UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-K
☒ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal
year ended December 31, 2018.
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 1-32639
TG THERAPEUTICS,
INC.
(Exact name of
registrant as specified in its charter)
|
Delaware
(State or other jurisdiction of
incorporation or organization)
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36-3898269
(I.R.S. Employer Identification
No.)
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|
|
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2 Gansevoort
St., 9th Floor
New York, New
York
(Address of principal executive
offices)
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10014
(Zip Code)
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Registrant’s
telephone number, including area code: (212)
554-4484
Securities
registered pursuant to Section 12(b) of the
Act:
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Common Stock, Par Value $0.001 Per
Share
(Title of
Class)
|
The Nasdaq Capital
Market
(Name of Each Exchange on Which
Registered)
|
Securities
registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13
or Section 15(d) of the Act. Yes ☐ No
☒
Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
☒ No ☐
Indicate by check mark whether the registrant has
submitted electronically, if any, every Interactive Data File
required to be submitted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
☒ No ☐
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
☐
Indicate by
check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, 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.
|
Large accelerated filer
☒
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Accelerated filer
☐
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Non-accelerated filer
☐
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Smaller reporting company
☐
|
|
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Emerging growth company
☐
|
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act. ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).Yes ☐ No ☒
The aggregate market value of
voting common stock held by non-affiliates of the registrant
(assuming, for purposes of this calculation, without conceding,
that all executive officers and directors are
“affiliates”) was $917,401,544 as of June 30, 2018,
based on the closing sale price of such stock as reported on
the NASDAQ Capital
Market.
There were 83,870,546 shares of the
registrant’s common stock, $0.001 par value, outstanding as
of February 15, 2019.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the
registrant’s Proxy Statement for the 2019 Annual Meeting of
Stockholders are incorporated by reference in Part III of this
Annual Report on Form 10-K.
TG THERAPEUTICS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018
TABLE OF CONTENTS
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Page
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SPECIAL
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
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1
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PART I
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ITEM
1
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Business
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2
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ITEM
1A
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Risk
Factors
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23
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ITEM
2
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Properties
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58
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ITEM
3
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Legal
Proceedings
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58
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ITEM
4
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Mine
Safety Disclosures
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58
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PART II
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ITEM
5
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Market
for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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58
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ITEM
6
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Selected
Financial Data
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60
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ITEM
7
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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61
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ITEM
7A
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Quantitative
and Qualitative Disclosure About Market Risk
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70
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ITEM
8
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Financial
Statements and Supplementary
Data
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70
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ITEM
9
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosures
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70
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ITEM
9A
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Controls
and
Procedures
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70
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ITEM
9B
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Other
Information
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72
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PART III
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ITEM
10
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Directors,
Executive Officers and Corporate
Governance
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72
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ITEM
11
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Executive
Compensation
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72
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ITEM
12
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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72
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ITEM
13
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Certain
Relationships and Related Transactions, and Director
Independence
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72
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ITEM
14
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Principal
Accounting Fees and
Services
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72
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PART IV
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ITEM
15
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Exhibits
and Financial Statement
Schedules
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73
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This Annual Report on Form
10-K contains trademarks and trade names of TG Therapeutics, Inc.,
including our name and logo. All other trademarks, service marks,
or trade names referenced in this Annual Report on Form 10-K are
the property of their respective owners.
This
Annual Report on Form 10-K contains forward-looking statements that
involve substantial risks and uncertainties. All statements, other
than statements of historical facts, contained in this Annual
Report on Form 10-K 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,” “would” or
the negative of these words or other comparable terminology,
although not all forward-looking statements contain these
identifying words.
The
forward-looking statements in this Annual Report on Form 10-K
include, but are not limited to, statements about:
●
The
initiation, timing, progress and results of our pre-clinical
studies and clinic trials, including, without limitation, our
on-going UNITY-CLL Phase 3 clinical trial, ULTIMATE MS I and II
Phase 3 clinical trial and UNITY-NHL Phase 2b clinical
trial
●
Our
ability to advance drug candidates into, and successfully complete,
clinical trials
●
the timing or likelihood of regulatory
filings and approvals
●
the
commercialization of our drug candidates, if approved
●
the pricing and
reimbursement of our drug candidates, if approved
●
the implementation
of our business model, strategic plans for our business, drug
candidates and technology
●
the scope of
protection we are able to establish and maintain for intellectual
property rights covering our drug candidates and
technologies
●
estimates of our
expenses, future revenues, capital requirements and our needs for
additional financing
●
our ability to
maintain and establish collaborations and enter into strategic
arrangements, if desired
●
our financial
performance and cash burn management
●
developments
relating to our competitors and our industry
You
should read this Annual Report on Form 10-K and the documents that
we have filed as exhibits to this Annual Report on Form 10-K
completely and with the understanding that our actual future
results, performance or achievements may be materially different
from what we expect. Except as required by law, we assume no
obligation to update or revise these forward-looking statements for
any reason, even if new information becomes available in the
future.
This
Annual Report on Form 10-K also contains estimates, projections and
other information concerning our industry, our business and the
markets for certain diseases, including data regarding the
estimated size of those markets, and the incidence and prevalence
of certain medical conditions. Information that is based on
estimates, forecasts, projections, market research or similar
methodologies is inherently subject to uncertainties and actual
events or circumstances may differ materially from events and
circumstances reflected in this information. Unless otherwise
expressly stated, we obtained this industry, business, market and
other data from reports, research surveys, studies and similar data
prepared by market research firms and other third parties,
industry, medical and general publications, government data and
similar sources.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
STATEMENTS
●
expectations
for increases or decreases in expenses;
●
expectations
for the clinical and pre-clinical development, manufacturing,
regulatory approval, and commercialization of our pharmaceutical
product candidates or any other products we may acquire or
in-license;
●
use of
clinical research centers and other contractors;
●
expectations
as to the timing of commencing or completing pre-clinical and
clinical trials and the expected outcomes of those
trials;
●
expectations
for incurring capital expenditures to expand our research and
development and manufacturing capabilities;
●
expectations
for generating revenue or becoming profitable on a sustained
basis;
●
expectations
or ability to enter into marketing and other partnership
agreements;
●
expectations
or ability to enter into product acquisition and in-licensing
transactions;
●
expectations
or ability to build our own commercial infrastructure to
manufacture, market and sell our drug candidates;
●
products
being accepted by doctors, patients or payors;
●
ability
to compete against other companies and research
institutions;
●
ability
to secure adequate protection for our intellectual
property;
●
ability
to attract and retain key personnel;
●
availability
of reimbursement for our products;
●
estimates
of the sufficiency of our existing cash and cash equivalents and
investments to finance our operating requirements, including
expectations regarding the value and liquidity of our
investments;
●
stock
price and its volatility; and
●
expectations
for future capital requirements.
Our
actual results may differ materially from the results anticipated
in these forward-looking statements due to a variety of factors,
including, without limitation, those discussed under the captions
“Risk Factors,” “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations” and elsewhere in this report, as well as other
factors which may be identified from time to time in our other
filings with the Securities and Exchange Commission, or the SEC, or
in the documents where such forward-looking statements appear.
Given these uncertainties, you should
not place undue reliance on these forward-looking statements. Our
forward-looking statements do not reflect the potential impact of
any future acquisitions, mergers, dispositions, joint ventures or
investments we may make or enter into.
You should read this Annual Report on Form 10-K
and the documents that we have filed as exhibits to this Annual
Report on Form 10-K completely and with the understanding that our
actual future results, performance or achievements may be
materially different from what we expect. Any forward-looking
statements in this Annual Report on Form 10-K reflect our current
views with respect to future events or to our future financial
performance and involve known and unknown risks, uncertainties and
other important factors that may cause our actual results,
performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by
these forward-looking statements. The forward-looking
statements contained in this report reflect our views and
assumptions only as of the date this report is signed.
Except as required by law, we assume
no obligation to update or revise these forward-looking statements
for any reason, even if new information becomes available in the
future.
This
Annual Report on Form 10-K also contains estimates, projections and
other information concerning our industry, our business and the
markets for certain diseases, including data regarding the
estimated size of those markets, and the incidence and prevalence
of certain medical conditions. Information that is based on
estimates, forecasts, projections, market research or similar
methodologies is inherently subject to uncertainties and actual
events or circumstances may differ materially from events and
circumstances reflected in this information. Unless otherwise
expressly stated, we obtained this industry, business, market and
other data from reports, research surveys, studies and similar data
prepared by market research firms and other third parties,
industry, medical and general publications, government data and
similar sources.
1
PART
I
Unless the context requires otherwise, references in this report to
“TG,” “Company,” “we,”
“us” and “our” refer to TG Therapeutics,
Inc. and our subsidiaries.
ITEM 1. BUSINESS.
OVERVIEW
We are
a biopharmaceutical company dedicated to developing and delivering
medicines for patients with B-cell mediated diseases, including
Chronic Lymphocytic Leukemia (CLL), non-Hodgkin’s Lymphoma
(NHL) and Multiple Sclerosis (MS). We have developed a robust
B-cell directed research and development (R&D) platform for
identification of key B-cell pathways of interest and rapid
clinical testing. Currently, we have five B-cell targeted drug
candidates in clinical development, with the lead two therapies,
ublituximab (TG-1101) and umbralisib (TGR-1202), in pivotal trials
for CLL, NHL and MS. Ublituximab is a novel anti-CD20 monoclonal
antibody (mAb) that has been glycoengineered for enhanced potency
over first generation antibodies. Umbralisib is an oral, once daily
inhibitor of PI3K delta. Umbralisib also uniquely inhibits
CK1-epsilon, which may allow it to overcome certain tolerability
issues associated with first generation PI3K delta inhibitors. When
used together in combination therapy, ublituximab and umbralisib
are referred to as ("U2"), or "1303". Additionally, in early
clinical development we have an anti-PD-L1 monoclonal antibody
referred to as TG-1501, an oral Bruton’s Tyrosine Kinase
(“BTK”) inhibitor referred to as TG-1701, and an
anti-CD47/CD19 bispecific antibody referred to as
TG-1801.
We also
actively evaluate complementary products, technologies and
companies for in-licensing, partnership, acquisition and/or
investment opportunities. To date, we have not received approval
for the sale of any of our drug candidates in any market and,
therefore, have not generated any product sales from our drug
candidates.
Current Phase 3 or Registration Directed Clinical Trial
Highlights:
●
Umbralisib Single Agent Cohorts of UNITY-NHL
Phase 2b Trial: UNITY-NHL is a
Phase 2b registration-directed clinical trial evaluating umbralisib
monotherapy and the U2 combination in previously treated patients
with NHL. Currently the follicular lymphoma (FL)/ small lymphocytic
leukemia (SLL) and marginal zone lymphoma (MZL) single agent
umbralisib cohorts of this trial have been fully enrolled. In
February 2019, we announced that the MZL cohort met the primary
endpoint of Overall Response Rate (ORR) as determined by
Independent Review Committee (IRC) for all treated patients (n=69).
The results met the Company’s target guidance of 40-50% ORR.
Interim safety and efficacy data from the MZL cohort will be
presented in an oral presentation at the upcoming American
Association for Cancer Research (AACR) annual meeting on April 1,
2019. Previously, in January 2019, the U.S. Food and Drug
Administration (FDA) granted Breakthrough Therapy Designation for
umbralisib for the treatment of adult patients with MZL who
have received at least one prior anti-CD20 regimen, the same
population currently being evaluated in the UNITY-NHL MZL cohort.
We plan to discuss the results with the FDA regarding a potential
new drug application (NDA) filing for accelerated approval. For the
FL/SLL cohort, we are targeting topline data readout in second
half-2019.
●
Umbralisib plus Ublituximab UNITY-CLL Phase 3
Trial: UNITY-CLL is a
global Phase 3 randomized controlled clinical trial comparing the
U2 combination, to an active control arm of obinutuzumab plus
chlorambucil in patients with both treatment naïve and
relapsed or refractory CLL. The primary endpoint for this study is
to demonstrate superiority in Progression Free Survival (PFS) for
the U2 combination over the control arm to support the submission
for full approval of the U2 combination in CLL. We cannot predict
precisely when the PFS readout will occur, however our current
estimate is PFS readout may be available by year-end 2019 or first
half 2020. This trial is being conducted under Special Protocol
Assessment (SPA) with FDA.
●
Ublituximab Single Agent ULTIMATE I & II
Trials: ULTIMATE I and ULTIMATE II are two independent Phase
3 trials. Each trial is a global, randomized, multi-center,
double-blinded, double-dummy, active-controlled study comparing
ublituximab to teriflunomide in subjects with relapsing forms of
Multiple Sclerosis (RMS). The primary endpoint for each study is
Annualized Relapse Rate (ARR) following 96 weeks of treatment over
the control arm to support the submission for full approval of
ublituximab in RMS. We are targeting topline data from this trial
in mid-2020. These trials are being conducted under an SPA with the
FDA.
CORPORATE INFORMATION
We were
incorporated in Delaware in 1993. Our executive offices are located
at 2 Gansevoort Street, 9th Floor, New York, New York 10014. Our
telephone number is 1-212-554-4484, and our e-mail address is
info@tgtxinc.com.
We
maintain a website with the address www.tgtherapeutics.com
and maintain a twitter account. We make available free of charge
through our corporate website our annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K, as
well as any amendments to these reports, as soon as reasonably
practicable after we electronically file such material with, or
furnish such material to, the SEC. We are not including the
information on our website or our twitter account as a part of, nor
incorporating either by reference into, this report. You may read
and copy any such reports and amendments thereto at the SEC’s
Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549
on official business days during the hours of 10:00 a.m. to 3:00
p.m. Please call the SEC at 1-800-SEC-0330 for information on the
Public Reference Room. Additionally, the SEC maintains a website
that contains annual, quarterly, and current reports, proxy
statements, and other information that issuers (including us) file
electronically with the SEC. The SEC’s website address is
http://www.sec.gov.
In
addition, we intend to use our corporate website, SEC filings,
press releases, public conference calls and webcasts as well as
social media to communicate with our subscribers and the public
about the Company, its services and other issues. It is possible
that the information we post on social media could be deemed to be
material information. Therefore, in light of the SEC’s
guidance, we encourage investors, the media and others interested
in the Company to review the information we post on the U.S. social
media channels listed on our website.
2
STRATEGY
Our Strategy
Our
goal is to become a fully-integrated, B-cell targeted
biopharmaceutical company capable of delivering multi-drug
combination treatments for patients with diseases resulting from
cancerous or aberrant B-cells. The key tenets of our strategy
include the following:
●
Successfully
completing our current Phase 3 and registration-directed trials for
umbralisib and ublituximab, including, UNITY-CLL, UNITY-NHL, and
the ULTIMATE Phase 3 Program in MS;
●
Rapidly
gaining regulatory approval for umbralisib in NHL, umbralisib plus
ublituximab (“U2”) in CLL, and ublituximab in
MS;
●
Efficiently
and effectively prepare for commercial launch and build commercial
capability to ensure, when approved, broad access to patients for
the approved indications for umbralisib and
ublituximab;
●
Rapidly
add ublituximab to umbralisib in NHL to advance U2 in
NHL;
●
Advance
TG-1501, TG-1701, and TG-1801 through clinical development and
define potential regulatory paths for these drug candidates both as
single agents and in combination with umbralisib, ublituximab,
and/or U2;
●
Build
upon the MS program to expand ublituximab into additional MS
indications and other autoimmune diseases;
●
Continue
to expand our pipeline with mechanisms of importance to B-cell
mediated diseases;
●
Evaluate
potential strategic collaborations to maximize the value of our
programs and B-cell directed platform; and
●
Maintain
our “patient first” culture as we grow our
business.
Our Approach and Platform
Our
approach is to systematically identify targets that have proven
activity in the treatment of B-cell diseases. Our preference is to
identify targets for which there is human clinical proof of concept
that the mechanism is active in B-cell diseases and then to
identify drug candidates that effectively modulate the desired
molecular target. We identify these drug candidates at academic
centers of excellence or in development at biotech companies or
pharmaceutical companies globally. Our current drug candidates were
acquired through license agreements, collaborations, or joint
ventures with biopharmaceutical companies located in the US,
France, Switzerland, India, and China. This approach enables us to
minimize target risk while looking for the best available drug
candidates around the world. By focusing on B-cell diseases and
targets with a known activity
profile, we believe that we can quickly identify the patients most
likely to respond, resulting in a more efficient development path
with a greater likelihood of success. Importantly, since all our
drug candidates are focused in one disease area, we can rapidly
explore combination therapies, which we believe is essential to
providing best outcomes for patients and holds the key to
identifying cures for patients with B-cell diseases.
●
An
internal team with a deep understanding of B-cell diseases and the
treatment of patients; and
●
An
external clinical trials network composed of over 200 community and
academic clinical trial sites globally, specializing in B-cell
diseases.
B-CELL DISEASES OVERVIEW
B-cell
mediated diseases comprise a constellation of disorders that result
from cancerous B-cells or aberrant B-cells. In the case of
cancerous B-cells, the most common forms of B-cell cancers or
B-cell malignancies are non-Hodgkin’s Lymphoma (NHL) and
Chronic Lymphocytic Leukemia (CLL). In the case of aberrant
B-cells, many autoimmune diseases are believed to result from
aberrant B-cell activity, including, Multiple Sclerosis (MS),
Rheumatoid Arthritis (RA), and Lupus.
The
Company’s current clinical programs are focused on CLL, MZL,
FL, and RMS.
Marginal Zone Lymphoma Overview
MZL
comprises a group of indolent (slow growing) B-cell non-Hodgkin
lymphomas (NHLs) that begin forming in the marginal zone of
lymphoid tissue. With an annual incidence of approximately 7,500
newly diagnosed patients in the United States, MZL is the third
most common B-cell NHL, accounting for approximately
eight percent of all NHL cases. MZL consists of
three different subtypes: extranodal MZL of the mucosal-associated
lymphoid tissue (MALT), nodal marginal zone lymphoma (NMZL), and
splenic marginal zone lymphoma (SMZL).
Follicular Lymphoma Overview
FL is typically a
slow-growing or indolent form of NHL which accounts for 20 to 30
percent of all NHL cases, with a prevalence of approximately
245,000 and an incidence of approximately 31,000 in the US, Japan,
and 5 major EU markets. FL is usually not considered to be curable,
but more of a chronic disease, with patients living for many
years.
3
Chronic Lymphocytic Leukemia Overview
CLL is
the most common type of adult leukemia, and in 2019, it is
estimated there will be more than 20,000 new cases of CLL diagnosed
in the United States. Although signs of CLL may disappear for a
period of time after initial treatment, the disease is considered
incurable and many people will require additional treatment due to
the return of cancerous cells.
Relapsing Forms of Multiple Sclerosis Overview
Relapsing forms of
multiple sclerosis (RMS), a chronic
demyelinating disease of the central nervous system (CNS)
include people with relapsing-remitting multiple sclerosis (RRMS)
and people with secondary progressive multiple sclerosis (SPMS) who
continue to experience relapses. RRMS is the most common form of
multiple sclerosis (MS) and is characterized by episodes of new or
worsening signs or symptoms (relapses) followed by periods of
recovery. It is estimated that nearly 1,000,000 people are living
with MS in the United States and approximately 85 percent are
initially diagnosed with RRMS. The majority of people who are
diagnosed with RRMS will eventually transition to SPMS, in which
they experience steadily worsening disability over
time.
We
have leveraged our B-cell platform to develop a robust drug
pipeline of both targeted orally available, potent and selective
small molecule kinase inhibitors and intravenously delivered
“off-the-shelf” immunotherapies that leverage the
patient’s own immune system to fight cancer. We currently own
worldwide development and commercial rights, subject to certain
limited geographical restrictions, to all of our pre-clinical and
clinical programs. The following table summarizes our most advanced
drug candidates as of February 28, 2019.
|
Clinical
Drug Candidate
(molecular
target)
|
Initial
Target Disease
|
Stage
of Development
(pivotal
study)
|
|
Ublituximab
(anti-CD20/mAb)
|
Chronic
Lymphocytic Leukemia
|
Phase 3
trial (UNITY-CLL)
|
| Multiple Sclerosis |
Phase 3
trials (ULTIMATE I and II)
|
|
|
|
|
|
|
Umbralisib
(PI3K delta inhibitor)
|
Chronic
Lymphocytic Leukemia
|
Phase 3
trial (UNITY-CLL)
|
|
Marginal
Zone Lymphoma
|
Phase
2b trial (UNITY-NHL)
|
|
|
Follicular
Lymphoma
|
Phase
2b trial (UNITY-NHL)
|
|
|
TG-1501
(anti-PDL1)
|
B-cell
Cancers
|
Phase 1
trial
|
|
TG-1701
(BTK inhibitor)
|
B-cell
Cancers
|
Phase 1
trial
|
|
TG-1801
(anti-CD47/CD19)
|
B-cell
Cancers
|
Phase 1
trial
|
Ublituximab Overview
Ublituximab (also
referred to as TG-1101) is a glycoengineered anti-CD20 monoclonal
antibody that targets a unique epitope on the CD20 antigen found on
the surface of B-lymphocytes. We hold exclusive worldwide rights to
develop and commercialize ublituximab for all indications, except
for the territories of France and Belgium for which an option to
commercialize has been retained by LFB Biotechnologies, and South
Korea and Southeast Asia which were licensed by us to Ildong
Pharmaceutical Ltd in November 2012.
Generally,
anti-CD20 antibodies are believed to exert their B-cell depleting
effects through three primary mechanisms: antibody dependent
cell-mediated cytotoxicity (ADCC), complement dependent
cytotoxicity (CDC), and direct or programmed cell death (DCD or
PCD). Ublituximab has been specifically glycoengineered to enhance
ADCC activity, which should enhance its ability to deplete B-cells
and may improve its anti-cancer effects when compared to rituximab
the leading anti-CD20 monoclonal antibody, which had worldwide
sales in 2018 of approximately $7 billion.
ADCC is
a mechanism that is dependent on interactions between the Fc region
of the antibody and the FccR receptors on immune system effector
cells, most notably the Fc−gammaR (CD16) receptor found on NK
cells. These interactions trigger cells to release cytotoxic
molecules and proteases resulting in B-cell death. Ublituximab is a
next generation, type I chimeric IgG1 monoclonal antibody with a
glycoengineered Fc region designed specifically to induce higher
ADCC activity in comparison to rituximab. In pre-clinical
(non-human) experiments, ublituximab has demonstrated an ability to
enhance ADCC by >50x over rituximab, resulting in enhanced
potency.
Umbralisib
Overview
Umbralisib (also
referred to as TGR-1202) is an oral, once daily inhibitor of PI3K
delta inhibitor with nanomolar potency to the delta isoform and
high selectivity over the alpha, beta, and gamma isoforms.
Umbralisib also uniquely inhibits CK1-epsilon, which may allow it
to overcome certain tolerability issues associated with first
generation PI3K-delta inhibitors. Umbralisib has demonstrated
activity in preclinical models of hematologic malignancies and
in vitro on primary cells
from patients with hematologic malignancies. The
phosphoinositide-3-kinases (“PI3Ks”) are a family of
enzymes involved in various cellular functions, including cell
proliferation and survival, cell differentiation, intracellular
trafficking, and immunity. There are four isoforms of PI3K (alpha,
beta, delta, and gamma), of which the delta isoform is strongly
expressed in cells of hematopoietic origin, and often implicated in
B-cell related lymphomas.
4
Additionally, in
October 2016, a manuscript titled, "Silencing c-Myc Translation as
a Therapeutic Strategy through Targeting PI3K Delta and CK1 Epsilon
in Hematological Malignancies," was published online in the First
Edition section of Blood, the Journal of the American Society of
Hematology. The publication presents preclinical data describing
the synergy of umbralisib with the proteasome inhibitor carfilzomib
and the unique effects of the combination to silence c-Myc in
various preclinical lymphoma and myeloma models. Importantly, the
manuscript for the first time reports on umbralisib’s unique
complimentary mechanism of inhibiting the protein kinase casein
kinase-1 epsilon (CK1e), which may contribute to what we believe is
a differentiated safety profile of umbralisib over first generation
PI3K delta inhibitors by supporting T regulatory cells, a part of
the immune system necessary to protect against autoimmune mediated
toxicities.
Single Agent Ublituximab (TG-1101) in Relapsed/Refractory NHL &
CLL
Two
single-agent, dose-escalation, Phase I studies were undertaken with
ublituximab to establish an optimal dose in patients with NHL and
CLL. The first was a two part first-in-human Phase I clinical trial
completed in France in which ublituximab was evaluated in relapsed or
refractory CLL. In 2012 a second single-agent Phase I study was
undertaken in the US entitled "An Open Label Phase I/II Trial of
the Efficacy and Safety of TG-1101 in Patients with B-cell
Non-Hodgkin’s Lymphoma who have Relapsed or are Refractory
After CD20 Directed Antibody Therapy." In July 2014, this trial completed enrollment of
35 patients, of which 12 patients were included in the dose
escalation component and 23 patients in various expansion cohorts.
All enrolled patients were relapsed or refractory to
rituximab or a rituximab
containing regimen, and in most cases
multiple other lines of therapy. Dr. Owen O'Connor, Professor of
Medicine and Director, Center for Lymphoid Malignancies at New York
Presbyterian Columbia Medical Center was the Principal Investigator
for the multi-center study. Data from this study was
published in full in the British Journal of
Haematology in February 2017.
In both Phase 1 studies, single agent ublituximab was deemed well
tolerated by treating investigators and displayed promising
clinical activity in relapsed and refractory
patients.
Single Agent Ublituximab (TG-1101) in Relapsing Forms of Multiple
Sclerosis
In
May 2016, we commenced our first study of ublituximab in patients
with relapsing forms of multiple sclerosis (RMS), a chronic
demyelinating disease of the central nervous system (CNS). The
study, entitled "A Placebo-Controlled Multi-Center Phase 2 Dose
Finding Study of Ublituximab, a Third-Generation Anti-CD20
Monoclonal Antibody, in Patients with Relapsing Forms of Multiple
Sclerosis," was led by Edward Fox, MD, PhD, Director of
the Multiple Sclerosis Clinic of Central Texas and Clinical
Associate Professor at the University of Texas Dell
Medical School in Austin, TX. The primary objective of
the study was to determine the optimal dosing regimen for
ublituximab with a focus on accelerating infusion times. In
addition to monitoring for safety and tolerability at each dosing
cohort, B-cell depletion and established MS efficacy endpoints were
also evaluated.
In
October 2018, final data from this Phase 2 study were presented at
the 34th Congress of the
European Committee for Treatment and Research in Multiple Sclerosis
(ECTRIMS) meeting in Berlin, Germany. The presentation included
final data on all 48 patients enrolled in the study through 48
weeks of treatment. Ublituximab was well tolerated across all
patients including those receiving rapid infusions, as low as a one
hour for the 450mg dose currently being studied in the Phase 3
ULTIMATE program and no study drug related discontinuations
occurred. Median B cell depletion was >99% at the primary
analysis point of Week 4 (n=48) and maintained at Week 24 and Week
48. Ublituximab also completely eliminated all (100%) T1
Gd-enhancing lesions at Week 24 and maintained complete elimination
at Week 48 (n=46) and an Annualized Relapse Rate (ARR) of 0.07 was
observed with 93% of subjects relapse free at Week 48.
Single Agent Umbralisib (TGR-1202) in Patients with
Relapsed/Refractory Hematologic Malignancies
In
January 2013, we initiated a Phase I, open label, multi-center,
first-in-human clinical trial of umbralisib in patients with
hematologic malignancies. The study entitled "A Phase I Dose
Escalation Study Evaluating the Safety and Efficacy of TGR-1202 in
Patients with Relapsed or Refractory Hematologic Malignancies," is
being run in collaboration with the Sarah Cannon Research
Institute in Nashville, TN with Howard “Skip”
Burris, MD, Executive Director, Drug Development as the acting
Study Chair. Enrollment was open to patients with relapsed or
refractory NHL, CLL, and other select hematologic
malignancies. As of February 2016, this study closed to
enrollment.
In
February 2018, data from this first-in-human Phase 1 clinical trial
of umbralisib was published in The Lancet Oncology. The manuscript
was titled, “Umbralisib, a novel PI3K and casein kinase-1
epsilon inhibitor, in relapsed or refractory chronic lymphocytic
leukemia and lymphoma: an open-label, phase 1, dose-escalation,
first-in-human study.” The paper includes safety and efficacy
information from 90 patients with relapsed or refractory
hematologic malignancies, including patients with CLL and various
forms of lymphoma treated with single agent umbralisib. In this
study, the data showed that umbralisib was well tolerated with a
favorable safety profile distinct from prior generation PI3K delta
inhibitors.
5
Additional Early Studies with Ublituximab (TG-1101) and/or
Umbralisib (TGR-1202)
In
addition to the above Phase 1 trials for ublituximab and
umbralisib, the following Phase 1 and Phase 2 studies, as well as
an integrated analysis were conducted:
●
Ublituximab
in Combination with Umbralisib with/without ibrutinib or
bendamustine for Relapsed/Refractory NHL &
CLL—
In November 2013, we initiated a
multi-center, Phase I study to evaluate the safety and efficacy of
the combination of ublituximab and umbralisib, (U2), for patients
with relapsed and/or refractory CLL and NHL. The MD Anderson Cancer
Center was the lead center for this clinical trial. Additional
cohorts were added to this study to explore the triple therapy
combination of U2 plus ibrutinib and the triple therapy combination
of U2 plus bendamustine. Both U2 and the triplet combinations
demonstrated acceptable levels of tolerability with promising
activity. Enrollment in all cohorts is now closed and patients
continued to be followed for safety and efficacy. Data highlights
from each cohort include the following:
●
U2: In December 2015 we presented the results from
the U2 portion of this trial at the 57th
American Society of Hematology (ASH)
annual meeting, Abstract Number 1538. The presentation included
data from patients with relapsed and refractory NHL and
CLL treated with U2. The combination was well tolerated in the 71
patients evaluable for safety at all dose levels up through 1200mg.
This was a heavily pretreated population with high-risk features,
including 58% refractory to last treatment with multiple previous
lines of rituximab-based therapy. Notably, the only Grade 3/4
adverse event occurring in > 5% of patients was neutropenia and
of the 71 patients available for safety, only 6 patients (8%)
discontinued due to an umbralisib related event. Additionally, 26
patients had been on U2 for 6+ months, with no events of colitis
reported as of the date of publication.
●
Efficacy data was presented on patients treated at
the higher doses of umbralisib (1200mg of the original formulation
and 600mg or greater of the micronized formulation). 80% (8 of
10) ORR was observed in patients with CLL/SLL, including 1 complete
response (CR) and 7 partial responses (PRs). Notably, 75% of CLL
patients had high-risk cytogenetics (17p and/or 11q
del).
71% (12 of 17) ORR was observed in
heavily pretreated patients with indolent NHL (FL &
MZL), including 4 CRs (24%) and 8 PRs, with 4 of the remaining 5
patients achieving stable disease.
●
U2 plus Bendamustine: In December 2018, updated
data for the U2 plus bendamustine cohort was presented at the
60th
ASH Annual Meeting. Overall, the U2
plus bendamustine combination was well tolerated and highly active
in patients with advanced indolent and aggressive NHL, including
those not eligible for HD/SCT or CD19 CART therapy. Efficacy
highlights from this poster included an 85% (11 of 13) ORR
including a 54% CR rate in patients with relapsed or refractory
FL.
●
U2
plus Ibrutinib: In January 2019, we announced the publication of
results from the U2 plus ibrutinib cohort in The Lancet
Haematology. Safety data was available from 46 patients and the
triple combination of ublituximab, umbralisib, and ibrutinib was
well tolerated with a manageable adverse event profile, and no
maximum tolerated dose achieved for the combination. Efficacy data
was available from 44 patients and showed the U2 plus ibrutinib
combination to be highly active. The ORR amongst all evaluable
patients was 84%, with 100% (22 of 22) of patients with CLL/SLL
achieving a response, including 36% achieving a CR. Among patients
with NHL, 68% (15 of 22) achieved a response, including a 71% ORR
in FL (n=7), a 100% ORR in MZL (n=3), and a 100% ORR in MCL
(n=6).
●
Umbralisib
as a single agent in CLL patients who are
intolerant to prior BTK inhibitor or PI3K delta inhibitor
therapy— In
June 2018, at the 23rd
Congress of the European Hematology Association (EHA), data was
presented from 47 patients with CLL who were intolerant to prior
BTK or PI3K delta inhibitor therapy who were then treated with
single agent umbralisib. Umbralisib demonstrated a favorable safety
profile with only 13% of patients discontinuing due to an adverse
event, of which only one patient discontinued due to a recurrent
adverse event (AE) also experienced with prior kinase inhibitor
therapy. As of the data presentation, nearly half of the patients
enrolled had been on umbralisib for a duration longer than their
prior kinase inhibitor. The median progression free survival (PFS)
and overall survival (OS) has not been reached with a median
follow-up of 9.5 months. Enrollment is now closed with patients
continuing to be followed.
●
Umbralisib
Long-term Follow-up Integrated Analysis in Patients with
Relapsed/Refractory Hematologic Malignancies— In December 2017, at the
59th ASH Annual Meeting, the
Company presented integrated long-term follow-up data from 347
patients exposed to umbralisib across 5 studies, which continued to
demonstrate high response rates in CLL, and FL coupled with a
favorable safety profile distinct from other PI3K delta inhibitors.
In June 2018, an update on the data was presented at the
23rd Congress of the European
Hematology Association (EHA). The presentation included data pooled
from 4 completed or ongoing Phase 1 or 2 studies containing
umbralisib, focusing on 177 patients who have been on daily
umbralisib for a minimum of 6 months. Patients were heavily
pretreated, with 45% of patients having seen 3 or more prior lines
of therapy. Umbralisib continued to exhibit a differentiated safety
profile compared to prior generation PI3K delta inhibitors. Serious
adverse events occurring in >1% of patients after 6 months on
therapy were limited to pneumonia (3%), diarrhea (2%), and
cellulitis (2%) with only 2% of patients discontinuing umbralisib
as a result of diarrhea/colitis after being on umbralisib for more
than 6 months.
6
●
Phase 2 trial of
Ublituximab plus Ibrutinib in patients with relapsed or refractory
CLL and Mantle Cell Lymphoma (MCL)— In December 2013, we initiated a
multi-center Phase 2 clinical trial to evaluate the safety and
efficacy of the combination of ublituximab and ibrutinib for
patients with CLL and MCL. Jeff P. Sharman, MD, Medical Director,
Hematology Research, US Oncology Network, was the Study Chair. This
trial has completed enrollment. Final
data from the MCL cohort of this study was presented at the 57th
ASH meeting held in December 2015, with data from the CLL cohort published in the British Journal of
Haematology in December 2016.
The combination displayed marked clinical activity, reporting an
88% (35/41) response rate in patients with CLL, a 95% (19/21)
response rate in those CLL patients with high-risk cytogenetics,
and an 87% (13/15) response rate in patients with MCL. The data
from the CLL cohort of this study supported the Phase 3 GENUINE
study evaluating ublituximab plus ibrutinib in CLL patients with
high-risk cytogenetics.
●
Phase 2 trial of
Umbralisib plus Ibrutinib in patients with relapsed or refractory
CLL and MCL— In
December 2018, we announced the publication of results from the
multicenter Phase 1/1b trial of umbralisib in combination with
ibrutinib, the oral Bruton's tyrosine kinase (BTK) inhibitor, in
Lancet Haematology. This investigator-initiated trial was conducted
at Dana-Farber Cancer Institute and four additional centers across
the USA in collaboration with the Leukemia and Lymphoma Society,
Blood Cancer Research Partnership with funding by TG Therapeutics.
The publication includes safety and efficacy information from a
total of 42 relapsed or refractory patients, 21 with CLL and 21
with MCL. In this study, the
combination of umbralisib and ibrutinib was well tolerated and
consistent with the additive toxicity profile of the two drugs
individually. No dose-limiting toxicities were observed, and the
maximum-tolerated dose of umbralisib when combined with ibrutinib
was not reached. The recommended phase 2 dose of umbralisib when
given in combination with ibrutinib was 800 mg once daily.
Importantly, serious immune-mediated toxicities were not observed
with this combination, as had previously been reported with
combinations of different agents targeting this pathway, with only
one case of transient Grade 3 transaminitis and no Grade 3/4
colitis or pneumonitis. The combination of umbralisib and ibrutinib
was also clinically active, with 90% of relapsed/refractory CLL
patients achieving an overall response (n=19), of which 62% (n=13)
achieved a partial response or partial response with lymphocytosis,
and 29% (n=6) achieved a complete response. Of the 21 patients
treated with MCL, 67% (n=14) achieved an overall response, of which
48% (n=10) achieved a partial response and 19% (n=4) achieved a
complete response.
●
Additional early
combination studies utilizing umbralisib with approved
agents— Umbralisib
has been evaluated in combination with the anti-CD30 antibody drug
conjugate, brentuximab vedotin, in patients with relapsed or
refractory Hodgkin’s lymphoma and in combination with the JAK
inhibitor, ruxolitinib, in patients with Myelofibrosis or
Polycythemia Vera. Additional
investigator sponsored trials are also underway which are combining
umbralisib and or the U2 combination with other approved agents for
the treatment of B-cell malignancies.
The
company has initiated and enrolled several Phase 3 and
registration-directed Phase 2b clinical trials (ie, clinical trials
that may support a marketing application for approval). The
following are the current Phase 3 trials and registration-directed
Phase 2b clinical trials in the order of expected top-line
data:
The UNITY-NHL Trial—Marginal Zone Lymphoma (MZL) and
Follicular Lymphoma (FL)/Small Lymphocytic Lymphoma (SLL) Cohorts
(Umbralisib single agent)
The
UNITY-NHL study is a broad Phase 2b multiple cohort trial designed
to evaluate the efficacy and safety of umbralisib monotherapy and
in combination with ublituximab in previously treated subjects with
NHL. In 2017, the UNITY-NHL study began enrolling a cohort of
patients with FL/SLL and an additional cohort of patients with MZL.
These cohorts of the trial are being led by Nathan H. Fowler, MD,
Associate Professor, Department of Lymphoma/Myeloma at the
University of Texas MD Anderson Cancer Center. The primary
objective of these cohorts of the study are to assess the efficacy
of umbralisib single agent as measured by ORR.
For the
FL/SLL cohort, adult patients were enrolled who had two prior lines
of therapy that included an anti-CD20 monoclonal antibody and an
alkylating agent. This cohort is fully enrolled with approximately
125 patients and top-line data are expected in second half
2019.
For the
MZL cohort, adult patients were enrolled who had one prior line of
therapy that included an anti-CD20 monoclonal antibody. On February
28, 2019 we announced that the MZL cohort of the UNITY-NHL Phase 2b
pivotal trial evaluating umbralisib monotherapy met the primary
endpoint of Overall Response Rate (ORR) as determined by
Independent Review Committee (IRC) for all treated patients (n=69).
The results met the Company’s target guidance of 40-50% ORR.
Interim safety and efficacy data from this study will be presented
in an oral presentation at the upcoming American Association
of Cancer Research (AACR) annual meeting on April 1,
2019 and full data from this study are expected to be
presented at a medical meeting later this year. We plan to discuss
the results with the U.S. Food and Drug Administration (FDA)
regarding a potential new drug application (NDA) filing for
accelerated approval.
The
multicenter, open-label, UNITY-NHL Phase 2b study - MZL cohort was
designed to evaluate the safety and efficacy of single agent
umbralisib in patients with MZL who have received at least one
prior anti-CD20 regimen. The primary endpoint is ORR as determined
by IRC assessment. The primary analysis of ORR will be conducted
once all treated patients have had at least 9 cycles (Cycle = 28
days) of follow-up. Secondary endpoints include safety, duration of
response, and progression-free survival (PFS).
7
The
positive ORR outcome announced in February 2019 was based on all 69
enrolled and treated patients, however at the time all patients had
not yet been followed for a minimum of 9 cycles as required for the
primary analysis of ORR. Accordingly, the study is on-going and
patients with benefit on therapy (stable disease or in response)
remain on study. Safety data are currently being
analyzed.
In
January 2019, the FDA granted Breakthrough Therapy Designation
(BTD) for umbralisib for the treatment of adult patients with
MZL who have received at least one prior anti-CD20
regimen. The BTD was based on interim data from the MZL cohort
of the UNITY-NHL trial.
There
are additional exploratory cohorts of the UNITY-NHL trial focused
on Diffuse Large B-Cell Lymphoma (DLBCL) and Mantle Cell Lymphoma
(MCL). Each cohort of the UNITY-NHL trial including, MZL, FL/SLL,
DLBCL, and MCL, is enrolled to and evaluated
independently.
The
UNITY-CLL Trial—Combination of Ublituximab (TG-1101) plus
Umbralisib (TGR-1202) in patients with Front-line or
Relapsed/Refractory Chronic Lymphocytic Leukemia
In
September 2015, we reached an agreement with the FDA regarding a
Special Protocol Assessment (SPA) on the design, endpoints and
statistical analysis approach of a Phase 3 clinical trial,
UNITY-CLL, for the proprietary combination of ublituximab plus
umbralisib, for the treatment of CLL. The SPA provides agreement
that the Phase 3 trial design adequately addresses objectives that,
if met, would support the regulatory submission for drug approval
of both ublituximab and umbralisib in combination.
The
Phase 3 trial, called the UNITY-CLL trial, is a randomized
controlled clinical trial that includes two key objectives: first,
to demonstrate contribution of each agent in the ublituximab plus
umbralisib regimen (the combination sometimes referred to as "U2"),
and second, to demonstrate superiority in PFS over the standard of
care to support the submission for full approval of the
combination. The study randomized patients into four treatment
arms: ublituximab plus umbralisib, ublituximab alone, umbralisib
alone, and an active control arm of obinutuzumab + chlorambucil.
The UNITY-CLL trial is being led by John Gribben, MD, professor of
Medical Oncology, Barts Cancer Institute, United Kingdom. The study
enrolled over 600 patients across the four treatment arms with
approximately 420 patients in the U2 and the active control arm
combined. Enrollment completed in October 2017.
In May 2017, an
early interim analysis was conducted to assess contribution of each
single agent in the ublituximab plus umbralisib combination
regimen, which allowed for the early termination of both single
agent arms. A second interim analysis was planned to evaluate ORR
to support accelerated approval when all patients in the U2 arm and
the active control arm had at least 6 months of follow-up. In
September 2018, we announced that the independent Data Safety
Monitoring Board (“DSMB”) reviewed ongoing data from
the trial and advised us that the second interim analysis of ORR
could not be conducted at that time as the data were not
sufficiently mature to conduct the analysis. Given the uncertainty
surrounding the timing and outcome of the ORR analysis, as well as
the significant regulatory hurdles associated with accelerated
approval in CLL, we are no longer planning to seek accelerated
approval for U2 in CLL based on ORR. The Company remains blinded to
all efficacy data and the trial continues to be conducted under SPA
agreement with the FDA. We await the results for the primary
endpoint for the study, PFS, to seek full approval for U2 in
patients with CLL, if the study is positive. Importantly, an
application based on PFS is expected to support full approval
versus accelerated approval, which is a conditional
approval.
Additionally, in
September 2018, the DSMB reviewed safety data from over 600
patients, including over 300 patients treated with umbralisib
either alone or in combination with ublituximab, of which
approximately 60% were treatment naïve. After review of the
data, the DSMB identified no safety concerns and recommended the
trial continue without modification.
The
GENUINE trial is a randomized controlled clinical trial in patients
with previously treated CLL with specific high-risk cytogenetic
abnormalities, with patients randomized to receive either
ublituximab plus ibrutinib or ibrutinib alone. Due to enrollment
challenges associated with this study, in October 2016, we
announced revisions to the design of the GENUINE study to
accelerate its completion. Initially the study was being conducted
pursuant to an SPA with the FDA, and was designed to enroll
approximately 330 patients, with a two-part analysis of both ORR
and PFS. The trial as amended in October 2016 removed PFS as a
co-primary endpoint leaving ORR as the sole primary endpoint. The
target number of patients was also reduced to 120 patients. The SPA
was terminated at the time the changes were
implemented.
In March 2017, we
reported positive top-line data from the GENUINE study and in June
2017, the results were presented by Dr. Jeff P. Sharman, Medical
Director, Hematology Research, US Oncology in an oral session
during the 53rd American Society of Clinical Oncology ("ASCO")
Annual Meeting in Chicago, IL. We had hoped to use the ORR results
from the GENUINE trial to file for accelerated approval for the
combination of ublituximab plus ibrutinib. In October of 2017, we
announced the results of a meeting with the FDA related to the
potential accelerated approval application. The FDA had expressed
concern that an intervening approval for the treatment of relapsed
or refractory CLL could, as available therapy, have the effect of
blocking our accelerated approval application. In June 2018,
venetoclax received full approval for the treatment of relapsed or
refractory CLL, the same indication for which we planned to file
accelerated approval. While we do believe under the FDA guidance
related to accelerated approval that there are benefits of
ublituximab plus ibrutinib over presently available therapies that
could support approval, we have decided at this time to not pursue
the filing of the results from the GENUINE trial to support
accelerated approval. We continue to follow patients in the GENUINE
study for safety and efficacy including Overall Response Rate,
Minimal Residual Disease (MRD) and
PFS.
8
The ULTIMATE I and ULTIMATE II Phase 3 Clinical Trials—Single
Agent Ublituximab in relapsing forms of Multiple
Sclerosis
In
August 2017, we reached an agreement with the FDA regarding an SPA
on the design of two Phase 3 clinical trials for ublituximab,
referred to as the ULTIMATE I and ULTIMATE II trials, for the
treatment of relapsing forms of Multiple Sclerosis (RMS). The SPA
provides agreement that the two Phase 3 trial designs adequately
address objectives that, if met, would support the regulatory
submission for approval of ublituximab in RMS. Each trial is a
global, randomized, multi-center, double-blinded, double-dummy,
active-controlled study comparing ublituximab to teriflunomide in
subjects with RMS. The primary endpoint for each study is
Annualized Relapse Rate (ARR) following 96 weeks of treatment. Each
trial was designed to enroll approximately 440 subjects, randomized
in a 1:1 ratio. This trial is being led by Lawrence
Steinman, MD, George A. Zimmermann Professor and Professor of
Pediatrics, Neurology and Neurological Sciences at Stanford
University.
In
August 2018, we announced that target enrollment into the ULTIMATE
I and II trials had been achieved, and that enrollment would
continue into September 2018 to allow identified patients to
participate in the study. At completion of full enrollment in
October of 2018, approximately 1,100 subjects were enrolled in both
studies combined.
TG-1501
is a fully human monoclonal antibody of IgG1 subtype that binds to
Programmed Death-Ligand 1 (PD-L1) and blocks its interactions with
PD-1 and B7.1 receptors. Cancer cells elude anti-tumor immunity
through multiple mechanisms, including upregulated expression of
ligands for inhibitory immune checkpoint receptors. Signals from
PD-L1 on tumor cells and in the tumor microenvironment help those
tumors avoid immune attack and elimination by preventing activation
of tumor specific effector T-cells. Anti-PD-L1 antibodies are
designed to block that signal, permitting effector T-cells to
attack the cancer. Clinical studies have shown that blockade of the
PD-1/PD-L1 pathway by monoclonal antibodies can enhance the immune
response and result in anti-tumor activity.
Preclinically, it
has been shown that the effects of anti-PD-L1 intervention can be
enhanced by utilizing other mechanisms targeting the tumor
microenvironment. Combining immunotherapies like anti-PD-L1, that
counters the tumor's immune-evading defense system with other
anti-cancer agents such as ublituximab or umbralisib may better
engage the body's own immune system to help fight
cancer.
A
comprehensive array of in vitro biochemical and cellular assays was
established to characterize the binding and the functional
activities of TG-1501. The in vitro data demonstrated that the
affinity, PD-L1 binding capability, relative ability to inhibit
PD-1/PDL-1 interactions, and functional activity of TG-1501 in
cellular assays are comparable to those of atezolizumab, durvalumab
and avelumab - the currently approved products sharing the same
mechanism of action.
TG-1501
is currently being evaluated in an ongoing study (Study CK-301-101:
NCT03212404), enrolling patients with select solid tumors, being
conducted by our licensor. In the dose escalation portion of this
trial, doses ranging from 200mg to 800mg were tested with no
dose-limiting toxicities observed and no maximum tolerated dose
(MTD) was achieved; therefore, a fixed dose of 800 mg was the
selected starting dose of TG-1501 for patients with hematologic
malignancies.
In
December 2018, the FDA approved an IND for TG-1501 and a Phase 1
study in subjects with select subtypes of lymphoma is expected to
commence in Q1 2019. After characterizing the safety profile of
TG-1501 as monotherapy in hematological malignancies, the study may
evaluate TG-1501 in combination with other therapies, including
ublituximab and/or umbralisib. Based on our rapidly evolving
understanding of the pathobiology of lymphoma subtypes, we envision
further combinations with other immunotherapies in the
future.
TG-1701 (BTK inhibitor) Overview
TG-1701 is a novel, orally available and
covalently-bound Bruton’s tyrosine kinase (BTK) inhibitor
that exhibits superior selectivity to BTK compared to ibrutinib
in in
vitro kinase
screening.
B-cell
receptor (BCR) signaling is crucial for normal B-cell development
and supports the survival and growth of malignant B-cells in
patients with B-cell leukemias or lymphomas. Targeting BTK, an
essential element of BCR signaling pathway which regulates the
survival, activation, proliferation, and differentiation of B
lymphocytes, has shown remarkable efficacy with an acceptable
safety profile in B-cell malignancies.
In June
2018, pre-clinical data for TG-1701 demonstrating favorable
pharmacologic properties was presented at the 23rd Congress of the European Hematology
Association (EHA) in Stockholm, Sweden. In vitro pharmacology studies have revealed that TG-1701
inhibited BTK with greater than 10-fold selectivity as measured by
IC50 on the kinase activities of EGFR, ITK, TXK, JAK3, HER2 and
HER4. In
vivo pharmacology studies
showed that TG-1701 significantly inhibited the growth of xenograft
lymphoid tumors including OCI-LY-10 and DOHH-2 in nude
mice.
We are
currently evaluating TG-1701 in a Phase 1, multi-center,
dose-escalation clinical trial in patients with B-cell
malignancies. This trial is designed to evaluate the safety and
tolerability of TG-1701 in adults with B-cell malignancies and
determine the recommended Phase 2 dose. Key secondary objectives
include evaluation of pharmacokinetics (PK), pharmacodynamics, and
preliminary anticancer activity.
9
TG-1801 (anti-CD47/anti-CD19 bispecific monoclonal antibody)
Overview
TG-1801 is a
first-in-class, bispecific CD47 and CD19 antibody. It is the first
therapy to target both CD19, a B-cell specific market widely
express across B-cell malignancies, and CD47, the "don’t eat
me" signal used by both healthy and tumor cells to evade macrophage
mediated phagocytosis. CD47 is expressed ubiquitously on normal
cells, including red blood cells and platelets. CD19 is a specific
B-cell marker, expressed early during pre-B cell ontogeny and until
terminal differentiation into early plasma cells. The majority of
B-cell lineage malignancies (more than 90%) express CD19, including
NHL, CLL and acute lymphoblastic leukemia (ALL). Tumor B-cells that
have lost the expression of CD20 after anti-CD20 mAb therapy, have
been found to maintain the expression of CD19, making CD19 an
attractive target in the treatment of B cell malignancies.
By co-targeting both CD47 and CD19,
TG-1801 has the potential to overcome the limitations of existing
CD47 targeted therapies by avoiding the side effects caused by
indiscriminate blockade of CD47 on healthy cells. In addition to
potentially enhancing tolerability, the co-targeting of CD19 by
TG-1801 may provide a secondary mechanism of direct anti-tumor
activity through the engagement of effector cells and induction of
antibody dependent cellular cytotoxicity
(ADCC).
TG-1801 binds to human CD19 with significantly
higher affinity than towards CD47. This difference between its
affinity to CD19 and CD47 allows TG-1801 to bind and selectively
block CD47 on CD19+ B-cells but not on CD19- red blood cells or platelets in human peripheral
blood.
In in vitro assays, TG-1801 induces
antibody-dependent cellular phagocytosis (ADCP) and
antibody-dependent cellular cytotoxicity (ADCC) of malignant tumor
B-cell lines and primary tumor B-cells from patients with B-cell
acute lymphoblastic leukemia (B-ALL), B-cell chronic lymphocytic
leukemia (B-CLL) and numerous subtypes of NHL.
In
in vivo mouse tumor models,
treatment with TG-1801 inhibited tumor growth in Raji cell
subcutaneous xenograft model, NALM-6 cell disseminated tumor model,
and patient-derived xenograft models, including primary tumor cells
from patients with diffuse large B-cell lymphoma (DLBCL) and B-ALL.
In addition, the combination of rituximab and TG-1801 demonstrated
enhanced activity over TG-1801 monotherapy.
In
summary, TG-1801 demonstrates anti-tumor activity in both
in vitro assays (ADCP and
ADCC) and in vivo animal
tumor models.
In the
first quarter of 2019 we commenced, a Phase 1 first-in-human,
dose-escalation study of TG-1801. This study will evaluate
escalating doses of TG-1801 in patients with B-Cell lymphoma. The
primary objective of the study is to determine the recommended
Phase 2 dose and to characterize the safety profile of TG-1801. Key
secondary objectives are to evaluate the pharmacokinetics of
TG-1801 and its preliminary anticancer activity.
Preclinical Programs
In
addition to our clinical programs, we currently have licensed
preclinical programs for BET (TG-1601), IRAK4, and
GITR.
COSTS AND TIME TO COMPLETE PRODUCT DEVELOPMENT
The
information below provides estimates regarding the costs associated
with the completion of the current development phase and our
current estimated range of the time that will be necessary to
complete that development phase for our key pipeline products. We
also direct your attention to the risk factors which could
significantly affect our ability to meet these cost and time
estimates found in this report in Item 1A under the heading
“Risks Related to the Company’s Business and
Industry.”
|
Product Candidate
|
|
Target Indication
|
|
Development Status
|
|
Completion of Phase
|
|
Estimated Cost to Complete Phase
|
|
Ublituximab &
Umbralisib
|
|
CLL
patients
|
|
Phase
III
|
|
2019
|
|
Approximately $5
million
|
|
Umbralisib
+/-Ublituximab
|
|
Relapsed/refractory
NHL patients
|
|
Phase
IIb
|
|
2019*
|
|
Approximately $5
million
|
|
Ublituximab
|
|
In Relapsing forms
of Multiple Sclerosis (RMS)
|
|
Phase
III
|
|
2020
|
|
Approximately $35
million
|
*Completion
of phase for this study indicates completion of portion of study,
which, if successful, would support an accelerated
approval
Completion dates
and costs in the above table are estimates due to the uncertainties
associated with clinical trials and the related requirements of
development. In the cases where the requirements for clinical
trials and development programs have not been fully defined, or are
dependent on the success of other trials, we cannot estimate trial
completion or cost with any certainty. The actual spending on each
trial during the year is also dependent on funding. We therefore
direct your attention to Item 7 under the heading “Liquidity
and Capital Resources.”
10
INTELLECTUAL PROPERTY AND PATENTS
General
Our
goal is to obtain, maintain and enforce patent protection for our
products, formulations, processes, methods and other proprietary
technologies, preserve our trade secrets, and operate without
infringing on the proprietary rights of other parties, both in the
United States and in other countries. Our policy is to actively
seek to obtain, where appropriate, the broadest intellectual
property protection possible for our product candidates,
proprietary information and proprietary technology through a
combination of contractual arrangements and patents, both in the
U.S. and elsewhere in the world.
We also
depend upon the skills, knowledge and experience of our scientific
and technical personnel, as well as that of our advisors,
consultants and other contractors. This knowledge, trade secrets,
proprietary information and experience we call
“know-how.” To help protect our proprietary
know-how which is not patentable, and for inventions for which
patents may be difficult to enforce, we rely on trade secret
protection and confidentiality agreements to protect our interests.
To this end, we require all employees, consultants, advisors and
other contractors to enter into confidentiality agreements which
prohibit the disclosure of confidential information and, where
applicable, require disclosure and assignment to us of the ideas,
developments, discoveries and inventions important to our
business.
Patents
and other proprietary rights are crucial to the development of our
business. We will be able to protect our proprietary technologies
from unauthorized use by third parties only to the extent that our
proprietary rights are covered by valid and enforceable patents,
supported by regulatory exclusivity or are effectively maintained
as trade secrets. We have a number of patents and patent
applications related to our compounds and other technology, but we
cannot guarantee the scope of protection of the issued patents, or
that such patents will survive a validity or enforceability
challenge, or that any of the pending patent applications will
issue as patents.
Generally, patent
applications in the U.S. are maintained in secrecy for a period of
18 months or more. Since publication of discoveries in the
scientific or patent literature often lag behind actual
discoveries, we are not certain that we were the first to make the
inventions covered by each of our pending patent applications or
that we were the first to file those patent applications. The
patent positions of biotechnology and pharmaceutical companies are
highly uncertain and involve complex legal and factual questions.
Therefore, we cannot predict the breadth of claims allowed in
biotechnology and pharmaceutical patents, or their enforceability.
To date, there has been no consistent policy regarding the breadth
of claims allowed in biotechnology patents. Third parties or
competitors may challenge or circumvent our patents or patent
applications, if issued. If our competitors prepare and file patent
applications in the U.S. that claim technology also claimed by us,
we may have to participate in interference proceedings declared by
the U.S. Patent and Trademark Office to determine priority of
invention, which could result in substantial cost, even if the
eventual outcome is favorable to us. Because of the extensive time
required for development, testing and regulatory review of a
potential product, it is possible that before we commercialize any
of our products, any related patent may expire or remain in
existence for only a short period following commercialization, thus
reducing any advantage of the patent. However, the life of a patent
covering a product that has been subject to regulatory approval may
have the ability to be extended through the patent restoration
program, although any such extension could still be minimal. If a
patent is issued to a third party containing one or more preclusive
or conflicting claims, and those claims are ultimately determined
to be valid and enforceable, we may be required to obtain a license
under such patent or to develop or obtain alternative technology.
In the event of litigation involving a third party claim, an
adverse outcome in the litigation could subject us to significant
liabilities to such third party, require us to seek a license for
the disputed rights from such third party, and/or require us to
cease use of the technology. Further, our breach of an existing
license or failure to obtain a license to technology required to
commercialize our products may seriously harm our business. We also
may need to commence litigation to enforce any patents issued to us
or to determine the scope and validity of third-party proprietary
rights. Litigation would involve substantial costs.
We
file patent applications directed to our drug candidates in an
effort to establish intellectual property positions regarding these
new chemical entities as well as uses of these new chemical
entities in the treatment of diseases. We also file patent
applications directed to novel combinations of our drugs together
and with drugs developed by others. The intellectual property
portfolios for our most advanced drug candidates as of February 28,
2018 are summarized below. Each of these portfolios contain pending
patent applications covering our drug candidates and uses and
combinations of the drug candidates, prosecution has just begun or
is in progress. Prosecution is a lengthy process, during which the
scope of the claims initially submitted for examination by the
USPTO often significantly narrowed by the time they issue, if they
issue at all. We expect this to be the case with respect to our
pending patent applications referred to below.
Additionally,
because the date for any potential regulatory approval is currently
unknown we cannot predict the expected expiration date, and it is
possible that the life of these patents following regulatory
approval could be minimal.
Ublituximab
Pursuant to our
license for ublituximab with LFB Biotechnologies, GTC
Biotherapeutics, and LFB/GTC LLC, we have the exclusive commercial
rights to a series of patents and patent applications in the U.S.
and in multiple countries around the world, as well as a
non-exclusive license to additional background patent rights. These
patents and patent protections include composition of matter
patents relating to the structure and mechanism of action for
ublituximab as well as method of use patents which cover use of
ublituximab in combination with various agents and for various
therapeutic indications.
11
The composition of matter patent for ublituximab
has been issued in the U.S. and Europe, which affords patent
protection until 2029 in the U.S. and 2025 in Europe, exclusive of
patent term extensions. We also have a method of use patent
on the combination of umbralisib and ublituximab which has been
issued in the U.S., EU, and Japan, and is pending in other
territories globally. Additionally, we have numerous granted
patents and pending patent applications outside the U.S. which
include claims directed to the composition of matter and
methods of treatment with ublituximab in various
settings.
Umbralisib
Pursuant to our
license for umbralisib with Rhizen, we have the exclusive
commercial rights to a series of patent applications in the U.S.
and abroad. The patent applications include composition of matter
patents relating to the structure, mechanism of action, and
formulation for umbralisib as well as method of use patents which
cover use of umbralisib in combination with various agents and for
various therapeutic indications. Our composition of matter patent
for umbralisib has been issued in the U.S. and Europe, which
affords patent protection until 2033, exclusive of patent term
extensions. We also have a method of use patent on the combination
of umbralisib and ublituximab which has been issued in the U.S.,
EU, and Japan, and is pending in other territories globally. All
other patent applications currently filed for umbralisib are
currently pending. Because the dates for any potential regulatory
approval are currently unknown we cannot predict the expected
expiration date, and it is possible that the life of these patents
following regulatory approval could be minimal.
TG-1501 (anti-PDL1 monoclonal antibody)
Pursuant
to our Global Collaboration with Checkpoint Therapeutics, we have
the exclusive commercial rights in the treatment of hematological
cancers and autoimmune diseases to a series of patent applications
pending in the United States, Australia, Canada, Europe, Israel and
Korea. Any patents maturing from these pending applications will
expire no sooner than October 2033.
TG-1701 (BTK inhibitor)
Pursuant to our
license agreement with Jiangsu Hengrui, we have the exclusive
commercial rights to a patent family which covers the composition
of matter and proposed methods of use for various therapeutic
indications. All patent applications currently filed for the BTK
program are currently pending. Any
patents maturing from these pending applications will expire no
sooner than October 2034.
TG-1801 (anti-CD47/anti-CD19 bispecific
antibody)
Pursuant
to our joint venture and license option agreement with Novimmune,
we have the exclusive commercial rights to a series of global
patent applications, all of which are currently pending. Any
patents maturing from these pending applications will expire no
sooner than December 2032.
Limitations on Patent Rights and Trade Secrets
The
patent rights that we own or have licensed relating to our product
candidates are limited in ways that may affect our ability to
exclude third parties from competing against us if we obtain
regulatory approval to market these product candidates. See
“Item 1A – Risk
Factors -- Risks Related to the Company’s Intellectual
Property.” In addition, the limited patent protection
may adversely affect the value of our product candidates and may
inhibit our ability to obtain a corporate partner at terms
acceptable to us, if at all.
Proof
of direct infringement by a competitor for method of use patents
can prove difficult because the competitors making and marketing a
product typically do not engage in the patented use. Additionally,
proof that a competitor contributes to or induces infringement of a
patented method of use by another can also prove difficult because
an off-label use of a product could prohibit a finding of
contributory infringement and inducement of infringement requires
proof of intent by the competitor.
Moreover,
physicians may prescribe such a competitive identical product for
indications other than the one for which the product has been
approved, or off-label indications, that are covered by the
applicable patents. Although such off-label prescriptions may
directly infringe or contribute to or induce infringement of method
of use patents, such infringement is difficult to prevent or
prosecute.
In
addition, while we have and plan to continue to enter into
confidentiality agreements designed to protect our trade secrets,
know-how and proprietary information and to grant us ownership of
inventions that are developed by individuals in connection with
their relationship with us, these agreements may not, however,
provide protection for our trade secrets, know-how and proprietary
information in the event of unauthorized disclosure of such
information.
12
Pursuant to these
regulations, ublituximab has received Orphan Drug Designation from
the FDA for the treatment of MZL (Nodal and Extranodal) in
September 2013, for the treatment of CLL in August of 2010, and
Orphan Drug Designation by the European Medicines Agency
(“EMA”) for the treatment of CLL in November of
2009.
We also
obtained Orphan Drug Designation for umbralisib as monotherapy for
the treatment of CLL in August 2016, and in January 2017, we
announced that the FDA granted Orphan Drug Designation covering the
combination of ublituximab and umbralisib for the treatment of
patients with CLL and DLBCL. We believe that ublituximab and
umbralisib, as well as our other pipeline products may be eligible
for additional Orphan Drug Designations; however, we cannot assure
you that ublituximab, umbralisib, or any other drug candidates we
may acquire or in-license, will obtain such Orphan Drug
Designations or that we will be the first to receive FDA approval
for any drug candidates that do obtain Orphan Drug Designation so
as to be eligible for market exclusivity protection.
U.S. Patent Term Restoration and Marketing Exclusivity
Depending
upon the timing, duration and specifics of the FDA approval of our
drug candidates, some of our U.S. patents may be eligible for
limited patent term extension under the Drug Price Competition and
Patent Term Restoration Act of 1984, commonly referred to as the
Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a
patent restoration term of up to five years as compensation for
patent term lost during product development and the FDA regulatory
review process. However, patent term restoration cannot extend the
remaining term of a patent beyond a total of 14 years from the
product’s approval date. The patent term restoration period
is generally one-half the time between the effective date of an IND
and the submission date of an NDA plus the time between the
submission date of an NDA and the approval of that application.
Only one patent applicable to an approved drug is eligible for the
extension and the application for the extension must be submitted
prior to the expiration of the patent. The USPTO, in consultation
with the FDA, reviews and approves the application for any patent
term extension or restoration. In the future, we intend to apply
for restoration of patent term for one of our currently owned or
licensed patents to add patent life beyond its current expiration
date, depending on the expected length of the clinical trials and
other factors involved in the filing of the relevant
NDA.
Marketing
exclusivity provisions under the FDCA can also delay the submission
or the approval of certain marketing applications. The FDCA
provides a five-year period of non-patent marketing exclusivity
within the United States to the first applicant to obtain approval
of an NDA for a new chemical entity. A drug is a new chemical
entity if the FDA has not previously approved any other new drug
containing the same active moiety, which is the molecule or ion
responsible for the action of the drug substance. During the
exclusivity period, the FDA may not accept for review an
abbreviated new drug application, or ANDA, or a 505(b)(2) NDA
submitted by another company for another drug based on the same
active moiety, regardless of whether the drug is intended for the
same indication as the original innovator drug or for another
indication, where the applicant does not own or have a legal right
of reference to all the data required for approval. However, an
application may be submitted after four years if it contains a
certification of patent invalidity or non-infringement to one of
the patents listed with the FDA by the innovator NDA holder. The
FDCA also provides three years of marketing exclusivity for an NDA,
or supplement to an existing NDA if new clinical investigations,
other than bioavailability studies, that were conducted or
sponsored by the applicant are deemed by the FDA to be essential to
the approval of the application, for example new indications,
dosages or strengths of an existing drug. This three-year
exclusivity covers only the modification for which the drug
received approval on the basis of the new clinical investigations
and does not prohibit the FDA from approving ANDAs for drugs
containing the active agent for the original indication or
condition of use. Five-year and three-year exclusivity will not
delay the submission or approval of a full NDA. However, an
applicant submitting a full NDA would be required to conduct or
obtain a right of reference to all of the pre-clinical studies and
adequate and well-controlled clinical trials necessary to
demonstrate safety and effectiveness. Orphan drug exclusivity, as
described below, may offer a seven-year period of marketing
exclusivity, except in certain circumstances. Pediatric exclusivity
is another type of regulatory market exclusivity in the United
States. Pediatric exclusivity, if granted, adds six months to
existing exclusivity periods and patent terms. This six-month
exclusivity, which runs from the end of other exclusivity
protection or patent term, may be granted based on the voluntary
completion of a pediatric trial in accordance with an FDA-issued
“Written Request” for such a trial.
Upon
FDA approval, we believe that ublituximab and umbralisib each would
qualify as a New Chemical Entity, or NCE, which provides for five
years of exclusivity following approval as discussed
above.
13
LICENSING AGREEMENTS AND COLLABORATIONS
We have
formed strategic alliances with a number of companies for the
manufacture and commercialization of our products. Our current key
strategic alliances are discussed below.
Ublituximab
LFB Biotechnologies S.A.S, GTC Biotherapeutics, LFB/GTC
LLC.
In
January 2012, we entered into an exclusive license agreement with
LFB Biotechnologies, GTC Biotherapeutics, and LFB/GTC LLC, all
wholly-owned subsidiaries of LFB Group, relating to the development
of ublituximab. Under the license agreement, we have acquired the
exclusive worldwide rights (exclusive of France/Belgium) for the
development and commercialization of ublituximab. To date, we have
made no payments to LFB Group under the license agreement,
excluding an upfront equity payment. LFB Group is eligible to
receive payments of up to an aggregate of approximately $31.0
million upon our successful achievement of certain clinical
development, regulatory and sales milestones, in addition to
royalty payments on net sales of ublituximab at a royalty rate that
escalates from mid-single digits to high-single digits. The license
will terminate on a country by country basis upon the expiration of
the last licensed patent right or 15 years after the first
commercial sale of a product in such country, unless the agreement
is earlier terminated (i) by LFB if the Company challenges any of
the licensed patent rights, (ii) by either party due to a breach of
the agreement, or (iii) by either party in the event of the
insolvency of the other party.
Ildong Pharmaceutical Co. Ltd.
In
November 2012, we entered into an exclusive (within the territory)
sublicense agreement with Ildong relating to the development and
commercialization of ublituximab in South Korea and Southeast Asia.
Under the terms of the sublicense agreement, Ildong has been
granted a royalty bearing, exclusive right, including the right to
grant sublicenses, to develop and commercialize ublituximab in
South Korea, Taiwan, Singapore, Indonesia, Malaysia, Thailand,
Philippines, Vietnam, and Myanmar. To date, we have received $2
million in the form of an upfront payment from Ildong and are
eligible to receive sales-based milestone payments up to an
aggregate of $5 million and royalty payments on net sales of
ublituximab at a royalty rate that escalates from mid-teens to
high-teens upon approval in South Korea and/or Southeast Asia. The
license will terminate on a country by country basis upon the
expiration of the last licensed patent right or 15 years after the
first commercial sale of a product in such country, unless the
agreement is earlier terminated (i) by Ildong if the Company
challenges any of the licensed patent rights, (ii) by either party
due to a breach of the agreement, or (iii) by either party in the
event of the insolvency of the other party.
Umbralisib
In
September 2014, we exercised our option to license the global
rights to umbralisib, thereby entering into an exclusive licensing
agreement (the “Umbralisib License”) with Rhizen
Pharmaceuticals, S A (“Rhizen”) for the development and
commercialization of umbralisib. Prior to this, we had been jointly
developing umbralisib in a 50:50 joint venture with
Rhizen.
Under
the terms of the Umbralisib License, Rhizen received a $4.0 million
cash payment and 371,530 shares of our common stock as an upfront
license fee. With respect to umbralisib, Rhizen will be eligible to
receive regulatory filing, approval and sales based milestone
payments in the aggregate of approximately $175 million, a small
portion of which will be payable on the first New Drug Application
(NDA) filing and the remainder on approval in multiple
jurisdictions for up to two oncology indications and one
non-oncology indication and attaining certain sales milestones. In
addition, if umbralisib is co-formulated with another drug to
create a new product (a "New Product"), Rhizen will be eligible to
receive similar regulatory approval and sales-based milestone
payments for such New Product. Additionally, Rhizen will be
entitled to tiered royalties that escalate from high single digits
to low double digits on our future net sales of umbralisib and any
New Product. In lieu of sales milestones and royalties on net
sales, Rhizen shall also be eligible to participate in sublicensing
revenue, if any, based on a percentage that decreases as a function
of the number of patients treated in clinical trials following the
exercise of the license option. Rhizen will retain global
manufacturing rights to umbralisib, provided that they are price
competitive with alternative manufacturers. The license will
terminate on a country by country basis upon the expiration of the
last licensed patent right or any other exclusivity right in such
country, unless the agreement is earlier terminated (i) by us for
any reason, (ii) by either party due to a breach of the
agreement.
TG-1501 (anti-PD-L1 monoclonal antibody)
In
March 2015, we entered into a Global Collaboration (the
“Collaboration”) with Checkpoint Therapeutics, Inc.
(“Checkpoint”) for the development and
commercialization of Checkpoint’s anti-PD-L1 and anti-GITR
antibody research programs in the field of hematological
malignancies with an option to acquire rights in autoimmune
diseases. These antibodies were generated at Dana-Farber Cancer
Institute (Dana-Farber). Under the terms of
the Collaboration, we made an up-front payment of $500,000, will
make development and sales-based milestone payments up to an
aggregate of $164 million, and will pay a tiered single digit
royalty on net sales. The royalty term will terminate on a country
by country basis upon the later of (i) ten years after the first
commercial sale of any applicable licensed product in such country,
or (ii) the expiration of the last-to-expire patent held by Dana
Farber containing a valid claim to any licensed product in such
country. We are currently renegotiating certain terms of the
Collaboration agreement with Checkpoint and may incur additional
upfront payments when a definitive agreement is
reached.
14
TG-1701 (BTK inhibitor)
In
January 2018, we entered into a global exclusive license agreement
with Jiangsu Hengrui Medicine Co., (Hengrui), to acquire worldwide
intellectual property rights, excluding Asia but including Japan,
and for the research, development, manufacturing, and
commercialization of products containing or comprising of any of
Hengrui’s Bruton’s Tyrosine Kinase inhibitors
containing the compounds of either TG-1701 (SHR-1459 or EBI-1459)
or TG-1702 (SHR-1266 or EBI-1266) for hematologic malignancies.
Pursuant to the agreement, we paid Hengrui an upfront fee of $1.0
million in our common stock. Hengrui is eligible to receive
milestone payments totaling approximately $350 million upon and
subject to the achievement of certain milestones. Various
provisions allow for payments in conjunction with the agreement to
be made in cash or our common stock, while others limit the form of
payment. Royalty payments in the low double digits are due on net
sales of licensed products and revenue from sublicenses.
Additionally, before we can license, sell, develop, or
commercialize ublituximab within China, we must notify Hengrui,
giving Hengrui the right of first offer. The agreement allows
combinations of TG-1701 or TG-1702 with umbralisib, ublituximab, or
U2. Additional combinations may be undertaken under the agreement
subject to additional pre-specified payments to
Hengrui.
The
term of the agreement expires after the expiration of the last
royalty term to expire with respect to any of the patent rights
under the agreement. We or Hengrui may terminate the agreement upon
notice to the other upon breach without remedy or upon insolvency.
In addition, either party may terminate the agreement upon a
material breach, after providing the other party with adequate
notice and allowing 45 days to cure.
TG-1801 (anti-CD47/anti-CD19 bispecific antibody)
In June 2018, we entered into a Joint Venture and
License Option Agreement with Novimmune SA (Novimmune) to
collaborate on the development and commercialization of
Novimmune’s novel first-in-class anti-CD47/anti-CD19
bispecific antibody known as TG-1801 (previously NI-1701). The
companies will jointly develop the product on a worldwide basis,
focusing on indications in the area of hematologic B-cell
malignancies. We serve as the primary responsible party for the
development, manufacturing and commercialization of the product.
Pursuant to the agreement, in June 2018 we paid Novimmune an
upfront payment of $3.0 million in our common stock.
Further milestone payments will be
paid based on early clinical development, and the Company will be
responsible for the costs of clinical development of the product
through the end of the Phase 2 clinical trials, after which the
Company and Novimmune will be jointly responsible for all
development and commercialization costs. The Company and Novimmune
will each maintain an exclusive option, exercisable at specific
times during development, for the Company to license the rights to
TG-1801, in which case Novimmune is eligible to receive additional
milestone payments totaling approximately $185 million as well as
tiered royalties on net sales in the high single to low double
digits upon and subject to the achievement of certain
milestones.
In June
2014, we entered into an exclusive licensing agreement with Ligand
Pharmaceuticals Incorporated (Ligand) for the development and
commercialization of Ligand's interleukin-1 receptor associated
kinase-4 (IRAK4) inhibitor technology, which currently is in
preclinical development for potential use against certain cancers
and autoimmune diseases. IRAK4 is a serine/threonine protein kinase
that is a key downstream signaling component of the interleukin-1
receptor and multiple toll-like receptors.
Under
the terms of the license agreement, Ligand received 125,000 shares
of our common stock as an upfront license fee. Ligand will also be
eligible to receive maximum potential milestone payments of
approximately $207 million upon the achievement of specific
clinical, regulatory and commercial milestone events. Additionally,
Ligand will be entitled to royalties on our future net sales of
licensed products containing IRAK4 inhibitors. The basic royalty
rate for licensed products covered by Ligand's issued patents will
be 6% for annual sales of up to $1 billion and 9.5% for annual
sales in excess of that threshold. The license will terminate on a
country by country basis upon the expiration of the last licensed
patent right or 10 years after the first commercial sale of a
product in such country, unless the agreement is earlier terminated
by either party due to a breach of the agreement in the event of
the insolvency of the other party.
TG-1601 (BET inhibitor)
In
May 2016, as part of a broader agreement with Jubilant Biosys
(Jubilant), an India-based biotechnology company, we entered into a
sub-license agreement (JBET Agreement) with Checkpoint for the
development and commercialization of Jubilant’s novel BET
inhibitor program in the field of hematological malignancies. The
BET inhibitor program is the subject of a family of patents
covering compounds that inhibit BRD4, a member of the BET
(Bromodomain and Extra Terminal) domain for cancer treatment. Our
BET inhibitor program is currently in pre-clinical
development.
Under
the terms of the agreement, we paid Checkpoint an up-front
licensing fee of $1.0 million and will make additional
payments contingent on certain preclinical, clinical, and
regulatory milestones, including commercial milestones totaling up
to approximately $177 million and a single-digit royalty
on net sales. TG will also provide funding to support
certain targeted research efforts at Jubilant.
15
COMPETITION
Competition in the
pharmaceutical and biotechnology industries is intense. Our
competitors include pharmaceutical companies and biotechnology
companies, as well as universities and public and private research
institutions. In addition, companies that are active in different
but related fields represent substantial competition for us. Many
of our competitors have significantly greater capital resources,
larger research and development staffs and facilities and greater
experience in drug development, regulation, manufacturing and
marketing than we do. These organizations also compete with us to
recruit qualified personnel, attract partners for joint ventures or
other collaborations, and license technologies that are competitive
with ours. To compete successfully in this industry we must
identify novel and unique drugs or methods of treatment and then
complete the development of those drugs as treatments in advance of
our competitors.
The
drugs that we are attempting to develop will have to compete with
existing therapies. In addition, a large number of companies are
pursuing the development of pharmaceuticals that target the same
diseases and conditions that we are targeting. Other companies have
products or drug candidates in various stages of pre-clinical or
clinical development to treat diseases for which we are also
seeking to discover and develop drug candidates. Some of these
potential competing drugs are further advanced in development than
our drug candidates and may be commercialized earlier. The
resulting changes in standard of care can impact the likelihood of
regulatory accelerated approval opportunities for our drug
candidates.
For the
cancer indications for which we are developing our products there
are a number of established therapies with which we will
compete:
●
For the treatment
of Chronic Lymphocytic Leukemia, if U2 is approved, we expect U2 to
compete with recently approved drugs such as ibrutinib (AbbVie and
Janssen), venetoclax (AbbVie and Roche), obinutuzumab (Roche),
idelalisib (Gilead) and duvelisib (Verastem), and established
treatments such as rituximab (Roche), and several generically
available chemotherapies. Additionally, there are two second
generation BTK inhibitors similar to ibrutinib in late-stage
clinical testing for CLL that could enter the market in the next
12-36 months. Each of these agents can be used as monotherapy or in
combination with one or more of the other agents.
●
For the treatment
of Marginal Zone Lymphoma, if approved, we expect umbralisib to
compete with ibrutinib (AbbVie and Janssen) and established
treatments such as rituximab and several generically available
chemotherapies. Additionally, the combination of rituximab and
lenalidomide (Celgene) has been studied in MZL and may be
approved.
●
For the treatment
of Follicular Lymphoma, if approved, we expect umbralisib to
compete with recently approved drugs such as obinutuzumab (Roche),
idelalisib (Gilead), copanlisib (Bayer), and duvelisib (Verastem),
and established treatments such as rituximab (Roche), and several
generically available chemotherapies. Each of these agents can be
used as monotherapy or in combination with one or more of the other
agents. The combination of rituximab and lenalidomide (Celgene) has
also been studied in FL and may be approved. There are also several
PI3K delta inhibitors in earlier stages of
development.
●
In addition, a
number of pharmaceutical companies are developing antibodies and
bispecific antibodies targeting CD20, CD19, CD47 and other B-cell
associated targets, chimeric antigen receptor T-cell
(“CAR-T”) immunotherapy, and other B-cell ablative
therapy which, if approved, would potentially compete with U2 and
umbralisib.
For
Multiple Sclerosis for which we are developing ublituximab there
are a number of established therapies with which we will
compete:
●
If ublituximab is
approved, we expect ublituximab will primarily compete against
other CD20 targeted agents, while the group of CD20 targeted agents
will also compete broadly against a number of already approved MS
therapies. Currently, there is one anti-CD20 monoclonal antibody
approved, ocrelizumab (Roche), and another in Phase 3 development,
ofatumumab (Novartis), which is expected to enter the market in the
next 12-24 months.
TG-1501, TG-1701
and TG-1801 if approved will also face competition from drugs on
the market and under development that have the same mechanism of
action as each of those drugs.
Additional
information can be found under Item “1A - Risk Factors
– Other Risks Related to Our Business” within this
report.
16
SUPPLY AND MANUFACTURING
We have
limited experience in manufacturing products for clinical or
commercial purposes. We currently do not have any manufacturing
capabilities of our own. We have established contract manufacturing
relationships for the supply of ublituximab. We have also
established contract manufacturing relationships for the supply of
umbralisib as part of our licensing agreement with Rhizen. As with
any supply program, obtaining pre-clinical and clinical materials
of sufficient quality and quantity to meet the requirements of our
development programs cannot be guaranteed and we cannot ensure that
we will be successful in this endeavor. In addition, as we move
closer to commercialization for ublituximab and umbralisib we will
need to scale-up production to ensure adequate commercial supply,
complete validation batches and complete pre-approval inspection
batches. We are currently in the process of scaling up ublituximab
and completing validation and pre-approval inspection batches for
both ublituximab and umbralisib. This is an expensive process which
will require significant investment on our part over the next 24
months and there can be no assurance given that such scale-up and
process validation will be successful in providing pharmaceutical
product that is of sufficient quantity, or of a quality that is
consistent with our previously established specifications, or that
meets the requirements set by regulatory agencies under which we
may seek approval of our product candidates.
Process
improvements are common during clinical development to accommodate
raw material and component variability, enhance productivity and/or
accommodate different or larger equipment utilized during the
scale-up process required for commercial manufacture. These types
of incremental process changes have been made during clinical
development for both TG’s small and large molecule programs.
For example, our UNITY-CLL Phase 3 clinical trial contains
ublituximab produced from both a pre-commercial process and the
current commercial process. While there are some analytical
differences between the two materials, we do not expect those
differences to have an effect on the clinical performance of
ublituximab. The primary difference is that the commercial process
has resulted in further enhancement to the ADCC effect, potentially
enhancing potency. We will analyze the Phase 3 data to ensure that
the materials are substantially similar in performance. If there
are material differences in safety or efficacy, we may need to
adjust our statistical analysis of the Phase 3 study, which could
impact the approvability of the U2 combination in
CLL.
At the
time of commercial sale, to the extent possible and commercially
practicable, we would seek to engage back-up suppliers for raw
materials, manufacturing and testing services for each of our
product candidates. Until such time, we expect that we will rely on
a single contract manufacturer to produce each of our product
candidates under current Good Manufacturing Practice, or cGMP,
regulations. Our third-party manufacturers have a limited number of
facilities in which our product candidates can be produced and will
have limited experience in manufacturing our product candidates in
quantities sufficient for commercialization. Our third-party
manufacturers will have other clients and may have other priorities
that could affect their ability to perform the work satisfactorily
and/or on a timely basis. Both of these occurrences would be beyond
our control.
We
expect to similarly rely on contract manufacturing relationships
for any products that we may in-license or acquire in the future.
However, there can be no assurance that we will be able to
successfully contract with such manufacturers on terms acceptable
to us, or at all.
Contract
manufacturers are subject to ongoing periodic and unannounced
inspections by the FDA, the Drug Enforcement Administration and
corresponding state agencies to ensure strict compliance with cGMP
and other state and federal regulations. Our contractors outside of
the United States face similar challenges from the numerous local
and regional agencies and authorized bodies. We do not have control
over third-party manufacturers’ compliance with these
regulations and standards, other than through contractual
obligations. If they are deemed out of compliance with cGMPs,
product recalls could result, inventory could be destroyed,
production could be stopped and supplies could be delayed or
otherwise disrupted.
If we
need to change manufacturers after commercialization, the FDA and
corresponding foreign regulatory agencies must approve these new
manufacturers in advance, which will involve testing and additional
inspections to ensure compliance with FDA regulations and standards
and may require significant lead times and delay. Furthermore,
switching manufacturers may be difficult because the number of
potential manufacturers is limited. It may be difficult or
impossible for us to find a replacement manufacturer quickly or on
terms acceptable to us, or at all.
GOVERNMENT
AND INDUSTRY REGULATION
Numerous
governmental authorities, principally the FDA and corresponding
state and foreign regulatory agencies, impose substantial
regulations upon the clinical development, manufacture and
marketing of our drug candidates, as well as our ongoing research
and development activities. None of our drug candidates have been
approved for sale in any market in which we have marketing rights.
Before marketing in the U.S., any drug that we develop must undergo
rigorous pre-clinical testing and clinical trials and an extensive
regulatory approval process implemented by the FDA under the FDCA.
The FDA regulates, among other things, the pre-clinical and
clinical testing, safety, efficacy, approval, manufacturing, record
keeping, adverse event reporting, packaging, labeling, storage,
advertising, promotion, export, sale and distribution of
biopharmaceutical products.
17
The
regulatory review and approval process is lengthy, expensive and
uncertain. We are required to submit extensive pre-clinical and
clinical data and supporting information to the FDA for each
indication or use to establish a drug candidate’s safety and
efficacy before we can secure FDA approval to market or sell a
product in the U.S. The approval process takes many years, requires
the expenditure of substantial resources and may involve ongoing
requirements for post-marketing studies or surveillance. Before
commencing clinical trials in humans, we must submit an IND to the
FDA containing, among other things, pre-clinical data, chemistry,
manufacturing and control information, and an investigative plan.
Our submission of an IND may not result in FDA authorization to
commence a clinical trial.
Clinical testing
must meet requirements for institutional review board oversight,
informed consent and good clinical practices, and must be conducted
pursuant to an IND, unless exempted. In addition, the FDA,
equivalent foreign regulatory authority, or a data safety
monitoring committee for a trial may place a clinical trial on hold
or terminate it if it concludes that subjects are being exposed to
an unacceptable health risk, or for futility. Any drug is likely to
produce some toxicity or undesirable side effects in animals and in
humans when administered at sufficiently high doses and/or for a
sufficiently long period of time. Unacceptable toxicity or side
effects may occur at any dose level at any time in the course of
studies in animals designed to identify unacceptable effects of a
drug candidate, known as toxicological studies, or clinical trials
of drug candidates. The appearance of any unacceptable toxicity or
side effect could cause us or regulatory authorities to interrupt,
limit, delay or abort the development of any of our drug candidates
and could ultimately prevent approval by the FDA or foreign
regulatory authorities for any or all targeted
indications.
For
purposes of NDA approval, clinical trials are typically conducted
in the following sequential phases:
●
Phase 1: The drug is administered to a small group of
humans, either healthy volunteers or patients, to test for safety,
dosage tolerance, absorption, metabolism, excretion, and clinical
pharmacology.
●
Phase 2: Studies are conducted on a larger number of
patients to assess the efficacy of the product, to ascertain dose
tolerance and the optimal dose range, and to gather additional data
relating to safety and potential adverse events.
●
Phase 3: Studies establish safety and efficacy in an
expanded patient population.
●
Phase 4: The FDA may require Phase 4 post-marketing studies
to find out more about the drug’s long-term risks, benefits,
and optimal use, or to test the drug in different
populations.
●
slow
patient enrollment due to the nature of the clinical trial plan,
the proximity of patients to clinical sites, the eligibility
criteria for participation in the study or other
factors;
●
inadequately
trained or insufficient personnel at the study site to assist in
overseeing and monitoring clinical trials or delays in approvals
from a study site’s review board;
●
longer
treatment time required to demonstrate efficacy or determine the
appropriate product dose;
●
insufficient
supply of the drug candidates;
●
adverse
medical events or side effects in treated patients;
and
●
ineffectiveness
of the drug candidates.
For clinical trials
that are intended to form the basis of a new drug or biologics
license application for approval, sponsors of drugs may apply for
an SPA from the FDA, by which the FDA provides official evaluation
and written guidance on the design and size of proposed protocols.
While obtaining an SPA provides some assurance the design of a
trial should be sufficient for approval, the final marketing
approval depends on the results of efficacy, the adverse event
profile and an evaluation of the benefit/risk of treatment
demonstrated in the Phase 3 trial. The SPA agreement may only be
changed through a written agreement between the sponsor and the
FDA, or if the FDA becomes aware of a substantial scientific issue
essential to product safety or efficacy.
18
In
September 2015, we reached an agreement with the FDA regarding an
SPA on the design, endpoints and statistical analysis approach of a
Phase 3 clinical trial, referred to as the UNITY-CLL trial, for the
proprietary combination of ublituximab and umbralisib, for the
treatment of CLL. The SPA provides agreement that the Phase 3 trial
design adequately addresses objectives that, if met, would support
the regulatory submission for drug approval of both ublituximab and
umbralisib in combination. Additionally, in August 2017, we reached
an agreement with the FDA regarding an SPA on the design of two
Phase 3 clinical trials for ublituximab, referred to as the
ULTIMATE I and ULTIMATE II Phase 3 clinical trials, for the
treatment of relapsing forms of Multiple Sclerosis (RMS). The SPA
provides agreement that the two Phase 3 trial designs adequately
address objectives that, if met, would support the regulatory
submission for approval of ublituximab. Despite obtaining an SPA
the trials may not be positive and even if positive may not support
FDA approval.
The FDA
may permit expedited development, evaluation, and marketing of new
therapies intended to treat persons with serious or
life-threatening conditions for which there is an unmet medical
need under its fast track drug development programs. A sponsor can
apply for fast track designation at the time of submission of an
IND, or at any time prior to receiving marketing approval of the
new drug application, or NDA. To receive Fast Track designation, an
applicant must demonstrate:
●
that
the drug is intended to treat a serious or life-threatening
condition;
●
that
nonclinical or clinical data demonstrate the potential to address
an unmet medical need
The FDA
must respond to a request for fast track designation within 60
calendar days of receipt of the request. Over the course of drug
development, a product in a fast track development program must
continue to meet the criteria for fast track designation. Sponsors
of products in fast track drug development programs must be in
regular contact with the reviewing division of the FDA to ensure
that the evidence necessary to support marketing approval will be
developed and presented in a format conducive to an efficient
review. Sponsors of products in fast track drug development
programs ordinarily are eligible for priority review of a completed
application in six months or less and also may be permitted to
submit portions of a New Drug Application (“NDA”) to
the FDA for review before the complete application is
submitted.
In
addition, sponsors may also apply to the FDA for Breakthrough
Therapy Designation (“BTD”). The procedures and
requirements for BTD are similar to those required for fast track
such that the Breakthrough Therapy Designation is intended to
expedite the development and review of a potential new drug for
serious or life-threatening diseases however with BTD, there is a
further requirement that the sponsor present “preliminary
clinical evidence” which “indicates that the drug may
demonstrate substantial improvement over existing therapies on one
or more clinically significant endpoints, such as substantial
treatment effects observed early in clinical development.”
The designation of a drug as a Breakthrough Therapy was enacted as
part of the 2012 Food and Drug Administration Safety and Innovation
Act.
In January 2019, we announced that the FDA granted Breakthrough
Therapy Designation for umbralisib for the treatment of
adult patients with marginal zone lymphoma (MZL) who have
received at least one prior anti-CD20 regimen based on interim
results from a subset of patients from the MZL cohort of the
UNITY-NHL clinical trial.
Sponsors of drugs
designated as fast track and as breakthrough therapy also may seek
approval under the FDA’s accelerated approval regulations.
Under this authority, the FDA may grant marketing approval for a
new drug product on the basis of adequate and well-controlled
clinical trials establishing that the drug product has an effect on
a surrogate endpoint that is reasonably likely, based on
epidemiologic, therapeutic, pathophysiologic, or other evidence, to
predict clinical benefit or on the basis of an effect on a clinical
endpoint other than survival or irreversible morbidity. To obtain
accelerated approval you have to be the first company to have a
treatment that successfully addresses a certain unmet medical need
or you need to clearly be better than all other treatments for that
medical need, subject to certain qualifications. Many companies
have filed for accelerated approval and have subsequently failed to
obtain such approval for a variety of reasons, including not being
first or not being best. To the extent a product does obtain an
accelerated approval, such approval will be subject to the
requirement that the applicant study the drug further in a
post-marketing confirmation clinical trial to verify and describe
its clinical benefit where there is uncertainty as to the relation
of the surrogate endpoint to clinical benefit or uncertainty as to
the relation of the observed clinical benefit to ultimate outcome.
Accelerated approval is sometimes referred to as conditional
approval because if the results of these confirmation clinical
trials are not successful, the FDA has the right to remove the drug
from the market and has done so in the past. Post-marketing
confirmation studies are usually underway at the time an applicant
files the NDA. When required to be conducted, such
post-marketing confirmation studies must also be adequate and
well-controlled. The applicant must carry out any such
post-marketing confirmation studies with due
diligence.
19
It is
also becoming more common for the FDA to request a Risk Evaluation
and Mitigation Strategy, or REMS, as part of a NDA/BLA. The REMS
plan contains post-market obligations of the sponsor to train
prescribing physicians, monitor off-label drug use, and conduct
Phase 4 follow-up studies and registries to ensure the continued
safe use of the drug.
As part
of the approval process, the FDA must inspect and approve each
manufacturing facility. Among the conditions of approval is the
requirement that a manufacturer’s quality control and
manufacturing procedures conform to cGMP. Manufacturers must expend
significant time, money and effort to ensure continued compliance,
and the FDA conducts periodic inspections to certify compliance. It
may be difficult for our manufacturers or us to comply with the
applicable cGMP, as interpreted by the FDA, and other FDA
regulatory requirements. If we, or our contract manufacturers, fail
to comply, then the FDA may not allow us to market products that
have been affected by the failure. Many drug approvals have been
delayed due to issues at contract manufacturing facilities. If we
were to experience any such delay that would negatively impact our
business and timeline to commercialization of any of our drug
candidates affected by such manufacturing issue.
If the
FDA grants approval, the approval will be limited to those disease
states, conditions and patient populations for which the product is
safe and effective, as demonstrated through clinical studies.
Further, a product may be marketed only in those dosage forms and
for those indications approved in the NDA/BLA. Certain changes to
an approved NDA/BLA, including, with certain exceptions, any
significant changes to labeling, require approval of a supplemental
application before the drug may be marketed as changed. Any
products that we manufacture or distribute pursuant to FDA
approvals are subject to continued monitoring and regulation by the
FDA, including compliance with cGMP and the reporting of adverse
experiences with the drugs. The nature of marketing claims that the
FDA will permit us to make in the labeling and advertising of our
products will generally be limited to those specified in FDA
approved labeling, and the advertising of our products will be
subject to comprehensive monitoring and regulation by the FDA.
Drugs whose review was accelerated may carry additional
requirements on marketing activities, including the requirement
that all promotional materials are pre-submitted to the FDA. Claims
exceeding those contained in approved labeling will constitute a
violation of the FDCA. Violations of the FDCA or regulatory
requirements at any time during the product development process,
approval process, or marketing and sale following approval may
result in agency enforcement actions, including withdrawal of
approval, recall, seizure of products, warning letters,
injunctions, fines and/or civil or criminal penalties. Any agency
enforcement action could have a material adverse effect on our
business.
Should we wish to
market our products outside the U.S., we must receive marketing
authorization from the appropriate foreign regulatory authorities.
The requirements governing the conduct of clinical trials,
marketing authorization, pricing and reimbursement vary widely from
country to country. Importantly, the level of evidence of efficacy
and safety necessary to apply for marketing authorization for a
drug candidate differs from country to country. In particular,
clinical trial endpoints, and the level of clinical evidence that
may support an accelerated approval filing with the US FDA, such as
the ORR data we intend to use as the basis for a filing for
umbralisib in MZL, may be insufficient to file for marketing
application outside of the US. At present, companies are typically
required to apply for foreign marketing authorizations at a
national level. However, within the European Union, registration
procedures are available to companies wishing to market a product
in more than one European Union member state. Typically, if the
regulatory authority is satisfied that a company has presented
adequate evidence of safety, quality and efficacy, then the
regulatory authority will grant a marketing authorization. This
foreign regulatory approval process, however, involves risks
similar or identical to the risks associated with FDA approval
discussed above, and therefore we cannot guarantee that we will be
able to obtain the appropriate marketing authorization for any
product in any particular country.
Failure
to comply with applicable federal, state and foreign laws and
regulations would likely have a material adverse effect on our
business. In addition, federal, state and foreign laws and
regulations regarding the manufacture and sale of new drugs are
subject to future changes. We cannot predict the likelihood,
nature, effect or extent of adverse governmental regulation that
might arise from future legislative or administrative action,
either in the U.S. or abroad.
Coverage and Reimbursement
Sales
of our drugs will depend, in part, on the extent to which our drugs
will be covered by third-party payors, such as government health
programs, commercial insurance and managed healthcare
organizations. These third-party payors are increasingly reducing
reimbursements for medical drugs and services. In addition, the
containment of healthcare costs has become a priority of federal
and state governments, and the prices of drugs have been a focus in
this effort. The U.S. government, state legislatures and foreign
governments have shown significant interest in implementing
cost-containment programs, including price controls, restrictions
on reimbursement and requirements for substitution of generic
drugs. Adoption of price controls and cost-containment measures,
and adoption of more restrictive policies in jurisdictions with
existing controls and measures, could further limit our net revenue
and results. Decreases in third-party reimbursement for our drug
candidates, if approved, or a decision by a third-party payor to
not cover our drug candidates could reduce physician usage of such
drugs and have a material adverse effect on our sales, results of
operations and financial condition.
20
The
Medicare Prescription Drug, Improvement, and Modernization Act of
2003, or the MMA, established the Medicare Part D program to
provide a voluntary prescription drug benefit to Medicare
beneficiaries. Under Part D, Medicare beneficiaries may enroll
in prescription drug plans offered by private entities that provide
coverage of outpatient prescription drugs. Unlike Medicare
Part A and B, Part D coverage is not standardized.
Part D prescription drug plan sponsors are not required to pay
for all covered Part D drugs, and each drug plan can develop
its own drug formulary that identifies which drugs it will cover
and at what tier or level. However, Part D prescription drug
formularies must include drugs within each therapeutic category and
class of covered Part D drugs, though not necessarily all the
drugs in each category or class. Any formulary used by a
Part D prescription drug plan must be developed and reviewed
by a pharmacy and therapeutic committee. Government payment for
some of the costs of prescription drugs may increase demand for
drugs for which we receive marketing approval. However, any
negotiated prices for our drugs covered by a Part D
prescription drug plan will likely be lower than the prices we
might otherwise obtain. Moreover, while the MMA applies only to
drug benefits for Medicare beneficiaries, private payors often
follow Medicare coverage policy and payment limitations in setting
their own payment rates. Any reduction in payment that results from
the MMA may result in a similar reduction in payments from
non-governmental payors.
The
American Recovery and Reinvestment Act of 2009 provides funding for
the federal government to compare the effectiveness of different
treatments for the same illness. The plan for the research was
published in 2012 by the Department of Health and Human Services,
the Agency for Healthcare Research and Quality and the National
Institutes for Health, and periodic reports on the status of the
research and related expenditures will be made to Congress.
Although the results of the comparative effectiveness studies are
not intended to mandate coverage policies for public or private
payors, it is not clear what effect, if any, the research will have
on the sales of our drug candidates, if any such drug or the
condition that they are intended to treat is the subject of a
trial. It is also possible that comparative effectiveness research
demonstrating benefits in a competitor’s drug could adversely
affect the sales of our drug candidate. If third-party payors do
not consider our drugs to be cost-effective compared to other
available therapies, they may not cover our drugs after approval as
a benefit under their plans or, if they do, the level of payment
may not be sufficient to allow us to sell our drugs on a profitable
basis.
The
Patient Protection and Affordable Care Act, as amended by the
Health Care and Education Reconciliation Act of 2010, or
collectively the Affordable Care Act, enacted in March 2010, has
had a significant impact on the health care industry. The
Affordable Care Act expanded coverage for the uninsured while at
the same time containing overall healthcare costs. With regard to
pharmaceutical products, the Affordable Care Act, among other
things, addressed a new methodology by which rebates owed by
manufacturers under the Medicaid Drug Rebate Program are calculated
for drugs that are inhaled, infused, instilled, implanted or
injected, increased the minimum Medicaid rebates owed by
manufacturers under the Medicaid Drug Rebate Program and extended
the rebate program to individuals enrolled in Medicaid managed care
organizations, established annual fees and taxes on manufacturers
of certain branded prescription drugs, and a new Medicare
Part D coverage gap discount program, in which manufacturers
must agree to offer 50% point-of-sale discounts off negotiated
prices of applicable brand drugs to eligible beneficiaries during
their coverage gap period, as a condition for the
manufacturer’s outpatient drugs to be covered under Medicare
Part D.
21
In
addition, in some foreign countries, the proposed pricing for a
drug must be approved before it may be lawfully marketed. The
requirements governing drug pricing vary widely from country to
country. For example, the European Union provides options for its
member states to restrict the range of medicinal drugs for which
their national health insurance systems provide reimbursement and
to control the prices of medicinal drugs for human use. A member
state may approve a specific price for the medicinal drug or it may
instead adopt a system of direct or indirect controls on the
profitability of the company placing the medicinal drug on the
market. There can be no assurance that any country that has price
controls or reimbursement limitations for pharmaceutical drugs will
allow favorable reimbursement and pricing arrangements for any of
our drugs. Historically, drugs launched in the European Union do
not follow price structures of the United States and generally tend
to be significantly lower.
Other Healthcare Laws
We
may also be subject to healthcare regulation and enforcement by the
federal government and the states and foreign governments where we
may market our product candidates, if approved. These laws include,
without limitation, state and federal anti-kickback, fraud and
abuse, false claims, privacy and security and physician sunshine
laws and regulations.
The
federal Anti-Kickback Statute prohibits, among other things, any
person from knowingly and willfully offering, soliciting, receiving
or paying remuneration, directly or indirectly, to induce either
the referral of an individual, for an item or service or the
purchasing or ordering of a good or service, for which payment may
be made under federal healthcare programs such as the Medicare and
Medicaid programs. The government has enforced the Anti-Kickback
Statute to reach large settlements with healthcare companies based
on sham consulting and other financial arrangements with
physicians. A person or entity does not need to have actual
knowledge of the statute or specific intent to violate it in order
to have committed a violation. In addition, the government may
assert that a claim including items or services resulting from a
violation of the federal Anti-Kickback Statute constitutes a false
or fraudulent claim for purposes of the federal False Claims Act.
The majority of states also have anti-kickback laws, which
establish similar prohibitions and in some cases may apply to items
or services reimbursed by any third-party payor, including
commercial insurers.
In
addition, the civil False Claims Act prohibits, among other things,
knowingly presenting or causing the presentation of a false,
fictitious or fraudulent claim for payment to the U.S. government.
Actions under the False Claims Act may be brought by the Attorney
General or as a qui tam action by a private individual in the name
of the government. Violations of the False Claims Act can result in
very significant monetary penalties and treble damages. The federal
government is using the False Claims Act, and the accompanying
threat of significant liability, in its investigation and
prosecution of pharmaceutical and biotechnology companies
throughout the U.S., for example, in connection with the promotion
of products for unapproved uses and other sales and marketing
practices. The government has obtained multi-million and
multi-billion dollar settlements under the False Claims Act in
addition to individual criminal convictions under applicable
criminal statutes. Given the significant size of actual and
potential settlements, it is expected that the government will
continue to devote substantial resources to investigating
healthcare providers’ and manufacturers’ compliance
with applicable fraud and abuse laws.
The
federal Health Insurance Portability and Accountability Act of
1996, or HIPAA, also created new federal criminal statutes that
prohibit among other actions, knowingly and willfully executing, or
attempting to execute, a scheme to defraud any healthcare benefit
program, including private third-party payors, knowingly and
willfully embezzling or stealing from a healthcare benefit program,
willfully obstructing a criminal investigation of a healthcare
offense, and knowingly and willfully falsifying, concealing or
covering up a material fact or making any materially false,
fictitious or fraudulent statement in connection with the delivery
of or payment for healthcare benefits, items or services. Similar
to the federal Anti-Kickback Statute, a person or entity does not
need to have actual knowledge of the statute or specific intent to
violate it in order to have committed a violation.
There
has also been a recent trend of increased federal and state
regulation of payments made to physicians and other healthcare
providers. The Affordable Care Act, among other things, imposes new
reporting requirements on drug manufacturers for payments made by
them to physicians and teaching hospitals, as well as ownership and
investment interests held by physicians and their immediate family
members. Failure to submit required information may result in civil
monetary penalties of up to an aggregate of $150,000 per year (or
up to an aggregate of $1 million per year for “knowing
failures”), for all payments, transfers of value or ownership
or investment interests that are not timely, accurately and
completely reported in an annual submission. Drug manufacturers are
required to submit annual reports to the Centers for Medicare &
Medicaid Services, which publicly posts the data on its website.
Certain states also mandate implementation of compliance programs,
impose restrictions on drug manufacturer marketing practices and/or
require the tracking and reporting of gifts, compensation and other
remuneration to physicians.
22
We
may also be subject to data privacy and security regulation by both
the federal government and the states in which we conduct our
business. HIPAA, as amended by the Health Information Technology
and Clinical Health Act, or HITECH, and their respective
implementing regulations, including the final omnibus rule
published on January 25, 2013, imposes specified requirements
relating to the privacy, security and transmission of individually
identifiable health information. Among other things, HITECH makes
HIPAA’s privacy and security standards directly applicable to
“business associates,” defined as independent
contractors or agents of covered entities that create, receive,
maintain or transmit protected health information in connection
with providing a service for or on behalf of a covered entity.
HITECH also increased the civil and criminal penalties that may be
imposed against covered entities, business associates and possibly
other persons, and gave state attorneys general new authority to
file civil actions for damages or injunctions in federal courts to
enforce the federal HIPAA laws and seek attorney’s fees and
costs associated with pursuing federal civil actions. In addition,
we may be subject to state law equivalents of each of the above
federal laws, such as anti-kickback and false claims laws which may
apply to items or services reimbursed by any third-party payor,
including commercial insurers, and state laws governing the privacy
and security of health information in certain circumstances, many
of which differ from each other in significant ways, thus
complicating compliance efforts.
EMPLOYEES
As of
February 20, 2019, we had 105 full and part-time employees. None of
our employees are represented by a collective bargaining agreement,
and we have never experienced a work stoppage. We consider our
relations with our employees to be good.
You should carefully consider the following risks and
uncertainties. If any of the following occurs, our business,
financial condition or operating results could be materially
harmed. An investment in our securities is speculative in nature,
involves a high degree of risk, and should not be made by an
investor who cannot bear the economic risk of its investment for an
indefinite period of time and who cannot afford the loss of its
entire investment. You should carefully consider the following risk
factors and the other information contained elsewhere in this
Annual Report before making an investment in our
securities.
Risks Related to Our Financial Position and Need for Additional
Capital
We are a biopharmaceutical company with a limited operating history
and have not generated any revenue from drug sales. We have
incurred significant operating losses since our inception and
anticipate that we will incur continued losses for the foreseeable
future.
We are a biopharmaceutical company with a limited
operating history on which investors can base an investment
decision. Biopharmaceutical drug development is a highly
speculative undertaking and involves a substantial degree of risk.
We commenced operations in January 2012. Our operations to date
have been limited primarily to organizing and staffing our company,
business planning, raising capital, developing our technology,
identifying potential drug candidates and undertaking pre-clinical
studies and commencing clinical trials and conducting Phase 3 and
registration directed clinical trials for our most advanced drug
candidates, ublituximab and umbralisib. We have never generated any revenue from drug
sales. We have not obtained regulatory approvals for any of our
drug candidates.
We
have not yet demonstrated our ability to successfully complete
large-scale, pivotal clinical trials, obtain regulatory approvals,
manufacture a commercial scale drug, or arrange for a third party
to do so on our behalf, or conduct sales and marketing activities
necessary for successful commercialization. Typically, it takes
many years to develop one new drug from the time it is discovered
to when it is available for treating patients. Consequently, any
predictions you make about our future success or viability may not
be as accurate as they could be if we had a longer operating
history. We will need to transition from a company with a research
and development focus to a company capable of supporting commercial
activities. We may not be successful in such a
transition.
Since
inception, we have focused substantially all of our efforts and
financial resources on clinical trials and manufacturing of our
drug candidates. To date, we have financed our operations primarily
through public offerings of our common stock and a debt financing.
Through March 1, 2019, we have received an aggregate of
approximately $450 million from such transactions, including
approximately $420 million in aggregate gross proceeds from the
sale of common stock in one or more offerings and through the use
of our ATM from January 2012 through December 2018 but excluding
$30.0 million in gross proceeds from the debt financing in
February 2019.
Since
inception, we have incurred significant operating losses. As of
December 31, 2018, we had an accumulated deficit of $528.3 million.
Substantially all of our operating losses have resulted from costs
incurred in connection with our research and development programs
and from general and administrative costs associated with our
operations. We expect to continue to incur significant expenses and
operating losses for the foreseeable future. Our prior losses,
combined with expected future losses, have had and will continue to
have an adverse effect on our stockholders’ deficit and
working capital. We expect our research and development expenses to
significantly increase in connection with continuing our existing
clinical trials and beginning additional clinical trials. In
addition, if we obtain marketing approval for our drug candidates,
we will incur significant sales, marketing and
outsourced-manufacturing expenses. We have incurred and will
continue to incur additional costs associated with operating as a
public company. As a result, we expect to continue to incur
significant and increasing operating losses for the foreseeable
future. Because of the numerous risks and uncertainties associated
with developing pharmaceuticals, we are unable to predict the
extent of any future losses or when we will become profitable, if
at all. Even if we do become profitable, we may not be able to
sustain or increase our profitability on a quarterly or annual
basis. Our ability to become profitable depends upon our ability to
generate revenue.
23
●
Successfully
complete clinical trials that meet their clinical
endpoints;
●
Initiate
and successfully complete all safety, pharmacokinetic,
biodistribution, non-clinical studies required to obtain US and
Foreign marketing approval for our drug candidates;
●
Obtain
approval from the US FDA and Foreign equivalent to market and sell
our drug candidates;
●
Establish
commercial manufacturing capabilities alone and/or with third
parties that are satisfactory to the regulatory authorities, cost
effective, and that are capable of providing commercial supply of
our drug candidates
●
Establish a
commercial infrastructure to commercialize our drug candidates, if
approved, by developing a sales force and/or entering into
collaborations with third parties; and
●
achieve market
acceptance of our drug candidates in the medical community and with
third-party payors.
If we
are unable to generate significant continuing revenues, we will not
become profitable and we may be unable to continue our operations
without continued funding.
We will need to raise substantial additional funding. If
we are unable to raise capital when needed, we would be forced to
delay, reduce or eliminate some of our drug development programs or
commercialization efforts.
The development of pharmaceuticals is
capital-intensive. We are currently advancing our most advanced
drug candidates, umbralisib,
ublituximab, TG-1501, TG-1701 and TG-1801
through clinical
development. While we may experience short-term
decreases in clinical trial expenses as our larger phase 3 clinical
trials complete and before our Phase 1 and 2 programs can advance
into Phase 2 and 3, we do expect over time our overall expenses
will increase in connection with our ongoing activities,
particularly as we continue the research and development of,
initiate or continue
clinical trials of, and seek marketing approval for, our drug
candidates. In addition, depending on the status of regulatory
approval or, if we obtain marketing approval for any of our drug
candidates, we expect to incur significant commercialization
expenses related to drug sales, marketing, manufacturing and
distribution. Moreover, in anticipation of filing for regulatory
approvals for umbralisib and ublituximab we will need to expend
substantial resources on
manufacturing and new drug application (NDA)/ new biologics license
application (BLA) preparation over the next 12-24+ months, which
could exceed any cost savings associated with lower clinical trial
expenses during the same period.
While
this timing is our current estimate, the amount and timing of our
future funding requirements will depend on many factors, including,
but not limited to, the following:
●
the progress of our
clinical trials, including expenses to support the trials and
milestone payments that may become payable under our license
agreements;
●
the costs and
timing of regulatory approvals;
●
the costs and
timing of clinical and commercial manufacturing supply arrangements
for each product candidate;
●
the costs of
establishing sales or distribution capabilities;
●
the success of the
commercialization of our products;
●
our ability to
establish and maintain strategic collaborations, including
licensing and other arrangements;
●
the costs involved
in enforcing or defending patent claims or other intellectual
property rights; and
●
the extent to which
we in-license or invest in other indications or product
candidates.
Required additional
sources of financing to continue our operations in the future might
not be available on favorable terms, if at all. If we do not
succeed in raising additional funds on acceptable terms, we might
be unable to complete planned preclinical and clinical trials or
obtain approval of any of our product candidates from the FDA or
any foreign regulatory authorities. In addition, we could be forced
to discontinue product development, reduce or forego sales,
marketing and medical educational efforts that are required for a
successful launch of umbralisib and/or ublituximab or any of our
product candidates and otherwise forego attractive business
opportunities. Any additional sources of financing will likely
involve the issuance of our equity securities, which would have a
dilutive effect to stockholders. Currently, none of our product
candidates have been approved by the FDA or any foreign regulatory
authority for sale. Therefore, for the foreseeable future, we will
have to fund all of our operations and capital expenditures from
cash on hand and amounts raised in future offerings or financings.
Accordingly, our prospects must be considered in light of the
uncertainties, risks, expenses and difficulties frequently
encountered by companies in the early stages of operations and the
competitive environment in which we operate.
24
Raising additional capital may cause dilution to our stockholders,
restrict our operations or require us to relinquish rights to our
technologies or drug candidates and occupy valuable management time
and resources.
Until such time, if ever, as we can generate
substantial drug revenues, we expect to finance our cash needs
through a combination of public and private equity offerings, debt financings,
collaborations, strategic alliances and licensing arrangements. We
do not have any committed external source of funds, other than
funds already borrowed under the loan and security agreement that we entered into with Hercules in February
2019 (See Note 14 for more information). To the extent that we
raise additional capital through the sale of common stock or
securities convertible or exchangeable into common stock, the
ownership interest of our stockholders will be diluted, and the
terms of these securities may include liquidation or other
preferences that materially adversely affect the rights of our
common stockholders. Debt financing, if available, would increase
our fixed payment obligations and may involve agreements that
include restrictive covenants limiting or restricting our ability
to take specific actions, such as incurring additional debt, making
capital expenditures, declaring dividends, acquiring, selling or
licensing intellectual property rights and other operating
restrictions that could adversely impact our ability to conduct our
business. We could also be required to seek funds through
collaborations, strategic alliances or licensing arrangements with
third parties at a time that is not desirable to us and we may be
required to relinquish valuable rights to some intellectual
property, future revenue streams, research programs or drug
candidates or to grant licenses on terms that may not be favorable
to us, any of which may have a material adverse effect on our
business, operating results and prospects. Debt financing, if
available, may involve agreements that include covenants limiting
or restricting our ability to take specific actions, such as
incurring additional debt, making capital expenditures or declaring
dividends. For example, see our risk factors under the heading
“Risks Related to Our
Indebtedness.”
Additionally,
fundraising efforts may divert our management from their day-to-day
activities, which may adversely affect our ability to develop and
commercialize our drug candidates. Dislocations in the financial
markets have generally made equity and debt financing more
difficult to obtain and may have a material adverse effect on our
ability to meet our fundraising needs. We cannot guarantee that
future financing will be available in sufficient amounts or on
terms acceptable to us, if at all. Moreover, the terms of any
financing may adversely affect the holdings or the rights of our
stockholders and the issuance of additional securities, whether
equity or debt, by us, or the possibility of such issuance, may
cause the market price of our shares to decline. The sale of
additional equity or convertible securities would dilute all of our
stockholders.
All product candidate development timelines and projections in this
report are based on the assumption of further
financing.
The
timelines and projections in this report are predicated upon the
assumption that we will raise additional financing in the future to
continue the development of our product candidates. In the event we
do not successfully raise subsequent financing, our product
development activities will necessarily be curtailed commensurate
with the magnitude of the shortfall. If our product development
activities are slowed or stopped, we would be unable to meet the
timelines and projections outlined in this filing. Failure to
progress our product candidates as anticipated will have a negative
effect on our business, future prospects, and ability to obtain
further financing on acceptable terms, if at all, and the value of
the enterprise.
Due to limited resources we may fail
to capitalize on programs or product candidates that may present a
greater commercial opportunity or for which there is a greater
likelihood of success.
Because we have limited resources, we may forego
or delay pursuit of opportunities with certain programs or product
candidates or for indications that later prove to have greater
commercial potential. Our estimates regarding the potential market
for a product candidate could be inaccurate, and our spending on
current and future research and development programs may not yield
any commercially viable products. If we do not accurately evaluate
the commercial potential for a particular product candidate, we may
relinquish valuable rights to that product candidate through
strategic collaboration, licensing or other arrangements in cases
in which it would have been more advantageous for us to retain sole
development and commercialization rights to such product candidate.
Alternatively, we may allocate internal resources to a product
candidate in a therapeutic area in which it would have been more
advantageous to enter into a partnering
arrangement.
If
any of these events occur, we may be forced to abandon or delay our
development efforts with respect to a particular product candidate
or fail to develop a potentially successful product candidate,
which could have a material adverse effect on our business,
financial condition, results of operations and
prospects.
25
Our level of indebtedness and debt service obligations could
adversely affect our financial condition, and may make it more
difficult for us to fund our operations.
In February 2019, we entered into a Loan and Security Agreement
(the "Loan Agreement"), with Hercules Capital, Inc., a Maryland
corporation (“Hercules”) (See Note 14 for more information) .
Under the Loan Agreement, Hercules will provide access to term
loans with an aggregate principal amount of up to $60.0 million
(the Term Loan). Concurrently with the closing of the Loan
Agreement, we borrowed an initial tranche of $30.0 million.
In addition, we have incurred long term
liabilities of approximately $18.0 million with a contract
manufacturing organization (CMO) for the scale-up, tech-transfer,
and long-term supply of one of our drug candidates. This is
an expensive and lengthy process and we expect to incur additional
obligations associated with these ongoing manufacturing activities
over the course of the next 24 months, and potentially longer. To
date, this CMO has provided payment terms which we believe are
reasonable, however no assurance can be given that such terms will
continue to be available to us in the future. No assurances can be
made that the obligations associated with the Loan Agreement and
the CMO will not have a material adverse impact on our financial
condition.
All
obligations under the Loan Agreement are secured by substantially
all of our existing property and assets, excluding intellectual
property. This indebtedness may create additional financing risk
for us, particularly if our business or prevailing financial market
conditions are not conducive to paying off or refinancing its
outstanding debt obligations at maturity. This indebtedness could
also have important negative
consequences, including:
●
We
will need to repay the indebtedness by making payments of interest
and principal, which will reduce the amount of money available to
finance our operations, our research and development efforts and
other general corporate activities; and
●
our
failure to comply with the restrictive covenants in the Loan
Agreement could result in an event of default that, if not cured or
waived, would accelerate our obligation to repay this indebtedness,
and Hercules could seek to enforce its security interest in the
assets securing such indebtedness.
To
the extent additional debt is added to our current debt levels, the
risks described above could increase.
We may not have cash available in an amount sufficient to
enable it to make interest or principal payments on its
indebtedness when due.
Failure
to satisfy our current and future debt obligations under the Loan
Agreement, or breaching any of its covenants under the Loan
Agreement, subject to specified cure periods with respect to
certain breaches, could result in an event of default and, as a
result, Hercules could accelerate all of the amounts due. In the
event of an acceleration of amounts due under the Loan Agreement as
a result of an event of default, we may not have enough available
cash or be able to raise additional funds through equity or debt
financings to repay such indebtedness at the time of such
acceleration. In that case, we may be required to delay, limit,
reduce or terminate our product candidate development or
commercialization efforts or grant to others rights to develop and
market product candidates that we would otherwise prefer to develop
and market our self. Hercules could also exercise its rights as
collateral agent to take possession and dispose of the collateral
securing the term loans for its benefit, which collateral includes
substantially all of our property other than intellectual property.
Our business, financial condition and results of operations could
be materially adversely affected as a result of any of these
events. We are subject to certain restrictive covenants which, if
breached, could have a material adverse effect on our business and
prospects.
The Loan Agreement imposes operating and other restrictions
on the Company. Such restrictions will affect, and in
many respects limit or prohibit, our ability and the ability of any
future subsidiary to, among other things:
●
dispose
of certain assets;
●
change
its lines of business;
●
engage
in mergers, acquisitions or consolidations;
●
incur
additional indebtedness;
●
create
liens on assets;
●
pay
dividends and make contributions or repurchase our capital stock;
and
●
engage
in certain transactions with affiliates.
Risks Related to Drug Development and Regulatory
Approval
If we are unable to
obtain regulatory
approval for our most
advanced drug candidates or other drug candidates and ultimately
commercialize our most advanced drug
candidates or other drug
candidates, or experience significant delays in doing so, our
business will be materially harmed.
26
We are
a development-stage biopharmaceutical company, and do not currently
have any commercial products that generate revenues or any other
sources of revenue. We may never be able to successfully develop
marketable products. Our pharmaceutical development methods are
unproven and may not lead to commercially viable products for a
variety of reasons. We have invested
substantially all of our efforts and financial resources in the
identification, pre-clinical and clinical development of our drug
candidates, including ublituximab, umbralisib, TG-1501, TG-1701 and
TG-1801. Our ability to generate drug revenues, which we do not
expect will occur for a number of years, if ever, will depend
heavily on the successful completion of our current and future
Phase 3 and registration-directed clinical trials and eventual
commercialization of our drug candidates, which may never occur. We
currently generate no revenues from sales of any drugs, and we may
never be able to develop or commercialize a marketable drug. Each
of our drug candidates will require
additional pre-clinical or
clinical development, management of clinical, pre-clinical and manufacturing activities,
regulatory approval in multiple jurisdictions, obtaining
manufacturing supply, building of a commercial organization,
substantial investment and significant marketing efforts before we
generate any revenues from drug sales. The success of our most
advanced drug candidates and other drug candidates will depend on
several factors, including the following:
●
Successful
completion of our UNITY-NHL trial, UNITY-CLL trial and our ULTIMATE
I and II trials;
●
Receipt
of regulatory approvals from applicable regulatory authorities for
our drug candidates;
●
Establishing
commercial manufacturing capabilities or making arrangements with
third-party manufacturers for clinical supply and commercial
manufacturing;
●
Obtaining and
maintaining patent and trade secret protection or regulatory
exclusivity for our drug candidates;
●
Launching
commercial sales of our drug candidates, if and when approved,
whether alone or in collaboration with others;
●
Acceptance
of the drug candidates, if and when approved, by patients, the
medical community and third-party payors;
●
Effectively
differentiating and competing with other therapies;
●
Obtaining
and maintaining healthcare coverage and adequate
reimbursement;
●
Enforcing
and defending intellectual property rights and claims;
and
●
Maintaining
an acceptable safety profile of the drug candidates following
approval.
If
we do not achieve one or more of these factors in a timely manner
or at all, we could experience significant delays or an inability
to successfully commercialize our drug candidates, which would
materially harm our business.
If we
are unable to develop or receive regulatory approval for or
successfully commercialize any of our product candidates, we will
not be able to generate product revenues and we may not be able to continue our
operations. Even if we are able to develop or receive
regulatory approval for or successfully commercialize any of our
product candidates, we may not be able to gain market acceptance
for our product candidates and future products and may never become
profitable.
Because the results of preclinical studies and early clinical
trials are not necessarily predictive of future results, any
product candidate we advance into clinical trials may not have
favorable results in later clinical trials, if any, or receive
regulatory approval.
Pharmaceutical
development has inherent risks. The
outcome of pre-clinical development testing and early clinical
trials may not be predictive of the outcome of later clinical
trials, and interim results of a clinical trial do not necessarily
predict final results. Moreover, pre-clinical and clinical data are
often susceptible to varying interpretations and analyses, and many
companies that have believed their drug candidates performed
satisfactorily in pre-clinical studies and clinical trials have
nonetheless failed to obtain marketing approval of their drug
candidates. Once a drug candidate has displayed sufficient
pre-clinical data to warrant clinical investigation, we will
be required to demonstrate through adequate and well-controlled
clinical trials that our product candidates are effective with a
favorable benefit-risk profile for use in populations for their
target indications before we can seek regulatory approvals for
their commercial sale. Success in early clinical trials does not
mean that later clinical trials will be successful because product
candidates in later-stage clinical trials may fail to demonstrate
sufficient safety or efficacy despite having progressed through
initial clinical testing. Companies frequently experience
significant setbacks in advanced clinical trials, even after
earlier clinical trials have shown promising results. In addition,
there is typically an extremely high rate of failure of
pharmaceutical candidates proceeding through clinical
trials.
For instance, early
clinical results seen with ublituximab (TG-1101) and umbralisib
(TGR-1202) in a small number of patients may not be reproduced in
expanded or larger clinical trials such as in our UNITY-CLL,
UNITY-NHL and ULTIMATE I and II programs. Additionally,
individually reported outcomes of patients treated in clinical
trials may not be representative of the entire population of
treated patients in such studies. Further, larger scale Phase 3
studies, which are often conducted internationally, are inherently
subject to increased operational risks compared to earlier stage
studies, including the risk that the results could vary on a region
to region, or country to country basis which could materially
adversely affect the study’s outcome or the opinion of the
validity of the study results by applicable regulatory agencies. In
addition, early clinical trial results from interim analysis or
from the review of a Data Safety Monitoring Board
(“DSMB”) or similar safety committee may not be
reflective of the results of the entire study, when completed.
Clinical trial results can change over time as
additional patients are accrued to a study or as additional
follow-up is conducted, which may result in a material negative
impact on the preliminary results. For instance, we recently
announced that the MZL cohort of the UNITY-NHL study met the
primary endpoint of ORR, falling within our target range which was
between 40%-50%, and while we believe that the ORR results have the
potential to increase over time
within this range, or beyond, as
patients continue to be followed, no assurance can be given
that that will be the case, and the results may ultimately fall at
the lower end of the range. Further,
time to event based endpoints such as duration of response (DOR)
and progression-free survival (PFS) have the potential to change,
sometimes drastically, with longer follow-up. No assurance can be
provided that the ORR, DOR and PFS data from the MZL cohort of the
UNITY-NHL study will be supportive of an FDA approval or will
support broad market uptake based on the profile of competitor
drugs which may be available. Additionally, while the MZL cohort of
the UNITY-NHL study met its primary endpoint, each cohort of this
study is operated and analyzed independently, and no assurance can
be given that other cohorts from the UNITY-NHL study, including the
FL/SLL cohort and the DLBCL cohort, will meet their primary
endpoint, have a positive outcome, or will be supportive of an FDA
filing.
27
All of our Phase 3 and
registration directed clinical trials such as UNITY-CLL, UNITY-NHL
and ULTIMATE I and II utilize international clinical research
sites, including sites in eastern European countries. The Company
works with what we believe are reputable Clinical Research
Organization’s (“CRO”) and clinical research
sites in conducting our studies internationally. Nevertheless, the
risk of fraud, incompetence, unexpected patient variability and
other issues affecting the quality and the outcome of our Phase 3
and registration directed studies could arise from US or
international sites. If that were to occur, the study could be
negatively impacted, potentially even preventing it from being
useful for regulatory approval. If such event were to occur, it
would have a substantial negative impact on the
Company.
In
addition to umbralisib and ublituximab, we have a number of
compounds in early clinical development, such as TG-1501, TG-1701
and TG-1801. Many drugs fail in the early stages of clinical
development for safety and tolerability issues, despite promising
pre-clinical results. Accordingly, no assurance can be made that a
safe and efficacious dose can be found for these compounds or that
they will ever enter into advanced clinical trials alone or in
combination with umbralisib and/or ublituximab.
Clinical drug development involves a lengthy and expensive process,
with an uncertain outcome. We may incur additional costs or
experience delays in completing, or ultimately be unable to
complete, the development and commercialization of our drug
candidates.
Our drug candidates umbralisib and ublituximab are
in several Phase 3 and registration directed clinical trials such
as UNITY-CLL, UNITY-NHL and ULTIMATE I and II. As with all clinical
trials, the risk of failure for our drug candidates is high. It is
impossible to predict when or if any of our drug candidates will
prove effective and safe in humans or will receive regulatory
approval. Before obtaining marketing approval from regulatory
authorities for the sale of any drug candidate, we must complete
pre-clinical studies and then conduct extensive clinical trials to
demonstrate the safety and efficacy of our drug candidates in
humans. Clinical testing is expensive, difficult to design and
implement, can take many years to complete and is uncertain as to
outcome. A failure of one or more clinical trials can occur at any
stage of testing. Accordingly, our current Phase 3 and registration directed trials,
such as UNITY-CLL, UNITY-NHL and ULTIMATE I and II and future
clinical trials may not be successful.
Successful completion of our clinical trials is a
prerequisite to submitting NDA, a BLA to the U.S. FDA and a
Marketing Authorization Application (“MAA”), in the
European Union for each drug candidate and, consequently, the
ultimate approval and commercial marketing of our drug candidates.
We do not know whether any of our clinical
trials for our drug
candidates will be completed on schedule, if at
all.
28
Whether
or not and how quickly we complete clinical trials is dependent in
part upon the rate at which we are able to engage clinical
research/trial sites and, thereafter, the rate of enrollment of
patients, and the rate we collect, clean, lock and analyze the
clinical trial database. Patient enrollment is a function of many
factors, including the size of the patient population, the
proximity of patients to clinical sites, the eligibility criteria
for the study, the existence of competitive clinical trials, and
whether existing or new drugs are approved for the indication we
are studying. We are aware that other companies are currently
conducting or planning clinical trials that seek to enroll patients
with the same diseases that we are studying. We may experience numerous unforeseen events
during, or as a result of, any current or future clinical trials
that we could conduct that could delay or prevent our ability to
receive marketing approval or commercialize our drug candidates,
including:
●
the FDA or other
regulatory authorities may require us to submit additional data or
impose other requirements before permitting us to initiate a
clinical trial;
●
health authorities
or institutional review boards (“IRBs”), or ethics
committees may not authorize us or our investigators to commence a
clinical trial or conduct a clinical trial at a prospective trial
site or country;
●
we may experience
delays in reaching, or fail to reach, agreement on acceptable terms
with prospective trial sites and prospective contract research
organizations, or CROs, the terms of which can be subject to
extensive negotiation and may vary significantly among different
CROs and trial sites;
●
clinical trials of
our drug candidates may produce negative or inconclusive results,
and we may decide, or health authorities may require us, to conduct
additional pre-clinical studies or clinical trials or we may decide
to abandon drug development programs;
●
the number of
patients required for clinical trials of our drug candidates may be
larger than we anticipate, and enrollment in these clinical trials
may be slower than we anticipate or participants may drop out of
these clinical trials or fail to return for post-treatment
follow-up at a higher rate than we anticipate;
●
our third-party
contractors, including our clinical trial sites, may fail to comply
with regulatory requirements or meet their contractual obligations
to us in a timely manner, or at all, or may deviate from the
clinical trial protocol or drop out of the trial, which may require
that we add new clinical trial sites or investigators;
●
we may elect to, or
health authorities or IRBs or ethics committees may require that we
or our investigators suspend or terminate clinical research for
various reasons, including noncompliance with regulatory
requirements or a finding that the participants are being exposed
to unacceptable health risks;
●
the cost of
clinical trials of our drug candidates may be greater than we
anticipate;
●
the supply or
quality of our drug candidates or other materials necessary to
conduct clinical trials of our drug candidates may be insufficient
or inadequate; and
●
our drug candidates
may have undesirable side effects or other unexpected
characteristics, causing us or our investigators, health
authorities, IRBs or ethics committees to suspend or terminate the
trials, or reports may arise from pre-clinical or clinical testing
of other cancer therapies that raise safety or efficacy concerns
about our drug candidates.
We could encounter delays if a clinical trial is
suspended or terminated by us, by the IRBs of the institutions in
which such trials are being conducted, by the DSMB for such trial
or by the FDA or other regulatory authorities. Such health
authorities may impose a suspension or termination due to a number
offactors, including failure to conduct the clinical trial in
accordance with regulatory requirements or our clinical protocols,
inspection of the clinical trial operations or trial site by the
FDA or other regulatory authorities resulting in the impositionof a
clinical hold, unforeseen safety issues or adverse side effects,
failure to demonstrate a benefit from using a drug, changes in
governmental regulations or administrative actions or lack of
adequate funding to continue the clinical trial. Many of thefactors
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 drug candidates. Further, the FDA may
disagree with our clinical trial design and our interpretation of
data from clinical trials, or may change the requirements for
approval even after it has reviewed and commented on the design for
our clinical trials. This could happen even for a protocol that has
received an SPA. In
September 2015, we announced a Phase 3 clinical trial for the
combination of ublituximab plus umbralisib for patients with CLL,
which is being conducted pursuant to a SPA with the FDA and in
August 2017 we announced an SPA for our registration program for
ublituximab in RMS. Many companies which have been granted SPAs
have ultimately failed to obtain final approval to market their
drugs. Since we are seeking approvals under SPAs for some of our
product registration strategies, based on protocol designs
negotiated with the FDA, we may be subject to enhanced scrutiny.
Further, any changes or amendments to a protocol that is being
conducted under SPA will have to be reviewed and approved by the
FDA to verify that the SPA agreement is still valid. Even if the
primary endpoint in a Phase 3 clinical trial is achieved, a SPA
does not guarantee approval. The FDA may raise issues of safety,
study conduct, bias, deviation from the protocol, statistical
power, patient completion rates, changes in scientific or medical
parameters or internal inconsistencies in the study design or data
prior to making its final decision. The FDA may also seek the
guidance of an outside advisory committee prior to making its final
decision.
29
Negative or inconclusive
results from the clinical trials we conduct or unanticipated
adverse medical events could cause us to have to repeat or
terminate the clinical trials. If we
are required to repeat or conduct additional clinical trials or
other testing of our drug candidates beyond those that we currently
contemplate, if we are unable to successfully complete clinical
trials of our drug candidates or other testing, if the results of
these trials or tests are not positive or are only modestly
positive or if there are safety concerns, we
may:
●
be delayed in
obtaining marketing approval for our drug candidates;
●
not obtain
marketing approval at all;
●
obtain approval for
indications or patient populations that are not as broad as
intended or desired;
●
be subject to
post-marketing testing requirements; or
●
have the drug
removed from the market after obtaining marketing
approval.
Our drug development costs will also increase if
we experience delays in testing or regulatory approvals. We
may also incur additional costs if enrollment is increased. All our
current Phase 3 and registration-directed clinical trials, such as
UNITY-CLL, UNITY-NHL and ULTIMATE I
and II enrolled larger number of patients than our initial
projections, adding significant costs to those studies over and
above what had been projected. 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. Certain clinical trials are designed to continue
until a pre-determined number of events have occurred in the
patients enrolled. Trials such as this are subject to delays
stemming from patient withdrawal and from lower than expected event
rates. UNITY-CLL is an event-driven study, which means the study
can only end when a certain pre-specified number of events have
occurred. In the case of UNITY-CLL, an event is defined as disease
progression or death. Given that these events cannot be predicted
with certainty, predicting accurately when this study will reach a
sufficient number of events to be complete is impossible. We have
stated we believe the number of events can be reached by YE19 or in
2020 but there can be no assurance that that will occur and
timelines for the completion of this study should not be relied on
given the inherent uncertainty. Delays beyond early 2020 could have
a material and adverse impact on the Company. Significant clinical trial delays also could
shorten any periods during which we may have the exclusive right to
commercialize our drug candidates or allow our competitors to bring
products to market before we do and impair our ability to
successfully commercialize our drug candidates. Any delays in our
pre-clinical or future clinical development programs may harm our
business, financial condition and prospects
significantly.
The sufficiency of our clinical trial results for accelerated
approval are subject to FDA’s
discretion.
We have
and will continue to explore strategies for ublituximab and/or
umbralisib that involve use of the FDA’s accelerated approval
pathway. Obtaining accelerated approval for an agent requires
demonstration of meaningful benefit over all available therapies
for a serious condition. While we believe we have an understanding
of what is considered available therapy today, ultimately the
determination of what constitutes available therapy is wholly up to
the FDA and is subject to change. No assurance can be given that
other agents will not receive full approval prior to our potential
receipt of accelerated approval. If that were to occur, no
assurance can be given that we would be successful in proving
meaningful benefit over those later approved drugs. If we were
unable to prove meaningful benefit over any such agents, we would
be effectively blocked from receiving accelerated approval. We are
currently awaiting final results from our UNITY-NHL trial, in
particular the MZL cohort, which we are hoping will be useful for
accelerated approval if positive. Even if the results are positive,
no assurance can be given that umbralisib will obtain accelerated
approval for a variety of reasons, including if a new treatment
receives full approval prior to our potential receipt of
accelerated approval. Previously, we were hopeful to utilize the
results from our GENUINE study for accelerated approval but the
intervening full approval of a drug called venetoclax for
relapsed/refractory CLL has made that potential application more
challenging. While no final decision has been made as to the filing
of the GENUINE study for accelerated approval, the Company has no
plans to pursue that filing at this time. No assurance can be given
that a filing based on the GENUINE results will ever be
made.
Finally, if any of
our drugs were ever to receive accelerated approval, we would be
required to conduct a post-market confirmatory study, which we may
not complete, or if completed, may prove unsuccessful. In such
instance, the FDA can remove the product from the
market.
In
addition, principal investigators for our clinical trials may serve
as scientific advisors or consultants to us from time to time and
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, the integrity
of the data generated at the applicable clinical trial site, or
FDA’s willingness to accept such data, may be
jeopardized.
Our drug candidates may cause undesirable side effects that could
delay or prevent their regulatory approval, limit the commercial
profile of an approved label, or result in significant negative
consequences following marketing approval, if any.
Unacceptable or
undesirable adverse events caused by any of our product candidates
that we take into clinical trials could cause either us,
a DSMB, or regulatory
authorities to interrupt, delay, modify or halt clinical trials
and could result in a more restrictive
label or the delay or denial of regulatory approval by the FDA or
other regulatory authorities. This, in turn, could prevent
us from commercializing the affected product candidate and
generating revenues from its sale.
30
Many
compounds that initially showed promise in early stage testing have
later been found to cause side effects that prevented further
development of the compound. Further, early clinical trials by
their nature utilize a small sample of the potential patient
population. With a limited number of patients and limited duration
of exposure, rare and severe side effects of our drug candidates
may only be uncovered with a significantly larger number of
patients exposed to the drug candidate in Phase 3 or registration
directed trials and on the market.
We are
currently running our Phase 3 and registration-directed trials,
such as UNITY-CLL, UNITY-NHL and ULTIMATE I and II and have not
completed testing of any of our product candidates for the
treatment of the indications for which we intend to seek product
approval in humans, and we currently do not know the extent that
the adverse events, if any, will be observed in patients who
receive any of our product candidates. To date, clinical trials
using ublituximab and umbralisib have demonstrated a toxicity
profile that was deemed acceptable by the investigators performing
such studies. Such interpretation may not be shared by future
investigators or by the health authorities and in the case of
ublituximab and umbralisib, even if deemed acceptable for oncology
and/or autoimmune indications, it may not be acceptable for
diseases outside the oncology and autoimmune settings, and likewise
for any other product candidates we may develop. Additionally, the
severity, duration and incidence of adverse events may increase in
larger study populations such as found in our on-going Phase 3 and
registration-directed trials. Particularly, with respect to
umbralisib, although over 1,000 patients to date have been dosed
amongst all ongoing umbralisib studies, the full adverse effect
profile of umbralisib is not known. It is also unknown as
additional patients are exposed for longer durations to umbralisib,
whether greater frequency and/or severity of adverse events are
likely to occur. Common toxicities of other drugs in the same class
as umbralisib include high levels of liver toxicity, infections and
colitis, the latter of which notably has presented with later
onset, with incidence increasing with duration of exposure. No
assurance can be given that an acceptable safety and tolerability
profile for umbralisib will continue to be demonstrated in the
future with longer durations of exposure, at the fixed 800mg dose
being evaluated in our registration-directed trials and in multiple
drug combinations. If any of our product candidates cause
unacceptable adverse events in clinical trials, we may not be able
to obtain marketing approval and generate revenues from its sale,
or even if approved for sale may lack differentiation from
competitive products, which could have a material adverse impact on
our business and operations.
●
regulatory
authorities may withdraw or limit their approval of such drug
candidates;
●
regulatory
authorities may require a more significant clinical benefit for
approval to offset the risk;
●
regulatory
authorities may require the addition of labeling statements,
including warnings, contra-indications, or precautions, that could
diminish the usage of the product or otherwise limit the commercial
success of the affected product;
●
we may be required
to create a medication guide outlining the risks of such side
effects for distribution to patients;
●
we may be required
to change the way such drug candidates are distributed or
administered, conduct additional clinical trials;
●
regulatory
authorities may require a Risk Evaluation and Mitigation Strategy
("REMS"), plan to mitigate risks, which could include medication
guides, physician communication plans, or elements to assure safe
use, such as restricted distribution methods, patient registries
and other risk minimization tools;
●
we may be subject
to regulatory investigations and government enforcement
actions;
●
we may decide to
remove such drug candidates from the marketplace;
●
we may not be able
to enter into collaboration agreements on acceptable terms and
execute on our business model;
●
we could be sued
and held liable for injury caused to individuals exposed to or
taking our drug candidates; and
●
our reputation may
suffer.
Any
one or a combination of these events could prevent us from
obtaining or maintaining regulatory approval and achieving or
maintaining market acceptance of the affected product or could
substantially increase the costs and expenses of commercializing
the affected product, which in turn could significantly impact our ability to successfully
commercialize our drug candidates and generate
revenues.
31
Any product candidates we may advance through clinical development
are subject to extensive regulation, which can be costly and time
consuming, cause unanticipated delays or prevent the receipt of the
required approvals.
The
clinical development, manufacturing, labeling, storage,
record-keeping, advertising, promotion, import, export, marketing
and distribution of our product candidates or any future product
candidates are subject to extensive regulation by the FDA in the
United States and by comparable health authorities worldwide. In
the United States, we are not permitted to market a product
candidate until we receive approval of a BLA or NDA from the FDA.
The process of obtaining BLA and NDA approval is expensive, often
takes many years and can vary substantially based upon the type,
complexity and novelty of the products involved. Approval policies
or regulations may change and the FDA has substantial discretion in
the pharmaceutical approval process, including the ability to
delay, limit or deny approval of a product candidate for many
reasons. In addition, the FDA may require post-approval clinical
trials or studies which also may be costly. The FDA approval for a
limited indication or approval with required warning language, such
as a boxed warning, could significantly impact our ability to
successfully market our product candidates. Finally, the FDA may
require adoption of a REMS requiring prescriber training,
post-market registries, or otherwise restricting the marketing and
dissemination of these products. Despite the time and expense
invested in the clinical development of product candidates,
regulatory approval is never guaranteed. Assuming successful
clinical development, we intend to seek product approvals in
countries outside the United States. As a result, we would be
subject to regulation by the European Medicines Agency
(“EMA”), as well as the other regulatory agencies in
these countries.
●
the FDA or
comparable foreign regulatory authorities may disagree with the
design or implementation of our clinical trials;
●
we may be unable to
demonstrate to the satisfaction of the FDA or comparable foreign
regulatory authorities that a product candidate is safe and
effective for an indication;
●
the FDA may not
accept clinical data from trials conducted by individual
investigators or in countries where the standard of care is
potentially different from the United States;
●
the results of
clinical trials may not meet the level of statistical significance
required by the FDA or comparable foreign regulatory authorities
for approval;
●
we may be unable to
demonstrate that a product candidate's clinical and other benefits
outweigh its safety risks;
●
the FDA or
comparable foreign regulatory authorities may disagree with our
interpretation of data from preclinical studies or clinical
trials;
●
the data collected
from clinical trials of our product candidates may not be
sufficient to support the submission of a BLA, NDA or other
submission or to obtain regulatory approval in the United States or
elsewhere;
●
the FDA or
comparable foreign regulatory authorities may not approve the
manufacturing processes or facilities of third-party manufacturers
with which we or our collaborators currently contract for clinical
supplies and plan to contract for commercial supplies;
or
●
the approval
policies or regulations of the FDA or comparable foreign regulatory
authorities may significantly change in a manner rendering our
clinical data insufficient for approval.
In
addition, raising questions about the safety of marketed
pharmaceuticals may result in increased cautiousness by the FDA and
other regulatory authorities in reviewing new pharmaceuticals based
on safety, efficacy or other regulatory considerations and may
result in significant delays in obtaining regulatory approvals.
Regulatory approvals for our product candidates may not be obtained
without lengthy delays, if at all. Any delay in obtaining, or
inability to obtain, applicable regulatory approvals would prevent
us from commercializing our product candidates.
In
January 2019, the FDA granted breakthrough therapy designation to
umbralisib for the treatment of adult patients with relapsed or
refractory MZL who have received at least one prior treatment
including an anti-CD20 monoclonal antibody. We may also seek
breakthrough therapy designation for some of our other drug
candidates. A breakthrough therapy is defined as a drug 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 the drug may
demonstrate substantial improvement over existing therapies on one
or more clinically significant endpoints, such as substantial
treatment effects observed early in clinical development. Our
breakthrough therapy designation was based on interim data from the
MZL cohort of the UNITY-NHL clinical trial. No assurance can be
given that the full results from the MZL cohort of the UNITY-NHL
clinical trial will be positive and support a filing for
accelerated approval.
32
For
drugs that have been designated as breakthrough therapies,
interaction and communication between the FDA and the sponsor of
the trial can help to identify the most efficient path for clinical
development while minimizing the number of patients placed in
ineffective control regimens. Drugs designated as breakthrough
therapies by the FDA are also eligible for accelerated approval.
Designation as a breakthrough therapy is wholly within the
discretion of the FDA. Accordingly, even if we believe one of our
drug candidates meets the criteria for designation as a
breakthrough therapy, the FDA may disagree and instead determine
not to grant such designation to the drug candidate. In any event,
the receipt of a breakthrough therapy designation for a drug
candidate may not result in a faster development process, review or
approval compared to drugs considered for approval under
conventional FDA procedures and does not assure ultimate approval
by the FDA. In addition, even if one or more of our drug candidates
qualify as breakthrough therapies, the FDA may later decide that
the drugs no longer meet the conditions for qualification and
rescind the designation.
We
may seek fast track designation for some of our other drug
candidates. If a drug is intended for the treatment of a serious or
life-threatening condition and the drug demonstrates the potential
to address unmet medical needs for this condition, the drug sponsor
may apply for fast track designation. The FDA has broad discretion
whether or not to grant this designation, so even if we believe a
particular drug candidate is eligible for this designation, we
cannot assure you that the FDA would decide to grant it. Even if we
receive fast track designation for our other drug candidates, we
may not experience a faster development process, review or approval
compared to conventional FDA procedures. The FDA may withdraw fast
track designation if it believes that the designation is no longer
supported by data from our clinical development
program.
Ublituximab
received orphan-drug designation from the FDA for the treatment of
Marginal Zone Lymphoma (Nodal and Extranodal) in September 2013,
for the treatment of CLL in August of 2010, and orphan-drug
designation by the EMA for the treatment of CLL in November of
2009. We also obtained orphan drug designation for umbralisib as
monotherapy for the treatment of CLL in August 2016, and in January
2017, we announced that the FDA granted Orphan Drug designation
covering the combination of ublituximab and umbralisib for the
treatment of patients with CLL and DLBCL. As part of our business strategy, we may seek
orphan drug designation for our other drug candidates, and we may
be unsuccessful. Regulatory authorities in some jurisdictions,
including the United States and the European Union, may designate
drugs for relatively small patient populations as orphan drugs.
Under the Orphan Drug Act, the FDA may designate a drug as an
orphan drug if it is a drug intended to treat a rare disease or
condition, which is generally defined as a patient population of
fewer than 200,000 individuals annually in the United States,
or a patient population greater than 200,000 in the United States
where there is no reasonable expectation that the cost of
developing the drug will be recovered from sales in the United
States. In the United States, orphan drug designation entitles a
party to financial incentives such as opportunities for grant
funding towards clinical trial costs, tax advantages and user-fee
waivers.
Even
if we obtain orphan drug exclusivity for a drug, that exclusivity
may not effectively protect the designated drug from competition
because different drugs can be approved for the same condition.
Even after an orphan drug is approved, the FDA can subsequently
approve the same drug for the same condition if the FDA concludes
that the later drug is clinically superior in that it is shown to
be safer, more effective or makes a major contribution to patient
care. In addition, a designated orphan drug may not receive orphan
drug exclusivity if it is approved for a use that is broader than
the indication for which it received orphan designation. Moreover,
orphan drug exclusive marketing rights in the United States may be
lost if the FDA later determines that the request for designation
was materially defective or if the manufacturer is unable to assure
sufficient quantity of the drug to meet the needs of patients with
the rare disease or condition. Orphan drug designation neither
shortens the development time or regulatory review time of a drug
nor gives the drug any advantage in the regulatory review or
approval process. While we intend to seek additional orphan drug
designation for our other drug candidates, we may never receive
such designations. Even if we receive orphan drug designation for
any of our drug candidates, there is no guarantee that we will
enjoy the benefits of those designations.
As all of our product candidates are still under development,
manufacturing site additions, scale-up and process improvements
implemented in the production of those product candidates may
affect their ultimate activity or function.
Our
product candidates are in the initial stages of development and are
currently manufactured in relatively small batches for use in
pre-clinical and clinical studies. Process improvements implemented
to date have changed, and process improvements in the future may
change, the activity/ and analytical profile of the product
candidates, which may affect the safety and efficacy of the
products. For instance, the manufacturing process for ublituximab
has undergone several process improvements during the clinical
trial process which have resulted in analytical differences between
the materials. Such process improvements continued during the
conduct of Phase 3 and material from more than one manufacturing
process were utilized in the Phase 3 UNITY-CLL trial. While
analytical differences exist between those materials, we do not
believe the differences will alter the safety or efficacy profile
of ublituximab. However, it is possible that additional and/or
different adverse events may appear among patients exposed to drug
product manufactured under one process compared to the other, or
that adverse events may arise with greater frequency, intensity and
duration among patients exposed to drug product manufactured under
one process compared to the other. Additionally, the efficacy of
ublituximab also can be negatively impacted by such process
changes. Given the uncertainty of the impact on product
specifications, quality and performance, process improvements made
during Phase 3 development carry a higher level of risk then those
made prior to Phase 3 development. If there are significant
differences in product attributes between the two materials, we may
need to adjust our statistical analysis plans of the Phase 3 study
to confirm that there is no difference in safety or efficacy
between product made by each process in order to and allow us to
utilize data from all enrolled patients, as well as be able to
integrate clinical safety and/or efficacy results across studies to
support any potential marketing application. There can be no
assurance given that such analyses will be successful in
demonstrating no clinical differences between these drug products,
which could substantially impact the approvability of the U2
combination based on the results of the UNITY-CLL study. In such
circumstances, that would have a material adverse effect on the
Company.
33
Further, no
assurance can be given that the material manufactured from any
future optimized processes, if any, for ublituximab or any of our
product candidates will perform comparably to the product
candidates as manufactured to date which could result in an
unexpected safety or efficacy outcome as compared to the data
published or presented to date. Similarly, following each round of
process improvements, if any, for any of our drug candidates,
future clinical trial results conducted with the new material will
be subject to uncertainty related to the effects, if any, of those
additional process improvements that were made.
In
addition, we have engaged a secondary manufacturer for ublituximab
to meet our current clinical and future commercial needs and
anticipate engaging additional manufacturing sources for umbralisib
to meet expanded clinical trial and commercial needs. If a
secondary manufacturer is not successful in replicating the product
or experiences delays, or if regulatory authorities impose
unforeseen requirements with respect to product comparability from
multiple manufacturing sources, we may experience delays in
clinical development. No assurance can be given that any
additional manufacturers will be successful or that material
manufactured by the additional manufacturers will perform
comparably to ublituximab or umbralisib as manufactured to date and
used in currently available pre-clinical data and or in early
clinical trials presented publicly or reported in this or any
previous filing, or that the relevant regulatory agencies will
agree with our interpretation of comparability.
In
addition, as we move closer to commercialization for ublituximab
and umbralisib we will need to scale-up production to ensure
adequate commercial supply. We are currently in the process of
scaling up ublituximab. This is an expensive process and there can
be no assurance given that such scale-up will be successful in
providing pharmaceutical product that is of sufficient quantity, or
of a quality that is consistent with our previously established
specifications, or that meets the requirements set by regulatory
agencies under which we may seek approval of our product
candidates. If scale-up were not to succeed our ability to supply
our anticipated market at a reasonable cost of goods would be
negatively impacted. In such event, that would have a material
adverse effect on the Company. Scale up could also require
additional process improvement that might be required to
accommodate new and larger equipment utilized in the scaled-up
process. If that were to occur and we could not demonstrate to the
FDA that the materials were analytically substantially similar, we
might be required to run additional clinical testing to demonstrate
that they are substantially similar. That would entail a
significant delay and significant increase in total cost, all of
which would have a material adverse effect on the
Company.
Risks
Related to Commercialization
The incidence and prevalence for target patient populations of our
drug candidates have not been established with precision. If the
market opportunities for our drug candidates are smaller than we
estimate or if any approval that we obtain is based on a narrower
definition of the patient population, our revenue and ability to
achieve profitability will be adversely affected, possibly
materially.
The precise incidence and/or prevalence of CLL,
relapsed/refractory MZL, relapsed/refractory FL and MS are
unknown. Our projections of
both the number of people who are affected by disease within our
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. Our beliefs are typically based on one on
one and group interactions with target physicians and our 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
total addressable market opportunity for umbralisib and ublituximab
for the treatment of patients with CLL, MZL, FL and MS will
ultimately depend upon, among other things, the final label
indication, approved for sale for these indications, acceptance by
the medical community, patient access, drug pricing and
reimbursement. The number of patients in major markets, including
the number of addressable patients in those markets, may turn out
to be lower than expected, patients may not be otherwise amenable
to treatment with our drugs, new patients may become increasingly
difficult to identify or gain access to, or patients and physicians
may choose to utilize competitive products, all of which would
adversely affect our results of operations and our
business.
We face substantial competition for treatments for our target
indications, which may result in others commercializing drugs
before or more successfully than we do resulting in the reduction
or elimination of our commercial opportunity.
We operate in a
highly competitive segment of the biotechnology and
biopharmaceutical market. We face competition from numerous
sources, including commercial pharmaceutical and biotechnology
enterprises, academic institutions, government agencies, and
private and public research institutions. Many of our competitors
have significantly greater financial, product development,
manufacturing and marketing resources. Large pharmaceutical
companies have extensive experience in clinical testing and
obtaining regulatory approval for drugs. Additionally, many
universities and private and public research institutes are active
in cancer research, some in direct competition with us. We may also
compete with these organizations to recruit scientists and clinical
development personnel. Smaller or early-stage companies may also
prove to be significant competitors, particularly through
collaborative arrangements with large and established
companies.
34
Our
commercial opportunity could be reduced or eliminated if our
competitors develop and commercialize drugs that are safer, more
effective, have fewer or less severe side effects, are more
convenient or are less expensive than any drugs that we or our
collaborators may develop. Our competitors also may obtain FDA or
other regulatory approval for their drugs more rapidly than we may
obtain approval for ours, which could result in our competitors
establishing a strong market position before we or our
collaborators are able to enter the market. The key competitive
factors affecting the success of all of our drug candidates, if
approved, are likely to be their efficacy, safety, convenience,
price, the effectiveness of any related companion diagnostic tests,
the level of generic competition and the availability of
reimbursement from government and other third-party
payors.
For the
cancer indications for which we are developing our products there
are a number of established therapies with which we will
compete:
●
For the treatment
of CLL, if U2 is approved, we expect U2 to compete with recently
approved drugs such as ibrutinib (AbbVie and Janssen), venetoclax
(AbbVie and Roche), obinutuzumab (Roche), idelalisib (Gilead) and
duvelisib (Verastem), and established treatments such as rituximab
(Roche), and several generically available chemotherapies.
Additionally, there are two second generation BTK inhibitors
similar to ibrutinib in late-stage clinical testing for CLL that
could enter the market in the next 12-36 months. Each of these
agents can be used as monotherapy or in combination with one or
more of the other agents.
●
For the treatment
of Marginal Zone Lymphoma, if approved, we expect umbralisib to
compete with ibrutinib (AbbVie and Janssen) and established
treatments such as rituximab and several generically available
chemotherapies. Additionally, the combination of rituximab and
lenalidomide (Celgene) has been studied in MZL and may be
approved.
●
For the treatment
of Follicular Lymphoma, if approved, we expect umbralisib to
compete with recently approved drugs such as obinutuzumab (Roche),
idelalisib (Gilead), copanlisib (Bayer), and duvelisib (Verastem),
and established treatments such as rituximab (Roche), and several
generically available chemotherapies. Each of these agents can be
used as monotherapy or in combination with one or more of the other
agents. The combination of rituximab and lenalidomide (Celgene) has
also been studied in FL and may be approved. There are also several
PI3K delta inhibitors in earlier stages of
development.
●
In addition, a
number of pharmaceutical companies are developing antibodies and
bispecific antibodies targeting CD20, CD19, CD47 and other B-cell
associated targets, chimeric antigen receptor T-cell
(“CAR-T”) immunotherapy, and other B-cell ablative
therapy which, if approved, would potentially compete with U2 and
umbralisib.
For
Multiple Sclerosis for which we are developing ublituximab there
are a number of established therapies with which we will
compete:
●
If ublituximab is
approved, we expect ublituximab will primarily compete against
other CD20 targeted agents, while the group of CD20 targeted agents
will also compete broadly against a number of already approved MS
therapies. Currently, there is one anti-CD20 monoclonal antibody
approved, ocrelizumab (Roche), and another in Phase 3 development,
ofatumumab (Novartis), which is expected to enter the market in the
next 12-24 months.
TG-1501, TG-1701
and TG-1801 if approved will also face competition from drugs on
the market and under development that have the same mechanism of
action as each of those drugs.
New
developments, including the development of other pharmaceutical
technologies and methods of treating disease, occur in the
pharmaceutical and life sciences industries at a rapid pace. These
developments may render our product candidates obsolete or
noncompetitive. Compared to us, many of our potential competitors
have substantially greater:
●
research and
development resources, including personnel and
technology;
●
regulatory
experience;
●
pharmaceutical
development, clinical trial and pharmaceutical commercialization
experience;
●
experience and
expertise in exploitation of intellectual property rights;
and
●
capital
resources.
35
We will
also face competition from these third parties in recruiting and
retaining qualified personnel, establishing clinical trial sites,
patient registration for clinical trials, and in identifying and
in-licensing new product candidates.
We
will face an inherent risk of product liability exposure related to
the testing of our drug candidates in human clinical trials and use
of our drug candidates through compassionate use programs, and we
will face an even greater risk if we commercially sell any drug
candidates that we may develop. If we cannot successfully defend
ourselves against claims that our drug candidates caused injuries,
we could incur substantial liabilities. Regardless of merit or
eventual outcome, liability claims may result in:
●
decreased demand
for any drug candidates that we may develop;
●
injury to our
reputation and significant negative media attention;
●
withdrawal of
clinical trial participants;
●
significant costs
to defend the related litigation;
●
substantial
monetary awards to trial participants or patients;
●
loss
of revenue; and
●
the
inability to commercialize any drug candidates that we may
develop.
Although
we maintain product liability insurance coverage, it may not be
adequate to cover all liabilities that we may incur. We anticipate
that we will need to increase our insurance coverage if we
successfully commercialize any drug candidate. Insurance coverage
is increasingly expensive. We may not be able to maintain insurance
coverage at a reasonable cost or in an amount adequate to satisfy
any liability that may arise.
If any product candidate that we successfully develop does not
achieve broad market acceptance among physicians, patients,
healthcare payors, and the medical community, the revenues that we
generate from its sales will be limited.
Even if
our product candidates receive regulatory approval, they may not
gain market acceptance among physicians, patients, healthcare
payors, and the medical community. Coverage and reimbursement of
our product candidates by third-party payors, including government
payors, generally would also be necessary for commercial success.
The degree of market acceptance of any approved product would
depend on a number of factors, including:
●
the efficacy and
safety as demonstrated in clinical trials;
●
the timing of
market introduction of such product candidate as well as
competitive products;
●
the clinical
indications for which the product is approved;
●
acceptance by
physicians, major operators of cancer clinics and patients of the
product as a safe and effective treatment;
●
the potential and
perceived advantages of the product candidate over alternative
treatments;
●
the safety of the
product candidate in a broader patient group;
●
the cost of
treatment in relation to alternative treatments;
●
the availability of
adequate reimbursement and pricing by third parties and government
authorities;
●
changes in
regulatory requirements by government authorities for the product
candidate;
●
relative
convenience and ease of administration;
●
the prevalence and
severity of side effects and adverse events;
●
the effectiveness
of our sales and marketing efforts; and
●
unfavorable
publicity relating to the product.
If any
product candidate is approved but does not achieve an adequate
level of acceptance by physicians, hospitals, healthcare payors and
patients, we may not generate sufficient revenue from these
products and we may not become or remain profitable.
Even if we are able to commercialize any drug candidates, such
drugs may become subject to unfavorable pricing regulations or
third-party coverage and reimbursement policies, which would harm
our business.
The
regulations that govern regulatory approvals, pricing and
reimbursement for new drugs vary widely from country to country.
Some countries require approval of the sale price of a drug before
it can be marketed. In many countries, the pricing review period
begins after marketing approval is granted. In some foreign
markets, prescription pharmaceutical pricing remains subject to
continuing governmental control even after initial approval is
granted. As a result, we might obtain marketing approval for a drug
candidate in a particular country, but then be subject to price
regulations that delay our commercial launch of the drug candidate,
possibly for lengthy time periods, and negatively impact the
revenues we are able to generate from the sale of the drug
candidate in that country. Adverse pricing limitations may hinder
our ability to recoup our investment in one or more drug
candidates, even if our drug candidates obtain marketing
approval.
36
Our
ability to commercialize any drug candidates successfully also will
depend in part on the extent to which coverage and reimbursement
for these drug candidates and related treatments will be available
from government authorities, private health insurers and other
organizations. Government authorities and third-party payors, such
as private health insurers and health maintenance organizations,
decide which medications they will pay for and establish
reimbursement levels. A primary trend in the U.S. healthcare
industry and elsewhere is cost containment. Government authorities
and third-party payors have attempted to control costs by limiting
coverage and the amount of reimbursement for particular drugs.
Increasingly, third-party payors are requiring that drug companies
provide them with predetermined discounts from list prices and are
challenging the prices charged for drugs. We cannot be sure that
coverage will be available for any drug candidate that we
commercialize and, if coverage is available, the level of
reimbursement. Reimbursement may impact the demand for, or the
price of, any drug candidate for which we obtain marketing
approval. If reimbursement is not available or is available only to
limited levels, we may not be able to successfully commercialize
any drug candidate for which we obtain marketing
approval.
There may be significant delays in obtaining
reimbursement for newly approved drugs, and coverage may be more
limited than the purposes for which the drug is approved by the FDA
or similar regulatory authorities outside the United States.
Moreover, eligibility for reimbursement does not imply that any
drug will be paid for in all cases or at a rate that covers our
costs, including research, development, manufacture, sale and
distribution. Interim reimbursement levels for new drugs, if
applicable, may also not be sufficient to cover our costs and may
not be made permanent. Reimbursement rates may vary according to
the use of the drug and the clinical setting in which it is used,
may be based on reimbursement levels already set for lower-cost
drugs and may be incorporated into existing payments for other
services. Net prices for drugs may be reduced by mandatory
discounts or rebates required by government healthcare programs or
private payors and by any future relaxation of laws that presently
restrict imports of drugs from countries where they may be sold at
lower prices than in the United States. Third-party payors often
rely upon Medicare coverage policy and payment limitations in
setting their own reimbursement policies. Our inability to promptly
obtain coverage and profitable payment rates from both
government-funded and private payors for any approved drugs that we
develop could have a material adverse effect on our operating
results, our ability to raise capital needed to commercialize drugs
and our overall financial condition.
We are subject to new legislation, regulatory proposals and managed
care initiatives that may increase our costs of compliance and
adversely affect our ability to market our products, obtain
collaborators and raise capital.
In both
the United States and certain foreign countries, there have been a
number of legislative and regulatory changes to the healthcare
system that could impact our ability to sell our products
profitably. In particular, the Medicare Modernization Act of 2003
revised the payment methodology for many products reimbursed by
Medicare, resulting in lower rates of reimbursement for many types
of drugs, and added a prescription drug benefit to the Medicare
program that involves commercial plans negotiating drug prices for
their members. Since 2003, there have been a number of other
legislative and regulatory changes to the coverage and
reimbursement landscape for pharmaceuticals.
The
Patient Protection and Affordable Care Act, as amended by the
Health Care and Education Reconciliation Act of 2010, collectively,
the “ACA,” was enacted in 2010 and made significant
changes to the United States’ healthcare system. The ACA and
any revisions or replacements of that Act, any substitute
legislation, and other changes in the law or regulatory framework
could have a material adverse effect on our business.
Among
the provisions of the ACA, those of importance to our potential
product candidates are:
●
an annual,
nondeductible fee on any entity that manufactures or imports
specified branded prescription drugs and biologic agents,
apportioned among these entities according to their market share in
certain government healthcare programs;
●
an increase in the
statutory minimum rebates a manufacturer must pay under the
Medicaid Drug Rebate Program to 23.1% and 13.0% of the average
manufacturer price for branded and generic drugs,
respectively;
●
expansion of
healthcare fraud and abuse laws, including the federal False Claims
Act and the federal Anti-Kickback Statute, new government
investigative powers and enhanced penalties for
non-compliance;
●
a new Medicare Part
D coverage gap discount program, in which manufacturers must agree
to offer 50% point-of-sale discounts off negotiated prices of
applicable brand drugs to eligible beneficiaries during their
coverage gap period, as a condition for a manufacturer’s
outpatient drugs to be covered under Medicare Part D;
●
extension of a
manufacturer’s Medicaid rebate liability to covered drugs
dispensed to individuals who are enrolled in Medicaid managed care
organizations;
37
●
expansion of
eligibility criteria for Medicaid programs by, among other things,
allowing states to offer Medicaid coverage to additional
individuals and by adding new mandatory eligibility categories for
certain individuals with income at or below 138% of the federal
poverty level, thereby potentially increasing a
manufacturer’s Medicaid rebate liability;
●
expansion of the
entities eligible for discounts under the 340B Drug Pricing
Program;
●
the new
requirements under the federal Open Payments program and its
implementing regulations;
●
a new requirement
to annually report drug samples that manufacturers and distributors
provide to physicians;
●
a new regulatory
pathway for the approval of biosimilar biological products, all of
which will impact existing government healthcare programs and will
result in the development of new programs; and
●
a new
Patient-Centered Outcomes Research Institute to oversee, identify
priorities in, and conduct comparative clinical effectiveness
research, along with funding for such research.
President Trump ran for
office on a platform that supported the repeal of the ACA, and one
of his first actions after his inauguration was to sign an
Executive Order instructing federal agencies to waive or delay
requirements of the ACA that impose economic or regulatory burdens
on states, families, the health-care industry and others.
Modifications to or repeal of all or certain provisions of the ACA
have been attempted in Congress as a result of the outcome of the
recent presidential and congressional elections, consistent with
statements made by the incoming administration and members of
Congress during the presidential and congressional campaigns and
following the election.
In
January 2017, Congress voted to adopt a budget resolution for
fiscal year 2017, or the Budget Resolution, that authorizes the
implementation of legislation that would repeal portions of the
ACA. The Budget Resolution is not a law. However, it is widely
viewed as the first step toward the passage of legislation that
would repeal certain aspects of the ACA. In March 2017, following
the passage of the budget resolution for fiscal year 2017, the
United States House of Representatives passed legislation known as
the American Health Care Act of 2017, which, if enacted, would
amend or repeal significant portions of the ACA. Attempts in the
Senate in 2017 to pass ACA repeal legislation, including the Better
Care Reconciliation Act of 2017, so far have been unsuccessful. At
the end of 2017, Congress passed the Tax Cuts and Jobs Act, which
repealed the penalty for individuals who fail to maintain minimum
essential health coverage as required by the ACA. Following this
legislation, Texas and 19 other states filed a lawsuit alleging
that the ACA is unconstitutional as the individual mandate was
repealed, undermining the legal basis for the Supreme Court’s
prior decision. On December 14, 2018, Texas federal district court
judge Reed O’Connor issued a ruling declaring that the ACA in
it is entirety is unconstitutional. While this decision has no
immediate legal effect on the ACA and its provisions, this lawsuit
is ongoing and the outcome through the appeals process may have a
significant impact on our business.
Most
recently, the Bipartisan Budget Act of 2018, the “BBA,”
which set government spending levels for Fiscal Years 2018 and
2019, revised certain provisions of the ACA. Specifically,
beginning in 2019, the BBA increased manufacturer point-of-sale
discounts off negotiated prices of applicable brand drugs in the
Medicare Part D coverage gap from 50% to 70%, ultimately increasing
the liability for brand drug manufacturers. Further, this mandatory
manufacturer discount applies to biosimilars beginning in
2019.
The Trump Administration has also taken several
regulatory steps to redirect ACA implementation. The
Department of Health and Human
Services (“HHS”) finalized Medicare fee-for-service
hospital payment reductions for Part B drugs acquired through the
340B Drug Pricing Program, which has been overturned by the courts.
HHS also has signaled its intent to continue to pursue
reimbursement policy changes for Medicare Part B drugs as a whole
that likely would reduce hospital and physician reimbursement for
these drugs.
HHS
has made numerous other proposals aimed at lowering drug prices for
Medicare beneficiaries and increasing price transparency. These
proposals include giving Medicare Advantage and Part D plans
flexibility in the availability of drugs in “protected
classes,” more transparency in the cost of drugs, including
the beneficiary’s financial liability, and less costly
alternatives and permitting the use of step therapy as a means of
prior authorization. HHS has also proposed requiring pharmaceutical
manufacturers disclose the prices of certain drugs in
direct-to-consumer television advertisements.
HHS
also has taken steps to increase the availability of cheaper health
insurance options, typically with fewer benefits and less generous.
The Administration has also signaled its intention to address drug
prices and to increase competition, including by increasing the
availability of biosimilars and generic drugs. As these are
regulatory actions, a new administration could undo or modify these
efforts.
We
expect that the ACA, as well as other healthcare reform measures
that may be adopted in the future, may result in more rigorous
coverage criteria and in additional downward pressure on the price
that we receive for any approved drug. Any reduction in
reimbursement from Medicare or other government healthcare 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.
38
There
likely will continue to be, legislative and regulatory proposals at
the federal and state levels directed at broadening the
availability of healthcare and containing or lowering the cost of
healthcare products and services. We cannot predict the initiatives
that may be adopted in the future. The continuing efforts of the
government, insurance companies, managed care organizations and
other payors of healthcare services to contain or reduce costs of
healthcare may adversely affect:
●
our ability to
generate revenues and achieve or maintain
profitability;
●
the demand for any
products for which we may obtain regulatory approval;
●
our ability to set
a price that we believe is fair for our products;
●
the level of taxes
that we are required to pay; and
●
the availability of
capital.
In
addition, governments may impose price controls, which may
adversely affect our future profitability.
We cannot predict the likelihood, nature or extent of government
regulation that may arise from future legislation or administrative
or executive action, either in the United States or
abroad.
We
cannot predict the likelihood, nature or extent of how government
regulation that may arise from future legislation or administrative
or executive action taken by the U.S. presidential administration
may impact our business and industry. In particular, the U.S.
President has taken 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 regulatory and oversight
activities such as implementing statutes through rulemaking,
issuance of guidance, and review and approval of marketing
applications. Notably, on January 23, 2017, President Trump ordered
a civilian hiring freeze for all executive departments and
agencies, including the FDA, which prohibits the FDA from filling
employee vacancies or creating new positions. Under the terms of
the order, the freeze was to remain in effect until implementation
of a plan to be recommended by the Director for the Office of
Management and Budget (“OMB”) in consultation with the
Director of the Office of Personnel Management, to reduce the size
of the federal workforce through attrition. An under-staffed FDA
could result in delays in FDA’s responsiveness or in its
ability to review submissions or applications, issue regulations or
guidance or implement or enforce regulatory requirements in a
timely fashion or at all. This hiring freeze was lifted later in
2017. Moreover, on January 30, 2017, President Trump issued an
Executive Order, applicable to all executive agencies, including
the FDA, which requires that for each notice of proposed rulemaking
or final regulation to be issued in fiscal year 2017, the agency
shall identify at least two existing regulations to be repealed,
unless prohibited by law. These requirements are referred to as the
“two-for-one” provisions. This Executive Order includes
a budget neutrality provision that requires the total incremental
cost of all new regulations in the 2017 fiscal year, including
repealed regulations, to be no greater than zero, except in limited
circumstances. For fiscal years 2018 and beyond, the Executive
Order requires agencies to identify regulations to offset any
incremental cost of a new regulation and approximate the total
costs or savings associated with each new regulation or repealed
regulation. In interim guidance issued by the Office of Information
and Regulatory Affairs within OMB on February 2, 2017, the
administration indicates that the “two-for-one”
provisions may apply not only to agency regulations, but also to
significant agency guidance documents. It is difficult to predict
how these requirements will be implemented, and the extent to which
they will impact the FDA’s ability to exercise its regulatory
authority. If these executive actions impose constraints on the
FDA’s ability to engage in oversight and implementation
activities in the normal course, our business may be negatively
impacted.
If,
in the future, we are unable to establish sales and marketing
capabilities or enter into agreements with third parties to sell
and market our drug candidates, we may not be successful in
commercializing our drug candidates if and when they are approved,
and we may not be able to generate any revenue.
We
do not currently have a sales or marketing infrastructure and have
limited experience in the sale, marketing or distribution of drugs.
To achieve commercial success for any approved drug candidate for
which we retain sales and marketing responsibilities, we must build
our sales, marketing, managerial, and other non-technical
capabilities or make arrangements with third parties to perform
these services. In the future, we may choose to build a focused
sales and marketing infrastructure to sell, or participate in sales
activities with our collaborators for, some of our drug candidates
if and when they are approved.
In
advance of FDA approval of our first product, we will need to make
significant investments to build a commercial organization and
infrastructure. We will need to hire a sales force and commercial
support personnel, in order to build processes and systems to
support a commercial launch prior to knowing whether our product
will receive FDA approval. It is possible that the FDA approval is
unexpectedly delayed or our product is not approved at all. In
either case we will incur delays that may impede or significantly
delay our ability to generate revenue and at the same time will
incur significant expenses. If this were to occur, it would have a
material adverse effect on the Company.
39
There
are risks involved with both establishing our own sales and
marketing capabilities and entering into arrangements with third
parties to perform these services. For example, recruiting and
training a sales force is expensive and time-consuming and could
delay any drug launch. If the commercial launch of a drug candidate
for which we recruit a sales force and establish marketing
capabilities is delayed or does not occur for any reason, we would
have prematurely or unnecessarily incurred these commercialization
expenses. This may be costly, and our investment would be lost if
we cannot retain or reposition our sales and marketing
personnel.
Factors
that may inhibit our efforts to commercialize our drug candidates
on our own include:
●
our inability to
recruit and retain adequate numbers of effective sales and
marketing personnel;
●
the inability of
sales personnel to obtain access to physicians or persuade adequate
numbers of physicians to prescribe any future drugs;
●
the lack of
complementary drugs to be offered by sales personnel, which may put
us at a competitive disadvantage relative to companies with more
extensive product lines; and
●
unforeseen costs
and expenses associated with creating an independent sales and
marketing organization.
If
we enter into arrangements with third parties to perform sales,
marketing and distribution services, our drug revenues or the
profitability of these drug revenues to us are likely to be lower
than if we were to market and sell any drug candidates that we
develop ourselves. In addition, we may not be successful in
entering into arrangements with third parties to sell and market
our drug candidates or may be unable to do so on terms that are
favorable to us. We likely will have little control over such third
parties, and any of them may fail to devote the necessary resources
and attention to sell and market our drug candidates effectively.
If we do not establish sales and marketing capabilities
successfully, either on our own or in collaboration with third
parties, we will not be successful in commercializing our drug
candidates. Further, our business, results of operations, financial
condition and prospects will be materially adversely
affected.
Our relationships with customers and third-party payors will be
subject to applicable anti-kickback, fraud and abuse and other
healthcare laws and regulations, which could expose us to criminal
sanctions, civil penalties, exclusion from government healthcare
programs, contractual damages, reputational harm and diminished
profits and future earnings.
Although
we do not currently have any drugs on the market, once we begin
commercializing our drug candidates, we will be subject to
additional healthcare statutory and regulatory requirements and
enforcement by the federal government and the states and foreign
governments in which we conduct our business. Healthcare providers,
physicians and third-party payors play a primary role in the
recommendation and prescription of any drug candidates for which we
obtain marketing approval. Our future arrangements with third-party
payors and customers may expose us to broadly applicable fraud and
abuse and other healthcare laws and regulations that may constrain
the business or financial arrangements and relationships through
which we market, sell and distribute our drug candidates for which
we obtain marketing approval. Restrictions under applicable federal
and state healthcare laws and regulations include the
following:
●
the federal
Anti-Kickback Statute prohibits, among other things, persons from
knowingly and willfully soliciting, offering, receiving or
providing remuneration, directly or indirectly, in cash or in kind,
to induce or reward either the referral of an individual for, or
the purchase, order or recommendation of, any good or service, for
which payment may be made under federal and state healthcare
programs such as Medicare and Medicaid. A person or entity does not
need to have actual knowledge of the statute or specific intent to
violate it in order to have committed a violation;
●
the federal False
Claims Act imposes civil penalties, including through civil
whistleblower or qui tam actions, against individuals or entities
for, among other things, knowingly presenting, or causing to be
presented, to the federal government, claims for payment that are
false or fraudulent or making a false statement to avoid, decrease
or conceal an obligation to pay money to the federal government. In
addition, the government may assert that a claim including items
and services resulting from a violation of the federal
Anti-Kickback Statute constitutes a false or fraudulent claim for
purposes of the False Claims Act;
●
the federal Health
Insurance Portability and Accountability Act of 1996, or HIPAA,
imposes criminal and civil liability for executing a scheme to
defraud any healthcare benefit program, or knowingly and willfully
falsifying, concealing or covering up a material fact or making any
materially false statement in connection with the delivery of or
payment for healthcare benefits, items or services; similar to the
federal Anti-Kickback Statute, a person or entity does not need to
have actual knowledge of the statute or specific intent to violate
it in order to have committed a violation;
●
the federal
physician payment transparency requirements, sometimes referred to
as the “Sunshine Act” under the Affordable Care Act
require manufacturers of drugs, devices, biologics and medical
supplies that are reimbursable under Medicare, Medicaid, or the
Children’s Health Insurance Program to report to the
Department of Health and Human Services information related to
physician payments and other transfers of value and the ownership
and investment interests of such physicians and their immediate
family members;
●
HIPAA, as amended
by the Health Information Technology for Economic and Clinical
Health Act of 2009 and its implementing regulations, which also
imposes obligations on certain covered entity healthcare providers,
health plans, and healthcare clearinghouses as well as their
business associates that perform certain services involving the use
or disclosure of individually identifiable health information,
including mandatory contractual terms, with respect to safeguarding
the privacy, security and transmission of individually identifiable
health information;
40
●
federal consumer
protection and unfair competition laws, which broadly regulate
marketplace activities and activities that potentially harm
consumers; and
●
analogous state
laws and regulations, such as state anti-kickback and false claims
laws that may apply to sales or marketing arrangements and claims
involving healthcare items or services reimbursed by
non-governmental third-party payors, including private insurers;
and some state laws require pharmaceutical companies to comply with
the pharmaceutical industry’s voluntary compliance guidelines
and the relevant compliance guidance promulgated by the federal
government in addition to requiring drug manufacturers to report
information related to payments to physicians and other health care
providers or marketing expenditures, and state laws governing the
privacy and security of health information in certain
circumstances, many of which differ from each other in significant
ways and often are not preempted by HIPAA, thus complicating
compliance efforts.
If we fail to adequately understand and comply with the local laws
and customs as we expand into new international markets, these
operations may incur losses or otherwise adversely affect our
business and results of operations.
We
expect to operate a portion of our business in certain countries
through subsidiaries or through supply and marketing arrangements.
In those countries where we have limited experience in operating
subsidiaries and in reviewing equity investees, we will be subject
to additional risks related to complying with a wide variety of
national and local laws, including restrictions on the import and
export of certain intermediates, drugs, technologies and multiple
and possibly overlapping tax laws. In addition, we may face
competition in certain countries from companies that may have more
experience with operations in such countries or with international
operations generally. We may also face difficulties integrating new
facilities in different countries into our existing operations, as
well as integrating employees hired in different countries into our
existing corporate culture. If we do not effectively manage our
operations in these subsidiaries and review equity investees
effectively, or if we fail to manage our alliances, we may lose
money in these countries and it may adversely affect our business
and results of our operations. In all interactions with foreign
regulatory authorities, we are exposed to liability risks under the
Foreign Corrupt Practices Act or similar anti-bribery
laws.
.
Any
product for which we obtain marketing approval could be subject to
restrictions or withdrawal from the market and we may be subject to
penalties if we fail to comply with regulatory requirements or if
we experience unanticipated problems with products.
Any
product for which we obtain marketing approval, along with the
manufacturing processes and facilities, post-approval clinical
data, labeling, advertising and promotional activities for such
product, will be subject to continual requirements of, and review
by, the FDA and comparable regulatory authorities. These
requirements include submissions of safety and other post-marketing
information and reports, registration requirements, current Good
Manufacturing Practice (“CGMP”) requirements relating
to quality control, quality assurance and corresponding maintenance
of records and documents, requirements regarding the distribution
of samples to physicians and recordkeeping, and requirements
regarding company presentations and interactions with healthcare
professionals. Even if we obtain regulatory approval of a product,
the approval may be subject to limitations on the indicated uses
for which the product may be marketed, be subject to conditions of
approval, or contain requirements for costly post-marketing testing
and surveillance to monitor the safety and/or efficacy of the
product. We also may be subject to state laws and registration
requirements covering the distribution of drug products. Later
discovery of previously unknown problems with products,
manufacturers or manufacturing processes, or failure to comply with
regulatory requirements, may result in actions such
as:
●
restrictions on
product manufacturing, distribution or use;
●
restrictions on the
labeling or marketing of a product;
●
requirements to
conduct post-marketing studies or clinical trials;
●
warning
letters;
●
withdrawal of the
products from the market;
●
refusal to approve
pending applications or supplements to approved applications that
we or our subsidiaries submit;
●
recalls;
●
fines;
●
suspension or
withdrawal of marketing or regulatory approvals;
●
refusal to permit
the import or export of products;
●
product seizure or
detentions;
●
injunctions or the
imposition of civil or criminal penalties; and
●
adverse
publicity.
If we,
or our respective suppliers, third-party contractors, clinical
investigators or collaborators are slow to adapt, or are unable to
adapt, to changes in existing regulatory requirements or adoption
of new regulatory requirements or policies, we, our subsidiaries,
or our respective collaborators may be subject to the actions
listed above, including losing marketing approval for products,
resulting in decreased revenue from milestones, product sales or
royalties.
41
We will need to obtain FDA approval of any proposed product brand
names, and any failure or delay associated with such approval may
adversely impact our business.
A pharmaceutical product candidate cannot be
marketed in the United States or other countries until we have
completed a rigorous and extensive regulatory review processes,
including approval of a brand name. Any brand names we intend to
use for ublituximab, umbralisib or any future product candidates will require
approval from the FDA regardless of whether we have secured a
formal trademark registration from the United States Patent and Trademark Office
(“USPTO”). The FDA typically conducts a review of
proposed product brand names, including an evaluation of potential
for confusion with other product names. The FDA may also object to
a product brand name if it believes the name inappropriately
implies medical claims. If the FDA objects to any of our proposed
product brand names, we may be required to adopt an alternative brand name for
ublituximab, umbralisib or any future
product candidates. If we adopt an alternative brand name, we would
lose the benefit of our existing trademark applications for such
product candidate and may be required to expend significant
additional resources in an effort to identify a suitable product
brand name that would qualify under applicable trademark laws, not
infringe the existing rights of third parties and be acceptable to
the FDA. We may be unable to build a successful brand identity for
a new trademark in a timely manner or at all, which would limit our
ability to commercialize ublituximab, umbralisib,
or any future product candidates. We
do not currently have an agreed upon brand name for umbralisib, and
no assurance can be given that we will obtain one in a timely
fashion. Any delay in obtaining a brand name for umbralisib or any
other of our drug candidates could delay approval and/or
commercialization and have a negative impact on our launch and
future prospects for umbralisib or any other such drug
candidates.
We rely on third parties to generate clinical, preclinical and
quality data necessary to support the regulatory applications
needed to conduct clinical trials and file for marketing approval.
We rely on third parties to help conduct our planned clinical
trials. If these third parties do not perform their services as
required, we may not be able to obtain regulatory approval for or
commercialize our product candidates when expected or at
all.
In
order to submit and maintain an Investigational New Drug
application (“IND”), BLA, or NDA to the FDA, it is
necessary to submit all information on the clinical, non-clinical,
chemistry, manufacturing, controls and quality aspects of the
product candidate. We rely on our third party contractors and our
licensing partners to provide portions of this data. If we are
unable to obtain this data, or the data is not sufficient to meet
the regulatory requirements, we may experience significant delays
in our development programs. While we maintain an active IND for
ublituximab and umbralisib enabling the conduct of studies in the
FDA’s Division of Hematology and Oncology, and an active IND
for ublituximab under the FDA’s Division of Neurology, there
can be no assurance that the FDA will allow us to continue the
development of our product candidates in those divisions where we
maintain an active IND.
Additionally, we
use CRO’s to assist in the conduct of our current clinical
trials and expect to use such services for future clinical trials
and we rely upon medical institutions, clinical investigators and
contract laboratories to conduct our trials in accordance with our
clinical protocols and appropriate regulations. Our current and
future CROs, investigators and other third parties play a
significant role in the conduct of our trials and the subsequent
collection and analysis of data from the clinical trials. There is
no guarantee that any CROs, investigators and other third parties
will devote adequate time and resources to our clinical trials or
perform as contractually required. If any third parties upon whom
we rely for administration and conduct of our clinical trials fail
to meet expected deadlines, fail to adhere to its clinical
protocols or otherwise perform in a substandard manner, our
clinical trials may be extended, delayed or terminated, and we may
not be able to commercialize our product candidates. In addition to
the third parties identified above, we are also heavily reliant on
the conduct of our patients enrolled to our studies by our
third-party investigators. We rely on our clinical trial sites and
investigators to properly identify and screen qualified candidates
for our clinical trials, and for them to ensure participants adhere
to our clinical protocol requirements. The majority of our clinical
trial conduct occurs in the out-patient setting, where patients are
expected to continueto adhere to our study protocol specified
requirements. The ability of our enrolled patients to properly
identify, document, and report adverse events; take protocol
specified study drugs at the correct quantity, time, and setting,
as applicable; avoid contraindicated medications; and comply with
other protocol specified procedures such as returning to the trial
site for scheduled laboratory and disease assessments, is wholly
out of our control. Deviations from protocol procedures, such as
those identified previously, could materially affect the quality of
our clinical trial data, and therefore ultimately affect our
ability to develop and commercialize our drug candidates. If any of
our clinical trial sites terminates for any reason, we may
experience theloss of follow-up information on patients enrolled in
our ongoing clinical trials unless we are able to transfer the care
of those patients to another qualified clinical trial site. If any
of our clinical trial sites are required by the FDA or IRB to close
down due to data management or patient management or any other
issues we may lose patients. In our MS Phase 2 trial, during
routine monitoring and site audits, significant Good Clinical
Practice (GCP) violations and other noncompliance issues were
identified at one of our US-based large academic sites. The
investigator left the institution; shortly thereafter the site
terminated their participation in our study, before all data could
be source document verified. While we do not believe this will have
any effect on the overall results of the MS Phase 2 trial,
sensitivity analyses excluding data from this site will be
performed and no assurance can be given that the results were not
affected.
42
Although
we intend to design the clinical trials for our drug candidates,
CROs play an important role in the conduct of our clinical trials,
especially outside of the United States. As a result, many
important aspects of our development programs, including their
conduct and timing, will be outside of our direct control. Our
reliance on third parties to conduct current or future clinical
trials will also result in less direct control over the management
of data developed through clinical trials than would be the case if
we were relying entirely upon our own staff. Communicating with
outside parties can also be challenging, potentially leading to
mistakes as well as difficulties in coordinating activities.
Outside parties may:
●
have staffing
difficulties;
●
fail to comply with
contractual obligations;
●
experience
regulatory compliance issues;
●
undergo changes in
priorities or become financially distressed; or
●
form relationships
with other entities, some of which may be our
competitors.
These
factors may materially adversely affect the willingness or ability
of third parties to conduct our clinical trials and may subject us
to unexpected cost increases that are beyond our control. If the
CROs do not perform clinical trials in a satisfactory manner,
breach their obligations to us or fail to comply with regulatory
requirements, the development, regulatory approval and
commercialization of our drug candidates may be delayed, we may not
be able to obtain regulatory approval and commercialize our drug
candidates, or our development program may be materially and
irreversibly harmed. If we are unable to rely on clinical data
collected by our CROs, we could be required to repeat, extend the
duration of, or increase the size of any clinical trials we conduct
and this could significantly delay commercialization and require
significantly greater expenditures.
If
any of our relationships with these third-party CROs terminate, we
may not be able to enter into arrangements with alternative CROs.
If CROs do not successfully carry out their contractual duties or
obligations or meet expected deadlines, if they need to be replaced
or if the quality or accuracy of the clinical data they obtain is
compromised due to the failure to adhere to our clinical protocols,
regulatory requirements or for other reasons, any clinical trials
such CROs are associated with may be extended, delayed or
terminated, and we may not be able to obtain regulatory approval
for or successfully commercialize our drug candidates. As a result,
we believe that our financial results and the commercial prospects
for our drug candidates in the subject indication would be harmed,
our costs could increase and our ability to generate revenue could
be delayed.
We contract with third parties for the manufacture of our drug
candidates for pre-clinical development and clinical trials, and we
expect to continue to do so for commercialization. This reliance on
third parties increases the risk that we will not have sufficient
quantities of our drug candidates or drugs or such quantities at an
acceptable cost, which could delay, prevent or impair our
development or commercialization efforts.
We
do not currently own or operate, nor do we have any plans to
establish in the future, any manufacturing facilities or personnel.
We rely, and expect to continue to rely, on third parties for the
manufacture of our drug candidates for pre-clinical development and
clinical testing, as well as for the commercial manufacture of our
drugs if any of our drug candidates receive marketing approval.
This reliance on third parties increases the risk that we will not
have sufficient quantities of our drug candidates or drugs or such
quantities at an acceptable cost or quality, which could delay,
prevent or impair our development or commercialization
efforts.
43
The
facilities used by our contract manufacturers to manufacture our
drug candidates must be approved by the FDA pursuant to inspections
that will be conducted after we submit our marketing applications
to the FDA. We do not control the manufacturing process of, and
will be completely dependent on, our contract manufacturers for
compliance with cGMPs in connection with the manufacture of our
drug candidates. If our contract manufacturers cannot successfully
manufacture material that conforms to our specifications and the
strict regulatory requirements of the FDA or others, they will not
be able to secure and/or maintain regulatory approval for their
manufacturing facilities. In addition, we have no control over the
ability of our contract manufacturers to maintain adequate quality
control, quality assurance and qualified personnel. If the FDA or a
comparable foreign regulatory authority does not approve these
facilities for the manufacture of our drug candidates or if it
withdraws any such approval in the future, we may need to find
alternative manufacturing facilities, which would significantly
impact our ability to develop, obtain regulatory approval for or
market our drug candidates, if approved. Further, our failure, or
the failure of our third-party manufacturers, to comply with
applicable regulations could result in sanctions being imposed on
us, including clinical holds, fines, injunctions, civil penalties,
delays, suspension or withdrawal of approvals, license revocation,
seizures or recalls of drug candidates or drugs, if approved,
operating restrictions and criminal prosecutions, any of which
could significantly and adversely affect our business and supplies
of our drug candidates.
We do not have any long-term supply agreements
with all our contract manufacturers, and in those instances where
we do not, we purchase our required drug supply, including the drug
product and drug substance on a purchase order basis. In addition,
we may be unable to establish or maintain any agreements with
third-party manufacturers or to do so on acceptable terms.
No assurance can be given that a long-term, scalable manufacturer
can be identified or that they can make clinical and commercial
supplies of our product candidates that meets the product
specifications of previously manufactured batches, or is of a
sufficient quality, or at an appropriate scale and cost to make it
commercially feasible. If they are unable to do so, it could have a
material adverse impact on our business.
Even
if we are able to establish and maintain agreements with
third-party manufacturers, reliance on third-party manufacturers
entails additional risks, including:
●
reliance on the
third party for regulatory compliance and quality
assurance;
●
the possible breach
of the manufacturing agreement by the third party;
●
the possible
misappropriation of our proprietary information, including our
trade secrets and know-how; and
●
the possible
termination or nonrenewal of the agreement by the third party at a
time that is costly or inconvenient for us.
Moreover,
our current long-term supply agreements and, we would expect all
future long-term supply agreements would, contain certain minimum
purchases in what are commonly referred to as “take or
pay” provisions.
To the extent our demand does not meet the minimum supply required
amounts, we would be forced to pay more than desired. This could
create a situation where we are spending more than required and
could impact our on-going operations and entail curtailing other
important research and development or commercialization efforts.
All of which could have a material adverse effect on the
Company.
Any
performance failure on the part of our existing or future
manufacturers could delay clinical development or marketing
approval. If our current contract manufacturers cannot perform as
agreed, we may be required to replace such manufacturers causing
additional costs and delays in identifying and qualifying any such
replacement.
Our
current and anticipated future dependence upon others for the
manufacture of our drug candidates or drugs could result in
significant delays or gaps in availability of such drug candidates
or drugs and may adversely affect our future profit margins and our
ability to commercialize any drugs that receive marketing approval
on a timely and competitive basis.
We
also expect to rely on other third parties to store and distribute
drug supplies for our clinical trials. Any performance failure on
the part of our distributors could delay clinical development or
marketing approval of any future product candidates or
commercialization of our products, producing additional losses and
depriving us of potential product revenue.
In
addition, we do not have the capability to package finished
products for distribution to hospitals and other customers. Prior
to commercial launch, we intend to enter into agreements with one
or more alternate fill/finish pharmaceutical product suppliers so
that we can ensure proper supply chain management once we are
authorized to make commercial sales of our product candidates. If
we receive marketing approval from the FDA, we intend to sell
pharmaceutical product finished and packaged by such suppliers. We
have not entered into long-term agreements with our fill/finish
suppliers, and we may be unable to enter into such an agreement or
do so on commercially reasonable terms, which could have a material
adverse impact upon our business.
44
The third parties upon whom we rely for the supply of the active
pharmaceutical ingredient ("API"), drug product, drug substance and
other materials used in our drug candidates are our sole source of
supply, and the loss of any of these suppliers could significantly
harm our business.
The
API, drug product and drug substance used in our drug candidates
are currently supplied to us from single-source suppliers. Our
ability to successfully develop our drug candidates, supply our
drug candidates for clinical trials and to ultimately supply our
commercial drugs in quantities sufficient to meet the market
demand, depends in part on our ability to obtain the API, drug
product and drug substance for these drugs in accordance with
regulatory requirements and in sufficient quantities for clinical
testing and commercialization. If any of our suppliers ceases its
operations for any reason or is unable or unwilling to supply API,
drug product, drug substance and other materials in sufficient
quantities or on the timelines necessary to meet our needs, it
could significantly and adversely affect our business, the supply
of our drug candidates and our financial condition.
In most
cases, our manufacturing partners are single source suppliers. It
is expected that our manufacturing partners will be sole source
suppliers from single site locations for the foreseeable future.
Various raw materials, components, and testing services required
for our products may also be single sourced. Given this, any
disruption of supply from these partners could have a material,
long-term impact on our ability to supply products for clinical
trials or commercial sale. If our suppliers do not deliver
sufficient quantities of our product candidates on a timely basis,
or at all, and in accordance with applicable specifications, there
could be a significant interruption of our supply, which would
adversely affect clinical development and commercialization of our
products. In addition, if our current or future supply of any or
our product candidates should fail to meet specifications during
its stability program there could be a significant interruption of
our supply of drug, which would adversely affect the clinical
development and commercialization of the product.
For
all of our drug candidates, we plan to identify and qualify
additional manufacturers and other suppliers to provide such API,
drug product and drug substance prior to or following submission of
an NDA to the FDA and/or an MAA to the EMA. We are not certain,
however, that our single-source suppliers will be able to meet our
demand for their products, either because of the nature of our
agreements with those suppliers, our limited experience with those
suppliers or our relative importance as a customer to those
suppliers. It may be difficult for us to assess their ability to
timely meet our demand in the future based on past performance.
While our suppliers have generally met our demand for their
products on a timely basis in the past, they may subordinate our
needs in the future to their other customers.
Establishing
additional or replacement suppliers for the API, drug product and
drug substance used in our drug candidates, if required, may not be
accomplished quickly or at all. If we are able to find a
replacement supplier, such replacement supplier would need to be
qualified and may require additional regulatory approval, which
could result in further delay. While we seek to maintain adequate
inventory of the API, drug product and drug substance used in our
drug candidates, any interruption or delay in the supply of
components or materials, or our inability to obtain such API, drug
product and drug substance from alternate sources at acceptable
prices in a timely manner could impede, delay, limit or prevent our
development efforts, which could harm our business, results of
operations, financial condition and prospects.
Because we have in-licensed our product candidates from third
parties, any dispute with or non-performance by our licensors will
adversely affect our ability to develop and commercialize the
applicable product candidates.
Because we license our intellectual property from
third parties and we expect to continue to in-license additional
intellectual property rights, if there is any dispute between us
and our licensor regarding our rights under a license
agreement, our ability to develop and
commercialize our product candidates may be adversely affected.
Disputes may arise with the third parties from whom we license our
intellectual property rights from for a variety of reasons,
including:
●
the
scope of rights granted under the license agreement and other
interpretation-related issues;
●
the
extent to which our technology and processes infringe on
intellectual property of the licensor that is not subject to the
license agreement;
●
the
sublicensing of patent and other rights under our collaborative
development relationships and obligations associated with
sublicensing;
●
our
diligence obligations under the license agreement and what
activities satisfy those diligence obligations;
●
the
ownership of inventions and know-how resulting from the joint
creation or use of intellectual property by our licensors and us
and our partners; and
●
the
priority of invention of patented technology.
In addition, the agreements under which we
currently license intellectual property or technology from third
parties are complex, and
certain provisions in such agreements may be susceptible to
multiple interpretations, or may conflict in such a way that puts
us in breach of one or more agreements, which would make us
susceptible to lengthy and expensive disputes with one or more of
our licensing partners. The resolution of any contract
interpretation disagreement that may arise could narrow what we
believe to be the scope of our rights to the relevant intellectual
property or technology, or increase what we believe to be our
financial or other obligations under the relevant agreement, either
of which could have a material adverse effect on our business,
financial condition, results of operations, and prospects.
Moreover, if disputes over intellectual property that we have
licensed prevent or impair our ability to maintain our current
licensing arrangements on commercially acceptable terms, we may be
unable to successfully develop and commercialize the affected
product candidates, which could have a material adverse effect on
our business, financial conditions, results of operations, and
prospects.
45
If conflicts arise between us and our future collaborators or
strategic partners, these parties may act in a manner adverse to us
and could limit our ability to implement our
strategies.
If
conflicts arise between our future corporate or academic
collaborators or strategic partners and us, the other party may act
in a manner adverse to us and could limit our ability to implement
our strategies. Future collaborators or strategic partners, may
develop, either alone or with others, products in related fields
that are competitive with the products or potential products that
are the subject of these collaborations. Competing products, either
developed by the collaborators or strategic partners or to which
the collaborators or strategic partners have rights, may result in
the withdrawal of partner support for any future product
candidates. Our current or future collaborators or strategic
partners may preclude us from entering into collaborations with
their competitors, fail to obtain timely regulatory approvals,
terminate their agreements with us prematurely, or fail to devote
sufficient resources to the development and commercialization of
products. Any of these developments could harm any future product
development efforts.
Our
drug development programs and the potential commercialization of
our drug candidates will require substantial additional cash to
fund expenses. For some of our drug candidates, we may decide to
collaborate with additional pharmaceutical and biotechnology
companies for the development and potential commercialization of
those drug candidates.
We
face significant competition in seeking appropriate collaborators.
Whether we reach a definitive agreement for a collaboration will
depend, among other things, upon our assessment of the
collaborator’s resources and expertise, the terms and
conditions of the proposed collaboration, and the proposed
collaborator’s evaluation of a number of factors. Those
factors may include the design or results of our clinical trials,
the likelihood of approval by the FDA or similar regulatory
authorities outside the United States, the potential market for the
subject drug candidate, the costs and complexities of manufacturing
and delivering such drug candidate to patients, the potential of
competing drugs, the existence of uncertainty with respect to our
ownership of technology, which can exist if there is a challenge to
such ownership without regard to the merits of the challenge and
industry and market conditions generally. The collaborator may also
consider alternative drug candidates or technologies for similar
indications that may be available to collaborate on and whether
such a collaboration could be more attractive than the one with us
for our drug candidate. The terms of any additional collaborations
or other arrangements that we may establish may not be favorable to
us.
We
may be restricted under our collaboration agreements from entering
into future agreements on certain terms with potential
collaborators. Collaborations are complex and time-consuming to
negotiate and document. In addition, there have been a significant
number of recent business combinations among large pharmaceutical
companies that have resulted in a reduced number of potential
future collaborators.
We
may not be able to negotiate additional 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 drug candidate for
which we are seeking to collaborate, reduce or delay its
development program or one or more of our other development
programs, delay its potential commercialization or reduce the scope
of any sales or marketing activities, or increase our expenditures
and undertake development or commercialization activities at our
own expense. 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 our drug candidates or bring
them to market and generate drug revenue.
Any
future collaborations that we enter into may not be successful. The
success of our collaboration arrangements will depend heavily on
the efforts and activities of our collaborators. Collaborators
generally have significant discretion in determining the efforts
and resources that they will apply to these collaborations.
Disagreements between parties to a collaboration arrangement
regarding clinical development and commercialization matters can
lead to delays in the development process or commercializing the
applicable drug candidate and, in some cases, termination of the
collaboration arrangement. These disagreements can be difficult to
resolve if neither of the parties has final decision-making
authority. Collaborations with pharmaceutical or biotechnology
companies and other third parties often are terminated or allowed
to expire by the other party. Any termination or expiration of any
future collaboration agreement could adversely affect us
financially or harm our business reputation.
46
Our success depends upon our ability to obtain and protect our
intellectual property and proprietary technologies and if the scope of our patent protection obtained is
not sufficiently broad, our competitors could develop and
commercialize technology and drugs similar or identical to ours,
and our ability to successfully commercialize our technology and
drugs may be impaired.
Our
commercial success in part depends on obtaining and maintaining
patent protection and trade secret protection in the United States
and other countries with respect to our product candidates or any
future product candidate that we may license or acquire, their
formulations and uses and the methods we use to manufacture them,
as well as successfully defending these patents against third-party
challenges. We seek to protect our proprietary and intellectual
property position by filing patent applications in the United
States and abroad related to our novel technologies and product
candidates, and by maintenance of our trade secrets through proper
procedures.
We will
only be able to protect our technologies from unauthorized use by
third parties to the extent that valid and enforceable patents or
trade secrets cover them in the market they are being used or
developed. The degree of patent
protection we require to successfully commercialize our drug
candidates may be unavailable or severely limited in some cases and
may not adequately protect our rights or permit us to gain or keep
any competitive advantage. We cannot provide any assurances that
any of our patents have, or that any of our pending patent
applications that mature into issued patents will include, claims
with a scope sufficient to protect any of our drug candidates. In
addition, the laws of foreign countries may not protect our rights
to the same extent as the laws of the United
States.
Furthermore,
patents have a limited lifespan. In the United States, the natural
expiration of a patent is generally twenty years after it is filed.
Various extensions may be available; however, the life of a patent,
and the protection it affords, is limited. Given the amount of time
required for the development, testing and regulatory review of new
drug candidates, patents protecting such candidates might expire
before or shortly after such candidates are commercialized. As a
result, our owned patent portfolio may not provide us with adequate
and continuing patent protection sufficient to exclude others from
commercializing drugs similar or identical to our drug candidates,
including generic versions of such drugs.
These
risks and uncertainties include the following:
●
the patent
applications that we or our partners file may not result in any
patents being issued;
●
patents that may be
issued or in-licensed may be challenged, invalidated, modified,
revoked or circumvented, or otherwise may not provide any
competitive advantage
●
as of March 16,
2013, the United States converted from a “first to
invent” to a “first to file” system. If we do not
win the filing race, we will not be entitled to inventive
priority;
●
our competitors,
many of which have substantially greater resources than we do, and
many of which have made significant investments in competing
technologies, may seek, or may already have obtained, patents that
will limit, interfere with, or eliminate its ability to file new
patent applications or make, use, and sell our potential products
either in the United States or in international
markets
●
there may be
significant pressure on the United States government and other
international governmental bodies to limit the scope of patent
protection both inside and outside the United States for disease
treatments that prove successful as a matter of public policy
regarding worldwide health concerns; and
●
countries other
than the United States may have less restrictive patent laws than
those upheld by United States courts, allowing foreign competitors
the ability to exploit these laws to create, develop, and market
competing products.
If patents are not
issued that protect our product candidates, it could have a
material adverse effect on our financial condition and results of
operations.
47
In
addition, the patent prosecution process is expensive and
time-consuming, and we may not be able to file and prosecute all
necessary or desirable patent applications at a reasonable cost or
in a timely manner. Further, with
respect to some of the pending patent applications covering our
drug candidates, prosecution has yet to commence. Patent
prosecution is a lengthy process, during which the scope of the
claims initially submitted for examination by the U.S. Patent and
Trademark Office, or USPTO, have been significantly narrowed by the
time they issue, if at all. It is also possible that we will
fail to identify any patentable aspects of our research and
development output and methodology, and, even if we do, an
opportunity to obtain patent protection may have passed. Given the
uncertain and time-consuming process of filing patent applications
and prosecuting them, it is possible that our product(s) or
process(es) originally covered by the scope of the patent
application may have changed or been modified, leaving our
product(s) or process(es) without patent protection. Moreover, in some circumstances, we do not have
the right to control the preparation, filing and prosecution of
patent applications, or to maintain the patents, covering
technology that we license from third parties. Therefore, these
patents and applications may not be prosecuted and enforced in a
manner consistent with the best interests of our business.
If our licensors or we fail to appropriately prosecute and maintain
patent protection or trade secret protection for one or more
product candidates or any future product candidate we may license
or acquire, our ability to develop and commercialize these product
candidates may be adversely affected and we may not be able to
prevent competitors from making, using and selling competing
products. This failure to properly protect the intellectual
property rights relating to these product candidates could impair
our ability to compete in the market and adversely affect our
ability to generate revenues and achieve profitability, which would
have a material adverse effect on our financial condition and
results of operations. Furthermore, should we enter into other
collaborations, including out-licensing or partnerships, we may be
required to consult with or cede control to collaborators regarding
the prosecution, maintenance and enforcement of licensed patents.
Therefore, these patents and applications may not be prosecuted and
enforced in a manner consistent with the best interests of our
business.
The
patent position of biotechnology and pharmaceutical companies
generally is highly uncertain, involves complex legal and factual
questions, and has in recent years been the subject of much
litigation. In addition, no consistent policy regarding the breadth
of claims allowed in pharmaceutical or biotechnology patents has
emerged to date in the United States. The patent situation outside
the United States is even more uncertain. The laws of foreign
countries may not protect our rights to the same extent as the laws
of the United States, and we may fail to seek or obtain patent
protection in all major markets. For example, European patent law
restricts the patentability of methods of treatment of the human
body more than United States law does. Our pending and future
patent applications may not result in patents being issued which
protect our technology or products, in whole or in part, or which
effectively prevent others from commercializing competitive
technologies and products. Changes in either the patent laws or
interpretation of the patent laws in the United States and other
countries may diminish the value of our patents or narrow the scope
of our patent protection. For example, the federal courts of the
United States have taken an increasingly dim view of the patent
eligibility of certain subject matter, such as naturally occurring
nucleic acid sequences, amino acid sequences and certain methods of
utilizing same, which include their detection in a biological
sample and diagnostic conclusions arising from their detection.
Such subject matter, which had long been a staple of the
biotechnology and biopharmaceutical industry to protect their
discoveries, is now considered, with few exceptions, ineligible in
the first instance for protection under the patent laws of the
United States. Accordingly, we cannot predict the breadth of claims
that may be allowed or enforced in our patents or in those licensed
from a third-party.
In addition, U.S. patent laws may change, which
could prevent or limit us or our subsidiaries from filing patent
applications or patent claims to protect products and/or
technologies or limit the exclusivity periods that are available to
patent holders, as well as affect the validity, enforceability, or
scope of issued patents. For example, on September 16, 2011,
the Leahy-Smith America Invents Act was signed into law. The
Leahy-Smith Act includes a number of significant changes to United
States patent law. These include changes to transition from a
“first-to-invent” system to a
“first-to-file” system and to the way issued patents
are challenged. The formation of the Patent Trial and Appeal Board
now provides a quicker and less expensive process for challenging
issued patents.
We may
be subject to a third-party pre-issuance submission of prior art to
the USPTO, or become involved in opposition, derivation,
reexamination, inter parties review, post-grant review or
interference proceedings challenging our patent rights or the
patent rights of others. The costs of these proceedings could be
substantial and it is possible that our efforts to establish
priority of invention would be unsuccessful, resulting in a
material adverse effect on our United States patent position. An
adverse determination in any such submission, patent office trial,
proceeding or litigation could reduce the scope of, render
unenforceable, or invalidate, our patent rights, allow third
parties to commercialize our technology or products and compete
directly with us, without payment to us, or result in our inability
to manufacture or commercialize products without infringing
third-party patent rights. In addition, if the breadth or strength
of protection provided by our patents and patent applications is
threatened, it could dissuade companies from collaborating with us
to license, develop or commercialize current or future product
candidates.
48
Even if
our patent applications issue as patents, and they are unchallenged, our issued patents and our
pending patents, if issued, may not provide us with any meaningful
protection or prevent competitors from designing around our patent
claims to circumvent our owned or licensed patents by developing
similar or alternative technologies or drugs in a non-infringing
manner. For example, a third party may develop a competitive drug
that provides benefits similar to one or more of our drug
candidates but that has a different composition that falls outside
the scope of our patent protection. If the patent protection
provided by the patents and patent applications we hold or pursue
with respect to our drug candidates is not sufficiently broad to
impede such competition, our ability to successfully commercialize
our drug candidates could be negatively affected, which would harm
our business.
In
addition, we may in the future be subject to claims by our former
employees or consultants asserting an ownership right in our
patents or patent applications, as a result of the work they
performed on our behalf. Although we generally require all of our
employees, consultants and advisors and any other third parties who
have access to our proprietary know-how, information or technology
to assign or grant similar rights to their inventions to us, we
cannot be certain that we have executed such agreements with all
parties who may have contributed to our intellectual property, nor
can we 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. An
adverse determination in any such submission or proceeding may
result in loss of exclusivity or freedom to operate or in patent
claims being narrowed, invalidated or held unenforceable, in whole
or in part, which could limit our ability to stop others from using
or commercializing similar or identical technology and drugs,
without payment to us, or could limit the duration of the patent
protection covering our technology and drug candidates. Such
challenges may also result in our inability to manufacture or
commercialize our drug candidates without infringing third-party
patent rights. In addition, if the breadth or strength of
protection provided by our patents and patent applications is
threatened, it could dissuade companies from collaborating with us
to license, develop or commercialize current or future drug
candidates.
Patent
protection and other intellectual property protection are crucial
to the success of our business and prospects, and there is a
substantial risk that such protections will prove
inadequate.
Obtaining and maintaining patent protection depends on compliance
with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and our
patent protection could be reduced or eliminated for non-compliance
with these requirements.
The
USPTO and various foreign governmental patent agencies require
compliance with a number of procedural, documentary, fee payment
and other similar provisions during the patent application process.
In addition, periodic maintenance fees on issued patents often must
be paid to the USPTO and foreign patent agencies over the lifetime
of the patent. While an unintentional lapse can in many cases be
cured by payment of a late fee or by other means in accordance with
the applicable rules, there are situations in which noncompliance
can result in abandonment or lapse of the patent or patent
application, resulting in partial or complete loss of patent rights
in the relevant jurisdiction.
Non-compliance
events that could result in abandonment or lapse of a patent or
patent application include, but are not limited to, failure to
respond to official actions within prescribed time limits,
non-payment of fees and failure to properly legalize and submit
formal documents. If we fail to maintain the patents and patent
applications covering our drugs or procedures, we may not be able
to stop a competitor from marketing drugs that are the same as or
similar to our drug candidates, which would have a material adverse
effect on our business.
Our
commercial success depends upon our ability and the ability of our
collaborators to develop, manufacture, market and sell our drug
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 frequent litigation regarding patents and other
intellectual property rights. We may in the future become party to,
or threatened with, adversarial proceedings or litigation regarding
intellectual property rights with respect to our drug candidates
and technology, including interference proceedings before the
USPTO.
49
Our competitors or other third parties may assert
infringement claims against us, alleging that our drugs are covered
by their patents. Given the vast number of patents in our field of
technology, we cannot be certain that we do not infringe existing
patents or that we will not infringe patents that may be granted in
the future. Numerous United States and foreign issued
patents and pending patent applications, which are owned by third
parties, exist in the fields in which we are developing products,
some of which may be directed at claims that overlap with the
subject matter of our intellectual property. In addition, because
patent applications can take many years to issue, there may be
currently pending applications, unknown to us, which may later
result in issued patents that our product candidates or proprietary
technologies may infringe. Similarly, there may be issued patents
relevant to our product candidates of which we are not aware.
Publications of discoveries in the scientific literature often lag
behind the actual discoveries, and patent applications in the
United States and other jurisdictions are typically not published
until 18 months after a first filing, or in some cases not at all.
Therefore, we cannot know with certainty whether we or our
licensors were the first to make the inventions claimed in patents
or pending patent applications that we own or licensed, or that we
or our licensors were the first to file for patent protection of
such inventions.
We are
aware of certain patents that may pose issues for our
commercialization of our drug candidates. For example, Roche,
Biogen Idec, and Genentech hold patents for the use of anti-CD20
antibodies utilized in the treatment of CLL in the United States
which are expected to expire in November of 2019. While these
patents have been challenged, to the best of our knowledge, those
matters were settled in a way that permitted additional anti-CD20
antibodies to be marketed for CLL. If those patents are still valid
and enforced at the time we are intending to launch ublituximab,
then we will need to either prevail in a litigation to challenge
those patents or negotiate a settlement agreement with the patent
holders. If we decide to initiate
proceedings to challenge the validity of these patents in the
future, we may be unsuccessful, as courts or patent offices in the
United States and abroad could uphold the validity of any such
patents. If we were to challenge the validity of any issued United
States patent in court, we would need to overcome a statutory
presumption of validity that attaches to every United States
patent. This means that in order to prevail, we would have to
present clear and convincing evidence as to the invalidity of the
patent’s claims. If we are unable to do so, we may be
forced to delay the launch of ublituximab or launch at the risk of
litigation for patent infringement, which may have a material
adverse effect on our business and results of
operations.
If a
third party claims that we or any collaborators of ours infringe
their intellectual property rights, we may have to defend
litigation or administrative proceedings which may be costly
whether we win or lose, and which could result in a substantial
diversion of our financial and management resources. If we are found to infringe a third party’s
intellectual property rights, we could be required to obtain a
license from such third party to continue developing and marketing
our drug 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 such a license, it could be
granted on non-exclusive terms, thereby providing our competitors
and other third parties access to the same technologies licensed to
us. Without such a license, we could be forced, including by court
order, to cease developing and commercializing the infringing
technology or drug candidates. In addition, we could be found
liable for monetary damages, including treble damages and
attorneys’ fees if we are found to have willfully infringed
such third-party patent rights. A finding of infringement could
prevent us from commercializing our drug candidates or force us to
cease some of our business operations, which could materially harm
our business.
No
assurance can be given that patents issued to third parties do not
exist, have not been filed, or could not be filed or issued, which
contain claims covering its products, technology or methods that
may encompass all or a portion of our products and methods. Given
the number of patents issued and patent applications filed in our
technical areas or fields, we believe there is a risk that third
parties may allege they have patent rights encompassing our
products or methods.
Other
product candidates that we may in-license or acquire could be
subject to similar risks and uncertainties.
We may need to license certain intellectual property from third
parties, and such licenses may not be available or may not be
available on commercially reasonable terms.
A third
party may hold intellectual property, including patent rights that
are important or necessary to the development and commercialization
of our products. It may be necessary for us to use the patented or
proprietary technology of third parties to commercialize our
products, in which case we would be required to obtain a license
from these third parties, whom may or may not be interested in
granting such a license, on commercially reasonable terms, or our
business could be harmed, possibly materially. For example, we
engage extensively with third parties, including academic
institutions, to conduct non-clinical and clinical research on our
product candidates. While we seek to ensure all material transfer
and service agreements governing this research provide us with
favorable terms covering newly generated intellectual property, a
general principle under which much of this research with academic
institutions is conducted provides third party ownership of newly
generated intellectual property, with an exclusive option available
for us to obtain a license to such intellectual property. Through
the conduct of this research, it is possible that valuable
intellectual property could be developed by a third party, which we
will then need to license in order to better develop or
commercialize our products. No assurance can be given that we will
be able to successfully negotiate such a license on commercially
reasonable terms, or at all. Further, should we fail to
successfully negotiate a license to such intellectual property,
most institutions are then free to license such intellectual
property to any other third party, including potentially direct
competitors of ours. Should we fail to adequately secure a license
to any newly generated intellectual property, our ability to
successfully develop or commercialize our products may be hindered,
possibly materially.
50
We
may be involved in lawsuits to protect or enforce our patents or
the patents of our licensors, which could be expensive, time
consuming and unsuccessful.
Competitors may
infringe our patents or the patents of our licensors. To counter
infringement or unauthorized use, we may be required to file
infringement claims, which typically are very expensive,
time-consuming and disruptive of day-to-day business operations.
Any claims we assert against accused infringers could provoke these
parties to assert counterclaims against us alleging invalidity of
our or certain of our subsidiaries’ patents or that we
infringe their patents; or provoke those parties to petition the
USPTO to institute inter parties review against the asserted
patents, which may lead to a finding that all or some of the claims
of the patent are invalid. In addition, in an infringement
proceeding, a court may decide that a patent of ours or our
licensors is not valid or is unenforceable, or may refuse to stop
the other party from using the technology at issue on the grounds
that our patents do not cover the technology in question. An
adverse result in any litigation or defense proceedings could put
one or more of our pending patents at risk of being invalidated,
held unenforceable, or interpreted narrowly.
In
patent litigation in the United States, defendant counterclaims
challenging the validity, enforceability or scope of asserted
patents are commonplace. In addition, third parties may initiate
legal proceedings against us to assert such challenges to our
intellectual property rights. The outcome of any such proceeding is
generally unpredictable. Grounds for a validity challenge could be
an alleged failure to meet any of several statutory requirements,
including lack of novelty, obviousness or non-enablement. Patents
may be unenforceable if someone connected with prosecution of the
patent withheld relevant information from the USPTO or made a
misleading statement during prosecution. It is possible that prior
art of which we and the patent examiner were unaware during
prosecution exists, which could render our patents invalid.
Moreover, it is also possible that prior art may exist that we are
aware of but do not believe is relevant to our current or future
patents, but that could nevertheless be determined to render our
patents invalid.
Competing
drugs may also be sold in other countries in which our patent
coverage might not exist or be as strong. If we lose a foreign
patent lawsuit, alleging our infringement of a competitor’s
patents, we could be prevented from marketing our drugs in one or
more foreign countries. Any of these outcomes would have a
materially adverse effect on our business.
In
addition, 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. Furthermore, adverse results on
United States patents may affect related patents in our global
portfolio. The adverse result could also put related pending patent
applications at risk of not issuing. Additionally, there could 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
substantial adverse effect on the price of our common
stock.
Interference
proceedings provoked by third parties or brought by the USPTO may
be necessary to determine the priority of inventions with respect
to our patents or pending patent applications or those of our
collaborators or licensors. An unfavorable outcome could require us
to cease using the related technology or to attempt to license
rights to it from the prevailing party. The costs of these
proceedings could be substantial. As a result, the issuance, scope,
validity, enforceability and commercial value of our or any of our
respective licensors’ patent rights are highly uncertain. Our
business could be harmed if the prevailing party does not offer us
a license on commercially reasonable terms. 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, alone or with our
licensors, misappropriation of our trade secrets or confidential
information, particularly in countries where the laws may not
protect those rights as fully as in the United States.
We
may not have sufficient financial or other resources to adequately
conduct such litigation or proceedings. Some of our competitors may
be able to sustain the costs of such litigation or proceedings more
effectively than we can because of their greater financial
resources and more mature and developed intellectual property
portfolios. Accordingly, despite our efforts, we may not be able to
prevent third parties from infringing upon or misappropriating or
from successfully challenging our intellectual property rights.
Uncertainties resulting from the initiation and continuation of
patent litigation or other proceedings could have a material
adverse effect on our ability to compete in the
marketplace.
If we are unable to protect the confidentiality of our trade
secrets, our business and competitive position may be
harmed.
In
addition to the protection afforded by patents, we rely upon
unpatented trade secret protection, unpatented know-how and
continuing technological innovation to develop and maintain our
competitive position. With respect to the building of our
proprietary compound library, we consider trade secrets and
know-how to be our primary intellectual property. We seek to
protect our proprietary technology and processes, in part, by
entering into confidentiality agreements with our collaborators,
scientific advisors, employees and consultants, and invention
assignment agreements with our consultants and employees. 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, however, despite the existence generally of
confidentiality agreements and other contractual restrictions.
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 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. 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.
51
Our
trade secrets could otherwise become known or be independently
discovered by our competitors. Competitors could purchase our drug
candidates and attempt to replicate some or all of the competitive
advantages we derive from our development efforts, willfully
infringe our intellectual property rights, design around our
protected technology or develop their own competitive technologies
that fall outside of our intellectual property rights. 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 our trade secrets are not
adequately protected so as to protect our market against
competitors’ drugs, our competitive position could be
adversely affected, as could our business.
We may be subject to damages resulting from claims that we or our
employees have wrongfully used or disclosed alleged trade secrets
of our competitors or are in breach of non-competition or
non-solicitation agreements with our competitors.
We
could in the future be subject to claims that we or our employees
have inadvertently or otherwise used or disclosed alleged trade
secrets or other proprietary information of former employers or
competitors. Although we try to ensure that our employees and
consultants do not use the intellectual property, proprietary
information, know-how or trade secrets of others in their work for
us, we may in the future be subject to claims that we caused an
employee to breach the terms of his or her non-competition or
non-solicitation agreement, or that we or these individuals have,
inadvertently or otherwise, used or disclosed the alleged trade
secrets or other proprietary information of a former employer or
competitor. Litigation may be necessary to defend against these
claims. Even if we are successful in defending against these
claims, litigation could result in substantial costs and could be a
distraction to management. If our defenses to these claims fail, in
addition to requiring us to pay monetary damages, a court could
prohibit us from using technologies or features that are essential
to our drug candidates, if such technologies or features are found
to incorporate or be derived from the trade secrets or other
proprietary information of the former employers. An inability to
incorporate such technologies or features would have a material
adverse effect on our business, and may prevent us from
successfully commercializing our drug candidates. In addition, we
may lose valuable intellectual property rights or personnel as a
result of such claims. Moreover, any such litigation or the threat
thereof may adversely affect our ability to hire employees or
contract with independent sales representatives. A loss of key
personnel or their work product could hamper or prevent our ability
to commercialize our drug candidates, which would have an adverse
effect on our business, results of operations and financial
condition.
Risks Related to Employee Matters, Managing Growth and Other Risks
Related to Our Business
If we fail to attract and keep key management and clinical
development personnel, we may be unable to successfully develop or
commercialize our product candidates.
We
are highly dependent on the research and development, clinical,
business development, financial and legal expertise of our senior
management team as well as the other principal members of our
management, scientific and clinical team. Although we have entered
into employment agreement with our chief executive officer and
employment letters with our senior managers, each of our executive
officers may terminate their employment with us at any time. We do
not maintain “key person” insurance for any of our
executives or other employees. 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 be
employed by employers other than us and may have commitments under
consulting or advisory contracts with other entities that may limit
their availability to us. 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 continue hiring qualified development
personnel. Recruiting and retaining qualified scientific, clinical,
manufacturing and sales and marketing personnel will be critical to
our success. The loss of the services of our chief executive
officer 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 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 drugs. 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. Failure to succeed in clinical
trials may make it more challenging to recruit and retain qualified
medical and scientific personnel. If we are not able to
attract and retain the necessary personnel to accomplish our
business objectives, we may experience constraints that will impede
significantly the achievement of our development objectives, our
ability to raise additional capital, and our ability to implement
our business strategy.
52
We will need to develop and expand our Company, and we may
encounter difficulties in managing this development and expansion,
which could disrupt our operations.
As of February 15, 2019, we had 105 full-time
employees, and we expect to continue to increase our number of
employees and expand the scope of our operations. Our
management and medical and scientific personnel, systems and
facilities currently in place may not be adequate to support our
future growth. To manage our
anticipated future growth, we must continue to implement and
improve our managerial, operational and financial systems, expand
our facilities and continue to recruit and train additional
qualified personnel. Also, our management may need to divert a
disproportionate amount of its attention away from its day-to-day
activities and devote a substantial amount of time to managing
these development activities. Due to our limited resources, we may
not be able to effectively manage the expansion of our operations
or recruit and train additional qualified personnel. This may
result in weaknesses in our infrastructure, give rise to
operational mistakes, loss of business opportunities, loss of
employees and reduced productivity among remaining employees. To
accommodate growth, additional physical expansion of our operations
in the future may lead to significant costs, including capital
expenditures, and may divert financial resources from other
projects, such as the development of our drug candidates. If our
management is unable to effectively manage our expected development
and expansion, our expenses may increase more than expected, our
ability to generate or increase our revenue could be reduced and we
may not be able to implement our business strategy. Our future
financial performance and our ability to commercialize our drug
candidates, if approved, and compete effectively will depend, in
part, on our ability to effectively manage the future development
and expansion of our company.
Additionally, to
help manage the expanding needs, we may utilize the services of
outside vendors or consultants to perform tasks including clinical
trial management, statistics and analysis, regulatory affairs,
formulation development, chemistry, manufacturing, controls, and
other pharmaceutical development functions. Our growth strategy may
also entail expanding our group of contractors or consultants to
implement these tasks going forward. Because we rely on a
substantial number of consultants, effectively outsourcing many key
functions of our business, we will need to be able to effectively
manage these consultants to ensure that they successfully carry out
their contractual obligations and meet expected deadlines. However,
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 clinical trials may be extended,
delayed or terminated, and we may not be able to obtain regulatory
approval for our product candidates or otherwise advance its
business. There can be no assurance 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. If we are not able to effectively expand our organization by
hiring new employees and expanding our groups of consultants and
contractors, we may be unable 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.
Unfavorable global economic conditions could adversely affect our
business, financial condition or results of
operations.
Our
results of operations could be adversely affected by general
conditions in the global economy and in the global financial
markets. For example, the global financial crisis caused extreme
volatility and disruptions in the capital and credit markets. A
severe or prolonged economic downturn, such as the global financial
crisis, could result in a variety of risks to our business,
including, weakened demand for our drug candidates and our ability
to raise additional capital when needed on acceptable terms, if at
all. A weak or declining economy could also strain our suppliers,
possibly resulting in supply disruption, or cause our customers to
delay making payments for our services.
Following its June 23, 2016 vote to leave the
European Union, on March 29, 2017, the United Kingdom invoked
Article 50 of the Lisbon Treaty and formally began the process of
exiting the European Union. Although Brexit has already and may
continue to adversely affect European and/or worldwide economic or
market, political or regulatory conditions and may contribute to
instability in the global financial markets, political institutions
and regulatory agencies, the
resulting immediate changes in foreign currency exchange rates have
had a limited overall impact due to natural hedging. The long-term
impact of Brexit, including on our business and our industry, will
depend on the terms that are negotiated in relation to the United
Kingdom’s future relationship with the European
Union, and we are closely
monitoring the Brexit developments in order to determine, quantify
and proactively address changes as they become clear. Despite the
Brexit developments, we do not expect macroeconomic conditions to
have a significant impact on our liquidity needs, financial
condition or results of operations.
We or the third parties upon whom we depend may be adversely
affected by earthquakes or other natural disasters and our business
continuity and disaster recovery plans may not adequately protect
us from a serious disaster.
Earthquakes or other natural disasters could
severely disrupt our operations, and have a material adverse effect
on our business, results of operations, financial condition and
prospects. If a natural disaster, power outage or other event
occurred that prevented us from using all or a significant portion
of our headquarters, that damaged critical infrastructure, such as
the manufacturing facilities of our third-party contract
manufacturers, or that otherwise disrupted operations, it may be
difficult or, in certain cases, impossible for us to continue our
business for a substantial period of time. The disaster recovery
and business continuity plans we have in place may prove inadequate
in the event of a serious disaster or similar event. We may incur
substantial expenses as a result of the limited nature of our
disaster recovery and business continuity plans, which, could have
a material adverse effect on our business.
53
Our internal computer systems, or those of our third-party CROs or
other contractors or consultants, may fail or suffer security
breaches, which could result in a material disruption of our drug
candidates’ development programs.
Despite
the implementation of security measures, our internal computer
systems and those of our third-party CROs and other contractors and
consultants are vulnerable to damage from computer viruses,
unauthorized access, natural disasters, terrorism, war and
telecommunication and electrical failures. While we have not
experienced any such 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 material disruption of our
programs. For example, the loss of clinical trial data for our drug
candidates could result in delays in our regulatory approval
efforts and significantly increase our costs to recover or
reproduce the data. To the extent that any disruption or security
breach results in a loss of or damage to our data or applications
or other data or applications relating to our technology or drug
candidates, or inappropriate disclosure of confidential or
proprietary information, we could incur liabilities and the further
development of our drug candidates could be delayed.
Our employees, principal investigators, CROs and consultants may
engage in misconduct or other improper activities, including
non-compliance with regulatory standards and requirements and
insider trading, which could have a material adverse effect on our
business.
We are exposed to the risk that our employees,
principal investigators, CROs and consultants may engage in
fraudulent conduct or other illegal activity. Misconduct by these
parties could include intentional failures to comply with FDA
regulations, provide accurate information to the FDA, comply with
manufacturing standards we have established, comply with federal
and state healthcare fraud and abuse laws and regulations, 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 may restrict or
prohibit a wide range of pricing, discounting, marketing and
promotion, sales commission, customer incentive programs and other
business arrangements. Activities subject to these laws also
involve the improper use of information obtained in the course of
clinical trials or creating fraudulent data in our pre-clinical
studies or clinical trials, which could result in regulatory
sanctions and cause serious harm to our reputation. We have adopted
a code of ethics applicable to all of our employees, but it is not
always possible to identify and deter misconduct by employees and
other third parties, and the precautions we take to detect and
prevent this activity may not be effective in controlling unknown
or unmanaged risks or losses or in protecting us from governmental
investigations or other actions or lawsuits stemming from a failure
to comply with these laws or regulations. In addition, we are
subject to the risk that a person could allege such fraud or other
misconduct, even if none occurred. If any such actions are
instituted against us, and we are not successful in defending
ourselves or asserting our rights, those actions could have a
significant impact on our business, including the imposition of
civil, criminal and administrative penalties, damages, monetary
fines, possible exclusion from participation in Medicare, Medicaid
and other federal healthcare programs, contractual damages,
reputational harm, diminished profits and future earnings, and
curtailment of our operations, any of which could adversely affect
our ability to operate our business and our results of
operations.
We may acquire businesses or drugs, or form strategic alliances, in
the future, and we may not realize the benefits of such
acquisitions.
We
may acquire additional businesses or drugs, form strategic
alliances or create joint ventures with third parties that we
believe will complement or augment our existing business. If we
acquire businesses with promising markets or technologies, we may
not be able to realize the benefit of acquiring such businesses if
we are unable to successfully integrate them with our existing
operations and company culture. We may encounter numerous
difficulties in developing, manufacturing and marketing any new
drugs resulting from a strategic alliance or acquisition that delay
or prevent us from realizing their expected benefits or enhancing
our business. We cannot assure you that, following any such
acquisition, we will achieve the expected synergies to justify the
transaction.
We may be subject to adverse legislative or regulatory tax changes
that could negatively impact our financial condition.
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 IRS and the U.S. Treasury Department. Changes to
tax laws (which changes may have retroactive application) could
adversely affect our stockholders or us. In recent years, many such
changes have been made and changes are likely to continue to occur
in the future. We cannot predict whether, when, in what form, or
with what effective dates, tax laws, regulations and rulings may be
enacted, promulgated or decided, which could result in an increase
in our, or our stockholders’, tax liability or require
changes in the manner in which we operate in order to minimize
increases in our tax liability.
On
December 22, 2017, the Tax Cuts and Jobs Act, or TCJA, was enacted.
The TCJA significantly reforms the Internal Revenue Code of 1986,
as amended. The TCJA, among other things, includes changes to U.S.
federal tax rates, imposes significant additional limitations on
the deductibility of interest and net operating loss carryforwards
and allows for the expensing of capital expenditures. Our net
deferred tax assets and liabilities were revalued as of December
31, 2017 at the newly enacted U.S. corporate rate, and the impact
was recognized in our tax expense in the year of enactment but was
offset by a corresponding reduction to the valuation allowance. We
continue to examine the impact this tax reform legislation may have
on our business. The impact of this tax reform is uncertain and
could be adverse.
54
Our tax position could be affected by recent changes in United
States federal income tax laws.
On
December 22, 2017, legislation commonly referred to as the
“Tax Cuts and Jobs Act” was signed into law and is
generally effective after December 31, 2017. The Tax Cuts and Jobs
Act makes significant changes to the United States federal income
tax rules for taxation of individuals and business entities. Most
of the changes applicable to individuals are temporary and apply
only to taxable years beginning after December 31, 2017 and before
January 1, 2026. For corporations, the Tax Cuts and Jobs Act
reduces the top corporate income tax rate to 21% and repeals the
corporate alternative minimum tax, limits the deduction for net
interest expense, limits the deduction for net operating losses and
eliminates net operating loss carrybacks, modifies or repeals many
business deductions and credits, shifts the United States toward a
more territorial tax system, and imposes new taxes to combat
erosion of the United States federal income tax base. The Tax Cuts
and Jobs Act makes numerous other large and small changes to the
federal income tax rules that may affect potential investors and
may directly or indirectly affect us. We continue to examine the
impact this tax reform legislation may have on our business.
However, the effect of the Tax Cuts and Jobs Act on us, whether
adverse or favorable, is uncertain, and may not become evident for
some period of time. This document does not discuss such
legislation or the manner in which it might affect us or purchasers
of our common stock. Prospective investors are urged to consult
with their legal and tax advisors with respect to the Tax Cuts and
Jobs Act and any other regulatory or administrative developments
and proposals, and their potential effects on them based on their
unique circumstances.
Risks Related to Our Common Stock and Being a Publicly-Traded
Company
Our stock price is, and we expect it to remain, volatile, which
could limit investors’ ability to sell stock at a
profit.
The
trading price of our common stock is likely to be highly volatile
and subject to wide fluctuations in price in response to various
factors, many of which are beyond our control. These factors
include:
●
publicity regarding
actual or potential clinical results relating to products under
development by our competitors or us;
●
delay or failure in
initiating, completing or analyzing nonclinical or clinical trials
or the unsatisfactory design or results of these
trials;
●
achievement or
rejection of regulatory approvals by our competitors or
us;
●
announcements of
technological innovations or new commercial products by our
competitors or us;
●
developments
concerning proprietary rights, including patents;
●
developments
concerning our collaborations;
●
regulatory
developments in the United States and foreign
countries;
●
economic or other
crises and other external factors;
●
period-to-period
fluctuations in our revenues and other results of
operations;
●
changes in
financial estimates by securities analysts; and
●
sales of our common
stock by us.
We will
not be able to control many of these factors, and we believe that
period-to-period comparisons of our financial results will not
necessarily be indicative of our future performance.
In
addition, the stock market in general, and the market for
biotechnology companies in particular, has experienced extreme
price and volume fluctuations that may have been unrelated or
disproportionate to the operating performance of individual
companies. These broad market and industry factors may seriously
harm the market price of our common stock, regardless of our
operating performance.
Our executive officers, directors, principal stockholders and their
affiliates maintain the ability to exercise significant influence
over our company and all matters submitted to stockholders for
approval.
Our
executive officers, directors and stockholders who own more than 5%
of our outstanding common stock, together with their affiliates and
related persons, beneficially own shares of common stock
representing a significant percentage of our capital stock. As a
result, if these stockholders were to choose to act together, they
would be able to influence our management and affairs and the
outcome of matters submitted to our stockholders for approval,
including the election of directors and any sale, merger,
consolidation, or sale of all or substantially all of our assets.
This concentration of voting power could delay or prevent an
acquisition of our company on terms that other stockholders may
desire. In addition, this concentration of ownership might
adversely affect the market price of our common stock
by:
●
delaying, deferring
or preventing a change of control of us;
●
impeding a merger,
consolidation, takeover or other business combination involving us;
or
●
discouraging a
potential acquirer from making a tender offer or otherwise
attempting to obtain control of us.
55
Because we do not anticipate paying any cash dividends on our
capital stock in the foreseeable future, capital appreciation, if
any, will be the sole source of gain for our
stockholders.
We
have never declared or paid cash dividends on our capital stock. We
currently intend to retain all of our future earnings, if any, to
finance the growth and development of our business. In addition,
under the Loan Agreement, we are currently restricted from paying
cash dividends, and we expect these restrictions to continue in the
future. In addition, the terms of any future debt agreements may
preclude us from paying dividends. As a result, capital
appreciation, if any, of our common stock will be the sole source
of gain for our stockholders for the foreseeable
future.
Certain anti-takeover provisions in our charter documents and
Delaware law could make a third-party acquisition of us difficult.
This could limit the price investors might be willing to pay in the
future for our common stock.
Provisions in our
amended and restated certificate of incorporation and restated
bylaws could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from
attempting to acquire, or control us. These factors could limit the
price that certain investors might be willing to pay in the future
for shares of our common stock. Our amended and restated
certificate of incorporation allows us to issue preferred stock
without the approval of our stockholders. The issuance of preferred
stock could decrease the amount of earnings and assets available
for distribution to the holders of our common stock or could
adversely affect the rights and powers, including voting rights, of
such holders. In certain circumstances, such issuance could have
the effect of decreasing the market price of our common stock. Our
restated bylaws eliminate the right of stockholders to call a
special meeting of stockholders, which could make it more difficult
for stockholders to effect certain corporate actions. Any of these
provisions could also have the effect of delaying or preventing a
change in control.
On July
18, 2014, the Board of Directors declared a distribution of one
right for each outstanding share of common stock. The rights may
have certain anti-takeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire
us on terms not approved by the Board of Directors unless the offer
is conditioned on a substantial number of rights being acquired.
However, the rights should not interfere with any merger, statutory
share exchange or other business combination approved by the Board
of Directors since the rights may be terminated by us upon
resolution of the Board of Directors. Thus, the rights are intended
to encourage persons who may seek to acquire control of the Company
to initiate such an acquisition through negotiations with the Board
of Directors. However, the effect of the rights may be to
discourage a third party from making a partial tender offer or
otherwise attempting to obtain a substantial equity position in the
equity securities of, or seeking to obtain control of, the Company.
To the extent any potential acquirers are deterred by the rights,
the rights may have the effect of preserving incumbent management
in office.
An active trading market for our common stock may not be sustained,
and investors may not be able to resell their shares at or above
the price they paid.
Although
we have listed our common stock on The Nasdaq Global Select Market,
an active trading market for our shares may not be sustained. In
the absence of an active trading market for our common stock,
investors may not be able to sell their common stock at or above
the price at which they acquired their shares or at the time that
they would like to sell. An inactive trading market may also impair
our ability to raise capital to continue to fund operations by
selling shares and may impair our ability to acquire other
companies or technologies by using our shares as
consideration.
If equity research analysts do not publish research or reports
about our business or if they publish negative evaluations of or
downgrade our common stock, the price of our common stock could
decline.
The
trading market for our common stock relies in part on the research
and reports that equity research analysts publish about us or our
business. We do not control these analysts. We may never obtain
research coverage by industry or financial analysts. If no or few
analysts commence coverage of us, the trading price of our stock
would likely decrease. Even if we do obtain analyst coverage, if
one or more of the analysts covering our business downgrade their
evaluations of our common stock, the price of our common stock
could decline. If one or more of these analysts cease to cover our
common stock, we could lose visibility in the market for our common
stock, which in turn could cause our common stock price to
decline.
We incur significant increased costs as a result of operating as a
public company, and our management is required to devote
substantial time to compliance initiatives.
As a public company, we incur significant legal,
accounting and other expenses under the Sarbanes-Oxley Act of 2002,
as well as rules subsequently implemented by the
Securities and Exchange Commission
(“SEC”), and the rules of any stock exchange on which
we may become listed. These rules impose various requirements on
public companies, including requiring establishment and maintenance
of effective disclosure and financial controls and appropriate
corporate governance practices. Our team has devoted and will
continue to devote a substantial amount of time to these compliance
initiatives. Moreover, these rules and regulations increase our
legal and financial compliance costs and make some activities more
time-consuming and costly. For example, these rules and regulations
make it more difficult and more expensive for us to obtain director
and officer liability insurance, and we may be required to accept
reduced policy limits and coverage or incur substantially higher
costs to obtain the same or similar coverage. As a result, it may
be more difficult for us to attract and retain qualified persons to
serve on our Board of Directors, our Board committees or as
executive officers.
56
The Sarbanes-Oxley Act of 2002 requires, among
other things, that we maintain effective internal control over
financial reporting and disclosure controls and procedures. As a
result, we are required to periodically perform an evaluation of
our internal control over financial reporting to allow management
to report on the effectiveness of those controls, as required by
Section 404 of the Sarbanes-Oxley Act. Additionally, our
independent auditors are required to perform a similar evaluation
and report on the effectiveness of our internal control over
financial reporting. These efforts to comply with Section 404 will
require the commitment of significant financial and managerial
resources. While we anticipate maintaining the integrity of our
internal control over financial reporting and all other aspects of
Section 404, we cannot be certain that a material weakness will not
be identified when we test the effectiveness of our control systems
in the future. If a material weakness is identified, we could be
subject to sanctions or investigations by the SEC or other
regulatory authorities, which would require additional financial
and management resources, costly litigation or a loss of public
confidence in our internal control, which could have an adverse
effect on the market price of our stock.
Volatility in the
price of our common stock may subject us to securities litigation,
which could cause us to incur substantial costs and divert
management's attention, financial resources and other company
assets.
In the past, securities class action litigation
has often been brought against a company following periods of
volatility in the market price of its securities. This risk is
especially relevant for us because pharmaceutical companies have
experienced significant stock price volatility in recent
years. In addition, we and certain of our executive
officers have been named as defendants in a securities class action
and derivative lawsuits captioned Randall Reinmann v. TG
Therapeutics Inc., and Michael S. Weiss, Case No. 1:18-cv-09104-KPF
and Thessalus Capital
v. Weiss, et al., 1:18-cv-11918-KPF. These lawsuits and any future
lawsuits to which we may become a party are subject to inherent
uncertainties and will likely be expensive and time-consuming to
investigate, defend and resolve, and will divert our management's
attention and financial and other resources. The outcome of
litigation is necessarily uncertain, and we could be forced to
expend significant resources in the defense of these and other
suits, and we may not prevail. Any litigation to which we are a
party may result in an onerous or unfavorable judgment that may not
be reversed upon appeal or in payments of substantial monetary
damages or fines, or we may decide to settle this or other lawsuits
on similarly unfavorable terms, which could adversely affect our
business, financial condition, results of operations or stock
price. See Item 3. “Legal Proceedings” below
for additional information regarding the securities class action
and derivative lawsuits.
Future sales of our common stock, including by us or our directors
and executive officers or shares issued upon the exercise of
currently outstanding options, could cause our stock price to
decline.
A
substantial portion of our outstanding common stock can be traded
without restriction at any time. In addition, a portion of our
outstanding common stock is currently restricted as a result of
federal securities laws, but can be sold at any time subject to
applicable volume limitations. As such, sales of a substantial
number of shares of our common stock in the public market could
occur at any time. These sales, or the perception in the market
that the holders of a large number of shares intend to sell shares,
by us or others, could reduce the market price of our common stock
or impair our ability to raise adequate capital through the sale of
additional equity securities. In addition, we have a significant
number of shares that are subject to outstanding options. The
exercise of these options and the subsequent sale of the underlying
common stock could cause a further decline in our stock price.
These sales also might make it difficult for us to sell equity
securities in the future at a time and at a price that we deem
appropriate. We cannot predict the number, timing or size of future
issuances or the effect, if any, that any future issuances may have
on the market price for our common stock.
Under
Section 382 of the Internal Revenue Code of 1986, as amended,
if a corporation undergoes an “ownership change”
(generally defined as a greater than 50% change (by value) in the
ownership of its equity over a three year period), the
corporation’s ability to use its pre-change net operating
loss carryforwards and certain other pre-change tax attributes to
offset its post-change income may be limited. We may have
experienced such ownership changes in the past, and we may
experience ownership changes in the future as a result of shifts in
our stock ownership, some of which are outside our control. As of
December 31, 2017, we had federal net operating loss
carryforwards of approximately $288.6 million, and our ability to
utilize those net operating loss carryforwards could be limited by
an “ownership change” as described above, which could
result in increased tax liability to us. In addition, pursuant to
the TCJA, we may not use net operating loss carry-forwards to
reduce our taxable income in any year by more than 80%, and we may
not carry back any net operating losses to prior years. These new
rules apply regardless of the occurrence of an ownership
change.
57
Our
corporate and executive office is located in New York, New York.
Our New York facility consists of leased office space at 2
Gansevoort Street, 9th Floor, New York, New York 10014. We are also
currently leasing small office spaces in Cary, North Carolina and
Kingsport, Tennessee to accommodate our clinical operations groups.
We believe that our existing facilities are adequate to meet our
current requirements. We do not own any real property.
ITEM 3. LEGAL PROCEEDINGS.
In
October 2018, a purported securities class action complaint was
filed in the U.S. District Court for the Southern District of New
York (the “Southern District”) against the Company and
one of its officers on behalf of all shareholders who purchased or
otherwise acquired TG Therapeutics common stock between June 4,
2018 and September 25, 2018 (the “Class Period”). The
case is captioned Randall Reinmann v. TG Therapeutics Inc., and
Michael S. Weiss, Case No. 1:18-cv-09104-KPF. The complaint alleges
that, throughout the Class Period, the Company made false and/or
misleading statements and/or failed to disclose various facts and
circumstances regarding its UNITY-CLL study allegedly in violation
of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. In December 2018, the Southern District appointed
Co-Lead Plaintiffs to represent the putative class, and approved
their selection of Lead Counsel. On March 1, 2019, Co-Lead
Plaintiffs filed a notice with the Southern District seeking to
voluntarily dismiss the action in its entirety without
prejudice.
In addition, on December 18, 2018, a related
shareholder derivative litigation was filed in the Southern
District against the Company’s directors and one of its
officers in litigation captioned Thessalus Capital v. Weiss, et
al., 1:18-cv-11918-KPF. The Company is named only as a nominal
defendant. The suit alleges that the officer and directors breached
their fiduciary duties to the Company, wasted corporate assets, and
violated the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder in connection with the Company’s
alleged failure to disclose various facts and circumstances
regarding its UNITY-CLL study.
The plaintiff asserts that the alleged disclosure violations
concerning the Company’s UNITY-CLL study have caused the
Company to incur losses, including defense costs, and further
alleges that the named officer and directors received excessive
compensation.
ITEM
4. MINE SAFETY DISCLOSURES.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
Market Information
Our
common stock is listed on the Nasdaq
Capital Market and trades under the symbol
“TGTX”.
Holders
The
number of record holders of our common stock as of February 14,
2019 was 239.
Dividends
We have
never declared or paid any cash dividends on our common stock and
do not anticipate paying any cash dividends in the foreseeable
future. Any future determination to pay dividends will be at the
discretion of our board of directors.
Securities Authorized for Issuance Under Equity Compensation
Plans
The
following table provides information as of December 31, 2018,
regarding the securities authorized for issuance under our equity
compensation plan, the TG Therapeutics, Inc. Amended and Restated
2012 Incentive Plan.
58
Equity
Compensation Plan Information
|
|
|
|
|
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding
options
|
Weighted-average
exercise price of outstanding options
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
1)
|
|
|
|
|
|
|
Equity compensation
plans approved by security holders
|
1,916,900
|
$6.50
|
3,216,213
|
|
Equity compensation
plans not approved by security holders
|
--
|
--
|
--
|
|
Total
|
1,916,900
|
$6.50
|
3,216,213
|
For information about all of our equity
compensation plans see Note 5 to our Consolidated Financial Statements included in this
report.
COMMON STOCK PERFORMANCE GRAPH
The
following graph compares the cumulative total stockholder return on
our common stock for the period from December 31, 2011(1) through
December 31, 2018, with the cumulative total return over such
period on (i) the U.S. Index of The Nasdaq Stock Market and (ii)
the Biotechnology Index of The Nasdaq Stock Market. The graph
assumes an investment of $100 on December 31, 2011, in our common
stock (at the adjusted closing market price) and in each of the
indices listed above, and assumes the reinvestment of all
dividends. Measurement points are December 31 of each
year.
(1) In
connection with the Company having entered into and consummated an
exchange transaction agreement (the “Exchange
Transaction”) with Opus Point Partners, LLC
(“Opus”) and TG Biologics, Inc. (formerly known as TG
Therapeutics, Inc.) (“TG Bio”), we used the start date
of December 31, 2011 to be in agreement with this
transaction.
* $100 invested on December 31, 2011 in stock or index,
including reinvestment of dividends. Fiscal Years ending December
31.
59
The
following Statement of Operations data for the years ended December
31, 2018, 2017, 2016, 2015 and 2014, and Balance Sheet Data as of
December 31, 2018, 2017, 2016, 2015 and 2014, as set forth below
are derived from our audited consolidated financial statements.
This financial data should be read in conjunction with “Item
7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Item 8.
Financial Statements and Supplementary Data.”
|
(in thousands)
|
|
||||
|
|
Years ended
December 31,
|
||||
|
|
2018
|
2017
|
2016
|
2015
|
2014
|
|
|
|
|
|
|
|
|
License
revenue
|
$152
|
$152
|
$152
|
$152
|
$152
|
|
|
|
|
|
|
|
|
Costs and
expenses:
|
|
|
|
|
|
|
Research and
development:
|
|
|
|
|
|
|
Noncash stock
expense associated with in-licensing agreements
|
4,000
|
--
|
--
|
--
|
5,350
|
|
Noncash
compensation
|
5,598
|
5,647
|
2,742
|
4,261
|
8,731
|
|
Other research and
development
|
149,793
|
96,886
|
66,490
|
43,446
|
26,005
|
|
Total research and
development
|
159,391
|
102,533
|
69,232
|
47,707
|
40,086
|
|
|
|
|
|
|
|
|
General and
administrative:
|
|
|
|
|
|
|
Noncash
compensation
|
7,288
|
10,298
|
4,767
|
11,436
|
12,374
|
|
Other general and
administrative
|
7,873
|
6,033
|
5,122
|
4,189
|
3,413
|
|
Total general and
administrative
|
15,161
|
16,331
|
9,889
|
15,625
|
15,787
|
|
|
|
|
|
|
|
|
Total costs and
expenses
|
174,552
|
118,864
|
79,121
|
63,332
|
55,873
|
|
|
|
|
|
|
|
|
Operating
loss
|
(174,400)
|
(118,712)
|
(78,969)
|
(63,180)
|
(55,721)
|
|
|
|
|
|
|
|
|
Other (income)
expense:
|
|
|
|
|
|
|
Interest
income
|
(857)
|
(295)
|
(323)
|
(174)
|
(55)
|
|
Other (income)
expense
|
(61)
|
59
|
(393)
|
(57)
|
115
|
|
Total other
(income) expense, net
|
(918)
|
(236)
|
(716)
|
(231)
|
60
|
|
|
|
|
|
|
|
|
Net
loss
|
$(173,482)
|
$(118,476)
|
$(78,253)
|
$(62,949)
|
$(55,781)
|
|
|
|
|
|
|
|
|
Basic and diluted
net loss per common share
|
$(2.30)
|
$(1.91)
|
$(1.60)
|
$(1.38)
|
$(1.64)
|
|
Balance
Sheet Information:
|
|
|
December
31,
|
||||
|
(in
thousands)
|
2018
|
2017
|
2016
|
2015
|
2014
|
|
Cash, cash
equivalents, investment securities and interest
receivable
|
$68,901
|
$84,825
|
$44,969
|
$102,417
|
$78,861
|
|
Total
assets
|
83,616
|
97,381
|
54,782
|
113,473
|
86,747
|
|
Accumulated
deficit
|
(528,345)
|
(354,863)
|
(236,387)
|
(158,134)
|
(95,185)
|
|
Total
equity
|
24,036
|
66,993
|
35,868
|
101,573
|
80,102
|
60
The
following discussion and analysis contains forward-looking
statements about our plans and expectations of what may happen in
the future. Forward-looking statements are based on a number of
assumptions and estimates that are inherently subject to
significant risks and uncertainties, and our results could differ
materially from the results anticipated by our forward-looking
statements as a result of many known or unknown factors, including,
but not limited to, those factors discussed in “Risk
Factors.” See also the “Special Cautionary Notice
Regarding Forward-Looking Statements” set forth at the
beginning of this report.
You
should read the following discussion and analysis in conjunction
with “Item 8. Financial Statements and Supplementary
Data,” and our consolidated financial statements beginning on
page F-1 of this report.
Overview
We are a
biopharmaceutical company dedicated to developing and delivering
medicines for patients with B-cell mediated diseases, including
Chronic Lymphocytic Leukemia (CLL), non-Hodgkin’s Lymphoma
(NHL) and Multiple Sclerosis (MS). We have developed a robust
B-cell directed research and development (R&D) platform for
identification of key B-cell pathways of interest and rapid
clinical testing. Currently, we have five B-cell targeted drug
candidates in clinical development, with the lead two therapies,
ublituximab (TG-1101) and umbralisib (TGR-1202), in pivotal trials
for CLL, NHL and MS. Ublituximab is a novel anti-CD20 monoclonal
antibody (mAb) that has been glycoengineered for enhanced potency
over first generation antibodies. Umbralisib is an oral, once daily
inhibitor of PI3K delta. Umbralisib also uniquely inhibits
CK1-epsilon, which may allow it to overcome certain tolerability
issues associated with first generation PI3K delta inhibitors. When
used together in combination therapy, ublituximab and umbralisib
are referred to as ("U2"), or "1303". Additionally, in early
clinical development we have an anti-PD-L1 monoclonal antibody
referred to as TG-1501, an oral Bruton’s Tyrosine Kinase
(“BTK”) inhibitor referred to as TG-1701, and an
anti-CD47/CD19 bispecific antibody referred to as
TG-1801.
We also
actively evaluate complementary products, technologies and
companies for in-licensing, partnership, acquisition and/or
investment opportunities. To date, we have not received approval
for the sale of any of our drug candidates in any market and,
therefore, have not generated any product sales from our drug
candidates.
Our
license revenues currently consist of license fees arising from our
agreement with Ildong. We recognize upfront license fee revenues
ratably over the estimated period in which we will have certain
significant ongoing responsibilities under the sublicense
agreement, with unamortized amounts recorded as deferred
revenue.
We have
not earned any revenues from the commercial sale of any of our drug
candidates.
Our
research and development expenses consist primarily of expenses
related to in-licensing of new product candidates, fees paid to
consultants and outside service providers for clinical and
laboratory development, facilities-related and other expenses
relating to the design, development, manufacture, testing and
enhancement of our drug candidates and technologies. We expense our
research and development costs as they are incurred. Research and
development expenses for the years ended December 31, 2018, 2017
and 2016 were approximately $153.8 million, $96.9 million and $66.5
million, respectively, excluding non-cash compensation expenses
related to research and development.
The
following table sets forth the research and development expenses
per project, exclusive of non-cash compensation expenses, for the
periods presented.
|
(in
thousands)
|
2018
|
2017
|
2016
|
|
Ublituximab
|
$105,429
|
$62,441
|
$40,840
|
|
Umbralisib
|
42,852
|
31,964
|
21,394
|
|
Early Clinical
Pipeline &
Pre-Clinical
|
5,512
|
2,481
|
4,256
|
|
Total
|
$153,793
|
$96,886
|
$66,490
|
Our
general and administrative expenses consist primarily of salaries
and related expenses for executive, finance and other
administrative personnel, recruitment expenses, professional fees
and other corporate expenses, including investor relations, legal
activities and facilities-related expenses.
61
Our
results of operations include non-cash compensation expenses as a
result of the grants of restricted stock. Compensation expense for
awards of restricted stock granted to employees and directors
represents the fair value of the award recorded over the respective
vesting periods of the individual awards. The expense is included
in the respective categories of expense in the condensed
consolidated statements of operations. We expect to continue to
incur significant non-cash compensation expenses.
For
awards of options and restricted stock to consultants and other
third-parties, compensation expense is determined at the
“measurement date.” The expense is recognized over the
vesting period of the award. Until the measurement date is reached,
the total amount of compensation expense remains uncertain. We
record compensation expense based on the fair value of the award at
the reporting date. The awards to consultants and other
third-parties are then revalued, or the total compensation is
recalculated based on the then current fair value, at each
subsequent reporting date. This results in a change to the amount
previously recorded in respect of the equity award grant, and
additional expense or a reversal of expense may be recorded in
subsequent periods based on changes in the assumptions used to
calculate fair value, such as changes in market price, until the
measurement date is reached and the compensation expense is
finalized.
In
addition, certain restricted stock issued to employees vest upon
the achievement of certain milestones; therefore, the total expense
is uncertain until the milestone is probable.
Our
clinical trials will be lengthy and expensive. Even if these trials
show that our drug candidates are effective in treating certain
indications, there is no guarantee that we will be able to record
commercial sales of any of our drug candidates in the near future,
or at all. In addition, we expect losses to continue as we fund
in-licensing and development of new drug candidates. As we further
our development efforts, we may enter into additional third-party
collaborative agreements and incur additional expenses, such as
licensing fees and milestone payments. In addition, we may need to
establish a commercial infrastructure required to manufacture,
market and sell our drug candidates following approval, if any, by
the FDA or a foreign health authority, which would result in
incurring additional expenses. As a result, our quarterly results
may fluctuate and a quarter-by-quarter comparison of our operating
results may not be a meaningful indication of our future
performance.
Years Ended December 31, 2018, 2017 and 2016
|
|
Years Ended December
31,
|
||
|
(in
thousands)
|
2018
|
2017
|
2016
|
|
|
|
|
|
|
License
revenue
|
$152
|
$152
|
$152
|
|
|
|
|
|
|
Costs and
expenses:
|
|
|
|
|
Research and
development:
|
|
|
|
|
Non-cash stock
expense associated with in-licensing agreements
|
4,000
|
--
|
--
|
|
Noncash
compensation
|
5,598
|
5,647
|
2,742
|
|
Other
research and development
|
149,793
|
96,886
|
66,490
|
|
Total research and
development
|
159,391
|
102,533
|
69,232
|
|
|
|
|
|
|
General and
administrative:
|
|
|
|
|
Noncash
compensation
|
7,288
|
10,298
|
4,767
|
|
Other general and
administrative
|
7,873
|
6,033
|
5,122
|
|
Total general and
administrative
|
15,161
|
16,331
|
9,889
|
|
|
|
|
|
|
Total costs and
expenses
|
174,552
|
118,864
|
79,121
|
|
|
|
|
|
|
Operating
loss
|
(174,400)
|
(118,712)
|
(78,969)
|
|
|
|
|
|
|
Other income,
net
|
(918)
|
(236)
|
(716)
|
|
|
|
|
|
|
Net
loss
|
$(173,482)
|
$(118,476)
|
$(78,253)
|
|
|
|
|
|
62
Years Ended December 31, 2018 and 2017
License Revenue. License revenue was
approximately $152,000 for each of the years ended December 31,
2018 and 2017. License revenue is related to the amortization of an
upfront payment of $2.0 million associated with our license
agreement with Ildong. The upfront payment from Ildong will be
recognized as license revenue on a straight-line basis through
December 2025, which represents the estimated period over which the
Company will have certain ongoing responsibilities under the
sublicense agreement.
Noncash Stock Expense Associated with
In-Licensing Agreement (Research and Development). Noncash
stock expense associated with in-licensing agreement (research and
development) amounted to $4.0 million for the year ended December
31, 2018, as compared to zero during the comparable period in 2017.
The expense during the year ended December 31, 2018 was recorded in
conjunction with the 333,868 total shares of common stock issued to
Novimmune and Jiangsu Hengrui as upfront payments for the licenses
to the CD47/CD19 and BTK programs, respectively.
Noncash Compensation Expense (Research and
Development). Noncash compensation expense (research and
development) related to equity incentive grants remained consistent between the two periods
totaling $5.6 million for both years ended December 31, 2018
and 2017.
Other Research and Development
Expenses. Other research and development expenses increased
by $52.9 million from $96.9 million for the year ended December 31,
2017 to $149.8 million for the year ended December 31, 2018.
The increase in R&D expense is
primarily attributable to ongoing late-stage clinical development
programs and related manufacturing costs for ublituximab and
umbralisib during the year ended December 31, 2018. We expect our
other research and development costs to decrease modestly during
2019.
Noncash Compensation Expense (General and
Administrative). Noncash compensation expense (general and
administrative) related to equity incentive grants decreased by
$3.0 million from $10.3 million for the year ended December 31,
2017 to $7.3 million during the year ended December 31,
2018. The decrease in
noncash compensation expense was primarily related to a decrease in
the measurement date fair value of certain consultant restricted
stock during the year ended December 31, 2018 and greater
compensation expense during the year ended December 31, 2017
related to restricted stock granted to executive
personnel.
Other General and Administrative
Expenses. Other general and administrative expenses
increased by $1.9 million from $6.0 million for the year ended
December 31, 2017 to $7.9 million for the year ended December 31,
2018. The increase was due primarily
to increased personnel and other general and administrative costs.
We expect our other general and administrative expenses to remain
relatively consistent during 2019.
Other Expense (Income), Net. Other
income increased by $0.7 million from $0.2 million for the year
ended December 31, 2017 to $0.9 million for the year ended December
31, 2018. The increase is mainly due to an increase in interest
income during 2018.
Years Ended December 31, 2017 and 2016
License
Revenue. License revenue
was approximately $152,000 for each of the years ended December 31,
2017 and 2016. License revenue is related to the amortization of an
upfront payment of $2.0 million associated with our license
agreement with Ildong. The upfront payment from Ildong will be
recognized as license revenue on a straight-line basis through
December 2025, which represents the estimated period over which the
Company will have certain ongoing responsibilities under the
sublicense agreement.
Noncash Compensation Expense
(Research and Development). Noncash compensation expense (research and
development) related to equity incentive grants totaled $5.6
million for the year ended December 31, 2017, as compared to $2.7
million during the comparable period in 2016. The increase in
noncash compensation expense was primarily related to
milestone-based vesting of restricted stock grants to personnel and
an increase in the measurement date fair value of certain
consultant restricted stock during the year ended December 31,
2017.
Other Research and Development
Expenses. Other research and
development expenses increased by $30.4 million from $66.5 million
for the year ended December 31, 2016 to $96.9 million for the year
ended December 31, 2017. The increase in other research and
development expenses was due primarily to new and ongoing clinical
development programs and related manufacturing costs for
ublituximab and umbralisib during the year ended December 31,
2017.
Other General and
Administrative Expenses. Other
general and administrative expenses increased by $0.9 million from
$5.1 million for the year ended December 31, 2016 to $6.0 million
for the year ended December 31, 2017. The increase was due
primarily to rent related expenses of our office space, as well as
increased personnel and other general and administrative
costs.
Other Expense (Income),
Net. Other income decreased by
$0.5 million from $0.7 million for the year ended December 31, 2016
to $0.2 million for the year ended December 31, 2017. The decrease
is mainly due to a decrease in interest income during 2017, as well
as to the receipt of a New York City biotechnology tax credit of
approximately $0.3 million for the year ended December 31,
2016.
63
LIQUIDITY AND CAPITAL RESOURCES
Our
primary sources of cash have been from the sale of equity
securities, the upfront payment from our Sublicense Agreement with
Ildong, and warrant and option exercises. We have not yet
commercialized any of our drug candidates and cannot be sure if we
will ever be able to do so. Even if we commercialize one or more of
our drug candidates, we may not become profitable. Our ability to
achieve profitability depends on a number of factors, including our
ability to obtain regulatory approval for our drug candidates,
successfully complete any post-approval regulatory obligations and
successfully commercialize our drug candidates alone or in
partnership. We may continue to incur substantial operating losses
even if we begin to generate revenues from our drug
candidates.
As of December 31,
2018, we had $68.9 million in cash and cash equivalents, investment
securities, and interest receivable. Subsequent to the year ended
December 31, 2018, we entered into a term loan facility of up to
$60.0 million (“Term Loan”) with Hercules Capital,
Inc., (“Hercules”). The Term Loan is governed by a loan
and security agreement, dated February 28, 2019 (the “Loan
Agreement”), which provides for up to four separate advances.
The first advance of $30.0 million was drawn on the closing date of
February 28, 2019 (the “Closing Date”) (see Note 14 to
the consolidated financial statemetns and "Debt Financings" for
further information). In addition, on March 1, 2019, we announced
the pricing of a public offering of 4,100,000 shares of our common
stock (plus a 30-day underwriter overallotment option to purchase
up to an additional 615,000 shares of common stock), with expected
gross proceeds to the Company of $25.2 million, less underwriting
discounts and commissions. The offering is expected to close on
March 5, 2019.
We
anticipate that our cash and cash equivalents as of December 31,
2018 combined with the additional capital being raised in the first
quarter of 2019 will be sufficient to fund the Company’s
planned operations into mid 2020. The actual amount of cash that we
will need to operate is subject to many factors, including, but not
limited to, the timing, design and conduct of clinical trials for
our drug candidates. We are dependent upon significant financing to
provide the cash necessary to execute our current operations,
including the commercialization of any of our drug
candidates.
Cash
used in operating activities for the year ended December 31, 2018
was $128.9 million as compared to $93.8 million for the year ended
December 31, 2017. The increase in cash used in operating
activities was due primarily to increased expenditures associated
with our clinical development programs for ublituximab and
umbralisib.
For the
year ended December 31, 2018, net cash provided by investing
activities was $1.2 million as compared to cash used in investing
activities of $8.2 million for the year ended December 31, 2017.
The increase in net cash provided by
investing activities was primarily due to greater proceeds from the
sale of short-term securities during the year ended December 31,
2018.
For the
year ended December 31, 2018, net cash provided by financing
activities of $113.6 million related primarily to proceeds from the
issuance of common stock as part of our ATM program.
On June 21, 2013, we entered into an At-the-Market Issuance Sales
Agreement (the "2013 ATM") with MLV & Co. LLC
(“MLV”) under which we could issue and sell shares of
our common stock, having aggregate offering proceeds of up to $50.0
million, from time to time through MLV, acting as the sales agent.
Under the agreement we would pay MLV a commission rate of up to
3.0% of the gross proceeds from the sale of any shares of common
stock sold through MLV.
During the year ended December 31, 2014, we sold a total of
4,850,055 shares of common stock under this arrangement for
aggregate total gross proceeds of approximately $50.0 million at an
average selling price of $10.31 per share. Net proceeds were
approximately $48.8 million after deducting commissions and other
transaction costs. We have fully utilized the capacity under the
2013 ATM and, accordingly, no further sales can be made under the
2013 ATM.
In December 2014, we filed a shelf registration statement on Form
S-3 (the "2015 S-3"), which was declared effective in January 2015.
Under the 2015 S-3, the Company may sell up to a total of $250
million of its securities. In connection with the 2015 S-3, we
amended our 2013 At-the-Market Issuance Sales Agreement (the "2015
ATM") with MLV & Co. LLC (“MLV”) such that we may
issue and sell additional shares of our common stock, having an
aggregate offering price of up to $175.0 million, from time to time
through MLV and FBR Capital Markets & Co. ("FBR", each of MLV
and FBR individually an "Agent" and collectively the "Agents"),
acting as the sales agents. Under the 2015 ATM we pay the Agents a
commission rate of up to 3.0% of the gross proceeds from the sale
of any shares of common stock sold through the Agents.
During the year ended
December 31, 2017, we sold a total of 3,104,253 shares of common stock
under the 2015 ATM for aggregate total gross proceeds of
approximately $31.6 million at an average selling price of $10.18
per share, resulting in net proceeds of approximately $31.0 million
after deducting commissions and other transaction
costs.
In May 2017, we filed a shelf registration statement on Form S-3
(the "2017 S-3"), which was declared effective in June 2017,
replacing the 2015 S-3. Under the 2017 S-3, the Company may sell up
to a total of $300 million of its securities. In connection with
the 2017 S-3, we entered into an At-the-Market Issuance Sales
Agreement (the "2017 ATM") with Jefferies LLC, Cantor Fitzgerald
& Co., FBR Capital Markets & Co., SunTrust Robinson
Humphrey, Inc., Raymond James & Associates, Inc., Ladenburg
Thalmann & Co. Inc. and H.C. Wainwright & Co., LLC (each a
"2017 Agent" and collectively, the "2017 Agents"), relating to the
sale of shares of our common stock. Under the 2017 ATM we pay the
2017 Agents a commission rate of up to 3.0% of the gross proceeds
from the sale of any shares of common stock.
64
During the year ended December 31, 2017, we sold a total of
4,689,418 shares of common stock under the 2017 ATM for aggregate
total gross proceeds of approximately $47.7 million at an average
selling price of $10.18 per share, resulting in net proceeds of
approximately $46.9 million after deducting commissions and other
transactions costs.
During the year ended December 31, 2018, we sold a total of
9,025,222 shares of common stock under the 2017 ATM for aggregate
total gross proceeds of approximately $115.8 million at an average
selling price of $12.83 per share, resulting in net proceeds of
approximately $113.7 million after deducting commissions and other
transactions costs.
Equity
Financings
In March
2017, we completed an underwritten public offering of 5,128,206
shares of our common stock (plus a 30-day underwriter overallotment
option to purchase up to an additional 769,230 shares of common
stock, which was exercised) at a price of $9.75 per share. Net
proceeds from this offering, including the overallotment option,
were approximately $54 million, net of underwriting discounts and
offering expenses of approximately $3.6 million.
On
March 1, 2019, we announced the pricing of a public offering of
4,100,000 shares of our common stock (plus a 30-day underwriter
overallotment option to purchase up to an additional 615,000 shares
of common stock) with expected gross proceeds to the Company of
$25.2 million, less underwriting discounts and commissions. The
shares were sold under a shelf registration statement Form S-3
(File No. 333-218293) that was previously filed and declared
effective by the SEC in June 2017. The offering is expected to
close on March 5, 2019.
Debt Financings
On
February 28, 2019 (the “Closing Date”), the Company
(“Borrower”) entered into a term loan facility of up to
$60.0 million (“Term Loan”) with Hercules Capital,
Inc., (“Hercules”), the proceeds of which will be used
for its ongoing research and development programs and for general
corporate purposes. The Term Loan is governed by a loan and
security agreement, dated February 28, 2019 (the “Loan
Agreement”), which provides for up to four separate advances.
The first advance of $30.0 million was drawn on the Closing Date.
Two additional advances of $10.0 million may be drawn at the
Borrower’s option but subject to the clinical trial
milestones, and the fourth advance of $10.0 million, available in
minimum increments of $5.0 million, is available through December
15, 2020 subject to the approval of Hercules’ investment
committee.
The
Term Loan will mature on March 1, 2022 (the “Loan Maturity
Date”). Each advance accrues interest at a per annum rate of
interest equal to the greater of either (i) the “prime
rate” as reported in The Wall Street Journal plus 4.75%, and
(ii) 10.25%. The Term Loan provides for interest-only payments
until October 1, 2020. The interest-only period may be extended to
April 1, 2021 if the Borrower, on or before September 30, 2020,
achieves either the third milestone or the Company has raised at
least an amount equal to $150.0 million in unrestricted net cash
proceeds from one or more equity financings, subordinated
indebtedness and/or upfront proceeds from business development
transactions permitted under the Loan Agreement, in each case after
February 7, 2019, and prior to September 30, 2020. Thereafter,
amortization payments will be payable monthly in eighteen
installments (or, if the period requiring interest-only payments
has been extended to April 1, 2021, in twelve installments) of
principal and interest (subject to recalculation upon a change in
prime rates). At its option upon seven business days’ prior
written notice to Hercules, the Company may prepay all or any
portion greater than or equal to $5.0 million of the outstanding
advances by paying the entire principal balance (or portion
thereof), all accrued and unpaid interest, subject to a prepayment
charge of 3.0%, if such advance is prepaid in any of the first
twelve months following the Closing Date, 1.5%, if such advance is
prepaid after twelve months following the Closing Date but on or
prior to twenty-four months following the Closing Date, and 0%
thereafter. In addition, a final payment equal to 3.5% of the
aggregate principal amount of the loan extended by Hercules is due
on the maturity date. Amounts outstanding during an event of
default shall be payable on demand and shall accrue interest at an
additional rate of 4.0% per annum of the past due amount
outstanding.
The
Term Loan is secured by a lien on substantially all of the assets
of the Borrower, other than intellectual property and contains
customary covenants and representations, including a liquidity
covenant, financial reporting covenant and limitations on
dividends, indebtedness, collateral, investments, distributions,
transfers, mergers or acquisitions, taxes, corporate changes,
deposit accounts, and subsidiaries.
The
events of default under the Loan Agreement include, without
limitation, and subject to customary grace periods, (1) the
Borrower’s failure to make any payments of principal or
interest under the Loan Agreement, promissory notes or other loan
documents, (2) the Borrower’s breach or default in the
performance of any covenant under the Loan Agreement, (3) the
occurrence of a material adverse effect, (4) the Borrower making a
false or misleading representation or warranty in any material
respect, (5) the Borrower’s insolvency or bankruptcy, (6)
certain attachments or judgments on the Borrower’s assets, or
(7) the occurrence of any material default under certain agreements
or obligations of the Borrower involving indebtedness in excess of
$750,000. If an event of default occurs, Hercules is entitled to
take enforcement action, including acceleration of amounts due
under the Loan Agreement.
The
Loan Agreement also contains warrant coverage of 2% of the total
amount funded. A warrant (the “Warrant") was issued by
Borrower to Hercules to purchase 147,058 shares of common stock
with an exercise price of $4.08. The Warrant shall be exercisable
for seven years from the date of issuance. Hercules may exercise
the Warrant either by (a) cash or check or (b) through a net
issuance conversion. The shares will be registered and freely
tradeable within six months of issuance.
65
OFF-BALANCE SHEET ARRANGEMENTS
We have
not entered into any transactions with unconsolidated entities
whereby we have financial guarantees, subordinated retained
interests, derivative instruments or other contingent arrangements
that expose us to material continuing risks, contingent
liabilities, or any other obligations under a variable interest in
an unconsolidated entity that provides us with financing,
liquidity, market risk or credit risk support.
OBLIGATIONS AND COMMITMENTS
As of
December 31, 2018, we have known contractual
obligations, commitments and contingencies of $35.4 million related
to our long-term liabilities and operating lease
obligations.
|
Payment
due by period (in thousands)
|
|
|
|
|
|
|
|
Total
|
Less than 1 year
|
1-3 years
|
3-5 years
|
More than 5 years
|
|
Contractual
obligations
|
|
|
|
|
|
|
Operating
leases
|
$16,996
|
$1,362
|
$2,701
|
$2,742
|
$10,191
|
|
Contract
manufacturer
|
18,350
|
--
|
18,350
|
--
|
--
|
|
Total
|
$35,346
|
$1,362
|
$21,051
|
$2,742
|
$10,191
|
Contract Manufacturer
In 2018, we entered
into an agreement with a contract manufacturer for the clinical and
potential commercial supply of one of our product candidates. As
part of this agreement, the contract manufacturer has agreed to
defer payment of certain costs and expenses under the agreement in
exchange for the payment of an administrative fee. As of December
31, 2018, we have incurred costs related to this agreement of
approximately $18.4 million. All costs incurred in 2018 are to be
billed in 2019 and are due in 2020. We will incur an administrative
fee of six percent (6%) per year starting from the date of invoice
issuance. No payments have been made to the contract manufacturer
as of December 31, 2018 and accordingly the entire amount
has been classified as long term
liabilities included in our consolidated balance
sheet.
Leases
In October 2014, we
entered into an agreement (the “Office Agreement”) with
FBIO, to occupy approximately 45% of the 24,000 square feet of New
York City office space leased by FBIO, which is now our corporate
headquarters. The Office Agreement requires us to pay our
respective share of the average annual rent and other costs of the
15-year lease. We approximate an average annual rental obligation
of $1.2 million under the Office Agreement. We began to occupy this
new space in April 2016, with rental payments beginning in the
third quarter of 2016. During the years ended December 31, 2018 and
2017, we recorded rent expense of approximately $1.4 million and
$1.2 million, respectively, and at December 31, 2018, have
deferred rent of approximately $1.5 million. Mr. Weiss, our
Executive Chairman and CEO, is also Executive Vice Chairman of
FBIO.
66
Total rental expense was approximately $1.4 million, $1.4 million
and $1.6 million for the years ended December 31, 2018, 2017
and 2016, respectively.
Future minimum lease commitments as of December 31, 2018
total, in the aggregate, approximately $17.0 million through
December 31, 2031. The preceding table shows future minimum lease
commitments, which include our office leases in New York, North
Carolina and Tennessee by period as of December 31,
2018.
CRITICAL ACCOUNTING POLICIES
The
discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements,
which have been prepared in accordance with U.S. generally accepted
accounting principles. The preparation of these financial
statements requires us to make estimates and judgments that affect
the reported amount of assets and liabilities and related
disclosure of contingent assets and liabilities at the date of our
financial statements and the reported amounts of revenues and
expenses during the applicable period. Actual results may differ
from these estimates under different assumptions or
conditions.
We
define critical accounting policies as those that are reflective of
significant judgments and uncertainties and which may potentially
result in materially different results under different assumptions
and conditions. In applying these critical accounting policies, our
management uses its judgment to determine the appropriate
assumptions to be used in making certain estimates. These estimates
are subject to an inherent degree of uncertainty. Our critical
accounting policies include the following:
Revenue Recognition. Effective January
1, 2018, the Company began recognizing revenue under Accounting
Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers
(“ASC 606”), using the modified retrospective
transition method. The impact of adopting the new revenue
standard was not material to our consolidated financial statements
and there was no adjustment to beginning retained earnings on
January 1, 2018. The core principle of
this new revenue standard is that a company should recognize
revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the
company expects to be entitled in exchange for those goods or
services. The following five steps are applied to achieve that core
principle:
●
Step 1: Identify
the contract with the customer
●
Step 2: Identify
the performance obligations in the contract
●
Step 3: Determine
the transaction price
●
Step 4: Allocate
the transaction price to the performance obligations in the
contract
●
Step 5: Recognize
revenue when the company satisfies a performance
obligation
In
order to identify the performance obligations in a contract with a
customer, a company must assess the promised goods or services in
the contract and identify each promised good or service that is
distinct. A performance obligation meets ASC 606’s definition
of a “distinct” good or service (or bundle of goods or
services) if both of the following criteria are met:
●
The customer can
benefit from the good or service either on its own or together with
other resources that are readily available to the customer (i.e.,
the good or service is capable of being distinct).
●
The entity’s
promise to transfer the good or service to the customer is
separately identifiable from other promises in the contract (i.e.,
the promise to transfer the good or service is distinct within the
context of the contract).
If a
good or service is not distinct, the good or service is combined
with other promised goods or services until a bundle of goods or
services is identified that is distinct.
The
transaction price is the amount of consideration to which an entity
expects to be entitled in exchange for transferring promised goods
or services to a customer, excluding amounts collected on behalf of
third parties (for example, some sales taxes). The consideration
promised in a contract with a customer may include fixed amounts,
variable amounts, or both. Variable consideration is included in
the transaction price only to the extent that it is probable that a
significant reversal in the amount of cumulative revenue recognized
will not occur when the uncertainty associated with the variable
consideration is subsequently resolved.
The
transaction price is allocated to each performance obligation on a
relative standalone selling price basis. The transaction price
allocated to each performance obligation is recognized when that
performance obligation is satisfied, at a point in time or over
time as appropriate.
67
Stock Compensation. We have granted
stock options and restricted stock to employees, directors and
consultants, as well as warrants to other third parties. For
employee and director grants, the value of each option award is
estimated on the date of grant using the Black-Scholes
option-pricing model. The Black-Scholes model takes into account
volatility in the price of our stock, the risk-free interest rate,
the estimated life of the option, the closing market price of our
stock and the exercise price. We base our estimates of our stock
price volatility on the historical volatility of our common stock
and our assessment of future volatility; however, these estimates
are neither predictive nor indicative of the future performance of
our stock. For purposes of the calculation, we assumed that no
dividends would be paid during the life of the options and
warrants. The estimates utilized in the Black-Scholes calculation
involve inherent uncertainties and the application of management
judgment. In addition, we are required to estimate the expected
forfeiture rate and only recognize expense for those equity awards
expected to vest. As a result, if other assumptions had been used,
our recorded stock-based compensation expense could have been
materially different from that reported. In addition, because some
of the options, restricted stock and warrants issued to employees,
consultants and other third-parties vest upon the achievement of
certain milestones, the total expense is uncertain. Compensation
expense for such awards that vest upon the achievement of
milestones is recognized when the achievement of such milestone
becomes probable.
Total
compensation expense for options and restricted stock issued to
consultants is determined at the “measurement date.”
The expense is recognized over the vesting period for the options
and restricted stock. Until the measurement date is reached, the
total amount of compensation expense remains uncertain. We record
stock-based compensation expense based on the fair value of the
equity awards at the reporting date. These equity awards are then
revalued, or the total compensation is recalculated based on the
then current fair value, at each subsequent reporting date. This
results in a change to the amount previously recorded in respect of
the equity award grant, and additional expense or a reversal of
expense may be recorded in subsequent periods based on changes in
the assumptions used to calculate fair value, such as changes in
market price, until the measurement date is reached and the
compensation expense is finalized.
In-process Research and Development.
All acquired research and development projects are recorded at
their fair value as of the date acquisition. The fair values are
assessed as of the balance sheet date to ascertain if there has
been any impairment of the recorded value. If there is an
impairment the asset is written down to its current fair value by
the recording of an expense.
Accruals for Clinical Research Organization
and Clinical Site Costs. We make estimates of costs incurred
in relation to external clinical research organizations, or CROs,
and clinical site costs. We analyze the progress of clinical
trials, including levels of patient enrollment, invoices received
and contracted costs when evaluating the adequacy of the amount
expensed and the related prepaid asset and accrued liability.
Significant judgments and estimates must be made and used in
determining the accrued balance and expense in any accounting
period. We review and accrue CRO expenses and clinical trial study
expenses based on work performed and rely upon estimates of those
costs applicable to the stage of completion of a study.
Accrued CRO costs are subject to revisions as such trials
progress to completion. Revisions are charged to expense in the
period in which the facts that give rise to the revision become
known. With respect to clinical site costs, the financial terms of
these agreements are subject to negotiation and vary from contract
to contract. Payments under these contracts may be uneven, and
depend on factors such as the achievement of certain events, the
successful recruitment of patients, the completion of portions of
the clinical trial or similar conditions. The objective of our
policy is to match the recording of expenses in our financial
statements to the actual services received and efforts expended. As
such, expense accruals related to clinical site costs are
recognized based on our estimate of the degree of completion of the
event or events specified in the specific clinical study or trial
contract.
Accounting For Income Taxes. In
preparing our consolidated financial statements, we are required to
estimate our income taxes in each of the jurisdictions in which we
operate. This process involves management estimation of our actual
current tax exposure and assessment of temporary differences
resulting from differing treatment of items for tax and accounting
purposes. These differences result in deferred tax assets and
liabilities. We must then assess the likelihood that our deferred
tax assets will be recovered from future taxable income and, to the
extent we believe that recovery is not likely, we must establish a
valuation allowance. To the extent we establish a valuation
allowance or increase this allowance in a period, we must include
an expense within the tax provision in the consolidated statements
of operations. Significant management judgment is required in
determining our provision for income taxes, our deferred tax assets
and liabilities and any valuation allowance recorded against our
net deferred tax assets. We have fully offset our deferred tax
assets with a valuation allowance. Our lack of earnings history and
the uncertainty surrounding our ability to generate taxable income
prior to the reversal or expiration of such deferred tax assets
were the primary factors considered by management in maintaining
the valuation allowance.
RECENTLY ISSUED ACCOUNTING STANDARDS
In
July 2018, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update (“ASU”) No. 2018-11,
“Leases - Targeted Improvements” (“ASU
2018-11”) as an update to ASU 2016-02, Leases (“ASU
2016-02” or “Topic 842”) issued on February 25,
2016. ASU 2016-02 is effective for public business entities for
fiscal years beginning January 1, 2019. ASU 2016-02 required
companies to adopt the new leases standard at the beginning of the
earliest period presented in the financial statements, which is
January 1, 2017, using a modified retrospective transition method
where lessees must recognize lease assets and liabilities for all
leases even though those leases may have expired before the
effective date of January 1, 2017. Lessees must also provide the
new and enhanced disclosures for each period presented, including
the comparative periods.
ASU 2018-11 provides an entity with an additional
(and optional) transition method to adopt the new leases standard.
Under this new transition method, an entity initially applies the
new lease standard at the adoption date and recognizes a
cumulative-effect adjustment to the opening balance of retained
earnings in the period of adoption. Consequently, an entity’s
reporting for the comparative periods presented in the financial
statements in which it adopts the new lease standard will continue
to be in accordance with ASC 840, Leases. An entity that elects
this additional (and optional) transition method must provide the
required ASC 840 disclosures for all periods that continue to be in
accordance with ASC 840. The amendments do not change the existing
disclosure requirements in ASC 840.
68
ASU 2018-11 is effective for public business
entities for fiscal years beginning after December 15, 2018, and
interim periods within those fiscal years, with earlier adoption
permitted. The Company adopted
ASU 2018-11 on January 1, 2019 using a modified retrospective
method and will not restate comparative periods. We elected the
package of practical expedients permitted under the transition
guidance, which allows us to carryforward our historical lease
classification and our assessment on whether a contract is or
contains a lease. The adoption of this guidance resulted in the
addition of material balances of right of use assets and lease
liabilities to our consolidated balance sheets at January 1, 2019,
primarily relating to our lease of office space (see Note 9). We do
not currently expect a material impact to our consolidated
statements of operations as a result of this
standard.
In
June 2018, the FASB issued ASU No. 2018-07, “Improvements to
Nonemployee Share-Based Payment Accounting” (“ASU
2018-07”). ASU 2018-07 expands the scope of FASB Topic 718,
Compensation – Stock Compensation (“Topic 718”)
to include share-based payment transactions for acquiring goods and
services from nonemployees. An entity should only remeasure
equity-classified awards for which a measurement date has not been
established through a cumulative-effect adjustment to retained
earnings as of the beginning of the fiscal year of adoption. Upon
transition, the entity is required to measure these nonemployee
awards at fair value as of the adoption date. The entity must not
remeasure assets that are completed. Disclosures required at
transition include the nature of and reason for the change in
accounting principle and, if applicable, quantitative information
about the cumulative effect of the change on retained earnings or
other components of equity.
ASU
2018-07 is effective for public business entities for fiscal years
beginning after December 15, 2018, including interim periods within
that fiscal year. Early adoption is permitted, but no earlier than
an entity’s adoption date of Topic 606. The Company adopted
ASU 2018-07 on January 1, 2019. The adoption of ASU 2018-07 did not
have a material effect on our consolidated financial statements as
of January 1, 2019. The adoption of ASU 2018-07 had no impact on
nonemployee performance awards as they are measured based on the
outcome that is probable.
In
May 2017, the FASB issued ASU No. 2017-09, “Scope of
Modification Accounting” (“ASU 2017-09”). ASU
2017-09 provides guidance about which changes to the terms or
conditions of a share-based payment award require an entity to
apply modification accounting. An entity should account for the
effects of a modification unless all the following are
met:
●
The
fair value (or calculated value or intrinsic value, if such an
alternative measurement method is used) of the modified award is
the same as the fair value (or calculated value or intrinsic value,
if such an alternative measurement method is used) of the original
award immediately before the original award is modified. If the
modification does not affect any of the inputs to the valuation
technique that the entity uses to value the award, the entity is
not required to estimate the value immediately before and after the
modification.
●
The
vesting conditions of the modified award are the same as the
vesting conditions of the original award immediately before the
original award is modified.
●
The
classification of the modified award as an equity instrument or a
liability instrument is the same as the classification of the
original award immediately before the original award is
modified.
ASU
2017-09 is effective for annual and interim periods beginning on or
after December 15, 2017. Early adoption is permitted for public
business entities for reporting periods for which financial
statements have not yet been issued, and all other entities for
reporting periods for which financial statements have not yet been
made available for issuance. The amendments should be applied
prospectively to an award modified on or after the adoption date.
The Company adopted ASU 2017-09 on January 1, 2018. The adoption of
ASU 2017-09 did not have a material effect on our consolidated
financial statements as of and for the year ended December 31,
2018.
In
November 2016, the FASB issued ASU No. 2016-18, “Statement of
Cash Flows – Restricted Cash” (“ASU
2016-18”). ASU 2016-18 requires that a statement of cash
flows explain the change during the period for the total of cash,
cash equivalents, and amounts generally described as restricted
cash or restricted cash equivalents. ASU 2016-18 does not provide a
definition of restricted cash or restricted cash equivalents, and
does not change the balance sheet presentation for such items. The
Company adopted ASU 2016-18 on January 1, 2018. The adoption of ASU
2016-18 did not have a material effect on our consolidated
financial statements as of December 31, 2018.
In
May 2014, the FASB issued ASU No. 2014-09, “Revenue
from Contracts with Customers” (Topic 606) (“ASU
2014-09” or “ASC 606”), which supersedes all
existing revenue recognition requirements, including most
industry-specific guidance. ASU 2014-09 provides a single set of
criteria for revenue recognition among all industries. The new
standard requires a company to recognize revenue when it transfers
goods or services to customers in an amount that reflects the
consideration that the Company expects to receive for those goods
or services.
ASU
2014-09 includes guidance for determining whether a license
transfers to a customer at a point in time or over time based on
the nature of the entity’s promise to the customer. To
determine whether the entity’s promise is to provide a right
to access its intellectual property or a right to use its
intellectual property, the entity should consider the nature of the
intellectual property to which the customer will have
rights.
ASU 2014-09 is effective for interim and annual
periods beginning after December 15, 2017. The standard allows
for two transition methods - full retrospective, in which the
standard is applied to each prior reporting period presented, or
modified retrospective, in which the cumulative effect of initially
applying the standard is recognized at the date of initial
adoption. The Company adopted ASU 2014-09 on January 1, 2018, using
the modified retrospective approach. The adoption of ASU 2014-09
did not have a material effect on our consolidated financial
statements as of December 31, 2018.
Other
pronouncements issued by the FASB or other authoritative accounting
standards group with future effective dates are either not
applicable or not significant to our consolidated financial
statements.
69
The
primary objective of our investment activities is to preserve
principal while maximizing our income from investments and
minimizing our market risk. We currently invest in government and
investment-grade corporate debt in accordance with our investment
policy, which we may change from time to time. The securities in
which we invest have market risk. This means that a change in
prevailing interest rates, and/or credit risk, may cause the fair
value of the investment to fluctuate. For example, if we hold a
security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing interest rate later rises,
the fair value of our investment will probably decline. As of
December 31, 2018, our portfolio of financial instruments
consists of cash equivalents and short-term interest bearing
securities, including government debt and money market funds. The
average duration of all of our held-to-maturity investments held as
of December 31, 2018, was less than 12 months. Due to the
relative short-term nature of these financial instruments, we
believe there is no material exposure to interest rate risk, and/or
credit risk, arising from our portfolio of financial
instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our
consolidated financial statements and the notes thereto, included
in Part IV, Item 15(a), part 1, are incorporated by reference into
this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES.
Not
applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and
Procedures. As of December 31, 2018, management carried out
an evaluation, under the supervision and with the participation of
our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)). Our disclosure controls and
procedures are designed to provide reasonable assurance that
information we are required to disclose in the reports that we file
or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in applicable rules
and forms. Based upon that evaluation, our Chief Executive and
Chief Financial Officers concluded that, as of December 31, 2018,
our disclosure controls and procedures were effective.
Management's Report on Internal Control over
Financial Reporting. Our management is responsible for
establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f)
under the Exchange Act). Our management assessed the effectiveness
of our internal control over financial reporting as of December 31,
2018. In making this assessment, our management used the criteria
established in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway
Commission, or COSO Framework. Our management has concluded that,
as of December 31, 2018, our internal control over financial
reporting was effective based on these criteria.
The
effectiveness of our internal control over financial reporting as
of December 31, 2018 was audited by CohnReznick LLP, our
independent registered public accounting firm, as stated in their
report appearing below, which expressed an unqualified opinion on
the effectiveness of our internal control over financial reporting
as of December 31, 2018.
Changes in Internal Control Over Financial
Reporting. There were no changes in our internal control
over financial reporting during the quarter ended December 31, 2018
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
Limitations on the Effectiveness of
Controls. Our management, including our Chief Executive
Officer and Chief Financial Officer, does not expect that our
disclosure controls and procedures or our internal control over
financial reporting will prevent all errors and all fraud. A
control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within our Company have been detected.
70
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and
Stockholders
of TG Therapeutics, Inc.
Opinion
on Internal Control over Financial Reporting
We have
audited TG Therapeutics, Inc. (the Company’s) internal
control over financial reporting as of December 31, 2018, based on
criteria established in Internal
Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of
December 31, 2018, based on criteria established in Internal Control—Integrated Framework
(2013) issued by COSO.
We also
have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United Stated) (PCAOB), the
consolidated balance sheets and the related consolidated statements
of operations, stockholders’ equity and cash flows of the
Company as of December 31, 2018 and 2017 and for each of the three
years in the period ended December 31, 2018 and our report dated
March 1, 2019, expressed an unqualified opinion.
Basis
for Opinion
The
Company’s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment
of the effectiveness of internal control over financial reporting
included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express
an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial
Reporting
A
company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with
authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/
CohnReznick LLP
New
York, New York
March
1, 2019
71
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.
The
information required by this Item is incorporated herein by
reference from our Proxy Statement for our 2019 Annual Meeting of
Stockholders.
ITEM 11. EXECUTIVE COMPENSATION.
The
information required by this Item is incorporated herein by
reference from our Proxy Statement for our 2019 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The
information required by this Item is incorporated herein by
reference from our Proxy Statement for our 2019 Annual Meeting of
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE.
The
information required by this Item is incorporated herein by
reference from our Proxy Statement for our 2019 Annual Meeting of
Stockholders.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The
information required by this Item is incorporated herein by
reference from our Proxy Statement for our 2019 Annual Meeting of
Stockholders.
72
PART
IV
ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES.
1.
Consolidated Financial
Statements
The following consolidated financial statements of TG Therapeutics,
Inc. are filed as part of this report.
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Contents
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Page
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Report
of Independent Registered Public Accounting Firm
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F-1
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Consolidated
Balance Sheets as of December 31, 2018 and 2017
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F-2
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Consolidated
Statements of Operations for the years ended December 31, 2018,
2017 and 2016
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F-3
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Consolidated
Statements of Stockholders’ Equity for the years ended
December 31, 2018, 2017 and 2016
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F-4
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Consolidated
Statements of Cash Flows for the years ended December 31, 2018,
2017 and 2016
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F-5
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Notes
to Consolidated Financial Statements
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F-6
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2.
Consolidated Financial Statement
Schedules
All
schedules are omitted as the information required is inapplicable
or the information is presented in the consolidated financial
statements or the related notes.
3.
Exhibits
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Exhibit
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Number
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Exhibit Description
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Amended
and Restated Certificate of Incorporation of TG Therapeutics, Inc.
dated April 26, 2012 (incorporated by reference to Exhibit 3.2 to
the Registrant’s Form 10-Q for the quarter ended June 30,
2012).
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Certificate
of Amendment to Amended and Restated Certificate of Incorporation
of TG Therapeutics, Inc. dated June 9, 2014 (incorporated by
reference to Exhibit 3.2 to the Registrant’s Form 10-Q for
the quarter ended June 30, 2014).
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Amended
and Restated Bylaws of TG Therapeutics, Inc. dated July 18, 2014
(incorporated by reference to Exhibit 3.1 to the Registrant’s
Current Report on Form 8-K filed on July 21, 2014).
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Specimen
common stock certificate (incorporated by reference to Exhibit 4.1
to the Registrant’s Form 10-K for the year ended December 31,
2011).
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Stockholder
Protection Rights Agreement, dated July 18, 2014 between TG
Therapeutics, Inc. and American Stock Transfer & Trust Company,
LLC, as Rights Agent (incorporated by reference to Exhibit 4.1 to
the Registrant’s Current Report on Form 8-K filed on July 21,
2014).
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Amended
and Restated Convertible Promissory Note, dated March 1, 2011
(incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed on March 7,
2011).
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73
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Employment
Agreement, effective December 29, 2011, between the Registrant and
Michael Weiss (incorporated by reference to Exhibit 10.30 to the
Registrant’s Form 10-K for the fiscal year ended December 31,
2011). †
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Restricted
Stock Subscription Agreement, effective December 29, 2011, between
the Registrant and Michael Weiss (incorporated by reference to
Exhibit 10.31 to the Registrant’s Form 10-K for the fiscal
year ended December 31, 2011). †
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Amendment
to Restricted Stock Agreement, dated July 12, 2013, by and between
TG Therapeutics, Inc. and Michael S. Weiss (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report
on Form 8-K filed on July 16, 2013). †
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Amendment
to Restricted Stock Agreements, dated December 31, 2014, by and
between TG Therapeutics, Inc. and Michael S. Weiss (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report
on Form 8-K filed on January 7, 2015). †
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Employment
Agreement, effective December 29, 2011, between the Registrant and
Sean Power (incorporated by reference to Exhibit 10.32 to the
Registrant’s Form 10-K for the fiscal year ended December 31,
2011). †
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Restricted
Stock Subscription Agreement, effective December 29, 2011 between
the Registrant and Sean Power (incorporated by reference to Exhibit
10.33 to the Registrant’s Form 10-K for the fiscal year ended
December 31, 2011). †
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Amendment
to Restricted Stock Agreement, dated July 12, 2013, by and between
TG Therapeutics, Inc. and Sean A. Power (incorporated by reference
to Exhibit 10.2 to the Registrant’s Current Report on Form
8-K filed on July 16, 2013). †
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Amendment
to Restricted Stock Agreements, dated December 31, 2014, by and
between TG Therapeutics, Inc. and Sean A. Power (incorporated by
reference to Exhibit 10.2 to the Registrant’s Current Report
on Form 8-K filed on January 7, 2015). †
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License
Agreement, dated January 30, 2012, by and among the Registrant, GTC
Biotherapeutics, Inc., LFB Biotechnologies S.A.S. and LFB/GTC LLC
(incorporated by reference to Exhibit 10.35 to the
Registrant’s Form 10-K for the fiscal year ended December 31,
2011). *
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TG
Therapeutics, Inc. Amended and Restated 2012 Incentive Plan, dated
May 14, 2012 (incorporated by reference to Exhibit 10.1 to the
Registrant’s Form 10-Q/A for the quarter ended March 31,
2012).
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10.12
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First
Amendment to TG Therapeutics, Inc. Amended and Restated 2012
Incentive Plan, filed with the Registrant’s Definitive Proxy
Statement for the Annual Meeting of Stockholders on June 4, 2015,
filed on April 24, 2015, and incorporated herein by
reference.
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Sublicense
Agreement between TG Therapeutics, Inc. and Ildong Pharmaceutical
Co. Ltd., dated November 13, 2012 (incorporated by reference to
Exhibit 10.37 to the Registrant’s Form 10-K for the fiscal
year ended December 31, 2012). *
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License
Agreement between TG Therapeutics, Inc. and Ligand Pharmaceuticals
Incorporated, dated June 23, 2014 (incorporated by reference to
Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter
ended June 30, 2014).*
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Licensing
Agreement between TG Therapeutics, Inc. and Rhizen Pharmaceuticals
SA, dated September 22, 2014 (incorporated by reference to Exhibit
10.1 to the Registrant’s Current Report on Form 8-K filed on
January 20, 2015). *
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74
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Collaboration
Agreement between TG Therapeutics, Inc. and Checkpoint
Therapeutics, Inc., dated March 3, 2015 (incorporated by reference
to Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter
ended March 31, 2015). *
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Sublicense
Agreement between TG Therapeutics, Inc. and Checkpoint
Therapeutics, Inc., dated May 27, 2016, (incorporated by reference
to Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter
ended June 30, 2016). *
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Amendment
to Employment Agreement, effective January 1, 2017, between TG
Therapeutics, Inc. and Michael S. Weiss (incorporated by reference
to Exhibit 10.18 to the Registrant’s Form 10-K/A for the year
ended December 31, 2016). †
|
|
|
|
|
|
Advisory
Agreement, effective January 1, 2017, between TG Therapeutics, Inc.
and Caribe BioAdvisors, LLC (incorporated by reference to Exhibit
10.19 to the Registrant’s Form 10-K/A for the year ended
December 31, 2016).
|
|
|
|
|
|
License
Agreement between TG Therapeutics, Inc. and Jiangsu Hengrui
Medicine Co., dated January 8, 2018 (incorporated by reference to
Exhibit 10.20 to the Registrant’s Form 10-K for the year
ended December 31, 2017). *
|
|
|
|
|
|
Joint
Venture and License Option Agreement by and between TG
Therapeutics, Inc. and Novimmune S.A., dated June 18, 2018
(incorporated by reference to Exhibit 10.20 to the
Registrant’s Form 10-Q for the quarter ended June 30, 2018).
*
|
|
|
|
|
|
Master
Services Agreement, effective February 21, 2018. # *
|
|
|
|
|
|
Subsidiaries
of TG Therapeutics, Inc.
|
|
|
|
|
|
Consent
of Independent Registered Public Accounting Firm
|
|
|
|
|
|
Certification
of Principal Executive Officer
|
|
|
|
|
|
Certification
of Principal Financial Officer
|
|
|
|
|
|
Certification
of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
Certification
of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
101
|
The
following financial information from TG Therapeutics, Inc.’s
Annual Report on Form 10-K for the year ended
December 31, 2018, formatted in XBRL (eXtensible Business
Reporting Language): (i) Consolidated Balance Sheets,
(ii) Consolidated Statements of Operations, (iii) Consolidated
Statements of Stockholders’ Equity, (iv) Consolidated
Statements of Cash Flows, (v) the Notes to Consolidated
Financial Statements.
|
#
Filed
Herewith.
†
Indicates
management contract or compensatory plan or
arrangement.
*
Confidential
treatment has been requested with respect to omitted portions of
this exhibit.
75
Consolidated Financial Statements
|
|
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
|
|
Consolidated
Balance Sheets as of December 31, 2018 and 2017
|
F-2
|
|
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2018,
2017 and 2016
|
F-3
|
|
|
|
|
Consolidated
Statements of Stockholders’ Equity for the years ended
December 31, 2018, 2017 and 2016
|
F-4
|
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2018,
2017 and 2016
|
F-5
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
F-6
|
76
Report of Independent Registered Public Accounting
Firm
To the
Board of Directors and Stockholders
TG
Therapeutics, Inc.
Opinion on the Consolidated Financial Statements
We have
audited the accompanying consolidated balance sheets of TG
Therapeutics, Inc. (the “Company”) as of December 31,
2018 and 2017, and the related consolidated statements of
operations, stockholders’ equity and cash flows for each of
the three years in the period ended December 31, 2018, and the
related notes (collectively referred to as the consolidated
financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2018, and 2017,
and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2018, in
conformity with accounting principles generally accepted in the
United States of America.
We also
have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States) (PCAOB), the
Company’s internal control over financial reporting as of
December 31, 2018, based on criteria established in Internal Control—Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO), and our report dated March 1,
2019, expressed an unqualified opinion.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements. We
believe that our audits provide a reasonable basis for our
opinion.
/s/
CohnReznick LLP
We have
served as the Company’s auditor since 2003.
New
York, New York
March
1, 2019
F-1
TG Therapeutics, Inc. and Subsidiaries
Consolidated Balance Sheets as of December 31
(in thousands, except share and per share amounts)
|
|
2018
|
2017
|
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$41,958
|
$56,718
|
|
Short-term
investment securities
|
26,848
|
27,999
|
|
Interest
receivable
|
95
|
108
|
|
Prepaid research
and development
|
9,691
|
8,056
|
|
Other current
assets
|
439
|
437
|
|
Total current
assets
|
79,031
|
93,318
|
|
Restricted
cash
|
1,241
|
587
|
|
Leasehold interest,
net
|
2,294
|
2,429
|
|
Equipment,
net
|
251
|
248
|
|
Goodwill
|
799
|
799
|
|
Total
assets
|
$83,616
|
$97,381
|
|
|
|
|
|
Liabilities
and stockholders’ equity
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts payable
and accrued expenses
|
$36,377
|
$25,877
|
|
Accrued
compensation
|
2,258
|
1,800
|
|
Current portion of
deferred revenue
|
152
|
152
|
|
Notes
payable
|
67
|
128
|
|
Total current
liabilities
|
38,854
|
27,957
|
|
Deferred
rent
|
1,462
|
1,364
|
|
Deferred revenue,
net of current portion
|
914
|
1,067
|
|
Long-term
liabilities
|
18,350
|
--
|
|
Total
liabilities
|
59,580
|
30,388
|
|
Commitments and
contingencies
|
|
|
|
Stockholders’
equity:
|
|
|
|
Preferred stock,
$0.001 par value per share (10,000,000 shares authorized, none
issued and outstanding as of December 31, 2018 and
2017)
|
--
|
--
|
|
Common stock,
$0.001 par value per share (150,000,000 shares authorized,
83,911,855 and 73,181,750 shares issued, 83,870,546 and 73,140,441
shares outstanding at December 31, 2018 and 2017,
respectively)
|
84
|
73
|
|
Additional paid-in
capital
|
552,531
|
422,017
|
|
Treasury stock, at
cost, 41,309 shares at December 31, 2018 and 2017
|
(234)
|
(234)
|
|
Accumulated
deficit
|
(528,345)
|
(354,863)
|
|
Total
stockholders’ equity
|
24,036
|
66,993
|
|
Total liabilities
and stockholders’ equity
|
$83,616
|
$97,381
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-2
TG Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Operations for the Years Ended December
31
(in thousands, except share and per share amounts)
|
|
2018
|
2017
|
2016
|
|
|
|
|
|
|
License
revenue
|
$152
|
$152
|
$152
|
|
|
|
|
|
|
Costs and
expenses:
|
|
|
|
|
Research and
development:
|
|
|
|
|
Non
cash stock expense associated with in-licensing
agreements
|
4,000
|
--
|
--
|
|
Noncash
compensation
|
5,598
|
5,647
|
2,742
|
|
Other
research and development
|
149,793
|
96,886
|
66,490
|
|
Total research and
development
|
159,391
|
102,533
|
69,232
|
|
|
|
|
|
|
General and
administrative:
|
|
|
|
|
Noncash compensation
|
7,288
|
10,298
|
4,767
|
|
Other general and
administrative
|
7,873
|
6,033
|
5,122
|
|
Total general and
administrative
|
15,161
|
16,331
|
9,889
|
|
|
|
|
|
|
Total costs and
expenses
|
174,552
|
118,864
|
79,121
|
|
|
|
|
|
|
Operating
loss
|
(174,400)
|
(118,712)
|
(78,969)
|
|
|
|
|
|
|
Other (income)
expense:
|
|
|
|
|
Interest
income
|
(857)
|
(295)
|
(323)
|
|
Other (income)
expense
|
(61)
|
59
|
(393)
|
|
Total other income,
net
|
(918)
|
(236)
|
(716)
|
|
|
|
|
|
|
Net
loss
|
$(173,482)
|
$(118,476)
|
$(78,253)
|
|
|
|
|
|
|
Basic and diluted
net loss per common share
|
$(2.30)
|
$(1.91)
|
$(1.60)
|
|
|
|
|
|
|
Weighted average
shares used in computing basic and diluted net loss per common
share
|
75,466,813
|
62,069,570
|
49,041,354
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
TG Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity for the Years
Ended December 31, 2018, 2017 and 2016
(in thousands, except share amounts)
|
|
Common
Stock
|
Contingently
issuable
|
Additional Paid-in
|
Treasury
Stock
|
Accumulated
|
|
||
|
|
Shares
|
Amount
|
Shares
|
Capital
|
Shares
|
Amount
|
Deficit
|
Total
|
|
Balance at January 1,
2016
|
54,095,110
|
54
|
6
|
259,887
|
41,309
|
(234)
|
(158,134)
|
101,573
|
|
Issuance of common stock in
connection with exercise of warrants
|
273,370
|
*
|
|
618
|
|
|
|
618
|
|
Issuance of common stock in
connection with conversion of notes payable
|
3,710
|
*
|
|
33
|
|
|
|
33
|
|
Issuance of restricted
stock
|
1,924,639
|
2
|
|
(2)
|
|
|
|
--
|
|
Forfeiture of restricted
stock
|
(46,773)
|
*
|
|
*
|
|
|
|
--
|
|
Issuance of common stock in
At-the-Market offering (net of offering costs of $0.1
million)
|
570,366
|
*
|
|
4,386
|
|
|
|
4,386
|
|
Compensation in respect of
restricted stock granted to employees, directors and
consultants
|
|
|
|
7,510
|
|
|
|
7,510
|
|
Adjustment to contingently issuable
shares
|
|
|
(6)
|
*
|
|
|
|
--
|
|
Net loss
|
|
|
|
|
|
|
(78,253)
|
(78,253)
|
|
Balance at December 31,
2016
|
56,820,422
|
57
|
--
|
272,432
|
41,309
|
(234)
|
(236,387)
|
35,868
|
|
Issuance of common stock in
connection with exercise of warrants
|
887,585
|
*
|
|
2,142
|
|
|
|
2,143
|
|
Issuance of restricted
stock
|
1,836,511
|
2
|
|
(2)
|
|
|
|
--
|
|
Forfeiture of restricted
stock
|
(53,875)
|
|
|
*
|
|
|
|
--
|
|
Issuance of common stock in public
offering (net of offering costs of $3.6
million)
|
5,897,436
|
6
|
|
53,634
|
|
|
|
53,640
|
|
Issuance of common stock in
At-the-Market offering (net of offering costs of $1.1
million)
|
7,793,671
|
8
|
|
77,865
|
|
|
|
77,873
|
|
Compensation in respect of
restricted stock granted to employees, directors and
consultants
|
|
|
|
15,945
|
|
|
|
15,945
|
|
Net loss
|
|
|
|
|
|
|
(118,476)
|
(118,476)
|
|
Balance at December 31,
2017
|
73,181,750
|
73
|
--
|
422,017
|
41,309
|
(234)
|
(354,863)
|
66,993
|
|
Issuance of restricted
stock
|
1,562,211
|
2
|
|
(2)
|
|
|
|
--
|
|
Forfeiture of restricted
stock
|
(191,196)
|
*
|
|
*
|
|
|
|
--
|
|
Issuance of common stock in
At-the-Market offerings (net of offering costs of $2.0
million)
|
9,025,222
|
9
|
|
113,630
|
|
|
|
113,639
|
|
Compensation in respect of
restricted stock granted to employees, directors and
consultants
|
|
|
|
12,886
|
|
|
|
12,886
|
|
Shares issued in connection with
in-licensing agreements
|
333,868
|
*
|
|
4,000
|
|
|
|
4,000
|
|
Net loss
|
|
|
|
|
|
|
(173,482)
|
(173,482)
|
|
Balance at December 31,
2018
|
83,911,855
|
$84
|
$--
|
$552,531
|
41,309
|
$(234)
|
$(528,345)
|
$24,036
|
* Amount less than one thousand dollars.
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
TG Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows for the Years Ended December
31
(in thousands)
|
|
2018
|
2017
|
2016
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Consolidated net
loss
|
$(173,482)
|
$(118,476)
|
$(78,253)
|
|
Adjustments to
reconcile consolidated net loss to net cash used in operating
activities:
|
|
|
|
|
Gain on sale of
long-term securities
|
--
|
--
|
(33)
|
|
Noncash stock
compensation expense
|
12,886
|
15,945
|
7,510
|
|
Shares issued in
connection with in-licensing agreement
|
4,000
|
--
|
--
|
|
Depreciation and
amortization
|
88
|
82
|
63
|
|
Amortization of
premium on investment securities
|
(119)
|
61
|
459
|
|
Change in fair
value of notes payable and accrued interest
|
(61)
|
59
|
(110)
|
|
Changes in assets
and liabilities:
|
|
|
|
|
(Increase) decrease
in other current assets
|
(1,638)
|
(2,665)
|
3,565
|
|
Decrease (increase)
in leasehold interest
|
135
|
125
|
(2,042)
|
|
Decrease (increase)
in accrued interest receivable
|
14
|
(25)
|
102
|
|
Decrease (increase)
in other assets
|
--
|
162
|
(5)
|
|
Increase in
accounts payable and accrued expenses
|
10,957
|
11,020
|
6,493
|
|
Increase in other
liabilities
|
18,350
|
--
|
--
|
|
Increase in
deferred rent
|
97
|
104
|
816
|
|
Decrease in
deferred revenue
|
(152)
|
(152)
|
(152)
|
|
Net cash used in
operating activities
|
(128,925)
|
(93,760)
|
(61,587)
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
|
|
Proceeds from
maturity of short-term securities
|
32,500
|
19,800
|
29,500
|
|
Investment in
held-to-maturity securities
|
(31,230)
|
(28,006)
|
(15,200)
|
|
Purchases of
equipment
|
(90)
|
(2)
|
(344)
|
|
Proceeds from the
sale of long-term securities
|
--
|
-
|
12,589
|
|
Net cash provided
by (used in) investing activities
|
1,180
|
(8,208)
|
26,545
|
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Proceeds from sale
of common stock, net
|
113,639
|
131,516
|
4,411
|
|
Proceeds from the
exercise of warrants
|
--
|
2,143
|
618
|
|
Deferred financing
costs paid
|
--
|
--
|
(13)
|
|
Net cash provided
by financing activities
|
113,639
|
133,659
|
5,016
|
|
|
|
|
|
|
NET (DECREASE)
INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
(14,106)
|
31,691
|
(30,026)
|
|
|
|
|
|
|
CASH, CASH
EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR
|
57,305
|
25,614
|
55,640
|
|
|
|
|
|
|
CASH, CASH
EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR
|
$43,199
|
$57,305
|
$25,614
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to
amounts on consolidated balance sheets:
|
|
|
|
|
Cash and cash
equivalents
|
$41,958
|
$56,718
|
$25,031
|
|
Restricted cash
|
1,241
|
587
|
583
|
|
Total cash, cash equivalents and restricted cash
|
$43,199
|
$57,305
|
$25,614
|
|
|
|
|
|
|
NONCASH
TRANSACTIONS
|
|
|
|
|
Reclassification of
deferred financing costs to additional paid-in
capital
|
$--
|
$(3)
|
$(25)
|
|
Conversion of
convertible notes payable to common stock
|
$--
|
$--
|
$33
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
TG Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Unless the context requires otherwise, references in this report to
“TG,” “Company,” “we,”
“us” and “our” refer to TG Therapeutics,
Inc. and our subsidiaries.
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
DESCRIPTION OF BUSINESS
We are a
biopharmaceutical company dedicated to developing and delivering
medicines for patients with B-cell mediated diseases, including
Chronic Lymphocytic Leukemia (CLL), non-Hodgkin’s Lymphoma
(NHL) and Multiple Sclerosis (MS). We have developed a robust
B-cell directed research and development (R&D) platform for
identification of key B-cell pathways of interest and rapid
clinical testing. Currently, we have five B-cell targeted drug
candidates in clinical development, with the lead two therapies,
ublituximab (TG-1101) and umbralisib (TGR-1202), in pivotal trials
for CLL, NHL and MS. Ublituximab is a novel anti-CD20 monoclonal
antibody (mAb) that has been glycoengineered for enhanced potency
over first generation antibodies. Umbralisib is an oral, once daily
inhibitor of PI3K delta. Umbralisib also uniquely inhibits
CK1-epsilon, which may allow it to overcome certain tolerability
issues associated with first generation PI3K delta inhibitors. When
used together in combination therapy, ublituximab and umbralisib
are referred to as ("U2"), or "1303". Additionally, in early
clinical development we have an anti-PD-L1 monoclonal antibody
referred to as TG-1501, an oral Bruton’s Tyrosine Kinase
(“BTK”) inhibitor referred to as TG-1701, and an
anti-CD47/CD19 bispecific antibody referred to as
TG-1801.
We also
actively evaluate complementary products, technologies and
companies for in-licensing, partnership, acquisition and/or
investment opportunities. To date, we have not received approval
for the sale of any of our drug candidates in any market and,
therefore, have not generated any product sales from our drug
candidates.
LIQUIDITY AND CAPITAL RESOURCES
We have
incurred operating losses since our inception, and expect to
continue to incur operating losses for the foreseeable future and
may never become profitable. As of December 31, 2018, we have an
accumulated deficit of $528.3 million.
Our
major sources of cash have been proceeds from the private placement
and public offering of equity securities, and in 2019 from our
loan and security agreement executed
with Hercules (See Note 14 for more information).
We have not yet commercialized any of our drug candidates and
cannot be sure if we will ever be able to do so. Even if we
commercialize one or more of our drug candidates, we may not become
profitable. Our ability to achieve profitability depends on many
factors, including our ability to obtain regulatory approval for
our drug candidates; successfully complete any post-approval
regulatory obligations; and successfully commercialize our drug
candidates alone or in partnership. We may continue to incur
substantial operating losses even if we begin to generate revenues
from our drug candidates.
As of
December 31, 2018, we had $68.9 million in cash and cash
equivalents, investment securities, and interest receivable. The
Company believes its cash, cash equivalents, investment securities,
and interest receivable on hand as of December 31, 2018 combined
with the additional capital being raised in the first quarter of
2019 and flexible vendor payment arrangements (see Notes 6 and 14)
will be sufficient to fund the Company’s planned operations
into mid 2020. The actual amount of cash that we will need to
operate is subject to many factors, including, but not limited to,
the timing, design and conduct of clinical trials for our drug
candidates. We are dependent upon significant future financing to
provide the cash necessary to execute our current operations,
including the commercialization of any of our drug
candidates.
Our
common stock is quoted on the Nasdaq
Capital Market and trades under the symbol
“TGTX.”
In
July 2018, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update (“ASU”) No. 2018-11,
“Leases - Targeted Improvements” (“ASU
2018-11”) as an update to ASU 2016-02, Leases (“ASU
2016-02” or “Topic 842”) issued on February 25,
2016. ASU 2016-02 is effective for public business entities for
fiscal years beginning January 1, 2019. ASU 2016-02 required
companies to adopt the new leases standard at the beginning of the
earliest period presented in the financial statements, which is
January 1, 2017, using a modified retrospective transition method
where lessees must recognize lease assets and liabilities for all
leases even though those leases may have expired before the
effective date of January 1, 2017. Lessees must also provide the
new and enhanced disclosures for each period presented, including
the comparative periods.
ASU 2018-11 provides an entity with an additional
(and optional) transition method to adopt the new leases standard.
Under this new transition method, an entity initially applies the
new lease standard at the adoption date and recognizes a
cumulative-effect adjustment to the opening balance of retained
earnings in the period of adoption. Consequently, an entity’s
reporting for the comparative periods presented in the financial
statements in which it adopts the new lease standard will continue
to be in accordance with ASC 840, Leases. An entity that elects
this additional (and optional) transition method must provide the
required ASC 840 disclosures for all periods that continue to be in
accordance with ASC 840. The amendments do not change the existing
disclosure requirements in ASC 840.
F-6
TG Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
ASU 2018-11 is effective for public business
entities for fiscal years beginning after December 15, 2018, and
interim periods within those fiscal years, with earlier adoption
permitted. The Company adopted
ASU 2018-11 on January 1, 2019 using a modified retrospective
method and will not restate comparative periods. We elected the
package of practical expedients permitted under the transition
guidance, which allows us to carryforward our historical lease
classification and our assessment on whether a contract is or
contains a lease. The adoption of this guidance resulted in the
addition of material balances of right of use assets and lease
liabilities to our consolidated balance sheets at January 1, 2019,
primarily relating to our lease of office space (see Note 9). We do
not currently expect a material impact to our consolidated
statements of operations as a result of this
standard.
In
June 2018, the FASB issued ASU No. 2018-07, “Improvements to
Nonemployee Share-Based Payment Accounting” (“ASU
2018-07”). ASU 2018-07 expands the scope of FASB Topic 718,
Compensation – Stock Compensation (“Topic 718”)
to include share-based payment transactions for acquiring goods and
services from nonemployees. An entity should only remeasure
equity-classified awards for which a measurement date has not been
established through a cumulative-effect adjustment to retained
earnings as of the beginning of the fiscal year of adoption. Upon
transition, the entity is required to measure these nonemployee
awards at fair value as of the adoption date. The entity must not
remeasure assets that are completed. Disclosures required at
transition include the nature of and reason for the change in
accounting principle and, if applicable, quantitative information
about the cumulative effect of the change on retained earnings or
other components of equity.
ASU
2018-07 is effective for public business entities for fiscal years
beginning after December 15, 2018, including interim periods within
that fiscal year. Early adoption is permitted, but no earlier than
an entity’s adoption date of Topic 606. The Company adopted
ASU 2018-07 on January 1, 2019. The adoption of ASU 2018-07 did not
have a material effect on our consolidated financial statements as
of January 1, 2019. The adoption of ASU 2018-07 had no impact on
nonemployee performance awards as they are measured based on the
outcome that is probable.
In
May 2017, the FASB issued ASU No. 2017-09, “Scope of
Modification Accounting” (“ASU 2017-09”). ASU
2017-09 provides guidance about which changes to the terms or
conditions of a share-based payment award require an entity to
apply modification accounting. An entity should account for the
effects of a modification unless all the following are
met:
●
The
fair value (or calculated value or intrinsic value, if such an
alternative measurement method is used) of the modified award is
the same as the fair value (or calculated value or intrinsic value,
if such an alternative measurement method is used) of the original
award immediately before the original award is modified. If the
modification does not affect any of the inputs to the valuation
technique that the entity uses to value the award, the entity is
not required to estimate the value immediately before and after the
modification.
●
The
vesting conditions of the modified award are the same as the
vesting conditions of the original award immediately before the
original award is modified.
●
The
classification of the modified award as an equity instrument or a
liability instrument is the same as the classification of the
original award immediately before the original award is
modified.
ASU
2017-09 is effective for annual and interim periods beginning on or
after December 15, 2017. Early adoption is permitted for public
business entities for reporting periods for which financial
statements have not yet been issued, and all other entities for
reporting periods for which financial statements have not yet been
made available for issuance. The amendments should be applied
prospectively to an award modified on or after the adoption date.
The Company adopted ASU 2017-09 on January 1, 2018. The adoption of
ASU 2017-09 did not have a material effect on our consolidated
financial statements as of and for the year ended December 31,
2018.
In
November 2016, the FASB issued ASU No. 2016-18, “Statement of
Cash Flows – Restricted Cash” (“ASU
2016-18”). ASU 2016-18 requires that a statement of cash
flows explain the change during the period for the total of cash,
cash equivalents, and amounts generally described as restricted
cash or restricted cash equivalents. ASU 2016-18 does not provide a
definition of restricted cash or restricted cash equivalents, and
does not change the balance sheet presentation for such items. The
Company adopted ASU 2016-18 on January 1, 2018. The adoption of ASU
2016-18 did not have a material effect on our consolidated
financial statements as of December 31, 2018.
F-7
TG
Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
In
May 2014, the FASB issued ASU No. 2014-09, "Revenue from
Contracts with Customers" (Topic 606) (“ASU 2014-09”),
which supersedes all existing revenue recognition requirements,
including most industry-specific guidance. ASU 2014-09 provides a
single set of criteria for revenue recognition among all
industries. The new standard requires a company to recognize
revenue when it transfers goods or services to customers in an
amount that reflects the consideration that the Company expects to
receive for those goods or services.
ASU
2014-09 includes guidance for determining whether a license
transfers to a customer at a point in time or over time based on
the nature of the entity’s promise to the customer. To
determine whether the entity’s promise is to provide a right
to access its intellectual property or a right to use its
intellectual property, the entity should consider the nature of the
intellectual property to which the customer will have
rights.
ASU
2014-09 is effective for interim and annual periods beginning after
December 15, 2017. The standard allows for two transition
methods - full retrospective, in which the standard is applied to
each prior reporting period presented, or modified retrospective,
in which the cumulative effect of initially applying the standard
is recognized at the date of initial adoption. The Company
adopted ASU 2014-09 on January 1, 2018, using the modified
retrospective approach. The adoption of ASU 2014-09 did not have a
material effect on our consolidated financial statements as of
December 31, 2018.
Other
pronouncements issued by the FASB or other authoritative accounting
standards with future effective dates are either not applicable or
not significant to our condensed consolidated financial
statements.
USE OF ESTIMATES
The preparation of financial statements in
conformity with U.S. generally accepted accounting principles
(“GAAP”) requires management to make estimates and
judgments that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the applicable reporting
period. On an ongoing basis, we evaluate our estimates and
judgments, including those related to accrued expenses and
stock-based compensation. Actual results could differ from
those estimates. Such differences could be material to the
financial statements.
CASH AND CASH EQUIVALENTS
We
treat liquid investments with original maturities of less than
three months when purchased as cash and cash
equivalents.
RESTRICTED CASH
We
record cash pledged or held in trust as restricted cash. As of
December 31, 2018 and December 31, 2017, we have approximately $1.2
million and $0.6 million, respectively, of restricted cash
pledged to secure a line of credit as
a security deposit for an Office Agreement
(see Note 9).
INVESTMENT SECURITIES
Investment
securities at both December 31, 2018 and 2017 consist of short-term
government securities. We classify these securities as
held-to-maturity. Held-to-maturity securities are those securities
in which we have the ability and intent to hold the security until
maturity. Held-to-maturity securities are recorded at amortized
cost, adjusted for the amortization or accretion of premiums or
discounts. Premiums and discounts are amortized or accreted over
the life of the related held-to-maturity security as an adjustment
to yield using the effective interest method.
A
decline in the market value of any investment security below cost,
that is deemed to be other than temporary, results in a reduction
in the carrying amount to fair value. The impairment is charged to
operations and a new cost basis for the security is established.
Other-than-temporary impairment charges are included in interest
and other income (expense), net. Unrealized gains, if determined to
be temporary, are included in accumulated other comprehensive
income in equity. Dividend and interest income are recognized when
earned.
CREDIT RISK
Financial
instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash and cash equivalents and
short-term investments. The Company maintains its cash and cash
equivalents and short-term investments with high-credit quality
financial institutions. At times, such amounts may exceed
federally-insured limits.
F-8
TG
Therapeutics, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
REVENUE RECOGNITION
Effective January
1, 2018, the Company began recognizing revenue under ASC Topic 606,
Revenue from Contracts with
Customers (“ASC 606”), using the modified
retrospective transition method. The impact of adopting the
new revenue standard was not material to our consolidated financial
statements and there was no adjustment to beginning retained
earnings on January 1, 2018. The core principle of
this new revenue standard is that a company should recognize
revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the
company expects to be entitled in exchange for those goods or
services. The following five steps are applied to achieve that core
principle:
●
Step 1: Identify
the contract with the customer
●
Step 2: Identify
the performance obligations in the contract
●
Step 3: Determine
the transaction price
●
Step 4: Allocate
the transaction price to the performance obligations in the
contract
●
Step 5: Recognize
revenue when the company satisfies a performance
obligation
In
order to identify the performance obligations in a contract with a
customer, a company must assess the promised goods or services in
the contract and identify each promised good or service that is
distinct. A performance obligation meets ASC 606’s definition
of a “distinct” good or service (or bundle of goods or
services) if both of the following criteria are met:
●
The customer can
benefit from the good or service either on its own or together with
other resources that are readily available to the customer (i.e.,
the good or service is capable of being distinct).
●
The entity’s
promise to transfer the good or service to the customer is
separately identifiable from other promises in the contract (i.e.,
the promise to transfer the good or service is distinct within the
context of the contract).
If a
good or service is not distinct, the good or service is combined
with other promised goods or services until a bundle of goods or
services is identified that is distinct.
The
transaction price is the amount of consideration to which an entity
expects to be entitled in exchange for transferring promised goods
or services to a customer, excluding amounts collected on behalf of
third parties (for example, some sales taxes). The consideration
promised in a contract with a customer may include fixed amounts,
variable amounts, or both. Variable consideration is included in
the transaction price only to the extent that it is probable that a
significant reversal in the amount of cumulative revenue recognized
will not occur when the uncertainty associated with the variable
consideration is subsequently resolved.
The
transaction price is allocated to each performance obligation on a
relative standalone selling price basis. The transaction price
allocated to each performance obligation is recognized when that
performance obligation is satisfied, at a point in time or over
time as appropriate.
F-9
TG Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
RESEARCH AND DEVELOPMENT COSTS
Generally, research and development costs are
expensed as incurred. Nonrefundable advance payments for goods or
services that will be used or rendered for future research and
development activities are deferred and amortized over the period
that the goods are delivered or the related services are performed,
subject to an assessment of recoverability. We make estimates of
costs incurred in relation to external clinical research
organizations, or CROs, and clinical site costs. We analyze the
progress of clinical trials, including levels of patient
enrollment, invoices received and contracted costs when evaluating
the adequacy of the amount expensed and the related prepaid asset
and accrued liability. Significant judgments and estimates must be
made and used in determining the accrued balance and expense in any
accounting period. We review and accrue CRO expenses and clinical
trial study expenses based on work performed and rely upon
estimates of those costs applicable to the stage of completion of a
study. Accrued CRO costs are subject to revisions as such trials
progress to completion. Revisions are charged to expense in the
period in which the facts that give rise to the revision become
known. With respect to clinical site costs, the financial terms of
these agreements are subject to negotiation and vary from contract
to contract. Payments under these contracts may be uneven, and
depend on factors such as the achievement of certain events, the
successful recruitment of patients, the completion of portions of
the clinical trial or similar conditions. The objective of our
policy is to match the recording of expenses in our financial
statements to the actual services received and efforts expended. As
such, expense accruals related to clinical site costs are
recognized based on our estimate of the degree of completion of the
event or events specified in the specific clinical study or trial
contract.
Prepaid
research and development in our consolidated balance sheets
includes, among other things, costs related to agreements with
CRO’s, certain costs to third party service providers related
to development and manufacturing services as well as clinical
development. These agreements often require payments in advance of
services performed or goods received. Accordingly, as of December
31, 2018 and December 31, 2017, we recorded approximately $9.7
million and $8.1 million, respectively, in prepaid research and
development related to such advance agreements.
INCOME TAXES
Income
taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases, operating losses and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
operations in the period that includes the enactment date. If the
likelihood of realizing the deferred tax assets or liability is
less than “more likely than not,” a valuation allowance
is then created.
We,
and our subsidiaries, file income tax returns in the U.S. Federal
jurisdiction and in various states. We have tax net operating loss
carryforwards that are subject to examination for a number of years
beyond the year in which they were generated for tax purposes.
Since a portion of these net operating loss carryforwards may be
utilized in the future, many of these net operating loss
carryforwards will remain subject to examination. We recognize
interest and penalties related to uncertain income tax positions in
income tax expense. Refer to Note 7 for further information for
impact of tax reform.
STOCK-BASED COMPENSATION
We recognize all share-based
payments to employees and non-employee directors (as compensation
for service) as noncash compensation expense in the condensed
consolidated financial statements based on the fair values of such
payments. Stock-based compensation expense recognized each period
is based on the value of the portion of share-based payment awards
that is ultimately expected to vest during the period. Forfeitures
are estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates.
F-10
TG Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For share-based payments to
consultants and other third-parties (including related parties),
noncash compensation expense is determined at the
“measurement date.” The expense is recognized over the
vesting period of the award. Until the measurement date is reached,
the total amount of compensation expense remains uncertain. We
record compensation expense based on the fair value of the award at
the reporting date. The awards to consultants and other
third-parties (including related parties) are then revalued, or the
total compensation is recalculated based on the then current fair
value, at each subsequent reporting date.
In addition, because some of
the restricted stock issued to employees, consultants and other
third-parties vest upon achievement of certain milestones, the
total expense is uncertain. Compensation expense for such awards
that vest upon the achievement of milestones is recognized when the
achievement of such milestones becomes probable.
BASIC AND DILUTED NET LOSS PER COMMON SHARE
Basic
net loss per share of our common stock is calculated by dividing
net loss applicable to the common stock by the weighted-average
number of our common stock outstanding for the period. Diluted net
loss per share of common stock is the same as basic net loss per
share of common stock since potentially dilutive securities from
stock options, stock warrants and convertible preferred stock would
have an antidilutive effect either because we incurred a net loss
during the period presented or because such potentially dilutive
securities were out of the money and the Company realized net
income during the period presented. The amounts of potentially
dilutive securities excluded from the calculation were 6,528,932,
4,835,706 and 8,033,779 at December 31, 2018, 2017 and 2016,
respectively. During the years ended December 31, 2018, 2017 and
2016 the Company incurred a net loss, therefore, all of the
securities are antidilutive and excluded from the computation of
diluted loss per share.
|
|
December
31,
|
||||
|
|
2018
|
|
2017
|
|
2016
|
|
Unvested
restricted stock
|
4,595,689
|
|
4,820,143
|
|
7,142,055
|
|
Options
|
1,916,900
|
|
--
|
|
--
|
|
Shares
issuable upon note conversion
|
16,343
|
|
15,563
|
|
14,812
|
|
Warrants
|
--
|
|
--
|
|
876,912
|
|
Total
|
6,528,932
|
|
4,835,706
|
|
8,033,779
|
LONG-LIVED ASSETS AND GOODWILL
Long-lived
assets are reviewed for potential impairment when circumstances
indicate that the carrying value of long-lived tangible and
intangible assets with finite lives may not be recoverable.
Management’s policy in determining whether an impairment
indicator exists, a triggering event, comprises measurable
operating performance criteria as well as qualitative measures. If
an analysis is necessitated by the occurrence of a triggering
event, we make certain assumptions in determining the impairment
amount. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized.
Goodwill
is reviewed for impairment annually, or earlier when events arise
that could indicate that an impairment exists. We test for goodwill
impairment using a two-step process. The first step compares the
fair value of the reporting unit with the unit's carrying value,
including goodwill. When the carrying value of the reporting unit
is greater than fair value, the unit’s goodwill may be
impaired, and the second step must be completed to measure the
amount of the goodwill impairment charge, if any. In the second
step, the implied fair value of the reporting unit’s goodwill
is compared with the carrying amount of the unit’s goodwill.
If the carrying amount is greater than the implied fair value, the
carrying value of the goodwill must be written down to its implied
fair value. We will continue to perform impairment tests annually,
at December 31, and whenever events or changes in circumstances
suggest that the carrying value of an asset may not be recoverable.
There was no impairment to goodwill as of December 31,
2018.
F-11
TG Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – CASH AND CASH EQUIVALENTS
The
following tables summarize our cash and cash equivalents at
December 31, 2018 and 2017:
|
(in
thousands)
|
December 31, 2018
|
December 31, 2017
|
|
|
|
|
|
Checking and bank
deposits
|
$39,268
|
$55,682
|
|
Money market
funds
|
2,690
|
1,036
|
|
Total
|
$41,958
|
$56,718
|
NOTE 3 – INVESTMENT SECURITIES
Our
investments as of December 31, 2018 and 2017 are classified as
held-to-maturity. Held-to-maturity investments are recorded at
amortized cost.
The
following tables summarize our investment securities at December
31, 2018 and 2017:
|
(in
thousands)
|
December 31, 2018
|
|||
|
|
Amortized cost, as adjusted
|
Gross unrealized holding gains
|
Gross unrealized holding losses
|
Estimated fair value
|
|
Short-term
investments:
|
|
|
|
|
|
Obligations of
domestic governmental agencies (maturing between January 2019 and
November 2019) (held-to-maturity)
|
$26,848
|
$2
|
$10
|
$26,840
|
|
Total
short-term investment securities
|
$26,848
|
$2
|
$10
|
$26,840
|
|
|
December
31, 2017
|
|||
|
|
Amortized
cost, as adjusted
|
Gross
unrealized holding gains
|
Gross
unrealized holding losses
|
Estimated
fair value
|
|
Short-term
investments:
|
|
|
|
|
|
Obligations of
domestic governmental agencies (maturing between January 2018 and
November 2018) (held-to-maturity)
|
$27,999
|
$--
|
$35
|
$27,964
|
|
Total
short-term investment securities
|
$27,999
|
$--
|
$35
|
$27,964
|
NOTE 4 – FAIR VALUE MEASUREMENTS
We
measure certain financial assets and liabilities at fair value on a
recurring basis in the financial statements. The fair value
hierarchy ranks the quality and reliability of inputs, or
assumptions, used in the determination of fair value and requires
financial assets and liabilities carried at fair value to be
classified and disclosed in one of the following three
categories:
●
Level 1
– quoted prices in active markets for identical assets and
liabilities;
●
Level 2
– inputs other than Level 1 quoted prices that are directly
or indirectly observable; and
●
Level 3
– unobservable inputs that are not corroborated by market
data.
F-12
TG Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of
December 31, 2018 and 2017, the fair values of cash and cash
equivalents, restricted cash, and notes and interest payable
approximate their carrying value.
At the time of our merger (we were then known as Manhattan
Pharmaceuticals, Inc. (“Manhattan”)) with Ariston
Pharmaceuticals, Inc. (“Ariston”) in March 2010,
Ariston issued $15.5 million of five-year 5% notes payable (the
“5% Notes”) in satisfaction of several note payable
issuances. The 5% Notes and accrued and unpaid interest
thereon are convertible at the option of the holder into common
stock at the conversion price of $1,125 per
share. Ariston agreed to make quarterly payments on the
5% Notes equal to 50% of the net product cash flow received
from the exploitation or commercialization of Ariston’s
product candidates, AST-726 and AST-915. We have no
obligations under the 5% Notes aside from a) 50% of the net product
cash flows from Ariston’s product candidates, if any, payable
to noteholders; and b) the conversion feature, discussed
above.
The cumulative
liability including accrued and unpaid interest of the 5% Notes was
approximately $18.4 million at December 31, 2018 and $17.5 million
at December 31, 2017. No payments have been made on the 5%
Notes as of December 31, 2018.
In
December 2011, we elected the fair value option for valuing the 5%
Notes. The fair value option was elected in order to reflect in our
financial statements the assumptions that market participants use
in evaluating these financial instruments.
As of
December 31, 2013, as a result of expiring intellectual property
rights and other factors, it was determined that net product cash
flows from AST-726 were unlikely. As we have no other obligations
under the 5% Notes aside from the net product cash flows and the
conversion feature, the conversion feature was used to estimate the
5% Notes’ fair value as of December 31, 2018 and 2017. The
assumptions, assessments and projections of future revenues are
subject to uncertainties, difficult to predict, and require
significant judgment. The use of different assumptions, applying
different judgment to inherently subjective matters and changes in
future market conditions could result in significantly different
estimates of fair value and the differences could be material to
our consolidated financial statements.
The
following tables provide the fair value measurements of applicable
financial liabilities as of December 31, 2018 and
2017:
|
(in
thousands)
|
Financial
liabilities at fair value as of December 31, 2018
|
|||
|
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|
|
|
|
|
|
|
5%
Notes
|
$--
|
$--
|
$67
|
$67
|
|
Total
|
$--
|
$--
|
$67
|
$67
|
|
|
Financial
liabilities at fair value as of December 31, 2017
|
|||
|
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|
|
|
|
|
|
|
5%
Notes
|
$--
|
$--
|
$128
|
$128
|
|
Total
|
$--
|
$--
|
$128
|
$128
|
The
Level 3 amounts above represent the fair value of the 5% Notes and
related accrued interest.
F-13
TG Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The
following table summarizes the changes in Level 3 instruments for
the years ended December 31, 2017 and 2018:
(in
thousands)
|
Balance at January
1, 2017
|
$69
|
|
Interest
accrued on face value of 5% Notes
|
845
|
|
Conversion
of 5% Notes
|
--
|
|
Change
in fair value of Level 3 liabilities
|
(786)
|
|
Balance at December
31, 2017
|
128
|
|
Interest
accrued on face value of 5% Notes
|
878
|
|
Conversion
of 5% Notes
|
--
|
|
Change
in fair value of Level 3 liabilities
|
(939)
|
|
Balance at December
31, 2018
|
$67
|
The
change in the fair value of the Level 3 liabilities is reported in
other (income) expense in the accompanying consolidated statements
of operations.
NOTE 5 – STOCKHOLDERS’ EQUITY
Preferred Stock
Our
amended and restated certificate of incorporation authorizes the
issuance of up to 10,000,000 shares of preferred stock, $0.001 par
value, with rights senior to those of our common stock,
issuable in
one or more series. Upon issuance, the Company can determine the
rights, preferences, privileges and restrictions thereof. These
rights, preferences and privileges could include dividend rights,
conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, any or
all of which may be greater than the rights of common
stock.
Stockholder Rights Plan
On
July 18, 2014, we adopted a stockholder rights plan. The
stockholder rights plan is embodied in the Stockholder Protection
Rights Agreement dated as of July 18, 2014 (the "Rights
Agreement"), between us and American Stock Transfer & Trust
Company, LLC, as rights agent (the "Rights Agent").
Accordingly,
the Board of Directors declared a distribution of one right (a
“Right”) for each outstanding share of common stock, to
stockholders of record at the close of business on July 28, 2014,
for each share of common stock issued (including shares distributed
from treasury) by us thereafter and prior to the Separation Time
(as defined in the Rights Agreement), and for certain shares of
common stock issued after the Separation Time. Following the
Separation Time, each Right entitles the registered holder to
purchase from us one one-thousandth (1/1,000) of a share of Series
A Junior Participating Preferred Stock, par value $0.001 per share
(the "Preferred Stock"), at a purchase price of $100.00 (the
"Exercise Price"), subject to adjustment. The description and terms
of the Rights are set forth in the Rights Agreement. Each one
one-thousandth of a share of Preferred Stock has substantially the
same rights as one share of common stock. Subject to the terms and
conditions of the Rights Agreement, Rights become exercisable ten
days after the public announcement that a “Person” has
become an “Acquiring Person” (as each such term is
defined in the Rights Agreement). Any Rights held by an Acquiring
Person are void and may not be exercised.
If
a Person becomes an Acquiring Person, all holders of Rights, except
the Acquiring Person, may purchase at the Right’s
then-current exercise price, common stock having a market value
equal to twice the exercise price. Moreover, at any time after a
Person becomes an Acquiring Person (unless such Person acquires 50
percent or more of our common stock then outstanding, as more fully
described in the Rights Agreement), the Board of Directors may
exchange all (but not less than all) of the then outstanding Rights
(other than rights owned by such Person, which would have become
void) for shares of common stock at an exchange ratio of one share
of common stock per Right, appropriately adjusted in order to
protect the interests of holders of Rights.
The
Rights Agreement was approved by our Board of Directors on July 18,
2014. The Rights will expire at the close of business on its ten
year anniversary, unless earlier exchanged or terminated by
us.
F-14
TG
Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Common Stock
Our
amended and restated certificate of incorporation authorizes the
issuance of up to 150,000,000 shares of $0.001 par value common
stock.
In December 2014, we filed a shelf registration statement on Form
S-3 (the "2015 S-3"), which was declared effective in January 2015.
Under the 2015 S-3, the Company may sell up to a total of $250
million of its securities. In connection with the 2015 S-3, we
amended our 2013 At-the-Market Issuance Sales Agreement with MLV
& Co, LLC (“MLV”) (the "2015 ATM") such that we may
issue and sell additional shares of our common stock, having an
aggregate offering price of up to $175.0 million, from time to time
through MLV and FBR Capital Markets & Co. ("FBR", each of MLV
and FBR individually an "Agent" and collectively the "Agents"),
acting as the sales agents. Under the 2015 ATM we pay the Agents a
commission rate of up to 3.0% of the gross proceeds from the sale
of any shares of common stock sold through the Agents.
During the year ended
December 31, 2017, we sold a total of 3,104,253 shares of common stock
under the 2015 ATM for aggregate total gross proceeds of
approximately $31.6 million at an average selling price of $10.18
per share, resulting in net proceeds of approximately $31.0 million
after deducting commissions and other transaction costs. During the
year ended December 31, 2016, we sold a total of 570,366 shares of
common stock under the 2015 ATM for aggregate total gross proceeds
of approximately $4.5 million at an average selling price of $7.88
per share, resulting in net proceeds of approximately $4.4 million
after deducting commissions and other transaction
costs.
In
March 2017, we completed an underwritten public offering of
5,128,206 shares of our common stock (plus a 30-day underwriter
overallotment option to purchase up to an additional 769,230 shares
of common stock, which was exercised) at a price of $9.75 per
share. Net proceeds from this offering, including the overallotment
option, were approximately $54 million, net of underwriting
discounts and offering expenses of approximately $3.6
million.
In May
2017, we filed a shelf registration statement on Form S-3 (the
"2017 S-3"), which was declared effective in June 2017, replacing
the 2015 S-3. Under the 2017 S-3, the Company may sell up to a
total of $300 million of its securities. In connection with the
2017 S-3, we entered into an At-the-Market Issuance Sales Agreement
(the "2017 ATM") with Jefferies LLC, Cantor Fitzgerald & Co.,
FBR Capital Markets & Co., SunTrust Robinson Humphrey, Inc.,
Raymond James & Associates, Inc., Ladenburg Thalmann & Co.
Inc. and H.C. Wainwright & Co., LLC (each a "2017 Agent" and
collectively, the "2017 Agents"), relating to the sale of shares of
our common stock. Under the 2017 ATM we pay the 2017 Agents a
commission rate of up to 3.0% of the gross proceeds from the sale
of any shares of common stock.
During
the year ended December 31, 2017, we sold a total of 4,689,418
shares of common stock under the 2017 ATM for aggregate total gross
proceeds of approximately $47.7 million at an average selling price
of $10.18 per share, resulting in net proceeds of approximately
$46.9 million after deducting commissions and other transactions
costs.
During the year ended December 31, 2018, we sold a total of
9,025,222 shares of common stock under the 2017 ATM for aggregate
total gross proceeds of approximately $115.8 million at an average
selling price of $12.83 per share, resulting in net proceeds of
approximately $113.7 million after deducting commissions and other
transactions costs.
The 2017 S-3 is
currently our only active shelf registration statement. After
deducting shares already sold, there is approximately
$136.5 million of common stock that remains available for sale
under the 2017 S-3 at December 31, 2018. We may offer the
securities under the 2017 S-3 from time to time in response to
market conditions or other circumstances if we believe such a plan
of financing is in the best interests of our stockholders. We
believe that the 2017 S-3 provides us with the flexibility to raise
additional capital to finance our operations as
needed.
Treasury Stock
As
of December 31, 2018 and 2017, 41,309 shares of common stock are
being held in Treasury, at a cost of approximately $234,000,
representing the fair market value on the date the shares were
surrendered to the Company to satisfy employee tax
obligations.
Equity Incentive Plans
The TG
Therapeutics, Inc. Amended and Restated 2012 Incentive Plan
(“2012 Incentive Plan”) was approved by stockholders in
June 2018. Pursuant to this amendment, 6,000,000 shares were added
to the 2012 Incentive Plan. As of
December 31, 2018 and 2017, 1,916,900 and zero options,
respectively, were outstanding and up to an additional 3,216,213
shares may be issued under the 2012 Incentive
Plan.
Effective
as of January 1, 2017, we entered into an amendment (the
“Amendment”) to the employment agreement entered into
as of December 15, 2011 (together with the Amendment, the
“Employment Agreement”) with Michael S. Weiss, our
Executive Chairman and Chief Executive Officer and President. Under
the Amendment, Mr. Weiss will remain as Chief Executive Officer and
President, removing the interim status. Simultaneously, we entered
into a Strategic Advisory Agreement (the “Advisory
Agreement”) with Caribe BioAdvisors, LLC (the
“Advisor”) owned by Mr. Weiss to provide the services
of Mr. Weiss as Chairman of the Board and as Executive Chairman. As
part of the Amendment, Mr. Weiss also agreed to forfeit 3,381,866
restricted shares previously granted under the Employment Agreement
that were predominantly subject to time-based vesting over the next
three years. Simultaneously, (i) Mr. Weiss was issued 418,371
restricted shares under the Employment Agreement that vest in 2018
and 2019 and (ii) the Advisor was issued 2,960,000 restricted
shares under the Advisory Agreement that vested on market
capitalization thresholds ranging from $375 million to $750
million. In accordance with GAAP, there was no incremental stock
compensation expense recognition as a result of the
modification.
F-15
TG Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Stock Options
The
estimated fair value of the options granted in the year ended
December 31, 2018 was determined utilizing the Black-Scholes
option-pricing model at the date of grant. The following table
summarizes stock option activity for the years ended December 31,
2018 (there were no stock options granted during the years ended
December 31, 2017 and 2016):
|
|
Number of shares
|
Weighted- average exercise price
|
Weighted-
average
Contractual
Term
(in
years)
|
Aggregate
intrinsic value
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2017
|
--
|
--
|
--
|
$--
|
|
Granted
|
1,916,900
|
6.50
|
|
|
|
Exercised
|
--
|
--
|
|
|
|
Forfeited
|
--
|
--
|
|
|
|
Expired
|
--
|
--
|
|
|
|
Outstanding at
December 31, 2018
|
1,916,900
|
6.50
|
9.75
|
--
|
|
|
|
|
|
|
|
Exercisable at
December 31, 2018
|
--
|
--
|
--
|
$--
|
As of
December 31, 2018, the stock options outstanding include options
granted to both employees and non-employees which are both
time-based and milestone-based that vest upon certain corporate
milestones. Stock-based compensation will be recorded if and when a
milestone occurs. No expense was recognized during the year ended
December 31, 2018 for these stock options.
The
fair value of the Company's option awards were estimated using the
assumptions below:
|
|
|
Year Ended December 31, 2018
|
|
|
Volatility
|
|
|
192.76-296.71
|
|
Expected
term (in years)
|
|
|
5.0-6.25
|
|
Risk-free
rate
|
|
|
2.49-2.56%
|
|
Expected
dividend yield
|
|
|
--%
|
Restricted Stock
Certain
employees, directors and consultants have been awarded restricted
stock. The restricted stock vesting consists of milestone and
time-based vesting. The following table summarizes restricted share
activity for the years ended December 31, 2018, 2017 and
2016:
|
|
Number
of Shares
|
Weighted
Average Grant Date Fair Value
|
|
Outstanding at
January 1, 2016
|
7,359,915
|
$7.83
|
|
Granted
|
1,924,639
|
4.99
|
|
Vested
|
(595,726)
|
7.38
|
|
Forfeited
|
(46,773)
|
10.34
|
|
Outstanding at
December 31, 2016
|
8,642,055
|
7.20
|
|
Granted
|
1,836,511
|
6.40
|
|
Vested
|
(4,103,048)
|
5.24
|
|
Forfeited
|
(53,875)
|
8.47
|
|
Outstanding at
December 31, 2017
|
6,321,643
|
7.17
|
|
Granted
|
1,562,211
|
13.07
|
|
Vested
|
(1,596,966)
|
9.38
|
|
Forfeited
|
(191,196)
|
8.13
|
|
Outstanding at
December 31, 2018
|
6,095,692
|
$8.07
|
|
|
|
|
F-16
TG Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Total
compensation expense associated with restricted stock grants was
$12.9 million, $15.9 million and $7.5 million during the years
ended December 31, 2018, 2017 and 2016, respectively. As of
December 31, 2018, there was approximately $7.6 million of total
unrecognized compensation expense related to unvested time-based
restricted stock, which is expected to be recognized over a
weighted-average period of 1 year. This amount does not include, as
of December 31, 2018, 1,128,011 shares of restricted stock
outstanding which are milestone-based and vest upon certain
corporate milestones; and 2,103,750 shares of restricted stock
outstanding issued to non-employees. Milestone-based non cash compensation expense will
be measured and recorded if and when a milestone becomes
probable. The expense for non-employee shares is determined
at the “measurement date.” The expense is recognized
over the vesting period of the award. Until the measurement date is
reached, the total amount of compensation expense remains
uncertain. We record compensation expense based on the fair value
of the award at the reporting date.
Warrants
The
following table summarizes warrant activity for the years ended
December 31, 2018, 2017 and 2016:
|
|
Warrants
|
Weighted- average exercise price
|
Aggregate intrinsic value
|
|
Outstanding at
January 1, 2016
|
1,186,749
|
$2.37
|
$11,341,452
|
|
Issued
|
--
|
--
|
|
|
Exercised
|
(273,370)
|
2.26
|
|
|
Expired
|
--
|
2.25
|
|
|
Outstanding at
December 31, 2016
|
913,379
|
2.41
|
1,961,403
|
|
Issued
|
--
|
--
|
|
|
Exercised
|
(887,585)
|
2.41
|
|
|
Expired
|
(25,794)
|
--
|
|
|
Outstanding at
December 31, 2017
|
--
|
$--
|
$--
|
|
|
|
|
|
There
was no warrant activity during the year ended December 31,
2018.
F-17
TG Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 6 – LONG-TERM LIABILITIES AND NOTES PAYABLE
The
following is a summary of notes payable and long term
liabilities:
(in
thousands)
|
|
December
31, 2018
|
December
31, 2017
|
||||
|
|
Current portion, net
|
Non-current portion, net
|
Total
|
Current portion, net
|
Non-current portion, net
|
Total
|
|
Convertible 5%
Notes Payable
|
$67
|
$--
|
$67
|
$128
|
$--
|
$128
|
|
Long term
liabilities
|
--
|
18,350
|
18,350
|
128
|
--
|
128
|
|
Totals
|
$67
|
$18,350
|
$18,417
|
$128
|
$--
|
$128
|
Convertible
5% Notes Payable
The 5%
Notes and accrued and unpaid interest thereon are convertible at
the option of the holder into common stock at the conversion price
of $1,125 per share. We have no obligation
under the 5% Notes aside from (a) 50% of the net product cash flows
from Ariston’s product candidates, if any, payable to
noteholders; and (b) the conversion feature, discussed
above. Interest accrues monthly, is added to principal on an
annual basis, every March 8, and is payable at maturity, which was
March 8, 2015 (see Note 4 for further details).
The cumulative
liability including accrued and unpaid interest of these notes was
approximately $18.4 million at December 31, 2018 and $17.5 million
at December 31, 2017. No payments have been made on the 5%
Notes as of December 31,
2018.
In
December 2011, we elected the fair value option for valuing the 5%
Notes. The fair value option was elected in order to reflect in our
financial statements the assumptions that market participants use
in evaluating these financial instruments (see Note 4 for further
details).
Long-Term Liabilities
In 2018, we entered
into an agreement with a contract manufacturer for the clinical and
potential commercial supply of one of our product candidates. As
part of this agreement, the contract manufacturer has agreed to
defer payment of certain costs and expenses under the agreement in
exchange for the payment of an administrative fee. As of December
31, 2018, we have incurred costs related to this agreement of
approximately $18.4 million, which includes both service fees and
raw material costs. All costs incurred in 2018 are to be invoiced
in 2019 and are due in 2020. We will incur an administrative fee of
six percent (6%) per year starting from the date of invoice
issuance. No payments have been made to the contract manufacturer
as of December 31, 2018 and accordingly the entire amount
has been classified as long-term
liabilities included in our consolidated balance
sheet.
NOTE 7 – INCOME TAXES
We
account for income taxes under the asset and liability method.
Deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of assets
and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to
reverse. A valuation allowance is established when necessary to
reduce deferred tax assets to the amount expected to be realized.
In determining the need for a valuation allowance, management
reviews both positive and negative evidence, including current and
historical results of operations, future income projections and the
overall prospects of our business. Based upon management's
assessment of all available evidence, we believe that it is
more-likely-than-not that the deferred tax assets will not be
realizable, and therefore, a valuation allowance has been
established. The valuation allowance for deferred tax assets was
approximately $142,947,000 and $99,713,000 as of December 31, 2018
and 2017, respectively.
On December 22,
2017, H.R.1, commonly known as the Tax Cuts and Jobs Act (the
“Act”) was signed into law. Among other things, the Act
reduced our corporate federal tax rate from 34% to 21% effective
January 1, 2018. As a result, we were required to re-measure,
through income tax expense, our deferred tax assets and liabilities
using the enacted rate at which we expect them to be recovered or
settled. The re-measurement of our net deferred tax asset would
have resulted in additional income tax expense of $51,767,584 as of
December 31, 2017; however, with full valuation allowance in place,
the expense was reversed through a corresponding adjustment to the
valuation allowance, resulting in no impact on income tax
expense.
F-18
TG
Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of
December 31, 2018, we have U.S. net operating loss carryforwards
(“NOLs”) of approximately $550,619,000 and research and
development credit carryforwards (“R&D credits”) of
approximately $15,217,000. For income tax purposes, these NOLs and
R&D credits will expire in various amounts through 2037. NOLs
generated after 2017 do not expire. The Tax Reform Act of 1986
contains provisions which limit the ability to utilize net
operating loss carryforwards and R&D credit carryforwards in
the case of certain events including significant changes in
ownership interests. The Exchange Transaction with TG Bio may have
resulted in a “change in ownership” as defined by IRC
Section 382 of the Internal Revenue Code of 1986, as amended.
Additionally, stock issuance activities may have resulted in a
“change in ownership” as defined by IRC Section 382 of
the Internal Revenue Code of 1986, as amended. Accordingly, a
substantial portion of the Company’s NOLs above may be
subject to annual limitations in reducing any future year’s
taxable income, and a substantial portion of the R&D Credit
carryforwards may be subject to annual limitations in reducing any
future year’s tax.
The tax
effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 2018 and 2017 are presented below.
|
(in
thousands)
|
2018
|
2017
|
|
Deferred tax assets
(liabilities):
|
|
|
|
Net operating loss
carryforwards
|
$122,678
|
$83,656
|
|
Research and
development credits
|
15,217
|
10,491
|
|
Noncash
compensation
|
4,394
|
4,934
|
|
Other
|
658
|
632
|
|
Deferred tax
assets, excluding valuation allowance
|
142,947
|
99,713
|
|
|
|
|
|
Less valuation
allowance
|
(142,947)
|
(99,713)
|
|
Net deferred tax
assets
|
$--
|
$--
|
There
was no current or deferred income tax expense for the years ended
December 31, 2018, 2017 and 2016. Income tax expense differed
from amounts computed by applying the US Federal income tax rate of
21% for the year ending December 31, 2018 and 34% for the years
ending December 31, 2017 and 2016 to pretax loss as
follows:
|
|
For
the year ended December 31,
|
||
|
(in
thousands)
|
2018
|
2017
|
2016
|
|
|
|
|
|
|
Loss before income
taxes, as reported in the consolidated statements of
operations
|
$(173,482)
|
$(118,476)
|
$(78,253)
|
|
|
|
|
|
|
Computed
“expected” tax benefit
|
$(36,431)
|
$(40,282)
|
$(26,606)
|
|
|
|
|
|
|
Increase (decrease)
in income taxes resulting from:
|
|
|
|
|
Expected
benefit from state and local taxes
|
(2,243)
|
(1,106)
|
(835)
|
|
Research
and development credits
|
(4,726)
|
(3,697)
|
(2,364)
|
|
Other
|
639
|
1,563
|
(8)
|
|
Stock
awards
|
(473)
|
8,213
|
--
|
|
Enactment of
federal tax reform
|
--
|
51,768
|
--
|
|
Change in
the balance of the valuation allowance for deferred tax
assets
|
43,234
|
(16,459)
|
29,813
|
|
|
$--
|
$--
|
$--
|
We file
income tax returns in the U.S Federal and various state and local
jurisdictions. With certain exceptions, the Company is no longer
subject to U.S. Federal and state income tax examinations by tax
authorities for years prior to 2015. However, NOLs and tax credits
generated from those prior years could still be adjusted upon
audit.
The
Company would recognize interest and penalties, if any, related to
uncertain tax position in income tax expense in the statement of
operations. There was no accrual for interest and penalties related
to uncertain tax positions for 2018. We do not believe that
there will be a material change in our unrecognized tax positions
over the next twelve months. All of the unrecognized tax
benefits, if recognized, would be offset by the valuation
allowance.
F-19
TG Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 8 – LICENSE AGREEMENTS
BET
In May
2016, as part of a broader agreement with Jubilant Biosys
(“Jubilant”), an India-based biotechnology company, we
entered into a sub-license agreement (“JBET Agreement”)
with Checkpoint Therapeutics, Inc. (“Checkpoint”) (see
Note 9), for the development and commercialization of
Jubilant’s novel BET inhibitor program in the field of
hematological malignancies.
Under
the terms of the agreement, we paid Checkpoint an up-front
licensing fee of $1.0 million and will make additional payments
contingent on certain preclinical, clinical, and regulatory
milestones, including commercial milestones totaling up to
approximately $177 million and a single-digit royalty on net sales.
TG will also provide funding to support certain targeted research
efforts at Jubilant.
TGR-1202 (Umbralisib)
On
September 22, 2014, we exercised our option to license the global
rights to umbralisib, thereby entering into an exclusive licensing
agreement (the “TGR-1202 License”) with Rhizen
Pharmaceuticals, SA (“Rhizen”) for the development and
commercialization of umbralisib. Prior to this, we had been jointly
developing umbralisib in a 50:50 joint venture with
Rhizen.
Under
the terms of the TGR-1202 License, Rhizen received a $4.0 million
cash payment and 371,530 shares of our common stock as an upfront
license fee. With respect to umbralisib, Rhizen will be eligible to
receive regulatory filing, approval and sales-based milestone
payments in the aggregate of approximately $175 million, a small
portion of which will be payable on the first New Drug Application
(NDA) filing and the remainder on approval in multiple
jurisdictions for up to two oncology indications and one
non-oncology indication and attaining certain sales milestones. In
addition, if umbralisib is co-formulated with another drug to
create a new product (a "New Product"), Rhizen will be eligible to
receive similar regulatory approval and sales-based milestone
payments for such New Product. Additionally, Rhizen will be
entitled to tiered royalties on our future net sales of
umbralisib
and any New Product. In lieu of sales milestones and royalties on
net sales, Rhizen shall also be eligible to participate in
sublicensing revenue, if any, based on a percentage that decreases
as a function of the number of patients treated in clinical trials
following the exercise of the license option. Rhizen will retain
global manufacturing rights to umbralisib,
provided that they are price competitive with alternative
manufacturers.
TG-1101 (Ublituximab)
In
November 2012, we entered into an exclusive (within the territory)
sublicense agreement with Ildong relating to the development and
commercialization of ublituximab in South Korea and Southeast Asia.
Under the terms of the sublicense agreement, Ildong has been
granted a royalty bearing, exclusive right, including the right to
grant sublicenses, to develop and commercialize ublituximab in
South Korea, Taiwan, Singapore, Indonesia, Malaysia, Thailand,
Philippines, Vietnam, and Myanmar.
An
upfront payment of $2.0 million, which was received in December
2012, net
of $0.3 million of income tax withholdings, is being
recognized as license revenue on a straight-line basis over the
life of the agreement, which is through the expiration of the last
licensed patent right or 15 years after the first commercial sale
of a product in such country, unless the agreement is earlier
terminated, and represents the estimated period over which we will
have certain ongoing responsibilities under the sublicense
agreement. We recorded license revenue of approximately $152,000
for each of the years ended December 31,
2018, 2017 and 2016, and, at December 31,
2018, 2017 and 2016, have deferred revenue of approximately $1.1
million, $1.2 million and $1.4 million, respectively, associated
with this $2 million payment (approximately $152,000 of which has
been classified in current liabilities at December 31,
2018).
We may
receive up to an additional $5.0 million in payments upon the
achievement of pre-specified milestones. In addition, upon
commercialization, Ildong will make royalty payments to us on net
sales of ublituximab in the sublicense territory.
TG-1701: BTK
In January 2018, we entered
into a global exclusive license agreement with Jiangsu Hengrui
Medicine Co. (“Hengrui”), to acquire worldwide
intellectual property rights, excluding Asia but including Japan,
and for the research, development, manufacturing, and
commercialization of products containing or comprising of any of
Hengrui’s Bruton’s Tyrosine Kinase inhibitors
containing the compounds of either TG-1701 (SHR1459 or EBI1459) or
TG1702 (SHR1266 or EBI1266). Pursuant to the agreement, in April
2018, we paid Jiangsu an upfront fee of $1.0 million in our common
stock recorded to non-cash stock
expense associated with in-licensing agreements in our consolidated
statement of operations. Jiangsu is eligible to receive
milestone payments totaling approximately $350 million upon and
subject to the achievement of certain milestones. Various
provisions allow for payments in conjunction with the agreement to
be made in cash or our common stock, while others limit the form of
payment. Royalty payments in the low double digits are due on net
sales of licensed products and revenue from
sublicenses.
F-20
TG Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
TG-1801: anti-CD47/anti-CD19
In June
2018, we entered into a Joint Venture and License Option Agreement
with Novimmune SA (“Novimmune”) to collaborate on the
development and commercialization of Novimmune’s novel
first-in-class anti-CD47/anti-CD19 bispecific antibody known as
TG-1801 (previously NI-1701). The companies will jointly develop
the product on a worldwide basis, focusing on indications in the
area of hematologic B-cell malignancies. We serve as the primary
responsible party for the development, manufacturing and
commercialization of the product. Pursuant to the agreement, in
June 2018 we paid Novimmune an upfront payment of $3.0 million in
our common stock recorded to non-cash stock expense associated with
in-licensing agreements in our consolidated statement of
operations. Further milestone
payments will be paid based on early clinical development, and the
Company will be responsible for the costs of clinical development
of the product through the end of the Phase 2 clinical trials,
after which the Company and Novimmune will be jointly responsible
for all development and commercialization costs. The Company and
Novimmune will each maintain an exclusive option, exercisable at
specific times during development, for the Company to license the
rights to TG-1801, in which case Novimmune is eligible to receive additional
milestone payments totaling approximately $185 million as well as
tiered royalties on net sales in the high single to low double
digits upon and subject to the achievement of certain
milestones.
NOTE 9 – RELATED PARTY TRANSACTIONS
LFB Biotechnologies
On
January 30, 2012, we entered into an exclusive license agreement
with LFB Biotechnologies, GTC Biotherapeutics and LFB/GTC LLC, all
wholly-owned subsidiaries of LFB Group, relating to the development
of ublituximab (the “LFB License Agreement”). In
connection with the LFB License Agreement, LFB Group was issued
5,000,000 shares of common stock, and a warrant to purchase
2,500,000 shares of common stock at a purchase price of $0.001 per
share. In addition, LFB Group maintained the right to nominate a
board member until such time as LFB Group owns less than 10% of the
outstanding common stock. As of April 2018, LFB no longer has the
right to nominate a board member as LFB’s ownership had
fallen below 10% of the outstanding shares of the Company’s
Common Stock.
Under
the terms of the LFB License Agreement, we utilize LFB Group for
certain development and manufacturing services. We incurred
approximately $0.2 million, $2.3 million and $8.1 million in
expenses for such services during the years ended December 31,
2018, 2017 and 2016, respectively, which have been included in
other research and development expenses in the accompanying
consolidated statements of operations.
Other Parties
In October 2014, we
entered into an agreement (the “Office Agreement”) with
FBIO to occupy approximately 45% (which shall be adjusted based on
utilization as discussed below) of the 24,000 square feet of New
York City office space leased by FBIO, which is now our corporate
headquarters. The Office Agreement requires us to pay our
respective share of the average annual rent and other costs of the
15-year lease. We approximate an average annual rental obligation
of $1.1 million under the Office Agreement. We began to occupy this
new space in April 2016, with rental payments beginning in the
third quarter of 2016. During the years ended December 31, 2018 and
2017, we recorded rent expense of approximately $1.3 million and
$1.2 million, and at December 31, 2018, have deferred rent
of approximately $1.5 million. Mr. Weiss, our
Executive Chairman and Chief Executive Officer, is also Executive
Vice Chairman of FBIO.
During
the year ended December 31, 2018, we paid FBIO $0.1 million for our
portion of the build-out costs (as required under the Desk
Agreement), which have been allocated to us at the 45% rate
mentioned above. The allocated build-out costs have been recorded
in Leasehold Interest, net on the Company’s consolidated
balance sheets and will be amortized over the 15-year term of the
Office Agreement. After an initial commitment period of the 45%
rate for a period of three (3) years, we and FBIO will determine
actual office space utilization annually and if our utilization
differs from the amount we have been billed, we will either receive
credits or be assessed incremental utilization charges.
Also in connection with
this lease, in October 2014 we pledged $0.6 million to secure a
line of credit as a security deposit for the Office Agreement,
which has been recorded as restricted cash in the accompanying
consolidated balance sheets. Additional collateral
of $0.6 million was pledged in April 2018 to increase the letter of
credit for the office space.
In July 2015, we
entered into a Shared Services Agreement (the “Shared
Services Agreement”) with FBIO to share the cost of certain
services such as facilities use, personnel costs and other overhead
and administrative costs. This Shared Services Agreement requires
us to pay our respective share of services utilized. In connection
with the Shared Services Agreement, we incurred expenses of
approximately $1.6
million, $1.2 million and $0.8 million for shared services for the
years ended December 31, 2018, 2017 and 2016, primarily related to
shared personnel.
F-21
TG Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
In May
2016, as part of a broader agreement with Jubilant, an India-based biotechnology
company, we entered into a sublicense agreement with Checkpoint, a
subsidiary of FBIO, for the development and commercialization of
Jubilant’s novel BET inhibitor program in the field of
hematological malignancies. We paid Checkpoint an up-front
licensing fee of $1.0 million in July 2016 and incurred expenses of
$0.2 million in March 2017 for the first milestone achievement as
part of the JBET Agreement which is recorded in other research and
development in the accompanying consolidated statement of
operations.
In
March 2015, we entered into a Global Collaboration Agreement
(“Collaboration Agreement”) with Checkpoint for the
development and commercialization of anti-PD-L1 and anti-GITR
antibody research programs in the field of hematological
malignancies. We incurred expenses of approximately $0.6 million
for the year ended December 31, 2018 related mainly to
manufacturing costs of PD-L1, while no costs were incurred during
the years ended December 31, 2017 and 2016. The relevant expenses
are recorded in other research and development in the accompanying
consolidated statement of operations.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
As of
December 31, 2018, we have known contractual
obligations; commitments and contingencies of $35.4 million related
to our long term liabilities and operating lease
obligations.
|
Payment
due by period (in thousands)
|
|
|
|
|
|
|
|
Total
|
Less than 1 year
|
1-3 years
|
3-5 years
|
More than 5
years
|
|
ontractual
obligations
|
|
|
|
|
|
|
Operating
leases
|
$16,996
|
$1,362
|
$2,701
|
$2,742
|
$10,191
|
|
Contract
manufacturer
|
18,350
|
--
|
18,350
|
--
|
--
|
|
Total
|
$35,346
|
$1,362
|
$21,051
|
$2,742
|
$10,191
|
Contract Manufacturer
See
Note 6 for a detailed description of our long term liabilities.
Future minimum contractual commitments as of December 31, 2018
total approximately $18.4 million and are due in
2020.
Leases
See Note 9 for a detailed description of our lease arrangement in
New York. Total rental expense was approximately $1.4 million, $1.4
million and $1.6 million for the years ended December 31,
2018, 2017, and 2016, respectively.
Future minimum lease commitments as of December 31, 2018, in
the aggregate total approximately $17.0 million through December
31, 2031. The preceding table shows future minimum lease
commitments, which include our office leases in New York, North
Carolina and Tennessee by year as of December 31,
2018.
F-22
TG Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 12 – QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
|
(in
thousands)
|
3
Months Ended
|
|||
|
|
March 31, 2018
|
June 30, 2018
|
September 30, 2018
|
December 31, 2018
|
|
|
|
|
|
|
|
License
revenue
|
$38
|
$38
|
$38
|
$38
|
|
|
|
|
|
|
|
Total costs and
expenses
|
40,615
|
44,383
|
34,366
|
54,188
|
|
|
|
|
|
|
|
Net
loss
|
$(41,529)
|
$(44,142)
|
$(33,951)
|
$(53,861)
|
|
|
|
|
|
|
|
Basic and diluted
net loss per common share
|
$(0.59)
|
$(0.59)
|
$(0.43)
|
$(0.68)
|
|
(in
thousands)
|
3
Months Ended
|
|||
|
|
March 31, 2017
|
June 30, 2017
|
September 30, 2017
|
December 31, 2017
|
|
|
|
|
|
|
|
License
revenue
|
$38
|
$38
|
$38
|
$38
|
|
|
|
|
|
|
|
Total costs and
expenses
|
27,704
|
28,463
|
31,623
|
31,073
|
|
|
|
|
|
|
|
Net
loss
|
$(27,727)
|
$(28,353)
|
$(31,536)
|
$(30,860)
|
|
|
|
|
|
|
|
Basic and diluted
net loss per common share
|
$(0.52)
|
$(0.45)
|
$(0.48)
|
$(0.46)
|
NOTE 13 – LITIGATION
In
October 2018, a purported securities class action complaint was
filed in the U.S. District Court for the Southern District of New
York (the “Southern District”) against the Company and
one of its officers on behalf of all shareholders who purchased or
otherwise acquired TG Therapeutics common stock between June 4,
2018 and September 25, 2018 (the “Class Period”). The
case is captioned Randall Reinmann v. TG Therapeutics Inc., and
Michael S. Weiss, Case No. 1:18-cv-09104-KPF. The complaint alleges
that, throughout the Class Period, the Company made false and/or
misleading statements and/or failed to disclose various facts and
circumstances regarding its UNITY-CLL study allegedly in violation
of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. In December 2018, the Southern District appointed
Co-Lead Plaintiffs to represent the putative class, and approved
their selection of Lead Counsel. On March 1, 2019, Co-Lead
Plaintiffs filed a notice with the Southern District seeking to
voluntarily dismiss the action in its entirety without
prejudice.
In addition, on December 18, 2018, a related
shareholder derivative litigation was filed in the Southern
District against the Company’s directors and one of its
officers in litigation captioned Thessalus Capital v. Weiss, et
al., 1:18-cv-11918-KPF. The Company is named only as a nominal
defendant. The suit alleges that the officer and directors breached
their fiduciary duties to the Company, wasted corporate assets, and
violated the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder in connection with the Company’s
alleged failure to disclose various facts and circumstances
regarding its UNITY-CLL study.
The plaintiff asserts that the alleged disclosure violations
concerning the Company’s UNITY-CLL study have caused the
Company to incur losses, including defense costs, and further
alleges that the named officer and directors received excessive
compensation.
No
legal reserve is necessary.
F-23
NOTE 14 – SUBSEQUENT EVENTS
On
February 28, 2019 (the “Closing Date”), the Company
(“Borrower”) entered into a term loan facility of up to
$60.0 million (“Term Loan”) with Hercules Capital,
Inc., (“Hercules”), the proceeds of which will be used
for its ongoing research and development programs and for general
corporate purposes. The Term Loan is governed by a loan and
security agreement, dated February 28, 2019 (the “Loan
Agreement”), which provides for up to four separate advances.
The first advance of $30.0 million was drawn on the Closing Date.
Two additional advances of $10.0 million may be drawn at the
Borrower’s option but subject to the clinical trial
milestones, and the fourth advance of $10.0 million, available in
minimum increments of $5.0 million, is available through December
15, 2020 subject to the approval of Hercules’ investment
committee.
The
Term Loan will mature on March 1, 2022 (the “Loan Maturity
Date”). Each advance accrues interest at a per annum rate of
interest equal to the greater of either (i) the “prime
rate” as reported in The Wall Street Journal plus 4.75%, and
(ii) 10.25%. The Term Loan provides for interest-only payments
until October 1, 2020. The interest-only period may be extended to
April 1, 2021 if the Borrower, on or before September 30, 2020,
achieves either the third milestone or the Company has raised at
least an amount equal to $150.0 million in unrestricted net cash
proceeds from one or more equity financings, subordinated
indebtedness and/or upfront proceeds from business development
transactions permitted under theLoan Agreement, in each case after
February 7, 2019, and prior to September 30, 2020. Thereafter,
amortization payments will be payable monthly in eighteen
installments (or, if the period requiring interest-only payments
has been extended to April 1, 2021, in twelve installments) of
principal and interest (subject to recalculation upon a change in
prime rates). At its option upon seven business days’ prior
written notice to Hercules, the Company may prepay all or any
portion greater than or equal to $5.0 million of the outstanding
advances by paying the entire principal balance (or portion
thereof), all accrued and unpaid interest, subject to a prepayment
charge of 3.0%, if such advance is prepaid in any of the first
twelve months following the Closing Date, 1.5%, if such advance is
prepaid after twelve months following the Closing Date but on or
prior to twenty-four months following the Closing Date, and 0%
thereafter. In addition, a final payment equal to 3.5% of the
aggregate principal amount of the loan extended by Hercules is due
on the maturity date. Amounts outstanding during an event of
default shall be payable on demand and shall accrue interest at an
additional rate of 4.0% per annum of the past due amount
outstanding.
The
Term Loan is secured by a lien on substantially all of the assets
of the Borrower, other than intellectual property and contains
customary covenants and representations, including a liquidity
covenant, financial reporting covenant and limitations on
dividends, indebtedness, collateral, investments, distributions,
transfers, mergers or acquisitions, taxes, corporate changes,
deposit accounts, and subsidiaries.
The
events of default under the Loan Agreement include, without
limitation, and subject to customary grace periods, (1) the
Borrower’s failure to make any payments of principal or
interest under the Loan Agreement, promissory notes or other loan
documents, (2) the Borrower’s breach or default in the
performance of any covenant under the Loan Agreement, (3) the
occurrence of a material adverse effect, (4) the Borrower making a
false or misleading representation or warranty in any material
respect, (5) the Borrower’s insolvency or bankruptcy, (6)
certain attachments or judgments on the Borrower’s assets, or
(7) the occurrence of any material default under certain agreements
or obligations of the Borrower involving indebtedness in excess of
$750,000. If an event of default occurs, Hercules is entitled to
take enforcement action, including acceleration of amounts due
under the Loan Agreement.
The
Loan Agreement also contains warrant coverage of 2% of the total
amount funded. A warrant (the “Warrant) was issued by
Borrower to Hercules to purchase 147,058 shares of common stock
with an exercise price of $4.08. The Warrant shall be exercisable
for seven years from the date of issuance. Hercules may exercise
the Warrant either by (a) cash or check or (b) through a net
issuance conversion. The shares will be registered and freely
tradeable within six months of issuance.
Additionally, on
March 1, 2019, we announced the pricing of a public offering of
4,100,000 shares of our common stock (plus a 30-day underwriter
overallotment option to purchase up to an additional 615,000 shares
of common stock), with expected gross proceeds to the Company of
$25.2 million, less underwriting discounts and commissions. The
shares were sold under a shelf registration statement Form S-3
(File No. 333-218293) that was previously filed and declared
effective by the SEC in June 2017. The offering is expected to
close on March 5, 2019.
F-24
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
|
|
TG THERAPEUTICS, INC.
|
|
|
|
|
|
|
|
|
Date: March 1, 2019
|
By:
|
/s/ Michael
S. Weiss
|
|
|
|
|
Michael
S. Weiss
|
|
|
|
|
Executive
Chairman,
Chief
Executive Officer and President
|
|
POWER
OF ATTORNEY
KNOW
ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Michael S. Weiss and Sean A.
Power, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and his name,
place and stead, in any and all capacities, to sign any or all
amendments to this annual report on Form 10-K, and to file the
same, with all exhibits thereto and other documents in connection
therewith, with the SEC, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or any of his substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the
requirements of the Securities Exchange Act of 1934, as amended,
this Form 10-K has been signed by the following persons on behalf
of the Registrant on March 1, 2019, and in the capacities
indicated:
|
Signatures
|
|
Title
|
|
/s/
Michael S. Weiss
Michael
S. Weiss
|
|
Executive Chairman,
Chief Executive Officer and President
(principal
executive officer)
|
|
/s/
Sean A. Power
Sean A.
Power
|
|
Chief
Financial Officer
(principal
financial and accounting officer)
|
|
/s/
Laurence N. Charney
Laurence N.
Charney
|
|
Director
|
|
/s/
Yann Echelard
Yann
Echelard
|
|
Director
|
|
/s/
Kenneth Hoberman
Kenneth
Hoberman
|
|
Director
|
|
/s/
Daniel Hume
Daniel
Hume
|
|
Director
|
|
/s/
William J. Kennedy
William
J. Kennedy
|
|
Director
|
|
/s/
Mark Schoenebaum, M.D.
Mark
Schoenebaum, M.D.
|
|
Director
|
77
EXHIBIT INDEX
|
Exhibit
|
|
|
Number
|
Exhibit Description
|
|
Master
Services Agreement,
effective February 21, 2018
|
|
|
|
|
|
Subsidiaries
of TG Therapeutics, Inc.
|
|
|
|
|
|
Consent
of Independent Registered Public Accounting Firm
|
|
|
|
|
|
Certification
of Principal Executive Officer
|
|
|
|
|
|
Certification
of Principal Financial Officer
|
|
|
|
|
|
Certification
of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
Certification
of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
78
Exhibit 21.1
Ariston
Pharmaceuticals, Inc.
TG
Biologics, Inc.
TG Therapeutics AUS
Pty Ltd
Exhibit
23.1
Consent of Independent Registered Public Accounting
Firm
We consent to the
incorporation by reference in registration statement Nos.
333-181439, 333-210227 and 333-225868 on Form S-8 and registration
statement Nos. 333-218293 and 333-226097 on Form S-3 of TG
Therapeutics, Inc. of our report dated March 1, 2019 on our audits
of the consolidated financial statements of TG Therapeutics, Inc.
and Subsidiaries as of December 31, 2018 and 2017, and for each of
the three years in the period ended December 31, 2018, and our
report on our audit of internal control over financial reporting of
TG Therapeutics, Inc. and Subsidiaries as of December 31, 2018,
dated March 1, 2019, included in this Annual Report on Form 10-K of
TG Therapeutics, Inc. and Subsidiaries for the year ended December
31, 2018.
/s/ CohnReznick
LLP
New York, New
York
March 1,
2019
Exhibit
31.1
CERTIFICATION OF PERIODIC
REPORT
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
I,
Michael S. Weiss, certify that:
|
|
1.
|
I have reviewed this
annual report on Form 10-K of TG Therapeutics, Inc.;
|
|
|
2.
|
Based on my knowledge,
this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this report;
|
|
|
3.
|
Based on my knowledge,
the financial statements, and other financial information included
in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
|
4.
|
The registrant’s other
certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
|
a)
|
Designed such disclosure
controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report
is being prepared;
|
|
|
b)
|
Designed such internal
control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
|
c)
|
Evaluated the
effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
|
|
|
d)
|
Disclosed in this report
any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting;
and
|
|
|
5.
|
The registrant’s
other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the
equivalent functions):
|
|
|
a)
|
All significant
deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information;
and
|
|
|
b)
|
Any fraud, whether or
not material, that involves management or other employees who have
a significant role in the registrant’s internal control over
financial reporting.
|
|
Date: March 1,
2019
|
|
/s/ Michael S.
Weiss
|
|
|
Michael S.
Weiss
Executive Chairman, Chief Executive Officer and President Principal Executive Officer |
|
Exhibit 31.2
CERTIFICATION OF PERIODIC
REPORT
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
I,
Sean A. Power, certify that:
|
|
1.
|
I have reviewed this
annual report on Form 10-K of TG Therapeutics, Inc.;
|
|
|
2.
|
Based on my knowledge,
this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this report;
|
|
|
3.
|
Based on my knowledge,
the financial statements, and other financial information included
in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
|
4.
|
The registrant’s other
certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
|
a)
|
Designed such disclosure
controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report
is being prepared;
|
|
|
b)
|
Designed such internal
control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
|
c)
|
Evaluated the
effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
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d)
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Disclosed in this report
any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting;
and
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5.
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The registrant’s
other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the
equivalent functions):
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a)
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All significant
deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information;
and
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b)
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Any fraud, whether or
not material, that involves management or other employees who have
a significant role in the registrant’s internal control over
financial reporting.
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Date: March 1,
2019
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/s/ Sean A.
Power
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Sean A. Power
Chief Financial Officer Principal Financial and
Accounting Officer
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Exhibit 32.1
STATEMENT OF CHIEF EXECUTIVE OFFICER
OF
TG THERAPEUTICS, INC.
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
TG THERAPEUTICS, INC.
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
1) The Report fully
complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended;
and
2) The information contained
in the Report fairly presents, in all material respects, the
financial condition and results of operations of the
Company.
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Date: March 1,
2019
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/s/ Michael S.
Weiss
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Michael S.
Weiss
Executive Chairman, Chief Executive Officer and President Principal Executive Officer |
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Exhibit 32.2
STATEMENT OF CHIEF FINANCIAL OFFICER
OF
TG THERAPEUTICS, INC.
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
TG THERAPEUTICS, INC.
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 annual report of TG Therapeutics, Inc. (the
“Company”) on Form 10-K for the year ended December 31,
2018 as filed with the Securities and Exchange Commission (the
“Report”), I, Sean A. Power, Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. §1350, as adopted
pursuant to §906 of the Sarbanes-Oxley Act of 2002, that,
based on my knowledge
1) The Report fully complies
with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended; and
2) The
information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
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Date: March 1,
2019
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/s/ Sean A.
Power
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Sean A. Power
Chief Financial Officer Principal Financial and
Accounting Officer
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Exhibit 10.22
CONFIDENTIAL TREATMENT REQUESTED. Confidential portions of this
document have been redacted and have been separately filed with the
Commission.
MASTER
SERVICES AGREEMENT
between
*
and
TG
THERAPEUTICS, INC.
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Table of
Contents
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SECTION 1
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DEFINITIONS
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3
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SECTION
2
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RELATED AGREEMENTS AND
EXHIBITS
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10
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SECTION
3
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MANAGEMENT OF
SERVICE
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11
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SECTION
4
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SERVICES
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14
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SECTION
5
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SERVICE
DESCRIPTIONS
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16
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SECTION
6
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CHANGES TO THE
SPECIFICATIONS, ANALYTICAL METHODS, MANUFACTURING PROCESS, FACILITY
OR EQUIPMENT
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24
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SECTION
7
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REGULATORY APPROVALS AND
INSPECTIONS
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25
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SECTION
8
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QUALITY
COMPLIANCE
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26
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SECTION
9
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CONSIDERATION AND PAYMENT
TERMS
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28
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SECTION
10
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CONFIDENTIALITY
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29
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SECTION
11
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OWNERSHIP OF MATERIALS
AND INTELLECTUAL PROPERTY
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31
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SECTION
12
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WARRANTIES
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32
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SECTION
13
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INDEMNIFICATION
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34
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SECTION
14
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DISCLAIMER OF
CONSEQUENTIAL DAMAGES; LIMITATION OF LIABILITY
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35
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SECTION
15
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TERM AND TERMINATION OF
AGREEMENT
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35
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SECTION
16
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ARBITRATION
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39
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SECTION
17
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MISCELLANEOUS
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40
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MASTER
SERVICES AGREEMENT
THIS MASTER SERVICES AGREEMENT (this
“MSA”) is made
and entered into as of the date of last signature below (the
“Effective
Date”) by and between TG Therapeutics, Inc., a
Delaware corporation having its principal place of business at 2
Gansevoort St., 9th Floor, New
York, NY 10014 (“Client”), and * Client and * are sometimes referred to
herein individually as a “Party” and collectively as
the “Parties”.
WHEREAS, Client and * wish to enter into
a business relationship whereby * will provide Client with certain
biologics manufacturing services;
NOW, THEREFORE, in consideration of the
mutual promises, covenants and agreements hereinafter set forth and
for other valuable consideration, the Parties agree as
follows:
SECTION
1 DEFINITIONS
1.1 “Acceptance
Procedure” shall mean the review of the Batch Related
Documents and test(s) of the Product, if necessary, to verify that
the Product delivered meets the Specifications and complies with
Regulatory Authority requirements, conducted by Client after
*’s release of the Product, to determine whether to accept
the same, in accordance with the applicable QAG as modified
from time to time by written agreement between the
Parties.
1.2 “Affected
Party” is defined in Section 17.3.
1.3
“Affiliate” shall mean any corporation, company,
partnership or other entity which directly or indirectly, controls,
is controlled by or is under common control with either Party
hereto. A corporation or other entity shall be regarded as
controlling another corporation or other entity if it owns or
directly or indirectly controls more than fifty percent (50 %) of
the voting stock or other ownership interest of the corporation or
other entity, or if possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of the
corporation or other entity or the power to elect or appoint more
than fifty percent (50 %) of the members of the governing body of
the corporation or other entity.
1.4 “Applicable
Laws” shall mean any and all applicable laws of any
jurisdiction which are applicable to any of the Parties in carrying
out activities described in this MSA or any PSAs that may be in
effect from time to time, and shall include all statutes,
enactments, acts of legislature, laws, ordinances, rules,
regulations, notifications, guidelines, directions, directives and
orders of any Regulatory Authority, statutory authority, stock
exchange, securities regulatory agency, tribunal, board, or court
or any central or state government or local authority or other
governmental entity in such jurisdictions.
1.5 “Background
IP” shall mean Intellectual Property which has been owned
and/or controlled by a Party prior to the Effective Date or
outside, or not relating to, the performance of the MSA and any
pertinent PSA.
* Confidential material redacted and filed
separately with the Commission.
3
1.6 “Batch”
shall mean Product Manufactured by * from a single run of the applicable
Manufacturing Process.
1.7 “Batch
Record” is defined in the applicable QAG.
1.8 “Batch Related
Documents” means Manufacturing Documentation in support of
the *’s release of a Product.
1.9 “Binding
Year” shall be defined in the applicable PSA.
1.10 “Business
Day” shall mean a day on which commercial banks are open for
business in both the Republic of Korea and New York, New
York.
1.11 “Cell
Line” shall mean the aliquot of cells supplied to * by Client
to perform the Services and their progeny.
1.12 “Certificate
of Analysis” is defined in the applicable QAG.
1.13 “Certificate
of Compliance” is defined in the applicable QAG.
1.14 “Change”
is defined in Section 6.1.
1.15 “Client”
is defined in the preamble.
1.16 “Client
Materials” shall mean Client reagents and other materials
supplied by Client or its third party supplier to be used in the
Service hereunder, as each is further defined in the PSA and/or
applicable QAG. In the case of a Drug Product PSA, Client Materials
shall also include Drug Substance and/or other active
pharmaceutical ingredients, which may or may not be Manufactured by
*.
1.17 “Client
Technology” shall mean know-how, technology, research and
other information of Client including and relating to the
Manufacturing Process, analytical methods, quality control
analysis, specifications, transportation and storage requirements
provided by Client to * in connection with this MSA and applicable
PSA.
1.18 “Clinical
Product” shall mean a Drug Substance or Drug Product which is
Manufactured by * pursuant to a PSA and which is to be used by
Client in a research study or studies that investigate the safety
of human use or prospectively assign human participants or groups
of humans to one or more health-related interventions to evaluate
the effects on health outcomes.
1.19 “Commercial
Product” shall mean a Drug Substance or Drug Product which is
Manufactured by * which is intended for commercial sale and use by
humans and for importation or exportation into countries or regions
designated in each PSA.
4
1.20 “Commercially
Reasonable Efforts” shall mean with respect to an activity to
be carried out by a Party, the carrying out of such activity in a
diligent manner, which, in the case of *, requires using the efforts of
sufficient numbers of personnel appropriately qualified by
experience and training, in the application of such resources as
would be reasonably applied by a qualified manufacturer of
biologics for human use adhering to recognized standards in the
manufacture and testing of such products, or, in the case of
Client, using such efforts as would be typically be used in the
biopharmaceutical industry by companies of comparable resources and
expertise. “Commercially Reasonable Efforts” requires
prompt assignment of responsibility for such task or activity to
specific qualified employee(s) and allocation of resources designed
to advance progress with respect to such task or activity but does
not require the taking of actions which would require either Party
to violate Applicable Laws or break any existing contractual
commitments with third parties which were entered into prior to the
Effective Date, the performance of which at such time was not
reasonably foreseeable to be in conflict, or otherwise
inconsistent, with such Party’s obligations under the MSA or
any PSA.
1.22 “Confidential
Information” is defined in Section 10.1.
1.23
“Control” (including, with correlative meanings,
“Controlled”) means possession, directly or indirectly,
of power to direct or cause the direction of management or policies
(whether through ownership of securities or other ownership
interest, by contract or otherwise) of that person or entity and/or
the ownership of more than 50% of the voting shares of that person
or entity.
1.24 “Core
Team” is defined in Section 3.3.
1.25 “current Good
Manufacturing Practices” or “cGMP” shall mean
current good manufacturing practices and regulations applicable to
the Manufacture of Product that are promulgated by any Regulatory
Authority, including as promulgated under and in accordance with
(i) the U.S. Federal Food, Drug and Cosmetic Act, Title 21 of the
U.S. Code of Federal Regulations, Parts 210, 211, 600, 601 and 610,
(ii) relevant EU legislation, including European Directive
2003/94/EC or national implementations of that Directive, (iii)
relevant guidelines, including the EU Guidelines for Good
Manufacturing Practices for Medicinal Products (Eudralex Vol. 4 and
Annexes thereto), (iv) International Conference on Harmonisation
Good Manufacturing Practice Guide for Active Pharmaceuticals
Ingredients and (v) and any analogous set of regulations,
guidelines or standards as defined, from time to time, by any
relevant Regulatory Authority having jurisdiction over the
development, manufacture or commercialization of the Product, as
applicable, in each case as in effect as of the date such
manufacturing for the Product are or were conducted.
1.26
“Damages” means any damages, costs, expenses, fines,
penalties (including reasonable attorneys’ fees and costs),
losses and liabilities.
1.27 “Disclosing
Party” is defined in Section 10.1.
5
1.28 “Drug
Product” means a finished or intermediate dosage form that
contains a Drug Substance, generally, but not necessarily, in
association with one or more other ingredients.
1.29 “Drug
Substance” means an active ingredient that is intended to
furnish pharmacological activity or other direct effect in the
diagnosis, cure, mitigation, treatment, or prevention of disease or
to affect the structure or any function of the human body, but does
not include intermediates used in the synthesis of such
ingredient.
1.30 “Effective
Date” is defined in the preamble.
1.31 “EMA”
shall mean the European Medicines Agency, or any successor
agency.
1.32 “Engineering
Batch” shall mean a Batch that is intended to demonstrate the
transfer of the Manufacturing Process to the Facility. After
Manufacture, Client shall have the right to make whatever further
use of non-cGMP Engineering Batches as it shall determine, provided
that Client pays for such Batches according to this MSA, such use
is not for human use and does not violate any Applicable Laws.
* makes no warranty that Engineering
Batches will meet cGMP or the Specifications. If * determines that
an Engineering Batch does meet cGMP and the Specifications, it will
release such Engineering Batch as a cGMP Batch, and thereafter
Client shall be entitled to use such Engineering Batch for human
use.
1.33
“Facility” shall mean *.
1.34 “FDA”
shall mean the United States Food and Drug Administration or any
successor agency thereto.
1.35 “Firm
Period” shall be defined in the applicable PSA.
1.36 “Force Majeure
Event” is defined in Section 17.3.
1.37
“Implementation Plan and Budget” is defined in Section
6.2(b).
1.38 “Indemnified
Party” is defined in Section 13.3.
1.39 “Indemnifying
Party” is defined in Section 13.3.
1.40 “Intellectual
Property” is shall mean (a) patents, patent rights,
provisional patent applications, patent applications, designs,
registered designs, registered design applications, industrial
designs, industrial design applications and industrial design
registrations, including any and all divisions, continuations,
continuations-in-part, extensions, restorations, substitutions,
renewals, registrations, revalidations, reexaminations, reissues or
additions, including supplementary certificates of protection, of
or to any of the foregoing items; (b) copyrights, copyright
registrations, copyright applications, original works of authorship
fixed in any tangible medium of expression, including literary
works (including all forms and types of computer software,
including all source code, object code, firmware, development
tools, files, records and data, and all documentation related to
any of the foregoing), pictorial and graphic
works; (c) trade secrets, technology, developments, discoveries and
improvements, know- how, proprietary rights, formulae, confidential
and proprietary information, technical information, techniques,
inventions, designs, drawings, procedures, processes, models,
formulations, manuals and systems, whether or not patentable or
copyrightable, including all biological, chemical, biochemical,
toxicological, pharmacological and metabolic material and
information and data relating thereto and formulation, clinical,
analytical and stability information and data which have actual or
potential commercial value and are not available in the public
domain; (d) trademarks, trademark registrations, trademark
applications, service marks, service mark registrations, service
mark applications, business marks, brand names, trade names, trade
dress, names, logos and slogans, Internet domain names, and all
goodwill associated therewith; and (e) all other intellectual
property or proprietary rights, in each case whether or not subject
to statutory registration or protection.
6
1.41 “Joint
Steering Committee” or “JSC” is defined in
Section 3.2.1.
1.42
“Manufacturing” or to “Manufacture” shall
mean the manufacturing of the Product, and any services relating to
such manufacturing, including, but not limited to, testing, quality
control, documentations, archiving, handling, storage and
packaging, release and delivery of the Product, to be performed by
* at the Facility under the MSA and any
applicable PSA.
1.43 “Manufacturing
Documentation” shall mean data acquired and generated,
documents and records describing or otherwise related to the
Manufacturing Process including, without limitation: documents and
records consisting of or containing process descriptions,
requirements and specifications; Client Materials and
Specifications; analytical methods, process trend and variability
data; validations protocols and reports; process development
reports; Batch Records; Batch Related Documents, and SOPs,
including, without limitation, SOP’s for the Raw Materials
handling, the Manufacturing operations, equipment operation,
in-process, final Product and stability quality control testing,
quality assurance, validation, storage and shipping.
1.44 “Manufacturing
Process” shall mean the mutually agreed production process
and analytical methods for the Manufacturing of the Product
pursuant to the applicable PSA, as summarily described in the
applicable QAG and as described in the Manufacturing Documentation,
as such process may be changed from time to time in accordance with
the MSA.
1.45 “Manufacturing
Process Transfer” means the Commercially Reasonable Efforts
of the parties undertaken pursuant to the Manufacturing Process
Transfer Plan to transfer the Manufacturing Process (together with
copies of relevant books and records) in *’s possession or
under its control, to Client as set forth in greater detail in the
Manufacturing Process Transfer Plan. * shall only be obligated to
use its Commercially Reasonable Efforts in the implementation of
the Manufacturing Transfer Plan, and in no case shall * personnel
be required to visit the site of Client or any third party
manufacturer. For the avoidance of doubt, the foregoing prohibition
shall not be construed as a basis for * refusing to assist in the
transfer of analytical methods to an independent laboratory,
including a visit by * personnel to such site to assist in method
transfer, if, and only as, reasonably necessary, and at
Client’s cost and expense. For the avoidance of doubt,
Manufacturing Process Transfer shall include, without limitation,
the transfer of data, information, or samples of validated or *
manufactured or partially manufactured Products or other indicia
measured at various points during Manufacture, to the extent *
possesses such data, information, or samples. * shall not
be
obligated to deliver the proprietary process information contained
in any drug master file with respect to which * has granted Client a
right of reference. * shall provide Manufacturing Process Transfer
services with a capacity of one (1) full time employee equivalent
(“FTE”) month for each of upstream, downstream and
analytics, for a total maximum of three (3) FTE months. * will have
no obligation to provide Manufacturing Process Transfer services
more than twelve (12) months after termination of the MSA or
applicable PSA. For clarity, *'s assistance shall be time- based,
and * shall in no way guarantee or ensure that after Manufacturing
Process Transfer services is complete, Client or its third-party
manufacturer will be able to manufacture the
Product.
7
1.46 “Manufacturing
Process Transfer Plan” means that plan addressing orderly
Manufacturing Process Transfer, to be prepared in writing and
reasonably agreed to by the parties within the forty (40) Business
Day period following notice from Client to * of its intention to
commence Manufacturing Process Transfer.
1.47 “Non-Affected
Party” is defined in Section 17.3.
1.48
“Non-Conforming Product” shall mean an entire Batch of
Product, any portion of which fails to conform to the
Specifications, cGMP (if applicable), and any other mutually agreed
upon written express requirements for * to follow under the
applicable PSA and the applicable QAG.
1.49 “Party”
and “Parties” is defined in the preamble.
1.50 “Pilot
Batch” means a Batch of Product designated as a pilot Batch
which shall not comply with cGMP and is not required to meet the
Specifications.
1.51 “Pre-Approval
Inspection” means an on-site inspection of the Facility by
the Regulatory Authority prior to granting the Regulatory Approval
for a Commercial Product as required by various Regulatory
Authorities to ensure that the Manufacturing Process and the
Facility meet the appropriate requirements and comply with
cGMP.
1.52 “Process
Validation Batch” shall mean a Batch of Commercial Product
produced from a process validation run conducted by * hereunder to
(i) demonstrate and document the consistency and reproducibility of
the Manufacturing Process at the Facility, and (ii) support the
Regulatory Approval of both the Product Manufactured and the
Manufacturing Process at the Facility each as defined in the
Project Plan.
1.53
“Product” shall mean Clinical Product or Commercial
Product to be Manufactured by * pursuant to this MSA and any
applicable PSA.
1.54 “Product
Purchase Commitment” is defined in Section 5.7.
1.55 “Product
specific agreement” or “PSA” is defined in
Section 2.1.
1.56 “Project
Management Team Leader” is defined in Section
3.3.2.
8
1.57 “Project
Plan” shall mean a formal, approved document used to guide
both project execution and project control. The primary uses of the
Project Plan are to document planning assumptions and decisions,
facilitate communication among project stakeholders, and document
approved scope, cost, and schedule baselines. The Project Plan will
contain the description and overall objectives of the Services for
Manufacturing a Product and shall include, among other things: (a)
JSC and Core Team membership rosters, (b) change request
procedures, (c) details, intentions, and deliverables for
Technology Transfer, (d) project schedule, (e) detailed procurement
plan, as needed, and (f) project budgets and invoicing
plans.
1.58 “PSA Effective
Date” shall mean the effective date of any PSA governed by
this MSA.
1.59 “Purchase
Order” is defined in Section 5.6.
1.60 “Quality
Agreement” or “QAG” shall mean that certain
quality agreement between the Parties that governs their respective
responsibilities related to quality systems and quality
requirements for the Product(s) Manufactured hereunder, including
quality control, testing and release of such Product(s) at the
Facility. Clinical Products and Commercial Products shall have
separate forms of QAGs.
1.61
“Quarter” means each period of three (3) consecutive
calendar months beginning on January 1, April 1, July 1, or October
1.
1.62 “Raw
Materials” shall mean those materials that are used in the
Manufacturing Process, including, but not limited to, chemicals,
reagents, filters, excipients, disposable consumables, and
secondary packaging materials. Raw Materials exclude the Client
Materials.
1.63 “Receiving
Party” is defined in Section 10.1.
1.64 “Reference
Standards” shall mean materials for standards prepared by
Client and/or * in accordance with the applicable QAG.
1.65 “Regulatory
Approval” shall mean all approvals, licenses, registrations
or authorizations thereof of any national, regional, state or local
regulatory agency, department, bureau or other governmental entity
in any jurisdiction where the Product is marketed or intended to be
marketed, necessary for the manufacture and sale of the Product,
which manufacturing includes the Manufacturing of the Products at
the Facility.
1.66 “Regulatory
Authority” shall mean any national (e.g., the FDA),
supra-national (e.g., the EMA), regional, state or local regulatory
agency, department, bureau, commission, council or other
governmental entity, in any jurisdiction responsible for granting
the Regulatory Approval.
1.67 “* Assignable Error” means:
negligence, fraud, recklessness, willful misconduct, or material
breach of cGMP (if applicable) on the part of employees,
consultants, contractors, sub-contractors, agents or
representatives of *.
1.68
“Service” or “Services” is defined in
Section 2.1.
9
1.69 “Service
Fee” is defined in Section 9.1.
1.70 “Specialized
Raw Materials” is defined in Section 5.3.1.
1.71
“Specification(s)” shall mean the observable and
measurable characteristics of the Products, Client Materials, or
Raw Materials, as the case maybe, and the criteria for their
storage, handling, packaging and shipping, which details are
provided in documentation as reviewed and approved in writing by
the Parties.
1.72 “Standard
Operating Procedure(s)” or “SOP(s)” shall mean
the standard operating procedures established by and mutually
agreed upon by both Parties regarding the Manufacturing
Process.
1.73 “Technology
Transfer” shall mean the activities by the Parties necessary
to Manufacture the Product for Client at the Facility or otherwise
conduct the Services, as further described in the applicable PSA
and/or Project Plan which may include: (i) transfer of the Client
Technology and Client Material from Client to *; (ii) implementation of the
Manufacturing Process at the Facility, including establishing a
small scale Manufacturing Process model at *; (iii) all
Manufacturing Process fit activities, including required small- and
large-scale process development and validation work as allocated
between the Parties to * and process engineering required to modify
/ equip, qualify and validate the Facility for the Manufacturing of
the Commercial Product; (iv) stability testing, if applicable, for
the Product required for licensure; (v) comparability testing to
the appropriate reference product, and (vi) regulatory support for
all Regulatory Approvals, each as further described in the Project
Plan.
1.74 “Term”
is defined in Section 15.1.
1.75
“Warehouse” shall mean *.
2.1 Product specific
agreements. Pursuant
to one or more product specific agreements entered into and
mutually agreed from time to time by duly authorized
representatives of the Parties (“Product specific agreements” or
“PSAs”), * will perform manufacturing services
for Client as specified in such PSAs and applicable Project Plan
and in accordance with the terms and conditions of this MSA
(“Services”).
Each PSA shall refer to this MSA and contain as applicable (i) a
high level scope of work of the Services to be performed under such
PSA which describes key activities, (ii) the Product for which *
will perform such Services for Client, (iii) a description of the
Cell Line; (iv) fees to be
paid to * by Client for the Services with a general timing plan for
invoicing and a more detailed plan to be in the Project Plan, (v)
if the Services pertain to the manufacture of the Product, the
number of batches of Product to be manufactured by * and delivered
to Client and the Specifications, (vi) any other deliverables,
(vii) the * facility where the Services are to be performed, and
(viii) the Regulatory Approvals to be obtained by the Parties.
Services shall be governed by the terms and conditions of this MSA,
the applicable PSA, and any applicable Quality Agreement. In the
event of a conflict between a Quality Agreement and either any
provision of this MSA or any PSA, the MSA or PSA shall control
except with respect to Product quality terms, in which case, the
Quality Agreement will control. In the event of a conflict between
any provisio of this MSA and the PSA, this MSA shall control,
except as otherwise explicitly specified in the
PSA.
10
2.2 Project
Plan. Concurrently with the execution of a PSA or within a
reasonable time after the PSA effective date, the Parties shall
agree upon a Project Plan which will specify in detail scope and
schedule of the Services, including Technology Transfer and
Manufacture. The Project Plan shall also set forth the JSC members
(if applicable), Core Team members, and Project Management Team
Leader for the Services as well as the frequency and duration of
meetings. The Project Plan may be updated as needed by the mutual
agreement of the Client and * and is governed by and incorporated into
the applicable PSA by reference. If there is a conflict between the
Project Plan and the applicable PSA, the PSA shall control. If any
of the assumptions shared in writing by the Parties and on which
the Parties have relied in defining the scope of the activities
required to effect the Technology Transfer and/or other Services
including but not limited to Manufacture, and the associated
timeframes, fees, expenditures and costs proves to be invalid, or
if for any reason other than a Party’s negligence in
planning, it becomes apparent that additional activities are
required as part of or in connection with the Technology Transfer
and/or other Services including but not limited to Manufacture, the
Parties shall (acting reasonably and in good faith) discuss and
seek to agree appropriate revisions to the Technology Transfer
activities, and associated timelines and pricing.
2.3 Quality Agreement
(QAG). The Parties shall agree upon and finalize a Quality
Agreement in good faith within a reasonable period time after each
PSA Effective Date which shall cover such PSA. No Manufacturing of
Products for human use shall be conducted without an agreed upon,
applicable QAG.Clinical Products and Commercial Products shall have
separate QAGs. The Quality Agreement may be amended from time to
time, subject to the JSC’s approval followed by the
Parties’ written agreement pursuant to Section 17.9 (if
applicable), which is incorporated herein by
reference.
3.1 General.
Each Party will be responsible for its internal decision making
process and for reasonably informing the other Party of decisions
affecting the Service in a regular and timely manner. Without
limiting the foregoing, the Parties shall establish the joint
committees or teams set forth herein to advise the Parties on
certain matters including, without limitation, Facility
modification, Technology Transfer, and optimization of the
Manufacturing operation relating to the Product.
3.2
Joint
Steering Committee.
3.2.1 Formation and
Composition. The applicable Project Plan will set forth a
Joint Steering Committee for that Product (the “Joint Steering Committee” or
“JSC”) if the
Parties mutually agree that such JSC is necessary. The JSC will be
a cross-functional committee composed of an equal number of
representatives appointed by each of Client and * with each of
Client and * having at least three (3) representatives, and with
one (1) representative from each of Client and * having oversight
for quality activities, and with one (1) representative from each
of Client and * having oversight for manufacturing and supply chain
activities, including the transfer and implementation of the
Manufacturing Process at the Facility. Either Party may replace any
or all of its representitives at any time. Such Party shall notify,
in writing, of such replacement to the other
Party.
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3.2.2 Responsibilities.
The JSC shall (i) establish and oversee the governance structure
for the Service including the formation of any subcommittee
hereunder; (ii) monitor any Facility modification and the
Technology Transfer and Manufacturing strategy of the Product at
the Facility, including strategies for the Regulatory Approval of
the Facility to Manufacture the Product; (iii) provide strategic
guidance to the Core Team as required by the Project Plan; (iv)
conduct high level project stage reviews with the Core Team as
required by the Project Plan at appropriate milestones or
completion of key deliverables or a sequence of event to review and
approve key deliverables, evaluate the Core Team’s progress
and performance, all in order to ensure that the Manufacturing
Process is being implemented appropriately; (v) advise on and/or
resolve business, manufacturing, supply chain, quality, regulatory
or other issues unresolved at the Core Team level; (vi) review and
recommend for approval by the Parties any changes to the MSA or the
applicable PSA; (vii) review and approve changes to the
Specifications, analytical methods, the Manufacturing Process, the
Facility or equipment as escalated to the JSC by the Core Team or
by a Party pursuant to Section 3.6 below; (viii) review completion
of the Service; (ix) settle
disputes or disagreements unresolved by a subcommittee; and (x)
perform such other functions as appropriate to further the purposes
of the MSA as determined by the Parties. For the avoidance of
doubt, the JSC shall be a reviewing and consultative body, without
authority to make decisions not otherwise concurred in by the
Parties.
3.3.1 Formation and
Composition. The applicable Project Plan will set forth a
Core Team for that Product (the “Core Team”). The Core Team shall
be composed of an equal number of representatives from each of
* and Client, with up to four (4)
representatives appointed by each of Client and *. Such
representatives will include the Project Management Team Leaders of
Client and * as well as such of their representatives from
manufacturing, technical operations, supply chain, quality
assurance, quality control, regulatory affairs or other individuals
with expertise and responsibilities for those functions required
from time-to-time to execute the Facility modification, the
Technology Transfer and Manufacturing. Either Party may replace any
or all of its representatives at any time. Such Party shall notify,
in writing, of such replacement to the other Party.
3.3.2 Appointment of
Project Management Team Leader. Each Party shall appoint a
Project Management Team Leader (each, a “Project Management Team Leader”)
to act as the primary contact for such Party in connection with
matters related to the Service. Each Project Management Team
Leader, unless otherwise mutually agreed, shall serve as the
leaders of the Core Team. A Party may replace its Project
Management Team Leader at any time and from time to time for any
reason. Such Party shall notify, in writing, of such replacement to
the other Party.
3.3.3 Responsibilities.
The Core Team shall (i) develop and maintain the Project Plan and
monitor, review and manage the Service according to the MSA and
applicable PSA; (ii) conduct project stage reviews with the JSC as
required by the Project Plan at appropriate milestones or
completion of key
deliverables or a sequence of event to review key deliverables,
review its progress and performance against plans; (iii) develop a
change management process to identify, review and recommend any
significant changes in the project scope, time, fee or risk to the
JSC; (iv)
investigate and
resolve business, manufacturing, supply chain, quality, regulatory
or other issues arising during the
Service;
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(v) review and escalate to the JSC, as needed, changes to the
Project Plan or applicable QAG; (vi) review and recommend to the
JSC changes to the Specifications, analytical methods, the
Manufacturing Process, the Facility or equipment; (vii) coordinate
the activities of the Parties relating to the Manufacturing
hereunder, including but not limited to: managing the technical
operations and quality aspects of routine manufacturing, conducting
Product testing technical operations and quality aspects of routine
manufacturing, conducting Product testing and release, and managing
supply chain activities including shipping and delivery logistics;
(viii) report periodically on operation and quality progress and
performance; and (ix) perform such other tasks and undertake such
other responsibilities as may be specifically delegate to the Core
Team by mutual agreement of the Parties. For the avoidance of
doubt, the Core Team shall be without authority to make decisions
not otherwise concurred in by the Parties.
3.4.1 JSC. The JSC
shall meet by audio or video teleconference or in-person as agreed
by the JSC or as necessary to make determinations as required of
it. Any member of the JSC may designate a substitute to attend and
perform the functions of that member at any meeting of the JSC and
each Party may, in its reasonable discretion, invite non-member
representatives of such Party to attend such meeting with advance
notice to the other Party; provided, however, such non-member
representatives are subject to enforceable obligations of
confidentiality to the inviting Party.
3.4.2 Core Team.
The Core Team shall meet by audio or video teleconference or
in-person as agreed by the Core Team. Any member of the Core Team
may designate a substitute to attend and perform the functions of
that member at any meeting of the Core Team and each Party may, in
its reasonable discretion, invite non-member representatives of
such Party to attend such meetings with advance notice to the other
Party; provided, however, such non-member representatives are
subject to enforceable obligations of confidentiality to the
inviting Party.
3.4.3 Travel
Expenses. Each Party shall be responsible for all of its own
expenses of traveling to and participating in any joint committee
or team meeting, including the JSC and Core Team.
3.5 Decisions.
All decisions of JSC, the Core Team and any other joint committee
or team formed under the MSA or any applicable PSA, except as
expressly set forth herein, shall be made by the unanimous
agreement of its members or their designated representatives, with
a Party’s members of designated representatives having, in
the aggregate, one (1) vote (with the casting of fractional votes
being impermissible), and shall be reflected in written meeting
minutes which summarily address topics discussed, delegation of
work, schedules and decision of such committee or team.
* shall
prepare written minutes of the JSC and Core Team within fifteen
(15) Business Days of the meeting to which they relate, which shall
be subject to approval by the authorized representatives of the
Parties; provided, however, no joint committee or team herein may
amend or waive any provision of theMSA or applicable PSA, including
without limitation, the financial terms set forth in Section 9. The
MSA or any PSA may be amended, and provision of the MSA or any PSA
may be waived, pursuant to Section 17.9 only.
13
3.6 Disputes.
3.6.1 General. In
the event that the Core Team and any other joint committee or team
formed under the MSA or any applicable PSA, is unable, despite the
good faith efforts of all members, to resolve a disputed issue that
is within the purview of such joint committee or team within
ten (10) Business Days
of meeting request by either Party, the disputed issue shall be
referred immediately by such joint committee or team to the JSC. If
the disputes still cannot be resolved within an additional twenty
(20) Business Days of meeting request by the JSC, the matter may be
handled in accordance with Section 16.
3.6.2 Project Management
Team Leaders. Subject to Section 3.6.1, the Project
Management Team Leaders (or their respective designees) will in
good faith attempt to mutually resolve in a timely fashion any
disagreement with respect to the Service hereunder, which could
reasonably affect the quality of the Manufacturing of the Product,
including without limitation, the related management processes and
operations, control of production planning and scheduling,
prioritization decisions, allocation of resources, timing of
in-process and release testing, oversight of auxiliary facilities
(e.g., in-process tests that need to be conducted at laboratories
other than those at the Facility), Facility modification, the
Technology Transfer, registration and troubleshooting decisions,
and any other matters relating to implementation of the
Manufacturing Process and the Manufacturing of the Product
hereunder.
4.1 Services.
During the Term, in accordance with and subject to the terms and
conditions set forth in this MSA, applicable PSA, and the
applicable QAG, * shall provide the
Services to Client relating to the Product(s). * shall at all times
make Commercially Reasonable Efforts to complete the Services in
accordance with the timelines set forth in the applicable PSA.
Except as otherwise expressly set forth in the MSA, applicable PSA,
or the applicable QAG or as otherwise mutually agreed in writing by
the Parties, * shall be responsible at its own cost and discretion
for operating and maintaining the Facility.
4.2 Compliance with
Applicable Law. Subject to the provisions of Section 6
below, * shall maintain the Facility in accordance with cGMP and in
such condition as will allow * to Manufacture the Products in
accordance with the terms of the MSA and the applicable QAG. *
shall perform the Services under the MSA in conformance with cGMP,
if applicable, any requirements of the Regulatory Authorities that
shall be mutually agreed upon by the Parties, and all Applicable
Laws.
4.3 Project
Personnel. * shall
adequately staff the Facility with personnel necessary (including
consultants and contractors), who have sufficient technical
expertise by virtue of training and experience to perform its
obligations under the MSA and any applicable PSA. Notwithstanding
anything to the contrary and in addition to the JSC and Core Team
meetings described in Section 3 above, Client and * may arrange for core
project personnel to have regular meetings, which shall be by audio
or video teleconference. The Project Plan shall specify the
frequency and duration of such meetings; provided that the
associated costs for meetings requested solely by Client in excess
of the number set forth in the Project Plan shall be passed through
to Client by *, unless such meeting is for the purpose of
addressing a deficiency in Manufacturing caused by * Assignable
Error or assessing remediation thereof.
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4.4 Subcontract.
* may subcontract any portion of the Services without approval from
Client; provided, however, that * will not subcontract or otherwise
engage subcontractors or other third party agents to manufacture,
conduct quality control testing, or perform Services directly
related to manufacturing or quality control testing without the
prior written approval of Client, which shall not be unreasonably
withheld, conditioned, or delayed. Notwithstanding any
subcontracting, * shall be primarily obligated to Client for any
subcontracted services as if it were providing the Services itself,
and shall be jointly and severally liable to Client for the
performance of any such Service. The preceding sentence is not
meant to nor shall it be construed as altering or eliminating any
mutually agreed upon limitations of liability contained within this
MSA or any applicable PSA. Every subcontractor or other third party
agent of * performing pursuant to this Section 4.4 shall be
required by * to agree in writing to comply with relevant portions
of this MSA, together with pertinent PSAs and QAGs. For the
avoidance of doubt, * shall not directly or indirectly use on its
own behalf or through any subcontractor, other vendor or any third
party in the performance of this MSA or any PSA, any invention,
technology, data or information that would require Client to obtain
a license from * not otherwise granted pursuant to this MSA or an
applicable PSA, or obtain a license from any such subcontractor,
vendor or third party a license in order to make, have, made, use,
offer for sell, sell, import or otherwise exploit any Product,
unless Client has agreed in advance in writing.
4.5 Development and
Manufacturing Site. Except as is provided in Section 4.4 or
otherwise agreed by Client, all Services shall be performed by * at
the Facility.
4.6 Access to the
Facility.
4.6.1 * shall accommodate
visits by Client personnel in the Facility during operational hours
during the Term, upon Client’s request, to coordinate,
expedite and guide the Service. Client will provide * with written
notice at least one (1) month prior to any visit, and the Parties
shall decide on a mutually agreeable date, duration, visitor list,
and agenda prior to the visit. Additionally, Client may, at no cost
to *, request up to two (2) of its personnel to be on-site at the
Facility to observe and consult with * during the performance of
Services under this MSA and such additional personnel in such
numbers as deemed necessary by Client shall be accommodated upon
mutual agreement. * shall make reasonable efforts to provide such
Client personnel working space and access to guest wireless
connections. All applicable out- of-pocket expenses associated with
such on-site Client personnel shall be passed through to Client by
*.
4.6.2 While at the
Facility, all such Client personnel shall have reasonable access to
all areas as are relevant to *’s performance of the Service
hereunder, provided that * may reasonably restrict Client
personnel’s access to those portions of the Facility as it
deems reasonably necessary for
safety, confidentiality and cGMP, and visitors admitted pursuant to
this Section, upon request of *, shall comply with *
policies and procedures as they apply to * personnel generally
while at the Facility.
15
4.7 Manufacturing
Documentation. * shall maintain in the
English language, complete, true and accurate Manufacturing
Documentation, and shall keep them in strict confidence and shall
not use them for purposes other than providing or performing the
Service or other obligations hereunder. * shall maintain all such
Manufacturing Documentation for at least that period specified in
the applicable QAG or such longer period as may be required by
Applicable Law. Upon written request of Client and at mutually
agreeable times, Client shall have the right to review
Manufacturing Documentation, including the Batch Records, at the
Facility as further defined in the applicable QAG; provided,
however, * shall not delay any such request of Client for more than
fifteen (15) Business Days. Client may also request scanned or
printed copies of such Manufacturing Documentation, but shall be
responsible for reasonable costs associated therewith. * shall
record and maintain such records, data, documentation and other
information in the language as so required in the applicable QAG or
as so required by a Regulatory Authority and in compliance with
Applicable Law, or as otherwise may be set forth in an applicable
PSA. The form and style of Batch documents, including, but not
limited to, Batch production records, lot packaging records,
equipment set up control, operating parameters, and data printouts,
raw material data, and laboratory notebooks are the exclusive
property of *. Notwithstanding anything to the contrary, * SOPs not
specific to the Client’s Products may be provided to Client
for on-site review if deemed necessary by both * and Client. Such
SOPs cannot be removed from the * premises, copied, photographed or
otherwise replicated, but to the extent required for filing in
connection with any Regulatory Approval related to a Product
including, but not limited to, an IND, BLA or MAA, * will file,
maintain and update such SOPs with appropriate Regulatory
Authorities by means of a Drug Master File, Common Technical
Document or other means by which such SOPs may remain confidential,
but available by reference to Client to effect Regulatory
Approvals, and * shall formally authorize such
reference.
SECTION 5
SERVICE DESCRIPTIONS
5.1 Technology Transfer
Requirements. The Parties shall make their personnel
available at the Facility to enable the transfer and implementation
in accordance with the Project Plan. Client shall transfer to and
grant * the limited license set forth below in Section 11.2 in
respect of the Reference Standards, Client Technology, Client
Materials, and Cell Line In the event that Client agrees to utilize
*, Client agrees that (a) in the event of any relevant change that
affects a Client user’s authorization to use such portal,
Client shall promptly notify * so that * may disable their
usernames and remove / change passwords in order to secure the *
Portal and (b) Client shall ensure that all of Client’s users
have up-to-date antivirus software installed on the computer
devices used to access such portal.
5.2 Facility
Modification and Equipment. Except as otherwise specifically
provided herein to the contrary, and upon mutual agreement of the
Parties, Client and * will agree on what equipment in the Facility
is necessary to perform the Services, and if it is necessary or
Client deems it necessary to procure additional equipment beyond
that which is in the Facility as of the applicable PSA Effective
Date, the Core Team shall determine equitable allocation of costs
including, as applicable, procurement, validation, installation,
maintenance, commissioning, and decommissioning/validation
(which
determination shall be escalated to the JSC if in dispute).
Thereafter, if any additional equipment is necessary at the request
of Client, such costs shall be dealt with by the Change provisions
of this MSA. * shall modify the
Facility and engineer, procure, install, commission, test, qualify,
troubleshoot and validate necessary equipment and instruments in
order to accommodate Manufacture of the Product at the Facility, as
further described in the Project Plan and applicable QAG. Except as
provided in this Section 5.2 or any applicable PSA, the Facility,
Warehouse and all the equipment shall be maintained, tested,
validated, calibrated and qualified for their intended uses by * at
*’s expense. For the avoidance of doubt, it shall be the
responsibility of * to effect such changes at the Facility
including, but not limited to changes in equipment, as are required
by changes in laws, rules or regulations related to the
manufacture, handling, storage, packaging and disposal of biologics
generally, compliance therewith being necessary in order for * to
hold itself out as a qualified manufacturer of biologics for human
use. It shall be the responsibility of * to obtain, maintain and
pay all costs associated with establishment licenses required for
the Facility, the Warehouse and any other facilities used by * in
the performance of its obligations under this MSA and any
applicable PSA.
16
5.3 Raw
Materials.
5.3.1 Management.
* shall procure and maintain a reasonable quantity of the Raw
Materials, required for the Services in accordance with the MSA and
any applicable PSA, as further described in the applicable QAG. On
a per-Product basis, the Core Team shall finalize the
categorization of the Raw Materials into Raw Materials which shall
be used for that specific Product only (“Specialized Raw Materials”), Raw
Materials which can be used across multiple products and/or
customers (“Common Raw
Materials”), and Raw Materials which will not be
charged on a cost-plus basis to the Client, and shall attach such
list to the applicable PSA. Such list of Common Raw Materials and
Specialized Raw Materials may be amended from time to time, subject
to the Parties’ approval. Prior to the commencement of
Manufacture, the Core Team shall agree on estimates for quantities
of Raw Materials anticipated to be consumed in the Manufacture of
each Batch. Although * will make Commercially Reasonable Efforts to
use no more than those amounts, * will not be responsible for Raw
Materials used in excess of the agreed-upon estimate; provided,
however, that * shall be responsible for any such excessive use,
loss, spoilage, or waste of such Raw Materials caused by an *
Assignable Error. In order to become effective, *’s
reasonable strategies regarding Raw Material safety stock and
sourcing from qualified vendors shall be agreed upon by Client. In
the event * is not able to utilize any capacity reserved to
Manufacture Product according to an agreed-upon forecast or
manufacturing plan due to Client’s failure to agree to such
reasonable strategies, then Client shall be responsible for the
costs of such reserved capacity regardless of whether it is
utilized or not.
5.3.2 Data
Transfer.
Client and * shall agree on the Specifications for the Raw
Materials, including without limitation analytical methods,
supplier information including supplier site information, and other
information concerning the stability, storage, and safety thereof
that are available and required for the Manufacturing hereunder, as
further described in the applicable QAG.
17
5.3.3 Testing and
Evaluation. * or vendors qualified
by * shall perform all testing and evaluation of the Raw Materials
as required by the Specifications for the Raw Materials and the
cGMPs, as further described in the applicable QAG, if applicable. *
shall not release any Raw Materials from quarantine that do not
meet their Specifications or are not otherwise suitable for cGMP
use.
5.3.4 Storage.
* shall secure sufficient and suitable cGMP storage facilities
and/or equipment at the Facility that meet the Specifications for
storage of the Raw Materials. * shall preserve and protect the Raw
Materials from loss and damage while in *’s possession,
consistent with reasonable technical and business judgment, the
Specifications and any relevant SOPs or other instructions provided
by Client; provided however, * shall be responsible for loss of Raw
Materials after receipt by * and prior to Manufacture only in cases
of * Assignable Error or breach of this Section 5.3.4. In all other
cases, Client shall be responsible for the risk of loss of the Raw
Materials. Upon obsolescence, or upon expiration or earlier
termination of a PSA, Client shall be responsible for the loss of
Raw Material purchased in reliance on a Purchase Order, Firm
Period, or Binding Year which Client fails to honor and * cannot
reasonably otherwise utilize such Raw
Material.
5.3.5 Service Fee Related
to Raw Material. Common Raw Materials and Specialized Raw
Materials will be charged on a cost-plus basis to Client in
accordance with Sections 9.1(ii) and 9.2.2, subject to any changes
in the scope of work.
5.4.1 Management.
Client shall provide to * free of charge, either by itself or
through its third party supplier, Client Materials in amounts
reasonably necessary to carry out the Services as agreed by the
Parties. The applicable PSA shall set forth the exact timing of
such provision of Client Materials to *. * shall make Commercially
Reasonable Efforts to import the Client Materials to the Republic
of Korea in a timely manner, provided that Client provides
reasonable assistance. The title to such Client Materials shall
remain at all times with the Client. Prior to the commencement of
Manufacture, the Core Team shall agree on estimates of quantities
for Client Material anticipated to be consumed in the Manufacture
of each Batch. Although * will make Commercially Reasonable Efforts
to use no more than those amounts, * will not be responsible for
Client Materials used in excess of the agreed-upon estimate;
provided, however, that * shall be responsible for any such
excessive use, loss, spoilage, or waste of such Client Materials
caused by an * Assignable Error, and further provided that * shall
not be liable for the monetary value of Cell Line loss if it
complied with risk mitigation measures to protect the Cell Line, as
reasonably agreed to by the Parties and set forth in the Quality
Agreement. In order to become effective, *’s reasonable
strategies regarding Client Material safety stock and sourcing from
qualified vendors shall be agreed to by Client. In the event * is
not able to utilize any capacity reserved to Manufacture Product
according to an agreed-upon forecast or manufacturing plan due to
Client’s failure to agree to such reasonable strategies, then
Client shall be responsible for the costs of such reserved capacity
regardless of whether it is utilized or not.
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5.4.2 Data
Transfer. Client shall provide * with the Specifications of the Client
Materials, including without limitation analytical methods,
supplier information, and other information concerning the
stability, storage, and safety thereof that are available and
required for the Manufacturing hereunder, as further described in
the applicable QAG.
5.4.3 Testing and
Evaluation. * shall perform testing of the Client Materials
in accordance with the applicable QAG and/or Client’s
instruction prior to the performance of the Manufacturing
hereunder, in order to determine whether such Client Materials meet
the Specification described in the applicable QAG (if applicable).
* shall inform Client of (a) any damage to the Client Materials
received that is visually obvious (e.g., damaged or punctured
containers and temperature monitoring results outside of
predetermined Specifications) within five (5) Business Days after
*’s receipt of the Client Materials and (b) any
non-conformance of the Client Materials to Specification either:
(i) within sixty (60) calendar days after *’s receipt of the
Client Materials or (ii) if release testing of Client Materials is
not to be performed until it is needed for Manufacture, within
sixty (60) calendar days after such release testing is performed;
or (iii) as is otherwise agreed between the Parties. If, prior to
performing any Service on the Client Materials, * determines that
such Client Materials are defective or damaged, * shall not perform
the Service on such Client Materials and shall follow
Client’s written instructions regarding disposal or return of
such Client materials to Client, such disposal or return to be at
Client’s discretion and cost.
5.4.4 Storage.
* shall secure sufficient and suitable cGMP storage facilities
and/or equipment at the Facility that meet the Specifications for
storage of reasonable quantities of Client Materials in light of
quantities of Product anticipated to be Manufactured. * shall
preserve and protect the Client Materials from loss and damage
while in *’s possession, consistent with reasonable technical
and business judgment, the Specifications and any relevant SOPs or
other instructions provided by Client; provided that * shall only
be liable for loss and damage after receipt/acceptance by * and
prior to Manufacture in cases of * Assignable Error or breach of
this Section 5.4.4. In all other cases, Client shall be responsible
for the risk of loss of the Client Materials.
5.4.5 Service Fee Related
to Client Material. Handling fees relating to the Client
Material will be charged to Client in accordance with Sections
9.1(iii) and 9.2.3.
5.5 Forecasts.
For each Commercial Product, the Parties shall determine a mutually
agreeable mechanism for forecasting of each Product, which shall be
detailed in writing and attached to each relevant PSA. For Clinical
Product, the Parties shall agree upon the number and schedule of
Batches to be Manufactured by * in the applicable PSA.
5.6 Purchase
Orders. For each Clinical Product or Commercial Product,
Client shall notify * in a binding form and procedure to be agreed
upon in the applicable PSA requesting a specific amount of Product
to be Manufactured (a “Purchase Order”).
5.7 Product Purchase
Commitment. As further set forth in a PSA, during the Term
the Parties may agree that Client will purchase a minimum quantity
of batches of a certain Product in a given year (a
“Product Purchase
Commitment”).
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5.8
Batch
Failure during Manufacture.
5.8.1 If, during
Manufacture of a Batch and prior to *’s Batch release, the Core Team
determines that a Batch is Non-Conforming Product (a
“Batch
Failure”), * shall take Commercially Reasonable
Efforts to promptly Manufacture (except to the extent prohibited by
cGMP or applicable QAG) and deliver to Client a replacement Batch
on a date to be mutually agreed by the Parties, which Batch shall
be invoiced and paid for as if it were the failed Batch
(i.e., Client shall only be
invoiced for the Batch conforming to the Specifications and
Manufactured in compliance with cGMP, and actually delivered).
Client shall be responsible for the costs and fees of the Raw
Materials and Client Materials for the replacement Batch as if it
were the failed Batch (i.e., Client shall only be invoiced the
applicable cost of the Raw Materials and Client Materials actually
used to Manufacture the conforming, cGMP compliant replacement
Batch). Client shall use Commercially Reasonable Efforts to ensure
that * has adequate Client Materials to Manufacture such Batches
and Client’s failure to provide such Client Materials shall
relieve * of its obligations to provide a remedy pursuant to this
Section 5.8. The remedies
contained in Section 5.8 of this MSA shall be the sole and
exclusive remedies of Client regarding a Batch Failure and a Batch
Failure shall not constitute a material breach of this MSA or a PSA
unless * fails to provide the remedies contained in this Section
5.8.
5.8.2 The Parties shall
conduct a root cause analysis (including an analysis of whether the
Batch Failure was the fault of *, Client, neither or both) of the
Batch Failure, which shall be done through *’s deviation
process and which result will be reviewed and confirmed by the JSC.
If either the Core Team does not agree on the Batch Failure root
cause, and the JSC does not agree on the results of the Core
Team’s Batch Failure root cause analysis, the Parties shall
refer review of such root cause analysis to an independent mutually
agreed-on laboratory or firm with international repute, acting as a
neutral arbiter, to conduct a root cause analysis of the Batch
Failure. The costs of the independent laboratory will be borne by
the Party responsible for the Batch Failure, as determined by the
independent laboratory, whose written decision shall be binding on
the Parties. If the independent laboratory is paid in advance of a
final written determination, the Parties shall share equally such
expense, and the Party at fault shall reimburse the other Party for
its share of any such expenses paid after there has been a final
written determination made by the independent
laboratory.
5.8.3 The PSA applicable
to such Product Batch Failure shall set forth responsibility among
the Parties for the following costs in the event of a Batch
Failure: (1) the * Service Fee to Manufacture the failed Batch; (2)
*’s costs to procure the Raw Materials used in the failed
Batch plus applicable * handling fees associated with such Raw
Materials; (3) * handling fees associated with the applicable
Client Materials used in the failed Batch; and (4) Client’s
cost to procure the Client Materials (which shall not include Cell
Line) used in the failed Batch which amount is to be calculated
based on the actual replacement value (as opposed to the market
value) of such materials as supported by reasonable documentary
evidence by Client.
5.8.4 In the event that
any of the foregoing procedures results in a Batch being delivered
in a different year than the year in which the original Batch was
ordered for delivery by Client, the Service Fee for such
re-Manufactured Batch shall be the Service Fee in effect in the
Year in
20
which
such re-Manufactured Batch is actually delivered by * unless the root cause analysis
determined the Batch Failure resulted from * Assignable Error, in
which case, the Service Fee in effect at the time of the Purchase
Order for the failed Batch shall apply.
5.9 Storage, Packaging
and Delivery.
5.9.1 Service
Deliverables other than Products. Storage, packaging
and delivery of the Service deliverables other than Products
Manufactured hereunder shall be made in accordance with the terms
of this MSA, applicable PSA, Project Plan, applicable QAG and the
Applicable Laws.
5.9.2 Products.
(a) Release by * and Acceptance by Client.
(i) * shall perform all testing in
accordance with the Specifications of the Product and release the
Product in accordance with the terms of the applicable
QAG. Upon such release * shall deliver to Client a copy of the
Manufacturing Documentation in support of the *’s release of
the Product for each Batch (“Batch Related Documents”),
including a Certificate of Analysis and Certificate of Compliance,
in accordance with the applicable QAG;
(ii) Acceptance of
Product. Client will complete the Acceptance Procedure and
determine the acceptability of such Product in accordance with the
applicable QAG and notify * of the result within the latter of
thirty (30) Business Days of *’s release of Product or
Client’s receipt of the Batch Related Documents. Upon
Client’s acceptance, * will have no liability for such
Product once entrusted to the carrier (the Parties shall use
good-faith efforts to minimize the time-period between
Client’s acceptance and *’s delivery to the carrier),
except as set forth in Section 5.9.2(a)(iv) regarding Latent
Defects. If Client does not reject such Product within the thirty
(30) Business Day period, the Product will be deemed to have been
accepted by Client and * will have no liability for such Product
once entrusted to the carrier (the Parties shall use good-faith
efforts to minimize the time-period between Client’s
acceptance and *’s delivery to the carrier), except (A) as
set forth in Section 5.9.2(a)(iv) regarding Latent Defects or (B)
due to a breach of *’s obligations with regard to (I)
handling or storage or (II) the Specifications insofar as they
relate to packaging and shipping.
(iii) Non-Conforming. If, during the
Acceptance Procedure, any Product is determined by Client or * as
Non-Conforming Product, at the option of Client, * shall take
Commercially Reasonable Efforts to promptly Manufacture replacement
Product (except to the extent prohibited by cGMP or applicable QAG)
and deliver to Client the quantity of the Product equivalent to the
quantity of Non-Conforming Product on a date to be
21
mutually agreed by
the Parties and such replacement Batch shall be invoiced and paid
for as if it were the original Non-Conforming Product. If
* does not
confirm the non-conformity, the Parties shall refer to an
independent and mutually agreed-on laboratory or firm with
international repute to test the disputed Product. The costs of the
independent laboratory will be borne by the Party responsible for
the Batch Failure, as determined by the independent laboratory,
whose written decision shall be binding on the Parties. If the
independent laboratory is paid in advance of a final written
determination, the Parties shall share equally such expense, and
the Party at fault shall reimburse the other Party for its share of
any such expenses paid after there has been a final written
determination made by the independent laboratory. Section 5.9.2(a)
(i) and (ii) shall apply to such replaced Product mutatis
mutandis. Responsibility for the costs of such
Non-Conforming Product shall be as if such Non-Conforming Product
is a Batch Failure and Section 5.8.2 – 5.8.4 shall apply to
such Non-Conforming Product mutatis
mutandis. The remedies contained in this Section 5.9.2 shall
be the sole and exclusive remedy of client for Non-Conforming
Product.
(iv) Latent Defect. At any time after
completion of review of the Batch Related Documents, if Client
finds any hidden defects of the Product which could not have been
reasonably discovered through the review of the Batch Related
Documents (“Latent
Defect”), Client shall promptly give notice of such
claim in writing to *. In such case, if Client proves the Latent
Defect is solely due to * Assignable Error, the above Section
5.9.2(a)(iii) and Section 13.1 shall apply. If no written claim for
Latent Defect of the Product is received by * within one (1) month
from Client’s discovery of the Latent Defect, the Product
shall be deemed as irrevocably accepted. Notwithstanding anything
to the contrary; such claim for Latent Defect must be made within a
time period to be set forth in the applicable PSA, but in no event
after the expiration date of the Product. For the avoidance of
doubt, a Latent Defect is a defect in existence at the time of
completion of the Acceptance Procedure.
(b) Delivery. Shipping conditions, title
transfer to Client and risk of loss for the Product Manufactured
hereunder shall be *. The Parties further agree as
follows:
(i) At the time of
*’s release of the Product and prior to each pick-up by
Client or Client’s designated carrier, * shall propose to
Client a delivery schedule of the Product, in order for the Parties
to agree on it in advance for each pick- up. * shall schedule
Delivery with the carrier selected and paid for by Client;
Client shall
compensate * for storage costs
for the Manufactured Product stored with * for more than sixty (60)
calendar days following release, as set forth in the applicable
PSA;
(ii)
* shall
not deliver the Product until it has been instructed to by Client
in accordance with the applicable QAG. Client shall confirm
specific delivery instructions with * prior to * release. Upon
*’s release of Product, * shall store the Manufactured
Product as described in Section 5.9.2(c) and Client shall
compensate * for storage costs for the Manufactured Product stored
with * for more than sixty (60) calendar days following release, as
set forth in the applicable PSA;
22
(iii) * shall
provide Client with invoice, packing lists, supporting export
documents as specified by Client by separate delivery and shipment
documentation instructions, together with each shipment of the
Product (or such other deliverables); and
(iv) In cooperation
with Client and subject to the delivery schedule agreed by the
Parties, * shall adhere to the first-expire-first-out (FEFO)
principle in shipping all released Product.
(c)
Storage, Packaging and Shipping Container.
(i) Pursuant to the
terms of this MSA and any applicable PSA, * shall store the
Products Manufactured hereunder.
(ii) * shall
store, package, label and prepare shipment according to the
Specifications for the Product Manufactured hereunder, the
applicable QAG and the SOPs, and using storage and/or shipping
containers determined in the applicable PSA.
(iii) If Client
does not direct * to prepare Manufactured Product to be picked up
by Client or Client’s designated carrier with a pick-up date
within sixty calendar (60) days of Client’s receipt of the
Batch Related Documents, * shall store the Product at the Warehouse
and Client shall pay storage fees to * as set forth in Section 9.1
for the period of storage at the Warehouse in excess of sixty (60)
calendar days from release until the actual delivery date, in
accordance with the applicable PSA.
(iv) * shall store
and handle all Manufactured Product in accordance with applicable
storage and handling Specifications, including all times when * and
Client agree that * shall store Manufactured Product per Section
5.9.2(c)(iii), but shall have no obligation regarding risk of loss
and damage of Manufactured Product in its possession unless such
loss or damage resulted from *’s negligence or willful
misconduct.
5.10 Supply
Interruptions. On a PSA by PSA basis, the Parties will
discuss appropriate steps to alleviate any expected or actual
shortfall in Manufactured Product. The Parties may agree on a PSA
by PSA basis, in what events, if any, such a supply failure could
constitute a material breach of this MSA or a PSA.
23
6.1 Approval for
Change. * shall not make any change to the
Manufacturing Process, the Services, or the Specifications (a
“Change”),
without the prior written consent of Client in accordance with the
applicable QAG.
6.2 Changes Required by
cGMP, Regulatory Authorities or Requested by Client.
Except as otherwise expressly set forth to the contrary in the
applicable QAG, in the event that cGMP, a Regulatory Authority,
Applicable Law, or any other regulatory or legal authority
requires, or Client requests, a Change, * shall accommodate such
requirements or requests, subject to the following:
(a) Client shall
promptly notify * in writing of the required and/or requested
Change(s), and provide information necessary for * to evaluate the
effect of such Change(s); provided, however, in the event * first
learns of a required Change it shall notify Client thereof in
writing, and * shall promptly advise Client as to any
(i) additional
equipment required, modifications to the Facility or equipment,
and/or additional equipment and the Facility qualification and
validation requirements; (ii) Manufacturing Process development,
transfer, scale-up, testing, qualification, or validation
requirements; (iii) regulatory requirements pursuant to such
Changes; (iv) changes to the Manufacturing scheduling and/or
Product delivery schedule; and (v) other impacts on the Facility or
*’s ability to manufacture products (including the Products)
in the Facility, if any, which may result from such Change(s). The
notification and formal approval procedure of such Changes shall be
in accordance with the applicable QAG (i.e., change control
procedures) (if applicable). The Parties shall meet in a timely
manner to identify and discuss such Changes as
appropriate;
(b) Prior to
implementation of any such Change(s), *, subject to Section 5.2,
shall provide Client with an estimated plan and budget of the
reasonable and necessary costs that would be incurred by * as a
result of the implementation of any such Change(s), including, but
not limited to for (i) process and analytical development;
(ii) equipment
and/or the Facility modifications, qualification, validation,
maintenance, and decommissioning/disposal; (iii) process and
analytical validation; (iv) document
revisions or changes, the Facility, equipment, and system
modifications or changes; (v) additional stability testing; and
(vi) preparing submissions to Regulatory Authorities (collectively,
the “Implementation Plan and
Budget”). Following review and approval by Client of
such Implementation Plan and Budget, subject to the Core
Team’s approval and agreement followed by the Parties’
written agreement pursuant to Section 17.9 (if applicable), * shall
commence implementation of such Change(s);
(c) During any such
implementation, * shall provide Client with regular updates on the
progress of implementation. Subject to any timeframe imposed by
Applicable Law, * shall exercise Commercially Reasonable Efforts to
implement the Change according to the Implementation Plan and
Budget’s target completion date. * shall provide
written notice to Client if * becomes aware of any
cause which may create delay with the implementation of Changes.
Following any such notice, both Parties shall discuss an amendment
of Implementation Plan and Budget; and
24
(d) Upon the
approval of the Implementation Plan and Budget for Change(s), both
Parties shall negotiate in good faith to determine the allocation
of the costs incurred by * for the implementation of any such
Change(s) between the Parties, in accordance with the following
principles:
(i) the costs for
the general Facility Changes required by cGMP, any Regulatory
Authority, or any Applicable Laws related to the maintaining the
Manufacturing Facility by * as set forth in Section 7.2, shall be
borne by *, provided that where the Change relates exclusively or
partially to the Manufacture of Product in which case the costs
shall be borne by Client fully or proportionally,
respectively;
(ii) the costs for
the Changes other than (i) above, and requested by Client and
required uniquely to the Manufacture of the Product and beneficial
solely to Client shall be borne by Client; and
(iii) the costs for
the Changes other than (i) and (ii) above shall be discussed in
good faith by the Parties to achieve equitable allocation of
costs.
SECTION
7 REGULATORY
APPROVALS AND INSPECTIONS.
7.1 Regulatory
Approvals. * shall provide reasonable assistance and
cooperation in order for Client to obtain and maintain the
Regulatory Approvals. The direct costs and fees associated with
such assistance and cooperation, to the extent not detailed in the
MSA or PSA shall be borne by Client, or as otherwise mutually
agreed between the Parties. As specified in the applicable PSA, the
Parties shall agree on which Regulatory Approvals are to be
obtained.
7.2 Regulatory
Approvals for the Facility. * shall obtain and continuously
maintain all approvals, licenses, registrations or authorizations
of any federal, state or local regulatory agency, department,
bureau or other governmental entity (other than the Regulatory
Approvals, which will be obtained or maintained by Client) that are
required to Manufacture and ship the Product at the Facility and
perform the Services including, but not limited to, cGMP
Manufacture.
7.3 Regulatory
Inspections. * shall facilitate on-site inspections of
the Facility conducted by Regulatory Authorities. * shall notify
Client according to the applicable QAG provisions of any contacts
or inquiries by the Regulatory Authorities, including inspections,
Pre-Approval Inspections, sample requests, and written
correspondence and its result, related to the Manufacture of
Product by * at the Facility, as further defined in the applicable
QAG. Any direct expenses or costs incurred by * for such
inspections including Pre-Approval Inspections at the Facility
shall be borne by Client. Unless prohibited by the pertinent
Regulatory Authority, Client shall be entitled to witness any
inspection or audit by a Regulatory Authority of the Facility or
Warehouse related to the Manufacture of Product by * at the
Facility. Further, Client shall be entitled to attend, as an
observer, any
wrap-up meeting between * and a Regulatory
Authority related to such an inspection related to the Services or
the Manufacture of Product by * at the Facility. * shall timely
provide Client with a copy of any Form 483, inspection report or
regulatory letter issued by a Regulatory Authority, and shall
provide Client a meaningful opportunity to review and comment upon
any response of * thereto. Client’s comments in such regard
shall be considered in good faith and be given due regard by * in
formulating any proposed response to a Regulatory
Authority.
25
7.4 Regulatory
Support. During the
Term, * will assist Client with all regulatory matters relating to
Services and Manufacture and review the Common Technical Document
pertaining to the Products, as it relates to Chemistry,
Manufacturing and Controls, and make such corrections as are
necessary to accurately reflect the Products, in each case at
Client’s request and reasonable expense; provided, however, *
shall review and correct such documents as they relate to *
activities at no charge to Client (updates will be made with
respect to regulatory filings for which Client has engaged * and
paid the associated flat rate fees for support). In addition, *
will maintain at *’s expense, the relevant Drug Master File,
including any updates thereto, and shall provide a letter
authorizing Client to reference *’s Drug Master Files on file
with the FDA and other Regulatory Authorities in connection with
the pursuit of Regulatory Approval for the Products.
8.1 Quality
Agreement. Both Parties shall
adhere to the provisions of the applicable QAG and the Parties
agree that all elements of quality assurance, quality control and
the like shall be governed by the terms and conditions of the
applicable QAG. In the event of a conflict between the MSA and the
applicable QAG, the MSA shall prevail over those of the applicable
QAG with the exception of Product quality-related matters, cGMP and
related regulatory requirements in which case, the terms of the
applicable QAG shall prevail.
8.2 Responsibility for
Recalled Product. For a Commercial Product, either
Party shall notify the other Party as soon as practicably possible
if any Commercial Product is the subject of a threatened or actual
recall by a Regulatory Authority, (a “Recall”) which may be attributable
to any Service or Manufacture by or on behalf of * hereunder.
Client shall be responsible for conducting all Recalls and shall
make all decisions regarding, and in all events shall have sole
authority for, conducting any recalls, market withdrawals or
corrections with respect to the Product and * shall at all times
exercise Commercially Reasonable Efforts to provide its assistance
and cooperation to Client in conducting such Recalls to the extent
the Recall arises out of *’s Manufacture of Product. Details
regarding the roles and responsibilities of the Parties in regard
to Recalls are set forth in the applicable QAG. If such Recall
results solely from * Assignable Error, * shall be responsible for
direct and documented out-of-pocket costs associated with such
Recall subject to the limitation of liability sections of the PSA
applicable to such Recalled Product and, subject to written
instructions of Client to the contrary, will use its Commercially
Reasonable Efforts to replace the Recalled Products with new
Products, contingent upon the receipt from Client free-of-charge of
all Client Materials required for the Manufacture of the
replacement Product. If * is unable to replace the Recalled or
returned Products (except where this inability results from a
failure to receive the Client Materials), then * shall credit to
Client the price that Client paid to * for Manufacturing and
Services for the affected Products. In all other circumstances,
Recalls will be made at Client’s cost and expense. The
provisions of this
Section 8.2 shall not apply to any Clinical Product and shall be
Client’s sole and exclusive remedy with respect to a Recall
due to the delivery of Non-Conforming Product.
26
For the
purpose of this Section, Recall expenses shall not include the
value of the Product that is the subject of such Recall or any loss
of reputation or good will, or lost profits or any other costs or
expenses not associated with the Product that is the subject of the
Recall. If * and Client cannot agree which Party is
at fault or whether a Recall was reasonably beyond the control of
the Parties, then an independent third party technical expert of
international repute, acceptable to both Parties, shall be
designated to make such determination. The designated technical
expert shall not be an employee, consultant, officer, director or
shareholder of, or otherwise associated with, or have been retained
during the prior five (5) years by, or be retained during the
ensuing five (5) years, by *, Client or their respective
Affiliates. The technical expert’s determination will be, in
the absence of fraud or manifest error, binding and conclusive upon
the Parties. The cost of designating such technical expert shall be
borne by the Party determined at fault, and if neither Party is
determined to be at fault, then the cost of such technical expert
shall be borne by both Parties in equal proportion.
8.3.1 Audit by
Client. Upon Client’s request, but no more than once
per year, * shall accept an audit of the Facility and, if necessary
in the judgment of Client, the Warehouse, by Client and allow
Client to inspect and audit the Facility and, if necessary in the
judgment of Client, the Warehouse, and Manufacture of the Product
solely to ascertain compliance by * with the terms of this MSA or
any applicable PSA; provided, however that in the event Client uses
a designee, * must provide prior written consent, which shall not
be unreasonably withheld, conditioned or delayed. * shall be
reimbursed for its reasonable costs for audits beyond the audit
described in the first sentence of this Section 8.3.1, except for
audits conducted to measure corrective action or remediation
following a finding of deficiency either by Client in a previous
audit or by a Regulatory Authority or as is contemplated by Section
8.3.2(ii). Client shall not be limited in the number of its audits
conducted to measure corrective action or remediation, and such
audits shall not count against the limit expressed in the first
sentence of this Section 8.3.1. * will make Commercially Reasonable
Efforts to require vendors or subcontractors to accept an audit or
visit to their facilities by Client upon similar notice as
described in Section 8.3.2 below.
8.3.2 Audit
Notice. Client shall provide * with a written notice at
least three (3) months prior to the initiation of the audit of the
Facility and, if necessary in the judgment of Client, the
Warehouse, set forth in Section 8.3.1,
which shall be conducted on a mutually agreeable date and time, and
with a mutually agreed duration, agenda, and number of attendees,
which in the case of Client shall not be limited to less than three
(3) without the consent of Client. Notwithstanding the foregoing,
if the audit is required for cause (i) due to safety reasons or
other reasons that necessitates immediate audit of or visit to the
Facility or (ii) due to the * Assignable Error, the foregoing
sentence shall not apply and Client may conduct such audit or visit
by providing * with a prior notice by email. Access to *’s
facilities shall be coordinated with * so as to minimize disruption
to *’s ability to perform services for its other clients.
Client representatives must comply with all of *’s generally
applicable cGMP, confidentiality and security procedures and
protocols during such observations, consultations,
and
inspections.
* shall at all times cooperate and provide all the
necessary documents reasonably required by Client during such
audit; provided that, to the extent necessary, * may redact or
withhold documents to protect the confidential information of its
other clients. Client shall be solely responsible for any costs and
liability caused by Client’s or its representatives’
failure to comply with *’s security, safety or
confidentiality procedures.
27
9.1
Consideration.
In consideration for *’s performing the Service and other
obligations undertaken by * pursuant to a PSA, Client shall pay *
amounts as set forth in the applicable PSA (the “Service Fee”); (ii) a handling
surcharge of a certain percentage or certain amount to be set forth
in the applicable PSA of the costs of Raw Materials paid by *
(including but not limited to taxes and customs duties/fees); (iii)
a handling surcharge of a certain percentage or certain amount to
be set forth in the applicable PSA related to the Client Materials
(which shall be based on the actual costs of such materials as
supported by reasonable documentary evidence as opposed to the
market value thereof); and (iv) storage fees as set forth in the
relevant PSA.
9.2
Invoices.
9.2.1 Service Fee of the Project Stages and
Batches. According to the invoicing plan set forth in
the applicable Project Plan or applicable PSA, or upon *’s
release of a Batch of Product, as applicable, * shall invoice
Client for the Service Fee set forth in the applicable
PSA.
9.2.2 Raw
Materials. With respect to the Raw Materials, * shall
submit invoices to Client for the applicable Raw Materials cost
(including any agreed upon safety stock) as set forth according to
Section 9.1 as follows. * shall submit an invoice to Client (i) for
the cost of Specialized Raw Materials procured upon receipt of the
invoice from vendors/suppliers; and
(ii)
for the cost of Common Raw Materials used by *’s completion
of such project stage or upon *’s release of a Batch of
Product as applicable. Notwithstanding the foregoing, the Parties
shall collaborate in the selection of the vendors of the Raw
Materials. All such vendors shall be approved by Client before
supplying * with Raw Materials for Product.
9.2.3 Client
Materials. With respect to the Client Materials, which
shall be supplied by Client to * at no cost during *’s
performance the Service, * shall submit an invoice to Client in an
amount as set forth in Section 9.1 upon *’s completion of
such project stage of the Service *’s release of a Batch of
Product, as applicable.
9.3
Payment.
9.3.1
Mode of Payment;
Foreign Exchange. All payments to * due under
the MSA or any applicable PSA shall be made within thirty (30)
Business Days from the receipt of the *’s invoice in USD $ by
means of telegraphic transfer to the account with the bank
designated by * in the foregoing invoice. For the purpose of
computing payment amounts incurred in a currency other than USD$,
such currency shall be converted into USD$ using the basic exchange
rate published by Bloomberg (or its successor institution) on its
website “http://www.bloomberg.com/markets/currencies”
(or any other website that may be used by Bloomberg or its
successor institution for publication of currency exchange rates)
at the opening of business on such invoice date.
28
9.3.2 Taxes.
All prices and charges are exclusive of any applicable taxes,
levies, imposts, duties and fees of whatever nature imposed by any
law or regulations in any country in respect of the Services,
importation or exportation of Raw Materials, Client Materials,
Batches, and Product, which shall be paid by Client. For the
avoidance of doubt, the foregoing shall not include any taxes
imposed on the income or profit of * and any withholding tax lawfully levied
on any payment to be made by Client to *, each of which shall be
solely borne by *. Client shall pay or reimburse * for all customs
duties and taxes in connection with the purchase, sale, importation
or exportation of any Raw Materials, Client Materials, Batches, or
Product or the provision of Services, except to the extent such
duties and taxes are recoverable by or refundable to *. * agrees to
assist Client in claiming exemption under double taxation or
similar agreement or treaty from time to time in force to obtain a
refund of any customs duties, value added taxes, and other taxes
payable by *.
9.3.3 Price
Adjustments.
The Service Fees as set forth in the applicable PSA, shall be
adjusted annually, on the last day of January, effective January 1
of each year during the Term, by the percentage change in the
consumer price index as published by the Bank of Korea for the
immediately preceding twelve (12) months. The relevant date for
price adjustment under this Section shall be the issue date of
*’s invoice.
9.3.4 Default
Interest. Any amount that is not paid by a Party to the
other when due under the MSA or any PSA shall bear default interest
at the rate of ten percent (10%) per annum, or such lesser maximum
rate allowed by Applicable Law, from the day following the due date
until paid in full. In the event there is an amount which is
invoiced by * but not paid by Client for more than six (6) months
after the due date, such event shall be considered a material
breach of the relevant PSA.
SECTION 10
CONFIDENTIALITY
10.1
Confidential
Information. “Confidential Information” shall
mean any data, know-how and other information, whether technical or
non-technical disclosed by one Party (hereinafter the
“Disclosing
Party”) or otherwise became known to the other Party
(hereinafter the “Receiving
Party”) hereunder relating to the subject matter of
the MSA, regardless of form or manner of disclosure, i.e., whether
disclosed in writing, in electronic file or format or in other
tangible manner, or orally, visually or in other intangible manner.
If a Party intends to disclose such information in writing, in
electronic file or format or in other tangible manner, such Party
will make reasonable efforts to indicate it is confidential; and if
to disclose orally, visually or in other intangible manner, such
Party will make reasonable efforts to reduce it in summary form in
writing or in electronic file or format, identified as confidential
and delivered to the other Party within thirty (30) days after such
oral or visual disclosure; provided, however, in each case, a
failure to do so shall not constitute a breach of this term nor
shall deny, negate or destroy the confidential nature thereof, and
no such failure shall serve as conclusive evidence that the
disclosed information shall not be considered Confidential
Information by and between the Parties. Furthermore, the existence
and terms of the MSA shall be deemed to be the Confidential
Information of both Parties and any information, data
29
or results
disclosed by * to Client relating to the Product, the
Services or Manufacture under this MSA or any PSA, as well as the
Manufacturing Process, the Project Plan and the Specifications
shall be the Confidential Information of Client, unless otherwise
specifically identified as * Confidential Information by the terms
of this Agreement. The Parties acknowledge and agree that the
Manufacturing Process and the Project Plan may contain a mixture of
both Party’s Background IP, ownership of which shall not be
affected by this MSA.
Notwithstanding the
foregoing, Confidential Information shall not include the
information, which as evidenced by written records:
(a) was at the time of
disclosure by the Disclosing Party hereunder publicly known or
available;
(b) after disclosure by
the Disclosing Party hereunder, became publicly known or available
by publication or otherwise, other than by an authorized act or
omission by the Receiving Party;
(c) was in the possession
of the Receiving Party without confidentiality restriction at the
time of the disclosure by the Disclosing Party
hereunder;
(d) was lawfully received
from any third party having the lawful right to make such
disclosure, without obligation of confidentiality; or
(e) was independently
developed by the Receiving Party’s directors, officers or
employees without reference to the Confidential Information, as
demonstrated by records created contemporaneously with such
development.
10.2
Confidentiality.
The Receiving Party recognizes the proprietary and confidential
nature of the Disclosing Party’s Confidential Information and
agrees that no right, title, ownership, license, or interest of any
character in the Disclosing Party’s Confidential Information
other than as specifically granted herein, is conveyed or
transferred to the Receiving Party. Both Parties further agree to
maintain the Disclosing Party’s Confidential Information in
confidence and not to disclose or divulge the Disclosing
Party’s Confidential Information, in whole or in part, to any
third party, and not use the Disclosing Party’s Confidential
Information for any purpose other than pursuing the MSA. Each Party
shall guard such Confidential Information using the same degree of
care as it normally uses to guard its own confidential or
proprietary information of like importance, but in any event no
less than reasonable care. The Receiving Party shall limit
disclosure of the Disclosing Party’s Confidential Information
to its and those of its Affiliates’ directors, officers,
employees, consultants and agents (“Representatives”) who have a need
to know the Disclosing Party’s Confidential Information for
performance of the Service and implementation of the MSA,
provided that, the
Receiving Party shall undertake procedures to ensure that each of
its Representatives to whom the Disclosing Party’s
Confidential Information is disclosed understands (i) the
confidential nature of the Disclosing Party’s Confidential
Information and (ii) that he or she is under an obligation similar
to those contained herein to hold the Disclosing Party’s
Confidential Information disclosed strictly
confidential.
10.3 Authorized
Disclosures. Disclosure is permitted in the event that
(a) the Disclosing Party’s Confidential Information is
reasonably required to obtain or maintain any Regulatory Approvals
for the Products in any or all jurisdictions or (b) the Disclosing
Party needs to disclose such Confidential Information to comply
with Applicable Law; provided that such Receiving Party shall
exercise its Commercially Reasonable Efforts to limit disclosure of
the Disclosing Party’s Confidential Information to that
which is necessary for compliance and to otherwise maintain the
confidentiality of the Confidential Information.
30
10.4
Survival of
confidential obligations. The confidential obligations of the
Receiving Party shall survive for a period of five (5) years from
the expiration or termination of this MSA.
10.5
Return
of the Confidential Information. All written, printed or
other tangible Confidential Information of the Disclosing Party
disclosed under the MSA, and all copies thereof shall be returned
to the Disclosing Party (or destroyed at the Disclosing
Party’s request) by the Receiving Party within thirty (30)
business days from the written request by the Disclosing Party. All
Confidential Information disclosed electronically shall be
completely deleted and destroyed by the Receiving Party within
thirty (30) business days from the written request by the
Disclosing Party. Notwithstanding the foregoing, (i) digital backup
files automatically generated by the Receiving Party’s
customary electronic data processing system may be retained and
properly stored as confidential files for the sole purpose of
backup and will be deleted in accordance with the Receiving
Party’s retention policy, and (ii) a single copy of the
Confidential Information may be retained in the secured files of
the Receiving Party for the sole purpose of determining the scope
of obligations incurred by it under the MSA provided that the
Receiving Party shall keep such Confidential Information in
confidence and will use the Confidential Information solely to
comply with the terms of the MSA as well as the applicable law,
rule and regulation.
11.1
Reference Standard,
Client Technology, Client Materials, Cell Line, and Product.
* hereby
understands and agrees that all rights to, titles of and interests
in the Reference Standards, Client Technology, Client Materials,
Cell Line, Product, the Manufacturing Process and any work in
process or semi processed goods thereof belong to Client, unless
otherwise provided herein.
11.2 Background
Intellectual Property. It is acknowledged that each Party
possesses Background IP. Any Intellectual Property relating to the
Reference Standards, Client Technology, Client Materials and Cell
Line owned and/or controlled by Client as of the date of provision
of such Reference Standards, Client Technology, Client Materials
and Cell Line by Client to * pursuant to Section 5.1, shall be
deemed to be included in the Background IP of Client. Client hereby
grants * a royalty-free, non-transferable, revocable and
non-sublicensable and fully-paid-up right and license to use such
Intellectual Property relating to such Reference Standards, Client
Technology, Client Materials, Cell Line, during the Term for the
sole purposes of Manufacturing of the Product or Services in
accordance with the MSA.
11.3 Inventions.
Any Intellectual Property arising out of or resulting from the
Service under the MSA, including but not limited to those contained
in the Manufacturing Documentation, shall be hereinafter
collectively called an “Invention”.
11.3.1 Client
Invention. Any Invention that is conceived and first reduced
to practice solely by one or more employees or officers of * (or
its third party consultant or subcontractor) and does not
constitute an * Invention shall be a “Client
Invention”. * shall notify Client of such Client Invention(s)
to Client immediately after *, the Project Management Team
Leader,
31
respective project
personnel, * employees or officers or other
applicable third parties working for * hereunder makes, conceives
or reduces to practice such Client Invention, and shall take all
necessary measures so that Client would have the sole and exclusive
ownership of any and all Client Invention. Client may use any
Client Invention for any purpose, including filing patent
application and * shall provide reasonable cooperation to Client at
the expense of Client (as to all reasonable out-of-pocket expenses
incurred by * that are supported by adequate documentation). In the
event that * wishes to use the Client Invention for purposes
outside the scope of the MSA, Client hereby grants * a worldwide,
irrevocable, royalty-free and fully-paid- up license to use such
Client Invention. This Section 11.3 shall survive the expiration or
earlier termination and continue in effect as long as the
intellectual property right to such Client Invention is legally
valid.
11.3.2
* Invention. Any Invention that is conceived and first
reduced to practice solely by one or more employees or officers of
* (or its third party consultant or subcontractor) and which is not
derived from, or arises out of Client Background IP or
Client’s Confidential Information or any other proprietary
right of Client or its third party vendors, contractors, or other
partners or clients under or in connection with the MSA, shall be
the property of * (“*
Invention”), and shall not be deemed to be Client
Invention or Joint Invention for the purposes of the MSA. No
Background IP of * and the * Invention shall be incorporated into
the Product or Manufacturing Process without the joint review and
approval of both Parties and the terms of a license to use such
Background IP or * Invention shall be agreed upon prior to such
incorporation.
11.3.3 Client-* Joint
Invention. Any Invention that is conceived and first
reduced to practice jointly by one or more employees, or officers
of * (or its third party consultant or subcontractor) or their
respective Affiliates, on the one hand and one or more employees,
officers, agents or contractors of Client (or its Affiliates) on
the other hand and which is not derived from, or arises out of
either Party’s Background IP or Confidential Information or
any other proprietary right of a Party or its third party vendors,
contractors, or other partners or clients under or in connection
with the MSA, shall be jointly owned by Client and * (a
“Joint
Invention”), and shall not be a Client Invention or *
Invention for the purposes of the MSA. Subject to the terms and
conditions of the MSA, any such Joint Invention may be exploited by
* or Client without compensation and liability of other obligation
(including accounting obligations) to the other Party, and each
Party has a non-exclusive, royalty-free, worldwide license, with
the right to sublicense, under its interest in such Joint
Inventions and any Intellectual Property rights (including patents)
covering the same, for any purpose; provided that in the event of
sublicense, each Party shall make written notice to the other Party
of the fact. This license shall continue for the life of the
applicable right.
SECTION
12 WARRANTIES.
12.1 The Parties General
Warranties. Each Party warrants and represents that:
(i) it has the corporate power and authority to enter into this MSA
and has taken all necessary action on its part required to
authorize the execution, delivery and performance of this
Agreement; (ii) it is aware of no legal, contractual or other
restriction, limitation or condition that might adversely affect
its ability to enter into this MSA and perform its obligations
hereunder; (iii) it is duly organized, validly
existing
32
and in
good standing under the laws of the jurisdiction in which it is
incorporated; (iv) this MSA (a) has been duly executed and
delivered by a duly authorized representative of it, and (b) is the
legal, valid and binding obligation of it, enforceable against it
in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect
relating to or affecting creditors’ rights generally;
and (v) the execution,
delivery and performance of this Agreement by it does not and will
not (a) violate any Applicable Laws applicable to it, or (b)
violate or conflict with any provision of its Articles of
Incorporation or By-laws or other organizational
documents.
12.2 Client’s
Warranties. Client represents, warrants and covenants to
* that as of the Effective Date of the MSA
and during the Term: (a) Client will comply with all Applicable
Laws, and that it will keep * informed of any information known to
Client which would affect *’s provision of the Service
hereunder and (c) to the best of its knowledge, *’s use of
the Client Materials, Manufacturing Process, and Client Technology
for the purpose of the Service and to the extent as set forth in
the MSA will not infringe any third party’s Intellectual
Property rights.
12.3 *’s
Warranties.
* represents, warrants and covenants that:
12.3.1 As of the
Effective Date and during the Term, (i) * is the lawful owner,
lessee, operator, or licensee of the Facility, equipment,
machinery, as well as permissions required, to enable * to perform
its obligations under this MSA, and (ii) to the best of *’s
knowledge none of the * Inventions or * Background IP infringes any
third party Intellectual Property Right.
12.3.2 All Product
Batches, at the time of delivery to Client’s designated
carrier, shall (a) conform to the Specifications (except for Pilot
Batches and Engineering Batches unless otherwise
agreed); (b) be
Manufactured, packaged, handled and stored in compliance with the
requirements of cGMPs (except for Pilot Batches and Engineering
Batches unless otherwise agreed) and all Applicable Laws; (c)
comply with the Standard Operating Procedures; (d) be Manufactured
in compliance with the Quality Agreement; and (e) be transferred
free and clear of any liens, claims or encumbrances of any
kind.
12.3.3 (i) * is not nor
has it ever been, and (ii) * has not used, and will not use, the
services of any person excluded, debarred, suspended (or subject to
exclusion, debarment or suspension) under 21 U.S.C. §335(a) or
(b) or otherwise disqualified by Applicable Law, including, the FDA
Debarment List (http://www.fda.gov/ora/compliance_ref/debar/default.htm),
as amended or replaced from time to time, in connection with any of
the Services or Manufacturing performed under this MSA or any PSA.
* agrees to notify Client promptly in the event of any violation of
*’s obligations under this Section. This certification
applies to * and its respective officers, agents, and employees as
well as subcontractors performing on behalf of * under this
Agreement.
12.4
No
Other Warranties. THE REPRESENTATIONS AND WARRANTIES
CONTAINED IN THIS SECTION ARE EXPRESSLY IN LIEU OF AND EXCLUDE, AND
THE PARTIES HEREBY EXPRESSLY DISCLAIM AND NEGATE, TO THE MAXIMUM
EXTENT PERMITTED BY APPLICABLE LAWS, ALL OTHER REPRESENTATIONS AND
WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED (ARISING BY OPERATION OF
LAW OR
OTHERWISE), INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, EVEN IF THAT PURPOSE IS
KNOWN.
33
13.1
Indemnification by
*. *
shall indemnify and hold harmless Client, its Affiliates, and their
respective officers, directors, employees or agents from and
against any Damages arising or resulting from any third party
(which shall exclude Client Affiliates) claims to the extent such
Damages are relating to, arising out of, in connection with, or
resulting from claims, demands, or actions based upon (i) gross
negligence or willful misconduct; (ii) breach of the MSA or any
PSA; (iii) violation of Applicable Law, in the case of clauses (i)
through (iii) of or by * or its officers, directors, employees or
agents, including any subcontractor or vendor used in the
Manufacture of Product, or (iv) any claim that
*’s use of * Background IP infringes any third party’s
Intellectual Property rights, except to the extent that such
Damages are caused by the causes as set forth in Section 13.2 for
which Client is obliged to indemnify.
13.2 Indemnification by
Client. Client shall indemnify and hold harmless *, its
Affiliates, and their respective officers, directors, employees or
agents from and against any Damages arising or resulting from any
third party (which shall exclude * Affiliates) claims to the extent
such Damages are relating to, arising out of, in connection with,
or resulting from claims, demands or actions based upon (i) gross
negligence or willful misconduct, (ii) any claim that *’s use
of the Client Materials, Manufacturing Process, and Client
Technology for the purpose of the Services and solely to the extent
as set forth in the MSA infringes any third party’s
Intellectual Property rights, (iii) breach of the MSA or any PSA,
or (iv) violation of Applicable Law, in each case except to the
extent that such Damages are caused by the causes as set forth in
Section 13.1 for which * is obliged to indemnify and in the case of
clauses (i), (iii), and (iv) of or by Client or its officers,
directors, employees, or agents.
13.3
Indemnification
Procedure. The foregoing indemnification by * or Client
shall be conditioned, if and to the extent Damages are based on or
related to a third party claim, upon a Party who intends to claim
indemnification under Sections 13.1 and 13.2 (the
“Indemnified
Party”) (i) providing written notice to the other
Party (“Indemnifying
Party”) within twenty (20) calendar days after the
Indemnified Party have been given written notice of such third
party claim, provided that absence or delay of such prior written
notice will not relieve the Indemnifying Party of its obligation to
indemnify except to the extent such absence or delay materially
prejudices the Indemnifying Party’s ability to defend the
third party claim; (ii) permitting the Indemnifying Party, upon
timely notice by the Indemnified Party, the opportunity to assume
full responsibility (at the Indemnifying Party’s cost and
expense) for the investigation and defense of any such claim with
counsel reasonably satisfactory to the Indemnified Party,
provided, however,
the Indemnifying Party shall keep the Indemnified Party informed as
to the progress of the defense of any claim and that the
Indemnified Party shall cooperate in such defense and shall make
available all records, materials and witness reasonably requested
by the Indemnifying Party in connection therewith; and (iii) not
settling or compromising any such claim without the Indemnifying
Party’s prior written consent, with such consent not to be
unreasonably denied, withheld or conditioned. Furthermore, the
Indemnifying Party shall not settle or compromise any such claim
without the Indemnified Party’s prior written consent;
provided, however, no such consent shall be required if such
settlement or compromise involves only the
payment of money, does not require a finding or admission of fault
or guild on the party of the Indemnified Party, and provides for a
general release of the Indemnified Party.
34
SECTION 14
DISCLAIMER OF
CONSEQUENTIAL DAMAGES: LIMITATION OF
LIABILITY
14.1
Disclaimer of
Consequential Damages. EXCEPT FOR DAMAGES BASED ON OR
RELATED TO A THIRD PARTY CLAIM ARISING UNDER SECTIONS 13.1 AND
13.2, OR BASED ON GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, NEITHER
PARTY WILL BE LIABLE UNDER THIS AGREEMENT FOR ANY SPECIAL,
PUNITIVE, CONSEQUENTIAL, INCIDENTAL OR OTHER INDIRECT DAMAGES OF
ANY TYPE OR NATURE, WHETHER BASED IN CONTRACT, TORT, STRICT
LIABILITY, NEGLIGENCE OR OTHERWISE, INCLUDING LOSS OF PROFITS OR
REVENUES.
14.2
Limitation of
Liability. Specific caps on Damages shall be set forth in
the applicable PSA.
15.1
Term.
This MSA will become effective as of the Effective Date and will be
in effect for as long as a PSA is in effect (the
“Term”). Each
PSA will have its own initial term as stated therein. Each PSA for
clinical supply shall automatically renew for successive terms of
one (1) year each or upon execution of a PSA for commercial supply,
whichever is earlier, and each PSA for commercial supply, including
supply of stocking inventories in advance of Regulatory Approval,
shall automatically renew for successive terms of three (3) years
each, unless a Party gives written notice to the other Party of its
intention to not renew a PSA for clinical supply ninety (90) days
prior to the end of the then current PSA term, or a Party gives
written notice to the other Party of its intention to not renew a
PSA for commercial supply thirty-six (36) months prior to the end
of the then current PSA term.
15.2 Termination.
This MSA or a PSA may be earlier terminated as set forth in this
Section 15.2.
15.2.1 Material
Breach. A Party may terminate
any PSA for a material breach by the other Party; provided,
however, that the non-breaching Party shall give the breaching
Party written notice of such breach and if the breaching Party
fails to commence Commercially Reasonable Efforts to cure that
breach within twenty (20) Business Days after receipt of such
written notice, then the non-breaching Party may terminate this
Agreement on twenty (20) Business Days’ written notice after
expiration of such twenty (20) Business Day period. This MSA shall
terminate if all effective PSAs are terminated.
15.2.2 Insolvency.
This MSA may be terminated by either Party upon written notice at
any time during the MSA if the other Party: (a) files in any court
pursuant to any statute a petition in bankruptcy or insolvency or
for reorganization or for an arrangement or for the appointment of
a receiver or trustee of such Party, or of its assets; (b) proposes
a written agreement of composition for extension of its debts; (c)
is served with an involuntary petition against it, filed in any
insolvency proceeding which is admitted in the court; or (d) makes
an assignment for the benefit of its
creditors. The Party affected shall immediately notify the other
Party in writing of the occurrence of any of the foregoing
events.
35
15.2.3 Force Majeure. Either Party may
terminate a PSA in accordance with Section 17.3 in the event a
Party is unable to perform its obligations pursuant to a PSA due to
a Force Majeure Event.
15.2.4 Import
Failure. Client shall be entitled to terminate a PSA upon
twenty (20) Business Days’ notice to *, if, despite the efforts of * pursuant
to Section 5.4.1, Client Material destined for use in connection
with the Services have been prohibited from entry into the Republic
of South Korea by the Korean Custom Service. Such termination right
shall only exist if such Client Materials have been denied entry
and shall not be implicated by mere delays in the importation
process. If such termination relates to efforts to import into the
Republic of Korea Client Materials for the initial Batch of a
Product under a PSA, the applicable PSA shall be deemed to be void
ab initio without further
cost or expense to either Party; provided, however, the
Party’s thereafter shall reasonably cooperate with regard to
disposition of such Client Materials at the cost of
Client.
15.2.5 Other Specified
Events. The Parties may additionally terminate a PSA as set
forth in the applicable PSA.
15.3 Effect of
Expiration or Termination.
15.3.1 Payment of Amounts
Due.
Expiration or termination of the MSA or PSA for any reason shall
not exempt any Party from paying to any other Party any amounts
owing to such Party at the time of such expiration or termination;
provided, however, with respect to a termination deemed to be
ab initio, and up-front fee
paid to * shall not be deemed earned and shall be returned to
Client.
15.3.2 Decommissioning.
Upon expiration or termination of a PSA for any reason, * shall
cease and refrain from the Services described in any applicable PSA
(including the Manufacturing and supplying the Product) for Client
unless otherwise provided in the following Sections 15.3.2(a) to
15.3.2(d), and both Parties shall pursue decommissioning activities
as set forth hereunder.
(a)
Fully Manufactured Product.
(i) If Client
terminates a PSA pursuant to Section 15.2.1, 15.2.2, 15.2.3, 15.2.4
or 15.2.5, upon Client’s election, * shall (i) deliver
already fully Manufactured Product to Client in accordance with the
terms and conditions of the MSA and applicable PSA or (ii) destroy
such Product. If Client elected (i) above, Client shall
pay the Service Fees and any related costs or fees for the Service
relating to such Product in accordance with the terms and
conditions of the MSA and applicable PSA, and if Client elected
(ii) above, * shall bear the costs and expenses for such
destruction, except in the case of Section 15.2.4
or Section 15.2.5 for which destruction Client shall pay the
cost.
36
(ii) If
* terminates a PSA pursuant to Section
15.2.1, 15.2.2, 15.2.3, or 15.2.5, upon *’s election, * may
(i) deliver the fully Manufactured Product to Client in accordance
with the terms and conditions of the MSA and applicable PSA
(including the current Firm Period period or Binding Year in the
PSA) or (ii) destroy such Product. If * elected (i) above, Client
shall pay the Service Fee and any related costs or fees for the
Service relating to such Product in accordance with the terms and
conditions of the MSA and applicable PSA, and if * elected (ii)
above, Client shall bear the costs and expenses for such
destruction and the costs incurred by * for the Service; provided,
however, such costs and expenses to be borne by Client shall in no
event exceed the Service Fee for the Service relating to such
Product.
(iii) If a PSA is
naturally expired pursuant to Section 15.1, the provisions of (ii)
above shall apply
(b)
Client Materials being used for the Service (Product in
Process).
(i) If Client
terminates a PSA pursuant to Section 15.2.1, 15.2.2, 15.2.3,
15.2.4, or 15.2.5, upon Client’s election, * shall (i)
continue to use the Client Materials being used for the
Manufacturing hereunder (the Product in process) and deliver the
fully Manufactured Product to Client in accordance with the terms
and conditions of the MSA and applicable PSA, or (ii) deliver to
Client or destroy such Product in process. If Client elected (i)
above, Client shall pay the Service Fee and any related costs or
fees for the Service relating to the fully Manufactured Product in
accordance with the terms and conditions of the MSA and applicable
PSA, and if Client elected (ii) above, * shall bear the costs and
expenses for such activities except in the case of Section 15.2.4
or Section 15.2.5 for which destruction Client shall pay the
cost.
(ii) If *
terminates a PSA pursuant to Section 15.2.1, 15.2.2, 15.2.3, or
15.2.5, upon *’s election, * may (i) continue to use the
Client Materials being used for the Manufacturing hereunder (the
Product in process) and deliver the fully Manufactured Product to
Client in accordance with the terms and conditions of the MSA and
applicable PSA, or (ii) destroy such Product in process. If *
elected (i) above, Client shall pay the Service Fee and any related
costs or fees for the Service relating to the fully Manufactured
Product in accordance with the terms and conditions of the MSA, and
if * elected (ii) above, Client
shall bear the costs and expenses for such activities.
(iii) If a
PSA is naturally expired pursuant to Section 15.1, the provisions
of (ii) above shall apply.
37
(c) Client Materials, Cell Line, and Reference
Standards. Upon expiration or termination of a PSA, upon
Client’s election, * shall deliver to
Client and/or destroy all remaining Client Materials (subject to
Sections 15.3.2(a) and 15.3.2(b)), all remaining Cell Line vials,
Reference Standards and other materials required for
Manufacturing.
The
costs and expenses for such activities shall be borne by the
Parties as follows:
(i)
If Client
terminates the PSA pursuant to Section 15.2.1, 15.2.2 or 15.2.3, *
shall deliver or dispose at no additional cost to Client and *
shall bear such costs and expenses for such
activities;
(ii)
If * terminates the
PSA pursuant to Section 15.2.1, 15.2.2, 15.2.3, or 15.2.5, or
Client terminates the PSA pursuant to Section 15.2.4or 15.2.5,
Client shall bear such costsand expenses for such
activities;
(iii)
If a PSA is
naturally expired pursuant to Section 15.1, the provisions of (ii)
above shall reply.
(d)
Raw
Materials.
(i)
If Client
terminates a PSA pursuant to Section 15.2.1, 15.2.2 or 15.2.3 and
if Client so elects, * shall deliver the remaining Raw Materials to
Client for Client’s payment of *’s cost to procure such
Raw Materials, or dispose of them at Client’s election. *
shall bear the costs and expenses for the delivery of the
RawMaterials.
(ii)
If * terminates a
PSA pursuant to Section 15.2.1, 15.2.2, 15.2.3 or 15.2.5, or Client
terminates a PSA pursuant to Section 15.2.4 or 15.4.5, * may
deliver the remaining Raw Materials to Client or dispose of them at
*’s election. If so delivered, Client shall pay *’s
cost to procure such Raw Materials to * and bear the costs and
expenses for the deliveryof such Raw Materials by *.
(iii)
If a PSA is
naturally expired pursuant to Section 15.1, the provisions of (ii)
above shall apply.
(e)
Outstanding
Obligations Regarding Purchase of Product.
(i) If Client
terminates a PSA pursuant to Section 15.2.1 or 15.2.2 Client shall
be released from any outstanding binding obligations to purchase
Product as of the date of notice of termination including but not
limited to pursuant to a Firm Period, binding forecast, purchase
order, minimum purchase commitment, or otherwise; provided,
however, that Client shall purchase Product Manufactured prior to
such date of notice, pursuant to the terms of this MSA and
PSA.
38
(ii) If
* terminates a PSA pursuant to Section
15.2.1 or 15.2.2, outstanding binding obligations to purchase
Product as of the date of notice of termination shall survive
termination of such PSA, including but not limited to pursuant to a
Firm Period, binding forecast, purchase order, minimum purchase
commitment, or otherwise.
(iii) For all other cases
of termination of a PSA, subsection (ii) shall apply.
(f) Survival.
Any termination or expiration of this MSA shall not affect any
outstanding obligations due hereunder prior to such termination or
expiration, nor shall it prejudice any other remedies that the
parties may have under this MSA. For greater certainty, except as
otherwise expressly provided, termination or expiration of this
MSA, irrespective of the cause, shall not affect any rights or
obligations which, from the context thereof, are intended to
survive termination or expiration of this MSA, including but not
limited to Sections 1, 8, 9, 10, 11, 12, 13, 14, 15, 16 and
17.2.
15.3.3 Outbound
Transfer. Upon any
termination of a PSA or in connection with its expiration, Client
shall be entitled to give notice to * of a Manufacturing Process
Transfer, which shall commence the preparation and effectuation of
a Manufacturing Process Transfer Plan for the Product identified
therein. In addition, Client shall be entitled to give notice to *
of a Manufacturing Process Transfer and commence the preparation
and effectuation of a Manufacturing Process Transfer Plan in the
absence of a termination or expiration of a PSA in order to
establish second source Manufacturing. Client shall pay *’s
reasonable costs of assistance related to effectuation of the
Manufacturing Process Transfer Plan.
16.1 Informal
Discussions. Except as otherwise provided herein, in the
event of any controversy or claim arising out of or relating to
this MSA, or the rights or obligations of the Parties hereunder,
the Parties shall first try to settle their differences amicably
between themselves through the Core Team and then the JSC.
Thereafter, either Party may initiate informal dispute resolution
on the executive level by sending written notice of the dispute to
the other Party, and within thirty (30) days after such notice
appropriate executives of the Parties shall meet for attempted
resolution by good faith negotiations. If such representatives are
unable to resolve such disputed matter within such thirty
(30) day period,
either Party may refer the matter by written notice to the Chief
Executive Officer of the other Party, or his/her designee, and the
Chief Executive Officer of such Party, for discussion and
resolution. If such individuals or their designees are unable to
resolve such dispute within thirty (30) days of such written
notice, and such dispute relates to a claimed breach of this MSA, a
PSA or a QAG, either Party may initiate binding arbitration
proceedings in accordance with the provisions of this Article 16.
For the avoidance of doubt, no claim other than a claim of a breach
of this Agreement shall be subject to arbitration.
16.2
Arbitration.
If the Parties do not fully settle a claimed breach of this MSA, a
PSA or a QAG pursuant to Section 16.1, and a Party wishes to pursue
the matter, each such claim shall be finally resolved
by
39
binding
arbitration in accordance with the Commercial Arbitration Rules of
the International Chamber of Commerce (“ICC”), and
judgment on the arbitration award may be entered in any court
having jurisdiction thereof to enforce the arbitration award. The
arbitration shall be conducted by a panel of three neutral persons
experienced in the pharmaceutical business, and within thirty (30)
days after initiation of arbitration, each Party shall select one
person to act as arbitrator and the two Party-selected arbitrators
shall select a third arbitrator within thirty (30) days of their
appointment. If the arbitrators selected by the Parties are unable
or fail to agree upon the third arbitrator, the third arbitrator
shall be appointed by the ICC. The place of arbitration shall be
New York, New York, United States and all proceedings and
communications shall be in English. Either Party may apply to the
arbitrators for interim injunctive relief until the arbitration
award is rendered or the controversy is otherwise resolved. Either
Party also may, without waiving any remedy under this Agreement,
seek from any court having jurisdiction any injunctive or
provisional relief necessary to protect the rights or property of
that Party pending the arbitration award. The arbitrators shall
have no authority to award punitive or any other type of damages
not measured by a Party’s direct compensatory damages, and in
all cases, any decision or determination by the arbitrators shall
comply with Article 14, as applicable. The Parties agree that, in
the event of a good faith dispute over the nature or quality of
performance under this Agreement, neither Party may terminate this
Agreement until final resolution of the dispute through arbitration
or other judicial determination. The Parties further agree that any
payments made pursuant to this Agreement pending resolution of the
dispute shall be refunded if an arbitrator or court determines that
such payments are not due.
16.3 Costs and
Fees. Each Party shall bear its own attorneys’ fees,
costs, and disbursements arising out of the arbitration, and shall
pay an equal share of the fees and costs of the arbitrators. Absent
the filing of an application to correct or vacate the arbitration
award as permitted by Applicable Law, each Party shall fully
perform and satisfy the arbitration award within fifteen (15) days
after the service of the award on such Party.
17.1 Notices. Any
notice required or permitted under the MSA shall be in writing with
duly authorized signature and made to the following addresses or
facsimile numbers:
If to
Client:
TG
Therapeutics, Inc.2 Gansevoort St., 9th
Floor
New
York, NY 10014
Attention: Senior
Vice President Operations
Facsimile:
If to
*:
*
With copy to:
* Legal
& Compliance Department
40
Either
Party may change its designated address and facsimile number by
notice to the other Party in the manner provided in this Section
17.1.
Any
notice shall be deemed to have been delivered on the date of
delivery of delivered personally, or on the next day of sending if
sent by facsimile, or on the fifth day of posting if sent by
registered or certified mail with return receipt requested and
postage prepaid.
17.2
Governing
Law. This MSA shall be construed and interpreted in
accordance with the laws of State of New York, United States and
all rights and remedies shall be governed by such laws without
regard to principles of conflicts of law. The United Nations
Convention on Contracts for the International Sale of Goods shall
not apply to the transactions contemplated by the MSA.
17.3 Effect of Force
Majeure Event. Neither Party (the
“Affected
Party”) shall be liable to the other Party (the
“Non-Affected
Party”) for failure or delay to perform its obligation
under the MSA or any applicable PSA when such failure or delay is
due to riots, storms, fires, explosions, floods, earthquakes, war,
embargoes, blockades, insurrections, terrorism, an act of God or
any other cause similar thereto which is beyond the control of the
Affected Party including those affected upstream suppliers
(“Force Majeure
Event”).
Each
Party agrees to give the other Party prompt written notice of the
occurrence of any Force Majeure Event, the nature thereof, and the
extent to which the affected Party will be unable fully to perform
its obligations under the MSA. If a condition constituting Force
Majeure Event as defined herein exists for more than one hundred
eighty (180) consecutive days, or it is reasonably foreseeable that
such Force Majeure Event will persist for more than one hundred
eighty (180) days consecutive days, the Parties shall endeavor in
good faith to negotiate a mutually satisfactory solution to the
problem, if practicable, including use of a third party to fulfill
the obligations hereunder of the party invoking Force Majeure
Event, at the expense of the party invoking Force Majeure Event. If
after good faith efforts to negotiate a mutually satisfactory
solution for at least sixty (60) days the Parties have failed to
reach agreement, the Non-Affected Party shall have the right to
terminate this MSA upon thirty (30) days’ written
failure.
17.4 Assignment.
Neither Party shall assign, in whole or in part, the MSA without
the prior written consent of the other Party, such approval not to
be unreasonably withheld, conditioned or delayed. Notwithstanding
the above, Client may, without such consent, assign the MSA to (i)
its Affiliate or (ii) any purchaser
of Client’s rights relating to the Product or all or
substantially all of the assets of Client, or of all of its capital
stock, or to any successor corporation or entity resulting from any
merger or consolidation of such Party with or into such corporation
or entity. Notwithstanding the above, * may, without such consent,
assign the MSA to (i) its Affiliate or (ii) any purchaser of
substantially all of the assets of *, or of all of its capital
stock, or to any successor corporation or entity resulting from any
merger or consolidation of such Party with or into such corporation
or entity.
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17.5
No
Grant of License. Nothing in the MSA shall affect, or grant
any right to, patents, know-how or other intellectual property
owned by either Party prior to the commencement of the MSA unless
otherwise expressly provided in the MSA.
17.6
No
Right to Use Names. Except as expressly provided herein, no
right, expressed or implied, is granted by the MSA to use in any
manner the name of either of the Parties or any other trade name,
symbol, logo or trademark of the other Party in connection with the
performance of the MSA, without the prior written consent of the
other Party.
17.7
Independent
Contractors.
The Parties hereto are independent contractors and nothing
contained in the MSA shall be deemed or construed to create a
partnership, joint venture, employment, franchise, agency or
fiduciary relationship between the Parties.
17.8
Integration.
This MSA constitutes the entire agreement between the Parties
relating to the subject matter of the MSA and supersedes all
previous oral and written communications between the Parties with
respect to the subject matter of the MSA.
17.9 Amendment;
Waiver. Except as otherwise
expressly provided herein, no alteration of or modification to the
MSA shall be effective unless made in writing and executed by an
authorized representative of both Parties. No course of dealing or
failing of either Party to strictly enforce any term, right or
condition of the MSA in any instance shall be construed as a
general waiver or relinquishment of such term, right or condition.
The observance of any provision of the MSA may be waived (either
generally or any given instance and either retroactively or
prospectively) only with the written consent of the Party granting
such waiver.
17.10 Severability.
The Parties do not intend to violate any Applicable Law. However,
if any sentence, paragraph, clause or combination of the MSA is in
violation of any law or is found to be otherwise unenforceable,
such sentence, paragraph, clause or combination of the same shall
be deleted and the remainder of the MSA shall remain binding,
provided that such deletion does not alter the basic purpose and
structure of the MSA.
17.11 Construction.
The Parties mutually acknowledge that they have participated in the
negotiation and preparation of the MSA. Ambiguities, if any, in the
MSA shall not be construed against any Party, irrespective of which
Party may be deemed to have drafted the MSA or authorized the
ambiguous provision.
17.12 Interpretation.
The captions and headings to the MSA are for convenience only, and
are to be of no force or effect in construing or interpreting any
of the provisions of the MSA. Unless context otherwise clearly
requires, whenever used in the MSA: (a) the words
“include” or “including” shall be construed
as incorporating, also, “but not limited to” or
“without limitation”; (b) the words
“hereof,” “herein,” “hereby”
and derivative or similar words refer to the MSA; (c) the word
“law” or “laws” shall mean any applicable,
legally binding statute, ordinance, resolution, regulation, code,
guideline, rule, order, decree, judgment, injunction, mandate or
other legally binding requirement of a governmental authority
(including a court, tribunal, agency, legislative body or other
instrumentality of any (i) government or country or territory, (ii)
any state, province, county, city or other political subdivision
thereof, or (iii) any supranational body); and (d) all references
to the word “will”
are interchangeable with the word “shall” and shall be
understood to be imperative or mandatory in nature. All references
to days, months, quarters or years are references to calendar days,
calendar months, calendar quarters, or calendar years. Whenever any
matter hereunder requires consent or approval, such consent or
approval shall not be unreasonably withheld or
delayed.
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17.13 Counterparts.
This MSA may be executed in two or more counterparts, each of which
will be deemed an original, but all of which together will
constitute one and the same instrument.
Signature:
_______________________________________
Name:
Michael
S. Weiss
Title:
Chief Executive
Officer
Date:
*
Signature:
Name: *
Date:
43