As confidentially submitted to the Securities and Exchange Commission on January 8, 2021 as Amendment No. 1 to the draft registration statement submitted on November 27, 2020. This Amendment No. 1 has not been publicly filed with the Securities and Exchange Commission and all information herein remains confidential.
Registration Statement No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Achilles TX Limited*
(Exact name of registrant as specified in its charter)
United Kingdom | 2836 | Not Applicable | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
245 Hammersmith Road
London W6 8PW
United Kingdom
Tel: +44 (0)20 8154 4600
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to: | ||||||
Mitchell S. Bloom Seo Salimi Marishka DeToy Goodwin Procter LLP 100 Northern Avenue Boston, Massachusetts 02210 +1 617 570 1000 |
Sophie C. McGrath Goodwin Procter (UK) LLP 100 Cheapside London EC2V 6DY United Kingdom +44 20 7447 4200 |
Nathan Ajiashvili Salvatore Vanchieri Latham & Watkins LLP |
James Inness Latham & Watkins LLP 99 Bishopsgate London EC2M 3XF United Kingdom +44 20 7710 1000 |
Approximate date of commencement of proposed sale to public:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act.
Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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 7(a)(2)(B) of the Securities Act. ☐
The term new or revised financial accounting standard refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
CALCULATION OF REGISTRATION FEE
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Title of each class of securities to be registered |
Proposed maximum aggregate offering price(1) |
Amount of registration fee(2) | ||
Ordinary shares, nominal value £ per share(3) |
$ | $ | ||
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(1) | Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. Includes the aggregate offering price of additional ordinary shares represented by American Depositary Shares, or ADSs, that the underwriters have the option to purchase. |
(2) | Calculated pursuant to Rule 457(o) under the Securities Act of 1933, as amended, based on an estimate of the proposed maximum aggregate offering price. |
(3) | These ordinary shares are represented by ADSs, each of which represents ordinary shares of the registrant. ADSs issuable upon deposit of the ordinary shares registered hereby are being registered pursuant to a separate registration statement on Form F-6 (File No. 333- ). |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), shall determine.
* | The registrant intends to alter its legal status under English law from a private limited company by re-registering as a public limited company and changing its name from Achilles TX Limited to Achilles Therapeutics plc prior to the completion of this offering. |
The information contained in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to completion, dated , 2021
PRELIMINARY PROSPECTUS
American Depositary Shares
Representing Ordinary Shares
This is the initial public offering of American Depositary Shares, or ADSs, representing ordinary shares, nominal value £ per share, or ordinary shares, of Achilles TX Limited. We are offering ADSs. Each ADS represents ordinary share. We expect the public offering price to be between $ and $ per ADS.
Prior to this offering, there has been no public market for the ADSs or our ordinary shares. We have applied to have the ADSs listed on The Nasdaq Global Market under the symbol ACHL.
We are both an emerging growth company and a foreign private issuer under the U.S. federal securities laws and have elected to comply with certain reduced public company reporting requirements. See Prospectus summaryimplications of being an emerging growth company and Prospectus summaryImplications of being a foreign private issuer.
Per share | Total | |||||||
Initial public offering price |
$ | $ | ||||||
Underwriting discounts(1) |
$ | $ | ||||||
Proceeds, before expenses, to us |
$ | $ |
(1) | See Underwriting for additional information regarding underwriting compensation. We have agreed to reimburse the underwriters for certain expenses in connection with the offering. |
Investing in the ADSs involves a high degree of risk. Before buying any ADSs, you should carefully read the discussion of material risks of investing in the ADSs. See the Risk factors section beginning on page 15 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Following the closing of this offering, we will have two classes of ordinary shares, ordinary shares and Class A ordinary shares. The ordinary shares and Class A ordinary shares will be economically equivalent to each other. The rights of the holders of our ordinary shares and Class A ordinary shares will be identical, except with respect to voting and conversion. Each ordinary share will be entitled to one vote and will not be convertible into any other class of our share capital. The Class A ordinary shares do not have associated voting rights and each Class A ordinary share is convertible at any time at the election of the holder into one ordinary share. See Description of share capital and articles of associationOrdinary shares for more information on the rights of the holders of our ordinary shares and Class A ordinary shares.
We have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to an additional ADSs from us at the initial public offering price, less underwriting discounts and commissions.
The underwriters expect to deliver the ADSs against payment in New York, New York on , 2021.
J.P. Morgan | BofA Securities | Piper Sandler | ||
Chardan | Oppenheimer & Co. | Kempen & Co |
Prospectus dated , 2021
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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F-1 |
Neither we nor any of the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, ADSs only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of ADSs. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the ADSs and the distribution of this prospectus outside of the United States. We are incorporated under the laws of England and Wales. Under the rules of the U.S. Securities and Exchange Commission, or the SEC, we are currently eligible for treatment as a foreign private issuer. As a foreign private issuer, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic registrants whose securities are registered under the Securities Exchange Act of 1934, as amended.
Through and including , 2021 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealers obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
Pursuant to the terms of a corporate reorganization effected in December 2020, all shareholders of Achilles Therapeutics Limited exchanged each of the shares held by them for equivalent shares (both in terms of number and class but with a nominal value of £1.20 per share) in Achilles TX Limited. As a result, Achilles Therapeutics Limited became a wholly owned subsidiary of Achilles TX Limited. Prior to the completion of this offering, we intend to alter the legal status of Achilles TX Limited under the laws of England and Wales from a private limited company by re-registering as a public limited company and changing our name from Achilles TX Limited to Achilles Therapeutics plc. Our audited financial statements for the years ended December 31, 2018 and 2019 and our consolidated financial statements for the nine months ended September 30, 2019 and 2020 pertain to Achilles Therapeutics Limited. Because Achilles Therapeutics plc was not in existence for these periods and its operations to date have been limited to the creation of its capital structure and the operations of Achilles Therapeutics Limited, the financial statements of Achilles Therapeutics Limited, included elsewhere in this prospectus, will be substantially the same as those of Achilles Therapeutics plc. In this prospectus, we refer to all transactions related to our reorganization as the corporate reorganization.
Unless otherwise indicated or the context otherwise requires, all references in this prospectus to the terms Achilles, the company, the group, we, us and our refer to (i) Achilles Therapeutics Limited (and, where the context requires, its subsidiaries) prior to the completion of our corporate reorganization, (ii) Achilles TX Limited (and, where the context requires, its subsidiaries) following the completion of our corporate reorganization, but prior to the re-registration of Achilles TX Limited as a public limited company and the change of its name to Achilles Therapeutics plc, and (iii) Achilles Therapeutics plc (and, where the context requires, its subsidiaries) following the corporate reorganization and subsequent re-registration of Achilles TX Limited as a public limited company and the change of its name to Achilles Therapeutics plc.
Trademarks
We own various trademark registrations and applications, and unregistered trademarks, including ACHILLES, PELEUS, VELOS and our corporate logo. All other trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective holders. Solely for convenience, the trademarks and trade names in this prospectus may be referred to without the ® and symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend to use or display other companies trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
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Presentation of financial information
We maintain our books and records in pounds sterling. For financial reporting, our results are translated to U.S. dollars and we prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States, or US GAAP, as issued by the Financial Accounting Standards Board. All references in this prospectus to $ are to U.S. dollars and all references to £ and GBP are to pounds sterling. Unless otherwise indicated, certain pounds sterling amounts contained in this prospectus have been translated into U.S. dollars at the rate of $1.290 to £1.00, which was the noon buying rate of the Federal Reserve Bank of New York on September 30, 2020, the last business day of our fiscal period ended September 30, 2020. Such U.S. dollar amounts are not necessarily indicative of the amounts of U.S. dollars that could actually have been purchased upon exchange of pounds sterling at the dates indicated.
We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them. We have historically conducted our business through Achilles Therapeutics Limited, and therefore our historical consolidated financial statements present the consolidated results of operations of Achilles Therapeutics Limited and its subsidiaries. Following the completion of this offering, and after the consummation of the transactions described under the section titled Corporate reorganization, our consolidated financial statements will present the consolidated results of operations of Achilles Therapeutics plc and its subsidiaries. We expect that the consummation of the transactions described under the section titled Corporate reorganization will not have a material effect on our consolidated financial statements.
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The following summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in the ADSs. You should carefully read the entire prospectus, and the registration statement of which this prospectus is a part, including Risk factors, Managements discussion and analysis of financial condition and results of operations, and our consolidated financial statements and the related notes, in each case included in this prospectus, before making an investment decision.
Overview
We are a clinical stage immuno-oncology biopharmaceutical company developing precision T cell therapies to treat multiple types of solid tumors. We are focused on advancing cancer therapies through our pioneering work in the field of tumor evolution and our belief that clonal neoantigens represent the most specific class of cancer cell targets. Our platform enables us to identify mutations formed early in the development of a cancer that give rise to antigens that are expressed by all of a patients cancer cells but are absent from healthy tissue. We refer to this novel class of solid tumor targets as clonal neoantigens. To identify clonal neoantigens in a patient, we have developed a proprietary bioinformatic platform called PELEUS. This platform employs sophisticated statistical algorithms trained on the unique tumor genetic data derived from our exclusive license to data from the TRACERx study, which aims to analyze tumor samples from more than 840 non-small cell lung cancer, or NSCLC, patients. Once we have identified the clonal neoantigens our proprietary manufacturing process, VELOS, uses the patients T cells and blood-derived dendritic cells to create a Clonal Neoantigen Targeting T cell therapy, or cNeT, that specifically targets multiple clonal neoantigens to eradicate the tumor. We are currently conducting two open-label Phase I/IIa trials to evaluate our cNeT product candidate, ATL001, in advanced NSCLC and metastatic or recurrent melanoma and expect to report initial data from these trials in . We are also using our Material Acquisition Platform, or MAP, network, which consists of a network of participating medical facilities, to collect tissue samples from other tumor types, such as head and neck squamous cell carcinoma, or HNSCC, renal cell carcinoma, or RCC, triple negative breast cancer, or TNBC, and bladder cancer, to develop our PELEUS platform to identify clonal neoantigens in these tumor types. We expect to file an investigational new drug application, or IND, for HNSCC and RCC in and , respectively.
Cancers originate from mutations in the DNA of individual cells that promote uncontrolled proliferation, metastasis and evasion of the immune system. Tumors within any given patient evolve in a Darwinian branched manner, where the mutations present at the point of a cell becoming cancerous will be carried to all future cancer cells and are therefore present in every future tumor cell of the patient. Additional mutations continue to arise in response to environmental pressures, carcinogens and genomic instability. These additional mutations increase the intra-tumor genomic variation and are present in some tumor cells but not others.
Mutations can give rise to neoantigens expressed in the tumor cells. The neoantigens arising from the early mutations present at the time of cell transformation are referred to as clonal neoantigens while those that arise later in tumor development are referred to as subclonal neoantigens. As a result of this branched evolution, clonal neoantigens are expressed in every tumor cell, while subclonal neoantigens are expressed only by a fraction of tumor cells. Despite the recent advances in cancer therapy, no therapy to date has been able to specifically identify and target only the clonal neoantigens found throughout the target tumor. We believe this is a key reason for limitations in efficacy and durability of many of todays cancer therapies.
We believe that targeting clonal neoantigens is the key to unlocking immunotherapy in solid tumors and have developed our platform to specifically address these targets. By targeting multiple clonal neoantigens, we have the potential to reduce the likelihood of immune escape by tumor cells, thereby enhancing long-term tumor
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control, while also reducing the potential for off target toxicity. We utilize our bioinformatics platform, PELEUS, to identify clonal neoantigens in patients and combine these targets with our VELOS manufacturing process, which utilizes a physiological, antigen-driven expansion process to create a functionally fitter T cell product candidate. We believe the resulting cNeT product candidates can overcome many of the challenges faced by existing immunotherapies for the treatment of solid tumors.
Overview of current therapies and their limitations
In the last decade, clinical trials have demonstrated the utility of the immune system in the fight against cancer, including some studies that have demonstrated impressive clinical responses against late-stage metastatic disease. Immuno-oncology therapies approved or in development include vaccines and checkpoint inhibitors, which are designed to re-activate the immune response to cancer, and genetically engineered immune cells, such as CAR-T and TCR-T therapies, which are designed to recognize and attack cancerous cells. While these existing immuno-oncology therapies have shown some impressive results in treating cancer, they each have limitations. An alternative approach, known as tumor infiltrating lymphocyte, or TIL, therapy, aims to extract T cells from the patients tumor, expand them outside the body and reinfuse the expanded cells back into the patient.
Standard TIL therapy has demonstrated some of the most impressive results in clinical trials to date. These therapies have been observed to induce significant response rates as well as including some complete responses in clinical trials for melanoma, cervical carcinoma and NSCLC. Despite the clinical benefits provided by standard TIL therapy, we believe the technology has been limited by several factors, including an inability to specifically target clonal neoantigens coupled with lack of T cell fitness, driving potential limitations to efficacy and durability, toxicity concerns and manufacturing and scalability challenges.
Our solution
To address the limitations of current immuno-oncology approaches, we developed Clonal Neoantigen Targeting T cells, or cNeTs. Our approach uses a precision TIL-based therapy to target what we believe to be the most specific tumor antigens, clonal neoantigens, in solid tumors. We believe that tumor clonal neoantigens represent optimal tumor targets because they are recognized by the immune system as foreign antigens and are absent in normal, healthy tissue but present in all of a patients tumor cells.
The foundation of our approach is the PELEUS bioinformatics platform which is designed to identify each patients own tumor-specific clonal neoantigens by comparing DNA sequencing information from healthy tissue and tumor tissue. Using this information, we manufacture clonal neoantigen peptides, load them onto dendritic cells extracted from the patients blood, and co-culture them with TILs extracted from the patients tumor to activate and expand a subset of the T cells. We call this proprietary manufacturing process VELOS. This process creates a cNeT product candidate significantly enriched for T cells designed to recognize and specifically target multiple clonal neoantigens across all of the patients tumor cells. We have designed and are continuing to enhance an automated, fully-closed system for cell manufacturing, which we believe will be readily scalable for commercial supply and has the potential to overcome many of the manufacturing challenges associated with standard TIL therapies. Our current VELOS process has an end-to-end time of approximately nine weeks, with a goal of further reducing the time to six to eight weeks.
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The graphic below outlines our proprietary process.
Our cNeT approach
Our cNeTs are designed to be:
| Specific and durableWe design our cNeTs to specifically target multiple clonal neoantigens present in a patients tumor. We believe this specificity will reduce the likelihood of tumor escape and increase the rates of durable complete response. |
| Functionally fitThe use of dendritic cells to drive physiological, antigen-driven T cell expansion reduces the need for non-physiological IL-2 driven expansion and allows the production of fit T cell populations of CD4+ and CD8+ T cells capable of significant expansion and persistence in the patient. Our VELOS manufacturing process allows us to modulate the levels of IL-2 used in the manufacture and administration of our cNeT product candidates, which in turn allows us to tailor the treatment regimen and IL-2 usage to the patients specific tumor burden and comorbidities to potentially reduce toxicity concerns. |
| Well-toleratedClonal neoantigens are absent from healthy tissue, which we believe minimizes the risk of off-tumor toxicity. |
| Designed to be cost effectively manufactured at scaleThe manufacturing process for cNeTs has been designed, from its inception, to be compatible with industrialization and scalability while considering cost of goods. We have designed, and are developing, our manufacturing process to be fully-automated in a closed end-to-end system, in order to decrease cost and maximize yield. |
Our approach also allows us to determine the dose of active cNeT cells in each patients cNeT therapy. We believe this information will allow us to investigate potential relationships between cNeT dose, cNeT persistence and clinical response. We plan to use these correlations to further develop our understanding of the cellular mechanism of TIL therapy and support the design and the evaluation of next-generation processes for cNeT manufacture.
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Our PELEUS bioinformatics platforma unique, proprietary tool for identification of clonal neoantigens
PELEUS is our proprietary bioinformatics platform that is designed to identify each patients tumor-specific neoantigens by comparing DNA sequencing information from healthy tissue and tumors. PELEUS combines data from the TRACERx study with sophisticated proprietary statistical models to distinguish which mutations in a patients tumor are clonal or subclonal. TRACERx is a study which aims to analyze tumor samples from more than 840 NSCLC patients, with 780 NSCLC patients enrolled to date. TRACERx collects multi-region samples from primary tumor and metastases (where available) over multiple points in time, generating whole exome sequencing data for each sample to understand each patients tumor genomic evolution in detail. By searching for the overlap of coding mutations across multiple tumor regions across hundreds of patients, we have used TRACERx to identify the fundamental features that define clonal neoantigens. Our PELEUS algorithm is based on this reference data and is updated, trained and improved as additional patients are recruited to the study. We have exclusive commercial rights to the TRACERx database of multi-region samples from primary tumor and metastases and whole exome sequencing data for each individual patient. While TRACERx is focused on patients with lung cancer, we believe the principles of tumor evolution utilized by PELEUS are broadly applicable across multiple tumor types.
Our VELOS manufacturing process
We have invested in our manufacturing process from the outset with the goal of producing our cNeTs at a commercial scale, which we believe will allow us to address the challenges faced by traditional methods of cell therapy manufacture. Our approach is to design a fully closed, end-to-end manufacturing system with integrated automation. We believe this will enable lower operating costs by reducing the number of labor-intensive manual operator steps and eliminate the requirement for the higher-grade manufacturing environment needed for open processing. We believe that this approach is essential for industrial scale-up, as it drives a reduction in process variability between operators, minimizes failure rates, and improves reproducibility. Our approach has been to invest in developing new technology, both in-house and with partners, to deliver an automated and standardized platform that permits rapid scale out while controlling commercial cost of goods. Our proprietary process benefits from the deep experience of our management team and founders in the field of ACT, combined with a core focus on good manufacturing practice compliance and the use of closed systems.
Our current VELOS manufacturing process
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Tissue procurement can occur prior to, during and after completion of standard systemic therapy. During the period between tissue procurement and final cNeT manufacture, patients can continue to be treated with standard of care therapy for their specific cancer. Once manufacture of the patients specific cNeT is complete, it can be cryopreserved until required for administration upon disease progression.
Our pipeline
We believe our cNeT technology is uniquely positioned to overcome many of the challenges faced by existing therapies for solid tumors. We have prioritized the tumor types that we are seeking to address based on criteria that we believe will maximize the potential of our programs to demonstrate a clinical benefit, including expected clonal neoantigen burden, TIL infiltration and tumor accessibility, as well as high unmet medical need and future commercial potential. We have worldwide rights to our cNeT programs and are currently developing them for the treatment of the following solid tumor indications:
(1) | Depending on the results of our Phase I/II monotherapy trials, we plan to engage with the FDA and EMA to discuss the addition of a Phase III registrational trail cohort in each study. |
Our programs
Clinical trials for non-small cell lung cancer and melanoma
We are currently conducting two single arm, open-label, proof-of-concept clinical trials in advanced NSCLC and metastatic or recurrent melanoma:
| CHIRONa Phase I/IIa clinical trial to evaluate the safety, tolerability and clinical activity of cNeT in 40 patients with advanced NSCLC, ongoing at six U.K. sites. Our IND was accepted by the U.S. Food and Drug Administration, or FDA, in December 2019 and we plan on expanding our trial to five U.S. sites and up to eight European sites in 2021. |
| THETISa Phase I/IIa clinical trial to evaluate the safety, tolerability and clinical activity of cNeT in 40 patients with metastatic or recurrent metastatic or recurrent melanoma. We are currently conducting this trial at three U.K. sites and have submitted an IND to the FDA in November 2020 to enable expansion to U.S. sites in 2022. Further trial applications in the European Union are planned for 2021. |
Our trial protocol allows us the option to include an additional cohort for each of CHIRON and THETIS to evaluate cNeT in combination with a PD-1 inhibitor (pembrolizumab in CHIRON and nivolumab in THETIS). We expect to report initial data from both clinical trials in . Based on the initial results, we may opt to expand to initiate the second cohort, enrolling an additional 20 patients into each trial, to evaluate the effect of combination of cNeT with PD-1 inhibitors.
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The primary endpoint of both trials is safety and tolerability. The secondary endpoints include change in tumor size from baseline, overall survival and objective response rate, disease control rate, time to response and progression-free survival based on RECIST criteria. Depending on the results of our Phase I/II monotherapy trials, we plan to engage with the FDA and EMA to discuss the addition of a Phase III registrational trial cohort in each study. If we advance ATL001 for NSCLC or metastatic or recurrent melanoma in combination with a PD-1 inhibitor, we expect to conduct additional Phase II clinical trials before advancing to a Phase III registrational trial. Other exploratory translational science analyses will aid interpretation of the observed clinical data, addressing such questions as how dose, phenotype, functionality and engraftment kinetics may affect clinical outcomes.
Follow-on indications
In addition to our two primary indications in advanced NSCLC and metastatic or recurrent melanoma, we are pursuing follow-on indications in patients with advanced HNSCC, RCC, TNBC and bladder cancer. Each of these indications are characterized by a high tumor and clonal mutational burden, high T cell infiltration into the tumor, readily accessible tumors, and high unmet medical need, which makes them attractive targets for our cNeT programs. We plan to submit an IND for HNSCC in and for RCC in . Following these, we plan to file INDs for TNBC and bladder cancer.
Our strategy
Our goal is to become a fully integrated biopharmaceutical company focused on the development, manufacture and commercialization of precision clonal neoantigen targeting therapies for multiple solid tumor types. To achieve this, we are pursuing the following strategies:
| Generate proof-of-concept clinical data for our cNeT approach in two lead solid tumor indications |
| Expand our cNeT platform into multiple additional solid tumors and earlier lines of therapy |
| Continuously develop and innovate our cNeT platform |
| Build a scalable, automated manufacturing process |
| Opportunistically collaborate with strategic partners to realize the full potential of our technology |
Our team
We are led by Dr. Iraj Ali, our Chief Executive Officer, who was formerly a Managing Partner of Syncona, where he served as an Investment Director at Nightstar Therapeutics and Blue Earth Diagnostics. Our Chief Scientific Officer and co-founder is Professor Sergio Quezada, who is a recognized leader in the field of immune regulation and cancer immunology. Our Chief Medical Officer and co-founder is Professor Karl Peggs, who is a professor of Transplant Science and Cancer Immunotherapy at the University College London Hospital, or UCLH. Dr. Peggs has significant experience in the clinical translation of T cell therapies and is the director of the Cellular Immunotherapy Unit at UCLH. Our Scientific Advisory Board also includes our other scientific founders, Professors Charles Swanton, and Mark Lowdell, who are leaders in the respective fields of tumor evolution, and cell manufacturing. To date, we have raised approximately $231 million in net proceeds from a group of leading life sciences investors, including Forbion, Invus, OrbiMed, Perceptive Advisors, RA Capital, Redmile Group, Syncona and Boxer Capital of Tavistock Group.
Corporate information
Achilles Therapeutics Limited was incorporated under the laws of England and Wales in May 2016, under the name AchillesTX Limited. In October 2016, AchillesTX Limited changed its name to Achilles Therapeutics Limited. Achilles Therapeutics Limited has one wholly-owned subsidiary, Achilles Therapeutics US, Inc. Achilles TX Limited was originally incorporated under the laws of England and Wales in November 2020 as the holding
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company for Achilles Therapeutics Holdings Limited. In November 2020, following the incorporation of Achilles TX Limited, Achilles Therapeutics Holdings Limited was incorporated under the laws of England and Wales as a wholly owned subsidiary of Achilles TX Limited, to become a holding company for Achilles Therapeutics Limited and Achilles Therapeutics US, Inc. following completion of a corporate reorganization. Our registered office is located at 245 Hammersmith Road, London, W6 8PW, United Kingdom, and our telephone number is +44 (0)20 8154 4600. Our website address is www.achillestx.com. We have included our website address in this prospectus solely as an inactive textual reference. Our agent for service of process in the United States is .
Corporate reorganization
Pursuant to the terms of a corporate reorganization effected in December 2020, all shareholders of Achilles Therapeutics Limited exchanged each of the shares held by them for equivalent shares (both in terms of number and class but with a nominal value per share of £1.20) in Achilles TX Limited and, as a result, Achilles Therapeutics Limited became a wholly owned subsidiary of Achilles TX Limited. Prior to the completion of this offering, Achilles TX Limited will sell all of the shares in Achilles Therapeutics Limited to Achilles Therapeutics Holdings Limited for newly issued ordinary shares of £1.00 each in Achilles Therapeutics Holdings Limited. As a result, Achilles Therapeutics Limited will become a wholly-owned subsidiary of Achilles Therapeutics Holdings Limited and Achilles Therapeutics US, Inc. will become an indirect wholly-owned subsidiary of Achilles Therapeutics Holdings Limited. Following this, Achilles Therapeutics Limited will transfer the entire issued share capital of Achilles Therapeutics US, Inc. to Achilles Therapeutics Holdings Limited. Subsequently, we intend to re-register Achilles TX Limited as a public limited company, rename it as Achilles Therapeutics plc and reorganize our share capital into two classes of ordinary shares: ordinary shares and Class A ordinary shares, each with a nominal value of £ . Please see Corporate reorganization beginning on page 109 for more information.
Risks associated with our business
Our ability to implement our business strategy is subject to numerous material and other risks that you should be aware of before making an investment decision. These risks are described more fully in the section entitled Risk factors in this prospectus. These risks include, among others:
| we have incurred significant losses since inception, and we expect to incur losses over the next several years and may not be able to achieve or sustain revenues or profitability in the future; |
| even if we consummate this offering, we will need substantial additional funding to achieve our goals, and a failure to raise additional capital when needed on acceptable terms, or at all, could force us to delay, reduce or eliminate our product development programs or commercialization efforts; |
| we are early in our development efforts. Our business is dependent on the successful development of ATL001 and future product candidates. If we are unable to advance our current programs, additional follow-on indications for ATL001 or any future product candidates into and through clinical trials, obtain marketing approval and ultimately commercialize some, any or all of the product candidates we develop, or experience significant delays in doing so, our business will be materially harmed; |
| clinical development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future clinical trial results. We may encounter substantial delays in clinical trials, or may not be able to conduct or complete clinical trials on the expected timelines, if |
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at all. If our research activities and clinical trials are not sufficient to support regulatory development and approval of some, all or any of our programs for ATL001 or any future product candidates, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development of such program or product candidate; |
| our business is highly dependent on the success of our product candidate, ATL001, which was developed based on our PELEUS platform and utilizing our VELOS manufacturing process. All of our future product candidates are based, or will be based, on the same technologies and the failure of ATL001 may adversely affect their development; |
| ATL001 or any of our future product candidates may cause undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, require expansion of the trial size, limit their commercial potential, or result in significant negative consequences; |
| our approach to the identification and manufacture of product candidates represents a novel approach to cancer treatment, which creates significant challenges for us. Generation of any cellular therapy, including our cNeTs, to specifically target the mutations of an individual patient requires several weeks, in part reflecting the need to generate patient-specific genomic data and perform the bioinformatic analyses prior to initiation of manufacture. During the period from procurement of tumor and blood to completion of manufacturing, patients continue to receive standard of care therapies. In cases where disease progression is rapid, clinical deterioration of a patients condition during the manufacturing period may mean that the patient is no longer able to receive our cNeTs; |
| we have no experience manufacturing ATL001 at commercial scale. Manufacturing and administering ATL001 is complex and we may encounter difficulties in production, particularly with respect to scaling up our manufacturing capabilities. If we encounter such difficulties, our ability to provide supply of our cNeTs for clinical trials or for commercial purposes could be delayed or stopped; |
| we face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do; |
| if we fail to comply with our current or future obligation in any agreements under which we may license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our future licensors, we could lose license rights that are important to our business; |
| if we are unable to obtain and maintain sufficient patent and other intellectual property protection for ATL001 and any future product candidates and technologies, our competitors could develop and commercialize products and technologies similar or equivalent to ours, and we may not be able to compete effectively in our market or successfully commercialize any product candidates we may develop; |
| the current outbreak of novel coronavirus, or COVID-19, has caused, and could continue to cause, severe disruptions in the global economy and could seriously harm our development efforts, increase our costs and expenses and have a material adverse effect on our business, financial condition and results of operations; |
| in connection with the audit of our financial statements in accordance with the standards of the PCAOB and U.S. securities law, a material weakness in our internal control over financial reporting was identified. If we are unable to implement and maintain effective internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected; |
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| we qualify as a foreign private issuer and, as a result, we will not be subject to U.S. proxy rules and will be subject to reporting obligations under the Securities Exchange Act of 1934, as amended, or the Exchange Act, that, to some extent, permit less detailed and frequent reporting than that of a U.S. domestic public company; and |
| if we were classified as a passive foreign investment company, there could be material adverse U.S. federal income tax consequences to U.S. Holders (as defined below under Material income tax considerationsMaterial U.S. federal income tax considerations for U.S. holders). |
Implications of being an emerging growth company
As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:
| the ability to present only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced Managements discussion and analysis of financial condition and results of operations disclosure; |
| exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting pursuant to the Sarbanes-Oxley Act; and |
| an exemption from new or revised financial accounting standards until they would apply to private companies and from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation. |
Generally, we may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest of (i) the last day of our fiscal year during which we have total annual gross revenues of at least $1.07 billion; (ii) the date on which we are deemed to be a large accelerated filer under the Exchange Act which would occur if the market value of our ordinary shares (including in the form of ADSs) held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter; or (iii) the date on which we have, during the previous three year period, issued more than $1.0 billion of non-convertible debt.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this extended transition period and, as a result, we may adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-public companies instead of the dates required for other public companies.
We have taken advantage of certain reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold equity securities.
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Implications of being a foreign private issuer
We are a foreign private issuer within the meaning of the rules under the Exchange Act. Our status as a foreign private issuer also exempts us from compliance with certain laws and regulations of the SEC and certain regulations of The Nasdaq Stock Market. Consequently, even after we no longer qualify as an emerging growth company, we will not be subject to all of the disclosure requirements applicable to public companies organized within the United States. For example, we are exempt from certain rules under the Exchange Act that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, our executive officers and directors are exempt from the reporting and short-swing profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies. Accordingly, there may be less publicly available information concerning our company than there is for U.S. public companies. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information.
Both foreign private issuers and emerging growth companies also are exempt from certain more stringent executive compensation disclosure rules. Thus, even if we no longer qualify as an emerging growth company, if we remain a foreign private issuer, we will continue to be exempt from the more stringent compensation disclosures required of companies that are neither an emerging growth company nor a foreign private issuer.
We may take advantage of these exemptions until such time as we no longer qualify as a foreign private issuer. We are required to determine our status as a foreign private issuer on an annual basis at the end of our second fiscal quarter. We will remain a foreign private issuer until such time that 50% or more of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of the members of board of directors or our executive officers are U.S. citizens or residents; (ii) more than 50% of our assets are located in the United States; or (iii) our business is administered principally in the United States.
We have taken advantage of certain of these reduced reporting and other requirements in this prospectus. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold equity securities.
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The offering
ADSs offered by us |
ADSs, each representing ordinary shares. |
Ordinary shares (including in the form of ADSs) to be outstanding immediately after this offering |
ordinary shares (or ordinary shares if the underwriters exercise their option to purchase additional ADSs in full). |
Class A ordinary shares to be outstanding immediately after this offering |
Class A ordinary shares. |
Underwriters option to purchase additional ADSs |
The underwriters have an option for a period of 30 days from the date of this prospectus to purchase up to additional ADSs at the public offering price, less underwriting discounts and commissions. |
American depositary shares |
Each ADS represents ordinary shares, nominal value £ per share. As a holder of ADSs, we will not treat you as one of our shareholders. The depositary, through its custodian, will be the holder of the ordinary shares underlying the ADSs, and you will have the rights of a holder of ADSs or beneficial owner (as applicable) as provided in the deposit agreement among us, the depositary and owners and holders of ADSs from time to time. To better understand the terms of the ADSs, see Description of American depositary shares. We also encourage you to read the deposit agreement, the form of which is filed as an exhibit to the registration statement of which this prospectus forms a part. |
Use of proceeds |
We estimate that the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $ million, or $ million if the underwriters exercise their option to purchase additional ADSs in full, based on an assumed initial public offering price of $ per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus. We intend to use the net proceeds from this offering, together with our existing cash and cash equivalents to (i) advance our cNeT programs for the treatment of advanced NSCLC and metastatic or recurrent melanoma, (ii) advance our cNeT programs for the treatment of HNSCC and RCC and additional follow-on indications, (iii) fund the continued innovation, development and enhancement of our PELEUS bioinformatic platform and our VELOS manufacturing process, (iv) fund the continued automation and expansion of our manufacturing capabilities and capacity and (v) for working capital and other general corporate purposes. See Use of proceeds for a more complete description of the intended use of proceeds from this offering. |
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Voting rights |
Following the closing of this offering, we will have two classes of ordinary shares, ordinary shares and Class A ordinary shares. Holders of our ordinary shares will be entitled to one vote per share and the ordinary shares will not be convertible into any other class of our share capital. The Class A ordinary shares will not confer upon their holders any voting rights and each Class A ordinary share will be convertible at any time following the closing of this offering, at the election of the holder, into one ordinary share, subject to certain beneficial ownership limitations. The Class A ordinary shares, once converted to ordinary shares, may not be converted back to Class A ordinary shares. See Description of share capital and articles of associationOrdinary shares for more information on the rights of the holders of our ordinary shares and Class A ordinary shares. |
Risk factors |
See Risk factors beginning on page 15 and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in the ADSs. |
Depositary |
The Bank of New York Mellon |
Proposed Nasdaq Global Market trading symbol for the ADSs |
ACHL |
The number of ordinary shares (including in the form of ADSs) to be outstanding after this offering is based on 73,732,362 of our ordinary shares outstanding as of September 30, 2020 and excludes:
| no ordinary shares issuable upon the exercise of options for ordinary shares outstanding as of September 30, 2020; |
| 4,865,702 ordinary shares reserved for issuance under our Omnibus Plan, or the Omnibus Plan, as of September 30, 2020, which shares will no longer be reserved following this offering; |
| 1,053,203 deferred shares outstanding as of September 30, 2020; |
| ordinary shares that will be made available for future issuance under our 2021 Share Option and Incentive Plan, or the 2021 Option Plan, which will become effective in connection with this offering; and |
| ordinary shares that will be made available for future issuance under our 2021 Employee Share Purchase Plan, or the ESPP, which will become effective in connection with this offering. |
Unless otherwise indicated, all information contained in this prospectus reflects and assumes:
| the consummation of our corporate reorganization, which includes the conversion of all of our outstanding preferred shares in connection with our corporate reorganization; |
| the filing and effectiveness of our amended and restated articles of association immediately prior to the completion of this offering; |
| no issuances of Class A ordinary shares upon the closing of this offering; |
| no issuance or exercise of outstanding options described above after September 30, 2020; and |
| no exercise by the underwriters of their option to purchase up to additional ADSs in this offering. |
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Summary consolidated financial data
The following tables present the summary financial data as of and for the years ended December 31, 2018 and 2019 and consolidated financial data as of and for the nine months ended September 30, 2019 and 2020 for Achilles Therapeutics Limited. We have derived the statement of operations and comprehensive loss data as of and for the years ended December 31, 2018 and 2019 from our audited financial statements appearing elsewhere in this prospectus. The consolidated statement of operations and comprehensive loss data for the nine months ended September 30, 2019 and 2020 and the consolidated balance sheet data as of September 30, 2020 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus and have been prepared on the same basis as the audited financial statements. In the opinion of management, the unaudited data reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial information contained in those statements. Historical results are not necessarily indicative of our future results, and our operating results for the interim period ended September 30, 2020 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2020 or any other interim periods or any future period. The summary consolidated financial data set forth below should be read together with our audited financial statements for years ended December 31, 2018 and 2019 and unaudited condensed consolidated financial statements for the nine months ended September 30, 2019 and 2020 and the related notes to those statements, as well as the sections of this prospectus captioned Selected consolidated financial data and Managements discussion and analysis of financial condition and results of operations.
Year ended December 31, | Nine months ended September 30, |
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(in thousands, except share and per share data) | 2018 | 2019 | 2019 | 2020 | ||||||||||||
Statement of Operations and Comprehensive Loss Data: |
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Operating expenses: |
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Research and development |
$ | 4,802 | $ | 9,072 | $ | 6,326 | $ | 13,668 | ||||||||
General and administrative |
2,099 | 4,703 | 3,014 | 7,140 | ||||||||||||
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Total operating expenses |
6,901 | 13,775 | 9,340 | 20,808 | ||||||||||||
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Loss from operations |
(6,901 | ) | (13,775 | ) | (9,340 | ) | (20,808 | ) | ||||||||
Other income (expense), net: |
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Other income (expense) |
14 | (215 | ) | (92 | ) | 529 | ||||||||||
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Total other income (expense), net |
14 | (215 | ) | (92 | ) | 529 | ||||||||||
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Net loss |
(6,887 | ) | (13,990 | ) | (9,432 | ) | (20,279 | ) | ||||||||
Other comprehensive (loss) income: |
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Foreign currency translation adjustment |
(57 | ) | 8,504 | 830 | (3,088 | ) | ||||||||||
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Comprehensive loss |
$ | (6,944 | ) | $ | (5,486 | ) | $ | (8,602 | ) | $ | (23,367 | ) | ||||
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Net loss per share attributable to ordinary shareholdersbasic and diluted(1) |
$ | (3.21 | ) | $ | (5.50 | ) | $ | (3.87 | ) | $ | (5.34 | ) | ||||
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Weighted average ordinary shares outstandingbasic and diluted(1) |
2,148,002 | 2,542,520 | 2,434,082 | 3,794,157 | ||||||||||||
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(1) | See Note 11 to our audited financial statements appearing elsewhere in this prospectus for details on the calculation of basic and diluted net loss per share attributable to ordinary shareholders. |
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As of September 30, 2020 | ||||||||||||
(unaudited) (in thousands) |
Actual | Pro forma(1) | Pro forma as adjusted(2) |
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Consolidated Balance Sheet Data: |
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Cash and cash equivalents |
$ | 71,603 | $ | 185,609 | ||||||||
Total assets |
96,559 | 210,565 | ||||||||||
Working capital(3) |
68,814 | 182,820 | ||||||||||
Total liabilities |
17,424 | 17,424 | ||||||||||
Preferred shares |
1 | | ||||||||||
Ordinary shares |
| 2 | ||||||||||
Additional paid-in capital |
119,205 | 233,210 | ||||||||||
Accumulated deficit |
(45,092 | ) | (45,092 | ) | ||||||||
Total shareholders equity |
79,135 | 193,141 |
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(1) | The unaudited pro forma balance sheet data give effect to (i) the issuance and sale of 17,397,356 additional Series B preferred shares and 24,412,603 Series C preferred shares in November 2020, for aggregate net proceeds of $114.0 million, translated at the exchange rate on the days the respective financing transactions took place and (ii) our corporate reorganization. |
(2) | The unaudited pro forma as adjusted balance sheet data give further effect to the issuance and sale of ADSs in this offering by us at an assumed initial public offering price of $ per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 increase (decrease) in the assumed initial public offering price of $ per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets and total shareholders equity (deficit) by $ million, assuming that the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 in the number of ADSs offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets and total shareholders equity (deficit) by $ million, assuming the assumed initial public offering price per ADS remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. This pro forma as adjusted information is illustrative only and will depend on the actual initial public offering price and other terms of this offering determined at pricing. |
(3) | We define working capital as total current assets less total current liabilities. |
The representative exchange rates for the last day of the year ended December 31, 2019 and the quarter ended September 30, 2020 were £1.00 = $1.327 and £1.00 = $1.290, respectively.
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Investing in the ADSs involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with the other information in this prospectus, including our consolidated financial statements and the related notes appearing at the end of this prospectus and in the section titled Managements discussion and analysis of financial condition and results of operations, before deciding whether to invest in the ADSs. If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected. In these circumstances, the market price of the ADSs could decline and you may lose all or part of your investment. The material and other risks and uncertainties summarized above and described below are not intended to be exhaustive and are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below. See the section titled Special note regarding forward-looking statements.
Risks related to our financial position and capital needs
Risks related to our financial condition
We have incurred significant losses since inception, and we expect to incur losses over the next several years and may not be able to achieve or sustain revenues or profitability in the future.
Investment in biopharmaceutical product development is a highly speculative undertaking and entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval and become commercially viable. We are still in the early stages of development of ATL001 for our lead indications in advanced non-small cell lung cancer, or NSCLC, and metastatic or recurrent melanoma. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to, and will for the foreseeable future, incur significant research and development and other expenses related to our ongoing operations. We have financed our operations primarily through private placements of our preferred shares.
We have incurred significant operating losses in each period since our inception in May 2016. For the years ended December 31, 2018 and 2019, we reported net losses of $6.9 million and $14.0 million, respectively. For the nine months ended September 30, 2020, we reported a net loss of $20.3 million. As of September 30, 2020, we had an accumulated deficit of $45.1 million. We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase substantially in connection with our ongoing activities, particularly if and as we:
| continue to develop our pipeline of discovery programs and conduct research and clinical activities for our existing programs for advanced NSCLC, metastatic or recurrent melanoma and other solid tumors; |
| continue to innovate, improve and develop our technology platform, including continuing to develop and improve our PELEUS bioinformatic platform and VELOS manufacturing process and to evaluate new approaches to our manufacturing process; |
| expand our Material Acquisition Platform, or MAP, network to increase our network of clinical sites; |
| advance the development of our current programs, additional follow-on indications and any future product candidates into additional solid tumor indications; |
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| maintain, expand and protect our intellectual property portfolio; |
| seek marketing approvals and complete any post-marketing studies, if required, for any of our product candidates that successfully complete clinical trials, if any; |
| acquire or in-license additional product candidates and technologies; |
| expand our infrastructure and facilities to accommodate our growing employee base and ongoing development activity; |
| continue to improve our manufacturing process to create a fully closed end-to-end manufacturing process; |
| expand our manufacturing infrastructure and facilities to support the manufacture of larger quantities of our product candidates for clinical development and potential commercialization globally; |
| establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval; |
| add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and our transition to operating as a public company following the completion of this offering; and |
| incur additional legal, accounting and other expenses in operating our business, including the additional costs associated with operating as a public company. |
Because of the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses we will incur or when, if ever, we will be able to achieve profitability. Even if we succeed in commercializing one or more product candidates, we will continue to incur substantial research and development and other expenditures to develop and market additional programs and product candidates and we may never generate revenue that is significant or large enough to achieve profitability. We may also encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our shareholders equity and working capital.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Accordingly, our failure to become and remain profitable would decrease the value of the company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company and/or the market price of our ADSs could also cause you to lose all or part of your investment.
We have not generated any revenue and may never be profitable.
Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue from ATL001 for any indication. We do not expect to generate significant revenue from ATL001 and any potential future product candidates unless or until we successfully complete clinical development and obtain regulatory approval of, and then successfully commercialize, such product candidates. ATL001 and any other product candidates that we develop will require additional research, clinical development, regulatory review and approval, substantial investment, access to sufficient commercial manufacturing capacity and
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significant marketing efforts before we can generate any revenue from product sales. Our ability to generate revenue depends on a number of factors, including, but not limited to:
| timely completion of our research activities and clinical trials, which may be significantly slower or cost more than we currently anticipate; |
| our ability to develop ATL001 for our current pipeline of indications and additional follow-on indications as well as to identify and develop potential new product candidates; |
| our ability to complete IND-enabling activities, and successfully submit INDs or comparable applications for ATL001 in additional follow-on indications or any future product candidates; |
| our successful initiation, enrollment in and completion of clinical trials, including our ability to generate positive data from any such clinical trials, including our ongoing Phase I/IIa clinical trials of ATL001 in advanced NSCLC and metastatic or recurrent melanoma; |
| whether we are required by the U.S. Food and Drug Administration, or the FDA, the European Medicines Agency, or the EMA, or the United Kingdom Medicines and Healthcare products Regulatory Agency, or the MHRA, or similar foreign regulatory authorities to conduct additional clinical trials or other studies beyond those planned to support the approval and commercialization of ATL001 in our current indications or any follow-on indications as well as any future product candidates; |
| our ability to demonstrate to the satisfaction of the FDA, the EMA, the MHRA and similar foreign regulatory authorities the safety, potency, purity, efficacy and acceptable risk to benefit profile of our current programs, additional follow-on indications for ATL001, or any future product candidates and such regulatory authorities acceptance of our precision clonal neoantigen-reactive T cell, or cNeT, based development strategy; |
| the prevalence, duration and severity of potential side effects or other safety issues experienced with our current programs, additional follow-on indications for ATL001, or future product candidates, if any; |
| our ability to receive marketing approvals from the FDA, the EMA, the MHRA and similar foreign regulatory authorities; |
| the willingness of physicians, operators of clinics and patients to utilize or adopt ATL001 or future product candidates, if approved, over alternative or more conventional approaches, such as standard tumor infiltrating lymphocyte, or TIL, therapy and other immuno-oncology therapies; |
| the actual and perceived availability, cost, risk profile and safety and efficacy of our product candidates, if approved, relative to existing and future alternative immuno-oncology therapies and competitive product candidates and technologies; |
| our ability to successfully increase our MAP network, including the acquisition, transportation, handling and other logistics of patient tumor samples; |
| our ability and the ability of third parties with whom we may contract to manufacture adequate clinical and commercial supplies of our product candidates or any future product candidates, remain in good standing with regulatory authorities and develop, validate and maintain commercially viable manufacturing processes that are compliant with current good manufacturing practices, or cGMP, requirements; |
| our ability to successfully develop a commercial strategy and thereafter commercialize our current programs, additional follow-on indications for ATL001, or any future product candidates in the United States and internationally, if approved for marketing, reimbursement, sale and distribution in such countries and territories, whether alone or in collaboration with others; |
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| patient demand for our current programs, additional follow-on indications for ATL001, and any future product candidates, if approved; |
| our ability to establish and enforce intellectual property rights; and |
| our ability to maintain a continued acceptable safety profile in any approved product candidate. |
Many of the factors listed above are beyond our control and could cause us to experience significant delays or prevent us from obtaining regulatory approvals or commercializing our product candidates. Even if we are able to commercialize our product candidates, we may not achieve profitability soon after generating product sales, if ever. If we are unable to generate sufficient revenue through the sale of our product candidates or any future product candidates, we may be unable to continue operations without continued funding.
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
We are a clinical-stage company with a limited operating history. We commenced operations in May 2016, and our operations to date have been limited to organizing and staffing our company, business planning, raising capital, conducting discovery and research activities, filing patent applications, identifying potential product candidates, undertaking research activities and clinical trials and establishing our in-house manufacturing capabilities for the manufacture of initial quantities of our product candidates and component materials. Our lead programs in advanced NSCLC and metastatic or recurrent melanoma are in Phase I/IIa clinical trials, CHIRON and THETIS, respectively. We have not yet demonstrated our ability to successfully complete any clinical trials, obtain marketing approvals, manufacture a commercial-scale product or arrange for a third party to do so on our behalf, or conduct sales, marketing and distribution activities necessary for successful product commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.
In addition, as an early-stage company, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition at some point 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.
We expect our financial condition and results of operations to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.
Risks related to our future cash needs
Even if we consummate this offering, we will need substantial additional funding to achieve our goals, and a failure to raise additional capital when needed on acceptable terms, or at all, could force us to delay, reduce or eliminate our product development programs or commercialization efforts.
Since our inception, we have invested a significant portion of our efforts and financial resources in research and development activities for our PELEUS platform, our VELOS manufacturing process, development of our lead programs for ATL001 and identification and development of follow-on indications for ATL001. Clinical trials and additional research and development activities will require substantial funds to complete. We expect our expenses to increase in parallel with our ongoing activities, particularly as we continue the research and clinical development activities of our current programs, including our ongoing Phase I/IIa clinical trials of ATL001 in advanced NSCLC and metastatic or recurrent melanoma, and our ongoing and planned IND-enabling activities
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for ATL001 in follow-on indications. In addition, if we obtain marketing approval for any product candidate, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Furthermore, upon the closing of this offering, we expect to incur significant additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. Additionally, changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. We cannot be certain that additional funding will be available on acceptable terms, or at all. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of public or private equity offerings, debt financings, governmental funding, collaborations, strategic partnerships and alliances or marketing, distribution or licensing arrangements with third parties. If we are unable to raise capital when needed in sufficient amounts or on terms acceptable to us, we would be forced to delay, reduce or eliminate our discovery and research programs or any future commercialization efforts.
We had cash and cash equivalents of $71.6 million as of September 30, 2020. We estimate that our net proceeds from this offering will be $ million, based on the assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We believe that, based upon our current operating plan, our existing capital resources, including proceeds from issuance of additional Series B preferred shares in November 2020 and Series C preferred shares in November 2020, together with the net proceeds from this offering will be sufficient to fund our anticipated operations into . We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. In addition, because the design and outcome of our ongoing, planned and anticipated clinical trials are highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of any product candidate. Our future capital requirements will depend on many factors, including:
| the scope, progress, results and costs of research activities and clinical trials for our current programs, additional follow-on indications for ATL001 and any future product candidates, including any additional expenses attributable to adjusting our development plans in response to the COVID-19 pandemic; |
| the continued development and expansion of our PELEUS platform; |
| the continued development of and improvements to our VELOS manufacturing process; |
| the extent to which we enter into collaboration arrangements with regard to product candidate development or acquire or in-license products or technologies; |
| the costs, timing and outcome of regulatory review of ATL001 for our current programs and follow-on programs, and any future product candidates, including post-marketing studies that could be required by regulatory authorities; |
| the costs of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any product candidate for which we receive marketing approval; |
| the costs of continued scale-up and automation of our VELOS manufacturing processes, including developing a fully closed end-to-end system, for later stages of development and commercialization; |
| the costs associated with continuing to increase our MAP network; |
| revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval; and |
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| the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining, enforcing and protecting our intellectual property rights and defending intellectual property-related claims. |
Identifying additional follow-on indications for ATL001 and future product candidates and conducting research activities and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, any product candidate, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay, or discontinue our research and development programs or any commercialization efforts; be unable to expand our operations; or be unable to otherwise capitalize on our business opportunities, as desired, which could harm our business and potentially force us to discontinue operations.
Raising additional capital may cause dilution to our shareholders, including purchasers of ADSs in this offering, may restrict our operations or require us to relinquish rights to our technologies or product candidates.
We expect our expenses to increase in connection with our planned operations. Unless and until we can generate a substantial amount of revenue from our product candidates, we expect to finance our future cash needs through public or private equity offerings, debt financings, collaborations, licensing arrangements or other sources, or any combination of the foregoing. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans.
To the extent that we raise additional capital through the sale of ADSs, convertible securities or other equity securities, your ownership interest may be diluted, and the terms of these securities could include liquidation or other preferences and anti-dilution protections that could adversely affect your rights as a shareholder.
In addition, debt financing, if available, may result in fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming shares or declaring dividends, that could adversely impact our ability to conduct our business. In addition, securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our managements ability to oversee the development of our current programs, additional follow-on indications for ATL001, and any future product candidates.
If we raise additional funds through collaborations, strategic alliances, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we would be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Risks related to the development of our programs
Risks related to research activities and clinical development
We are early in our development efforts. Our business is dependent on the successful development of ATL001 and future product candidates. If we are unable to advance our current programs, additional follow-on
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indications for ATL001 or any future product candidates into and through clinical trials, obtain marketing approval and ultimately commercialize some, any or all of the product candidates we develop, or experience significant delays in doing so, our business will be materially harmed.
All of our programs are in early stages of development, including our clinical-stage programs for ATL001 in advanced NSCLC and metastatic or recurrent melanoma, and as such will require extensive research activities and clinical testing, as applicable. Our ability to generate product revenues, which we do not expect to occur for several years, if ever, will depend heavily on the successful development and eventual commercialization of the programs and product candidates we develop, which may never occur. Before we are able to generate any revenues from product sales, our current programs, additional follow-on indications for ATL001 or any future product candidates we develop, will require additional research activities and clinical development, management of clinical, research and manufacturing activities, marketing approval in the United States and other markets, demonstrating effectiveness to pricing and reimbursement authorities, obtaining sufficient manufacturing supply for both clinical development and commercial production, building of a commercial organization, and substantial investment and significant marketing efforts. The success of our current programs, additional follow-on indications for ATL001 or any future product candidates will depend on several factors, including the following:
| successful completion of research activities and clinical trials; |
| sufficiency of our financial and other resources to complete the necessary research activities and clinical trials; |
| regulatory authority acceptance of INDs, clinical trial applications or similar approaches required for us to commence our planned clinical trials or future clinical trials; |
| successful patient enrollment in and completion of our ongoing and future clinical trials; |
| successful data from our clinical trials that support an acceptable risk-benefit profile of our product candidates in the intended populations; |
| receipt and maintenance marketing approvals from applicable regulatory authorities; |
| continued scale-up and automation of our VELOS manufacturing processes, including developing a fully closed end-to-end system, for later stages of development and commercialization; |
| obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our product candidates; |
| establishing sales, marketing and distribution capabilities and launching commercial sales of our products, if and when approved, whether alone or in collaboration with others; |
| entry into collaborations to further the development of our product candidates, if necessary; |
| successfully launching commercial sales of our product candidates, if and when approved; |
| acceptance of our product candidates, if and when approved, by patients, the medical community and third-party payors; |
| the prevalence and severity of adverse events experienced with our product candidates; |
| effectively competing with other cancer therapies; |
| obtaining and maintaining healthcare coverage and adequate reimbursement from third-party payors; |
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| maintaining a continued acceptable safety profile of our products following approval, if any; and |
| qualifying for, maintaining, enforcing and defending intellectual property rights and claims. |
We do not have complete control over many of these factors, including certain aspects of clinical development and the regulatory approval process, potential threats to our intellectual property rights and the manufacturing, marketing, distribution and sales efforts of any future collaborator. If we are not successful with respect to one or more of these factors in a timely manner or at all, we could experience significant delays or be unable to successfully commercialize ATL001 and any future product candidates we develop, which would materially harm our business.
Clinical development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future clinical trial results. We may encounter substantial delays in clinical trials, or may not be able to conduct or complete clinical trials on the expected timelines, if at all. If our research activities and clinical trials are not sufficient to support regulatory development and approval of some, all or any of our programs for ATL001 or any future product candidates, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development of such program or product candidate.
Before obtaining marketing approval from the FDA or other comparable foreign regulatory authorities for the sale of our product candidates, we must complete preclinical development and extensive clinical trials to demonstrate the safety, purity and potency of our product candidates. Clinical testing is expensive, time-consuming and subject to uncertainty. Clinical data are often susceptible to varying interpretations and analyses and many companies that believed their product candidates performed satisfactorily in clinical trials nonetheless failed to obtain FDA approval or approval from foreign regulatory authorities. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies, and any such setbacks in our clinical development could have a material adverse effect on our business and operating results. It is impossible to predict when or if ATL001 in any of our current programs, ATL001 in any additional follow-on indications or any future product 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 product candidate, we must complete research activities and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical development testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. There can be no assurance that any of our current or future clinical trials will ultimately be successful or support further clinical development of any of our product candidates. There is a high failure rate for investigational drugs proceeding through clinical trials.
We may experience delays in initiating or completing research activities or clinical trials, including as a result of delays in obtaining, or failure to obtain, the FDAs clearance to initiate clinical trials under future INDs, completing ongoing research activities for our other product candidates and initiating our planned clinical trials. Additionally, we cannot be certain that clinical trials will begin on time, not require redesign, enroll an adequate number of subjects on time, or be completed on schedule, if at all. We may experience numerous adverse or unforeseen events during, or as a result of, research activities and clinical trials that could delay or prevent our ability to receive marketing approval or commercialize ATL001 for any indication or any future product candidates, including:
| we may receive feedback from regulatory authorities that requires us to modify the design of our clinical trials; |
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| research activities or clinical trials of ATL001 or any future product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon our research efforts for our other product candidates; |
| research activities or clinical trials of ATL001 or any future product candidates may not produce differentiated or clinically significant results across cancers and we may decide not to pursue for further clinical development; |
| the number of patients required for clinical trials of ATL001 or any future product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of our clinical trials at a higher rate than we anticipate; |
| our third-party contractors may fail to comply with regulatory requirements, fail to maintain adequate quality controls or be unable to provide us with sufficient product supply to conduct and complete clinical trials of ATL001 or any future product candidates in a timely manner, or at all; |
| we or our investigators might have to suspend or terminate clinical trials of ATL001 or any future product candidates for various reasons, including non-compliance with regulatory requirements, a finding that our product candidates have undesirable side effects or other unexpected characteristics or a finding that the participants are being exposed to unacceptable health risks; |
| the cost of clinical trials of ATL001 or any future product candidates may be greater than we anticipate; |
| the quality of our product candidates or other materials necessary to conduct research activities or clinical trials of ATL001 or any future product candidates may be insufficient or inadequate, and our PELEUS platform may not be able to accurately identify clonal neoantigens that are in treating effective to treat solid tumors; |
| reports from clinical testing of other therapies may raise safety or efficacy concerns about ATL001 or any future product candidates; |
| regulators may revise the requirements for approving ATL001 or any future product candidates, or such requirements may not be as we anticipate; and |
| future collaborators may conduct clinical trials in ways they view as advantageous to them but that are suboptimal for us. |
In addition, disruptions caused by the COVID-19 pandemic may increase the likelihood that we encounter such difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing clinical trials. If we are required to conduct additional clinical trials or other testing of our current programs, additional follow-on indications for ATL001 or any future product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials or other testing, if the results of these trials or tests are not positive or are only moderately positive or if there are safety concerns, our business and results of operations may be adversely affected and we may incur significant additional costs.
We could also encounter delays if a clinical trial is suspended or terminated by us, by the institutional review boards, or IRBs, or ethics committees of the institutions in which such clinical trials are being conducted, or by the FDA or other regulatory authorities, or suspended or terminated based on recommendations by the Data Safety Monitoring Board, if any, for such clinical trial. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical trial protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse
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side effects, failure to demonstrate a benefit from the product candidates, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.
If we experience delays in the completion, or termination, of any clinical trial for our current programs, additional follow-on indications for ATL001 or of any future product candidates, the commercial prospects of ATL001 or our any future product candidates may be harmed, and our ability to generate revenues from ATL001 or any future product candidates will be delayed or not realized at all. In addition, any delays in completing our research activities or clinical trials may increase our costs, slow down our development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of ATL001 or any future product candidates. If ATL001 or any future product candidates are generally observed to be ineffective, unsafe or commercially unviable, our entire pipeline may have little, if any, value, which would have a material and adverse effect on our business, financial condition, results of operations and prospects.
Our business is highly dependent on the success of our product candidate, ATL001, which was developed based on our PELEUS platform and utilizing our VELOS manufacturing process. All of our future product candidates are based, or will be based, on the same technologies and the failure of ATL001 may adversely affect their development.
A key element of our strategy is utilizing our PELEUS platform to identify clonal neoantigens that are effective in treating solid tumors coupled with using our VELOS manufacturing process to manufacture cNeTs. The therapeutic discovery activities that we are conducting may not be successful in identifying clonal neoantigens and we may not be successful in manufacturing precision TIL product candidates. We currently have no products that are approved for commercial sale and may never be able to develop marketable products. We are very early in our development efforts, and we only have two clinical-stage programs, ATL001 for the treatment of advanced NSCLC and metastatic or recurrent melanoma, which are in early clinical-stage trials. In the event that our current programs for ATL001, additional follow-on indications for ATL001 or future product candidates encounter safety or efficacy problems, developmental delays, regulatory issues, or other problems, our development plans and business related to our other current or future product candidates could be significantly harmed. A failure of ATL001 or future product candidates may affect the ability to obtain regulatory approval to continue or conduct clinical programs for our other or future product candidates.
Our research activities and clinical trials may fail to demonstrate adequately the safety, potency and purity ATL001 or any future product candidates, which would prevent or delay development, regulatory approval and commercialization.
Before obtaining regulatory approvals for the commercial sale of any product candidate, including ATL001, we must demonstrate through lengthy, complex and expensive research activities and clinical trials that our product candidates are both safe and effective for use in each target indication. Research activities and clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial processes, and, because ATL001 is in an early stage of development, there is a high risk of failure and we may never succeed in developing marketable products.
Any clinical trials that we may conduct may not demonstrate the safety, potency, purity and efficacy necessary to obtain regulatory approval to market our product candidates. If the results of our ongoing or future clinical trials are inconclusive with respect to the safety, potency, purity and efficacy of our product candidates, if we do not meet the clinical endpoints with statistical and clinically meaningful significance, or if there are safety
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concerns associated with our product candidates, we may be prevented or delayed in obtaining marketing approval for such product candidates. In some instances, there can be significant variability in safety, potency or purity results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, manufacturing variances in our VELOS manufacturing process, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants.
Additionally, our currently ongoing Phase I/IIa clinical trials are and any additional clinical trials that we may conduct may be open-label in study design and may be conducted at a limited number of clinical sites on a limited number of patients. An open-label clinical trial is one where both the patient and investigator know whether the patient is receiving the investigational product candidate or either an existing approved drug or placebo. Most typically, open-label clinical trials test only the investigational product candidate and sometimes may do so at different dose levels. Open-label clinical trials are subject to various limitations that may exaggerate any therapeutic effect, as patients in open-label clinical trials are aware when they are receiving treatment. Open-label clinical trials may be subject to a patient bias where patients perceive their symptoms to have improved merely due to their awareness of receiving an experimental treatment. In addition, open-label clinical trials may be subject to an investigator bias where those assessing and reviewing the physiological outcomes of the clinical trials are aware of which patients have received treatment and may interpret the information of the treated group more favorably given this knowledge. The results from an open-label trial may not be predictive of future clinical trial results with any of our product candidates for which we include an open-label clinical trial when studied in a controlled environment with a placebo or active control.
ATL001 or any of our future product candidates may cause undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, require expansion of the trial size, limit their commercial potential, or result in significant negative consequences.
Undesirable side effects caused by our product candidates could cause us or regulatory authorities, including IRBs, to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, the EMA, the MHRA or other comparable foreign regulatory authorities. For example, in our ongoing THETIS trial, one patient was considered by the investigator to have experienced immune effector cell-associated neurotoxicity syndrome, or ICANS. The investigator deemed the serious adverse event to be related to ATL001. The patient was treated with dexamethasone and tocilizumab and their acute condition improved. However, the nature of this therapeutic intervention would be expected to suppress the expansion and persistence of the infused ATL001. Subsequent to this, the patient was admitted to hospice, and subsequently died, due to cancer disease progression. While we have not seen additional instances of ICANS in our trials, patients may experience future serious adverse events which could halt clinical the trials. The FDA or comparable foreign regulatory authorities, or IRBs and other reviewing entities, may also require, or we may voluntarily develop, strategies for managing adverse events during clinical development, which could include restrictions on our enrollment criteria, the use of stopping criteria, adjustments to a studys design, reconsent of enrolled patients, or the monitoring of safety data by a data monitoring committee, among other strategies. The FDA or a comparable foreign regulatory authority requests for additional data or information could also result in substantial delays in the approval of our current product candidate and any future product candidates. Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of subjects, rare and severe side effects of our product candidates may only be uncovered with a significantly larger number of patients exposed to the product candidate. Additionally, results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics, which may stem from our therapies specifically or may be due to an illness from which the clinical trial subject is suffering. If we do observe severe side effects in our clinical trials, our ongoing
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clinical trials may be halted or put on clinical hold prior to completion if there is an unacceptable safety risk for patients.
If unacceptable toxicities arise in the development of ATL001 or any future product candidates, we could suspend or terminate our clinical trials or the FDA, the EMA, the MHRA or comparable foreign regulatory authorities, or local regulatory authorities such as IRBs or ethics committees, could order us to cease clinical trials. Competent national health authorities, such as the FDA or foreign equivalents, could also deny approval of our product candidates for any or all targeted indications. Even if the side effects presented do not preclude the product from obtaining or maintaining marketing approval, treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the clinical trial or result in potential product liability claims. We expect to have to train medical personnel using our product candidates to understand the adverse events associated with our treatment approach for both our planned clinical trials and upon any commercialization of any product candidates, if approved. Inadequate training in recognizing or managing the potential side effects of ATL001 or any future product candidates could result in patient deaths. Any of these occurrences may significantly harm our reputation, business, financial condition and prospects.
Interim, topline, and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose preliminary or topline data from our clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, topline data should be viewed with caution until the final data are available. From time to time, we may also disclose interim data from our clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available or as patients from our clinical trials continue other treatments for their disease. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of the ADSs after this offering.
If the interim, topline, or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition. In addition, the information we choose to publicly disclose regarding a particular clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
Identifying and qualifying patients to participate in clinical trials of ATL001 and our future product candidates is critical to our success. The timing of completion of our clinical trials depends in part on the speed at which we
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can recruit patients to participate in testing ATL001 and any future product candidates, and we may experience delays in our clinical trials if we encounter difficulties in enrollment or patient retention due to other unforeseen factors, including impacts that have resulted or may result from the COVID-19 pandemic. We may not be able to initiate or continue clinical trials for ATL001 or any future product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar foreign regulatory authorities outside the United States. For example, the evolving COVID-19 pandemic may continue to impact our ability to initiate clinical sites and recruit, enroll and retain patients or may divert healthcare resources away from clinical trials. The enrollment of patients further depends on many factors, including:
| the patient eligibility criteria defined in the clinical trial protocol; |
| the size of the patient population required for analysis of the clinical trials primary endpoints; |
| the severity of the disease or condition under investigation; |
| the proximity of patients to clinical trial sites; |
| the design of the clinical trial; |
| our ability to recruit clinical trial investigators with the appropriate competencies and experience; |
| our ability to obtain and maintain patient consents; |
| the availability of competing trials; |
| our ability to procure sufficient tumor and blood samples from the patient to enable isolation of sufficient TILs and dendritic cells to manufacture a cNeT product candidate, identify clonal neoantigens and transport our cNeT product candidate to the trial site; |
| our ability to monitor patients adequately during and after treatment; |
| the risk that patients enrolled in clinical trials will drop out of the clinical trials before the manufacturing and infusion of ATL001 or any future product candidates or clinical trial completion; and |
| factors we may not be able to control, such as current or potential pandemics that may limit patients, principal investigators or staff or clinical site availability. |
In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as ATL001 or any future product candidates, and this competition will reduce the number and types of patients available to us because some patients who might have opted to enroll in our clinical trials may instead opt to enroll in a clinical trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial sites. Moreover, because our product candidates represent a departure from more commonly used methods for cancer treatment, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy, rather than enroll patients in any ongoing or planned clinical trials.
Delays in completing patient enrollment may result in increased costs or may affect the timing or outcome of our ongoing and planned clinical trials, which could prevent completion or commencement of these clinical trials and adversely affect our ability to advance the development of our product candidates.
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Since the number of patients that we plan to dose in our ongoing open-label Phase I/IIa clinical trials is small, the results from these clinical trials, once completed, may be less reliable than results achieved in larger clinical trials, which may hinder our efforts to obtain regulatory approval for ATL001 or any future product candidates.
In our ongoing first-in-human, open-label Phase I/IIa clinical trials of ATL001 for our two lead tumor indications, we are evaluating the safety, tolerability and clinical activity of cNeT administered intravenously in adult patients with advanced NSCLC and metastatic or recurrent melanoma.
The initial results of clinical trials with smaller sample sizes, such as our ongoing Phase I/IIa clinical trials, can be disproportionately influenced by various biases associated with the conduct of small clinical trials, such as the potential failure of the smaller sample size to accurately depict the features of the broader patient population, which limits the ability to generalize the results across a broader community, thus making the clinical trial results less reliable than clinical trials with a larger number of patients. As a result, there may be less certainty that such product candidate would achieve a statistically significant effect in any future clinical trials. If we conduct any future clinical trials of ATL001, we may not achieve a statistically significant result or the same level of statistical significance, if any, that we might have anticipated based on the results observed in our initial Phase I/IIa clinical trials.
We are conducting clinical trials for product candidates outside the United States, and the FDA and comparable foreign regulatory authorities may not accept data from such trials.
While we plan to expand our clinical operations to the United States and Europe in 2021, we are currently conducting our clinical trials only in the United Kingdom. The acceptance of data from clinical trials conducted outside the United States or another jurisdiction by the FDA or comparable foreign regulatory authority may be subject to certain conditions or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the U.S. population and U.S. medical practice; (ii) the trials were performed by clinical investigators of recognized competence and pursuant to good clinical practice, or GCP, regulations and (iii) the FDA is able to validate the data from the study through an on-site inspection if necessary. In general, the patient population for any clinical trials conducted outside the United States must be representative of the population for whom we intend to label the product candidate in the United States. Additionally, the FDAs clinical trial requirements, including sufficient size of patient populations and statistical powering, must be met. Many foreign regulatory authorities have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA or any comparable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA or any comparable foreign regulatory authority does not accept such data, it would result in the need for additional trials, which could be costly and time-consuming, and which may result in product candidates that we may develop not receiving approval for commercialization in the applicable jurisdiction.
Risks related to our approach to product development
Our approach to the identification and manufacture of product candidates represents a novel approach to cancer treatment, which creates significant challenges for us.
A key element of our strategy is to focus on targeting clonal neoantigens for the treatment of solid tumors, to continue innovating and developing our PELEUS platform to further improve our clonal neoantigen prediction
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capability and to expand our pipeline into several additional solid tumor indications. To date, there are no approved immuno-oncology therapies based on targeting clonal neoantigens and we are not aware of any clinical evidence supporting the clinical efficacy of our approach. Although our research and development efforts to date have resulted in clinical development of ATL001 in advanced NSCLC and metastatic or recurrent melanoma, ATL001 may not be safe or effective as a cancer treatment, and we may not be able to identify any additional follow-on indications for ATL001 or identify and develop any other product candidates. Further, our approach to manufacturing cNeTs on a per patient basis means that we may fail to isolate TILs from the tumor, be unable to generate the necessary amounts of dendritic cells, or at all, or not be able to identify clonal neoantigens. We may also be limited by the extent to which the peptides representing those neoantigens are presented by dendritic cells. There is high variability in sample collection between patients, which presents additional challenges of producing cNeTs on a per patient basis. Generation of any cellular therapy, including our cNeTs, to specifically target the mutations of an individual patient requires several weeks, in part reflecting the need to generate patient-specific genomic data and perform the bioinformatic analyses prior to initiation of manufacture. During the period from procurement of tumor and blood to completion of manufacturing, patients continue to receive standard of care therapies. In cases where disease progression is rapid, clinical deterioration of a patients condition during the manufacturing period may mean that the patient is no longer able to receive our cNeTs. The continued improvement of our PELEUS platform also requires continued sourcing of tumor samples from the TRACKing Cancer Evolution through Therapy study, or the TRACERx Study, and our MAP network, and any interruption or termination of these programs would adversely affect our PELEUS platform. Though we are continuing to invest in optimizing our manufacturing process, there is no guarantee that our efforts will result in a decrease of the end-to-end time for production.
Even if we are successful in expanding our pipeline of ATL001 programs and other product candidates, the follow-on programs and product candidates that we identify may not be suitable for clinical development or generate acceptable clinical data, including as a result of being shown to have unacceptable toxicity or other characteristics that indicate that they are unlikely to be products that will receive marketing approval from the FDA or other regulatory authorities or achieve market acceptance. We may face challenges in obtaining regulatory approval for ATL001 or any future product candidate, as the FDA and other regulatory authorities may have limited experience with bioinformatics-based therapies for cancer treatment. If we do not successfully develop and commercialize product candidates, we will not be able to generate product revenue in the future, which likely would result in significant harm to our financial position and adversely affect our commercial value.
Moreover, physicians, hospitals and third-party payors often are slow to adopt new products, technologies and treatment practices that require additional upfront costs and training. Treatment centers may not be willing or able to devote the personnel and establish other infrastructure required for the administration of our therapies. Based on these and other factors, health systems, hospitals and payors may decide that the benefits of this new therapy do not or will not outweigh its costs.
We anticipate that ATL001 and any future product candidates may be used in combination with third-party drugs or biologics, some of which are still in development, and we have limited or no control over the supply, regulatory status, or regulatory approval of such drugs.
ATL001 and any future product candidates have the potential to be administered in combination with approved therapeutics, such as checkpoint inhibitor immunotherapies. Our ability to develop and ultimately commercialize ATL001 and any future product candidates used in combination with checkpoint inhibitor immunotherapies or other therapeutics will depend on our ability to access such therapeutics on commercially reasonable terms for the clinical trials and their availability for use with the commercialized product, if approved.
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Any failure to maintain or enter into new successful commercial relationships, or the expense of purchasing checkpoint inhibitor immunotherapies or other comparable therapies in the market, may delay our development timelines, increase our costs and jeopardize our ability to develop our current product candidate and any future product candidates as commercially viable therapies. If any of these occur, our business, financial condition, results of operations, share price and prospects may be materially harmed.
Moreover, the development of product candidates for use in combination with another product or product candidate may present challenges that are not faced for single agent product candidates. We may develop ATL001 and any future product candidates for use in combination with checkpoint inhibitor immunotherapies. Both of our THETIS and CHIRON clinical trials may seek to evaluate the safety and clinical activity of ATL001 when given in combination with, pembrolizumab and nivolumab, respectively, which are approved anti-PD-1 antibody therapies. The FDA or comparable foreign regulatory authorities may require us to use more complex clinical trial designs in order to evaluate the contribution of each product and product candidate to any observed effects. It is possible that the results of such trials could show that any positive previous trial results are attributable to the combination therapy and not ATL001 and any future product candidates. Moreover, following product approval, the FDA or comparable foreign regulatory authorities may require that products used in conjunction with each other be cross labeled for combined use. To the extent that we do not have rights to the other product, this may require us to work with a third party to satisfy such a requirement. Moreover, developments related to the other product may impact our clinical trials for the combination as well as our commercial prospects should we receive marketing approval. Such developments may include changes to the other products safety or efficacy profile, changes to the availability of the approved product, quality, manufacturing and supply issues, and changes to the standard of care.
In the event that any future collaborator or supplier cannot continue to supply their products on commercially reasonably terms, we would need to identify alternatives for accessing checkpoint inhibitor immunotherapies or other comparable therapies. Additionally, should the supply of product from any future collaborator or supplier be interrupted, delayed or otherwise be unavailable to use or our collaborators, our clinical collaborations may be delayed. In the event we are unable to source an alternative supply, or are unable to do so on commercially reasonable terms, our business, financial conditions, results of operations and prospects may be materially harmed.
We may expend our limited resources to pursue a particular follow-on indication for ATL001 or other product candidate and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we must focus on a limited number of research programs and product candidates and on specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future discovery and research programs and product candidates for specific indications may not yield any commercially viable products.
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Risks related to manufacturing and supply
We have no experience manufacturing ATL001 at commercial scale. Manufacturing and administering ATL001 is complex and we may encounter difficulties in production, particularly with respect to scaling up our manufacturing capabilities. If we encounter such difficulties, our ability to provide supply of our cNeTs for clinical trials or for commercial purposes could be delayed or stopped.
ATL001 is designed to be a precision T cell therapy and the process of manufacturing it is complex, highly regulated and subject to multiple risks. As a result of these complexities, the cost to manufacture precision T cell therapies is generally higher than traditional small molecule chemical compounds or antibody therapies, and the manufacturing process for precision T cell therapies is less reliable and is more difficult to reproduce. More specifically, the manufacture of ATL001 involves procuring tumor and blood from the patient from which DNA is extracted and sequenced, using this sequencing data together with our PELEUS platform to identify each patients unique clonal neoantigens, isolating T cells and dendritic cells from tumor and blood, respectively, manufacturing clonal neoantigen peptides and loading them onto dendritic cells to activate and expand a sub-set of the T cells, and ultimately generating a product enriched for cNeT, which is then re-infused into the patients body. Even minor deviations from normal manufacturing processes, could result in reduced production yields, product defects, and other supply disruptions. Furthermore, manufacturing poses the risk of the inconsistency in product quality, which could lead to adverse events. If microbial, viral or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We cannot assure you that any stability failures or other issues relating to the manufacture of our product candidates will not occur in the future.
As ATL001 or any future product candidate progress through clinical trials towards approval and commercialization, it is expected that various aspects of the manufacturing and administration process will be altered in an effort to optimize processes and results. Any such changes may require amendments to be made to regulatory applications which may further delay the timeframes under which modified manufacturing processes can be used for any of our product candidates.
Developing a commercially viable process is a difficult and uncertain task, and there are risks associated with scaling to the level required for advanced clinical trials or commercialization, including, among others, increased costs, potential problems with process scale-out, process reproducibility, stability issues, lot consistency, and timely availability of reagents or raw materials. Competitors have had difficulty reliably producing TIL therapies. If we experience similar challenges manufacturing product candidates to approved specifications, this may limit our product candidates utilization and our ability to receive payment for these product candidates once approved. We may ultimately be unable to reduce the expenses associated with our product candidates to levels that will allow us to achieve a profitable return on investment.
We lease a warehouse in west London, where we will construct a flexible GMP modular facility to scale our manufacturing footprint where pod cleanrooms can be brought online in a phased approach. The modular facility will support commercial supply for Europe, and provides optionality to support U.S. operations. While over time, we plan to establish further regional manufacturing facilities, we may not be successful in scaling up our manufacturing capabilities.
Our manufacturing process needs to comply with FDA regulations relating to the quality and reliability of such processes. Any failure to comply with relevant regulations could result in delays in or termination of our clinical programs and suspension or withdrawal of any regulatory approvals.
In order to commercially produce our products, we will need to ensure compliance with the FDAs cGMP regulations and guidelines. We may encounter difficulties in achieving quality control and quality assurance and
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may experience shortages in qualified personnel. Our facilities are subject to inspections by the FDA and comparable foreign regulatory authorities to confirm compliance with applicable regulatory requirements. Any failure to follow cGMP or other regulatory requirements or delay, interruption or other issues that arise in the manufacture, fill-finish, packaging, or storage of our precision medicines as a result of our failure to comply with regulatory requirements or pass any regulatory authority inspection could significantly impair our ability to develop and commercialize ATL001 and any future product candidates, including leading to significant delays in the availability of ATL001 and any future product candidates for our clinical trials or the termination of or suspension of a clinical trial, or the delay or prevention of a filing or approval of marketing applications for ATL001 or any future product candidates. Significant non-compliance could also result in the imposition of sanctions, including warning or untitled letters, fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approvals, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could damage our reputation and our business.
If we use hazardous and biological materials for manufacturing in a manner that causes injury or violates applicable law, we may be liable for damages.
Our research and development activities involve the controlled use of potentially hazardous substances, including chemical and biological materials, by our third-party manufacturers. We are subject to federal, state and local laws and regulations in the United Kingdom governing the use, manufacture, storage, handling and disposal of biological and hazardous materials. Although we believe that our procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injury resulting from medical or hazardous materials. As a result of any such contamination or injury, we may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from biological or hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development and production efforts, which could harm our business, prospects, financial condition or results of operations.
We plan to establish our own commercial-scale manufacturing facilities and infrastructure in lieu of relying on third parties for the manufacture of ATL001 and any future product candidates, which will be costly, time-consuming, and which may not be successful.
We are in the process of adding manufacturing capacity for our clinical trials and we plan to establish our own commercial manufacturing facility. The establishment of our own commercial manufacturing facility would be a costly and time-consuming process that we expect to require additional capital to fund and take several years before becoming operational. For example, we plan to develop a fully closed end-to-end manufacturing process, which is challenging, time-consuming and will require significant resources. We may experience unexpected delays or costs as we continue to improve our VELOS manufacturing process and may ultimately be unsuccessful in obtaining manufacturing scale capabilities. Furthermore, as we scale up the VELOS manufacturing process, we may be required to make changes to the process which can affect the composition of ATL001 and any future product candidates.
We have no experience as a company in setting up, building or managing a commercial-scale manufacturing facility, and may never be successful in developing our own commercial-scale manufacturing facility. We will need to hire additional personnel to manage our operations and facilities and develop the necessary infrastructure to continue the research and development, and eventual commercialization, if approved, of our
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product candidates. If we fail to recruit the required personnel and generally manage our growth effectively or fail to select the correct location, the development and production of our product candidates could be curtailed or delayed. Even if we are successful in establishing a commercial-scale manufacturing facility, our manufacturing capabilities could be affected by cost-overruns, unexpected delays, equipment failures, labor shortages, natural disasters, power failures and numerous other factors that could prevent us from realizing the intended benefits of our manufacturing strategy and have a material adverse effect on our business.
In addition, the FDA, the EMA, the MHRA and other foreign regulatory authorities may require us to submit samples of any lot of any approved product together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA, the EMA, the MHRA or other foreign regulatory authorities may require that we not distribute a lot until the relevant agency authorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product recalls. Lot failures or product recalls could cause us to delay product launches or clinical trials, which could be costly to us and otherwise harm our business, financial condition, results of operations and prospects. Problems in our manufacturing process could restrict our ability to meet market demand for our products.
We also may encounter problems hiring and retaining the experienced scientific, quality-control and manufacturing personnel needed to operate our manufacturing processes, which could result in delays in production or difficulties in maintaining compliance with applicable regulatory requirements.
Any problems in our manufacturing process or facilities could make us a less attractive collaborator for potential partners, including larger pharmaceutical companies and academic research institutions, which could limit our access to additional attractive development programs.
Brexit may require us to incur additional expenses if we manufacture our clinical product material in the United Kingdom for use at European clinical trial sites.
On June 23, 2016, the United Kingdom held a referendum in which a majority of voters approved an exit from the EU, or Brexit. After nearly three years of negotiation and political and economic uncertainty, the United Kingdoms withdrawal from the EU became effective on January 31, 2020. There was a transitional period, during which EU laws continued to apply in the UK, however this ended on December 31, 2020. The UK and EU have signed a EU-UK Trade and Cooperation Agreement, which became provisionally applicable on January 1, 2021 and will become formally applicable once ratified by both the UK and the EU. This agreement provides details on how some aspects of the UK and EUs relationship regarding medicinal products will operate, particularly in relation to Good Manufacturing Practice, however there are still many uncertainties.
Since a significant proportion of the regulatory framework in the United Kingdom applicable to our business and our product candidates is derived from EU directives and regulations, Brexit could materially impact the regulatory regime with respect to the development and manufacturing of our product candidates in the United Kingdom or the EU, as there is now potential for the UK regulations on medicinal products to diverge from the EU regulations. Following the Brexit transition period a separate process for authorization of drug products, including our product candidates for clinical trials, will be required in the United Kingdom. The Medicines and Healthcare products Regulatory Agency, or MHRA, the UK medicines and medical devices regulator, has published a series of guidance notes on how the process for authorization of medicines will now work, however exactly what implications this will have in practice remain unclear. For example, this transition may result in delays in importation and export of our clinical trial product, and disruption of the supply chain for clinical trial product and final authorized formulations.
We intend to continue to manufacture our cNeT product candidates at our two United Kingdom manufacturing sites, the Royal Free Hospital and the Cell and Gene Therapy Catapult. Manufacturing product candidates in the
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United Kingdom could, now the Brexit transition period has expired, affect the clearance or timing of the release of our clinical trial materials out of the United Kingdom. Any such delays could result in our clinical trial sites outside of the United Kingdom not having sufficient clinical trial materials and could adversely affect the timing and completion of our clinical trials.
Risks related to sales, marketing and competition
We currently have no marketing and sales organization and have no experience in marketing products. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if approved, we may not be able to generate product revenue.
We currently have no sales, marketing or distribution capabilities and have no experience in marketing products. We intend to develop an in-house marketing organization and sales force, which will require significant capital expenditures, management resources and time. We will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel.
If we are unable or decide not to establish internal sales, marketing and distribution capabilities, we will pursue arrangements with third-party sales, marketing, and distribution collaborators regarding the sales and marketing of our products, if approved. However, there can be no assurance that we will be able to establish or maintain such arrangements on favorable terms or if at all, or if we are able to do so, that these third-party arrangements will provide effective sales forces or marketing and distribution capabilities. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates.
There can be no assurance that we will be able to develop in-house sales and distribution capabilities or establish or maintain relationships with third-party collaborators to commercialize any product in the United States or overseas.
Even if we obtain regulatory approval of ATL001 or any future product candidates, the products may not gain market acceptance among physicians, patients, hospitals, cancer treatment centers and others in the medical community.
The use of precision cNeT product candidates as a potential cancer treatment is a recent development and may not become broadly accepted by physicians, patients, hospitals, cancer treatment centers and others in the medical community, even if approved by the appropriate regulatory authorities for marketing and sale. If we obtain regulatory approval for ATL001 in any of our current programs or additional follow-on indications or any future product candidates and such product candidates do not gain an adequate level of market acceptance, we could be prevented from or significantly delayed in achieving profitability. Various factors will influence whether our product candidates, if approved, are accepted in the market, including:
| the efficacy of ATL001 in the applicable indication or any future product candidates as demonstrated in clinical trials, and, if required by any applicable authority in connection with the approval for the applicable indications, the ability of ATL001 or any future product candidates to provide patients with incremental health benefits, as compared with other available therapies; |
| potential product liability claims; |
| the clinical indications for which ATL001 or any future product candidates are approved; |
| physicians, hospitals, cancer treatment centers and patients considering ATL001 or any future product candidates as a safe and effective treatment; |
| the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; |
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| the potential and perceived advantages of ATL001 or any future product candidates over alternative treatments; |
| the prevalence and severity of any side effects of ATL001 or any future product candidates; |
| the prevalence and severity of any side effects for other cancer immuno-therapeutics and public perception of other cancer immune-therapeutics; |
| product labeling or product insert requirements of the FDA or other comparable foreign regulatory authorities; |
| limitations or warnings contained in the labeling approved by the FDA or other comparable foreign regulatory authorities; |
| any distribution and use restrictions imposed by the FDA or other comparable foreign regulatory authorities or to which we agree as part of a mandatory REMS or voluntary risk management plan; |
| the timing of market introduction of ATL001 or any future product candidates as well as competitive products; |
| the cost of treatment in relation to current and future alternative treatments; |
| the need to dose our product candidates in combination with other therapeutic agents and related costs; |
| the availability of adequate coverage, reimbursement and pricing by third-party payors and government authorities; |
| the willingness of patients to pay out-of-pocket in the absence of coverage by third-party payors and government authorities; |
| relative convenience and ease of administration, including as compared to current and future alternative treatments and competitive therapies; and |
| the effectiveness of our sales and marketing efforts. |
In addition, although ATL001 differs in certain ways from other cancer immuno-therapies, advanced T cell therapies and neoantigen directed cell or vaccine approaches, serious adverse events or deaths in other clinical trials involving cancer immuno- therapies, advanced T cell therapies or neoantigen directed cell or vaccine approaches, even if not ultimately attributable to our product or product candidates, could result in increased government regulation, unfavorable public perception and publicity, potential regulatory delays in the testing or approval of our product candidates, stricter labeling requirements for those product candidates that are approved, and a decrease in demand for any such product candidates.
Even if our product candidates, if approved, achieve market acceptance, we may not be able to maintain that market acceptance over time if new products or technologies are introduced that are more favorably received than our products, are more cost effective or render our products obsolete.
The market opportunities for ATL001 or any future product candidates may be relatively small as it will be limited to those patients who are ineligible for or have failed prior treatments and our estimates of the prevalence of our target patient populations may be inaccurate.
Cancer therapies are sometimes characterized by line of therapy (first line, second line, third line, fourth line, etc.), and the FDA often approves new therapies initially only for a particular line or lines of use. When cancer is detected early enough, first line therapy is sometimes adequate to cure the cancer or prolong life without a
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cure. Whenever first line therapy, usually chemotherapy, antibody drugs, tumor-targeted small molecules, hormone therapy, radiation therapy, surgery, or a combination of these, proves unsuccessful, second line therapy may be administered. Second line therapies often consist of more chemotherapy, radiation, antibody drugs, tumor-targeted small molecules, or a combination of these. Third line therapies can include chemotherapy, antibody drugs and small molecule tumor-targeted therapies, more invasive forms of surgery and new technologies. We expect to initially seek approval of ATL001 in most indications at least as a second or third line therapy, for use in patients with relapsed or refractory metastatic cancer. Subsequently, for those indications in which ATL001 proves to be sufficiently safe and beneficial, if any, we would expect to seek approval as a second line therapy and potentially as a first line therapy, but there is no guarantee that ATL001, even if approved as a second or third line of therapy for any indications, would be approved for an earlier line of therapy, and, prior to any such approvals, we may have to conduct additional clinical trials. Consequently, the potentially addressable patient population for ATL001 or any future product candidates may be extremely limited or may not be amenable to treatment with our product candidates.
Our projections of both the number of people who have the cancers we are targeting, as well as the subset of people with these cancers in a position to receive a particular line of therapy and who have the potential to benefit from treatment with ATL001 or future product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, commissioned reports, surveys of clinics, patient foundations or market research, and may prove to be incorrect. Further, new therapies may change the estimated incidence or prevalence of the cancers that we are targeting. Consequently, even if ATL001 or any product candidates are approved for a second or third line of therapy, the number of patients that may be eligible for treatment with our product candidates may turn out to be much lower than expected.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
The biotechnology and pharmaceutical industries utilize rapidly advancing technologies and are characterized by intense competition. While we believe that our differentiated product, scientific knowledge, platform technology and development expertise in the field of immuno-oncology therapy provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceuticals, specialty pharmaceuticals and biotechnology companies, academic institutions and government agencies, and public and private research institutes that conduct research, development, manufacturing and commercialization. Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, regulatory approvals and product marketing than we do. Our competitors may compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. As a result, our competitors may discover, develop, license or commercialize products before or more successfully than we do.
In addition, many of these competitors are active in seeking patent protection and licensing arrangements in anticipation of collecting royalties for use of technology that they have developed. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors, either alone or with collaborative partners, may succeed in developing, acquiring or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily commercialized or less costly than our product candidates or may develop proprietary technologies or secure patent protection that we may need for the development of our technologies and products. We believe the key competitive factors that will affect the
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development and commercial success of our product candidates are safety, potency, purity, tolerability, reliability, convenience of use, price and reimbursement.
Specifically, advanced T cell therapies are under evaluation in solid tumors by multiple biotechnology and pharmaceutical companies, including Kite Pharma Inc. (a Gilead company), Iovance Biotherapeutics Inc., Adaptimmune Therapeutics PLC, Instil Bio, Inc., PACT Pharma, Inc., Neogene Therapeutics, Inc. and BioNTech SE. In particular, Iovance Biotherapeutics Inc. is developing a standard TIL therapy for melanoma, which will compete directly with our product candidate, ATL001, in this indication.
We anticipate that we will face intense and increasing competition as new products and therapies enter the market and advanced technologies become available. We expect any treatments that we develop and commercialize to compete on the basis of, among other things, efficacy, safety, delivery, price and the availability of reimbursement from government and other third-party payers.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive or better reimbursed than any products that we may commercialize. Our competitors also may obtain FDA, EMA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position for either the product or a specific indication before we are able to enter the market.
Even if we obtain regulatory approval of our product candidates, the availability and price of our competitors products could limit the demand and the price we are able to charge for our product candidates. We may not be able to implement our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other new drug or biologic products or choose to reserve our product candidates for use in limited circumstances. For additional information regarding our competition, see BusinessCompetition.
A variety of risks associated with marketing our product candidates internationally could materially adversely affect our business.
We plan to seek regulatory approval of ATL001 and any future product candidates outside of the United States and, accordingly, we expect that we will be subject to additional risks related to operating in foreign countries if we obtain the necessary approvals, including:
| differing regulatory requirements in foreign countries; |
| unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements; |
| economic weakness, including inflation, or political instability in particular foreign economies and markets; |
| compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; |
| foreign taxes, including withholding of payroll taxes; |
| foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country; |
| difficulties staffing and managing foreign operations; |
| workforce uncertainty in countries where labor unrest is more common than in the United States; |
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| potential liability under the Foreign Corrupt Practices Act of 1977 or comparable foreign laws and regulations; |
| challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States; |
| production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and |
| business interruptions resulting from geo-political actions, including war and terrorism. |
These and other risks associated with international operations may materially adversely affect our ability to attain or maintain profitable operations.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
We face an inherent risk of product liability as a result of the clinical testing of ATL001 or any future product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if a product candidate causes or is perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
| decreased demand for ATL001 or any future product candidates or products that we may develop; |
| injury to our reputation; |
| withdrawal of clinical trial participants; |
| initiation of investigations by regulators; |
| costs to defend the related litigation; |
| a diversion of managements time and our resources; |
| substantial monetary awards to trial participants or patients; |
| regulatory investigation, product recalls, withdrawals or labeling, marketing or promotional restrictions; |
| loss of revenue; |
| exhaustion of any available insurance and our capital resources; |
| the inability to commercialize any product candidate; and |
| a decline in our share price. |
Failure to obtain or retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop, alone or with corporate collaborators. Although we have clinical trial insurance, our insurance policies also have
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various exclusions, and we may be subject to a product liability claim for which we have no coverage. In the future, we may be unable to maintain this insurance coverage, or we may not be able to obtain additional or replacement coverage at a reasonable cost, if at all. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.
Risks related to government regulation
Risks related to regulatory review and approval of product candidates
The FDA regulatory approval process is lengthy and time-consuming, and we may experience significant delays in the clinical development and regulatory approval of ATL001 and any future product candidates.
We have not previously submitted a Biologics License Application, or BLA, to the FDA or similar marketing applications to similar foreign regulatory authorities. A BLA must include extensive preclinical and clinical data and supporting information to establish the product candidates safety, purity and potency for each desired indication. The BLA must also include significant information regarding the manufacturing controls for the product. We may also experience delays in completing planned clinical trials for a variety of reasons, including delays related to:
| the availability of financial resources to commence and complete the planned trials; |
| reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites; |
| obtaining approval at each clinical trial site by an IRB or ethics committee; |
| recruiting suitable patients to participate in a clinical trial; |
| having patients complete a clinical trial or return for post-treatment follow-up; |
| clinical trial sites deviating from trial protocol or dropping out of a trial; |
| addressing any patient safety concerns that arise during the course of a trial; |
| adding new clinical trial sites; or |
| manufacturing sufficient quantities of qualified materials under cGMPs and including current good tissue practices requirements and applying them on a subject-by-subject basis for use in clinical trials. |
Securing regulatory approval also requires the submission of information about the biologic manufacturing process and inspection of manufacturing facilities by the relevant regulatory authority. The FDA or similar foreign regulatory authorities may fail to approve our manufacturing processes or facilities, whether run by us or our commercial manufacturing organizations, or CMOs. In addition, if we make changes to our manufacturing process for ATL001 or any future product candidates in the future, we may need to conduct additional research or clinical trials to bridge our modified product candidates to earlier versions.
Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may ultimately lead to the denial of regulatory approval of ATL001 and any future product candidates.
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Regulatory authorities in the United States and European Union have limited experience in reviewing and approving cell therapy products, which could affect the time and data required to obtain marketing authorization of any of our product candidates.
Our future success depends in part on our successful development of viable cell therapy product candidates utilizing our PELEUS bioinformatics platform. We may experience problems or delays in developing such product candidates and any such problems or delays may result in unanticipated costs and time to develop our product candidates and/or may not be resolved in a satisfactory manner.
The regulatory approval process and clinical trial requirements for novel product candidates can be more expensive and take longer than for other, better known or more extensively studied product candidates, and we cannot predict how long it will take or how much it will cost to complete clinical developments and obtain regulatory approvals for a cell therapy product candidate in either the United States or the European Union or how long it will take to commercialize a cell therapy product candidate, if and when approved. Regulatory requirements governing cell therapy products have changed frequently and may continue to change in the future. For example, the FDA established the Office of Tissues and Advanced Therapies within its Center for Biologics Evaluation and Research, or CBER, to consolidate the review of cell therapies and related products, and the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its review. These and other regulatory review agencies, committees and advisory groups and the requirements and guidelines they promulgate may lengthen the regulatory review process, require us to perform additional preclinical studies or clinical trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these treatment candidates or lead to significant post-approval limitations or restrictions.
A similar framework is in place in the European Union, or the EU. The European Medicines Agency, or the EMA, has a Committee for Advanced Therapies, or CAT, that is responsible for assessing the quality, safety and efficacy of advanced-therapy medicinal products. Advanced-therapy medical products include gene therapy medicine, somatic-cell therapy medicines and tissue-engineered medicines. The role of the CAT is to prepare a draft opinion on an application for marketing authorization for a gene therapy medicinal candidate that is submitted to the EMA. In the EU, the development and evaluation of a gene therapy medicinal product must be considered in the context of the relevant EU guidelines. The EMA may issue new guidelines concerning the development and marketing authorization for somatic cell therapy medicinal products and require that we comply with these new guidelines. Similarly, complex regulatory environments exist in other jurisdictions in which we might consider seeking regulatory approvals for our product candidates, further complicating the regulatory landscape. As a result, the procedures and standards applied to gene therapy products and cell therapy products may be applied to any of our gene therapy or genome editing product candidates, but that remains uncertain at this point.
The clinical trial requirements of the FDA, the EMA and other regulatory authorities and the criteria these regulators use to evaluate the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for product candidates such as ours can be more lengthy, rigorous and expensive than the process for other better known or more extensively studied product candidates and technologies. Since we are developing novel treatments for diseases in which there is little clinical experience with new endpoints and methodologies, there is heightened risk that the FDA, the EMA or comparable regulatory bodies may not consider the clinical trial endpoints to provide clinically meaningful results, and the resulting clinical data and results may be more difficult to analyze. This may be a particularly significant risk for many of the genetically defined diseases for which we may develop product candidates alone or with collaborators due to small patient populations for those diseases, and designing and executing a rigorous clinical trial with appropriate statistical power is more difficult than with diseases that have larger patient populations. Regulatory agencies administering existing or
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future regulations or legislation may not allow production and marketing of cell therapy products in a timely manner or under technically or commercially feasible conditions.
Even if our product candidates obtain required regulatory approvals, such approvals may later be withdrawn as a result of changes in regulations or the interpretation of regulations by applicable regulatory agencies. Additionally, adverse developments in clinical trials conducted by others of cell therapy products or products created using similar technology, or adverse public perception of the field of cell therapies editing, may cause the FDA, the EMA and other regulatory bodies to revise the requirements for approval of any product candidates we may develop or limit the use of products utilizing technologies such as ours, either of which could materially harm our business.
As we advance our product candidates, we will be required to consult with various regulatory authorities, and we must comply with applicable laws, rules, and regulations, which may change from time to time including during the course of development of our product candidates. If we fail to do so, we may be required to delay or discontinue the clinical development of certain of our product candidates. These additional processes may result in a review and approval process that is longer than we otherwise would have expected. Even if we comply with applicable laws, rules, and regulations, and even if we maintain close coordination with the applicable regulatory authorities with oversight over our product candidates, our development programs may fail to succeed. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market would materially and adversely affect our business, financial condition, results of operations and prospects.
We may in the future seek orphan drug designation for ATL001 and any future product candidates, but we may be unable to obtain such designations or to maintain the benefits associated with orphan drug designation, including market exclusivity, which may cause our revenue, if any, to be reduced.
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, defined as a disease or condition with a patient population of fewer than 200,000 in the United States, or a patient population of 200,000 or more in the United States when there is no reasonable expectation that the cost of developing and making available the drug or biologic in the United States will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before submitting a BLA. 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. After the FDA grants orphan drug designation, the generic identity of the drug or biologic and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
If a product candidate that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including a BLA, to market the same product for the same indication for seven years, except in limited circumstances such as a showing of clinical superiority to the product with orphan drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the product was designated. As a result, even if one of our product candidates receives orphan exclusivity, the FDA can still approve other drugs that have a different active ingredient for use in treating the same indication or disease. Furthermore, the FDA can waive orphan exclusivity if we are unable to manufacture sufficient supply of our product.
We may seek orphan drug designation for ATL001 in the indications we are currently targeting or any follow-on indications as well as for any future product candidates in additional orphan indications in which there is a
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plausible basis for the evaluation of these product candidates. Even if we obtain orphan drug designation, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan designated indication and may be lost if the FDA later determines that the request for designation was materially defective or if we are unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. Further, even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product 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 product for the same condition if the FDA concludes that the later product is clinically superior in that it is safer, more effective, or makes a major contribution to patient care.
On August 3, 2017, Congress passed the FDA Reauthorization Act of 2017, or FDARA. FDARA, among other things, codified the FDAs pre-existing regulatory interpretation, to require that a drug sponsor demonstrate the clinical superiority of an orphan drug that is otherwise the same as a previously approved drug for the same rare disease in order to receive orphan drug exclusivity. The legislation reverses prior precedent holding that the Orphan Drug Act unambiguously requires that the FDA recognize the orphan exclusivity period regardless of a showing of clinical superiority. Moreover, in the Consolidated Appropriations Act of 2021, Congress did not further change this interpretation when it clarified that the interpretation codified in FDARA would apply in cases where the FDA issued an orphan designation before the enactment of FDARA but where product approval came after the enactment of FDARA. The FDA may further reevaluate the Orphan Drug Act and its regulations and policies. We do not know if, when, or how the FDA may change the orphan drug regulations and policies in the future, and it is uncertain how any changes might affect our business. Depending on what changes the FDA may make to its orphan drug regulations and policies, our business could be adversely impacted.
A breakthrough therapy designation or accelerated approval by the FDA, even if granted for ATL001 or any of our future product candidates, may not lead to a faster development or regulatory review or approval process and it does not increase the likelihood that our product candidates will receive marketing approval.
We may seek breakthrough therapy designation for ATL001 in the indications we are currently targeting or any follow-on indications as well as for any future product candidates. A breakthrough therapy is defined as a drug or biologic that is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug, or biologic, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Sponsors of product candidates that have been designated as breakthrough therapies are eligible to receive more intensive FDA guidance on developing an efficient drug development program, an organizational commitment involving senior managers, and eligibility for rolling review and priority review. A product candidate is eligible for Priority Review if it has the potential to provide a significant improvement in safety or effectiveness in the treatment, diagnosis or prevention of a serious disease or condition. Under priority review, the FDA must review an application in six months compared to ten months for a standard review.
Drugs and biologics designated as breakthrough therapies by the FDA may also be eligible for other expedited approval programs, including accelerated approval. A product candidate may be eligible for accelerated approval if it treats a serious or life-threatening condition, generally provides a meaningful advantage over available therapies, and demonstrates an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. As a condition of accelerated approval, the FDA may require that a sponsor of a product receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. These confirmatory trials must be completed with due diligence. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product. Even if we do receive accelerated approval, we may not experience a faster
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development or regulatory review or approval process, and receiving accelerated approval does not provide assurance of ultimate full FDA approval. Accelerated approval may also be withdrawn if, among other things, a confirmatory trial required to verify the predicted clinical benefit of the product fails to verify such benefit or if such trial is not conducted with due diligence.
Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a Breakthrough Therapy Designation for a product candidate may not result in a faster development process, review or approval compared to candidate products considered for approval under non-expedited FDA review procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that the product no longer meets the conditions for qualification. Thus, even though we intend to seek breakthrough therapy designation for certain of our current and future product candidates for the treatment of various cancers, there can be no assurance that we will receive Breakthrough Therapy Designation.
A fast track or regenerative medicine advanced therapy, or RMAT, designation by the FDA, even if granted for ATL001 or any future product candidates, may not lead to a faster development or regulatory review or approval process, and does not increase the likelihood that our product candidates will receive marketing approval.
If a drug or biologic is intended for the treatment of a serious or life-threatening disease or condition and the product candidate demonstrates the potential to address unmet medical needs for such disease or condition, the sponsor may apply for FDA Fast Track designation for a particular indication. The sponsor of a Fast Track product candidate has opportunities for more frequent interactions with the applicable FDA review team during product development and, once a BLA is submitted, the product candidate may be eligible for priority review. Fast Track designation does not, however, guarantee that the application will be designated for priority review. A Fast Track product candidate may also be eligible for rolling review, where the FDA may consider for review sections of the BLA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the BLA, the FDA agrees to accept sections of the BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the BLA.
A company may request RMAT designation of its product candidate, and FDA may granted such designation if the product meets the following criteria: (1) it is a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products, with limited exceptions; (2) it is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition; and (3) preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such a disease or condition. RMAT designation provides potential benefits that include more frequent meetings with FDA to discuss the development plan for the product candidate, and potential eligibility for rolling review and priority review. Products granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites, including through expansion of trials to additional sites.
The FDA has broad discretion whether or not to grant fast track or RMAT designation, so even if we believe a particular product candidate is eligible for such designations, there can be no assurance that the FDA would decide to grant it. Even if we do receive fast track or RMAT designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures, and receiving a fast track or RMAT designation does not provide assurance of ultimate FDA approval. In addition, the FDA may withdraw fast track or RMAT designation if it believes that the designation is no longer supported by data from our clinical development program.
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Even if we obtain FDA, EMA or MHRA approval for ATL001 in the indications we are currently targeting or any follow-on indications or any future product candidates that we may identify and pursue in the United States, Europe or the United Kingdom, we may never obtain approval to commercialize any such product candidates outside of those jurisdictions, which would limit our ability to realize their full market potential.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and effectiveness. Regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional or different administrative review periods from those in the United States, including additional research or clinical trials, as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.
Seeking foreign regulatory approval could result in difficulties and costs and require additional nonclinical studies or clinical trials which could be costly and time-consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our current or future product candidates in those countries. The foreign regulatory approval process may include all of the risks associated with obtaining FDA, EMA or MHRA approval. We do not have any product candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets for our current or future product candidates. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approval in international markets is delayed, our target market will be reduced and our ability to realize the full market potential of our current or future product candidates will be harmed.
Risks related to ongoing regulatory obligations
Even if we receive regulatory approval of ATL001 in the indications we are currently targeting or any follow-on indications or any future product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our product candidates.
Any regulatory approvals that we receive for our product candidates will require surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a risk evaluation and mitigation strategy, or REMS, in order to approve our product candidates, which could entail requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for our product candidates will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs, good laboratory practice, or GLP, regulations and GCPs, for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with our product candidates, including adverse events of unanticipated severity or frequency, or with our
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third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:
| restrictions on the marketing or manufacturing of our product candidates, withdrawal of the product from the market or voluntary or mandatory product recalls; |
| manufacturing delays and supply disruptions where regulatory inspections identify observations of noncompliance requiring remediation; |
| revisions to the labeling, including limitation on approved uses or the addition of additional warnings, contraindications or other safety information, including boxed warnings; |
| imposition of a REMS which may include 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; |
| requirements to conduct additional post-market clinical trials to assess the safety of the product; |
| fines, warning letters or holds on clinical trials; |
| refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of approvals; |
| product seizure or detention, or refusal to permit the import or export of our product candidates; and |
| injunctions or the imposition of civil or criminal penalties. |
The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate revenue and could require us to expend significant time and resources in response and could generate negative publicity. In addition, the FDAs and other regulatory authorities policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.
We must comply with requirements concerning advertising and promotion for any product candidates for which we obtain marketing approval. Promotional communications with respect to therapeutics are subject to a variety of legal and regulatory restrictions and continuing review by the FDA, Department of Justice, Department of Health and Human Services Office of Inspector General, state attorneys general, members of Congress, and the public. When the FDA or comparable foreign regulatory authorities issue regulatory approval for a product candidate, the regulatory approval is limited to those specific uses and indications for which a product is approved.
Physicians may choose to prescribe products for uses that are not described in the products labeling and for uses that differ from those tested in clinical trials and approved by the regulatory authorities. Regulatory authorities in the United States generally do not restrict or regulate the behavior of physicians in their choice of treatment within the practice of medicine. Regulatory authorities do, however, restrict communications by biopharmaceutical companies concerning off-label use.
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If ATL001 or any future product candidates are approved and we are found to have improperly promoted off-label uses of those products, we may become subject to significant liability. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, if approved. In particular, while the FDA permits the dissemination of truthful and non-misleading information about an approved product, a manufacturer may not promote a product for uses that are not approved by the FDA or such other regulatory agencies, as reflected in the products approved labeling. If such regulatory agencies find that we have promoted such off-label uses, we may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use of their products and has enjoined several companies from engaging in off-label promotion. The FDA and other regulatory agencies have also required companies to enter into consent decrees or corporate integrity agreements, or imposed permanent injunctions under which specified promotional conduct must be changed or curtailed.
In the United States, engaging in the impermissible promotion of any products, following approval, for off-label uses can also subject us to false claims and other litigation under federal and state statutes. These statutes include fraud and abuse and consumer protection laws, which can lead to civil and criminal penalties and fines, agreements with governmental authorities that materially restrict the manner in which we promote or distribute therapeutic products and conduct our business. These restrictions could include corporate integrity agreements, suspension or exclusion from participation in federal and state healthcare programs, suspension and debarment from government contracts and refusal of orders under existing government contracts. False Claims Act lawsuits brought by federal and state enforcement agencies against manufacturers of drugs and biologics have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements pertaining to certain sales practices and promoting off-label uses. In addition, False Claims Act lawsuits may expose manufacturers to follow-on claims by private payers based on fraudulent marketing practices. This growth in litigation has increased the risk that a biopharmaceutical company will have to defend a false claim action, pay settlement fines or restitution, as well as criminal and civil penalties, agree to comply with burdensome reporting and compliance obligations, and be excluded from Medicare, Medicaid, or other federal and state healthcare programs. If we do not lawfully promote our approved products, if any, we may become subject to such litigation and, if we do not successfully defend against such actions, those actions may have a material adverse effect on our business, financial condition, results of operations, stock price and prospect.
In the United States, the promotion of biopharmaceutical products is subject to additional FDA requirements and restrictions on promotional statements. If, after ATL001 or any of our future product candidates obtains marketing approval, the FDA determines that our promotional activities violate its regulations and policies pertaining to product promotion, it could request that we modify our promotional materials or subject us to regulatory or other enforcement actions, including issuance of warning letters or untitled letters, suspension or withdrawal of an approved product from the market, requests for recalls, payment of civil fines, disgorgement of money, imposition of operating restrictions, injunctions or criminal prosecution, and other enforcement actions. Similarly, industry codes in foreign jurisdictions may prohibit companies from engaging in certain promotional activities, and regulatory agencies in various countries may enforce violations of such codes with civil penalties. If we become subject to regulatory and enforcement actions, our business, financial condition, results of operations, stock price and prospects will be materially harmed.
Our product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.
The Affordable Care Act includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or
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interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a highly similar or biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first approved by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first approved. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsors own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty.
We believe that any of our product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
The success of current programs, additional follow-on indications for ATL001 and any future product candidates, if approved, will depend significantly on our ability to obtain adequate coverage and reimbursement of, or the willingness of patients to pay for, our product candidates.
In the United States and in other countries, patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. We believe our success depends on obtaining and maintaining coverage and adequate reimbursement for our product candidates, and the extent to which patients will be willing to pay out-of-pocket for such products. The availability of insurance coverage and adequacy of reimbursement for our products by third-party payors, including government health care programs (e.g., Medicare, Medicaid, TRICARE), managed care providers, private health insurers, health maintenance organizations, and other organizations is essential for most patients to be able to afford medical services and novel pharmaceutical products such as our product candidates.
In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors and coverage and reimbursement levels for products can differ significantly from payor to payor. As a result, decisions regarding the extent of coverage and amount of reimbursement to be provided are made on a payor-by-payor basis. One payors determination to provide coverage for a drug or biological product does not assure that other payors will also provide coverage for the same product. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies. It is difficult to predict what the Centers for Medicare & Medicaid Services, or CMS, the federal agency responsible for administering the Medicare program, will decide with respect to reimbursement for fundamentally novel products such as ours.
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.
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Patients who are treated in-office for a medical condition generally rely on third-party payors to reimburse all or part of the costs associated with the procedure, including costs associated with products used during the procedure, and may be unwilling to undergo such procedures in the absence of such coverage and adequate reimbursement. Physicians may be unlikely to offer procedures for such treatment if they are not covered or inadequately covered by insurance and may be unlikely to purchase and use our product candidates, if approved, for our stated indications unless coverage is provided and reimbursement is adequate. In addition, for products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs.
Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payors determination that a product is safe, effective and medically necessary; appropriate for the specific patient; cost-effective; supported by peer-reviewed medical journals; included in clinical practice guidelines; and neither cosmetic, experimental, nor investigational. Further, increasing efforts by third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our product candidates. In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain FDA or comparable regulatory approvals. Additionally, we may also need to provide discounts to purchasers, private health plans or government healthcare programs. Our product candidates may, nonetheless, not be considered medically necessary or cost-effective. If third-party payors do not consider a product to be cost-effective compared to other available therapies, they may not cover the product after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow a company to sell its products at a profit. We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional upcoming and anticipated legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.
Foreign governments also have their own healthcare reimbursement systems, which vary significantly by country and region, and we cannot be sure that coverage and adequate reimbursement will be made available with respect to our product candidates under any foreign reimbursement system. To that end, reimbursement agencies in Europe may be more conservative than CMS. For example, a number of cancer drugs have been approved for reimbursement in the United States and have not been approved for reimbursement in certain European countries.
There can be no assurance that any of our product candidates, if approved for sale in the United States or in other countries, will be considered medically reasonable and necessary and/or cost-effective by third-party payors, that coverage or an adequate level of reimbursement will be available or that reimbursement policies and practices in the United States and in foreign countries where our products are sold will not adversely affect our ability to sell our product candidates profitably, even if they are approved for sale.
Healthcare legislative or regulatory reform measures may have a material adverse effect on our business and results of operations.
The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that could prevent or delay marketing approval of our product candidates or any future product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell a product for which we obtain marketing approval. Changes in applicable laws, rules, and regulations or the
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interpretation of existing laws, rules, and regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.
Among policy makers and payors in the United States and in many foreign jurisdictions, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. For example, in March 2010, the Affordable Care Act, or ACA, was passed, which substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the United States pharmaceutical industry. The ACA, among other things: (i) established an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents apportioned among these entities according to their market share in some government healthcare programs; (ii) expanded the entities eligible for discounts under the 340B drug pricing program; (iii) increased the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for most branded and generic drugs, respectively, and capped the total rebate amount for innovator drugs at 100% of the Average Manufacturer Price, or AMP; (iv) expanded the eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new eligibility categories for individuals with income at or below 133% (as calculated, it constitutes 138%) of the federal poverty level, thereby potentially increasing manufacturers Medicaid rebate liability; (v) addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for certain drugs and biologics that are inhaled, infused, instilled, implanted or injected; (vi) introduced a new Medicare Part D coverage gap discount program pursuant to which manufacturers must now agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturers outpatient drugs to be covered under Medicare Part D (increased from 50%, effective January 1, 2019, pursuant to the Bipartisan Budget Act of 2018); (vii) created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and (viii) established the Center for Medicare and Medicaid Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drugs.
Since the ACA was enacted, there have been numerous judicial and Congressional challenges to certain aspects of the ACA, some of which remain unresolved, as well as efforts by the current administration to repeal or replace certain aspects of the ACA. By way of example, the Tax Cuts and Jobs Act of 2017, or Tax Act, includes a provision that repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the individual mandate. In addition, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the ACA-mandated Cadillac tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax. The Bipartisan Budget Act of 2018, or the BBA, among other things, amended the ACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the donut hole. In December 2018, CMS published a new final rule permitting further collections and payments to and from certain ACA qualified health plans and health insurance issuers under the ACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. On April 27, 2020, the United States Supreme Court reversed a federal circuit court decision that previously upheld Congress denial of $12 billion in risk corridor funding. On December 14, 2018, a Texas United States District Court Judge ruled that the ACA is unconstitutional in its entirety because the individual
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mandate was repealed by Congress as part of the Tax Act. Additionally, on December 18, 2019, the United States Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case, and oral arguments occurred on November 10, 2020 with a decision expected sometime in 2021. It is unclear how such litigation and other efforts to repeal and replace the ACA will impact the ACA or our business, financial condition and results of operations.
Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of 2% per fiscal year pursuant to the Budget Control Act of 2011, which began in 2013, and due to subsequent legislative amendments to the statute, will remain in effect through 2030, with the exception of temporary suspension from May 1, 2020 through March 31, 2021, unless additional Congressional action is taken. The American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws and similar future legislative initiatives may result in additional reductions in Medicare and other healthcare funding that could have an adverse effect on customers for our product candidates, if approved, and, accordingly, our financial operations.
Additionally, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level, the current administrations budget proposal for fiscal year 2021 includes a $135 billion allowance (over a period of time) to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the current administration sent principles for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical price increases. Further, the current administration previously released a plan to lower drug prices and reduce out-of-pocket costs of drugs that contained proposals to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out-of-pocket costs of drug products paid by consumers. The HHS has solicited feedback on some of these measures and has implemented others under its existing authority.
On July 24, 2020 and September 13, 2020, President Trump announced a number of executive orders related to prescription drug pricing that collectively attempt to implement several of the administrations proposals, including, among other proposals, a policy that would impose most favored nation pricing for prescription drugs reimbursed by Medicare Parts B and D and a directive for HHS to make changes allowing for personal importation of drugs from Canada and to finalize the rulemaking process to modify the federal Anti-Kickback Statute safe harbors to address pharmaceutical manufacturer rebates provided to health plans and pharmacy benefit managers, or PBMs. On November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through PBMs, unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for fixed fees to PBMs for certain services rendered to manufacturers. The probability of success of the other recently announced policies under the
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current administration, which would require additional authorization to be effective, and their impact on our products, if approved, is uncertain.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
We expect that these and other healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product candidate. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our drugs, and could have a material adverse effect on our business, financial condition, and results of operations.
Our business activities will be subject to the Foreign Corrupt Practices Act, or FCPA, and similar anti-bribery and anti-corruption laws.
As we engage in and expand our business activities outside of the United States, including our clinical trial efforts, we will be subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate. The FCPA generally prohibits offering, promising, giving, or authorizing others to give anything of value, either directly or indirectly, to a non-United States government official in order to influence official action, or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-United States governments. Additionally, in many other foreign jurisdictions, the healthcare providers who prescribe pharmaceuticals are employed by their government, and the purchasers of pharmaceuticals are government entities; therefore, our dealings with these prescribers and purchasers will be subject to regulation under the FCPA. Recently the SEC and Department of Justice have increased their FCPA enforcement activities with respect to biotechnology and pharmaceutical companies. There is no certainty that all of our employees, agents, suppliers, manufacturers, contractors, or collaborators, or those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity and variability of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers, or our employees, the closing down of facilities, including those of our suppliers and manufacturers, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or more countries as well as difficulties in manufacturing or continuing to develop our products, and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, and our business, prospects, operating results, and financial condition.
Inadequate funding for the FDA, the SEC and other government agencies, including from government shut downs, global health concerns or other disruptions to these agencies operations, could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed
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or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes. Average review times at the FDA have fluctuated in recent years as a result. Disruptions at the FDA and other agencies may also slow the time necessary for new product candidates to be reviewed and/or approved by necessary government agencies, which could adversely affect our business. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new product candidates to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
Separately, in response to the COVID-19 pandemic, on March 10, 2020 the FDA announced its intention to postpone most inspections of foreign manufacturing facilities and products while local, national and international conditions warrant. On March 18, 2020, the FDA announced its intention to temporarily postpone routine surveillance inspections of domestic manufacturing facilities and provided guidance regarding the conduct of clinical trials which the FDA continues to update. As of June 23, 2020, the FDA noted it was continuing to ensure timely reviews of applications for medical products during the COVID-19 pandemic in line with its user fee performance goals and conducting mission critical domestic and foreign inspections to ensure compliance of manufacturing facilities with FDA quality standards. As of July 2020, FDA began utilizing a risk-based prioritization system to assist in determining when and where it is safest to conduct such inspections based on data about the virus trajectory in a given state and locality and the rules and guidelines that are put in place by state and local governments. In August 2020, FDA published guidance outlining its approach to facility inspections during the COVID-19 pandemic. According to the guidance, FDA intends to, on a case-by-case basis, conduct only mission critical inspections, or, where possible to do so safely, resume prioritized domestic inspections, which generally include pre-approval inspections. Foreign pre-approval inspections that are not deemed mission-critical will continue to be postponed, while those deemed mission-critical will be considered for inspection on a case-by-case basis. FDA plans to use similar criteria to determine whether or not to resume prioritized operations abroad as it becomes feasible and advisable to do so. According to the guidance, should FDA determine that an inspection is necessary for approval and an inspection cannot be completed during the review cycle due to restrictions on travel, FDA has stated that it generally intends to issue a complete response letter. Further, if there is inadequate information to make a determination on the acceptability of a facility, FDA intends to defer action on the application until an inspection can be completed. In 2020, several companies announced receipt of complete response letters due to the FDAs inability to complete required inspections for their applications. Additionally, regulatory authorities outside the U.S. may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic and may experience delays in their regulatory activities. If a prolonged government shutdown or other disruption occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Future shutdowns or other disruptions could also affect other government agencies such as the
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SEC, which may also impact our business by delaying review of our public filings, to the extent such review is necessary, and our ability to access the public markets.
Our business operations and current and future relationships with investigators, health care professionals, consultants, third-party payors and customers may be subject, directly or indirectly, to U.S. federal and state healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, other healthcare laws and regulations and other foreign privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
Although we do not currently have any therapies on the market, our current and future operations may be directly, or indirectly through our relationships with investigators, health care professionals, customers and third-party payors, subject to various U.S. federal and state healthcare laws and regulations. Healthcare providers, physicians and others play a primary role in the recommendation and prescription of any therapies for which we obtain marketing approval. These laws impact, among other things, our research activities and proposed sales, marketing and education programs and constrain our business and financial arrangements and relationships with third-party payors, healthcare professionals who participate in our clinical research program, healthcare professionals and others who recommend, purchase, or provide our approved therapies, and other parties through which we market, sell and distribute our therapies for which we obtain marketing approval. In addition, we may be subject to patient data privacy and security regulation by both the U.S. federal government and the states in which we conduct our business, along with foreign regulators (including European data protection authorities). Finally, our current and future operations are subject to additional healthcare-related statutory and regulatory requirements and enforcement by foreign regulatory authorities in jurisdictions in which we conduct our business. These laws include, but are not limited to, the following:
| the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration (including any kickback, bribe, or certain rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under U.S. 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. Violations are subject to significant civil and criminal fines and penalties for each violation, plus up to three times the remuneration involved, imprisonment, and exclusion from government healthcare programs. The definition of the remuneration under the federal Anti-Kickback Statute has been interpreted to include anything of value. Further, courts have found that if one purpose of remuneration is to induce referrals, the federal Anti-Kickback Statute is violated. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution; but the exceptions and safe harbors are drawn narrowly and require strict compliance in order to offer protection; |
| the federal civil and criminal false claims laws, such as the FCA, which prohibits individuals or entities from, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment to, or approval by Medicare, Medicaid, or other federal healthcare programs, knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim or an obligation to pay or transmit money to the federal government, or knowingly concealing or knowingly and improperly avoiding or decreasing or concealing an obligation to pay money to the U.S. federal government. Manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to cause the submission of false or fraudulent claims. In addition, the |
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government may assert that a claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act, or the FCA. The FCA also permits a private individual acting as a whistleblower to bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery. When an entity is determined to have violated the FCA, the government may impose civil fines and penalties for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs; |
| the federal civil monetary penalties laws, which impose civil fines for, among other things, the offering or transfer or remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiarys selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health care program, unless an exception applies; |
| the U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (i.e., public or private), and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements, in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual knowledge of the statute or specific intent to violate it; |
| HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, which imposes certain obligations, with respect to safeguarding the privacy, security and transmission of individually identifiable health information without appropriate authorization by covered entities, such as health plans, healthcare clearinghouses and certain healthcare providers, as well as their business associates that perform certain services involving such individually identifiable health information. Mandatory penalties for HIPAA violations can be significant. A single breach incident can result in violations of multiple standards. If a person knowingly or intentionally obtains or discloses PHI in violation of HIPAA requirements, criminal penalties may also be imposed; |
| the Federal Food, Drug and Cosmetic Act, or FDC Act, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices; |
| the U.S. federal legislation commonly referred to as Physician Payments Sunshine Act, and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Childrens Health Insurance Program to report annually to the CMS information related to certain payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Effective January 1, 2022, these reporting obligations will extend to include transfers of value made during the previous year to certain non-physician providers such as physician assistants and nurse practitioners; |
| analogous state laws and regulations, including the following: state anti-kickback and false claims laws, which may be broader in scope than their federal equivalents, and which may apply to our business practices, including research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise |
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restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, and/or require tracking gifts and other remuneration and items of value provided to healthcare professionals and entities; state and local laws that require the registration of pharmaceutical sales representatives 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; and |
| the European and other foreign law equivalents of each of these laws, including reporting requirements detailing interactions with and payments to healthcare providers, and privacy-related requirements in Europe and other jurisdictions. |
The distribution of pharmaceutical products is subject to additional requirements and regulations, including approval, extensive record-keeping, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Even if precautions are taken, it is possible that governmental authorities will conclude that our business practices including compensation of physicians with stock or stock options, could, despite efforts to comply, be subject to challenge under current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion of drugs from government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, reputational harm and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, that person or entity may be subject to significant criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Prohibitions or restrictions on sales or withdrawal of future marketed products could materially affect our business in an adverse way.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our managements attention from the operation of our business. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third
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parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.
Although we maintain workers compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.
Failure to comply with current or future national, supranational, federal or state laws and regulations, regulatory guidance and industry standards relating to data protection, privacy and information security, including restrictive European regulations, could lead to government enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business.
We and our collaborators and third-party providers are subject to national, supranational, federal or state laws and regulations, regulatory guidance and industry standards relating to data protection, privacy and information security. This includes the EU General Data Protection Regulation, or GDPR, as well as other national data protection legislation in force in relevant EU and EEA member states (including the Data Protection Act 2018 in the United Kingdom), which governs the collection, use, storage, disclosure, transfer, or other processing of personal data (including health data processed in the context of clinical trials) (i) regarding individuals in the EU and EEA, and/or (ii) carried out in the context of the activities of our establishment in any EU and EEA member state. Following the United Kingdoms withdrawal from the EU on January 31, 2020, pursuant to the transitional arrangements agreed between the United Kingdom and the EU, the GDPR continued to have effect in English law until December 31, 2020, in the same fashion as was the case prior to that withdrawal as if the United Kingdom remained an EU member state for such purposes. The United Kingdom has implemented laws that are equivalent to the GDPR in national legislation. As such, following December 31, 2020, the data protection obligations of the GDPR will continue to apply to our processing of personal data in substantially unvaried form, for at least the short to medium term thereafter.
The GDPR is wide-ranging in scope and imposes numerous additional requirements on companies that process personal data, including imposing special requirements in respect of the processing of health and other sensitive data, requiring that consent of individuals to whom the personal data relates is obtained in certain circumstances, requiring additional disclosures to individuals regarding data processing activities, requiring that safeguards are implemented to protect the security and confidentiality of personal data, creating mandatory data breach notification requirements in certain circumstances, and requiring that certain measures (including contractual requirements) are put in place when engaging third-party processors. The GDPR defines personal data to include coded data and imposes high thresholds for informed consent and detailed notices for clinical trial subjects and investigators. The GDPR provides individuals with various rights in respect of their personal data, including rights of access, erasure, portability, rectification, restriction and objection. EU data
protection authorities may impose large penalties for violations of the data protection laws, including potential fines of up to 20 million or 4% of annual global revenue, whichever is greater.
The GDPR imposes strict rules on the transfer of personal data to countries outside the EEA and Switzerland, including the United States. For example, in July 2020, the Court of Justice of the European Union limited how organizations could lawfully transfer personal data from the EEA to the United States by invalidating the EU-US Privacy Shield and imposing further restrictions on use of the standard contractual clauses, which could
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increase our costs and our ability to efficiently process personal data from the EEA. The United Kingdom and Switzerland have adopted similar restrictions. Since January 1, 2021, the United Kingdom is considered a third country by the EU. The EU does not currently recognize the United Kingdom as having adequate laws to the protect the rights and freedoms of data subjects such that personal data may transfer to from the EU to the United Kingdom without an approved transfer mechanism.
The GDPR may increase our responsibility and liability in relation to personal data that we process where such processing is subject to the GDPR. While we have taken steps to comply with the GDPR, and implementing legislation in applicable EU member states, including by seeking to establish appropriate lawful bases for the various processing activities we carry out as a controller or joint controller, reviewing our security procedures and those of our vendors and collaborators, and entering into data processing agreements with relevant vendors and collaborators, we cannot be certain that our efforts to achieve and remain in compliance have been, and/or will continue to be, fully successful. Given the breadth and depth of changes in data protection obligations, preparing for and complying with the GDPR and similar laws, requirements are rigorous and time intensive and require significant resources and a review of our technologies, systems and practices, as well as those of any third-party collaborators, service providers, contractors or consultants that process or transfer personal data.
In the United States, numerous federal and state laws and regulations, including federal health information privacy laws, state data breach notification laws, state health information privacy laws and federal and state consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations or the operations of our collaborators and third-party providers. For example, California recently enacted the California Consumer Privacy Act, or the CCPA, which became effective on January 1, 2020. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. Additionally, the California Privacy Rights Act, or the CPRA, recently passed in California, which will amend the CCPA to impose additional data protection obligations on companies doing business in California, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. The majority of the provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required. In the United States, states are constantly amending existing laws, requiring attention to frequently changing regulatory requirements.
Many international laws, including the GDPR, require businesses to notify regulators and data subjects in the event of a data breach. Meanwhile, in the United States, all 50 states of the United States require businesses to provide notice to customers whose personal data has been disclosed as a result of a data breach. These laws are not consistent, and compliance in the event of a widespread data breach is costly.
In many jurisdictions, enforcement actions and consequences for non-compliance with protection, privacy and information security laws and regulations are rising. The authorities have shown a willingness to impose significant fines and issue orders preventing the processing of personal data on non-compliant businesses. Data subjects also have a private right of action, as do consumer associations, to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of applicable data protection laws. In the United States, possible consequences for non-compliance include enforcement actions in response to rules and regulations promulgated under the authority of federal agencies and state attorneys general and legislatures and consumer protection agencies. In addition, privacy advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards that
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may legally or contractually apply to us. If we fail to follow these security standards, even if no customer information is compromised, we may incur significant fines or experience a significant increase in costs.
The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by applicable regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our managements attention from the operation of our business. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.
The global data protection landscape is rapidly evolving, and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. This evolution may create uncertainty in our business, affect our or our CROs, collaborators, service providers and other contractors ability to operate in certain jurisdictions or to collect, store, transfer use and share personal information, necessitate the acceptance of more onerous obligations in our contracts, result in liability or impose additional costs on us.
Failure by us or our collaborators and third-party providers to comply with data protection laws and regulations could result in government enforcement actions (which could include civil or criminal penalties), private litigation and/or adverse publicity and could negatively affect our operating results and business. Moreover, clinical trial subjects about whom we or our potential collaborators obtain information, as well as the providers who share this information with us, may contractually limit our ability to use and disclose the information. Claims that we have violated individuals privacy rights, failed to comply with data protection laws or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend, could result in adverse publicity and could have a material adverse effect on our business, financial condition, results of operations and prospects.
Risks related to our intellectual property
Risks related to protecting our intellectual property
If we fail to comply with our current or future obligation in any agreements under which we may license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our future licensors, we could lose license rights that are important to our business.
We currently are, and in the future may continue to be, party to license or collaboration agreements with third parties to advance our research or allow commercialization of ATL001 or any future product candidates. In particular, we are party to a license agreement, or the CRT Agreement, with Cancer Research Technology Limited, to obtain exclusive and non-exclusive licenses under certain patents, know-how, data, and information relating to a multi-institution study known as the TRACERx Study, focused on advanced NSCLC. We rely on this license for the development of ATL001 and may rely on it for future product candidates, and we rely on the data from TRACERx to continue to improve our PELEUS platform. The CRT Agreement and other future agreements may impose, and may continue to impose, numerous obligations, such as development, diligence, payment, commercialization, funding, milestone, royalty, sublicensing, insurance, patent prosecution, enforcement and other obligations on us and may require us to meet development timelines, or to exercise commercially reasonable efforts to develop and commercialize approved products, in order to maintain the licenses. In spite of our best efforts, our current and future licensors might conclude that we have materially breached our future license agreements and might therefore terminate the license agreements, thereby removing or limiting our ability to develop and commercialize products and technologies covered by these license agreements.
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Any termination of the CRT Agreement or future licenses, or if the underlying patents or applications fail to provide the intended exclusivity, could result in the loss of significant rights and could harm our ability to commercialize ATL001 and any future product candidates and we may be required to cease our development and commercialization of certain of our product candidates. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.
Disputes may also arise between us and our future licensors regarding intellectual property subject to a license agreement, including:
| the scope of rights granted under the license agreement and other interpretation-related issues; |
| whether and the extent to which our technology and processes infringe, misappropriate or otherwise violate intellectual property rights of the licensor that are not subject to the licensing agreement; |
| our right to sublicense patent and other rights to third parties under collaborative development relationships; |
| our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates, and what activities satisfy those diligence obligations; |
| the right to claim priority of invention of any patented technology; and |
| the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our future licensors and us and our partners. |
In addition, the agreements under which we license intellectual property or technology from third parties, and which we may continue to license in the future, are and may be complex, and certain provisions in such agreements may be susceptible to multiple interpretations. 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 may license in the future prevent or impair our ability to maintain future licensing arrangements on 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.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to the protection afforded by patents we may own or in-license in the future, we seek to rely on trade secret protection, in particular in relation to our proprietary VELOS manufacturing process and PELEUS bioinformatics platform, confidentiality agreements, and license agreements to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our product discovery and development processes. Although we require all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information, or technology to enter into confidentiality agreements, trade secrets can be difficult to protect and we have limited control over the protection of trade secrets used by our collaborators and suppliers. We cannot be certain that we have or will obtain these agreements in all circumstances and we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary information.
Moreover, any of these parties might breach the agreements and intentionally or inadvertently disclose our trade secret information and we may not be able to obtain adequate remedies for such breaches. In addition,
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competitors may otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Furthermore, the laws of some foreign countries do not protect proprietary rights and trade secrets to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent unauthorized material disclosure of our intellectual property to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, financial condition, results of operations and future prospects.
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. If we choose to go to court to stop a third party from using any of our trade secrets, we may incur substantial costs. These lawsuits may consume our time and other resources even if we are successful. Although we take steps to protect our proprietary information and trade secrets, including through contractual means with our employees and consultants, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us.
Thus, we may not be able to meaningfully protect our trade secrets, in particular those relating to our proprietary VELOS manufacturing process or PELEUS bioinformatics platform. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual or entity during the course of the partys relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In addition, we take other appropriate precautions, such as physical and technological security measures, to guard against misappropriation of our proprietary technology by third parties. In the case of employees, the agreements provide that all inventions conceived by the individual, and which are related to our current or planned business or research and development or made during normal working hours, on our premises or using our equipment or proprietary information, are our exclusive property. Although we require all of our employees to assign their inventions to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Third-party claims of intellectual property infringement, misappropriation or other violations may be costly and time-consuming and may prevent or delay our product discovery and development efforts.
Third parties may initiate legal proceedings alleging that we are infringing, misappropriating, or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business. Our commercial success depends upon our ability to develop or manufacture our current product candidate in the indications we are currently targeting or any follow-on indications as well as any future product candidates and use our proprietary technologies without infringing, misappropriating or otherwise violating the intellectual property rights of third parties. There is a substantial amount of litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including derivation, interference, reexamination, inter partes review, and post grant review proceedings before the USPTO or
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oppositions and other comparable proceedings in foreign jurisdictions. We or any of our future licensors or strategic partners may be party to, exposed to, or threatened with, future adversarial proceedings or litigation by third parties having patent or other intellectual property rights alleging that our current or future product candidates and/or proprietary technologies infringe, misappropriate or otherwise violate their intellectual property rights. We cannot assure you that ATL001 or future product candidates and other technologies that we have developed, are developing or may develop in the future do not or will not infringe, misappropriate or otherwise violate existing or future patents or other intellectual property rights owned by third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may give rise to claims of infringement of the patent rights of others. Moreover, it is not always clear to industry participants, including us, which patents cover various types of products or their methods of use or manufacture. Thus, because of the large number of patents issued and patent applications filed in our fields, there may be a risk that third parties may allege they have patent rights encompassing our product candidates, technologies or methods.
If a third party claims that we infringe, misappropriate or otherwise violate its intellectual property rights, we may face a number of issues, including, but not limited to:
| infringement, misappropriation and other intellectual property claims which, regardless of merit, may be expensive and time-consuming to litigate and may divert our managements attention from our core business and may impact our reputation; |
| substantial damages for infringement, misappropriation or other violations, which we may have to pay if a court decides that the product candidate or technology at issue infringes, misappropriates or violates the third partys rights, and, if the court finds that the infringement was willful, we could be ordered to pay treble damages and the patent owners attorneys fees; |
| a court order prohibiting us from developing, manufacturing, marketing or selling our product candidates, or from using our proprietary technologies, unless the third party licenses its product rights to us, which it is not required to do, on commercially reasonable terms or at all; |
| if a license is available from a third party, we may have to pay substantial royalties, upfront fees and other amounts, and/or grant cross-licenses to intellectual property rights for our products, or the license to us may be non-exclusive, which would permit third parties to use the same intellectual property to compete with us; |
| redesigning our product candidates or processes so they do not infringe, misappropriate or violate third party intellectual property rights, which may not be possible or may require substantial monetary expenditures and time; and |
| there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and, if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of the ADSs. |
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations or could otherwise have a material adverse effect on our business, results of operations, financial condition and prospects. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition, results of operations or prospects.
We may choose to challenge the patentability of claims in a third partys U.S. patent by requesting that the USPTO review the patent claims in an ex-parte re-exam, inter partes review or post-grant review proceedings.
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These proceedings are expensive and may consume our time or other resources. We may choose to challenge a third partys patent in patent opposition proceedings in the EPO, or other foreign patent office. The costs of these opposition proceedings could be substantial, and may consume our time or other resources. If we fail to obtain a favorable result at the USPTO, EPO or other patent office then we may be exposed to litigation by a third party alleging that the patent may be infringed by our product candidates or proprietary technologies.
Third parties may assert that we are employing their proprietary technology without authorization. Patents issued in the United States by law enjoy a presumption of validity that can be rebutted only with evidence that is clear and convincing, a heightened standard of proof. There may be issued third-party patents of which we are currently unaware with claims to compositions, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Patent applications can take many years to issue. In addition, because some patent applications in the United States may be maintained in secrecy until the patents are issued, patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, and publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications covering our product candidates or technology. If any such patent applications issue as patents, and if such patents have priority over our patent applications or patents we may own or in-license, we may be required to obtain rights to such patents owned by third parties which may not be available on commercially reasonable terms or at all, or may only be available on a non-exclusive basis. There may be currently pending patent applications which may later result in issued patents that our product candidates may infringe. It is also possible that patents owned by third parties of which we are aware, but which we do not believe are relevant to our product candidates or other technologies, could be found to be infringed by our product candidates or other technologies. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. Moreover, we may fail to identify relevant patents or incorrectly conclude that a patent is invalid, not enforceable, exhausted, or not infringed by our activities. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of our product candidates, molecules used in or formed during the manufacturing process, or any final product itself, the holders of any such patents may be able to block our ability to commercialize the product candidate unless we obtained a license under the applicable patents, or until such patents expire or they are finally determined to be held invalid or unenforceable. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy or patient selection methods, the holders of any such patent may be able to block our ability to develop and commercialize the product candidate unless we obtained a license or until such patent expires or is finally determined to be held invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, or at all, our ability to commercialize our product candidates may be impaired or delayed, which could in turn significantly harm our business. Even if we obtain a license, it may be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, if the breadth or strength of protection provided by our patent applications or any patents we may own or in-license in the future is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.
Parties making claims against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our product candidates. Defense of these claims, regardless of their merit, could involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement, misappropriation or other violation against us, we may have to pay substantial damages, including treble
damages and attorneys fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which may be impossible or require substantial time and
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monetary expenditure. We cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need or may choose to obtain licenses from third parties to advance our research or allow commercialization of our product candidates. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize our product candidates, which could harm our business significantly.
If we are unable to obtain and maintain sufficient patent and other intellectual property protection for ATL001 and any future product candidates and technologies, our competitors could develop and commercialize products and technologies similar or equivalent to ours, and we may not be able to compete effectively in our market or successfully commercialize any product candidates we may develop.
Our success depends in significant part on our ability and the ability of our current or future collaborators and licensors to obtain, maintain, enforce and defend patents and other intellectual property rights with respect to ATL001 and any future product candidates and technology and to operate our business without infringing, misappropriating, or otherwise violating the intellectual property rights of others. If we and our current or future collaborators and licensors are unable to obtain and maintain sufficient intellectual property protection for ATL001 or other future product candidates that we may identify, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors and other third parties could develop and commercialize product candidates similar or equivalent to ours, and our ability to successfully commercialize our product candidates and other product candidates that we may pursue may be impaired.
Further, we may not be successful in obtaining or maintain necessary rights to product components and processes for our development pipeline through acquisitions and in-licenses. Presently we have rights to certain intellectual property, through licenses from third parties and under patent applications that we own or will own, related to use of data and materials from the TRACERx study, the use of clonal neoantigens and T cells in cell therapy, certain processes and devices used in our proprietary VELOS manufacturing process, aspects of our proprietary PELEUS bioinformatics platform and ATL001. Because any future product candidates may require the use of proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to acquire, in-license or use these proprietary rights.
ATL001 and any future product candidates may also require specific formulations to work effectively and efficiently and these rights may be held by others. Similarly, efficient production or delivery of our product candidates may also require specific compositions or methods, and the rights to these may be owned by third parties. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify as necessary or important to our business operations. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all, which would harm our business. We may need to cease use of the compositions or methods covered by such third-party intellectual property rights, and may need to seek to develop alternative approaches that do not infringe on such intellectual property rights which may entail additional costs and development delays, even if we were able to develop such alternatives, which may not be feasible. Even if we are able to obtain a license, it may be nonexclusive, thereby giving our competitors access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to develop or license replacement technology. Moreover, the molecules that may in the future be used with our product candidates may be covered by the intellectual property rights of others.
Additionally, we sometimes collaborate with academic institutions to accelerate our research activities or development under written agreements with these institutions. In certain cases, these institutions provide us with an option to negotiate a license to any of the institutions rights in technology resulting from the
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collaboration. Regardless of such option, we may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to others, potentially blocking our ability to pursue our program and allowing third parties to compete with us. If we are unable to successfully obtain rights to required third-party intellectual property or to maintain the existing intellectual property rights we have, we may have to abandon development of such program and our business and financial condition could suffer.
The licensing and acquisition of third-party intellectual property rights is a competitive area, and companies, which may be more established, or have greater resources than we do, may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider necessary or attractive in order to commercialize our product candidates. More established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all. There can be no assurance that we will be able to successfully complete such negotiations and ultimately acquire the rights to the intellectual property surrounding the additional product candidates that we may seek to acquire. If we are unable to successfully obtain rights to required third-party intellectual property or to maintain the existing intellectual property rights we have, we may have to abandon development of such program and our business, results of operations, financial condition and prospects could suffer.
Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other government fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process and following the issuance of a patent. While an inadvertent lapse can in some 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. Noncompliance events that could result in abandonment or lapse of a patent include, but are not limited to, failure to respond to official actions or carry out the required acts within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market with similar or equivalent products or platforms, which could have a material adverse effect on our business prospects and financial condition.
If we do not obtain patent term extension and data exclusivity for ATL001 or any future product candidates we may develop, our business may be materially harmed.
Depending upon the timing, duration and specifics of any FDA marketing approval of any of our current or future product candidates we may develop, one or more U.S. patents we may own or in-license in the future may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. However, we may not be
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granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is shorter than what we request, our competitors may obtain approval of competing products following expiration of any patents that issue from our patent applications, and our business, financial condition, results of operations, and prospects could be materially harmed.
Changes to patent law in the United States and in foreign jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other biopharmaceutical companies, our success is dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we might obtain in the future. For example, in the case Assoc. for Molecular Pathology v. Myriad Genetics, Inc., the U.S. Supreme Court held that certain claims to DNA molecules are not patentable. Any adverse changes in the patent laws of other jurisdictions could have a material adverse effect on our business and financial condition. Changes in the laws and regulations governing patents in other jurisdictions could similarly have an adverse effect on our ability to obtain and effectively enforce any rights we may have in our patent applications or any patents we may own or in-license in the future.
Recent or future patent reform legislation could also increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any patents we may own or in-license in the future. The United States has enacted and implemented wide-ranging patent reform legislation. On September 16, 2011, the Leahy-Smith America Invents Act, or America Invents Act, was signed into law, which includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art, may affect patent litigation, establish a new post-grant review system and switch the U.S. patent system from a first-to-invent system to a first-to-file system. Under a first-to-file system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to a patent on the invention regardless of whether another inventor had made the invention earlier. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we were the first to either: (i) file any patent application related to our product candidates or other technologies; or (ii) invent any of the inventions claimed in our patent applications or any patents we may own or in-license. These changes also allow third party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. An adverse determination in any such proceeding could reduce the scope of, or invalidate,
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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. Accordingly, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any issued patents we may own or in-license in the future, all of which could have a material adverse effect on our business and financial condition.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our marks of interest and our business may be adversely affected.
Our trademarks or trade names may be challenged, infringed, diluted, circumvented or declared generic or determined to be infringing on other marks. We intend to rely on both registration and common law protection for our trademarks. We may not be able to protect our rights to these trademarks and trade names or may be forced to stop using these names, which we need for name recognition by potential partners or customers in our markets of interest. During the trademark registration process, we may receive Office Actions from the USPTO objecting to the registration of our trademark. Although we would be given an opportunity to respond to those objections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and/or to seek the cancellation of registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we are unable to obtain a registered trademark or establish name recognition based on our trademarks and trade names, we may not be able to compete effectively and our business may be adversely affected.
Numerous factors may limit any potential competitive advantage provided by our intellectual property rights.
The degree of future protection afforded by our intellectual property rights, whether owned or in-licensed, is uncertain because intellectual property rights have limitations, and may not adequately protect our business, provide a barrier to entry against our competitors or potential competitors, or permit us to maintain our competitive advantage. Moreover, if a third party has intellectual property rights that cover the practice of our technology, we may not be able to fully exercise or extract value from our intellectual property rights. The following examples are illustrative:
| patent applications that we own or may in-license in the future may not lead to issued patents; |
| patents, should they issue, that we may own or in-license in the future, may not provide us with any competitive advantages, may be narrowed in scope, or may be challenged and held invalid or unenforceable; |
| others may be able to develop and/or practice technology that is similar to our technology or aspects of our technology but that is not covered by the claims of any patents we may own or in-license in the future, should any patents issue; |
| third parties may compete with us in jurisdictions where we do not pursue and obtain patent protection; |
| we, or our future licensors or collaborators, might not have been the first to make the inventions covered by a patent application that we own or may in-license in the future; |
| we, or our future licensors or collaborators, might not have been the first to file patent applications covering a particular invention; |
| others may independently develop similar or alternative technologies without infringing, misappropriating or otherwise violating our intellectual property rights; |
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| our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights, and may then use the information learned from such activities to develop competitive products for sale in our major commercial markets; |
| we may not be able to obtain and/or maintain necessary licenses on reasonable terms or at all; |
| third parties may assert an ownership interest in our intellectual property and, if successful, such disputes may preclude us from exercising exclusive rights, or any rights at all, over that intellectual property; |
| we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such trade secrets or know-how; |
| we may not be able to maintain the confidentiality of our trade secrets or other proprietary information; |
| we may not develop or in-license additional proprietary technologies that are patentable; and |
| the patents of others may have an adverse effect on our business. |
Should any of these events occur, they could significantly harm our business, financial condition, results of operations and prospects.
Risks related to intellectual property litigation
We may be involved in lawsuits to protect or enforce our intellectual property rights, including any patents we may own or in-license in the future, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe any patents we may own or in-license in the future. In addition, any patents we may own or in-license also may become involved in inventorship, priority, validity or unenforceability disputes. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. In addition, in an infringement proceeding, a court may decide that one or more of any patents we may own or in-license in the future is not valid or is unenforceable or that the other partys use of our technology that may be patented falls under the safe harbor to patent infringement under 35 U.S.C. §271(e)(1). There is also the risk that, even if the validity of these patents is upheld, the court may refuse to stop the other party from using the technology at issue on the grounds that any patents we may own or in-license in the future do not cover the technology in question or that such third partys activities do not infringe our patent applications or any patents we may own or in-license in the future. An adverse result in any litigation or defense proceedings could put one or more of any patents we may own or in-license in the future at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. Such litigation or proceedings could substantially increase our operating losses and
reduce the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. 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. 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.
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Post-grant proceedings provoked by third parties or brought by the USPTO may be necessary to determine the validity or priority of inventions with respect to our patent applications or any patents we may own or in-license in the future. These proceedings are expensive and an unfavorable outcome could result in a loss of our current patent rights and could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. In addition to potential USPTO review proceedings, we may become a party to patent opposition proceedings in the European Patent Office, or EPO, or similar proceedings in foreign patent offices, where our foreign patents are challenged. The costs of these opposition or similar proceedings could be substantial, and may result in a loss of scope of some claims or a loss of the entire patent. An unfavorable result at the USPTO, EPO or other patent office may result in the loss of our right to exclude others from practicing one or more of our inventions in the relevant country or jurisdiction, which could have a material adverse effect on our business.
Litigation or post-grant proceedings may result in a decision adverse to our interests and, even if we are successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent 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.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, 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 the ADSs.
We may not be able to detect infringement against any patents we may own or in-license in the future. Even if we detect infringement by a third party of any patents we may own or in-license in the future, we may choose not to pursue litigation against or settlement with the third party. If we later sue such third party for patent infringement, the third party may have certain legal defenses available to it, which otherwise would not be available except for the delay between when the infringement was first detected and when the suit was brought. Such legal defenses may make it impossible for us to enforce any patents we may own or in-license against such third party.
Any issued patents we may own or in-license in the future covering ATL001 or any future product candidates could be narrowed or found invalid or unenforceable if challenged in court or before administrative bodies in the United States or abroad, including the USPTO.
If we or our future licensors or strategic partners initiate legal proceedings against a third party to enforce a patent covering ATL001 or any future product candidates, the defendant could counterclaim that the patent covering our product candidate, as applicable, is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of patentable subject matter, lack of written description, lack of novelty, obviousness, or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, inter partes review, post grant review and equivalent proceedings in foreign jurisdictions (such as opposition proceedings). Such proceedings could result in revocation or amendment to our patent applications or any patents we may own or in-license in
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the future in such a way that they no longer cover our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate or render unenforceable, any rights we may have from our patent applications or any patents we may own or in-license in the future, allow third parties to commercialize our product candidates or other technologies 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. Moreover, we may have to participate in interference proceedings declared by the USPTO to determine priority of invention or in post-grant challenge proceedings, such as oppositions in a foreign patent office, that challenge our priority of invention or other features of patentability with respect to our patent applications and any patents we may own or in-license. Such challenges may result in loss of patent rights, loss of exclusivity, or in patent claims being narrowed, invalidated, or held unenforceable, which could limit our ability to stop others from using or commercializing similar or equivalent technology and products, or limit the duration of the patent protection of our product candidates and other technologies. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we or our future licensing partners and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, or if we are otherwise unable to adequately protect our rights, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection could have a material adverse impact on our business and our ability to commercialize or license our technology and product candidates.
Such proceedings also may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us. If we are unsuccessful in any such proceeding or other priority or inventorship dispute, we may be required to obtain and maintain licenses from third parties, including parties involved in any such interference proceedings or other priority or inventorship disputes. Such licenses may not be available on commercially reasonable terms or at all, or may be non-exclusive. If we are unable to obtain and maintain such licenses, we may need to cease the development, manufacture, and commercialization of one or more of the product candidates we may develop. The loss of exclusivity or the narrowing of our patent application claims could limit our ability to stop others from using or commercializing similar or equivalent technology and products. Any of the foregoing could have a material adverse effect on our business, results of operations, financial condition and prospects.
We may be subject to claims challenging the inventorship or ownership of any intellectual property, including any patents we may own or in-license in the future.
We may be subject to claims that former employees, collaborators or other third parties have an interest in any patents we may own or in-license in the future, trade secrets, or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing ATL001 or any future product candidates or other technologies. We generally enter into confidentiality and intellectual property assignment agreements with our employees, consultants, and contractors. These agreements generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, those agreements may not be honored and may not effectively assign intellectual property rights to us. Moreover, there may be some circumstances, where we are unable to negotiate for such ownership rights. Disputes regarding ownership or inventorship of intellectual property can also arise in other contexts, such as collaborations and sponsored research. If we are subject to a dispute challenging our rights in or to patents or other intellectual property, such a dispute could be expensive and time-consuming. Litigation may be necessary to defend against these and other claims challenging inventorship of any patents we may own or in-license in the future, trade secrets or other intellectual property. If we were unsuccessful, in addition to paying monetary damages, we could lose valuable rights in intellectual property that we regard as our own, such as exclusive ownership of, or right to
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use, intellectual property that is important to our product candidates and other technologies. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information or alleged trade secrets of third parties or competitors or are in breach of non-competition or non-solicitation agreements with our competitors.
We have received confidential and proprietary information from third parties. In addition, as is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors, in some cases until recently. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information or trade secrets of these third parties or our employees former employers or our consultants or contractors current or former clients or customers. In addition, we have been and 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. Litigation or arbitration may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation or other legal proceedings relating to intellectual property claims and possible aftermath could result in substantial cost and be a distraction to our management and employees. Any litigation or the threat thereof may adversely affect our ability to hire employees.
A loss of key personnel or their work product could hamper or prevent our ability to commercialize product candidates, which could have an adverse effect on our business, results of operations and financial condition. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and, if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of the ADSs. This type of litigation or proceeding could substantially increase our operating losses and reduce our resources available for development activities. 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 substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other intellectual property-related proceedings could adversely affect our ability to compete in the marketplace.
Risks related to our reliance on third parties
We rely on third parties to conduct certain of our research and clinical trials. If these third parties do not properly and successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of or commercialize our product candidates.
We utilize and depend upon independent investigators and collaborators, such as medical institutions, CROs, CMOs, and strategic partners to conduct and support our certain of our research activities and clinical trials under agreements with us.
We expect to have to continue to negotiate budgets and contracts with CROs, trial sites and CMOs and we may not be able to do so on favorable terms, which may result in delays to our development timelines and increased costs. We will rely heavily on these third parties over the course of our research activities and clinical trials, and we control only certain aspects of their activities. As a result, we will have less direct control over the conduct,
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timing and completion of these research activities and clinical trials and the management of data developed through research activities and clinical trials than would be the case if we were relying entirely upon our own staff. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. We and these third parties are required to comply with GCPs, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product candidates in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these third parties fail to comply with applicable GCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, such regulatory authorities will determine that any of our clinical trials comply with the GCP regulations. In addition, supplies of our product candidates used in our clinical trials must be manufactured under cGMP regulations. Our failure or any failure by these third parties to comply with these regulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of these third parties performing services or otherwise acting on our behalf violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.
Any third parties conducting our clinical trials are not and will not be our employees and, except for remedies available to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical and preclinical product candidates. These third parties may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other product development activities, which could affect their performance on our behalf. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to complete development of, obtain regulatory approval of or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed.
Switching or adding third parties to conduct our research and clinical trials involves substantial cost and requires extensive management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. If we engage directly with third-party CROs and CMOs, we may incur additional costs or experience delays.
Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of employee fraud or other illegal activity by our employees, independent contractors, consultants, commercial partners and vendors. Misconduct by these parties could include intentional, reckless and negligent conduct that fails to: comply with the regulations of the FDA and other comparable foreign regulatory bodies, provide true, complete and accurate information to the FDA and other comparable foreign regulatory bodies, comply with manufacturing standards we have established, comply with healthcare fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws or report financial information or data accurately or to disclose unauthorized activities to us. If we obtain FDA approval
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of any of our product candidates and begin commercializing those products in the United States, our potential exposure under such laws and regulations will increase significantly, and our costs associated with compliance with such laws and regulations are also likely to increase. These laws may impact, among other things, our current activities with principal investigators and research patients, as well as proposed and future sales, marketing and education programs. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commission(s), certain customer incentive programs and other business arrangements generally.
Effective upon the closing of this offering, we will adopt a code of business conduct and ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent inappropriate conduct 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 be in compliance with such laws or regulations.
We may form or seek additional collaborations or strategic alliances or enter into additional licensing arrangements in the future, and we may not realize the benefits of such collaborations, alliances or licensing arrangements.
We may form or seek additional strategic alliances, create joint ventures or collaborations, or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates and any future product candidates that we may develop. Any of these relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing shareholders or disrupt our management and business.
In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for ATL001 and any future product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidates as having the requisite potential to demonstrate safety, potency, purity and efficacy and obtain marketing approval.
Further, collaborations involving ATL001 and any future product candidates are subject to numerous risks, which may include the following:
| collaborators have significant discretion in determining the efforts and resources that they will apply to a collaboration; |
| collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization of our product candidates based on clinical trial results, changes in their strategic focus due to the acquisition of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities; |
| collaborators may delay clinical trials, provide insufficient funding for a clinical trial, stop a clinical trial, abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; |
| collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates; |
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| a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to their marketing and distribution; |
| collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability; |
| disputes may arise between us and a collaborator that cause the delay or termination of the research, development or commercialization of our product candidates, or that result in costly litigation or arbitration that diverts management attention and resources; |
| collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates; and |
| collaborators may own or co-own intellectual property covering our products that results from our collaborating with them, and in such cases, we would not have the exclusive right to commercialize such intellectual property. |
As a result, if we enter into additional collaboration agreements and strategic partnerships or license ATL001 or any future product candidates, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Any delays in entering into new collaborations or strategic partnership agreements related to ATL001 or any future product candidates could delay the development and commercialization of our product candidates in certain geographies for certain indications, which would harm our business prospects, financial condition and results of operations.
Risks related to employee matters, managing our growth and other risks
Risks related to our employee matters
We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our key management, scientific and technical personnel, many of whom have been instrumental for us and have substantial experience in our therapies and related technologies.
The loss of the services of any of our executive officers, other key employees and other scientific and medical advisors, and an inability to find suitable replacements could result in delays in product development and harm our business.
To encourage valuable employees to remain at our company, in addition to salary, bonus scheme and our benefits package, we have provided shares for United Kingdom based employees and share options for U.S. employees that vest over time. The value to employees of shares and share options that vest over time may be significantly affected by movements in our share price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. Our success also depends on our ability to continue to attract, retain and motivate
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highly skilled junior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical personnel. To date this success has been geared towards building an attractive employee value proposition which puts culture at the heart of how we engage our people, This focus on soft retention elements has worked well to date and we are now beginning to explore wider incentive mechanisms to be in-line with the market.
Risks related to our business operations and growth
Insurance policies are expensive and protect us only from some business risks, which leaves us exposed to significant uninsured liabilities.
We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, employment practices liability, travel, property, umbrella, and directors and officers insurance.
Insurance coverage is becoming increasingly expensive and in the future we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.
We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers. We do not know, however, if we will be able to maintain existing insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.
The current outbreak of novel coronavirus, or COVID-19, has caused, and could continue to cause, severe disruptions in the global economy and could seriously harm our development efforts, increase our costs and expenses and have a material adverse effect on our business, financial condition and results of operations.
Broad-based business or economic disruptions could adversely affect our ongoing or planned research and development activities. For example, in December 2019, an outbreak of a novel strain of coronavirus, which causes coronavirus disease, or COVID-19, was reported to have surfaced in Wuhan, China, and in March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The pandemic and government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. There is a risk that government actions will not be effective at containing COVID-19 or other infectious diseases, and that government actions, including the orders and restrictions described above, that are intended to contain the spread of COVID-19 will have a devastating negative impact on the world economy at large, in which case the risks to our sales, operating results and financial condition described herein would be elevated significantly.
As a result of the COVID-19 pandemic, we have experienced and we expect to continue to experience disruptions that could severely impact our business, research and clinical trials, including:
| continued delays or difficulties in enrolling and retaining patients in our clinical trials; |
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| continued delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff; |
| delays in receiving authorizations from regulatory authorities to initiate our planned clinical trials; |
| diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials; |
| interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures (such as endoscopies that are deemed non-essential), which may impact the integrity of subject data and clinical trial endpoints; |
| risk that participants enrolled in our clinical trials will contract COVID-19 while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events; |
| risk that we are unable to enroll participants in our clinical trials in adequate numbers; |
| interruption or delays in the operations of the FDA or other regulatory authorities, which may impact review and approval timelines; |
| interruption of, or delays in, our manufacturing supply chain, including any inability to access or run the GMP manufacturing facility at the Royal Free Hospital; |
| interruptions in research activities due to restricted or limited operations at our laboratory facility; |
| delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees; |
| changes in local regulations as part of a response to the COVID-19 pandemic, which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue such clinical trials altogether; |
| limitations on employee resources that would otherwise be focused on the conduct of our research and clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people; and |
| interruption or delays to our sourced discovery and clinical activities. |
The global COVID-19 pandemic continues to rapidly evolve. The extent to which COVID-19 ultimately impacts our business, results of operations and financial condition will depend on future developments, which remain highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease,
duration of the outbreak, travel restrictions, new information that may emerge concerning the severity of COVID-19 or the effectiveness of actions taken in the United States and other countries to contain the pandemic or treat its impact, among others. In addition, recurrences or additional waves of COVID-19 cases could cause other widespread or more severe impacts depending on where infection rates are highest. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage, including the suppliers, clinical trial sites, service providers, regulators and other third parties with whom we conduct business, were to experience prolonged business shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially or negatively impacted, which could have a material adverse impact on our business, results of operations and financial condition.
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We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
As of December 31, 2020, we had 153 full-time employees and six part-time employees. As our development and commercialization plans and strategies develop, and as we transition into operating as a public company, we expect to need additional managerial, operational, sales, marketing, financial and other personnel, as well as additional facilities to expand our operations. Future growth would impose significant added responsibilities on members of management, including:
| identifying, recruiting, integrating, maintaining and motivating additional employees; |
| managing our internal development efforts effectively, including the clinical and FDA review process for our product candidates, while complying with our contractual obligations to contractors and other third parties; and |
| improving our operational, financial and management controls, reporting systems and procedures. |
Our future financial performance and our ability to commercialize ATL001 and any future product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.
If we are not able to effectively expand our organization by hiring new employees, consultants and/or contractors, or we are not able to effectively build out new facilities to accommodate this expansion, we may not be able to successfully implement the tasks necessary to further develop and commercialize ATL001 and any future product candidates and, accordingly, may not achieve our research, development and commercialization goals.
Risks related to our international operations
A variety of risks associated with operating our business internationally could materially adversely affect our business.
We plan to seek regulatory approval of ATL001 and any future product candidates outside of the United States and, accordingly, we expect that we, and any potential collaborators in those jurisdictions, will be subject to additional risks related to operating in foreign countries, including:
| differing regulatory requirements in foreign countries; |
| unexpected changes in tariffs, trade barriers, price and exchange controls, and other regulatory requirements; |
| economic weakness, including inflation, or political instability in particular foreign economies and markets; |
| compliance with tax, employment, immigration, and labor laws for employees living or traveling abroad; |
| foreign taxes, including withholding of payroll taxes; |
| foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country; |
| difficulties staffing and managing foreign operations; |
| workforce uncertainty in countries where labor unrest is more common than in the United States; |
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| potential liability under the FCPA, Office of Foreign Assets Control Anti-Money Laundering Program as required by the Bank Secrecy Act and its implementing regulations, or comparable foreign laws; |
| challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States; |
| production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and |
| business interruptions resulting from geo-political actions, including war and terrorism. |
These and other risks associated with our planned international operations may materially adversely affect our ability to attain or maintain profitable operations.
Our business is subject to economic, political, regulatory and other risks associated with international operations.
Our business is subject to risks associated with conducting business internationally. Accordingly, our future results could be harmed by a variety of factors, including the following:
| economic weakness, including inflation, political instability in particular in foreign economies and markets, and the potentially severe continued global economic impact caused by the COVID-19 pandemic; |
| differing regulatory requirements for drug approvals; |
| differing jurisdictions potentially presenting different issues for securing, maintaining or obtaining freedom to operate in such jurisdictions; |
| potentially reduced protection for intellectual property rights; |
| difficulties in compliance with different, complex and changing laws, regulations and court systems of multiple jurisdictions and compliance with a wide variety of foreign laws, treaties and regulations; |
| changes in regulations and customs, tariffs and trade barriers; |
| changes in currency exchange rates of the pound sterling, euro, U.S. dollar and currency controls; |
| changes in a specific countrys or regions political or economic environment; |
| trade protection measures, import or export licensing requirements or other restrictive actions by governments; |
| differing reimbursement regimes and price controls in certain international markets; |
| negative consequences from changes in tax laws; |
| compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; |
| workforce uncertainty in countries where labor unrest is more common than in the United States, United Kingdom and EU; |
| difficulties associated with staffing and managing international operations, including differing labor relations; |
| production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and |
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| business interruptions resulting from geo-political actions, including war, terrorism, pandemics, or natural disasters including earthquakes, typhoons, floods and fires. |
Claims of U.S. civil liabilities may not be enforceable against us.
We are incorporated under the laws of England and Wales. Most of the members of our senior management and certain members of our board of directors are non-residents of the United States, and all or a substantial portion of our assets and the assets of such persons are located outside the United States. As a result, it may not be possible to serve process on such persons or us in the United States or to enforce judgments obtained in U.S. courts against them or us based on civil liability provisions of the U.S. federal securities laws.
The United States and the United Kingdom do not currently have a treaty providing for recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Consequently, a final judgment for payment given by a court in the United States, whether or not predicated solely upon U.S. securities laws, would not automatically be recognized or enforceable in the United Kingdom. In addition, uncertainty exists as to whether the courts of England and Wales would entertain original actions brought in the United Kingdom against us or our directors or senior management predicated upon securities laws of the U.S. or any state in the United States. Any final and conclusive monetary judgment for a definite sum obtained against us in U.S. courts would be treated by the courts of England and Wales as a cause of action in itself and sued upon as a debt at common law so that no retrial of the issues would be necessary, provided that certain requirements are met. Whether these requirements are met in respect of a judgment based upon the civil liability provisions of the U.S. securities laws, including whether the award of monetary damages under such laws would constitute a penalty, is an issue for the court making such decision. If the courts of England and Wales give a judgment for the sum payable under a U.S. judgment, the English judgment will be enforceable by methods generally available for this purpose. These methods generally permit the courts of England and Wales discretion to prescribe the manner of enforcement.
As a result, U.S. investors may not be able to enforce against us or certain of our directors any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.
Fluctuations in the exchange rate between the U.S. dollar and the pound sterling may increase the risk of holding the ADSs and may materially affect our results of operations and financial condition.
The ADSs will trade on Nasdaq in U.S. dollars. Due to the international scope of our operations, our assets, earnings and cash flows are influenced by movements in exchange rates of several currencies, particularly the U.S. dollar, the pound sterling and the euro. Our reporting currency is denominated in U.S. dollars and our functional currency is the pound sterling (except that the functional currency of our U.S. subsidiaries is the U.S. dollar) and the majority of our operating expenses are paid in pound sterling. We also regularly acquire services, consumables and materials in U.S. dollars and the euro. Further potential future revenue may be derived from abroad, particularly from the United States. As a result, our business and the price of the ADSs may be affected by fluctuations in foreign exchange rates between the pound sterling and these other currencies, which may also have a significant impact on our results of operations and cash flows from period to period. Currently, we do not have any exchange rate hedging arrangements in place. See Note 2 in the notes to our annual financial statements appearing elsewhere in this prospectus for a description of foreign exchange risks.
The possible abandonment of the euro by one or more members of the European Union, or the EU, could materially affect our business in the future. Despite measures taken by the EU to provide funding to certain EU
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member states in financial difficulties and by a number of European countries to stabilize their economies and reduce their debt burdens, it is possible that the euro could be abandoned in the future as a currency by countries that have adopted its use. This could lead to the re-introduction of individual currencies in one or more EU member states, or in more extreme circumstances, the dissolution of the EU. The effects on our business of a potential dissolution of the EU, the exit of one or more EU member states from the EU or the abandonment of the euro as a currency, are impossible to predict with certainty, and any such events could have a material adverse effect on our business, financial condition and results of operations.
In addition, as a result of fluctuations in the exchange rate between the U.S. dollar and the pound sterling, the U.S. dollar equivalent of the proceeds that a holder of ADSs would receive upon the sale in the United Kingdom of any ordinary shares withdrawn from the depositary and the U.S. dollar equivalent of any cash dividends paid in euros on our ordinary shares represented by ADSs could also decline.
Risks related to this offering and ownership of the ADSs
Risks related to this offering
We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section entitled Use of proceeds, and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could result in financial losses, cause the price of the ADSs or ordinary shares to decline, and delay the development of ATL001 and any future product candidates. Pending their use, we may invest the net proceeds from the global offering in a manner that does not produce income or that loses value.
If you purchase the ADSs in this offering, you will incur immediate and substantial dilution in the book value of your shares.
We expect the initial public offering price of the ADSs in this offering to be substantially higher than the net tangible book value per share of the ADSs prior to this offering. Investors purchasing ADSs in this offering will pay a price per share that substantially exceeds the book value of our tangible assets after subtracting our liabilities. To the extent outstanding options are exercised for ordinary shares, investors may experience further dilution. Based on the assumed initial public offering price of $ per ADS, the midpoint of the price range set forth on the cover page of this prospectus, investors purchasing ADSs in this offering will incur immediate dilution of $ per share. Further, investors purchasing ADSs in this offering will contribute approximately % of the total amount invested by shareholders since our inception, but will own only approximately % of the total number of shares of the ADSs outstanding after this offering.
For a further description of the dilution that you will experience immediately after this offering, see the section of this prospectus entitled Dilution.
The price of the ADSs may be volatile and may fluctuate due to factors beyond our control, and you could lose all or part of your investment.
The trading price of the ADSs following this offering is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited trading
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volume. In addition to the factors discussed in this Risk factors section and elsewhere in this prospectus, these factors include:
| the results of our ongoing, planned or any future research, clinical trials or clinical development programs; |
| the commencement, enrollment, or results of clinical trials of our current programs, additional follow-on indications for ATL001 and any future clinical trials we may conduct, or changes in the development status of our product candidates; |
| adverse results or delays in research and clinical trials; |
| our decision to initiate a clinical trial, not to initiate a clinical trial, or to terminate an existing clinical trial; |
| any delay in our regulatory filings or any adverse regulatory decisions, including failure to receive regulatory approval of ATL001 or any future product candidates; |
| changes in laws or regulations applicable to our products, including but not limited to clinical trial requirements for approvals; |
| adverse developments concerning our manufacturers or our manufacturing plans; |
| our inability to obtain adequate product supply for any approved product or inability to do so at acceptable prices; |
| our inability to establish collaborations if needed; |
| our failure to commercialize our product candidates; |
| additions or departures of key scientific or management personnel; |
| unanticipated serious safety concerns related to the use of our product candidates; |
| introduction of new products or services offered by us or our competitors; |
| announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors; |
| our ability to effectively manage our growth; |
| the size and growth of our initial cancer target markets; |
| our ability to successfully treat additional types of cancers or at different stages; |
| actual or anticipated variations in quarterly operating results; |
| our cash position; |
| our failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public; |
| publication of research reports about us or our industry, or immunotherapy in particular, or positive or negative recommendations or withdrawal of research coverage by securities analysts; |
| changes in the market valuations of similar companies; |
| overall performance of the equity markets; |
| sales of the ADSs by us or our shareholders in the future; |
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| trading volume of the ADSs; |
| changes in accounting practices; |
| ineffectiveness of our internal controls; |
| disputes or other developments relating to intellectual property or proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies; |
| significant lawsuits, including intellectual property or shareholder litigation; |
| general political and economic conditions; and |
| other events or factors, many of which are beyond our control. |
In addition, the stock market in general, and the market for biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of the ADSs, regardless of our actual operating performance. If the market price of the ADSs after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of a companys securities. This type of litigation, if instituted, could result in substantial costs and a diversion of managements attention and resources, which would harm our business, financial condition, results of operation and future prospects.
Risks related to ownership of the ADSs
We do not know whether an active, liquid and orderly trading market will develop for the ADSs or what the market price of the ADSs will be and, as a result, it may be difficult for you to sell your ADSs at or above the initial public offering price.
Prior to this offering, there was no public trading market for the ADSs. Although we have applied to list the ADSs on Nasdaq, an active trading market for our shares may never develop or be sustained following this offering. You may not be able to sell your ADSs quickly or at the market price if trading the ADSs is not active. The initial public offering price for the ADSs will be determined through negotiations with the underwriters, and the negotiated price may not be indicative of the market price of the ADSs after the offering. As a result of these and other factors, you may be unable to resell your shares of the ADSs at or above the initial public offering price. Further, an inactive market may also impair our ability to raise capital by selling the ADSs and may impair our ability to enter into strategic partnerships or acquire companies or products by using the ADSs as consideration.
Our principal shareholders and management own a significant percentage of the ADSs and will be able to exert significant influence over matters subject to shareholder approval.
Prior to this offering, our executive officers, directors, and 5% shareholders beneficially owned approximately % of our voting shares as of , 2020, and, assuming the sale by us of ADSs in this offering, based on the initial public offering price of $ per share, and not accounting for any shares purchased in this offering by certain of our existing shareholders (or their affiliates), we anticipate that same group will hold approximately % of our outstanding voting shares following this offering (assuming no exercise of the underwriters option to purchase additional shares), without giving effect to any purchases that certain of these holders may make through our directed share program. Therefore, even
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after this offering, these shareholders will have the ability to influence us through this ownership position. These shareholders may be able to determine all matters requiring shareholder approval. For example, these shareholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for the ADSs that you may feel are in your best interest as one of our shareholders.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.
The trading market for the ADSs will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price for the ADSs would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrades the ADSs or publishes inaccurate or unfavorable research about our business, the price of the ADSs may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for the ADSs could decrease, which might cause the price of the ADSs and trading volume to decline.
We are an emerging growth company and a smaller reporting company, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies and smaller reporting companies will make the ADSs less attractive to investors.
In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Therefore, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this extended transition period and, as a result, we may adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-public companies instead of the dates required for other public companies. However, the Company may early adopt these standards.
In addition, as an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:
| the ability to present only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced Managements discussion and analysis of financial condition and results of operations disclosure; |
| an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act; and |
| an exemption from new or revised financial accounting standards until they would apply to private companies and from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation. |
We may take advantage of these exemptions for up to the last day of the fiscal year ending after the fifth anniversary of this offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (1) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (2) the last day of our fiscal year following
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the fifth anniversary of the date of the completion of this offering; (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We may choose to take advantage of some but not all of these exemptions.
We qualify as a foreign private issuer and, as a result, we will not be subject to U.S. proxy rules and will be subject to reporting obligations under the Securities Exchange Act of 1934, as amended, that, to some extent, permit less detailed and frequent reporting than that of a U.S. domestic public company.
Upon the closing of this offering, we will report under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (ii) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (iii) the rules under the Exchange Act requiring the filing with the Securities and Exchange Commission, or SEC, of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers, some investors may find the ADSs less attractive, and there may be a less active trading market for the ADSs.
As a foreign private issuer and as permitted by the listing requirements of Nasdaq, we will rely on certain home country governance practices rather than the corporate governance requirements of Nasdaq.
We are entitled to rely on a provision in Nasdaqs corporate governance rules that allows us to follow English corporate law and the United Kingdom Companies Act 2006, or the Companies Act 2006, with regard to certain aspects of corporate governance, known as home country governance practices. Following our home country governance practices allows us to follow English corporate law and the Companies Act 2006 with regard to certain corporate governance matters as opposed to the requirements that would otherwise apply to U.S. companies listed on Nasdaq may provide less protection to our shareholders than what is accorded to investors under the Nasdaq rules applicable to domestic U.S. issuers.
As a foreign private issuer, we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements. Our officers, directors and principal shareholders are also exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act and we are exempt from filing quarterly reports with the SEC under the Exchange Act. Moreover, we are not required to comply with Regulation Fair Disclosure, which restricts the selective disclosure of material information. These exemptions and leniencies will reduce the frequency and scope of information and protections to which you may otherwise have been eligible in relation to a U.S. domestic issuer.
In accordance with our Nasdaq listing, our audit committee is required to comply with the provisions of Section 301 of the Sarbanes-Oxley Act, and Rule 10A-3 of the Exchange Act. Because we are a foreign private
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issuer, however, our audit committee is not subject to additional Nasdaq requirements applicable to listed U.S. companies, including an affirmative determination that all members of the audit committee are independent, using more stringent criteria than those applicable to us as a foreign private issuer. Furthermore, Nasdaqs corporate governance rules require listed U.S. companies to, among other things, seek shareholder approval for the implementation of certain equity compensation plans and issuances of ordinary shares, which we are not required to follow as a foreign private issuer. Therefore, our shareholders may be afforded less protection than they otherwise would have under corporate governance listing standards applicable to U.S. domestic issuers.
We may lose our foreign private issuer status which would then require us to comply with the Exchange Acts domestic reporting regime and cause us to incur significant legal, accounting and other expenses.
While we currently qualify as a foreign private issuer, the determination of foreign private issuer status is made annually on the last business day of an issuers most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on June 30, 2021.
In the future, we would lose our foreign private issuer status if we to fail to meet the requirements necessary to maintain our foreign private issuer status as of the relevant determination date. For example, if more than 50% of our securities are held by U.S. residents and more than 50% of the members of our executive committee or members of our board of directors are residents or citizens of the United States, we could lose our foreign private issuer status.
The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly more than costs we incur as a foreign private issuer. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive in certain respects than the forms available to a foreign private issuer. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers such as the ones described above and exemptions from procedural requirements related to the solicitation of proxies.
We will incur increased costs as a result of operating as a company listed in the U.S., and our board of directors will be required to devote substantial time to new compliance initiatives and corporate governance practices.
As a company listed in the U.S., and particularly after we no longer qualify as an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq, and other applicable securities rules and regulations impose various requirements on foreign reporting public companies, including the establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our board of directors, management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our board of directors.
However, these rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, we will be required to furnish a report by our board of directors on our internal control over financial reporting. However, while we remain an emerging
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growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal controls over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe, that our internal controls over financial reporting are effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
Sales of a substantial number of shares of the ADSs by our existing shareholders in the public market could cause the price of the ADSs to fall.
If our existing shareholders sell, or indicate an intention to sell, substantial amounts of the ADSs in the public market after the lockup and other legal restrictions on resale discussed in this prospectus lapse, the trading price of the ADSs could decline. Upon the closing of this offering, we will have outstanding a total of ADSs. Of these shares, only the ADSs sold in this offering by us, plus any shares sold upon exercise of the underwriters option to purchase additional shares, will be freely tradable without restriction in the public market immediately following this offering. In connection with this offering, our officers, directors and substantially all of our shareholders have agreed to be subject to a contractual lock-up with the underwriters, which will expire 180 days after the date of this prospectus.
The lock-up agreements contain important exceptions that govern their applicability. BofA Securities, Inc., J.P. Morgan Securities LLC and Piper Sandler & Co. however, may, in their sole discretion, permit our officers, directors and other shareholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.
In addition, ADSs that are either subject to outstanding options or reserved for future issuance under our 2021 Share Option and Incentive Plan and 2021 Employee Share Purchase Plan, each of which became effective upon the effectiveness of the registration statement of which this prospectus forms a part, will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act of 1933, as amended, or the Securities Act. If these additional ADSs are sold, or if it is perceived that they will be sold, in the public market, the trading price of the ADSs could decline.
After this offering, the holders of ADSs will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to the 180-day lock-up agreements described above. See Description of share capital and articles of associationRegistration rights. Registration of these shares under the Securities Act would result in such shares becoming freely tradable without restriction under the Securities Act, except for shares held by affiliates, as defined in Rule 144 under the Securities Act. Any sales of securities by these shareholders could have a material adverse effect on the trading price of the ADSs.
You may not receive distributions on our ordinary shares represented by the ADSs or any value for them if it is illegal or impractical to make them available to holders of ADSs.
The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses.
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You would receive these distributions in proportion to the number of our ordinary shares your ADSs represent. However, in accordance with the limitations set forth in the deposit agreement, it may be unlawful or impractical to make a distribution available to holders of ADSs. We have no obligation to take any other action to permit distribution on the ADSs, ordinary shares, rights or anything else to holders of the ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value from them if it is unlawful or impractical to make them available to you. These restrictions may have an adverse effect on the value of your ADSs.
We do not intend to pay dividends on the ADSs, so any returns will be limited to the value of our ordinary shares.
We currently anticipate that we will retain future earnings for the development, operation, and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, we may enter into agreements that prohibit us from paying cash dividends without prior written consent from our contracting parties, or which other terms prohibiting or limiting the amount of dividends that may be declared or paid on the ADSs. Furthermore, under the Companies Act 2006, a companys accumulated realized profits, so far as not previously utilized by distribution or capitalization, must exceed its accumulated realized losses so far as not previously written off in a reduction or reorganization of capital duly made (on a non-consolidated basis), before dividends can be paid. In the future, were our dividend policy to change, a dividend or distribution may still be restricted from being declared and paid. For these reasons, any return to shareholders may therefore be limited to the appreciation of their shares, which may never occur.
Holders of the ADSs will not have the same voting rights as the holders of our ordinary shares, and may not receive voting materials or any other documents that would need to be provided to our shareholders pursuant to English corporate law, including the Companies Act 2006, in time to be able to exercise their right to vote.
Except as described elsewhere in this prospectus and the deposit agreement, holders of the ADSs will not be able to exercise voting rights attaching to the ordinary shares represented by the ADSs. The deposit agreement provides that, upon receipt of notice of any meeting of holders of our ordinary shares, the depositary will fix a record date for the determination of ADS holders who shall be entitled to give instructions for the exercise of voting rights. Upon our request, the depositary shall distribute to the holders as of the record date (i) the notice of the meeting or solicitation of consent or proxy sent by us and (ii) a statement as to the manner in which instructions may be given by the holders. We cannot guarantee that ADS holders will receive the voting materials in time to ensure that they can instruct the depositary to vote the ordinary shares underlying their ADSs.
Otherwise, ADS holders will not be able to exercise their right to vote, unless they cancel the ADSs and withdraw the ordinary shares underlying the ADSs they hold. However, ADS holders may not know about the meeting far enough in advance to cancel the ADSs and withdraw those ordinary shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. As a result, ADS holders may not be able to exercise their right to vote, and there may be nothing they can do if the ordinary shares underlying their ADSs are not voted as they requested or if their shares cannot be voted.
Holders of ADSs may not be able to participate in equity offerings we may conduct from time to time.
Certain shareholders and holders of ADSs, including those in the United States, may, even in the case where preferential subscription rights have not been cancelled or limited, not be entitled to exercise such rights, unless the offering is registered or the ordinary shares are qualified for sale under the relevant regulatory
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framework. As a result, there is the risk that investors may suffer dilution of their holdings should they not be permitted to participate in preference right equity or other offerings that we may conduct in the future.
Holders of ADSs may be subject to limitations on the transfer of their ADSs and the withdrawal of the underlying ordinary shares.
ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary think it is advisable to do so because of any requirement of law, government or governmental body, or under any provision of the deposit agreement, or for any other reason, subject to the right of ADS holders to cancel their ADSs and withdraw the underlying ordinary shares. Temporary delays in the cancellation of your ADSs and withdrawal of the underlying ordinary shares may arise because the depositary has closed its transfer books or we have closed our transfer books, the transfer of ordinary shares is blocked to permit voting at a shareholders meeting or we are paying a dividend on our ordinary shares. In addition, ADS holders may not be able to cancel their ADSs and withdraw the underlying ordinary shares when they owe money for fees, taxes and similar charges and when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited securities. See Description of American depositary sharesShare dividends and distributionsHow will I receive dividends and other distributions on the ordinary shares underlying my ADSsRights to receive additional ordinary shares.
ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.
The deposit agreement governing the ADSs representing our ordinary shares provides that, to the fullest extent permitted by law, owners and holders of ADSs irrevocably waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to the ADSs or the deposit agreement.
If this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement.
If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims,
which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may
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result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action, depending on, among other things, the nature of the claims, the judge or justice hearing such claims, and the venue of the hearing.
No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder.
ADS holders have limited choice of forum, which could limit your ability to obtain a favorable judicial forum for complaints against us, the depositary or our respective directors, officers or employees.
The deposit agreement governing the ADSs provides that, (i) the deposit agreement and the ADSs will be interpreted in accordance with the laws of the State of New York, and (ii) as an owner of ADSs, you irrevocably agree that any legal action arising out of the deposit agreement and the ADSs involving us or the depositary may only be instituted in a state or federal court in the city of New York. Any person or entity purchasing or otherwise acquiring any the ADSs, whether by transfer, sale, operation of law or otherwise, shall be deemed to have notice of and have irrevocably agreed and consented to these provisions. This choice of forum provision may increase your cost and limit your ability to bring a claim in a judicial forum that you find favorable for disputes with us, the depositary or our and the depositarys respective directors, officers or employees, which may discourage such lawsuits against us, the depositary and our and the depositarys respective directors, officers or employees. However, it is possible that a court could find such choice of forum provisions to be inapplicable or unenforceable. The enforceability of similar choice of forum provisions has been challenged in legal proceedings. It is possible that a court could find this type of provisions to be inapplicable or unenforceable.
To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, actions by our ADS holders to enforce any duty or liability created by the Exchange Act, the Securities Act or the respective rules and regulations thereunder must be brought in a federal court in the city of New York. Our ADS holders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder.
As an English public limited company, certain capital structure decisions will require shareholder approval, which may limit our flexibility to manage our capital structure.
English law provides that a board of directors may only allot shares (or grant rights to subscribe for or to convert any security into shares) with the prior authorization of shareholders, either pursuant to an ordinary resolution or as set out in the articles of association adopted with effect from completion of this offering. This authorization must state the aggregate nominal amount of shares that it covers, can be valid up to a maximum period of five years and can be varied, renewed or revoked by shareholders. . Such authority from our shareholders to allot additional shares for a period of five years from , 2021 was included in the ordinary resolution passed by our shareholders on , 2021, which authorization will need to be renewed upon expiration (i.e., at least every five years) but may be sought more frequently for additional five-year terms (or any shorter period).
English law also generally provides shareholders with preemptive rights when new shares are issued for cash. However, it is possible for the Articles, or for shareholders to pass a special resolution at a general meeting,
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being a resolution passed by at least 75% of the votes cast, to disapply preemptive rights. Such a disapplication of preemptive rights may be for a maximum period of up to five years from the date of adoption of the Articles, if the disapplication is contained in the Articles, but not longer than the duration of the authority to allot shares to which this disapplication relates or from the date of the shareholder special resolution, if the disapplication is by shareholder special resolution. In either case, this disapplication would need to be renewed by our shareholders upon its expiration (i.e., at least every five years). Such authority from our shareholders to disapply preemptive rights for a period of five years was included in the special resolution passed by our shareholders on , 2021, which disapplication will need to be renewed upon expiration (i.e., at least every five years) to remain effective, but may be sought more frequently for additional five-year terms (or any shorter period).
English law also generally prohibits a public company from repurchasing its own shares without the prior approval of its shareholders by ordinary resolution, being a resolution passed by a simple majority of votes cast, and other formalities. Such approval may be provided for a maximum period of up to five years.
General risk factors
Our internal computer systems, or those used by our third-party CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of the development programs of our product candidates.
Despite the implementation of security measures, our internal computer systems and those of our current and future CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, and telecommunication and electrical failures. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. While we have not experienced any such material system failure 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 development programs and our business operations, such as the loss of clinical trial data from completed or future clinical trials. Such loss could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we may rely on third parties for the manufacture of our product candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. Any breach in our information technology systems could lead to the unauthorized access, disclosure and use of non-public information, including information from our patient registry or other patient information, which is protected by data privacy and security laws. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, damage to our reputation and the further development and commercialization of our product candidates could be delayed.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our operations, and those of our CROs, CMOs and other contractors and consultants, could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses.
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Unstable 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. The most recent global financial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn, including due to the impact of the COVID-19 pandemic, could result in a variety of risks to our business, including a reduced ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy or international trade disputes could also strain our third-party suppliers, possibly resulting in supply disruption. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.
We may be unable to adequately protect our information systems from cyber-attacks, which could result in the disclosure of confidential or proprietary information, including personal data, damage our reputation, and subject us to significant financial and legal exposure.
We rely on information technology systems that we or our third-party providers operate to process, transmit and store electronic information in our day-to-day operations. In connection with our product discovery efforts, we may collect and use a variety of personal data, such as name, mailing address, email addresses, phone number and clinical trial information. A successful cyber-attack could result in the theft or destruction of intellectual property, data, or other misappropriation of assets, or otherwise compromise our confidential or proprietary information and disrupt our operations. Cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. Cyber-attacks could include wrongful conduct by hostile foreign governments, industrial espionage, wire fraud and other forms of cyber fraud, the deployment of harmful malware, denial-of-service, social engineering fraud or other means to threaten data security, confidentiality, integrity and availability. A successful cyber-attack could cause serious negative consequences for us, including, without limitation, the disruption of operations, the misappropriation of confidential business information, including financial information, trade secrets, financial loss and the disclosure of corporate strategic plans. Although we devote resources to protect our information systems, we realize that cyber-attacks are a threat, and there can be no assurance that our efforts will prevent information security breaches that would result in business, legal, financial or reputational harm to us, or would have a material adverse effect on our results of operations and financial condition. Any failure to prevent or mitigate security breaches or improper access to, use of, or disclosure of our clinical data or patients personal data could result in significant liability under state (e.g., state breach notification laws), federal (e.g., HIPAA, as amended by HITECH), and international law (e.g., the GDPR) and may cause a material adverse impact to our reputation, affect our ability to conduct new studies and potentially disrupt our business.
In addition, the computer systems of various third parties on which we rely, including our CROs and other contractors, consultants and law and accounting firms, may sustain damage from computer viruses, unauthorized access, data breaches, phishing attacks, cybercriminals, natural disasters (including hurricanes and earthquakes), terrorism, war and telecommunication and electrical failures. We rely on our third-party providers to implement effective security measures and identify and correct for any such failures, deficiencies or breaches. If we or our third-party providers fail to maintain or protect our information technology systems and data integrity effectively or fail to anticipate, plan for or manage significant disruptions to our information technology systems, we or our third-party providers could have difficulty preventing, detecting and controlling such cyber-attacks and any such attacks could result in losses described above as well as disputes with physicians, patients and our partners, regulatory sanctions or penalties, increases in operating expenses, expenses or lost revenues or other adverse consequences, any of which could have a material adverse effect on our business, results of operations, financial condition, prospects and cash flows. Any failure by such third
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parties to prevent or mitigate security breaches or improper access to or disclosure of such information could have similarly adverse consequences for us.
The GDPR, United States state laws and other international laws to which we may be subject require businesses to notify regulators and data subjects in the event of a data breach. If we are unable to prevent or mitigate the impact of such security or data privacy breaches, we could be exposed to litigation and governmental investigations, which could lead to fines, damages, reputational damage and a potential disruption to our business.
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or our guidance.
Our quarterly and annual operating results may fluctuate significantly in the future, which makes it difficult for us to predict our future operating results. From time to time, we may enter into license or collaboration agreements with other companies that include development funding and significant upfront and milestone payments and/or royalties, which may become an important source of our revenue. Accordingly, our revenue may depend on development funding and the achievement of development and clinical milestones under current and any potential future license and collaboration agreements and, if approved, sales of our product candidates. These upfront and milestone payments may vary significantly from period to period and any variance could cause a significant fluctuation in our operating results from one period to the next.
Further, our operating results may fluctuate due to a variety of other factors, many of which are outside of our control and may be difficult to predict, including the following:
| the timing and cost of, and level of investment in, research and development activities relating to our current programs, additional follow-on indications for ATL001, and any future product candidates, which will change from time to time; |
| the timing and outcomes of clinical trials for our current programs, additional follow-on indications for ATL001, and any future product candidates; |
| the cost of manufacturing ATL001 and any of our future product candidates, which may vary depending on FDA guidelines and requirements, the quantity of production and the terms of our agreements with manufacturers; |
| our ability to adequately support our future growth; |
| potential unforeseen business disruptions that increase our costs or expenses; |
| future accounting pronouncements or changes in our accounting policies; and |
| the changing and volatile global economic environment. |
The cumulative effect of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of the ADSs could decline substantially. The price of the ADSs could decline even when we have met any previously publicly stated revenue and/or earnings guidance we may provide.
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Shareholder protections found in provisions under the United Kingdom City Code on Takeovers and Mergers, or the Takeover Code, will not apply if our place of central management and control remains outside of the United Kingdom (or the Channel Islands or the Isle of Man).
We believe that, as of the date of this prospectus, our place of central management and control is not in the United Kingdom (or the Channel Islands or the Isle of Man) for the purposes of the jurisdictional criteria of the Takeover Code. Accordingly, we believe that we are not currently subject to the Takeover Code and, as a result, our shareholders are not currently entitled to the benefit of certain takeover offer protections provided under the Takeover Code, including the rules regarding mandatory takeover bids.
In the event that this changes, or if the interpretation and application of the Takeover Code by the Panel on Takeovers and Mergers, or Takeover Panel, changes (including changes to the way in which the Takeover Panel assesses the application of the Takeover Code to English companies whose shares are listed outside of the United Kingdom), the Takeover Code may apply to us in the future.
The Takeover Code provides a framework within which takeovers of companies which are subject to the Takeover Code are regulated and conducted. The following is a brief summary of some of the most important rules of the Takeover Code:
| When any person acquires, whether by a series of transactions over a period of time or not, an interest in shares which (taken together with shares already held by that person and an interest in shares held or acquired by persons acting in concert with him or her) carry 30% or more of the voting rights of a company that is subject to the Takeover Code, that person is generally required to make a mandatory offer to all the holders of any class of equity share capital or other class of transferable securities carrying voting rights in that company to acquire the balance of their interests in the company. |
| When any person who, together with persons acting in concert with him or her, is interested in shares representing not less than 30% but does not hold more than 50% of the voting rights of a company that is subject to the Takeover Code, and such person, or any person acting in concert with him or her, acquires an additional interest in shares which increases the percentage of shares carrying voting rights in which he or she is interested, then such person is generally required to make a mandatory offer to all the holders of any class of equity share capital or other class of transferable securities carrying voting rights of that company to acquire the balance of their interests in the company. |
| A mandatory offer triggered in the circumstances described in the two paragraphs above must be in cash (or be accompanied by a cash alternative) and at not less than the highest price paid within the preceding 12 months to acquire any interest in shares in the company by the person required to make the offer or any person acting in concert with him or her. |
| In relation to a voluntary offer (i.e., any offer which is not a mandatory offer), when interests in shares representing 10% or more of the shares of a class have been acquired for cash by an offeror (i.e., a bidder) and any person acting in concert with it in the offer period and the previous 12 months, the offer must be in cash or include a cash alternative for all shareholders of that class at not less than the highest price paid for any interest in shares of that class by the offeror and by any person acting in concert with it in that period. Further, if an offeror acquires for cash any interest in shares during the offer period, a cash alternative must be made available at not less than the highest price paid for any interest in the shares of that class. |
| If, after making an offer for a company, the offeror or any person acting in concert with them acquires an interest in shares in an offeree company (i.e., a target) at a price higher than the value of the offer, the offer must be increased to not less than the highest price paid for the interest in shares so acquired. |
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| An offeree company must appoint a competent independent advisor whose advice on the financial terms of the offer must be made known to all the shareholders, together with the opinion of the board of directors of the offeree company. |
| Special or favorable deals for selected shareholders are not permitted, except in certain circumstances where independent shareholder approval is given and the arrangements are regarded as fair and reasonable in the opinion of the financial advisor to the offeree. |
| All shareholders must be given the same information. |
| Each document published in connection with an offer by or on behalf of the offeror or offeree must state that the directors of the offeror or the offeree, as the case may be, accept responsibility for the information contained therein. |
| Profit forecasts, quantified financial benefits statements and asset valuations must be made to specified standards and must be reported on by professional advisors. |
| Misleading, inaccurate or unsubstantiated statements made in documents or to the media must be publicly corrected immediately. |
| Actions during the course of an offer by the offeree company, which might frustrate the offer are generally prohibited unless shareholders approve these plans. Frustrating actions would include, for example, lengthening the notice period for directors under their service contract or agreeing to sell off material parts of the target group. |
| Stringent requirements are laid down for the disclosure of dealings in relevant securities during an offer, including the prompt disclosure of positions and dealing in relevant securities by the parties to an offer and any person who is interested (directly or indirectly) in 1% or more of any class of relevant securities. |
| Employees of both the offeror and the offeree company and the trustees of the offeree companys pension scheme must be informed about an offer. In addition, the offeree companys employee representatives and pension scheme trustees have the right to have a separate opinion on the effects of the offer on employment appended to the offeree board of directors circular or published on a website. |
The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.
We are incorporated under the laws of England and Wales. The rights of holders of our ordinary shares and Class A ordinary and, therefore, certain of the rights of holders of ADSs, are governed by the laws of England and Wales, including the provisions of the Companies Act 2006, and by our Articles. These rights differ in certain respects from the rights of shareholders in typical U.S. corporations. See Description of share capital and articles of associationDifferences in corporate law in this prospectus for a description of the principal differences between the provisions of the Companies Act 2006 applicable to us and, for example, the Delaware General Corporation Law relating to shareholders rights and protections.
The principal differences include the following:
| Under English law and our Articles, each holder of ordinary shares present at a meeting has only one vote unless demand is made for a vote on a poll, in which case each holder gets one vote per share owned. Under U.S. law, each shareholder typically is entitled to one vote per share at all meetings. |
| Under English law, it is only on a poll that the number of shares determines the number of votes a holder may cast. You should be aware, however, that the voting rights of ADSs are also governed by the provisions of a deposit agreement with our depositary bank. |
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| Under English law, subject to certain exceptions and disapplications, each shareholder generally has preemptive rights to subscribe on a proportionate basis to any issuance of ordinary shares or Class A ordinary shares or rights to subscribe for, or to convert securities into, ordinary shares or Class A ordinary shares for cash. Under U.S. law, shareholders generally do not have preemptive rights unless specifically granted in the certificate of incorporation or otherwise. |
| Under English law and our Articles, certain matters require the approval of 75% of the shareholders who vote (in person or by proxy) on the relevant resolution (or on a poll of shareholders representing 75% of the ordinary shares voting (in person or by proxy)), including amendments to the Articles. This may make it more difficult for us to complete corporate transactions deemed advisable by our board of directors. Under U.S. law, generally only majority shareholder approval is required to amend the certificate of incorporation or to approve other significant transactions. |
| In the United Kingdom, takeovers may be structured as takeover offers or as schemes of arrangement. Under English law, a bidder seeking to acquire us by means of a takeover offer would need to make an offer for all of our outstanding ordinary shares/ADSs. If acceptances are not received for 90% or more of the ordinary shares/ADSs under the offer, under English law, the bidder cannot complete a squeeze out to obtain 100% control of us. Accordingly, acceptances of 90% of our outstanding ordinary shares (including those represented by ADSs) will likely be a condition in any takeover offer to acquire us, not 50% as is more common in tender offers for corporations organized under Delaware law. By contrast, a scheme of arrangement, the successful completion of which would result in a bidder obtaining 100% control of us, requires the approval of a majority of shareholders voting at the meeting and representing 75% of the ordinary shares (including those represented by ADSs) voting at the meeting for approval. |
| Under English law and our Articles, shareholders and other persons whom we know or have reasonable cause to believe are, or have been, interested in our shares may be required to disclose information regarding their interests in our shares upon our request, and the failure to provide the required information could result in the loss or restriction of rights attaching to the shares, including prohibitions on certain transfers of the shares, withholding of dividends and loss of voting rights. Comparable provisions generally do not exist under U.S. law. |
Our Articles will provide that the courts of England and Wales will be the exclusive forum for the resolution of all shareholder complaints other than complaints asserting a cause of action arising under the Securities Act or the Exchange Act, and that the United States District Court for the Southern District of New York will be the exclusive forum for the resolution of any shareholder complaint asserting a cause of action arising under the Securities Act or the Exchange Act.
Our Articles will provide that, unless we consent by ordinary resolution to the selection of an alternative forum, the courts of England and Wales shall, to the fullest extent permitted by law, be the exclusive forum for: (a) any derivative action or proceeding brought on our behalf; (b) any action or proceeding asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us; (c) any action or proceeding asserting a claim arising out of any provision of the Companies Act 2006 or our Articles (as may be amended from time to time); or (d) any action or proceeding asserting a claim or otherwise related to our affairs, or the England and Wales Forum Provision. The England and Wales Forum Provision will not apply to any causes of action arising under the Securities Act or the Exchange Act. Our Articles will further provide that unless we consent by ordinary resolution to the selection of an alternative forum, the United States District Court for the Southern District of New York shall be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act or the Exchange Act, or the U.S. Federal Forum Provision. In addition, our Articles will provide that any person or entity purchasing or otherwise acquiring any interest in our shares is
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deemed to have notice of and consented to the England and Wales Forum Provision and the U.S. Federal Forum Provision; provided, however, that our shareholders cannot and will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations thereunder.
The England and Wales Forum Provision and the U.S. Federal Forum Provision in our Articles may impose additional litigation costs on our shareholders in pursuing any such claims. Additionally, the forum selection clauses in our Articles may limit the ability of our shareholders to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers or employees, which may discourage the filing of lawsuits against us and our directors, officers and employees, even though an action, if successful, might benefit our shareholders. In addition, while the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are facially valid under Delaware law, there is uncertainty as to whether other courts, including the courts of England and Wales and other courts within the U.S., will enforce our U.S. Federal Forum Provision. If the U.S. Federal Forum Provision is found to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our results of operations and financial condition. The U.S. Federal Forum Provision may also impose additional litigation costs on our shareholders who assert that the provision is not enforceable or invalid. The courts of England and Wales and the United States District Court for the Southern District of New York may also reach different judgments or results than would other courts, including courts where a shareholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our shareholders.
If we were classified as a passive foreign investment company, there could be material adverse U.S. federal income tax consequences to U.S. Holders.
Under the Internal Revenue Code of 1986, as amended, or the Code, we will be a passive foreign investment company, or PFIC, for any taxable year in which (i) 75% or more of our gross income consists of passive income, or the income test, or (ii) 50% or more of the average quarterly value of our assets consists of assets that produce, or are held for the production of, passive income, or the asset test. For purposes of these tests, passive income includes dividends, interest, gains from the sale or exchange of investment property and certain rents and royalties. In addition, for purposes of the above calculations, a non-U.S. corporation that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as holding and receiving directly its proportionate share of assets and income of such corporation. If we are a PFIC for any taxable year during which a U.S. Holder (as defined below under Material income tax considerationsMaterial U.S. federal income tax considerations for U.S. holders) holds our ordinary shares or ADSs, the U.S. Holder may be subject to material adverse tax consequences regardless of whether we continue to qualify as a PFIC, including ineligibility for any preferred tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred and additional reporting requirements.
We believe that we were classified as a PFIC for our taxable year ended December 31, 2020. Based on the current and expected composition of our income and assets and the value of our assets, we expect to be a PFIC for the current taxable year ending December 31, 2021. However, no assurances regarding our PFIC status can be provided for any past, current or future taxable years. The determination of whether we are a PFIC is a fact-intensive determination made on an annual basis applying principles and methodologies that in some circumstances are unclear and subject to varying interpretation. Subject to certain exceptions, for purposes of the asset test, if we are treated as a non-publicly traded controlled foreign corporation, or a CFC (as discussed below), for the year being tested for purposes of the PFIC rules, the value of our assets will be measured by the adjusted tax basis of our assets. If we are a publicly traded CFC or not a CFC for such year, the value of our assets generally will be determined by reference to the market price of our ordinary shares or ADSs from time
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to time, which may fluctuate considerably. The income test depends on the nature and composition of our income. The composition of our income and assets is also affected by how fast we spend the cash we raise in any offering, including this offering.
For further discussion of the PFIC rules and adverse U.S. federal income tax consequences in the event we are classified as a PFIC, see the section titled Material income tax considerationsMaterial U.S. federal income considerations for U.S. holders in this prospectus. Each U.S. Holder should consult its own tax advisors with respect to the potential adverse U.S. tax consequences to it if we are or were to become a PFIC.
We may be unable to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax payments or benefit from favorable United Kingdom tax legislation.
As a United Kingdom incorporated and tax resident entity, we are subject to United Kingdom corporate taxation on tax-adjusted trading profits. Due to the nature of our business, we have generated losses since inception and therefore have not paid any United Kingdom corporation tax. As of December 31, 2019, we had cumulative United Kingdom carryforward tax losses of $13.0 million. Subject to any relevant criteria and restrictions (including those that limit the percentage of profits that can be reduced by carried forward losses and those that can restrict the use of carried forward losses where there is a change of ownership of more than half of our ordinary shares and a major change in the nature, conduct or scale of the trade), we expect these to be eligible for carry forward and utilization against future operating profits.
As a company that carries out extensive research and development activities, we seek to benefit from the United Kingdom research and development tax relief programs, being the Small and Medium-sized Enterprises R&D tax relief program, or SME Program, and, to the extent that our projects are grant funded or relate to work subcontracted to us by third parties, the Research and Development Expenditure Credit program, or RDEC Program. Under the SME Program, we may be able to surrender some of our trading losses that arise from our qualifying research and development activities for a cash rebate of up to 33.35% of such qualifying research and development expenditures. The majority of our research, clinical trials management and manufacturing development activities are eligible for inclusion within these tax credit cash rebate claims. We may not be able to continue to claim payable research and development tax credits in the future if we cease to qualify as a SME, based on size criteria concerning employee headcount, turnover and gross assets.
We may benefit in the future from the United Kingdoms patent box regime, which allows certain profits attributable to revenue from patented products (and other qualifying income) to be taxed at an effective rate of 10% by giving an additional tax deduction. When taken in combination with the enhanced relief available on our research and development expenditures, we expect a long-term rate of corporation tax lower than the statutory to apply to us. If, however, there are unexpected adverse changes to the United Kingdom research and development tax credit regime or the patent box regime, or for any reason we are unable to qualify for such advantageous tax legislation, or we are unable to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax payments then our business, results of operations and financial condition may be adversely affected. This may impact our ongoing requirement for investment and the timeframes within which additional investment is required.
Changes and uncertainties in the tax system in the countries in which we have operations could materially adversely affect our financial condition and results of operations, and reduce net returns to our shareholders.
We conduct business globally and file income tax returns in the United Kingdom and the U.S. The tax treatment of the company or any of the group companies could be materially adversely affected by several factors, including: changing tax laws, regulations and treaties, or the interpretation thereof; tax policy initiatives and
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reforms under consideration (such as those related to the Organisation for Economic Co-operation and Developments, or OCED, Base Erosion and Profit Shifting, or BEPS, Project, the European Commissions state aid investigations and other initiatives); the practices of tax authorities in jurisdictions in which we operate (the United Kingdom and the U.S.); and the resolution of issues arising from tax audits or examinations and any related interest or penalties. Such changes may include (but are not limited to) the taxation of operating income, investment income, dividends received or (in the specific context of withholding tax) dividends paid.
We are unable to predict what tax reform may be proposed or enacted in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices in jurisdictions in which we operate, could affect our financial position, future results of operations, cash flows in a particular period and overall or effective tax rates in the future in countries where we have operations, reduce post-tax returns to our shareholders and increase the complexity, burden and cost of tax compliance.
Tax authorities may disagree with our positions and conclusions regarding certain tax positions, or may apply existing rules in an unforeseen manner, resulting in unanticipated costs, taxes or non-realization of expected benefits.
A tax authority may disagree with tax positions that we have taken, which could result in increased tax liabilities. For example, Her Majestys Revenue & Customs, or HMRC, the Internal Revenue Service, or IRS, or another tax authority could challenge our allocation of income among various jurisdictions and the amounts paid between our affiliated companies pursuant to our intercompany arrangements and transfer pricing policies. Similarly, a tax authority could assert that we are subject to tax in a jurisdiction where we believe we have not established a taxable connection, often referred to as a permanent establishment under international tax treaties, and such an assertion, if successful, could increase our expected tax liability in one or more jurisdictions.
A tax authority may take the position that material income tax liabilities, interest and penalties are payable by us, for example where there has been a technical violation of contradictory laws and regulations that are relatively new and have not been subject to extensive review or interpretation, in which case we expect that we might contest such assessment. Contesting such an assessment may be lengthy and costly and if we were unsuccessful in disputing the assessment, the implications could increase our anticipated effective tax rate, where applicable, or result in other liabilities.
If we are a controlled foreign corporation, or CFC, there could be adverse U.S. federal income tax consequences to certain U.S. Holders.
Each Ten Percent Shareholder (as defined below) in a non-U.S. corporation that is classified as a CFC for U.S. federal income tax purposes generally is required to include in income for U.S. federal tax purposes such Ten Percent Shareholders pro rata share of the CFCs Subpart F income, global intangible low-taxed income and investment of earnings in U.S. property, even if the CFC has made no distributions to its shareholders. A non-U.S. corporation generally will be classified as a CFC for U.S. federal income tax purposes if Ten Percent Shareholders own, directly or indirectly, more than 50% of either the total combined voting power of all classes of stock of such corporation entitled to vote or of the total value of the stock of such corporation. A Ten Percent Shareholder is a United States person (as defined by the Code) who owns or is considered to own (directly, indirectly or constructively) 10% or more of the value of all classes of stock or total combined voting power of all classes of stock entitled to vote of such corporation. In addition, if a non-U.S. corporation owns at least one U.S. subsidiary, even if such non-U.S. corporation is not a CFC, under current law, any current non-U.S. subsidiaries and any future newly formed or acquired non-U.S. subsidiaries of the non-U.S. corporation will be
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treated as CFCs. Subpart F income generally includes dividends, interest, rents, royalties, gains from the sale of securities and income from certain transactions with related parties. In addition, a Ten Percent Shareholder that realizes gain from the sale or exchange of shares in a CFC may be required to classify a portion of such gain as dividend income rather than capital gain.
We believe that we were classified as a CFC for our taxable year ended December 31, 2020. We may be a CFC in our current taxable year prior to the completion of this offering, as well as our current taxable year in which this offering occurs. The determination of CFC status is complex and includes attribution rules, the application of which is not entirely certain. An individual that is a Ten Percent Shareholder with respect to a CFC generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a Ten Percent Shareholder that is a U.S. corporation. Failure to comply with CFC reporting obligations may subject a United States shareholder to significant monetary penalties. We cannot provide any assurances that we will furnish to any Ten Percent Shareholder information that may be necessary to comply with the reporting and tax paying obligations applicable under the CFC rules of the Code. U.S. Holders should consult their own tax advisors with respect to the potential adverse U.S. tax consequences of becoming a Ten Percent Shareholder in a CFC.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
Upon the closing of this offering, we will become subject to the periodic reporting requirements of the Exchange Act. We are continuing to refine our disclosure controls and procedures to provide reasonable assurance that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.
If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our 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 in accordance with generally accepted accounting principles. In connection with this offering, we intend to begin the process of documenting, reviewing, and improving our internal controls and procedures for compliance with Section 404 of the Sarbanes-Oxley Act, which will require annual management assessment of the effectiveness of our internal control over financial reporting. We have begun recruiting additional finance and accounting personnel with certain skill sets that we will need as a public company.
Implementing any appropriate changes to our internal controls may distract our officers and employees, entail substantial costs to modify our existing processes, and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase
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our operating costs and harm our business. In addition, investors perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely basis may harm the price of the ADSs and make it more difficult for us to effectively market and sell our service to new and existing customers.
In connection with the audit of our financial statements in accordance with the standards of the PCAOB and U.S. securities law, a material weakness in our internal control over financial reporting was identified. If we are unable to implement and maintain effective internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected.
As a public reporting company, we will be required to report annually on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. In connection with the audits of our financial statements as of and for each of the years ended December 31, 2019 and 2018 conducted in connection with this offering, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting attributable to insufficient segregation of duties and risk assessment procedures. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis.
The material weakness relates to the insufficient design and implementation of processes, controls and other procedures, specifically segregation of duties related to the review and approval of manual journal entries and the related supporting journal entry calculations for the periods ended December 31, 2019 and 2018.
We have commenced measures to remediate the material weakness by expanding the capacity and expertise of our internal accounting staff, engaging consultants to assist us in documenting and improving our system of internal controls, as well as by implementing appropriate accounting infrastructure and changing the process for the approval of manual journal entries. We have retained an accounting consulting firm to provide additional depth and breadth to our technical accounting and financial reporting capabilities and we intend to hire an additional finance and accounting personnel with appropriate expertise to perform specific functions, design and implement improved processes and internal controls, build our financial management and reporting infrastructure, and further develop and document our accounting policies and financial reporting procedures, including ongoing senior management review and audit committee oversight. There can be no assurance that we will be successful in pursuing these measures or that these measures will significantly improve or remediate the material weakness described above. There is also no assurance that we have identified all our material weaknesses or that we will not in the future have additional material weaknesses. If we fail to remediate the material weakness or to meet the requirements of a public company, including the requirements of Section 404 of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results, or report them within the time frames required by law or Nasdaq. Failure to comply with the requirements of Section 404 of the Sarbanes-Oxley Act could also potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. If our efforts to remediate the material weakness identified are not successful, or if other material weaknesses or other deficiencies occur, this could result in, restatements of our consolidated financial statements, a decline in the price of the ADSs, suspension or delisting of the ADSs from Nasdaq, and could adversely affect our reputation, results of operations and financial condition.
After the completion of this offering, we may be at an increased risk of securities class action litigation.
Historically, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and pharmaceutical companies have experienced significant stock price volatility in recent years. If we were to be
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sued, it could result in substantial costs and a diversion of managements attention and resources, which could harm our business.
Our business and operations may be negatively impacted by the United Kingdoms withdrawal from the EU.
During the Brexit transition period, the United Kingdom continued to be subject to the laws and obligations applicable to all EU members, including laws related to trade and data privacy and the EUs pharmaceutical laws. However, many of the regulations that now apply in the United Kingdom following the transition period (including financial laws and regulations, tax, intellectual property rights, data protection laws, supply chain logistics, environmental, health and safety laws and regulations, medicine approval and regulations, immigration laws and employment laws), will likely be amended in the future as the UK determines its new approach, which may result in significant divergence from EU regulations. This lack of clarity on future United Kingdom laws and regulations and their interaction with the EU laws and regulations may negatively impact foreign direct investment in the United Kingdom, increase costs, depress economic activity and restrict access to capital. Brexit may affect our results of operations in a number of ways, including increasing currency exchange risk, generating instability in the global financial markets or negatively impacting the economies of the United Kingdom and Europe. In addition, as we are headquartered in the United Kingdom, it is possible that Brexit may impact some or all of our current operations. For example, now the transition period has ended, Brexit will impact our ability to freely move employees from our headquarters in the United Kingdom to other locations in Europe and it may impact the ability of European healthcare practitioners to move freely to the United Kingdom in order to complete part of their training or work on our clinical trials there. If other EU member states pursue withdrawal from the EU, barrier-free access between the United Kingdom and other EU member states or among the EEA overall could be diminished or eliminated.
The long-term effects of Brexit will depend in part on how the EU-UK Trade and Cooperation Agreement, and any future agreements signed by the UK and the EU, play out in practice. Such a withdrawal from the EU is unprecedented, and it is unclear how the restrictions on the United Kingdoms access to the European single market for goods, capital, services and labor within the EU and the wider commercial, legal and regulatory environment, will impact our current and future operations (including business activities conducted by third parties and contract manufacturers on our behalf) and clinical activities in the United Kingdom. In addition to the foregoing, our United Kingdom operations are currently organized so as to support and align with our current and future operations and clinical activities in the EU and EEA, but these operations and clinical activities could be disrupted by Brexit, which may require substantial changes to be made to our current United Kingdom or EU / EEA operations (for example, in respect of the importation and exportation of medicinal products and supply chain generally).
We may also face new regulatory costs and challenges that could have an adverse effect on our operations as a result of Brexit. The United Kingdom will lose the benefits of global trade agreements negotiated by the EU on behalf of its member states, which may result in increased trade barriers that could make our doing business in the EU and the EEA more difficult. Since the regulatory framework in the United Kingdom covering quality, safety and efficacy of medicinal products, clinical trials, marketing authorization, commercial sales and distribution of medicinal products is derived from EU directives and regulations, Brexit could materially impact the future regulatory regime with respect to the approval of our current or future product candidates in the United Kingdom. For instance, the United Kingdom will now no longer be covered by the centralized procedure for obtaining EU-wide marketing and manufacturing authorizations from the EMA for medicinal products and a separate process for authorization of drug products will be required in the United Kingdom, resulting in an authorization covering the United Kingdom only. For a period of two years from January 1, 2021, the MHRA may rely on a decision taken by the European Commission on the approval of a new marketing authorization in the centralized procedure, in order to more quickly grant a UK marketing authorization. A separate application will,
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however, still be required. It remains to be seen how Brexit will impact regulatory requirements for product candidates and therapies in the United Kingdom in the long term. Any delay in obtaining, or an inability to obtain, any regulatory approvals, as a result of Brexit or otherwise, would delay or prevent us from commercializing our current or future product candidates in the United Kingdom and/or the EU and restrict our ability to generate revenue and achieve and sustain profitability. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom and/or EU for our current or future product candidates, or incur significant additional expenses to operate our business, which could significantly and materially harm our business. Even prior to any change to the United Kingdoms relationship with the EU, the announcement of Brexit had created economic uncertainty surrounding the terms of Brexit and its consequences could adversely impact customer confidence resulting in customers reducing their spending budgets on our current or future product candidates, if approved, which could adversely affect our business, financial condition, results of operations and could adversely affect the market price of the ADSs.
We expect that, now that the transition period has expired, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which EU laws to replicate or replace, including those related to data privacy and the regulation of medicinal products, as described above. Any of these effects of Brexit, and others we cannot anticipate, could negatively impact our business and results of operations.
Legal, political and economic uncertainty surrounding the United Kingdoms withdrawal from the European Union may be a source of instability in international markets, create significant currency fluctuations and risks of additional taxation, adversely affect our operations in the United Kingdom and pose additional risks to our business, revenue, financial condition, and results of operations.
Since a significant proportion of the regulatory framework in the United Kingdom applicable to our business and our product candidates is derived from European Union directives and regulations, Brexit, following the transition period, could materially impact our business. Any further changes in international trade, tariff and import/export regulations as a result of Brexit or otherwise may impose unexpected duty costs or other non-tariff barriers on us. These developments, or the perception that any of them could occur, may significantly reduce global trade and, in particular, trade between the impacted nations and the United Kingdom. It is also possible that Brexit may negatively affect our ability to attract and retain employees, particularly those from the European Union.
The uncertainty concerning the United Kingdoms legal, political and economic relationship with the European Union following Brexit may be a source of instability in the international markets, create significant currency fluctuations, and/or otherwise adversely affect trading agreements or similar cross-border co-operation arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise).
It is possible that following the transition period the application of current exemptions from charges to United Kingdom stamp duty and stamp duty reserve tax, or SDRT, to issues or transfers of our ordinary shares to depositary receipt systems or clearance services could be adversely affected. Although under current case law and Her Majestys Revenue & Customs published practice it is not expected that any United Kingdom stamp duty or SDRT would arise in respect of any issue or transfer of our ordinary shares into a clearance service or depositary receipt system (including any issues or transfers effected in connection with this offering) where it forms an integral part of capital raising, it is possible that following the transition period, existing United Kingdom legislation (which is not presently enforceable as a result of EU case law and which the Government indicated in April 2017 would not be applied following Brexit) could be applied, for example in the event of a change in Government policy, such that United Kingdom stamp duty and/or SDRT would apply in respect of any issue or transfer of our ordinary shares to depositary receipt systems or clearance services occurring thereafter
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including in respect of an issue or transfer which is integral to the raising of capital and possibly including any issues or transfers effected in connection with this offering. In this event, we would be expected to bear any such United Kingdom stamp duty or SDRT (which, based on the existing legislation would be charged, in effect, at the rate of 1.5% of the value of the ordinary shares so issued or transferred). Any such charge would therefore represent an additional cost of our seeking to raise capital through issuances of our ordinary shares pursuant to this offering and any further issuances of our ordinary shares.
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Special note regarding forward-looking statements
This prospectus contains express or implied forward-looking statements that involve substantial risks and uncertainties. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by the words may, might, will, could, would, should, expect, intend, plan, objective, anticipate, believe, estimate, predict, potential, continue, ongoing, or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. The forward-looking statements and opinions contained in this prospectus are based upon information available to our management as of the date of this prospectus and, while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:
| the success, cost and timing of our research activities and clinical trials; |
| the timing, scope or likelihood of regulatory filings and approvals, including timing of Investigational New Drug Application and Biologics License Application filings for our current and future programs and any future product candidates, and final U.S. Food and Drug Administration, European Medicines Agency, United Kingdom Medicines and Healthcare products Regulatory Agency or other foreign regulatory authority approval of our current programs or follow-on indications and any future product candidates; |
| our ability to develop and advance additional follow-on indications as well as any future product candidates into, and successfully complete, clinical studies; |
| our ability to continue to innovate, improve and develop our technology platform, including continuing to develop and improve our PELEUS bioinformatic platform and VELOS manufacturing process and to evaluate new approaches to our manufacturing process; |
| our ability to expand our Material Acquisition Platform network to increase our network of clinical sites; |
| our ability to establish future collaborations or strategic relationships or obtain additional funding; |
| the rate and degree of market acceptance and clinical utility of our current and future programs and any future product candidates we may develop; |
| our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering product candidates we may develop, including the validity of intellectual property rights held by third parties, and our ability not to infringe, misappropriate or otherwise violate any third-party intellectual property rights; |
| regulatory developments in the United States, the United Kingdom, the European Union and other countries and regions; |
| competitive companies, technologies and our industry and the success of competing therapies that are or may become available; |
| our ability to attract and retain key scientific or management personnel; |
| our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates, if approved; |
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| the accuracy of our estimates of our future revenue, expenses, capital requirements and needs for additional financing; |
| our estimates regarding the market opportunities for our current and future programs and any future product candidates; |
| whether we are classified as a passive foreign investment company for future periods; |
| our ability to overcome the challenges posed by the COVID-19 pandemic to the conduct of our business; and |
| our expectations regarding use of the proceeds from this offering. |
You should refer to the section titled Risk factors for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus is a part completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
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Certain market and industry data included in this prospectus were obtained from independent third-party surveys, market research, publicly available information, reports of governmental agencies and industry publications and surveys. All market and industry data used in this prospectus involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. Although we are responsible for the disclosure contained in this prospectus and we believe the information from industry publications and other third-party sources included in this prospectus is reliable, such information is inherently imprecise. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled Risk factors. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
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We estimate that the net proceeds to us from this offering will be approximately $ million, based on an assumed initial public offering price of $ per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional ADSs in full, we estimate that the net proceeds to us from this offering will be approximately $ million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $ million, assuming that the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 in the number of ADSs offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $ million, assuming the assumed initial public offering price per ADS remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We intend to use the net proceeds from this offering, together with our existing cash and cash equivalents and short-term deposits, as follows:
| approximately $ to advance our cNeT programs for the treatment of advanced NSCLC and metastatic or recurrent melanoma; |
| approximately $ to advance our cNeT programs for the treatment of HNSCC and RCC through the completion of IND-enabling studies and for research and development activities related to additional follow-on indications; |
| approximately $ to fund the continued innovation and development of our PELEUS bioinformatic platform and $ to continue to enhance our VELOS manufacturing process; |
| approximately $ to fund the continued automation and expansion of our manufacturing capabilities and capacity; and |
| the remainder to fund ongoing business development activities, general and administrative expenses, working capital and other general corporate purposes. |
This expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. We may also use a portion of the net proceeds to in-license, acquire or invest in additional businesses, technologies, products or assets. We cannot predict with certainty all of the particular uses for the net proceeds to be received upon the consummation of this offering or the amounts that we will actually spend on the uses set forth above. Predicting the cost necessary to develop product candidates and commercialize approved products can be difficult and the amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development, our plans to expand our in-house product manufacturing capabilities, the status of and results from clinical trials, any collaborations that we may enter into with third parties for product candidates and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.
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Based on our planned use of the net proceeds from this offering and our existing cash and cash equivalents, we estimate that such funds will be sufficient to fund our operations and capital expenditure requirements through . We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. We may satisfy our future cash needs through the sale of equity securities, debt financings, working capital lines of credit, corporate collaborations or license agreements, grant funding, interest income earned on invested cash balances or a combination of one or more of these sources.
Pending our use of proceeds from this offering, we plan to invest these net proceeds in a variety of capital preservation instruments, including short-term, interest bearing obligations and investment-grade instruments.
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We have never declared or paid any cash dividend, and we do not anticipate declaring or paying any cash dividends in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. See the section titled Risk factorsRisks related ownership of the ADSsWe do not intend to pay dividends on the ADSs, so any returns will be limited to the value of our ordinary shares.
Under English law, among other things, we may only pay dividends if we have sufficient distributable reserves (on a non-consolidated basis), which are our accumulated realized profits that have not been previously distributed or capitalized less our accumulated realized losses, so far as such losses have not been previously written off in a reduction or reorganization of capital.
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Achilles TX Limited is a private limited company with limited liability incorporated in England and Wales in November 2020 with nominal assets and liabilities for the purpose of consummating the corporate reorganization described herein. Following the incorporation of Achilles TX Limited, Achilles TX Limited incorporated Achilles Therapeutics Holdings Limited as a wholly-owned subsidiary. Pursuant to the terms of a corporate reorganization effected in December 2020, all shareholders of Achilles Therapeutics Limited exchanged each of the shares held by them for equivalent shares (both in terms of number and class but with a nominal value of £1.20 per share) in Achilles TX Limited and, as a result, Achilles Therapeutics Limited became a wholly owned subsidiary of Achilles TX Limited. Achilles Therapeutics Limited has one wholly-owned subsidiary, Achilles Therapeutics US, Inc. Prior to the completion of this offering, Achilles TX Limited will sell all of the shares in Achilles Therapeutics Limited to Achilles Therapeutics Holdings Limited for newly issued ordinary shares with a nominal value of £1.00 per share in Achilles Therapeutics Holdings Limited. As a result, Achilles Therapeutics Limited will become a wholly owned subsidiary of Achilles Therapeutics Holdings Limited and Achilles Therapeutics US, Inc. will become an indirect wholly-owned subsidiary of Achilles Therapeutics Holdings Limited. Following this, Achilles Therapeutics Limited will transfer the entire issued share capital of Achilles Therapeutics US, Inc. to Achilles Therapeutics Holdings Limited by way of a dividend in specie. As part of the corporate reorganization, we will re-register Achilles TX Limited as a public limited company, rename it as Achilles Therapeutics plc and reorganize our share capital to two classes of ordinary shares: ordinary shares and Class A ordinary shares, each with a nominal value of £ .
Investors in this offering will only acquire, and this prospectus only describes the offering of, ADSs representing ordinary shares of Achilles Therapeutics plc. Class A ordinary shares will not be offered to investors as part of this offering. We refer to the reorganization, pursuant to which Achilles TX Limited will acquire all of the shares in Achilles Therapeutics Limited in exchange for equivalent shares (both in terms of number and class but with a nominal value per share of £1.20) in Achilles TX Limited, the subsequent re-registration as a public limited company and reorganization of our share capital to two classes of ordinary shares: ordinary shares and Class A ordinary shares, each with a nominal value of £ and the subsequent changes to our group structure (each of which is more particularly described below) as our corporate reorganization.
The corporate reorganization will take place in several steps, all of which will be completed prior to the completion of this offering.
Exchange of Achilles Therapeutics Limited shares for Achilles TX Limited shares
Prior to the share exchange described in this paragraph, the share capital of Achilles Therapeutics Limited was divided into: B ordinary shares of nominal value £0.00001 each; D ordinary shares of nominal value £0.00001 each; E ordinary shares of nominal value £0.00001 each; F ordinary shares of nominal value £0.00001 each; G ordinary shares of nominal value £0.00001 each; H ordinary shares of nominal value £0.00001 each; I ordinary shares of nominal value £0.00001 each; J ordinary shares of nominal value £0.00001 each; L ordinary shares of nominal value £0.00001 each; M ordinary shares of nominal value £0.00001 each; N ordinary shares of nominal value £0.00001 each; Series A preferred shares of nominal value £0.00001 each; Series B preferred shares of nominal value £0.00001 each; Series C preferred shares of nominal value £0.00001 each; and deferred shares of nominal value £0.00001 each. In December 2020, the shareholders of Achilles Therapeutics Limited exchanged all of the shares held by them in Achilles Therapeutics Limited for equivalent shares (both in terms of number and class but with a nominal value of £1.20 per share) in Achilles TX Limited. As a result, Achilles TX Limited became the sole shareholder of Achilles Therapeutics Limited and the existing shareholders in Achilles Therapeutics Limited became shareholders in Achilles TX Limited. As part of the share exchange described in
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this paragraph, Achilles TX Limited applied to HM Revenue and Customs for U.K. stamp duty and SDRT relief in connection with the share exchange under section 77 of the Finance Act 1986.
In accordance with the terms of section 692(1ZA) of the Companies Act 2006 and its articles of association, and immediately prior to the completion of the share exchange described above, Achilles Therapeutics Limited repurchased all of the deferred shares of nominal value £0.00001 each in issue for the aggregate amount of £0.01 for all of the deferred shares held by each holder of our deferred shares. Once repurchased, the deferred shares were immediately cancelled such that no deferred shares were in issue at the time of the share exchange.
Reduction of capital of Achilles TX Limited and Achilles Therapeutics Limited
Following the share exchange described in the immediately preceding section and pursuant to Part 17 of the Companies Act 2006, Achilles TX Limited reduced the nominal value of each of its shares from £1.20 to £0.001 pursuant to a capital reduction supported by a directors solvency statement in December 2020. The capital reduction was carried out in order to satisfy the net asset test requirement in section 92 of the Companies Act 2006 for the re-registration of Achilles TX Limited as a public limited company and to create distributable reserves in Achilles TX Limited to support future distributions. Prior to the completion of this offering, and in order to create sufficient distributable reserves to support the transfer of Achilles Therapeutics US, Inc. to Achilles Therapeutics Holdings Limited (as more particularly described below). Achilles Therapeutics Limited will undertake a capital reduction supported by a directors solvency statement to cancel the full amount standing to the credit of its share premium reserve.
Sale of Achilles Therapeutics Limited shares to Achilles Therapeutics Holdings Limited
Following the completion of the share exchange and receipt of the U.K. stamp duty relief described above, and prior to the completion of this offering, Achilles TX Limited will sell all of the shares in Achilles Therapeutics Limited to Achilles Therapeutics Holdings Limited for newly issued ordinary shares with a nominal value of £1.00 per share in Achilles Therapeutics Holdings Limited and, as a result, Achilles Therapeutics Limited will become a wholly-owned subsidiary of Achilles Therapeutics Holdings Limited. As a result of the transfer of Achilles Therapeutics Limited from Achilles TX Limited to Achilles Therapeutics Holdings Limited, Achilles Therapeutics US, Inc. will become an indirect, wholly-owned subsidiary of Achilles Therapeutics Holdings Limited. As part of the share transfer described in this paragraph, Achilles Therapeutics Holdings Limited will apply to HM Revenue and Customs for UK stamp duty and SDRT relief in connection with the share transfer under Section 42 of the Finance Act 1930.
Re-designation and consolidation of shares in Achilles Therapeutics Limited
As part of the corporate reorganization, and prior to the completion of this offering, Achilles Therapeutics Limited will re-designate and consolidate its share capital into a single class of ordinary shares with a nominal value of £0.00001 in order to simplify its capital structure.
Distribution of Achilles Therapeutics US, Inc. by Achilles Therapeutics Limited to Achilles Therapeutics Holdings Limited
Following Achilles Therapeutics Limited becoming a wholly-owned subsidiary of Achilles Therapeutics Holdings Limited, the completion of Achilles Therapeutics Limiteds capital reduction and prior to the completion of this offering, Achilles Therapeutics Limited will transfer the entire issued share capital of Achilles Therapeutics US, Inc. to its sole shareholder, Achilles Therapeutics Holdings Limited, by way of a dividend in specie. Following the
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receipt of the dividend in specie, Achilles Therapeutics Holdings Limited will become the sole shareholder of Achilles Therapeutics US, Inc.
Reduction of capital of Achilles Therapeutics Holdings Limited
Pursuant to Part 17 of the Companies Act 2006, Achilles Therapeutics Holdings Limited will undertake a capital reduction supported by a directors solvency statement in order to create distributable reserves to support future distributions by cancelling the full amount standing to the credit of its share premium reserve.
Re-registration of Achilles TX Limited as Achilles Therapeutics plc
Following the share exchange described above, completion of the capital reduction undertaken by Achilles TX Limited and prior to the completion of this offering, we intend to re-register Achilles TX Limited as a public limited company pursuant to section 92 of the UK Companies Act 2006, rename it Achilles Therapeutics plc and adopt new Articles of Association appropriate for a public limited company, each of which will require the passing of special resolutions by the shareholders of Achilles TX Limited. Further details of the new Articles of Association are set out in the section titled Description of share capital and articles of association.
Reorganization of shares in Achilles Therapeutics plc prior to the completion of this offering
Immediately prior to and conditional on the completion of this offering, and as the final step of the corporate reorganization, all of Achilles Therapeutics plcs outstanding B ordinary shares of nominal value £0.001 each; D ordinary shares of nominal value £0.001 each; E ordinary shares of nominal value £0.001 each; F ordinary shares of nominal value £0.001 each; G ordinary shares of nominal value £0.001 each; H ordinary shares of nominal value £0.001 each; I ordinary shares of nominal value £0.001 each; J ordinary shares of nominal value £0.001 each; L ordinary shares of nominal value £0.001 each; and M ordinary shares of nominal value £0.001 each will be converted on a -to- basis into an aggregate of ordinary shares of nominal value £ each and Class A ordinary shares of nominal value £ each. Assuming an offering price of $ per ADS, the midpoint of the range on the cover of this prospectus, the N ordinary shares of nominal value £0.001 each will be converted into an aggregate of ordinary shares of nominal value £ each. Following this, Achilles Therapeutics plc will undertake a one-for- reverse split of all of Achilles Therapeutics plcs ordinary shares of nominal value £ each and Class A ordinary shares of nominal value £ each. The fractional entitlements resulting from the reverse split will be consolidated into deferred shares of £ and transferred to us for no consideration and subsequently cancelled. These actions taken together are described in this registration statement as our reverse share split and will take effect immediately prior to and conditional on completion of this offering. Our reverse share split will not alter the proportionate shareholding of any of our existing shareholders. The steps described in this paragraph will require ordinary and special resolutions of our shareholders to be passed at a general meeting. For further detail regarding these required resolutions, please see Description of share capital and articles of association.
Therefore, upon the consummation of the corporate reorganization and prior to the completion of this offering, assuming an initial public offering price of $ per ADS, the current shareholders of Achilles Therapeutics Limited will hold an aggregate of ordinary shares in Achilles Therapeutics plc. In the event of a $1.00 increase in the assumed initial public offering price per ADS to $ per ADS, the current shareholders of Achilles Therapeutics Limited will hold an aggregate of ordinary shares in Achilles Therapeutics plc. In the event of a $1.00 decrease in the assumed initial public offering price per ADS to $ per ADS, the current shareholders of Achilles Therapeutics Limited will hold an aggregate of ordinary shares in Achilles Therapeutics plc.
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The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2020 on:
| an actual basis; |
| a pro forma basis to give effect to (i) the issuance and sale of 17,397,356 additional Series B preferred shares and 24,412,603 Series C preferred shares in November 2020, for aggregate net proceeds of $114.0 million and (ii) our corporate reorganization; and |
| on a pro forma as adjusted basis to give effect to the pro forma adjustments set forth above and to give further effect to the sale of ADSs in this offering, based on an assumed initial public offering price of $ per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
The pro forma and pro forma as adjusted information below is illustrative only and our capitalization following the closing of this offering is subject to adjustment based on the initial public offering price of the ADSs and the other terms of this offering determined at pricing. You should read this information together with our audited financial statements for years ended December 31, 2018 and 2019 and unaudited condensed consolidated financial statements for the nine months ended September 30, 2019 and 2020 and the related notes to those statements appearing elsewhere in this prospectus and the information set forth under the sections titled Selected consolidated financial data, Use of proceeds and Managements discussion and analysis of financial condition and results of operations.
As of September 30, 2020 | ||||||||||||
(in thousands, except share and per share data) | Actual | Pro forma |
Pro forma as adjusted(1) |
|||||||||
Cash and cash equivalents |
$ | 71,603 | $ | 185,609 | $ | |||||||
Shareholders equity: |
||||||||||||
Ordinary shares, £0.00001 par value; 10,687,648 shares authorized, issued and outstanding, actual; 115,542,321 shares issued and outstanding, pro forma; shares issued and outstanding, pro forma as adjusted |
| 2 | ||||||||||
Class A ordinary shares, £0.00001 par value; no shares issued and outstanding, actual; no shares issued and outstanding, pro forma; no shares issued and outstanding, pro forma as adjusted |
| | ||||||||||
Deferred shares, £0.00001 par value; 1,053,203 shares authorized, issued and outstanding, actual; 1,053,203 shares issued and outstanding, pro forma; 1,053,203 shares issued and outstanding, pro forma as adjusted |
| | ||||||||||
Convertible preferred shares, £0.00001 par value; 63,044,714 shares authorized, issued and outstanding, actual; no shares issued and outstanding, pro forma; no shares issued and outstanding, pro forma as adjusted |
1 | | ||||||||||
Additional paid in capital |
119,205 | 233,210 | ||||||||||
Accumulated other comprehensive income |
5,021 | 5,021 | ||||||||||
Accumulated deficit |
(45,092 | ) | (45,092 | ) | ||||||||
|
|
|
|
|||||||||
Total capitalization |
$ | 79,135 | $ | 193,141 | $ | |||||||
|
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Each $1.00 increase (decrease) in the assumed initial public offering price of $ per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents and short-term deposits, total equity and total capitalization by $ million, assuming that the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 in the number of ADSs offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents and short-term deposits, total equity and total capitalization by $ million, assuming no change in the assumed initial public offering price per ADS and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The number of ordinary shares outstanding in the table above does not include:
| no ordinary shares issuable upon the exercise of options for ordinary shares outstanding as of September 30, 2020; |
| 4,865,702 ordinary shares reserved for issuance under our Omnibus Plan as of September 30, 2020, which shares will no longer be reserved following this offering; |
| 1,053,203 deferred shares outstanding as of September 30, 2020; |
| ordinary shares that will be made available for future issuance under the 2021 Option Plan, which will become effective in connection with this offering; and |
| ordinary shares that will be made available for future issuance under the ESPP, which will become effective in connection with this offering. |
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If you invest in the ADSs in this offering, your interest will be immediately diluted to the extent of the difference between the initial public offering price per ADS in this offering and the pro forma as adjusted net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ADS is substantially in excess of the net tangible book value per ADS. As of September 30, 2020, we had a historical net tangible book value of $79.1 million, or $7.40 per ordinary share ( per ADS). Our net tangible book value per share represents total tangible assets, less total liabilities, divided by the number of ordinary shares outstanding on September 30, 2020.
Our pro forma net tangible book value as of September 30, 2020 was $193.1 million, or $1.67 per ordinary share ($ per ADS). Pro forma net tangible book value gives effect to (i) the issuance and sale of 17,397,356 additional Series B preferred shares and 24,412,603 Series C preferred shares in November 2020, for aggregate net proceeds of $114.0 million and (ii) our corporate reorganization.
After giving further effect to the sale of ADSs in this offering at an assumed initial public offering price of $ per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value at September 30, 2020 would have been $ million, or $ per ordinary share ($ per ADS). This represents an immediate increase in pro forma as adjusted net tangible book value of $ per ordinary share ($ per ADS) to existing shareholders and immediate dilution of $ per ordinary share ($ per ADS) to new investors .
The following table illustrates this dilution on a per ADS basis, assuming all ordinary shares outstanding as of September 30, 2020 converted to ADSs at an ADS-to-ordinary share ratio of -to- :
Assumed initial public offering price per ADS |
$ | |||||||
Historical net tangible book value per ADS as of September 30, 2020 |
$ | 7.40 | ||||||
Decrease in net tangible book value per ADS attributable to the pro forma adjustments described above |
5.73 | |||||||
|
|
|||||||
Pro forma net tangible book value per ADS as of September 30, 2020 |
1.67 | |||||||
Increase in pro forma as adjusted net tangible book value attributable to new investors purchasing ADSs in this offering |
$ | |||||||
|
|
|||||||
Pro forma as adjusted net tangible book value per ADS after this offering |
$ | |||||||
|
|
|||||||
Dilution per share to new investors purchasing ADSs in this offering |
$ | |||||||
|
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value as of September 30, 2020 after this offering by $ million, or approximately $ per ordinary share ($ per ADS), and would increase (decrease) dilution to new investors by $ per ordinary share ($ per ADS), assuming that the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase of 1,000,000 in the number of ADSs we are offering would increase our pro forma as adjusted net tangible book value as of September 30, 2020 after this offering by $ per ordinary share ($ per ADS), and would decrease dilution to new investors by $ per ordinary share ($ per ADS), assuming the assumed initial public offering price per ADS remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. A decrease of 1,000,000 in the number of ADSs we are offering would decrease our pro forma as adjusted net tangible book value as of
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September 30, 2020 after this offering by $ per ordinary share ($ per ADS), and would increase dilution to new investors by $ per ordinary share ($ per ADS), assuming the assumed initial public offering price per ADS remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.
If the underwriters exercise their option to purchase additional ADSs in full, the pro forma as adjusted net tangible book value per ADS after the offering would be $ , the increase in net tangible book value per ADS to existing shareholders would be $ and the immediate dilution in net tangible book value per ADS to new investors in this offering would be $ .
The following table summarizes, on the pro forma as adjusted basis described above as of September 30, 2020, the differences between the existing shareholders and the new investors in this offering with respect to the number of ordinary shares purchased from us (including ordinary shares in the form of ADSs), the total consideration paid to us and the average price per ordinary share (including ordinary shares in the form of ADSs), based on an assumed initial public offering price of $ per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Ordinary shares /
ADSs purchased |
Total consideration |
Average price per ordinary share/ADS |
||||||||||||||||||
Number | Percent | Amount | Percent | |||||||||||||||||
Existing shareholders |
% | $ | % | $ | ||||||||||||||||
New investors participating in this offering |
||||||||||||||||||||
Total |
100% | $ | 100% | $ | ||||||||||||||||
|
If the underwriters exercise their option to purchase additional ADSs in full, the percentage of ordinary shares held by existing shareholders will decrease to % of the total number of ordinary shares outstanding after the offering, and the number of shares held by new investors will be increased to , or % of the total number of ordinary shares outstanding after this offering.
The foregoing tables and calculations are based on the number of ordinary shares outstanding as of September 30, 2020, and exclude:
| no ordinary shares issuable upon the exercise of options for ordinary shares outstanding as of September 30, 2020; |
| 4,865,702 ordinary shares reserved for issuance under our Omnibus Plan as of September 30, 2020, which shares will no longer be reserved following this offering; |
| 1,053,203 deferred shares outstanding as of September 30, 2020; |
| ordinary shares that will be made available for future issuance under the 2021 Option Plan, which will become effective in connection with this offering; and |
| ordinary shares that will be made available for future issuance under the ESPP, which will become effective in connection with this offering. |
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Selected consolidated financial data
The following tables present the selected consolidated financial data as of the dates and for the periods indicated for Achilles Therapeutics Limited. We have derived the following selected statements of loss and other comprehensive loss for the years ended December 31, 2018 and 2019 and the summary balance sheet data as at December 31, 2018 and 2019 from our audited financial statement appearing elsewhere in this prospectus. The consolidated statements of operations and comprehensive loss data for the nine months ended September 30, 2019 and 2020 and the consolidated balance sheet data as of September 30, 2020 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus and have been prepared on the same basis as the audited financial statements. In the opinion of management, the unaudited data reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial information contained in those statements. Our historical results are not necessarily indicative of our future results, and our operating results for the interim period ended September 30, 2020 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2020 or any other interim periods or any future period. The selected consolidated financial data set forth below should be read together with our audited financial statements for years ended December 31, 2018 and 2019 and unaudited condensed consolidated financial statements for the nine months ended September 30, 2019 and 2020 and the related notes to those statements, as well as the section of this prospectus captioned Managements discussion and analysis of financial condition and results of operations.
Year ended December 31, |
Nine months ended September 30, |
|||||||||||||||
(in thousands, except share and per share data) | 2018 | 2019 | 2019 | 2020 | ||||||||||||
Statement of Operations and Comprehensive Loss Data: |
||||||||||||||||
Operating expenses |
||||||||||||||||
Research and development |
$ | 4,802 | $ | 9,072 | $ | 6,326 | $ | 13,668 | ||||||||
General and administrative |
2,099 | 4,703 | 3,014 | 7,140 | ||||||||||||
|
|
|||||||||||||||
Total operating expenses |
6,901 | 13,775 | 9,340 | 20,808 | ||||||||||||
|
|
|||||||||||||||
Loss from operations |
(6,901 | ) | (13,775 | ) | (9,340 | ) | (20,808 | ) | ||||||||
Other income (expense), net: |
||||||||||||||||
Other income (expense) |
14 | (215 | ) | (92 | ) | 529 | ||||||||||
|
|
|||||||||||||||
Total other income (expense), net |
14 | (215 | ) | (92 | ) | 529 | ||||||||||
|
|
|||||||||||||||
Net loss |
(6,887 | ) | (13,990 | ) | (9,432 | ) | (20,279 | ) | ||||||||
Other comprehensive (loss) income: |
||||||||||||||||
Foreign currency translation adjustment |
(57 | ) | 8,504 | 830 | (3,088 | ) | ||||||||||
|
|
|||||||||||||||
Comprehensive loss |
$ | (6,944 | ) | $ | (5,486 | ) | $ | (8,602 | ) | $ | (23,367 | ) | ||||
|
|
|||||||||||||||
Net loss per share attributable to ordinary shareholdersbasic and diluted |
$ | (3.21 | ) | $ | (5.50 | ) | $ | (3.87 | ) | $ | (5.34 | ) | ||||
|
|
|||||||||||||||
Weighted average ordinary shares outstandingbasic and diluted |
2,148,002 | 2,542,520 | 2,434,082 | 3,794,157 | ||||||||||||
|
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As of December 31, |
As of September 30, |
|||||||||||
(in thousands) | 2018 | 2019 | 2020 | |||||||||
Balance Sheet Data: |
||||||||||||
Cash and cash equivalents |
$ | 10,683 | $ | 97,594 | $ | 71,603 | ||||||
Working capital(1) |
12,090 | 99,204 | 68,814 | |||||||||
Total assets |
13,959 | 105,205 | 96,559 | |||||||||
Convertible preferred shares |
| 1 | 1 | |||||||||
Total shareholders equity |
12,673 | 101,348 | 79,135 | |||||||||
|
(1) | We define working capital as total current assets less total current liabilities. |
We maintain the financial statements of each entity within the group in its local currency, which is also the entitys functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Non-monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in other expense, net in the consolidated statement of comprehensive loss. For financial reporting purposes our financial statements have been presented in U.S. dollars, the reporting currency. The financial statements of entities are translated from their functional currency into the reporting currency as follows: assets and liabilities are translated at the exchange rates at the balance sheet dates, revenue and expenses are translated at the average exchange rates and shareholders equity is translated based on historical exchange rates. Translation adjustments are not included in determining net loss but are included as a foreign exchange adjustment to other comprehensive loss, a component of shareholders equity.
The representative exchange rates for the last day of the year ended December 31, 2019 and the quarter ended September 30, 2020 were £1.00 = $1.327 and £1.00 = $1.290, respectively.
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Managements discussion and analysis of financial condition and results of operations
You should read the following discussion and analysis of our financial condition and results of operations together with section entitled Selected consolidated financial data, our audited financial statements for the years ended December 31, 2018 and 2019 and our unaudited condensed consolidated financial statements for the nine months ended September 30, 2019 and 2020, as well as related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business and our expectations with respect to liquidity and capital resources, includes forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those risks and uncertainties described in Risk factors and Special note regarding forward-looking statements in this prospectus. Our actual results could differ materially from the results described in or implied by these forward-looking statements.
Overview
We are a clinical immuno-oncology biopharmaceutical stage company developing transformative precision T cell therapies to treat multiple types of solid tumors. We are focused on advancing cancer therapies through our pioneering work in the field of tumor evolution and our belief that clonal neoantigens represent the most specific class of cancer cell targets. Our platform enables us to identify mutations formed early in the development of a cancer that give rise to antigens that are expressed by all of a patients cancer cells but are absent from healthy tissue. We refer to this novel class of solid tumor targets as clonal neoantigens. To identify clonal neoantigens in a patient, we have developed a proprietary bioinformatic platform called PELEUS. This platform employs sophisticated statistical algorithms trained on the unique tumor genetic data derived from our exclusive license to data from the TRACERx study, which aims to analyze tumor samples from more than 840 non-small cell lung cancer, or NSCLC, patients. Once we have identified the clonal neoantigens, our proprietary manufacturing process, VELOS, uses the patients T cells and blood-derived dendritic cells to create a Clonal Neoantigen Targeting T cell therapy, or cNeT, that specifically targets multiple clonal neoantigens to eradicate the tumor.
Since our inception in 2016, we have devoted substantially all of our resources to conducting research activities and clinical trials, organizing and staffing our company, business planning, raising capital and establishing our intellectual property portfolio. We have initially focused on two solid tumor types: advanced NSCLC and metastatic or recurrent melanoma as well as expanding into a range of additional indications. We do not have any products approved for sale and have not generated any revenue from product sales. To date, we have principally raised capital through the issuance and sale of our convertible preferred shares to outside investors. To date, we had received net cash proceeds of $230.9 million from investors in our preferred shares financings.
We have incurred significant operating losses since inception. We incurred total net losses of $6.9 million and $14.0 million for the fiscal years ended December 31, 2018 and 2019, respectively, and $20.3 million for the nine months ended September 30, 2020. As of September 30, 2020, we had an accumulated deficit of $45.1 million. These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We expect that our expense and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:
| continue to develop our pipeline of discovery programs and conduct research and clinical activities for our existing programs for advanced NSCLC, metastatic or recurrent melanoma and other solid tumors; |
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| continue to innovate, improve and develop our technology platform, including continuing to develop and improve our PELEUS bioinformatic platform and VELOS manufacturing process and to evaluate new approaches to our manufacturing process; |
| expand our Material Acquisition Platform, or MAP, network to increase our network of clinical sites; |
| advance the development of our current programs, additional follow-on indications and any future product candidates into additional solid tumor indications; |
| maintain, expand and protect our intellectual property portfolio; |
| seek marketing approvals and complete any post-marketing studies, if required, for any of our product candidates that successfully complete clinical trials, if any; |
| acquire or in-license additional product candidates and technologies; |
| expand our infrastructure and facilities to accommodate our growing employee base and ongoing development activity; |
| continue to improve our manufacturing process to create a fully closed end-to-end manufacturing process; |
| expand our manufacturing infrastructure and facilities to support the manufacture of larger quantities of our product candidates for clinical development and potential commercialization globally; |
| establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval; and |
| add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and our transition to operating as a public company following the completion of this offering. |
Furthermore, following the closing of this offering, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for ATL001 or any future product candidates. If we obtain regulatory approval for ATL001 or any product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing and distribution. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. Our inability to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. There can be no assurances, however, that the current operating plan will be achieved or that additional funding will be available on terms acceptable to us, or at all.
As of September 30, 2020, we had cash and cash equivalents of $71.6 million. We believe our existing cash and cash equivalents, together with the anticipated net proceeds from this offering, will enable us to fund our operating expenses and capital expenditure requirements through . See Liquidity and capital resourcesFunding requirements below.
Impact of the COVID-19 pandemic
The development of ATL001 for our current programs and additional follow-on indications as well as any future product candidates could be disrupted and materially adversely affected in the future by a pandemic, epidemic
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or outbreak of an infectious disease, such as the recent COVID-19 pandemic. The spread of COVID-19 has impacted the global economy and has impacted our operations, including the interruption of our research activities and clinical trial and potential interruption to our supply chain, which includes interruption of or delays in receiving supplies from the third parties we rely on to, among other things, conduct our manufacturing process, due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems. For example, the COVID-19 pandemic has delayed enrollment in and dosing of our ongoing Phase I/IIa clinical trial for metastatic or recurrent melanoma and our ongoing Phase I/IIa clinical trial for advanced NSCLC. We managed to keep our operations on-going at both our GMP manufacturing site and research and development operations which culminated in the dosing of our first melanoma patient in May 2020 and the first NSCLC patient in June 2020. The causes of these delays include government orders and site policies on account of the pandemic, some patients may be unwilling or unable to travel to study sites, enroll in trials or be unable to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. These factors could delay our ability to conduct research activities and clinical trials or release clinical trial results and our ability to obtain regulatory approval and commercialize ATL001 and any product candidates. Furthermore, COVID-19 could affect our employees or the employees of research sites and service providers on whom we rely as well as those of companies with which we do business, including our suppliers and contract manufacturing organizations, thereby disrupting our business operations. Quarantines and travel restrictions imposed by governments in the jurisdictions in which we and the companies with which we do business operate could materially impact the ability of employees to access research and clinical sites, laboratories, manufacturing sites and offices. We have implemented work-at-home policies and may experience limitations in employee resources. Our increased reliance on personnel working from home may negatively impact productivity, or disrupt, delay, or otherwise adversely impact our business.
We are still assessing our business plans and the impact the COVID-19 pandemic may have on our ability to advance the testing, development and manufacturing of ATL001 and any future product candidates, including as a result of adverse impacts on the research sites, service providers, vendors, or suppliers on whom we rely, or to raise financing to support the development of product candidates. No assurances can be given that this analysis will enable us to avoid part or all of any impact from the spread of COVID-19 or its consequences, including downturns in business sentiment generally or in our sector in particular. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties on whom we rely or with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and adversely impacted.
License agreements
CRT license
In May 2016, we entered into a License Agreement, or the License Agreement, with CRT pursuant to which we obtained access rights to intellectual property and Know-How from the Whole TRACERx Study. Under the license agreement, we are granted an exclusive, sublicensable license to the TRACERx patents and bioinformatic data for use in: (i) the fields of neoantigen cell therapies and adoptive cell transfer neoantigen diagnostics for use in research and the potential development of products for commercialization and (ii) the neoantigen therapeutic vaccine field for research and development but not in the development of products for commercial sale. We also obtained a non-exclusive license to the TRACERx bioinformatic pipeline, patient sequencing and medical data, know-how, and materials.
CRT additionally granted us certain rights to new patent applications filed by the Founding Institutions in respect of inventions resulting from the TRACERx study through February 2023, including automatic exclusive
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licenses to patent rights relating to non-severable improvements of technology covered by the original TRACERx patents and non-exclusive rights to severable improvements. CRT granted us the right of first negotiation to license certain patent rights generated by our founders outside of the TRACERx study which relate to the licensed technology.
In July 2017, we obtained a non-exclusive license to the LOHHLA patent, which relates to the LOHHLA bioinformatics tool which can detect loss of an HLA allele in a tumor, under the License Agreement. In October 2018, we obtained an exclusive license to the LOHHLA patent under an addendum to the License Agreement.
In May 2018, we entered into an amendment to the License Agreement that created an additional sample period through July 2020 and specified additional patient tumor and blood materials to be subject to the License Agreement related to the immunology side study. The License Agreement was subsequently amended in July 2020 and November 2020 to extend the additional sample period, which currently runs through January 2021.
Upon execution of the License Agreement we granted CRT 1,568,420 B ordinary shares and 268,420 C ordinary shares. The fair value of the B and C ordinary shares were $0.14 per share. We recorded $0.3 million as intellectual property research and development expense in 2016 and corresponding additional paid-in capital. None of the vesting conditions of C ordinary shares were met and these shares were converted to deferred shares in September 2019. We are obligated to pay CRT milestone success payments up to an aggregate of £6.5 million for therapeutic products, and milestone success payments up to an aggregate of £0.8 million for non-therapeutic products, as well as a sub-single digit to low-single digit percentage royalty on net sales of products that utilize the licensed intellectual property, subject to certain customary reductions. The royalty obligations continue on a product-by-product and country-by-country basis until the later of (i) the date there ceases to be a valid patent claim covering such product in the country in which it is sold or (ii), with respect to contribution royalty products, ten years from the first commercial sale of the product, and with respect to a patent royalty product, five years from the first commercial sale of the product. On a product-by-product basis, we may also elect to provide other cash consideration at fair market value and forgo the milestone or royalty payment.
No expenses were recorded for the years ended December 31, 2018 and 2019 and nine months ended September 30, 2020 related to the CRT License Agreement.
Components of our results of operations
Revenue
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for ATL001 or any of our future candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales.
Operating expenses
Research and development expenses
Research and development expenses consist primarily of costs incurred in connection with the research and development of ATL001 for our current programs, additional follow-on indications and enhancement of our existing technology platform. Research and development expenses consist of:
| expenses incurred under agreements with contract research organizations, or CROs, as well as investigative sites and consultants that conduct our clinical trials, research activities and other scientific development services; |
| manufacturing scale-up expenses and the cost of acquiring and manufacturing clinical trial materials; |
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| expenses to acquire technologies to be used in research and development; |
| employee-related expenses, including salaries, related benefits, travel and share-based compensation expense for employees engaged in research and development functions; |
| costs of outside consultants, including their fees, share-based compensation and related travel expenses; |
| the costs of laboratory supplies and acquiring, developing and manufacturing clinical trial materials; |
| costs related to compliance with regulatory requirements; |
| facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs; and |
| upfront, milestone and management fees for maintaining licenses under our third-party licensing agreements. |
We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. As a result, our research and development expenses may vary substantially from period to period based on the timing of our research and development activities. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as a prepaid expense or accrued research and development expenses.
U.K. research and development tax credits are recorded as an offset to research and development expense. See Income taxes.
Our direct research and development expenses are tracked on an indication by indication basis and consist primarily of external costs, such as fees paid to outside consultants, CROs and central laboratories in connection with our research activities, process development, manufacturing and clinical development activities. License fees and other costs incurred after a product candidate has been selected that are directly related to a product candidate are included in direct research and development expenses for that program. License fees and other costs incurred prior to designating a product candidate are included in other program expense. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to oversee the research and development as well as to manage our research activities, process development, manufacturing and clinical development activities. These employees work across multiple programs and, therefore, we do not track their costs by program.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials and related product manufacturing expenses. As a result, we expect that our research and development expenses will continue to increase over the next several years as we: (i) expedite the clinical development and obtain marketing approval for ATL001 for advanced NSCLC and metastatic or recurrent melanoma; (ii) initiate additional clinical trials for ATL001 or any future product candidates, including for the treatment of head and neck squamous cell carcinoma, or HNSCC, renal cell carcinoma, or RCC, triple negative breast cancer, or TNBC, and bladder cancer; (iii) improve the efficiency and scalability of our manufacturing processes and supply chain including enhancing the capability of our PELEUS platform for selecting clonal neoantigens; and (iv) build our in-house process development, analytical and manufacturing capabilities and continue to discover and develop additional product candidates, increase personnel costs and prepare for regulatory filings related to ATL001 and any
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future product candidates. We also expect to incur additional expenses related to milestone, royalty payments and maintenance fees payable to third parties with whom we have entered into license agreements to acquire the rights related to TRACERx.
The successful development and commercialization of ATL001 or any of our future product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with development and commercialization, including the following:
| completing research activities for the development of ATL001 and identifying new cNeT product candidates; |
| establishing an appropriate safety profile with IND- and CTA-enabling studies; |
| successful patient enrollment in, and the initiation and completion of, clinical trials; |
| the timing, receipt and terms of any marketing approvals from applicable regulatory authorities and reimbursement and market access from third-party payors; |
| our ability to establish commercial manufacturing capabilities and maintain suitable arrangements with third-party manufacturers for ATL001 and any future product candidates; |
| obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights; |
| defending against third-party infringement, misappropriation or other violation of intellectual property rights claims; |
| significant and changing government regulation; |
| establishing and maintaining temperature controlled product logistics; |
| launching commercial sales of ATL001 and any future product candidates, if and when approved, whether alone or in collaboration with others; and |
| maintaining a continued acceptable safety profile of the product candidates following approval. |
A change in the outcome of any of these variables with respect to the development of ATL001 and any future product candidates in development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA, EMA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to commit significant additional financial resources and time on the completion of clinical development of that product candidate.
General and administrative expenses
General and administrative expenses consist primarily of salaries and related benefits, share-based compensation expense, travel and other expenses incurred by personnel in executive, finance and administrative functions. These expenses include professional fees for legal, including patent costs, consulting, accounting and audit services. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of ATL001 and any future product candidates.
We also anticipate we will continue to incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and expense as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidate.
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Other income (expense), net
Interest income
Interest income consists primarily of interest earned on our cash. We expect that our interest income will increase as we invest the cash received from our recent sales of convertible preferred shares financing that took place in the fourth quarter of 2020 and the net proceeds from this offering.
Other expense
Foreign currency transactions in currencies different from the functional currency of our entity are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange differences resulting from the settlement of such transactions and from the translation at period-end exchange rates in foreign currencies are recorded in other income (expense), net in the statement of operations and comprehensive loss. As such, our other income (expense), net may be impacted by future changes in exchange rates. See Quantitative and qualitative disclosures about market risk for further discussion.
Income taxes
We are subject to corporate taxation in the United States and the United Kingdom. Due to the nature of our business, we have generated losses since inception and have therefore not paid United Kingdom corporation tax. As a company that carries out extensive research and development activities, we seek to benefit from one of two U.K. R&D tax credit cash rebate regimes: Small and Medium Enterprise, or SME, Program and the Research and Development Expenditure Credit, or RDEC, Program. Qualifying expenditures largely comprise employment costs for research staff, consumables and certain internal overhead costs incurred as part of research projects for which we do not receive income.
Based on criteria established by Her Majestys Revenue and Customs, or HMRC, a portion of expenditures being carried in relation to our pipeline R&D, clinical trials management and manufacturing development activities were eligible for the SME Program for the year ended December 31, 2019. We claimed the tax credit which was paid in 2020. We will continue to assess whether it is possible to qualify under the more favorable SME regime for future accounting periods.
Unsurrendered U.K. losses may be carried forward indefinitely to be offset against future taxable profits, subject to numerous utilization criteria and restrictions. The amount that can be offset each year is limited to £5.0 million plus an incremental 50% of U.K. taxable profits. After accounting for tax credits receivable, we had accumulated tax losses for carry forward in the United Kingdom of $13.0 million as of December 31, 2019.
Benefit from research and development, or R&D, tax credit, is received in the U.K. and recorded as an offset to research and development expenses. The U.K. research and development tax credit, as described below, is fully refundable to us and is not dependent on current or future taxable income. As a result, we have recorded the entire benefit from the U.K. research and development tax credit as a benefit which is included in our net loss before income tax and accordingly, not reflected as part of the income tax provision. If, in the future, any U.K. R&D tax credits generated are needed to offset a corporate income tax liability in the U.K., that portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded as an offset to research and development expenses.
In the event we generate revenues in the future, we may benefit from the U.K. patent box regime that allows profits attributable to revenues from patents or patented products to be taxed at an effective rate of 10%. Value Added Tax, or VAT, is broadly charged on all taxable supplies of goods and services by VAT-registered businesses. Under current rates as determined for VAT purposes, the goods or services supplied is added to all sales invoices and is payable to HMRC. Similarly, VAT paid on purchase invoices is generally reclaimable from HMRC.
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Results of operations
Comparison of the Nine Months Ended September 30, 2019 and 2020
The following table summarizes our results of operations for the nine months ended September 30, 2019 and 2020 (in thousands):
Unaudited nine months ended September 30, | ||||||||||||
2019 | 2020 | Change | ||||||||||
Operating expenses: |
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Research and development |
$ | 6,326 | $ | 13,668 | $ | 7,342 | ||||||
General and administrative |
3,014 | 7,140 | 4,126 | |||||||||
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|
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Total operating expenses |
9,340 | 20,808 | 11,468 | |||||||||
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|
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Loss from operations |
(9,340 | ) | (20,808 | ) | (11,468 | ) | ||||||
Other income (expense), net: |
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Other income (expense) |
(92 | ) | 529 | 621 | ||||||||
|
|
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Total other income (expense), net |
(92 | ) | 529 | 621 | ||||||||
|
|
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Net loss |
$ | (9,432 | ) | $ | (20,279 | ) | $ | (10,847 | ) | |||
|
Research and development expenses
The table below summarizes our research and development expenses incurred by program (in thousands):
Unaudited nine months ended September 30, | ||||||||||||
2019 | 2020 | Change | ||||||||||
Direct research and development expense by program: |
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NSCLC |
$ | 640 | $ | 1,854 | $ | 1,214 | ||||||
Melanoma |
336 | 885 | 549 | |||||||||
Other pre-clinical and technology development cost |
1,520 | 2,677 | 1,157 | |||||||||
Unallocated research and development expense: |
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Personnel expenses |
3,453 | 4,791 | 1,338 | |||||||||
Other expenses |
377 | 3,461 | 3,084 | |||||||||
|
|
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Total research and development expenses |
$ | 6,326 | $ | 13,668 | $ | 7,342 | ||||||
|
Research and development expenses were net of research and development tax credit reimbursement of $2.1 million and $3.9 million for the nine months ended September 30, 2019 and 2020, respectively. The net increase in research and development expenses was $7.3 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The net increase in research and development expense was primarily attributable to a net increase of $1.2 million in direct expenses as a result of optimization activities for our advanced NSCLC program, a net increase of $0.5 million in direct expense of our metastatic or recurrent melanoma program and a net increase of $1.2 million in direct costs related to our good manufacturing practices, or GMP, manufacturing spend and other exploratory program. Our unallocated research and development expense increased by $4.4 million for the nine months ended September 30, 2020, primarily as a result of increased facility costs due to the lease of new laboratory space and the increased costs of supporting the increased headcount in our research and development functions and their research efforts.
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General and administrative expenses
The following table summarizes our general and administrative expenses for the nine months ended September 30, 2019 and 2020 (in thousands):
Unaudited nine months ended September 30, | ||||||||||||
2019 | 2020 | Change | ||||||||||
Personnel expenses |
$ | 2,113 | $ |