitute additional rent payable hereunder. Notwithstanding the foregoing, such late payment fee/penalty shall be waived the first time in any twelve (12) consecutive month period that such late payment may occur so long as Tenant has paid such amount due within seven (7) days of receipt of written notice from Landlord of Tenant’s failure to pay such amount when due.
product of the real estate taxes upon the Lot and a fraction the numerator of which is the Total Rentable Floor Area of the Building, and the denominator of which is the number of square feet of rentable floor area contained within all buildings located upon the Lot (the “Total Rentable Floor Area of the Lot”) provided, however, that for purposes of this subsection (ii), (x) if any portion of the Lot shall be separately assessed, the real estate taxes toward which Tenant shall be obligated to contribute shall include only those taxes on those portions of the Lot jointly assessed with the portion of the Lot on which the Building is located, in which event the denominator of said fraction shall be the rentable floor area (in square feet) of all buildings located upon those portions of the Lot which are jointly assessed with the portion of the Lot on which the Building is located; and (y) the denominator of said fraction shall not include any portion of the Parking Garage (or any other surface parking or garage facilities in other buildings on the Lot). For purposes of clarification, Landlord and Tenant hereby acknowledge and agree that the costs and expenses relating to the Parking Garage are intended to be a common area cost of the Lot (net of revenue generated by the Parking Garage) and not a cost specifically attributable to the Building. Landlord reserves the right to equitably adjust the calculation of the Factor and the Building’s Share of Real Estate Taxes with respect to Taxes as reasonably determined by Landlord, including without limitation, in connection with the Landlord’s Expansion Project.
Operating Year: Each successive fiscal year (as adopted by Landlord) in which any part of the Term of this lease shall fall.
“Operating Expenses” shall mean all costs or expenses incurred for the management, operation, cleaning, maintenance, repair and upkeep of the Property, including, without limitation, all costs of maintaining and repairing the Property (including snow removal, landscaping and grounds maintenance, parking lot operation and maintenance, garage operation and maintenance, Parking Garage operation and maintenance (but only to the extent the same exceed revenue and/or fees generated by the Parking Garage), security, operation and repair of ventilating and air-conditioning equipment, elevators, lighting and any other Building equipment or systems) and of all repairs and replacements (other than repairs or replacements for which Landlord has received reimbursement from warranties, insurance proceeds, contractors, other tenants of the Building or from others) necessary to keep the Property in good working order, repair, appearance and condition; all costs, including material and equipment costs for cleaning and janitorial services to the Building (including window cleaning of the Building); all costs of any reasonable insurance carried by Landlord relating to the Property, consistent with insurance required by institutional lenders to be carried by owners of first-class office and laboratory buildings in Boston, Massachusetts; all costs related to provision of heat (including oil, electric, steam and/or gas), air-conditioning, and water (including sewer charges) and other utilities to the Common Areas; payments under all service contracts relating to the foregoing; all compensation, fringe benefits, payroll taxes and workmen’s compensation insurance premiums related thereto with respect to any employees of Landlord or its affiliates engaged in security and maintenance of the Property not above the level of general manager (or functional equivalent thereof); all costs and expenses incurred for providing amenities and or services that are generally available to all tenants and occupants of the Property at no additional direct cost, including without limitation, shuttle services, but in all such instances, net of all revenue generated by such amenities and/or services; reasonable attorneys’ fees and disbursements (exclusive of any such fees and disbursements incurred in tax abatement proceedings or the preparation of leases, or relating to individual tenants) and auditing and other professional fees and expenses incurred in connection with the operation and maintenance of the Property (opposed to the ownership of the Property, which costs shall be excluded from Operating Expenses); and a reasonable management fee at market rates customarily paid with respect to buildings similar to the Property, not to exceed four percent (4%) of gross receipts of the Property.
There shall not be included in such Operating Expenses: brokerage fees (including rental fees or commissions) related to the operation of the Building; interest and depreciation charges incurred on the Property; rent or other charges under any ground lease or master lease; expenditures made by Tenant with respect to cleaning, maintenance and upkeep of the Demised Premises; the provision of electricity to the Demised Premises provided Landlord bills same separately to Tenant; any net income, franchise, capital stock, estate or inheritance taxes, or taxes that are the personal obligation of Tenant or of another tenant of the Property; expenses that relate to preparation, improvement, or decorating of rental space for a tenant (including permit, license, and inspection fees); advertising costs, promotional costs, public relation fees, and all other costs and disbursements and other expenses incurred in connection with leasing, renovating or
improving vacant space for tenants or prospective tenants; expenses of initial development and construction, including grading, paving, landscaping and decorating (as distinguished from maintenance, repair and replacement of the foregoing); interest upon loans to Landlord or secured by a loan agreement, mortgage, deed of trust, security instrument or other loan document covering the Project or a portion thereof; fines, penalties, and interest incurred by reason of Landlord’s failure to timely pay any taxes or other impositions of any governmental authority, or failure to perform any of its other obligations on a timely basis; salaries and benefits of employees of Landlord or its affiliates above the level of general manager (or functional equivalent thereof); depreciation claimed by Landlord for tax purposes; license, permit, and inspection fees incurred as a result of a violation of Applicable Laws by Landlord or another tenant of the Property; the capital costs other than “capital expenditures” as defined in this Section 5(C)(1), below; the cost of maintenance, repair, or replacements necessitated by the negligence or willful misconduct of Landlord; costs resulting from Landlord’s breach of this Lease or violation of Applicable Laws or costs incurred by Landlord to correct any violations of Applicable Laws to the extent such violations exist on the Commencement Date; reserves with respect to any anticipated Operating Expenses; costs arising from construction defects (as opposed to costs arising as a result of wear and tear) in the base, shell, common area, or core of the Building or improvements; any costs incurred in connection with initial development and construction of the Property or Landlord’s Expansion Project; overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in the Building to the extent the same exceeds the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis buildings comparable to the Building; political contributions; artwork; and any item that, if included in Operating Expenses, would involve a double collection for such item by Landlord, or which is otherwise reimbursable.
Subject to the final sentence of this paragraph, if Landlord shall replace any capital items or make any capital expenditures, which, upon the recommendation of a qualified and independent third-party building or structural engineer engaged by Landlord, are reasonably necessary to maintain the structural integrity of the Premises or the Building, or to otherwise maintain the Building (including, without limitation, all systems serving the Building) in a manner consistent with prudent and sophisticated owners of comparable first-class office and laboratory buildings in the Boston/Cambridge market area (collectively called “capital expenditures”) the total amount of which is not properly included in Operating Expenses for the calendar year in which they were made, there shall nevertheless be included in Operating Expenses for each calendar year in which and after such capital expenditure is made the annual charge-off of such capital expenditure. Annual charge-off shall be determined by (i) dividing the original cost of the capital expenditure by the number of years of useful life thereof (the useful life shall be reasonably determined by Landlord in accordance with generally accepted accounting principles and practices in effect at the time of acquisition of the capital item); and (ii) adding to such quotient an interest factor computed on the unamortized balance of such capital expenditure based upon an interest rate reasonably determined by Landlord as being the interest rate then being charged for long term mortgages by institutional lenders on like properties within the locality in which the Building is located.) Provided, further, that if Landlord reasonably concludes on the basis of engineering estimates that a particular capital expenditure will effect savings in Operating Expenses and that such annual projected savings will exceed the annual charge-off of capital expenditure computed as aforesaid, then and in such events, the annual charge-off shall be determined by dividing the amount of such capital expenditure by the number of years over which the projected amount of
such savings shall fully amortize the cost of such capital item or the amount of such capital expenditure; and by adding the interest factor, as aforesaid. Notwithstanding the foregoing, Tenant shall not be responsible for the payment of any capital expenditures that Landlord may otherwise be permitted to include in Operating Expenses during the Initial Term (i.e., prior to any Option Term) of this Lease.
In the event the Building is not at least ninety-five percent (95%) occupied during any year of the Term, Operating Expenses may be "grossed up" by increasing the variable components of Operating Expenses to the amount which Landlord projects would have been incurred had the Building been ninety-five percent (95%) occupied during such year, such amount to be annualized for any partial year. Landlord agrees that property taxes shall be based on annual assessments and shall not be "grossed up."
The foregoing are intended to describe only the extent of potential cost and expenses and impose no obligation on Landlord to incur same.
The Factor: As defined in Section (B) above.
Building’s Share of Operating Expenses: The sum of (i) one hundred percent (100%) of the Operating Expenses with respect to the Building (less such Operating Expenses attributable to the Parking Garage), plus (ii) the product of the Operating Expenses with respect to the Lot and a fraction the numerator of which is the Total Rentable Floor Area of the Building and the denominator of which is the Total Rentable Floor Area of the Lot (which the denominator shall not include any portion of the Parking Garage, nor any other surface parking or garage facilities in other buildings on the Lot). Landlord and Tenant hereby acknowledge and agree that Operating Expenses attributable to the Parking Garage shall not be included in Operating Expenses for the Building, but instead, they shall be included as Operating Expenses of the Lot (net of revenue generated by the Parking Garage). Landlord reserves the right to equitably adjust the calculation of the Factor and the Building’s Share of Operating Expenses with respect to Operating Expenses as reasonably determined by Landlord, including without limitation, in connection with the Landlord’s Expansion Project.
thereafter, Landlord shall make a determination of Tenant’s Share of Taxes or Tenant’s Share of Operating Expenses and shall provide Tenant with written notice of such determination in reasonable detail (the “Landlord’s Statement”) no later than one hundred twenty (120) days after the expiration of any Tax Year or Operating Year; and if the aforesaid payments theretofore made for such period by Tenant exceed the actual amount of Tenant’s Share of Taxes or Tenant’s Share of Operating Expenses attributable to such period, such overpayment shall be credited against the payments thereafter to be made by Tenant pursuant to this Section (D), or promptly reimbursed to Tenant in the event the Term has expired or been terminated as provided in this Lease; and if the actual amount of Tenant’s Share of Taxes or Tenant’s Share of Operating Expenses attributable to such period is greater than such payments theretofore made on account for such period, Tenant shall make a suitable payment to Landlord in the amount of such underpayment within thirty (30) days of receipt of Landlord’s Statement. The monthly payment on account of said additional rent shall be replaced after Landlord’s determination of Tenant’s Share of Taxes or Tenant’s Share of Operating Expenses for the preceding Tax Year and Operating Year, as the case may be, by a payment which is one-twelfth (1/12th) of the actual Tenant’s Share of Taxes or Tenant’s Share of Operating Expenses for the immediately preceding Tax Year or Operating Year, as the case may be, with adjustments as appropriate where such period is less than a full twelve-month period. Appropriate adjustments shall be made in said monthly payment if the real estate taxes upon the Property for the current Tax Year shall be known prior to the end of said Tax Year and/or if real estate taxes shall be payable to the taxing authority in installments, all to the end that as each payment of real estate taxes shall become payable Landlord shall have received from Tenant payments sufficient in amount to pay Tenant’s Share of Taxes then payable by Landlord.
Landlord’s records shall only apply to the year to which such Landlord Statement applies, and in no event shall Tenant have the right to audit or inspect Landlord’s records for any prior year.
ARTICLE VI TENANT’S COVENANTS
Tenant covenants during the Term and such other time as Tenant occupies any part of the Demised Premises:
ventilating and air conditioning systems which serve only the Demised Premises, in good order, condition and repair (reasonable wear and tear and casualty and condemnation excepted); and at the expiration or termination of this Lease peaceably to yield up the Demised Premises and all changes and additions therein in such order, repair and condition, first removing all goods and effects of Tenant and those claiming under Tenant and any items the removal of which is required by any agreement between Landlord and Tenant (or specified therein to be removed at Tenant’s election and which Tenant elects to remove), and repairing all damage caused by such removal and restoring the Demised Premises and leaving them clean and neat. Notwithstanding anything to the contrary contained herein, Tenant shall forthwith remove from the Demised Premises (repairing any damage caused by such removal) any installations, alterations, additions or improvements made or installed by or for Tenant or as part of Tenant’s Work, so long as Landlord has indicated to Tenant in writing at the time of Landlord’s approval of such installations, alterations, additions or improvements, which indication Landlord may make in its sole discretion, that such installations, alterations, additions or improvements are may be required to be removed at the expiration or early termination of the Term, and which Landlord requests Tenant to remove within thirty (30) days after the expiration or termination of the term of this Lease, such removal to include returning the previously modified portions of the Demised Premises substantially to their condition prior to the making of such installations, alterations, additions or improvements, provided however, in all events all so-called “specialty improvements” (file room systems, large cold rooms and animal facilities, etc.), low-voltage cabling/wiring, and computer/telecommunications equipment shall be removed by Tenant and damage caused by such removal shall be repaired by Tenant; Landlord hereby acknowledges and agrees that installations, equipment, or improvements customarily installed or used in connection with BioSafety Level 2 laboratories shall not automatically qualify as “specialty improvements.” Tenant’s obligations hereunder shall survive the expiration or termination of the term of this Lease. For purposes of this Subsection (2) the word “repairs” includes the making of replacements when necessary. Tenant shall, at its sole costs and expense, keep the Demised Premises clean and free of refuse, and provide all janitorial and cleaning services to the Demised Premises on a nightly basis (except weekends and holidays) of a quality consistent with other tenants in the business park in which the Demised Premises is located and shall be solely responsible for removing from the Property (and until such removal from the Property Tenant shall store within the Demised Premises) any trash, refuse or debris generated by Tenant’s use of the Demised Premises, other than typical office trash or cardboard which shall be deposited in appropriate receptacles maintained by Landlord on the Property;
percent (50%) of any such excess rent (“Sublease Profits”), after first deducting tenant improvement allowances, third-party brokerage fees, legal fees, architectural fees, or other fees to consultants or engineers, paid or to be paid by Tenant in connection with such transaction and, in the case of any sublease, any actual costs incurred by Tenant in separately demising and improving the sublet space. Additionally, with respect to a sublease of all or substantially of the Demised Premises for the then-remaining balance of the Initial Term, Tenant may deduct from Sublease Profits the unamortized amount (amortized on a straight line basis over the Initial Term), of any Excess TI Costs. Each request by Tenant for permission to assign this Lease or to sublet the whole or any part of the Demised Premises shall be accompanied by a warranty by Tenant as to the amount of rent to be paid to Tenant by the proposed assignee or sublessee. For purposes of this Section (6), the term “rent” shall mean all fixed rent, additional rent or other payments and/or consideration payable by one party to another for the use and occupancy of the Demised Premises. Tenant agrees, however, that neither it nor anyone claiming under it shall enter into any sublease, license, concession or other agreement for use, occupancy or utilization of space in the Demised Premises which provides for rental or other payment for such use, occupancy or utilization based, in whole or in part, on the net income or profits derived by any person or entity from the space leased, used, occupied or utilized (other than an amount based on a fixed percentage or percentages of receipts or sales), and Tenant agrees that any such purported sublease, license, concession or other agreement shall be absolutely void and ineffective as a conveyance of any right or interest in the possession, use, occupancy, or utilization of any part of the Demised Premises. Tenant further agrees that any sublease, license, concession or agreement for use, occupancy or utilization of space in the Demised Premises entered into by it or by anyone claiming under it shall contain the provisions set forth in the immediately preceding sentence. Tenant further agrees that if a sublease is entered into, neither the rent payable thereunder nor the amount thereof passed on to any person or entity shall have deducted therefrom any expenses or costs related in any way to the subleasing of such space. If and whenever Tenant shall not be a so-called “publicly held” company, it is understood and agreed that the transfer of fifty percent (50%) or more of the stock in Tenant of any class (whether at one time or at intervals), shall constitute an “assignment” of Tenant’s interest in this Lease. If there shall be any assignment or subletting by Tenant pursuant to the provisions of this paragraph, Tenant shall remain primarily liable for the performance and observance of the covenants and agreements herein contained on the part of Tenant to be performed and observed, such liability to be (in the case of any assignment) joint and several with that of such assignee. It is expressly understood and agreed that no assignment of Tenant’s interest in this Lease shall be effective until such time as Tenant shall deliver to Landlord an agreement from the assignee, which agreement shall be reasonably satisfactory to Landlord in form and substance and shall provide that the assignee agrees with Landlord to be primarily liable for the performance and observance of the covenants and agreements herein contained on the part of Tenant to be performed and observed, such liability to be joint and several with that of Tenant. Notwithstanding anything in this Lease to the contrary, Landlord’s consent shall not be required for any assignment of this Lease or a sublease of all or any portion of the Demised Premises (a) in connection with the sale of all or substantially all of the assets or equity (whether stock, membership interests, partnership interests, or otherwise) of Tenant, or (b) to a successor entity resulting from a merger, consolidation, spinoff or non-bankruptcy reorganization by Tenant, or (c) in connection with any initial public offering of Tenant, or (d) to any corporation, partnership or other legal entity that controls, is controlled by, or is under common control with Tenant (collectively, an “Affiliate”), so long as such transferee (in the case of clauses (a) and (b) or any
assignment of this Lease to an Affiliate) has a tangible net worth equal to or greater than the greater of (i) the tangible net worth of Tenant as of the date of this Lease, or (ii) the tangible net worth of Tenant as of the date immediately prior to such assignment.
$300,000 damages to Premises rented to or temporarily occupied by you; $1,000,000 products/completed operations aggregate; with a general aggregate limit of $2,000,000 applying on a per location basis and a deductible of not more than $50,000 unless approved by Landlord; Workers’ Compensation as required under applicable law and Employers’ Liability Insurance with a minimum limit of $1,000,000 each accident, bodily injury by accident, $1,000,000 each employee, bodily injury by disease, $1,000,000 policy limit, bodily injury by disease, or lower limits if such lower limits satisfy the Umbrella/Excess Liability underlying limit requirements covering all employees of Tenant; Automobile Liability Insurance with a minimum limit of
$1,000,000 combined bodily injury and property damage per accident, to include coverage for all owned (if any), non-owned, and hired vehicles; Umbrella/Excess Liability coverage in an amount of not less than $5,000,000 per occurrence and $5,000,000 annual aggregate, that applies on a follow form basis in excess of the Commercial General Liability, Employers’ Liability, and Automobile Liability coverages required by this Lease; Pollution Liability Insurance with limits not less than $3,000,000 per occurrence and $3,000,000 in the aggregate covering loss arising out of third party bodily injury and property damage claims, cleanup costs, and coverage appropriate to the types of substances and materials used by Tenant in the Demised Premises. All such amounts, from time to time during the Term, may increase to amounts as are customarily carried in the area in which the Demised Premises are located upon property similar in type and use to the Demised Premises. Such automobile liability, commercial general liability, umbrella/excess liability and pollution liability insurance shall name Landlord, Landlord’s Managing Agent, and Landlord’s Mortgagee as additional insureds. Such insurance shall be primary and noncontributory as to any other insurance available to the additional insureds. Tenant shall deliver to Landlord certificates of such insurance prior to the Commencement Date, and each renewal
certificate thereof within five (5) business days of such renewal and, within fifteen (15) days of receipt of written request from Landlord, Tenant shall provide Landlord with copies of such underlying policies of insurance, however, such copies may be redacted to remove confidential or sensitive information. Each such policy shall be written by an insurer authorized to do business in the Commonwealth of Massachusetts having a minimum A.M. Best rating of A-, VII or better and Tenant shall provide Landlord and each named insured with no less than thirty (30) days’ prior written notice before any such policy is materially modified or terminated. Notwithstanding the foregoing, with respect to the Pollution Liability Insurance set forth above, Tenant shall have thirty
ARTICLE VII DEFAULT
(30) days after receipt of said notice and diligently prosecute the curing thereof to completion), or
(3) if any person shall levy upon, or take this leasehold interest or any part thereof upon execution, attachment or other process of law, or (4) if Tenant shall make an assignment of its property for the benefit of creditors, or (5) if Tenant shall be declared bankrupt or insolvent according to law, or (6) if any bankruptcy or insolvency proceedings shall be commenced by or against Tenant and which, in the case of an involuntary bankruptcy or insolvency proceeding, is not dismissed within 180 days after the filing thereof, or (7) if a receiver, trustee or assignee shall be appointed for the whole or any part of Tenant’s property located at the Demised Premises, then in any of said cases, Landlord lawfully may immediately, or at any time thereafter, and without any further notice or demand, enter into and upon the Demised Premises or any part thereof in the name of the whole, and hold the Demised Premises as if this Lease had not been made, and expel Tenant and those claiming under it and remove its or their property without being taken or deemed to be guilty of any manner of trespass (or Landlord may send written notice to Tenant of the termination of this Lease), and upon entry as aforesaid (or in the event that Landlord shall send Tenant notice of termination as above provided, on the fifth (5th) business day next following the date of the sending of the notice), the Term of this Lease shall terminate. Notwithstanding the provisions of clause
(1) of the immediately preceding sentence, if Landlord shall have rightfully given Tenant notice of default pursuant to said clause twice during any twelve (12)-month period, and if Tenant shall thereafter default in the payment of Fixed Rent or Tenant’s Share of Operating Expenses or Tenant’s Share of Taxes for a third time during such twelve (12)-month period, then Landlord may exercise the right of termination provided for it in said immediately preceding sentence without first giving Tenant notice of such default and the opportunity to cure the same within the time provided in said clause (1). Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed for any cause, or in the event Landlord terminates this Lease as provided in this Article.
In case of any such termination pursuant to this Article VII, and subject to Landlord’s obligation to use reasonable efforts to mitigate its damages in any such event, Tenant will indemnify Landlord each month against all loss of Fixed Rent, additional rent and any other damages or costs which Landlord may reasonably incur or suffer by reason of any such termination between the time of termination and the expiration of the Term; or at the election of Landlord, exercised at the time of termination or at any time thereafter, Tenant will pay to Landlord the amount (discounted to present value at the rate of five percent (5%) per annum) by which, at the time of such election, (x) the aggregate of Fixed Rent projected over the period commencing with such election and ending on the expiration of the Term, exceeds (y) the aggregate projected rental
value of the Demised Premises for such period. It is understood and agreed that at the time of the termination or at any time thereafter Landlord may rent the Demised Premises, and for a term which may expire before or after the expiration of the Term, without releasing Tenant from any liability whatsoever, that Tenant shall be liable for any reasonable out-of-pocket expenses incurred by Landlord in connection with obtaining possession of the Demised Premises, with removing from the Demised Premises property of Tenant and persons claiming under it (including warehouse charges), with putting the Demised Premises into good condition for reletting, and with any reletting, including, but without limitation, reasonable attorneys’ fees and brokers fees, and that any monies collected from any reletting shall be applied first to the foregoing expenses and then to the payment of Fixed Rent, additional rent and all other payments due from Tenant to Landlord.
ARTICLE VIII CASUALTY AND TAKING
In case during the Term more than fifty percent (50%) of the rentable area of the Demised Premises or the Building are damaged by fire or any other casualty or by action of public or other authority or are taken by eminent domain, this Lease shall terminate at Landlord’s election, which may be made notwithstanding Landlord’s entire interest may have been divested, by notice given to Tenant within thirty (30) days after the occurrence of the event giving rise to the election to terminate. Said notice shall, in the case of damage as aforesaid, be effective as of the date of such casualty event. In the case of any such taking by eminent domain, the effective date of the termination shall be the day on which the taking authority shall take title to or possession of the taken property. Fixed Rent and additional rent shall be apportioned and adjusted as of the effective date of any such termination. If in any such case the Demised Premises or the Building are damaged by a casualty or eminent domain taking and this Lease is not so terminated as aforesaid, Landlord shall restore the Demised Premises and the Building to the condition they were in prior to such casualty or taking (excluding any items which Tenant may be required or permitted to remove from the Demised Premises at the expiration of the Term), but Landlord shall not be required to spend more than the net proceeds of insurance or award of damages recoverable therefor, and a just proportion of the Fixed Rent and additional rent according to the nature and extent of the injury to the Demised Premises shall be abated until the Demised Premises or such remainder shall have been put by Landlord in such condition; and in case of a taking which permanently reduces the area of the Demised Premises, a just proportion of the Fixed Rent shall be abated for the remainder of the Term and Tenant’s Share of Operating Expenses and Tenant’s Share of Taxes shall be proportionately adjusted. Landlord shall notify Tenant within thirty (30) days following the occurrence of any casualty or taking of the estimated time to restore the Demised Premises, the Building or the Lot. If such estimated time is more than one (1) year from the occurrence of such casualty or taking, or if Landlord commences its repair of the Demised Premises, the Building or the Lot and has not substantially completed the same within one (1) year after the occurrence of such casualty or taking, then Tenant shall have the right, upon thirty (30) days prior written notice to Landlord given at any time after such one (1) year period but prior to the date Landlord has completed such restoration, to terminate this Lease. Additionally, and notwithstanding anything in this Subsection (A) to the contrary, if any casualty to or taking of the Demised Premises, the Building or the Lot occurs during the last twelve (12) months of the Term
and causes the Demised Premises (or material portion thereof) to be untenable or materially impairs Tenant’s use of the Demise Premises for the Permitted Use for a period of more than ninety
(90) days, then Tenant may terminate this Lease upon not less than thirty (30) days prior written notice to Landlord. Notwithstanding the foregoing, in the event Landlord receives a notice of termination from Tenant as a result of a casualty or taking pursuant to this Section (A), in the event Landlord substantially completes any applicable restoration within such thirty (30) day notice period described above, Tenant’s exercise of its right to terminate this Lease shall be deemed to be rescinded and the Lease shall remain in full force and effect.
Landlord reserves to itself any and all rights to receive awards made for damage to the Demised Premises, Building or Lot and the leasehold hereby created, or any one or more of them, accruing by reason of any exercise of the right of eminent domain or by reason of anything done in pursuance of public or other authority. Tenant hereby releases and assigns to Landlord all of Tenant’s rights to such awards, and covenants to deliver such further assignments and assurances thereof as Landlord may from time to time request, hereby irrevocably designating and appointing Landlord as its attorney-in-fact to execute and deliver in Tenant’s name and behalf all such further assignments thereof. It is agreed and understood, however, that Landlord does not reserve to itself, and Tenant does not assign to Landlord, any damages payable for (i) movable equipment installed by Tenant or anybody claiming under Tenant at its own expense or (ii) relocation expenses, but in each case only if and to the extent that such damages are recoverable by Tenant from such authority in a separate action and without reducing Landlord’s award of damages.
ARTICLE IX MORTGAGEE
It is agreed that the rights and interest of Tenant under this Lease shall be: (i) subject and subordinate to the lien of any present or future first mortgage and to any and all advances to be made thereunder, and to the interest thereon, upon the Demised Premises or any property of which the Demised Premises are a part, if the holder of such mortgage shall elect, by notice to Tenant, to subject and subordinate the rights and interest of Tenant under this Lease to the lien of its mortgage, provided that Tenant receives a commercially reasonable subordination, non- disturbance, and attornment agreement (“SNDA”) executed by such holder; or (ii) prior to the lien of any present or future first mortgage, if the holder of such mortgage shall elect, by notice to Tenant, to give the rights and interest of Tenant under this Lease priority to the lien of its mortgage. In the event of any of such elections, and upon notification by the holder of such mortgage to that effect, the rights and interest of Tenant under this Lease shall be deemed to be subordinate to, or to have priority over, as the case may be, the lien of said mortgage, irrespective of the time of execution or time of recording of any such mortgage. Tenant agrees that it will, upon request of Landlord, execute, acknowledge and deliver any and all commercially reasonably instruments deemed by Landlord necessary or desirable to evidence or to give notice of such subordination or priority. The word “mortgage” as used herein includes mortgages, deeds of trust or other similar instruments and modifications, consolidations, extensions, renewals, replacements and substitutes
thereof. Whether the lien of any mortgage upon the Demised Premises or any property of which the Demised Premises are a part shall be superior or subordinate to this Lease and the lien hereof, and provided Tenant and such holder have entered into an SNDA, Tenant agrees that it will, upon request, attorn to the holder of such mortgage or anyone claiming under such holder and their respective successors and assigns in the event of foreclosure of or similar action taken under such mortgage. Tenant further agrees that it shall not subordinate its interest in this Lease to the lien of any junior mortgage, security agreement or lease affecting the Demised Premises, unless the holder of the first mortgage upon the Demised Premises or property which includes the Demised Premises shall consent thereto. Landlord warrants and represents that as of the Effective Date, there is no mortgage encumbering the Building or Property.
Upon entry and taking possession of the mortgaged premises for any purpose, the holder of a mortgage shall have all rights of Landlord, subject to the terms and provisions of the SNDA, if applicable. No such holder shall be liable, either as a mortgagee or as holder of a collateral assignment of this Lease, to perform, or be liable in damages for failure to perform, any of the obligations of Landlord unless and until such holder shall succeed to Landlord’s interest herein through foreclosure of its mortgage or the taking of a deed in lieu of foreclosure, and thereafter such mortgage holder shall not be liable for the performance of any of Landlord’s obligations hereunder, except for the performance of those obligations which arise during the period of time that such mortgage holder holds Landlord’s right, title and interest in this Lease (which shall be deemed to include any maintenance and repair obligations of Landlord as to which there is an ongoing default by Landlord, provided that notice of such default has been given to such mortgage holder), such liability to be limited to the same extent as Landlord’s liability is limited pursuant to Section 10(E) hereof.
No act or failure to act on the part of Landlord which would entitle Tenant under the terms of this Lease, or by law, to be relieved of any of Tenant’s obligations hereunder or to terminate this Lease, shall result in a release or termination of such obligations or a termination of this Lease unless (i) Tenant shall have first given written notice of Landlord’s act or failure to act to Landlord’s mortgagees of which Tenant has received prior written notice from Landlord, if any, specifying the act or failure to act on the part of Landlord which could or would be the basis of Tenant’s rights, provided, however, that Tenant’s failure to so notify any such mortgagee shall not render Tenant’s notice to Landlord ineffective or void, and (ii) such mortgagees, after receipt of such notice, have failed or refused to correct or cure the condition complained of within a reasonable time thereafter, but nothing contained in this Section (C) shall be deemed to impose any obligation on any such mortgagee to correct or cure any such condition. “Reasonable time” as used above means and includes a reasonable time to obtain possession of the mortgaged premises, if the mortgagee elects to do so, and a reasonable time to correct or cure the condition, not to exceed the time provided for Landlord to perform such obligation pursuant to the terms and provisions of this Lease. Finally, Tenant agrees that so long as any present or future mortgage shall remain in effect Tenant shall not alter, modify, amend, change, surrender or cancel this Lease nor pay the rent due hereunder in advance for more than thirty (30) days, except as may be required
herein, without the prior written consent of the holder thereof, except for those rights Tenant may unilaterally invoke pursuant to the terms and provisions of this Lease, and Tenant will not seek to be made an adverse or defendant party in any action or proceeding brought to enforce or foreclose such mortgage.
ARTICLE X GENERAL PROVISIONS
The captions of the Articles are for convenience and are not to be considered in construing this Lease.
Upon request of either party, both parties shall execute and deliver a short form of this Lease in form appropriate for recording, and if this Lease is terminated before the Term expires, an instrument in such form acknowledging the date of termination. No such short form lease shall contain any indication of the amount of the rentals payable hereunder by Tenant.
All notices and other communications authorized or required hereunder shall be in writing and shall be given by mailing the same by certified or registered mail, return receipt requested, postage prepaid, by mailing the same by Express Mail or by having the same delivered by a commercial delivery service such as Federal Express, UPS, and the like. If given to Tenant the same shall be directed to Tenant at Tenant’s Address or to such other person or at such other address as Tenant may hereafter designate by notice to Landlord, with a copy to Anderson & Kreiger LLP, 50 Milk Street, 21st Floor, Boston, Massachusetts 02109, Attn: David L. Wiener; and if given to Landlord the same shall be directed to Landlord at Landlord’s Address, or to such other person or at such other address as Landlord may hereafter designate by notice to Tenant. In the event the notice directed as above provided shall not be received upon attempted delivery thereof to the proper address and shall be returned by the Postal Service or delivery service to the sender because of a refusal of receipt, the absence of a person to receive, or otherwise, the time of the giving of such notice shall be the first business day on which delivery was so attempted.
After receiving notice from Landlord or from any person, firm or other entity that such person, firm or other entity holds a mortgage which includes the Demised Premises as part of the mortgaged premises, a copy of all such notices sent by or on behalf of Tenant shall be given by one of the methods of delivery set forth in the immediately preceding paragraph to such holder, and the curing of any of Landlord’s defaults by such holder shall be treated as performance by Landlord, it being understood and agreed that such holder shall be afforded a reasonable period of
time after the receipt of such notice in which to effect such cure; provided, however, as between Landlord and Tenant, Tenant’s failure to so notify any such mortgagee shall not render Tenant’s notice to Landlord ineffective or void.
The obligations of this Lease shall run with the land, and this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns, except that the Landlord named herein and each successive owner of Landlord’s interest in this Lease shall be liable only for the obligations of Landlord accruing during the period of its ownership provided that any successor owner has agreed to assume in writing the obligations of Landlord. Whenever Landlord’s interest in this Lease is owned by a trustee or trustees, the obligations of Landlord shall be binding upon Landlord’s trust estate, but not upon any trustee, beneficiary or shareholder of the trust individually. Without limiting the generality of the foregoing, and whether or not Landlord’s interest in this Lease is owned by a trustee or trustees, Tenant specifically agrees to look solely to Landlord’s interest in the Property for recovery of any judgment from Landlord, it being specifically agreed that neither Landlord, any trustee, beneficiary or shareholder of any trust estate for which Landlord acts nor any person or entity claiming by, through or under Landlord shall ever otherwise be personally liable for any such judgment. Landlord expressly agrees that in no event shall any officer, director, trustee, employee, shareholder, agent, or representative of Tenant ever be personally liable for any obligation of Tenant under this Lease. Notwithstanding anything in this Lease to the contrary in no event shall Tenant ever be liable for consequential, special, punitive, or incidental damage or for lost profits arising from, related to, or in connection with this Lease, except in connection with a holdover in the Demised Premises, as set forth in Section (15) of Article VI of this Lease for more than thirty
(30) days, or as otherwise expressly provided herein.
The delivery of keys to any employee of Landlord or to Landlord’s agent or any employee thereof shall not operate as a termination of this Lease or a surrender of the Demised Premises.
The failure of Landlord or of Tenant to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this Lease, or, with respect to such failure of Landlord, any of the rules and regulations referred to in Section 6(4), whether heretofore or hereafter adopted by Landlord, shall not be deemed a waiver of such violation nor prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation, nor shall the failure of Landlord to enforce any of said rules and regulations against any other tenant in the Building be deemed a waiver of any such rules or regulations as far as Tenant is concerned. The receipt by Landlord of Fixed Rent or additional rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach by Landlord unless such waiver be in writing signed by Landlord. No consent or waiver express or implied, by Landlord or Tenant to or of any breach of any agreement or duty shall be construed as a waiver or consent to or of any other breach of the same or any other agreement or
duty. No acceptance by Landlord of a lesser sum than the Fixed Rent and additional rent then due shall be deemed to be other than on account of the earliest installment of such rent due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed as accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such installment or pursue any other remedy available to it. The specific remedies to which Landlord or Tenant may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which it may be lawfully entitled in case of any breach or threatened breach by the other party of any provisions of this Lease. In addition to the other remedies provided in this Lease, Landlord and Tenant shall be entitled to the restraint by injunction of the violation or attempted or threatened violation of any of the covenants, conditions or provisions of this Lease or to a decree compelling specific performance of any such covenants, conditions or provisions. If any term of this Lease, or the application thereof to any person or circumstances shall be held, to any extent, to be invalid or unenforceable, the remainder of this Lease, or the application of such term to persons or circumstances other than those as to which it has been held invalid or unenforceable, shall not be affected thereby, and each term of this Lease shall be valid and enforceable to the fullest extent permitted by law. If any interest to be paid by Tenant hereunder shall exceed the highest lawful rate which Landlord may recover from Tenant, such interest shall be reduced to such highest lawful rate of interest.
If Tenant shall at any time default in the performance of any obligation under this Lease beyond all applicable notice and cure periods or, in the event such default is of a nature which presents an immediate threat to the health and safety of occupants of the Building or the integrity of any structural or mechanical components of the Building after Landlord has made commercially reasonable attempts to notify Tenant verbally and via email, Landlord shall have the right, but shall not be obligated, to enter upon the Demised Premises and to perform such obligation, notwithstanding the fact that no specific provision for such performance by Landlord is made in this Lease with respect to such default. In performing such obligation, Landlord may make any payment of money or perform any other act reasonably necessary to cure such default. All reasonable, out-of-pocket sums so paid by Landlord (together with interest, from the time paid by Landlord until the time Tenant repays the same to Landlord, at the rate of interest per annum as set forth in Section (A) of Article V above), shall be deemed to be additional rent and shall be payable to Landlord immediately on demand. Landlord may exercise the foregoing right without waiving any other of its rights or releasing Tenant from any of its obligations under this Lease.
Tenant agrees from time to time after the Commencement Date, upon not less than ten (10) days’ prior written request by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect; that Tenant has no defenses, offsets or counterclaims against its obligations to pay the Fixed Rent and additional rent and to perform its other covenants under this Lease, except as expressly set forth in this Lease; that there are no uncured defaults of Landlord or Tenant under this Lease (or, if there have been any modifications, that this Lease is in full force and effect as modified and stating the
modifications, and, if there are any defenses, offsets, counterclaims, or defaults, setting them forth in reasonable detail); and the dates to which the Fixed Rent, additional rent and other charges have been paid. Any such statement delivered pursuant to this Section (I) may be relied upon by any prospective purchaser or mortgagee of premises which include the Demised Premises or any prospective assignee of any such mortgagee.
Landlord agrees from time to time after the Commencement Date, upon not less than ten
(10) days’ prior written request by Tenant, to execute, acknowledge and deliver to Tenant a statement in writing certifying that this Lease is unmodified and in full force and effect (or, if there have been any modifications, that this Lease is in full force and effect as modified and stating the modifications); that there are no uncured defaults of Landlord or Tenant under this Lease; and the dates to which the Fixed Rent, additional rent and other charges have been paid. Any such statement delivered pursuant to this Section (I) may be relied upon by any prospective purchaser, lender, assignee or subtenant of Tenant.
Landlord and Tenant hereby represents and warrants to the other that it has dealt with no broker in connection with this Lease other than Newmark Knight Frank, as broker for Landlord, and LPC Commercial Services, Inc., as broker for Tenant (the “Listed Broker/s”), and there are no other brokerage commissions or other finders’ fees payable in connection herewith. Landlord and Tenant each hereby agrees to hold the other harmless from, and indemnified against, all loss or damage (including without limitation, the cost of defending the same) arising from any claim by any broker other than the Listed Broker/s, claiming to have dealt with such party.
Landlord shall not be deemed to have committed a breach of any obligation under this Lease unless: it shall have received notice from Tenant designating the particular default of which there has been failure of performance and shall have failed to cure said default within a reasonable time after the receipt of such notice, taking into consideration the nature of such failure. In no event shall Landlord be liable to Tenant for consequential, special or punitive damages by reason of a failure to perform (or a default) by Landlord under this Lease.
The submission of this Lease for examination does not constitute a reservation of, or option for, the Demised Premises, and this Lease becomes effective as a lease only upon execution and unconditional delivery thereof by both Landlord and Tenant.
Tenant shall not (either with or without negligence) cause or permit the escape, the disposal or release of any Hazardous Materials on or under the Building, the Lot or the Demised Premises in violation of Applicable Laws. Tenant shall not allow the storage or use of Hazardous Materials in any manner not sanctioned by the applicable permits, or by Applicable Laws, or by the standards for the storage and use of such Hazardous Materials consistent with customary practice of first- class laboratory buildings in Boston and Cambridge, Massachusetts. Tenant shall not cause any Hazardous Materials to be brought into the Building, Lot or Demised Premises except such substances or materials used in the ordinary course of Tenant’s business and listed on Exhibit F attached hereto (which Hazardous Materials shall be used, stored and disposed of in accordance with a program to be mutually agreed upon by Landlord and Tenant) or as otherwise approved by Landlord in writing, which approval shall not be unreasonably withheld, conditioned or delayed, provided such use, storage or disposal, as the case may be, complies with the permitted allocated quantities of specified classes of chemicals permitted in the Building. From time to time, Tenant shall provide an updated list of Hazardous Materials used or stored by Tenant in the Building no less than twice per year (on or prior to January 1 and July 1 of each year) or at any time (i) Tenant wishes to use or store a Hazardous Material not listed on the most recent list of Hazardous Materials provided to Landlord, or (ii) Tenant wishes to materially increase the volume of any Hazardous Material used or stored by Tenant, as reflected on the most recent list of Hazardous Materials provided to Landlord. Prior to Tenant using or storing any such new Hazardous Material or materially increasing the volume of such Hazardous Material, Tenant must obtain the prior approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed. Any Hazardous Materials used by Tenant shall at all times be brought to, kept at or used in so- called ‘control areas’ (the number and size of which shall be identified in the plans for Tenant’s Work which are subject to Landlord’s approval pursuant to this Lease) and in accordance with all Applicable Laws, any permit or approval issued by any applicable governmental agency or authority and prudent environmental practice and (with respect to medical waste and so-called “biohazard” materials) good scientific and medical practice. In the event Tenant intends on using any biologically or chemically active or other Hazardous Materials, or materials that require a specialized permit, Tenant shall first obtain Landlord’s prior consent, which shall not be unreasonably withheld, conditioned or delayed. Within ten (10) business days of Landlord’s written request (which such request shall not be made more than once per calendar year), Tenant shall provide Landlord with a list of all biologically or chemically active or other Hazardous
Materials, including quantities, used by Tenant in the Demised Premises or otherwise in the Building. Tenant shall obtain and maintain all proper permits required by Applicable Laws for the storage and use of any Hazardous Materials stored or used by Tenant, and Tenant shall furnish evidence of same upon written request and shall comply with all governmental reporting requirements with respect to such Hazardous Materials used by Tenant in its business operations, and shall deliver to Landlord copies of such reports. Notwithstanding the foregoing, or any other term or provision of this Lease to the contrary, Landlord shall obtain and maintain in good standing and in full force and effect throughout the Term of this Lease, all necessary permits and approvals from the Massachusetts Water Resources Authority (MWRA) for the use of an acid neutralization tank at the Demised Premises, the cost of which shall be included in Operating Expenses. “Hazardous Material” means (a) any hazardous, flammable, explosive or toxic materials, radioactive materials, asbestos in any form that is or could become friable, or polychlorinated biphenyls (PCBs); or (b) any chemical, material or substance defined, classified or regulated as toxic or hazardous or as a pollutant, contaminant or waste under any applicable environmental laws, including without limitation, those hazardous substances and materials described in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as amended, 42
U.S.C. Section 6901 et seq., any applicable state or local laws and the regulations adopted under these acts. If any lender or governmental agency shall ever require testing to ascertain whether or not there has been any release of Hazardous Materials on or under the Demised Premises, then the reasonable costs thereof shall be paid by Landlord, unless such release was caused solely by Tenant or persons acting under Tenant, whereupon the reasonable costs of such testing shall be reimbursed by Tenant to Landlord as additional rent promptly upon demand by Landlord. In the event Tenant (or persons acting under Tenant) is the cause of such release of Hazardous Materials jointly with other parties, Tenant shall be responsible for a portion of the cost of such testing in proportion to its responsibility for such release in relation to the responsibility of such other parties. In addition, Tenant shall execute affidavits, representations and the like from time to time at Landlord’s request concerning Tenant’s best knowledge and belief regarding the presence of Hazardous Materials on the Demised Premises. Tenant shall indemnify Landlord in the manner elsewhere provided in this Lease from any release of Hazardous Materials caused by Tenant on the Demised Premises, or elsewhere on the Lot if caused by Tenant or persons acting under Tenant. The within covenants shall survive the expiration or earlier termination of the term of this Lease.
The following paragraph of this Lease shall be applicable only if the Tenant uses Hazardous Materials of the type that would warrant such compliance either due to Applicable Laws or good scientific practice:
Prior to the expiration of this Lease (or within thirty (30) days after any earlier termination), Tenant shall clean and otherwise decommission all interior surfaces (including floors, walls, ceilings, and counters), piping, supply lines, waste lines and plumbing in and/or exclusively serving the Demised Premises, and all exhaust or other ductwork in and/or exclusively serving the Demised Premises, in each case which has carried or released or been exposed to any Hazardous Materials, and shall otherwise clean the Demised Premises so as to permit the report hereinafter called for by this Section (N) to be issued. Prior to the expiration of this Lease (or within thirty
(30) days after any earlier termination), Tenant, at Tenant’s expense, shall obtain for Landlord a report addressed to Landlord and Landlord’s designees (and, at Tenant’s election, Tenant) by a
reputable licensed environmental engineer that is designated by Tenant and acceptable to Landlord in Landlord’s reasonable discretion, which report shall be based on the environmental engineer’s inspection of the Demised Premises and shall show: that the Hazardous Materials, to the extent, if any, existing prior to such decommissioning, have been removed as necessary so that the interior surfaces of the Demised Premises (including floors, walls, ceilings, and counters), piping, supply lines, waste lines and plumbing, and all such exhaust or other ductwork in and/or exclusively serving the Demised Premises, may be reused by a subsequent tenant or disposed of in compliance with applicable environmental laws without taking any special precautions for hazardous substances and materials, without incurring special costs or undertaking special procedures for demolition, disposal, investigation, assessment, cleaning or removal of hazardous substances and materials and without incurring regulatory compliance requirements or giving notice in connection with hazardous substances and materials; and that the Demised Premises may be reoccupied for office or laboratory use, demolished or renovated without taking any special precautions for hazardous substances and materials, without incurring special costs or undertaking special procedures for disposal, investigation, assessment, cleaning or removal of hazardous substances and materials and without incurring regulatory requirements or giving notice in connection with hazardous substances and materials. Further, for purposes of this Section: “special costs” or “special procedures” shall mean costs or procedures, as the case may be, that would not be incurred but for the nature of the Hazardous Materials as Hazardous Materials instead of non-hazardous materials. The report shall include reasonable detail concerning the clean-up location, the test run and the analytical results. If Tenant fails to perform its obligations under this Section, without limiting any other right or remedy, Landlord may, on fifteen (15) business days’ prior written notice to Tenant perform such obligations at Tenant’s expense, and Tenant shall promptly reimburse Landlord upon demand for all out of pocket costs and expenses reasonably incurred. Tenant’s obligations under this Section shall survive the expiration or earlier termination of this Lease.
Notwithstanding the foregoing, Landlord hereby represents and warrants to the Tenant that, to its actual knowledge, no Hazardous Materials presently exist in, on or under the Building in violation of any Applicable Law and that the Demised Premises are free of any Hazardous Materials. Landlord hereby agrees that it will indemnify, defend and save and hold harmless Tenant from any and all damages, claims, liabilities, loss, cost and expenses (including reasonable attorneys’ fees) incurred by or asserted against Tenant arising out of (a) any Hazardous Materials existing on or about the Building prior to Tenant’s occupancy of the Demised Premises, (b) any release of Hazardous Materials caused by Landlord, its agents, employees or contractors, or (c) any breach of the representation made by Landlord in this paragraph. This indemnification obligation shall survive the expiration or earlier termination of this Lease.
In any case where either party hereto is required to do any act (other than make a payment of money), delays caused by or resulting from Act of God, war, civil commotion, fire or other casualty, labor difficulties, shortages of labor, materials or equipment, government regulations, declared state of emergency or public health emergency, pandemic (specifically including COVID-19), government mandated quarantine or travel ban, or other causes beyond such party’s reasonable control (other than such party’s financial condition) (“Force Majeure”) shall not be
counted in determining the time during which such act shall be completed, whether such time be designated by a fixed date, a fixed time or “a reasonable time”. In any case where work is to be paid for out of insurance proceeds or condemnation awards, due allowance shall be made, both to the party required to perform such work and to the party required to make such payment, for delays in the collection of such proceeds and awards. Notwithstanding any term or condition of this Lease to the contrary, except in connection with a delay in the Rent Commencement Date as described in Article I of this Lease, the provisions of this Section (O) shall never be construed as allowing an extension of time with respect to Tenant's obligation to pay Fixed Rent or additional rent when and as due under this Lease, giving Tenant a basis to claim that this Lease or Tenant’s obligations thereunder, including without limitation, Tenant’s obligation to pay Fixed Rent and additional rent, are unenforceable, or giving Tenant a basis to claim frustration of purpose.
ARTICLE XI SECURITY DEPOSIT
Within three (3) business days after Tenant’s execution of this Lease, Tenant shall deliver to Landlord a clean, irrevocable letter of credit (“Letter of Credit”) issued by a commercial bank reasonably acceptable to Landlord with offices for banking purposes in Boston, Massachusetts or which provides for facsimile or overnight mail drawing of the Letter of Credit (the “Issuing Bank”), which Letter of Credit shall (i) name Landlord as beneficiary thereof, (ii) have a term of not less than one (1) year, (iii) be in the amount of the Security Deposit and (iv) otherwise be in form and content satisfactory to Landlord in its sole discretion. The Letter of Credit shall provide that: (a) Landlord may draw (on one or more occasions) an amount up to the face amount of the Letter of Credit upon presentation of only a demand for payment in the amount to be drawn, together with a certification of Landlord that it is entitled to draw on the Letter of Credit pursuant to the provisions of this Lease; and (b) the Letter of Credit shall be deemed to be automatically renewed, without amendment, for consecutive periods of one year each, and shall have a final expiration date of not earlier than thirty (30) days after the expiration date of this Lease, unless the Issuing Bank sends written notice (hereinafter called the “Non-Renewal Notice”) to Landlord by Federal Express or similar nationally recognized courier, or by certified or registered mail, return receipt requested, not less than thirty (30) days next preceding the then expiration date of the Letter of Credit, that it elects not to have such Letter of Credit renewed. Landlord, after receipt of the Non-Renewal Notice, within thirty (30) days prior to the expiration date of any Letter of Credit then held by Landlord, shall have the right, exercisable by a demand for payment draft only, to draw upon the Letter of Credit and receive the proceeds thereof.
In the event of any default by Tenant in the performance or observance of any of the terms and agreements in this Lease contained on the part of Tenant to be performed or observed beyond all applicable notice and cure periods (provided that the delivery of a default notice to Tenant shall not be required for purposes of this Article XI and to draw on the Letter of Credit if Landlord is prohibited from delivering the same under Applicable Law, including, without limitation, all applicable bankruptcy or insolvency laws), or Tenant files a voluntary petition under any Federal or state bankruptcy or insolvency code, law or proceeding, or any obligations of Tenant remain unperformed or unsatisfied as of the expiration or earlier termination of this Lease, including, without limitation, the payment of any rent, Landlord may draw upon, use, apply or retain the
whole or any part of the Letter of Credit to the extent required for the payment of any rent or for any sum which Landlord may expend or may be required to expend by reason of the foregoing, including, without limitation, any damages or deficiency in the re-letting of the Demised Premises, whether accruing before or after summary proceedings or other re-entry by Landlord. In the case of every such draw down, use, application or retention, Tenant shall, within a reasonable time following Landlord’s written demand, increase the available balance of the Letter of Credit by the amount so drawn, used, applied or retained to its former amount, and Tenant’s failure to do so shall be a default of this Lease. The application of the Letter of Credit hereunder shall not be deemed a limitation on Landlord’s damages or a payment of liquidated damages or a payment of the monthly rent due for the last month of the Term of this Lease.
In the event of a transfer of the Demised Premises or Landlord’s interest therein, Landlord shall have the right, without cost or expense to Landlord, to transfer the Letter of Credit to the vendee or lessee, and provided that Tenant shall be notified of the name and address of the successor to Landlord, and provided that Landlord has actually transferred the Letter of Credit to such vendee or lessee in accordance with the terms of the Letter of Credit, Landlord shall thereupon be released by Tenant from all liability for the return of such Letter of Credit, and such successor to Landlord shall be liable for return of the same. It is agreed that the provisions hereof shall apply to every transfer or assignment made of the Letter of Credit to a new landlord. Tenant shall execute such documents as may be reasonably necessary to accomplish such transfer or assignment of the Letter of Credit and shall pay any transfer fees of the Issuing Bank.
Tenant covenants that it will not assign or encumber, or attempt to assign or encumber, the Letter of Credit or any proceeds thereof, and that neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. If the Landlord determines, in its reasonable discretion, that the financial condition of the Issuing Bank has so declined as to cause concern that the Issuing Bank may not honor a draw on its Letter of Credit, Tenant shall promptly, and in any event, within thirty (30) days of Landlord’s written demand therefor, obtain a replacement Letter of Credit complying with the terms hereof from another commercial bank reasonably acceptable to Landlord with offices for banking purposes in Boston, Massachusetts or which provides for drawing by facsimile or overnight mail.
Notwithstanding anything in this Article XI to the contrary, Tenant may provide a cash security deposit, in lieu of the Letter of Credit, in the amount of the Security Deposit, for not more than ninety (90) days after the Commencement Date. On or before such 90th day, Tenant shall provide to Landlord the Letter of Credit in conformance with the requirements of this Article XI, and Landlord, within five (5) business days after its receipt of the Letter of Credit, shall return such cash security deposit to Tenant.
Notwithstanding anything in this Lease to the contrary, so long as an Event of Default is not then existing and an Event of Default with respect to a monetary obligation has not previously occurred, (a) upon the fifth (5th) anniversary of the Rent Commencement Date, Tenant may decrease the Security Deposit to an amount equal to $1,511,763.68 after written notice to Landlord; and (b) upon the seventh (7th) anniversary of the Rent Commencement Date, Tenant may decrease the Security Deposit to an amount equal to $755,881.84 after written notice to Landlord. Tenant shall provide to Landlord a replacement Letter of Credit, such replacement
Letter of Credit to be in conformance with the requirements of this Article XI, in such reduced amount, which Landlord shall accept and thereafter return the replaced Letter of Credit to Tenant within five (5) business days of its receipt of such new Letter of Credit. At Tenant’s election, the reduction in the Letter of Credit may be enacted through an amendment to the then existing Letter of Credit in a form acceptable to Landlord and in the event Tenant wishes to enact the reduction in the Letter of Credit with such amendment, Landlord shall reasonably cooperate with Tenant to accomplish same.
ARTICLE XII MODIFICATION
In the event that any holder or prospective holder of any mortgage which includes the Demised Premises as part of the mortgaged premises, shall request any modification of any of the provisions of this Lease, other than a provision modifying the rents payable hereunder, the duration of the term hereof, or the size, use or location of the Demised Premises, or materially limiting or curtailing any rights of Tenant under this Lease or materially expanding or increasing any obligations of Tenant under this Lease, Tenant agrees that Tenant will enter into an amendment of this Lease containing each such modification so requested.
ARTICLE XIII OPTION
Tenant shall have the right, at its election, to extend the Initial Term of this Lease for one
(1) additional period of five (5) years commencing upon the expiration of the Initial Term (the “Option Term”), provided that Landlord shall receive written notice from Tenant of the exercise of its election not less than twelve (12) months and not more than eighteen (18) months prior to the expiration of the Initial Term and provided further that no Event of Default shall then be existing. Prior to the exercise by Tenant of said election to extend the Initial Term, the terms “Term” or “Term of this Lease” or any equivalent expressions shall mean the Initial Term; after the exercise by Tenant of the aforesaid election, the expressions “Term”, “Term of this Lease” or any equivalent terms shall mean the Initial Term as extended. Except as expressly otherwise provided in this Lease, all the agreements and conditions in this Lease contained shall apply to the additional period to which the Initial Term shall be extended as aforesaid, however, notwithstanding the foregoing, Tenant shall have no further right to extend the Initial Term beyond the five (5) year period described in this Article XIII. If Landlord shall receive notice of the exercise of the election in the manner and within the time provided aforesaid, the Term shall be extended upon the receipt of the notice without the requirement of any action on the part of Landlord.
During the Option Term, the Fixed Rent payable hereunder shall be adjusted so as to equal the greater of (a) the Fixed Rent payable immediately prior thereto, or (b) the “fair market rent”
(as hereinafter defined), as mutually determined by Landlord and Tenant through the process of diligent and good faith negotiations. Notwithstanding anything to the contrary contained herein, however, if for any reason whatsoever Landlord and Tenant shall not agree in writing upon the “fair market rent” for said Option Term at least six (6) months prior to the expiration of the Initial Term, then the fair market rent for premises of the size and nature of the Demised Premises shall be determined by licensed real estate brokers (for purposes of this paragraph, a “broker”) having at least ten (10) years’ experience in the leasing of office, laboratory, and research and development space in Boston, Massachusetts, one such broker to be designated by each of Landlord and Tenant. If either party shall fail to designate its broker by giving notice of the name of such appraiser to the other party within fifteen (15) days after receiving notice of the name of the other party’s broker, then the broker chosen by the other party shall determine the fair market rent and his determination shall be final and conclusive. If the brokers designated by Landlord and Tenant shall disagree as to the fair market rent, but if the difference between their estimates of fair market rent shall be five percent (5%) or less of the greater of the estimates, then the average of their estimates shall be the fair market rent for purposes hereof. If the brokers designated by Landlord and Tenant shall disagree as to the amount of fair market rent, and if their estimates of fair market rent shall vary by more than five percent (5%) of the greater of said estimates, then they shall jointly select a third broker meeting the qualifications set forth above who has not performed work for Landlord or Tenant (including the company with which such broker is affiliated), and such third broker’s estimate of fair market rent shall be the fair market rent for purposes hereof if it is not greater than the greater of the other two estimates and not less than the lesser of the other two estimates. If said third broker’s estimate is greater than the greater of the other two estimates, then the greater of the other two estimates shall be the fair market rent for purposes hereof; and if the estimate of the third broker shall be less than the lesser of the other two estimates, then the lesser of the other two estimates shall be the fair market rent for purposes hereof. Each of Landlord and Tenant shall pay for the services of its broker, and if a third broker shall be chosen, then each of Landlord and Tenant shall pay for one-half of the services of the third broker.
As used in this Article XIII, “fair market rent” shall mean the fair market annual rental value of the Demised Premises as of the date Tenant exercises the Option Term for a term equal to the Extension Term, based lease renewals for comparable space in first-class laboratory buildings in the Charlestown/Somerville/Inner Belt submarkets, taking into account all relevant factors.
ARTICLE XIV RIGHT OF FIRST OFFER
If, during the Term (i) any space within the Building above the second (2nd) floor (excluding any portion of the Parking Garage), including without limitation Landlord’s Expansion Project (“Building ROFO Space”), (ii) the space on the second (2nd) floor of the northern portion of the building commonly known as 500 Rutherford Avenue consisting of approximately 64,846 rentable square feet and identified on the plan attached hereto as Exhibit I (the “500 Rutherford ROFO Space”), and (iii) the space within the building commonly known as 570 Rutherford Avenue consisting of approximately 52,790 rentable square feet and identified on the plan attached hereto as Exhibit I (the “570 Rutherford ROFO Space”; the 500 Rutherford ROFO Space and the 570
Rutherford ROFO Space, the “Non-Building ROFO Spaces”; and the Building ROFO Space and the Non-Building ROFO Spaces, the “ROFO Space”) shall become available for Lease, then provided no Event of Default exists at such time, and further provided, that five (5) years remain in the Term of this Lease or Landlord and Tenant agree to extend this Lease so at least five (5) years remain of the Term of this Lease, in the event Landlord receives a written request for proposal from a third party tenant (or its representative) to lease all or any portion of the ROFO Space, prior to offering to lease any such ROFO Space described in such written request for proposal to such third party, subject to the last paragraph of this Article XIV, Landlord shall offer the applicable ROFO Space (as described in such request for proposal) to Tenant at the fair market rental rate for such space, as reasonably determined by Landlord, provided however, such space may be subject to a more precise determination of rentable area by Landlord. Tenant shall have fifteen (15) days to accept or reject such offer, without condition, but subject to agreement on the determination of fair market rent. Any such acceptance by Tenant shall apply to the entire portion of the ROFO Space described in Landlord’s offer to Tenant (and Tenant may not accept such offer for only a portion of such space so offered). If Tenant accepts such offer, Landlord and Tenant shall enter into an appropriate amendment of this Lease, and Tenant shall perform, at its cost and expense pursuant to plans approved by Landlord, the work necessary to prepare such space for Tenant’s occupancy.
If Tenant accepts such offer within the fifteen (15) days provided above but Landlord and Tenant cannot agree on the fair market rent within fifteen (15) days following Tenant’s acceptance of Landlord’s offer, the acceptance shall be null and void and Tenant shall be deemed to have rescinded its acceptance of the offer to lease said applicable ROFO Space. Subject to Landlord’s obligation with respect to a Re-Offer Event (as defined below), the foregoing shall be a one-time right as it relates to a particular ROFO Space and upon Landlord making the offer for such particular ROFO Space, whether same is accepted, rejected, or deemed to have been rejected or rescinded by Tenant, the right of first offer contained herein and this Article XIV with respect to such particular ROFO Space shall be null and void and of no further force and effect.
Notwithstanding the foregoing, in the event Landlord offers the applicable ROFO Space previously offered to Tenant on economic terms (taking into account rental rate and other economic terms) which is less than ninety-five percent (95%) of the economic terms last offered to Tenant prior to the Tenant’s rescission or deemed rescission described above (a “Re-Offer Event”), Landlord shall re-offer such applicable ROFO Space to Tenant (on the same terms and conditions and procedures set forth above). For purposes of clarity, so long as Landlord has complied with the terms and conditions of this Article XVI, immediately upon Landlord entering into a lease of any portion of the ROFO Space previously offered to Tenant with a third party tenant, this Article XVI shall terminate and have no further force or effect with respect to such applicable portion of the ROFO Space.
Tenant hereby acknowledges and agrees that Tenant’s right to be offered the opportunity to lease the 500 Rutherford ROFO Space is subject and subordinate to the rights of Cambridge College, a present tenant of the 570 Rutherford ROFO Space, and Landlord shall be under no obligation to offer or lease any portion of the 500 Rutherford ROFO Space to Tenant unless or until Cambridge College has waived or failed to exercise its rights to such space. In addition, Tenant hereby acknowledges and agrees that Landlord shall have no obligation to offer Tenant the
opportunity to lease (i) the 570 Rutherford ROFO Space if Cambridge College exercises any right to renew its lease of such 570 Rutherford ROFO Space or Landlord otherwise wishes to renew such lease to Cambridge College with respect to the 570 Rutherford ROFO Space, or (ii) the 500 Rutherford ROFO Space if Indigo AG, Inc., the present tenant in the 500 Rutherford ROFO Space, exercises any right to renew its lease of such 500 Rutherford ROFO Space or Landlord otherwise wishes to renew such lease to Indigo AG, Inc. with respect to the 500 Rutherford ROFO Space.
ARTICLE XV SIGNAGE
Landlord agrees to provide Tenant with a listing on the Building lobby directory and the common lobby on the second (2nd) floor, and mutually agreeable Building standard signage next to the Building entryway at Landlord’s cost (subject to Section (C ) of Article V herein). Tenant, at its sole cost and expense, shall have the right to install one (1) exterior non-illuminated sign on the façade of the Building substantially similar in graphics and size and in either of the locations depicted in Exhibit G, attached hereto. Such exterior signage shall be subject to Landlord’s review and approval of the materials used for construction of such signage and the method of attachment to the Building, which approval shall not be unreasonably withheld, conditioned or delayed. Tenant, at its sole cost and expense, shall be responsible for obtaining any permits and approvals for such exterior signage and shall be responsible, at its sole cost and expense, to maintain such exterior signage in good condition, to remove such exterior signage at the expiration or early termination of the Lease, and to repair any damage caused by such removal.
Landlord shall cooperate with Tenant as reasonably necessary in connection with any such permits or approvals.
ARTICLE XVI NITROGEN TANK STORAGE AREA
During the Lease Term, Tenant shall have the exclusive right to use a certain outdoor area adjacent to the Building consisting of approximately 2,479 square feet and labelled “Nitrogen Tank Pad Area” on the plan attached hereto as Exhibit I (the “Nitrogen Tank Pad Area”) for the installation, maintenance and use, at Tenant’s sole cost and expense, of a concrete pad (the “Nitrogen Tank Pad”) to be used for the installation, storage, maintenance and operation of nitrogen tanks used in the operation of Tenant’s business (the “Nitrogen Tanks”) and related equipment and connections to the Demised Premises (the “Nitrogen Tank Equipment”). The installation of such Nitrogen Tank Pad, Nitrogen Tanks and Nitrogen Tank Equipment shall be subject to Landlord’s review and approval of plans and specifications thereof, which approval shall not be unreasonably withheld, conditioned or delayed. Tenant hereby acknowledges and agrees that such use, installation, replacement and/or maintenance of the Nitrogen Tank Pad, the Nitrogen Tanks, and/or the Nitrogen Tank Equipment shall be at Tenant’s sole risk, cost and expense and Landlord shall have no responsibility whatsoever for same. Tenant acknowledges and agrees that it shall be solely responsible for obtaining any consent, approval or other rights from any applicable governmental authority to install and/or use such Nitrogen Tank Pad, Nitrogen Tanks and/or Nitrogen Tank Equipment. Tenant’s use of the Nitrogen Tank Pad, Nitrogen Tanks and/or
Nitrogen Tank Equipment shall be deemed to be a representation and warranty by Tenant that Tenant has obtained any and all approvals, consents and rights required and Tenant shall indemnify and hold Landlord harmless from any liability, cost, expense or damage resulting from Tenant’s failure to obtain any such approvals, or consents. Tenant shall be responsible for maintaining the Nitrogen Tank Pad, Nitrogen Tanks and Nitrogen Tank Equipment in good and safe condition, and in compliance with all Applicable Laws and shall promptly repair any and all damage to the Nitrogen Tank Pad, Nitrogen Tanks and/or Nitrogen Tank Equipment, and to any other part of the Demised Premises, Building or Property caused by or resulting from Tenant's installation, use, maintenance, repair, replacement, operation or removal of the Nitrogen Tank Pad, Nitrogen Tanks and/or Nitrogen Tank Equipment. All costs and expenses, including, without limitation, the cost of utility service supply lines to make operable the Nitrogen Tank Pad, Nitrogen Tanks and/or Nitrogen Tank Equipment shall be at the sole cost and expense of Tenant and without charge, cost or expense to Landlord. Upon the expiration of the Lease Term or upon earlier termination, if requested by Landlord in writing prior to such expiration or early termination, Tenant shall promptly remove the Nitrogen Tanks and/or Nitrogen Tank Equipment and any related equipment, and Tenant shall repair any damage to the portion or portions of the Premises, the Building or the Property caused by or resulting from such removal by Tenant, however, the Nitrogen Tank Pad and fencing around such Nitrogen Tank Pad shall remain and shall not be required to be removed. Tenant shall promptly notify Landlord in writing of any spill, release or discharge of fuel or other hazardous substances and materials related to the Nitrogen Tanks and/or Nitrogen Tank Equipment, and/or any related equipment.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
EXECUTED as a sealed instrument in two or more counterparts as of the day and year first above written.
LANDLORD:
HOOD PARK LLC,
a Massachusetts limited liability company
By: Catamount Management Corporation Its Manager
By:/s/ Christopher P. Kaneb
Name: Christopher P. Kaneb Title: Vice President
TENANT:
FINCH THERAPEUTICS, INC.
a Delaware corporation
By:/s/ Mark Smith
Name: Mark Smith
Title: President
By:/s/ Gregory Perry
Name: Gregory Perry
Title: Treasurer
IW 12789790. I I\ 50
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark Smith, certify that:
Date: November 10, 2021 |
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By: |
/s/ Mark Smith |
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|
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Mark Smith, Ph.D. |
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|
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Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gregory D. Perry, certify that:
Date: November 10, 2021 |
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By: |
/s/ Gregory D. Perry |
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Gregory D. Perry |
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Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Finch Therapeutics Group, Inc. (the “Company”) for the quarter ended September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the company, hereby certifies, pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to his or her knowledge:
Date: November 10, 2021 |
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By: |
/s/ Mark Smith |
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Mark Smith, Ph.D. |
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Chief Executive Officer |
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(Principal Executive Officer) |
Date: November 10, 2021 |
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By: |
/s/ Gregory D. Perry |
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|
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Gregory D. Perry |
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|
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Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |