UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the fiscal year ended December 31 , 2020
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 001-38295
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(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices) | (Zip Code) | ||||
(857 ) 529-8300
(Registrant’s telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (of this chapter) during the preceding 12 months (of for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ | |||||||||||
| ☒ | Smaller reporting company | |||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant has filed a report on an attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐
On June 30, 2020, the aggregate market value of the Registrant’s voting common stock held by non-affiliates of the registrant was approximately $144,752,443 based upon the closing sale price on the Nasdaq Capital Market reported on June 30, 2020.
As of March 15, 2021, there were 17,384,478 shares of the registrant’s common stock, $0.001 par value per share outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
| Item 16. | ||||||||
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EXPLANATORY NOTE
On March 13, 2019, X4 Pharmaceuticals, Inc. (formerly Arsanis, Inc.), or the Company, completed its business combination, or the Merger, in accordance with the terms of the Agreement and Plan of Merger, dated as of November 26, 2018, as amended on December 20, 2018 and March 8, 2019, or the Merger Agreement, by and among the Company, X4 Therapeutics, Inc. (formerly X4 Pharmaceuticals, Inc.) and Artemis AC Corp., a Delaware corporation and a wholly-owned subsidiary of the Company, or the Merger Sub, pursuant to which, among other matters, Merger Sub merged with and into X4 Therapeutics, Inc., with X4 Therapeutics, Inc. continuing as a wholly-owned subsidiary of the Company and the surviving corporation of the merger.
Following the Merger, on March 13, 2019, the Company effected a 1-for-6 reverse stock split of its common stock, or the Reverse Stock Split, and changed its name to “X4 Pharmaceuticals, Inc.” Following the completion of the Merger, the business conducted by X4 Pharmaceuticals Inc. became primarily the business conducted by X4 Therapeutics, Inc., a clinical-stage biopharmaceutical company focused on the research, development and commercialization of novel therapeutics for the treatment of rare diseases.
Unless otherwise noted, all references to common stock share and per share amounts in this Annual Report on Form 10-K, or this Annual Report, have been retroactively adjusted to reflect the conversion of shares in the Merger based on an exchange ratio of 0.5702 and the Reverse Stock Split.
Unless the context requires otherwise, references in this Annual Report to “X4”, “we”, “us” and “our” refer to X4 Pharmaceuticals, Inc. and its subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that relate to future events or to our future operations or financial performance. These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” and elsewhere in this report, regarding, among other things:
•the timing, progress and reporting of results of our current trials of mavorixafor, including our global Phase 3 clinical trial in patients with Warts, Hypogammaglobulinemia, Infections, and Myelokathexis, or WHIM, syndrome, our Phase 1b clinical trial in combination with ibrutinib in patients with Waldenström’s macroglobulinemia, or Waldenström’s, and our Phase 1b clinical trial as monotherapy in patients with Severe Congenital Neutropenia, or SCN;
•the initiation, timing, design, progress, and results of our current and future preclinical studies and clinical trials of X4P-002 and X4P-003 or any of our other product candidates or our research and development programs that we pursue;
•our expectations regarding the impact of the ongoing COVID-19 pandemic, included the expected duration of disruption and immediate and long-term impact and effect on our business and operations;
•the diversion of healthcare resources away from the conduct of clinical trials as a result of the ongoing COVID-19 pandemic, including the diversion of hospitals serving as our clinical trial sites and of hospital staff or independent physicians supporting the conduct of our clinical trials;
•the interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel, quarantines or social distancing protocols imposed or recommended by federal or state governments, employers and others in connection with the ongoing COVID-19 pandemic;
•the potential benefits that may be derived from any of our product candidates;
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•the timing of and our ability to obtain and maintain regulatory approval of our existing product candidates or any product candidates that we may develop in the future, and any related restrictions, limitations, or warnings in the label of any approved product candidates;
•our plans to research, develop, manufacture and commercialize our product candidates;
•the timing of our regulatory filings for our product candidates, along with regulatory developments in the United States and other foreign countries;
•the size and growth potential of the markets for our product candidates, if approved, and the rate and degree of market acceptance of our product candidates, including reimbursement that may be received from payors;
•the benefits of U.S. Food and Drug Administration, or FDA, and European Commission designations, including, without limitation, Fast Track, Orphan Drug and Breakthrough Therapy;
•our commercialization, marketing and manufacturing capabilities and strategy;
•our ability to attract and retain qualified employees and key personnel;
•our competitive position;
•our expectations regarding our ability to obtain and maintain intellectual property protection;
•the success of competing therapies that are or may become available;
•our estimates and expectations regarding future operations, financial position, revenues, costs, expenses, uses of cash, capital requirements or our need for additional financing;
•our ability to raise additional capital; and
•our strategies, prospects, plans, expectations or objectives.
You should refer to “Risk Factors” in this Annual Report 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 Annual Report 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, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Annual Report.
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SUMMARY OF SELECTED RISKS ASSOCIATED WITH OUR BUSINESS
Our business faces significant risks and uncertainties. If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected. You should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors” in Part I, Item 1A of this Annual Report. Some of the more significant risks include the following:
•We have incurred significant losses and have not generated revenue from product sales since our inception. We expect to continue to incur losses for the foreseeable future, and we may never achieve or maintain profitability.
•We will require substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate any product development programs or commercialization efforts.
•Raising additional capital may cause dilution to our investors, restrict our operations or require us to relinquish rights to our technologies or product candidates. Future debt obligations may expose us to risks that could adversely affect our business, operating results and financial condition and may result in further dilution to our stockholders.
•We depend almost entirely on the success of our lead product candidate, mavorixafor, which we are developing initially for the treatment of WHIM syndrome, for the treatment of SCN, for the treatment of Waldenström’s, and contingent on a potential strategic partner, for the treatment of ccRCC. We cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, mavorixafor or any other product candidate.
•We expect to develop mavorixafor, and potentially future product candidates, in combination with other therapies, which exposes us to additional risks.
•The regulatory review and approval processes of the FDA and comparable foreign regulatory authorities are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, including mavorixafor, our business will be substantially harmed.
•We depend on license agreements with Genzyme, Beth Israel Deaconess Medical Center, Dana-Farber Cancer Institute, and Georgetown University to permit us to use patents and patent applications. Termination of these rights or the failure to comply with obligations under these agreements could materially harm our business and prevent us from developing or commercializing our product candidates.
•The results of clinical trials may not support our product candidate claims.
•We may fail to enroll a sufficient number of patients in our clinical trials in a timely manner, which could delay or prevent clinical trials of our product candidates.
•If the commercial opportunity in WHIM syndrome, SCN or Waldenström’s is smaller than we anticipate, our potential future revenue from mavorixafor for the treatment of any of the diseases may be adversely affected and our business may suffer.
•If we experience any of a number of possible unforeseen events in connection with our clinical trials, potential marketing approval or commercialization of our product candidates, or our entry into licensing, collaboration or similar arrangements, could be delayed or prevented.
•Interim top-line 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.
•A breakthrough therapy designation or Fast Track designation by the FDA for our product candidates may not lead to a faster development or regulatory review or approval process, and neither of these designations increases the likelihood that our product candidates will receive marketing approval.
•Product candidates may cause undesirable side effects that could delay or prevent their marketing approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any, including marketing withdrawal.
•If, in the future, we are unable to establish sales and marketing capabilities or to selectively enter into agreements with third parties to sell and market our product candidates, we may not be successful in commercializing our product candidates if and when they are approved.
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•We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
•Even if we obtain and maintain approval for our product candidates from the FDA, we may never obtain approval for our product candidates outside of the United States, which would limit our market opportunities and could harm our business.
•Even if we are able to commercialize mavorixafor or any other product candidate that we develop, the product may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which would harm our business.
•We have minimal experience manufacturing our product candidates on a large clinical or commercial scale and have no manufacturing facility. We are currently dependent on a single third party manufacturer for the manufacture of mavorixafor, the active pharmaceutical ingredient, or API, and a single manufacturer of mavorixafor finished drug product capsules. If we experience problems with these third parties, the manufacturing of mavorixafor could be delayed, which could harm our results of operations.
•We rely on third-party CROs to conduct our preclinical studies and clinical trials. If these CROs do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
•Disruptions in our supply chain could delay the commercial launch of our product candidates.
•Our employees, principal investigators, CROs and consultants may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.
•We may depend on such collaborations for the development and commercialization of our product candidates. If those collaborations are not successful, we may not be able to capitalize on the market potential of our product candidates.
•We may engage in future acquisitions or in-licenses of technology that could disrupt our business, cause dilution to our stockholders and harm our financial condition and operating results.
•If we are unable to protect our intellectual property rights, our competitive position could be harmed.
•Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
•The global coronavirus pandemic is adversely affecting, and is expected to continue to adversely affect, our business, including our clinical trials and preclinical studies.
•Our future success depends on our ability to retain executives and to attract, retain and motivate key personnel in a competitive environment for skilled biotechnology personnel.
•We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
•Our stock price is expected to continue to be volatile.
•We are an “emerging growth company,” and a “smaller reporting company” and as a result of the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies, our common stock may be less attractive to investors.
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PART I
ITEM 1. BUSINESS
Overview
We are a late-stage clinical biopharmaceutical company and a leader in the discovery and development of novel therapies for the treatment of diseases resulting from dysfunction of the CXCR4 pathway, with a focus on rare diseases with limited treatment options. Our pipeline is comprised of potentially first-in-class, oral, small molecule antagonists of chemokine receptor CXCR4, which have the potential to treat a broad range of rare diseases, including primary immunodeficiencies, or PIs, and certain types of cancer. PIs are a group of more than 300 rare, chronic disorders in which flaws in the immune system cause increased susceptibility to infections and, in some cases, increased risk of cancers. Within this broad disease classification, a number of PIs are attributed to the improper trafficking of immune cells related to the CXCR4 receptor and its ligand CXCL12. CXCR4 is stimulated by its only chemokine ligand, CXCL12, and plays a key role in enabling the trafficking of immune cells and effectively monitoring the function of the immune system, or immunosurveillance. Overstimulation of the CXCL12/CXCR4 pathway leads to inhibition of the immune response, or immunosuppression. Our lead product candidate, mavorixafor, is a first-in-class, oral, allosteric antagonist of the CXCR4 receptor designed to correct the abnormal signaling caused by the receptor/ligand interaction and enable mobilization and trafficking of immune cells.
We have completed the dose titration portion of a Phase 2 clinical trial of mavorixafor in patients with Warts, Hypogammaglobulinemia, Infections, and Myelokathexis, or WHIM, syndrome, which is a rare, inherited primary immunodeficiency disease. In June 2019, we initiated 4WHIM, a pivotal, 52-week Phase 3 global clinical trial of mavorixafor for the treatment of patients with WHIM syndrome. In November 2019, the U.S. Food and Drug Administration, or FDA, granted Breakthrough Therapy Designation for mavorixafor for the treatment of adults with WHIM syndrome, and in October 2020, the FDA granted Fast Track Designation for mavorixafor for adults with WHIM syndrome. In December 2020, the FDA granted Rare Pediatric Designation, or RPD, to mavorixafor for the treatment of WHIM syndrome. We expect to report top-line data from 4WHIM in 2022.
We are also investigating mavorixafor in combination with axitinib (Inlyta®), an FDA-approved small molecule tyrosine kinase inhibitor, in the Phase 2a portion of an open-label Phase 1/2 clinical trial in patients with clear cell renal cell carcinoma, or ccRCC. In September 2019, we announced positive results from the Phase 2a portion of this trial. We hope to pursue future development and potential commercialization of mavorixafor in ccRCC and other possible immuno-oncology indications outside of greater China only as part of a potential strategic collaboration.
In December 2019, we initiated a Phase 1b clinical trial of mavorixafor, in combination with ibrutinib, in patients with Waldenström’s macroglobulinemia, or Waldenström’s. We expect to report initial data from the Waldenström’s trial in first half of 2021. In November 2019, we initiated a 14-day, proof-of-concept Phase 1b clinical trial of mavorixafor in patients with severe congenital neutropenia, or SCN. The SCN trial has been very difficult to enroll during the COVID pandemic due to the risk of COVID and this difficulty could continue throughout 2021. We anticipate sharing initial data on a small number of patients from the SCN trial in 2021, assuming that sufficient progress is made on the trial.
We are also advancing two early stage candidates towards the clinic: X4P-003, a second-generation CXCR4 antagonist designed to have an enhanced pharmacokinetic profile relative to mavorixafor, potentially enabling improved patient compliance and ease of use; and X4P-002, a CXCR4 antagonist designed to cross blood-brain barrier and provide appropriate therapeutic exposures to treat brain cancers.
We continue to leverage our insights into CXCR4 biology at our corporate headquarters located in Boston, Massachusetts and at our research facility in Vienna, Austria to discover and develop additional product candidates.
Our CXCR4 Platform
CXCR4, or C-X-C receptor type 4, is a G-coupled protein receptor, or GCPR, and its sole ligand is the chemokine CXCL12. Chemokines are signaling proteins that guide the migration of immune cells within the body by binding to receptors on the surface of target cells. When CXCR4 is stimulated by CXCL12, it plays a key role in enabling the trafficking of immune cells and effective immunosurveillance, or the process by which cells of the immune system look for and recognize foreign pathogens or precancerous and cancerous cells in the body (see Figure 1).
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Figure 1: CXCL12/CXCR4 and Immune System Responses.
When the CXCL12/CXCR4 pathway is overstimulated, immune cells become immobilized, which can lead to immunosuppression and other complications from immune system dysfunction.
•In the case of primary immunodeficiencies, such as WHIM syndrome, overstimulation of the pathway is caused by mutations in the CXCR4 receptor, called “gain of function” mutations, that immobilize white blood cells in the bone marrow where they are produced and dramatically impact their ability to move into the blood and circulate throughout the body to perform immunosurveillance.
•In other diseases, including many types of cancer, the CXCL12/CXCR4 pathway has been found to broadly play a role in disrupted immune cell trafficking, particularly in the tumor microenvironment, or TME, where there often exists an abnormally high concentration of the ligand CXCL12. Evidence suggests that the pro-tumor signals between tumor cells and cancer-associated fibroblasts occur partly through chemokine signaling, including through the over-production of CXCL12, which results in immunosuppression within the tumor microenvironment.
We believe that the inhibition of the CXCL12/CXCR4 signaling pathway has the potential to improve immune cell trafficking and immunosurveillance and create therapeutic benefit across a wide variety of diseases.
We also believe that our approach to inhibiting the CXCR4 receptor has been validated by the FDA-approved product plerixafor for injection (marketed as Mozobil). Plerixafor is a CXCR4 antagonist that has been shown to induce white blood cell mobilization and is used as an injectable therapy for short-term treatment in preparation for stem-cell transplants. In a published investigator-sponsored pilot study of WHIM patients, twice-daily injections of low-dose plerixafor demonstrated increased white blood cell counts and reduced infections and wart lesions. Plerixafor is not approved for the treatment of WHIM syndrome nor are we aware of any plans to develop and commercialize it as a treatment for patients with WHIM syndrome or any other immunodeficiencies.
Our Strategy
Our goal is to discover, develop, and commercialize novel therapeutics that address diseases resulting from dysfunction of the CXCR4 pathway by:
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•Completing the global Phase 3 clinical trial to enable the approval of mavorixafor for the treatment of patients with WHIM syndrome. To date, we have reported on our data from our Phase 2 clinical trial with long-term extension of mavorixafor in patients with WHIM syndrome, achieving clinical proof-of-concept, observing a clinically meaningful increase in neutrophil and lymphocyte counts, and demonstrating a favorable tolerability profile. We are conducting a Phase 3 pivotal clinical trial, the 4WHIM trial, and are currently enrolling patients, with top-line data expected in 2022.
•Driving community awareness of WHIM syndrome and building patient registries. We are building our efforts to increase awareness of underserved serious rare diseases, including WHIM syndrome, among patients, physicians, and their support systems. In addition to sponsored market research and outreach, we have partnered with key patient foundations and registries, including the Jeffrey Modell Foundation, University of Washington, Immune Deficiency Foundation, and Hopitaux Universitaires Est Parisien (Trousseau La Roche-Guyon). In addition, we have deployed a field force of Medical Science Liaisons, or MSLs, in the United States to further drive education and awareness of WHIM syndrome. We plan to leverage our relationship with our partner organizations and patient registries along with our MSL team in the United States to increase patient and physician awareness of our ongoing trials, supporting study enrollment and completion.
•Advancing mavorixafor in additional indications. To maximize the potential of mavorixafor, we have initiated two Phase 1b clinical trials – one trial investigating the safety, appropriate dose and preliminary efficacy of mavorixafor in patients with Waldenström’s macroglobulinemia and another trial investigating the safety and efficacy of mavorixafor in patients with SCN. We expect initial data results from the Waldenström’s trial in the first half of 2021 and initial data from the SCN trial in 2021, assuming sufficient progress is made on the SCN trial.
•Advancing earlier-stage product candidates and leveraging insights into CXCR4 biology to further expand our pipeline. We have advanced a late lead optimization program into candidate drug nomination: X4P-003, a second-generation CXCR4 antagonist designed to have an enhanced pharmacokinetic profile relative to mavorixafor, potentially enabling improved patient compliance and ease of use. A second program is in lead optimization: X4P-002, a CXCR4 antagonist designed to cross the blood-brain barrier and provide appropriate therapeutic exposures to treat brain cancers. In addition, we are also leveraging our insights into CXCR4 biology and our research capabilities to identify other targets and develop additional product candidates.
•Independently commercializing our product candidates in certain indications and geographies where we believe we can maximize value. Given the potential of our product candidates to treat a wide variety of diseases, we believe that it will be important to maintain our leadership role with respect to our development and commercialization efforts. We plan to independently develop therapeutic candidates in indications, including rare diseases, where we believe there is a well-defined clinical and regulatory approval pathway and ones that we believe we could successfully commercialize, if approved.
•Pursuing additional strategic collaborations for mavorixafor in immuno-oncology indications. Currently, we have an ongoing strategic collaboration under which we have licensed mavorixafor rights in China to Abbisko, a privately-held immuno-oncology research and development company. Additionally, we intend to pursue strategic collaborations for future development and potential commercialization of mavorixafor in solid tumor immuno-oncology indications in other global regions in order to maximize the value of that asset while we maintain our focus on developing mavorixafor for the treatment of rare diseases.
Our Programs
We are advancing a pipeline of clinical and pre-clinical oral, small molecule candidates that target diseases resulting from the dysfunction of the CXCR4 pathway, including primary immunodeficiencies and certain types of cancer.
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Mavorixafor
Our lead product candidate is mavorixafor, a first-in-class, oral, selective small molecule CXCR4 antagonist that allosterically, or non-competitively, inhibits receptor binding by CXCL12, the cognate ligand of CXCR4. Mavorixafor is designed to correct the abnormal signaling caused by the dysfunction of the receptor/ligand interaction and enable mobilization and trafficking of immune cells, increasing levels of circulating white blood cells, including neutrophils, to improve immune system function.
To date, more than 190 patients in clinical trials have been dosed with mavorixafor, which has demonstrated a favorable tolerability profile. In these trials, we have observed drug exposure in patients, a 23-hour half-life, and the bioavailability of mavorixafor to support once-daily oral dosing, which we believe will provide convenient dosing and better patient compliance for chronic or life-long use, if approved. The manufacturing process for mavorixafor utilizes well established small molecule chemistry, enabling a potential commercial product that can be supported by specialty pharmacy distribution.
Mavorixafor in WHIM Syndrome
PIs are a group of more than 300 rare, chronic disorders in which flaws in the immune system cause increased susceptibility to infections and, in some cases, increased risk of cancers. Within this broad disease classification, WHIM syndrome is one of a number of PIs that are caused by the improper trafficking of immune cells. WHIM syndrome is a rare genetic disease that results from “gain of function” mutations in the single gene that encodes for the CXCR4 receptor. The first of these mutations were identified in 2003. Since then, a total of 11 different CXCR4 mutations have been identified as causing WHIM syndrome. All but one of these mutations cause premature truncations in the protein, causing the receptor to signal for longer than normal, which results in the retention of white blood cells in the bone marrow where they are produced, and leads to the chronic peripheral neutropenia and lymphopenia that is the observed clinical hallmark of WHIM syndrome.
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The incidence and prevalence of WHIM syndrome are not well established. We believe that this is due to the relatively recent understanding of the genetics underlying WHIM syndrome, lack of universal or accessible genetic testing, and limited medical education and awareness of the disease, which is in part driven by the lack of available and disease-modifying treatments. The National Organization for Rare Diseases, or NORD, has reported the incidence of WHIM syndrome to be less than one in 1,000,000 based on a single small registry of eight patients in France. Based on a preliminary independent market research study that we sponsored in the United States, which was conducted by a third party research firm, we believe that the prevalence of WHIM syndrome worldwide is significantly higher than the incidence statistics implied by the France-based registry. The study solicited input from community-based physicians of different specialties, including physicians focused on non-malignant hematology, immunology, dermatology, pulmonology and infectious diseases, who are known to manage and/or treat patients with WHIM syndrome. The 212 physicians across these specialties in the United States identified to participate in this study reported over 1,700 patients have genetically confirmed or are highly suspected to have WHIM syndrome in the United States alone. The results of this initial study support our estimate of more than 1,000 genetically confirmed WHIM patients in the United States.
Figure 2 illustrates the mutations in the CXCR4 receptor leading to abnormal signaling and retention of white blood cells in the bone marrow that occurs in WHIM patients. Figure 2 also depicts our approach to blocking this abnormal signaling using our CXCR4 antagonist candidate, mavorixafor, which is designed to enable white blood cells to release into the bloodstream, restoring normal immune function. In healthy individuals, the CXCR4 receptor is typically internalized into the cell after CXCL12 binds to it, enabling the receptor to be appropriately “recycled” and the signaling to be diminished. In WHIM patients, however, a mutation truncates the intracellular portion of the CXCR4 receptor as shown by the red “x” below, which prevents the post-binding internalization (“normal recycling”) of the receptor. As a result, the CXCR4 receptor is maintained on the surface of the cell and is exposed to the ligand, which creates a perpetual “on” signaling and immobilizes the cell. Mavorixafor binds to the mutated CXCR4 receptor in a manner that blocks the receptor from being stimulated by CXCL12 regardless of the presence of the ligand, and results in increased mobilization and trafficking of white blood cells from the bone marrow.
Figure 2. WHIM Syndrome: Genetic Mutations in CXCR4 Create Abnormal Trafficking of White Blood Cells
In addition to life-long neutropenia and lymphopenia, WHIM patients can clinically present with other manifestations of the disease, such as warts related to infection with the Human Papilloma Virus, or HPV. Based on publications from the French Severe Congenital Neutropenia Registry and the broader literature, it is estimated that between 30% and 40% of WHIM patients develop HPV-associated cancers as they age. Patients may also demonstrate low immunoglobulin, or IG, levels, also known as hypogammaglobulinemia and pathology assessments of bone marrow samples (aspirates) of patients with WHIM syndrome show a “hyper-dense” population of pre-apoptotic immune cells in the bone marrow, a condition known as myelokathexis. These conditions reduce the body’s ability to achieve a healthy immune response.
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For a diagnosis of WHIM syndrome, all four classic characteristics of warts, hypogammaglobulinemia, infections and myelokathexis, do not need to be present, which can complicate the diagnosis of these patients. Genetic testing is used to definitively diagnose WHIM syndrome by confirming the presence of an autosomal dominant mutation in the CXCR4 receptor where only one mutated gene need be affected to cause the disorder. The diagnosis of WHIM syndrome may occur at any age: about one-half of reported patients are diagnosed as adults, mostly between 18 and 40 years of age, with the other half diagnosed primarily before or at the age of 18 years.
Clinical Development of Mavorixafor in WHIM Syndrome
In January 2017, we initiated a Phase 2 clinical trial of mavorixafor for the treatment of patients with WHIM syndrome. This trial was an open-label, dose-escalation trial in eight WHIM patients conducted at two sites in the United States and Australia pursuant to an Investigational New Drug, or IND, application that we submitted to the FDA in June 2016. The primary objective of the Phase 2 clinical trial was to determine the safety and tolerability of mavorixafor and to determine the dose of mavorixafor for exploration in a Phase 3 pivotal clinical trial. The secondary objective of the Phase 2 trial was to evaluate the potential efficacy of mavorixafor in patients with WHIM syndrome by measuring biomarkers, specifically absolute neutrophil and lymphocyte counts, or ANCs and ALCs, over 24-hour dosing cycles. The frequency of infections, antibiotic use, hospitalizations, severity of warts lesions, and vaccine titer levels, among other metrics, were also examined. To be included in the trial, patients must have had a confirmed genetic diagnosis of WHIM syndrome, be at least 18 years of age and have a neutrophil count equal to or less than 400/µL or a lymphocyte count equal to or less than 650/µL. Patients who had been infected with the human immunodeficiency virus, or HIV, were excluded from the trial, as were patients with recent exposure to plerixafor.
In the trial, patients received escalating doses of mavorixafor starting at 50 mg once daily to up to 400 mg once daily. Patients received starting doses higher than 50 mg once daily as the trial progressed based on the safety and biomarker response data of earlier patients enrolled in the trial. Patients were dose-escalated from their starting dose based on an in-hospital 24-hour measurement of ANCs and ALCs above or below the pre-defined target thresholds of 600/µL and 1,000/µL, respectively. Results were as follows:
•Mavorixafor was not associated with any treatment-related serious adverse events and was observed to be well tolerated in daily doses of up to 400 mg for durations of up to 400 days. Treatment-related adverse events reported were dry mouth (n=2), nausea (n=4), dry eye (n=1), nasal dryness (n=2), dyspepsia (n=1), conjunctivitis (n=1) and rash (n=1). All adverse events were Grade 1 (mild).
•ANCs were increased in total numbers (cells//µL) as well as duration of increase (hours) over the course of the intra-day assessment. The increase in ANCs vs. pre-dosing levels was observed in all (n=7) evaluable patients in the trial. In five of seven patients (71%), ANCs were consistently elevated above the pre-defined target threshold of 600/µL at peak as well as throughout the 24 hour assessment period.
•Similarly, ALCs were increased in total numbers (cells/ µL) as well as duration of increase with the treatment of mavorixafor. The increase in ALCs were observed in all (n=7) evaluable patients with six of seven patients (86%) exceeding the pre-defined target threshold of 1,000/µL for ALCs (the lower limit of normal) throughout the 24-hour assessment period. These thresholds of 600/µL for ANCs and 1,000/µL for ALCs correspond to the National Cancer Institute’s adverse event grading system, which considers ANCs below 500/µL to be severe or life threatening and ALCs of 1,000/µL within the range of healthy individuals.
•Patients experienced improved infection rates, as reported by patients and the trial investigators.
•Significant and visible reductions in wart lesions were also reported in a patient with a history of untreatable severe wart lesions.
We completed the dose-titration portion of the Phase 2 trial in March 2018 and, based on the reported results, the Data Review Committee, or DRC, recommended the Phase 3 dose of 400 mg administered once daily. Following completion of the dose-titration portion of the Phase 2 trial, patients were allowed to continue on study drug in a Phase 2 open-label extension trial. As of February 1, 2021, 5 patients continue to receive mavorixafor in the open-label extension trial.
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In June 2019, we initiated 4WHIM, a global, Phase 3 pivotal clinical trial investigating the safety and efficacy of mavorixafor in genetically confirmed WHIM patients. 4WHIM trial is a 52-week, randomized, double-blind, placebo-controlled, multicenter study designed to evaluate the safety and efficacy of mavorixafor in genetically confirmed WHIM patients. The trial is designed to enroll up to 28 subjects in approximately 20 countries, followed by an open-label extension trial. The primary efficacy endpoint for the trial will compare the time above threshold, or TAT, defined as the number of hours that circulating neutrophils are above a clinically meaningful threshold (500 cells/µL), in response to mavorixafor versus placebo as measured during a 24-hour period. Patients will be assessed for his or her neutrophil TAT approximately once every three months (4 times in total) over the course of the 52 week treatment period. Secondary endpoints include infection rates, wart burden, and assessments of immune system function and quality of life. Upon completion of the treatment period, patients will be eligible to participate in an open-label extension, or OLE, and receive mavorixafor until the drug is commercially available.
We currently expect to report top-line data from this Phase 3 trial in 2022. If the Phase 3 pivotal clinical trial is successful, we believe that this trial will be the only registration trial required to submit a New Drug Application, or NDA to the FDA seeking regulatory approval in the United States.
Limited Current Treatment Landscape for WHIM Syndrome
Currently, there are no approved targeted therapies for the treatment of WHIM syndrome and care is limited to the treatment of the syndrome’s different symptoms. The care of WHIM patients is mainly focused on the prevention and management of infections. None of these treatments, however, have been clinically proven to be effective for treating WHIM syndrome nor do they address the underlying cause of this multi-faceted disease, the genetic defect of the CXCR4 receptor. Current symptoms and their limitations are as follows:
•Warts: The presence of warts in WHIM syndrome is driven by an underlying HPV infection. Standard treatments, such as topical therapies (for example, imiquimod and salicylic acid), cryotherapy and laser therapy, as well as more aggressive approaches, such as cauterization or surgical removal, have been ineffective in providing durable treatment of warts associated with chronic HPV infections. As WHIM patients generally have limited response to vaccines, the HPV vaccine appears to have limited effectiveness. The number, size and severity of visible warts in WHIM patients can have a significant negative impact on the patient’s quality of life and result in social anxiety issues. Left untreated, chronic HPV-infections are also known to increase the risk of cancer. Patients with WHIM syndrome are reported to have more frequent occurrences of difficult to treat HPV-associated cancers, such as head and neck and anogenital cancers.
•Hypogammaglobulinemia: Intravenous or subcutaneous Ig administration, referred to as IVIg or SCIg, respectively, can be administered to patients with low Ig levels. In WHIM patients, the administration of Ig therapies raises Ig levels, but has shown no impact on circulating leukocytes and limited or no impact on immune responses. Ig treatment of patients with WHIM syndrome is based on empirical and anecdotal evidence, and there are no clinical data demonstrating the efficacy of Ig treatment for WHIM syndrome. Ig treatment also does not treat or protect against HPV-associated symptoms and diseases, such as warts and certain cancers. Furthermore, Ig administration is costly and time consuming.
•Infections: Bacterial infections are managed with antibiotics. Acute infections usually resolve, although we are aware of reports from clinicians citing death due to pneumonia or sepsis in young WHIM patients. Importantly, even with antibiotic use, infections recur more frequently and persist longer in patients with WHIM syndrome. Further, the toll of multiple, chronic infections in WHIM patients has been known to lead to devastating irreversible pathologies such as hearing loss due to chronic ear infections and bronchiectasis. Patients are sometimes given a granulocyte-colony stimulating factor, or G-CSF, to increase neutrophil counts, but G-CSF has demonstrated little, if any, impact on lymphopenia or the incidence of infections in WHIM patients. In a small registry of eight WHIM patients in France, three of the four patients who received G-CSF continued to have persistent, repeated infections. Side effects of G-CSF have been reported to include disabling bone pain, which can be more severe in certain age groups. Additional, less common, treatment-limiting complications of chronic G-CSF administration include myelofibrosis and leukemia.
•Myelokathexis: G-CSF is sometimes used to treat the myelokathexis characteristic of WHIM syndrome to try to increase the number of neutrophils outside of the bone marrow, but G-CSF has no effect on lymphocytes and other types of white blood cells. Side effects of G-CSF can include disabling bone pain, myelofibrosis and leukemia.
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While the costs of managing the chronic impact of WHIM syndrome are unknown, the per-patient cost of treating PIs that are similar to WHIM syndrome based on drug costs alone exceeds $100,000 per year in the United States utilizing similar therapies, such as antibiotics, IVIg, SCIg and/or G-CSF, despite the limited effectiveness of these treatments. Beyond these estimated direct costs, other costs associated with direct and indirect management of the disease, such as repeated immunization, physician visits, or hospitalizations, have not been quantified but are likely to be significant. We believe that there is a significant need for a treatment targeting the underlying excessive signaling caused by mutations to the CXCR4 receptor, which is the established cause of WHIM syndrome.
Mavorixafor in SCN
We believe that mavorixafor may be used to treat a number of additional PIs beyond WHIM syndrome. Particularly, we believe that mavorixafor can potentially treat patients with severe congenital neutropenia, or SCN. Like WHIM syndrome, SCN is a rare blood disorder similarly characterized by increased risks of infections and cancer due to abnormally low levels of neutrophils in the body. Additionally, some sub-types of SCN have mechanisms that overlap with signaling of the CXCL12/CXCR4 pathway. Affecting an estimated 2,000 to 3,000 people in the United States and Europe, patients with SCN are prone to recurrent, often life-threatening infections beginning in their first months of life.
G-CSF is the current standard of care for SCN and is used to stimulate the bone marrow to produce neutrophils. Side effects of G-CSF include disabling bone pain, which can be more severe in certain age groups. Additional, less common, treatment-limiting complications of chronic G-CSF administration include myelofibrosis and leukemia. In SCN cases that are unresponsive to G-CSF, or if leukemia has developed, bone marrow transplants have been made with varying degrees of success. Bone marrow transplants bring additional risks into the management of the disorder.
In November 2019, we initiated a Phase 1b clinical trial, a 14-day, proof-of-concept trial designed to assess the safety and tolerability of daily, oral mavorixafor in participants with SCN and other selected congenital neutropenia disorders. In addition, the trial will evaluate the neutrophil response in this patient population as an independent agent or in combination with G-CSF. The trial is designed to enroll up to 45 patients in total. SCN patients are immunocompromised: the two-week duration of dosing with mavorixafor provides little potential opportunity for clinical benefit. As a result, the SCN trial has been very difficult to enroll during the COVID pandemic due to the risk of COVID and this difficulty could continue throughout 2021. We anticipate sharing initial data on a small number of patients from the SCN trial in 2021, assuming sufficient progress is made on the trial.
Mavorixafor in Waldenström's macroglobulinemia
We believe that mavorixafor may be used to treat certain blood cancers, including Waldenström's macroglobulinemia, or Waldenström’s. Waldenström’s is a rare form of non-Hodgkin’s lymphoma and B-cell lymphoproliferative disorder most often caused by mutations in a gene for MYD88. The Waldenström’s landscape has recently been revolutionized by whole-genome sequencing that has identified genetic mutations in the disease, including somatic mutations in CXCR4. Approximately 30-40% of all Waldenström’s patients have been shown to have second mutation, a somatic WHIM-like mutation in the CXCR4 gene in the cancer cells that define this rare form of lymphoma. Mutational status influences both clinical presentation and prognosis as well as provides potential implications for therapeutic options. Patients with the CXCR4 mutations have higher serum IgM levels and greater incidence of symptomatic hyperviscosity. These patients also have a worse prognosis.
In Waldenström’s, somatic mutations of CXCR4 have been found to be associated with activating and pro-survival signaling of tumor cells, as well as the possible acquisition of resistance to several drugs, including anti-CD20 monoclonal antibody, and Bruton’s tyrosine kinase, or BTK, inhibitors, such as ibrutinib, the current standard of care. For example, Waldenström’s patients who have been treated with ibrutinib and patients with WHIM syndrome-like mutations have generally not responded as well to treatment as compared to patients without the somatic WHIM syndrome mutation. Seminal work from Dr. Steven P. Treon M.D. Ph.D., of Harvard Medical School, has demonstrated that patients with the double mutation (MYD88/CXCR4 WHIM) have a lower rate of Very Good Partial Response, or VGPR, and Minor Response, or MR, as well as longer time to MR (31% vs. 7% VGPR, 94% vs. 71% for MR and 1 month to MR in the single mutant vs. 7.3 months in the double mutation). This is true in treatment naive patients with similar worse outcomes in the double mutation population shown by both Dr. Treon and Dr. Christian Buske M.D. in previously treated patients.
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In December 2019, we initiated a Phase 1b multi-center, open-label, dose-escalation, clinical trial designed to assess the safety and tolerability of mavorixafor in combination with ibrutinib in patients with Waldenström’s who have acquired a “gain of function” mutation in CXCR4 in addition to the MYD88 mutation. In addition, the trial is designed to measure changes from baseline in serum immunoglobulin M and hemoglobin, both key biomarkers of clinical response in Waldenström’s patients. The clinical trial is expected to enroll up to 18 patients, with initial data results expected in the first half of 2021.
This trial is being conducted as part of a collaboration with The Leukemia & Lymphoma Society, or LLS, to accelerate the development of mavorixafor for the treatment of Waldenström’s. Mavorixafor was selected for LLS’s Therapy Acceleration Program®, or TAP, a strategic initiative where LLS builds business alliances and collaborations with biotechnology companies and academic researchers to speed the development of new therapies for blood cancers.
Mavorixafor in Immuno-Oncology Indications
In solid tumors, the tumor micro-environment, or TME, consists of the tumor cells and cancer associated fibroblasts, or CAFs, each of which overproduce growth factors and chemokines to support immune-suppression and malignant cell proliferation and growth. Evidence suggests that the pro-tumor signals between tumor cells and CAFs occur, in part, through chemokine signaling, including through the over-production of CXCL12. The CXCL12/CXCR4 pathway has been shown to be overstimulated in more than 20 solid and blood-derived tumor types. Excessive stimulation of CXCR4 due to high concentrations of CXCL12 influences trafficking immune cells, including myeloid-derived suppressor cells, or MDSCs, CD4+ regulatory T-cells, or Tregs, CD8+ T-cells, and mature dendritic cells. We believe that blocking CXCR4 overstimulation can lead to improved immune cell trafficking and increase the absolute number of CD8+ T-cells, thereby also increasing the ratio of CD8+ T-cells to Tregs in the TME.
Our Phase 1b Clinical Trial in Combination with Nivolumab in ccRCC
We completed a Phase 1b trial of mavorixafor for the treatment of patients with ccRCC in combination with the approved immuno-oncology therapy, nivolumab, a PD-1 checkpoint inhibitor. The primary objective of the trial was to evaluate the safety and tolerability of mavorixafor in combination with nivolumab. The trial enrolled patients who have not responded to nivolumab, but who were maintained on nivolumab while mavorixafor was added to their treatment regimen. In addition to safety and tolerability, the trial evaluated early signs of biological activity using biomarkers, and clinical activity as measured by ORR.
Enrolled patients received 400 mg of mavorixafor once daily and continued to receive standard bi-weekly nivolumab therapy. Median duration of treatment with the combination was 3.7 months (range one to 15 months). We observed that five of nine patients had clinical improvements in tumor shrinkage with the addition of mavorixafor.
In the trial, we observed that mavorixafor in combination with nivolumab had an acceptable tolerability profile in ccRCC patients. The most frequent drug related adverse events were diarrhea, nasal congestion, ALT/AST increase, dry eye and fatigue. No Grade 4 or 5 adverse events occurred. All Grade 3 serious adverse events related to the combination treatment were reported to be manageable with appropriate intervention. Two patients experienced serious adverse events deemed unrelated to treatment: one had mucosal inflammation and rash maculo-papular and another had an ALT/AST increase and autoimmune hepatitis.
In addition, in the trial, combination therapy with mavorixafor and nivolumab exhibited anti-tumor activity in some patients with advanced ccRCC who were previously unresponsive to nivolumab monotherapy. Four patients who had progressed on prior nivolumab monotherapy were observed to have a best response of stable disease with the additional mavorixafor to nivolumab treatment. Of the five patients who were stable on prior nivolumab monotherapy, one had a partial response with combination therapy of mavorixafor and nivolumab.
Our Phase 1b Clinical Biomarker Trial in Advanced Melanoma
We have completed a Phase 1b biomarker clinical trial in 16 patients with Stage III and IV melanoma. This multi-center trial evaluated the safety and tolerability of mavorixafor alone and in combination with the immuno-oncology therapy pembrolizumab, an approved PD-1 checkpoint inhibitor. The trial evaluated the immune profile of participants’ tumor biopsies and blood to assess changes of key immune cell profiles and inflammatory response markers. Nine patients had both baseline (pre-dose) and post-mavorixafor treatment-evaluable biopsies and were considered as evaluable patients to be included in the analysis. Results from the tumor biopsies taken from melanoma patients, before and after receiving single agent mavorixafor treatment for three weeks, were analyzed. Analyses showed three weeks of single agent mavorixafor monotherapy was associated with tumor immunity. Enhanced immunity was indicated by:
•increased proliferating CD8+ cells, indicative of cytotoxic T-cell activation;
•increased IFN-gamma gene expression signature score, suggesting enhanced antigen priming and activation;
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•increased Tumor Inflammation Signature, or TIS, indicative of increased inflammation status in the TME;
•increased CD8+ T-cell density at the tumor interface, with the total density of CD8+ cells inside the tumor boundary area increased four-fold compared with baseline;
•increased numbers of cells expressing CD3 antigens, a pan T-cell marker, within tumor borders, and decreased expression of VISTA, a checkpoint molecule that inhibits T-cell activation and proliferation; and/or
•increases in multiple chemoattractant factors in serum, consistent with increased trafficking of immune cells post CXCR4 inhibition.
After single agent mavorixafor treatment, patients received mavorixafor in combination with pembrolizumab for an additional six weeks. Continued signs of positive immune cell changes in the TME were seen with combination treatment. Treatment of additional patients in the trial showed that mavorixafor as a single agent, and in combination with pembrolizumab, continued to be well tolerated. Mavorixafor was well tolerated as monotherapy and in combination with pembrolizumab. Treatment-related adverse events were diarrhea, fatigue, rash macro-papular and dry eye. No Grade > 3 adverse events were observed during the monotherapy period and there were no Grade 4 or 5 adverse events at any time during the period of the trial.
Our Phase 1/2 Clinical Trial in Combination with Axitinib in ccRCC
We have also completed an open-label, Phase 1/2 clinical trial of mavorixafor for the treatment of patients with advanced ccRCC who had received at least one prior line of therapy across multiple sites in the United States and South Korea.
This Phase 1/2, multi-center, open-label trial of mavorixafor in combination with the approved tyrosine kinase inhibitor axitinib included 65 patients with histologically confirmed advanced ccRCC, all of whom received at least one prior systemic therapy. The safety analyses included 65 patients from Phases 1/2 of the trial who were treated with 400 mg mavorixafor (200 mg twice daily or 400 mg once daily) + 5 mg axitinib twice daily. Treatment responses were assessed using Response Evaluation Criteria in Solid Tumor, or RECIST v1.1 (a validated set of criteria to assess changes in tumor burden), every eight weeks from day one for 80 weeks, and then every 12 weeks thereafter, by blinded, independent central review. Treatment-related serious adverse events were diarrhea, hyperkalemia and hypertension (n=2, or 3%) and blood creatinine increased, dehydration, fatigue, hepatic enzyme increase, nausea, sepsis, trachea-oesophageal fistula, and vomiting (n=1 each, or 1.5%).
In the Phase 2a portion of the trial, combination therapy with mavorixafor and axitinib was generally well tolerated with a manageable safety profile and demonstrated clinical improvement with encouraging median progression free survival, or mPFS, in a heavily pre-treated advanced ccRCC patient population. Of the 65 patients in the trial, 49 patients (or 75%) received mavorixafor + axitinib as a third- to ninth-line therapy, having received between two and eight prior therapies with a TKI, immuno-oncology, or IO, agent, or other systemic therapy. Fifty-seven of the 65 patients in the trial (or 88%) had an intermediate or poor prognosis.
Overall mPFS across clinically evaluable patients receiving mavorixafor + axitinib (n=62) was 7.4 months. Predefined subpopulations examined patients with immediate prior TKI and IO treatment. Patients treated in the subgroup with immediate prior TKI therapy (n=34) demonstrated an objective response rate, or ORR, of 18% and an increased mPFS of 7.4 months. This is a greater than 50% improvement from the 4.8-month historical mPFS with axitinib alone. Patients treated with mavorixafor + axitinib in the subgroup with immediate prior IO therapy (n=18) had an ORR of 61% and an increased mPFS of 11.6 months. In addition, four of the 65 patients remain on the combination therapy as of February 2021 with durations of treatment of 26-44 months or longer. Results suggest mavorixafor may enhance clinical response to axitinib and other TKIs that target tumor angiogenesis, as well as immunotherapy agents.
Future development and potential commercialization of mavorixafor in ccRCC and other potential immuno-oncology indications will be pursued only as part of a potential strategic collaboration.
Earlier-Stage Candidates and Research Efforts
X4P-003: We are developing a second-generation CXCR4 antagonist that is at the stage of candidate drug nomination designed to have an enhanced pharmacokinetic profile relative to mavorixafor, potentially enabling improved patient compliance and ease of use to better serve patients suffering from chronic rare diseases.
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X4P-002: We are also developing X4P-002, a CXCR4 antagonist designed to cross the blood-brain barrier with a potential to provide therapeutic exposures necessary to treat glioblastoma multiforme, or GBM. GBM is the one of the most aggressive forms of brain cancer with a five-year overall survival rate of less than 10%. GBM accounts for about 15% of brain cancers. CXCR4 is an important mediator of malignant cell invasiveness in in vitro and in vivo studies. We believe that X4P-002 is the only oral CXCR4 antagonist product candidate that has been shown, in preclinical studies, to penetrate the blood-brain barrier in levels that exceed the targeted levels required for an optimized anti-cancer effect in animal studies.
Research Efforts: We are expanding our research facility in Vienna, Austria to further expand our insights into CXCR4 biology, translational science and early stage discovery in primary immunodeficiencies.
Competition
The pharmaceutical and biotechnology industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.
Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Other firms also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient enrollment for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors with us, particularly through collaborative arrangements with large and established companies.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize therapeutics that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain marketing approvals for their products more rapidly than we may obtain approval for our products, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected because in some cases insurers or other third-party payors, including government programs, seek to encourage the use of generic products. This may have the effect of making branded products less attractive, from a cost perspective, to buyers.
We are aware of other companies that are developing CXCR4 inhibitors that are in a similar stage of development as mavorixafor, including Eli Lilly, Pfizer, Bristol-Myers Squibb, or BMS, BioLineRx, Noxxon, Upsher-Smith, Polyphor and Glycomimetics. To our knowledge, there do not appear to be any competitors with programs in development for WHIM syndrome or SCN. With respect to Waldenström’s, the Dana-Farber Cancer Institute has initiated a trial to study the BMS CXCR4 antibody (IV infusion) in the treatment of Waldenström’s patients with CXCR4 mutations.
In Waldenström’s, there are several treatment approaches currently being developed, including targeted therapies and immunotherapies (as monotherapies and combination therapies), chemotherapy, stem cell transplantation, and cancer vaccines. To our knowledge, only X4 and BMS have therapies in development that directly target the 30-40% of Waldenström’s patients with the double mutations (MYD88 and CXCR4) and only X4 is developing an oral therapy. Our principal competitors in ccRCC include Pfizer, Novartis, BMS, and Merck. In glioblastoma, our principal competitors include Genentech/Roche and BMS.
Manufacturing
We do not own or operate, and currently have no plans to establish, manufacturing facilities for the production of clinical or commercial quantities of mavorixafor or any of our other product candidates. We currently rely, and expect to continue to rely, on third parties for the manufacture of our product candidates and any products that we may develop.
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We currently have a master services agreement, or the Aptuit Agreement, in place with Aptuit (Oxford) Ltd, or Aptuit, pursuant to which Aptuit develops and manufactures the active pharmaceutical ingredient, or API, for mavorixafor. We use this mavorixafor drug substance in our Phase 3 clinical trial for the treatment of WHIM and in our other clinical trials. Aptuit is our sole supplier for mavorixafor drug substance and is currently manufacturing mavorixafor drug substance at a commercially relevant scale to support our ongoing and anticipated future clinical trials.
The term of the Aptuit Agreement expires on February 19, 2024 unless terminated by us and/or Aptuit as follows: (i) by mutual agreement of the parties; (ii) by us, if there is a material breach by the other party that remains uncured; (iii) by us, in the event of insolvency or bankruptcy of Aptuit; or (iv) by either party, upon 30 days’ written notice.
We also have a master services agreement in place with Mayne Pharma Inc., or Mayne Pharma, which is our sole manufacturer to provide fill and finish services for the final drug product formulation of mavorixafor for use in our clinical trials. The term of the master services agreement expires on September 10, 2023, and may be terminated by (1) us upon 30 days-notice to Mayne Pharma or (2) by either party following a material breach by the other party that remains uncured for 30 days.
We obtain the supplies of our API and drug products from Aptuit and Mayne pursuant to typical industry standard clinical supply agreements. We believe that both API and drug product manufacturers have the capability and capacity to manufacture currently projected clinical trial supply and commercial volumes of mavorixafor and we are engaged in active discussions with both parties to plan anticipated commercial manufacturing arrangements. We obtain the supplies of our product candidates from these manufacturers under master services contracts and specific work orders. However, we do not have long-term supply arrangements in place. We do not currently have arrangements in place for redundant supply or a second source for API for mavorixafor. If any of our current manufacturers becomes unavailable to us for any reason, we believe that there are a number of potential replacements, although we might incur some delay in identifying and qualifying such replacements.
License Agreements
License Agreement with Genzyme
In July 2014, we entered into a license agreement with Genzyme, or the Genzyme Agreement, pursuant to which we were granted an exclusive license to certain patent applications and other intellectual property owned or controlled by Genzyme related to the CXCR4 receptor to develop and commercialize products containing licensed compounds (including but not limited to mavorixafor) for all therapeutic, prophylactic and diagnostic uses with the exception of autologous and allogenic human stem cell therapy. Genzyme has retained the exclusive right to use the intellectual property licensed to us in specific indications related to
Genzyme’s product Mozobil® and allogenic/autologous hematopoietic stem cell transplantation treatments. Genzyme has also
retained the non-exclusive right to conduct preclinical research involving compounds in any field, including any fields licensed to
us, but has not retained rights to conduct any clinical development or commercialization of those compounds identified in the
agreement in any of the fields licensed to us. We are primarily responsible for the preparation, filing, prosecution and
maintenance of all patent applications and patents covering the intellectual property licensed to us under the agreement at our sole
expense.
We are obligated to use commercially reasonable efforts to develop and commercialize licensed products for use in the field in the United States and at least one other major market country. We have the right to grant sublicenses of the licensed rights that cover mavorixafor to third parties. If we wish to grant a sublicense to any licensed product other than mavorixafor, we are obligated to first offer the sublicense to Genzyme. If Genzyme expresses written interest for the sublicense, then we will negotiate exclusively with Genzyme for a certain stated period to obtain a license to such rights, after which Genzyme shall have no further rights with respect to such licensed product and we will be free to negotiate a sublicense with respect to such licensed product with any third party.
We are obligated to pay Genzyme milestone payments in the aggregate amount of up to $25.0 million, contingent upon our achievement of certain late-stage regulatory and sales milestones with respect to licensed products, and tiered royalties based on net sales of licensed products that we commercialize under the Genzyme agreement. Our obligation to pay royalties for each licensed product expires on a country-by-country basis on the latest of (i) the expiration of licensed patent rights that cover that licensed product in that country, (ii) the expiration of regulatory exclusivity in that country and (iii) ten years after the first commercial sale of such licensed product in that country. Royalty rates are subject to reduction under the agreement in specified circumstances, including in any country if we are required to obtain a license from any third party to the extent our patent rights might infringe the third party’s patent rights, if a licensed product is not covered by a valid claim in that country or if sales of generic products reach certain thresholds in that country. Sublicenses that we enter into under the Genzyme agreement, including
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our license agreement with Abbisko Therapeutics Co., Ltd., or Abbisko, obligate us to pay Genzyme a percentage of certain upfront, maintenance fees, milestone payments and royalty payments paid to us by the sublicensee.
The term of the Genzyme Agreement will continue until the later of the expiration of the last to expire valid claim of the patents licensed under the agreement that cover any licensed product, the expiration of regulatory exclusivity applicable to any licensed product and 10 years from the date of first commercial sale of any licensed product. Either we or Genzyme may terminate the Genzyme Agreement in the event of the bankruptcy or uncured material breach by the other party. Genzyme may terminate the Genzyme Agreement if we or our affiliates initiate a patent challenge of the patents licensed under the agreement. We may terminate the Genzyme Agreement immediately upon notice to Genzyme if we reasonably believe that the development or commercialization of a licensed compound or product under the Genzyme agreement would result in a material safety issue for patients.
License Agreement with Georgetown University
In December 2016, we entered into a license agreement with the Georgetown University, or Georgetown, pursuant to which we obtained an exclusive, worldwide license to practice certain methods, and to make, have made, use, sell, offer for sale and import products, covered by licensed patent rights co-owned by Georgetown. The rights licensed to us are for all therapeutic, prophylactic and diagnostic uses in all disease indications in humans and animals. We have the right to grant sublicenses of the licensed rights to third parties to the extent consistent with the terms of the Georgetown agreement.
Under the terms of the Georgetown agreement we paid a one-time only, upfront fee of $50.0 thousand, and we may be required to pay milestone payments of up to an aggregate of $800.0 thousand related to commercial sales of a licensed product. We are responsible for all patent prosecution costs incurred with respect to the licensed patents. We are obligated under the agreement to use commercially reasonable efforts to develop and commercialize licensed product, to make licensed product reasonably available to the public, to obtain government approvals for licensed product and to market licensed product in quantities sufficient to meet the market demand.
The term of the Georgetown agreement will continue until the expiration of the last valid claim within the patent rights covering the licensed products. Georgetown may terminate the Georgetown agreement or convert our license to non-exclusive in the event (i) we fail to pay any amount and fail to cure such failure within 30 days after receipt of notice, (ii) we default in our obligation to obtain and maintain insurance and fail to remedy such breach within 45 days after receipt of notice, (iii) we declare insolvency or bankruptcy or (iv) we materially default in the performance of any material obligations under the Georgetown agreement which is not cured within a certain period from the date of written notice of such default. We may terminate the Georgetown agreement at any time upon at least 60 days’ written notice.
License Agreement with Beth Israel Deaconess Medical Center
In December 2016, we entered into a license agreement with Beth Israel Deaconess Medical Center, or BIDMC, pursuant to which we obtained an exclusive, worldwide license to make, have made, use, sell, offer for sale and import of licensed products and certain processes covered by licensed patent rights co-owned by BIDMC and a nonexclusive royalty-free right to use certain information pertaining to any invention claimed in the licensed patents that is owned by BIDMC to develop, make, have made, use, have used, sell, have sold and commercialize such licensed products and processes. The rights licensed to us are for all fields of use. We have the right to grant sublicenses of the licensed rights to third parties to the extent consistent with the terms of the agreement.
Under the terms of the BIDMC agreement we paid a one-time only, upfront fee of $20.0 thousand and we are responsible for all future patent prosecution costs.
The term of the BIDMC agreement will continue until the expiration of the last valid claim within the patent rights covering the licensed product. BIDMC may terminate the agreement in the event (i) we fail to pay any amount and fail to cure such failure within 15 days after receipt of notice, (ii) the insurance coverage that we are obligated to maintain under the agreement is terminated and we fail to obtain replacement insurance within a certain period of time following notice to BIDMC, or (iii) we declare insolvency or bankruptcy. In addition, if we are in material breach of any material provisions of the BIDMC agreement and fail to remedy such breach within 60 days after receipt of notice, BIDMC may terminate the BIDMC agreement or terminate any licenses granted under the agreement with respect to the country or countries in which such material breach has occurred. We may terminate the agreement at any time upon at least 90 days’ written notice.
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License Agreement with Dana Farber Cancer Institute
In November 2020, we entered into a license agreement with Dana Farber Cancer Institute, or DFCI, pursuant to which we obtained a non-exclusive, worldwide license to use, make, have made, develop, market, import, distribute, sell and have sold licensed products and certain processes covered by licensed patent rights owned by DFCI. The rights licensed to us are for the therapeutic use of our CXCR4 antagonists for the treatment of Waldenström’s in combination with BTK inhibitors, including ibrutinib. We have the right to grant sublicenses of the licensed rights to third parties to the extent consistent with the terms of the DFCI agreement.
Under the terms of the DFCI agreement we paid a one-time, upfront fee of $25.0 thousand and we are responsible for the reimbursement of certain future patent prosecution cost and the payment of an annual maintenance fee. We are obligated to pay DFCI milestone payments in the aggregate amount of up to approximately $32.0 million, contingent upon our achievement of certain regulatory and sales milestones with respect to licensed products, and a flat royalty based on net sales of licensed products that we commercialize under the DFCI agreement.
The term of the DFCI agreement will continue until the expiration of the last valid claim within the patent rights covering the licensed product. DFCI may terminate the agreement in the event (i) we fail to pay any amount and fail to cure such failure within 30 days after receipt of notice, (ii) we cease to carry on our business with respect to the licensed products or process, (iii) the insurance coverage that we are obligated to maintain under the agreement is terminated and we fail to obtain replacement insurance within a certain period of time following notice to DFCI, (iv) we fail to comply with certain diligence obligations and cure any such default within 60 after receipt of notice, (v) we have granted a sublicense without notifying DFCI or on terms inconsistent with the terms required of sublicenses under the agreement, (vi) an officer of X4, an affiliate or sublicensee is convicted of a felony relating to the manufacture, use, sale or importation of a licensed product, (vii) we or any of our affiliates, sublicensees or sublicensees’ Affiliates initiate a patent challenge of the patents licensed under the agreement or assists others in doing so or (viii) we declare insolvency or bankruptcy. In addition, if we are in material breach of any material obligations under the DFCI agreement and fail to remedy such breach within 90 days after receipt of notice, DFCI may terminate the agreement or terminate any licenses granted under the agreement. We may terminate the agreement at any time upon at least 90 days’ written notice.
Abbisko Agreement
In July 2019, we entered into a license agreement with Abbisko. Under the terms of the agreement, we granted Abbisko the exclusive right to develop, manufacture and commercialize mavorixafor in mainland China, Taiwan, Hong Kong and Macau. The agreement provides Abbisko with the exclusive rights in this territory to develop and commercialize mavorixafor in combination with checkpoint inhibitors or other agents in oncology indications. Pancreatic cancer, ovarian cancer and triple negative breast cancer will be explored initially. We retain the full rest-of-world rights to develop and commercialize mavorixafor outside of Greater China for all indications and the ability to utilize data generated pursuant to the Abbisko collaboration for rest-of-world development. In addition, Abbisko has the right of first refusal if we determine to pursue additional products in the Abbisko Territory, as defined in the agreement. We entered into a separate agreement in April 2020 whereby we will provide Abbisko with a clinical supply and, if the product is commercialized in the territory licensed by Abbisko, we intend to enter into a commercial supply of the licensed compound.
Pursuant to the agreement with Abbisko, upon the closing of a qualified financing of Abbisko, as defined in the agreement, which occued in March 2020, Abbisko made a one-time, non-refundable, non-creditable financial milestone payment of $3.0 million to us. We are also eligible to receive potential development and regulatory milestone payments and potential commercial milestone payments based on annual net sales of licensed products. Upon commercialization of mavorixafor in the Abbisko Territory, we are eligible to receive a tiered royalty, with a percentage range in the low double-digits, on net sales of approved licensed products. Abbisko is obligated to use commercially reasonable efforts to develop and commercialize mavorixafor in the Abbisko Territory. Abbisko has responsibility for all activities and costs associated with the further development, manufacture and commercialization of mavorixafor in the Abbisko Territory.
Intellectual Property
Our ability to commercialize our product candidates depends in large part on our ability to obtain and maintain intellectual property protection for our product candidates, including mavorixafor, and our preclinical compounds and core technologies. Our policy is to seek to protect our intellectual property position by, among other methods, filing U.S. and foreign patent applications related to the technology, inventions and improvements that are important to the development and implementation of our business strategy. We also rely on trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary position.
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We file patent applications directed to our product candidates, preclinical compounds and related technologies to establish intellectual property positions on these compounds and their uses in disease. As of December 31, 2020, we owned or exclusively licensed 16 issued U.S. patents, 14 pending U.S. non-provisional patent applications, one pending U.S. provisional patent application, and approximately 143 PCT and foreign patents and patent applications in the following foreign jurisdictions: Belgium, Brazil, Canada, China, European Patent Office, France, Germany, Great Britain, Hong Kong, India, Ireland, Italy, Israel, Japan, Lichtenstein, Mexico, Netherlands, Spain, Sweden and Switzerland.
As of December 31, 2020, our in-licensed intellectual property portfolio for mavorixafor included three issued U.S. patents and one pending U.S. patent application directed to compositions of matter for mavorixafor, which is expected to expire in December 2022 excluding possible patent term extensions of up to an additional five years. The intellectual property portfolio for mavorixafor also included one issued U.S. patent with claims directed to a crystalline salt form of mavorixafor, one issued U.S. patent directed to pharmaceutical compositions of mavorixafor in unit dosage form, and four issued U.S. patents directed to methods of making mavorixafor and key intermediates. We also had four issued U.S. patents directed to compositions and methods of making chemical compounds related to the X4P-001 program. Approximately 85 corresponding PCT and foreign patents and patent applications directed to compositions of matter and related chemical compounds as well as methods of making and methods of use were issued or pending. All of the above patents and patent applications were exclusively licensed to us pursuant to the terms of the Genzyme license agreement.
Additionally, we have filed our own patent applications with respect to the mavorixafor and X4P-002 product candidates. Some of these patent applications are co-owned with Genzyme, BIDMC or Georgetown, with their rights exclusively licensed to X4. As of December 31, 2020, our independently generated intellectual property portfolio included nine pending U.S. non-provisional patent applications, one pending U.S. provisional patent application, and approximately 38 pending PCT and foreign patent applications related to our mavorixafor clinical programs in cancer and primary immunodeficiencies; and four pending U.S. non-provisional patent applications, two pending U.S. provisional patent applications and 20 pending PCT and foreign patent applications related to our preclinical compounds and X4P-002 in glioblastoma. Patents issuing from these applications, if any, are expected to expire between 2036 and 2041.
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries, including the United States, the patent term is 20 years from the earliest filing date of a non-provisional patent application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office, or the USPTO, in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier filed patent. The term of a U.S. patent that covers a drug or biological product may also be eligible for patent term extension when approval from the FDA is granted, provided statutory and regulatory requirements are met. In the future, if our product candidates receive approval from the FDA or foreign regulatory authorities, we expect to apply for patent term extensions on issued patents covering those products, depending upon the length of the clinical trials for each drug and other factors. There can be no assurance that any of our pending patent applications will issue or that we will benefit from any patent term extension or other favorable adjustment to the term of any of our patents.
As with other biotechnology and pharmaceutical companies, our ability to maintain and solidify our proprietary and intellectual property position for our product candidates, including mavorixafor, and our preclinical compounds, and our core technologies will depend on our success in obtaining effective patent claims and enforcing those claims if granted. However, patent applications that we may file or license from third parties may not result in the issuance of patents. We also cannot predict the breadth of claims that may be allowed or enforced in our patents. Any issued patents that we may receive in the future may be challenged, invalidated or circumvented. For example, prior to March 16, 2013, in the United States, patent applications were subject to a “first to invent” rule of law. Applications filed after March 16, 2013 (except for certain applications claiming the benefit of earlier-filed applications) are subject to a “first to file” rule of law.
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Discoveries reported in the scientific literature often lag the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. We cannot be certain that any existing or future application will be subject to the “first to file” or “first to invent” rule of law, that we were the first to make the inventions claimed in our existing patents or pending patent applications subject to the prior laws, or that we were the first to file for patent protection of such inventions subject to the new laws. If third parties prepare and file patent applications in the United States that also claim technology we have claimed in our patents or patent applications, we may have to participate in interference proceedings in the USPTO to determine priority of invention, which could result in substantial costs to us, even if the eventual outcome is favorable to us. In addition, because of the extensive time required for clinical development and regulatory review of a product candidate we may develop, it is possible that, before any of our product candidates can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of any such patent.
In addition to patents, we rely upon unpatented trade secrets, know-how, and continuing technological innovation to develop and maintain our competitive position. We seek to protect our proprietary information, in part, by using confidentiality agreements with our collaborators, scientific advisors, employees and consultants, and invention assignment agreements with our employees. We also have agreements requiring assignment of inventions with selected consultants, scientific advisors and collaborators. The confidentiality agreements are designed to protect our proprietary information and, in the case of agreements or clauses requiring invention assignment, to grant us ownership of technologies that are developed under those agreements.
Government Regulation and Product Approval
The FDA Approval Process
In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act, or the FDCA, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as imposition of clinical holds, refusal by the FDA to approve pending NDAs, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement, civil penalties and criminal prosecution.
Pharmaceutical product development in the United States typically involves preclinical or other nonclinical laboratory and animal tests and the submission to the FDA of an IND, which must become effective before clinical testing may commence. For commercial approval, the sponsor must submit adequate tests by all methods reasonably applicable to show that the drug is safe for use under the conditions prescribed, recommended or suggested in the proposed labeling. The sponsor must also submit substantial evidence, generally consisting of adequate, well-controlled clinical trials to establish that the drug will have the effect it purports or is represented to have under the conditions of use prescribed, recommended or suggested in the proposed labeling. In certain cases, the FDA may determine that a drug is effective based on one clinical study plus confirmatory evidence.
Nonclinical tests include laboratory evaluation of product chemistry, formulation and toxicity, as well as animal studies to assess the characteristics and potential safety and efficacy of the product. The conduct of the nonclinical tests must comply with federal requirements, including the FDA’s good laboratory practices regulations and the U.S. Department of Agriculture’s, or USDA’s, regulations implementing the Animal Welfare Act. The results of nonclinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long-term nonclinical tests, such as animal studies of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.
A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has not imposed a clinical hold on the IND or otherwise commented or questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin.
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Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations, (ii) in compliance with GCP, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors, and (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.
The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time or impose other sanctions if it believes that the clinical trial either is not being conducted in accordance with the FDA requirements or presents an unacceptable risk to the clinical trial patients. The trial protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board, or IRB, at each site where a trial will be conducted for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements or may impose other conditions.
Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In general, in Phase 1, the initial introduction of the drug into healthy human volunteers or, in some cases, patients, the drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses and, if possible, early evidence of effectiveness. Phase 2 usually involves trials in a limited patient population to determine the effectiveness of the drug for a particular indication, dosage tolerance and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. The FDA may, however, determine that a drug is effective based on one clinical trial plus confirmatory evidence. In some cases, the FDA may require post-market studies, known as Phase 4 studies, to be conducted as a condition of approval to gather additional information on the drug’s effect in various populations and any side effects associated with long-term use. Depending on the risks posed by the drugs, other post-market requirements may be imposed.
After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of the product may begin in the United States. The NDA must include the results of all preclinical, clinical, and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and controls. Under federal law, the submission of most NDAs is additionally subject to a substantial application user fee, subject to certain exceptions and waivers, such as for orphan-designated drugs.
The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. Under the performance goals established pursuant to the Prescription Drug User Fee Act the FDA aims to complete review of 90% of standard (non-priority) NDAs within 10 months filing and within six months for priority NDAs.
The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committee, which is typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unless compliance with current GMP is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.
After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter.
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An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for health care professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.
The Hatch-Waxman Act
Orange Book Listing
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application, or ANDA. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be bioequivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, pre-clinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are considered to be therapeutically equivalent to the listed drug, are commonly referred to as “generic equivalents” to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original listed drug in accordance with state law.
The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a section viii statement, certifying that its proposed ANDA labeling does not contain (or carves out) any language regarding the patented method-of-use, rather than certify to a listed method-of-use patent.
If the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.
A certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA applicant.
The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.
Exclusivity
Upon NDA approval of a new chemical entity, or NCE, which is a drug that contains no active moiety that has been approved by the FDA in any other NDA, that drug receives five years of marketing exclusivity during which time the FDA cannot receive any ANDA or 505(b)(2) application seeking approval of a drug that references a version of the NCE drug. Certain changes to a drug, such as the addition of a new indication to the package insert, are associated with a three-year period of exclusivity during which the FDA cannot approve an ANDA or 505(b)(2) application that includes the change.
An ANDA or 505(b)(2) application may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification and thus no ANDA or 505(b)(2) application may be filed before the expiration of the exclusivity period.
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For a botanical drug, the FDA may determine that the active moiety is one or more of the principal components or the complex mixture as a whole. This determination would affect the utility of any five-year exclusivity as well as the ability of any potential generic competitor to demonstrate that it is the same drug as the original botanical drug.
Five-year and three-year exclusivities do not preclude FDA approval of a 505(b)(1) application for a duplicate version of the drug during the period of exclusivity, provided that the 505(b)(1) applicant conducts or obtains a right of reference to all of the preclinical studies and adequate and well controlled clinical trials necessary to demonstrate safety and effectiveness.
Patent Term Extension
After NDA approval, owners of relevant drug patents may apply for up to a five-year patent extension. The allowable patent term extension is calculated as half of the drug’s testing phase—the time between IND submission and NDA submission—and all of the review phase—the time between NDA submission and approval up to a maximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval with due diligence. The total patent term after the extension may not exceed 14 years.
For patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the USPTO must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.
Advertising and Promotion
Once an NDA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of drugs.
Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling. Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.
Adverse Event Reporting and GMP Compliance
Adverse event reporting and submission of periodic reports is required following FDA approval of an NDA. The FDA also may require post-marketing testing, known as Phase 4 testing, require a REMS special communications regarding the safety of the drug or heightened surveillance to monitor the effects of an approved product, or may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality control, drug manufacture, packaging, and labeling procedures must continue to conform to GMP after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with GMP. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain compliance with GMP. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing or if previously unrecognized problems are subsequently discovered.
Pediatric Exclusivity and Pediatric Use
The Best Pharmaceuticals for Children Act, or BPCA, provides NDA holders a six-month period of exclusivity attached to any other exclusivity listed with FDA—patent or non-patent—for a drug if certain conditions are met. Conditions for pediatric exclusivity include a determination by the FDA that information relating to the use of a new drug in the pediatric population may produce health benefits in that population; a written request by the FDA for pediatric studies; and agreement by the applicant to perform the requested studies and the submission to the FDA, completion of the studies in accordance with the written request, and the acceptance by the FDA of the reports of the requested studies within the statutory timeframe.
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In addition, under the Pediatric Research Equity Act, or PREA, NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective, unless the sponsor has received a deferral or waiver from the FDA. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted. The sponsor or the FDA may request a deferral of pediatric studies for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric studies are complete or that additional safety or effectiveness data need to be collected before the pediatric studies begin.
Orphan Drugs
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition—generally a disease or condition that affects fewer than 200,000 individuals in the United States (or affects more than 200,000 in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for such disease or condition will be recovered from sales of such drug in the United States). Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first NDA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the United States for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. If the FDA designates an orphan drug based on a finding of clinical superiority, the FDA must provide a written notification to the sponsor that states the basis for orphan designation, including “any plausible hypothesis” relied upon by the FDA. The FDA must also publish a summary of its clinical superiority findings upon granting orphan drug exclusivity based on clinical superiority.
Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.
Breakthrough Designation
A product can be designated as a breakthrough therapy by FDA if it is intended to treat a serious or life-threatening condition and preliminary clinical evidence indicates that it may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. A sponsor may request that a product candidate be designated as a breakthrough therapy concurrently with the submission of an IND or any time before an end-of-Phase-2 meeting, and the FDA must determine if the product candidate qualifies for breakthrough therapy designation within 60 days of receipt of the sponsor’s request. If so designated, the FDA shall act to expedite the development and review of the product’s marketing application, including by meeting with the sponsor throughout the product’s development, providing timely advice to the sponsor to ensure that the development program to gather pre-clinical and clinical data is as efficient as practicable, involving senior managers and experienced review staff in a cross-disciplinary review, assigning a cross-disciplinary project lead for the FDA review team to facilitate an efficient review of the development program and to serve as a scientific liaison between the review team and the sponsor, and taking steps to ensure that the design of the clinical trials is as efficient as practicable.
Europe/Rest of World Government Regulation
In addition to regulations in the United States, we are and will be subject, either directly or through our distribution partners, to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products, if approved.
Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in non-U.S. countries prior to the commencement of clinical trials or marketing of the product in those countries.
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In the European Union, medicinal products are subject to extensive pre- and post-marketing regulation by regulatory authorities at both the European Union and national levels. Additional rules also apply at the national level to the manufacture, import, export, storage, distribution and sale of controlled substances. In many E.U. member states, the regulatory authority responsible for medicinal products is also responsible for controlled substances. Responsibility is, however, split in some member states. Generally, any company manufacturing or distributing a medicinal product containing a controlled substance in the European Union will need to hold a controlled substances license from the competent national authority and will be subject to specific record-keeping and security obligations. Separate import or export certificates are required for each shipment into or out of the member state.
Clinical Trials and Marketing Approval
Certain countries outside of the United States have a process that requires the submission of a clinical trial application much like an IND prior to the commencement of human clinical trials. In Europe, for example, a clinical trial application, or CTA, must be submitted to the competent national health authority and to independent ethics committees in each country in which a company intends to conduct clinical trials. Once the CTA is approved in accordance with a country’s requirements and a company has received favorable ethics committee approval, clinical trial development may proceed in that country.
The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country, even though there is already some degree of legal harmonization in the European Union member states resulting from the national implementation of underlying E.U. legislation. In all cases, the clinical trials must be conducted in accordance with the International Conference on Harmonization, or ICH, guidelines on GCP and other applicable regulatory requirements.
To obtain regulatory approval to place a drug on the market in the European Union, we must submit a marketing authorization application. This application is similar to the NDA in the United States, with the exception of, among other things, country-specific document requirements. All application procedures require an application in the common technical document, or CTD, format, which includes the submission of detailed information about the manufacturing and quality of the product, and non-clinical and clinical trial information. Drugs can be authorized in the European Union by using (i) the centralized authorization procedure, (ii) the mutual recognition procedure, (iii) the decentralized procedure or (iv) national authorization procedures.
The European Commission created the centralized procedure for the approval of human drugs to facilitate marketing authorizations that are valid throughout the European Union and, by extension (after national implementing decisions) in Iceland, Liechtenstein and Norway, which, together with the E.U. member states, comprise the European Economic Area, or EEA. Applicants file marketing authorization applications with the EMA, where they are reviewed by a relevant scientific committee, in most cases the Committee for Medicinal Products for Human Use, or CHMP. The EMA forwards CHMP opinions to the European Commission, which uses them as the basis for deciding whether to grant a marketing authorization. This procedure results in a single marketing authorization granted by the European Commission that is valid across the European Union, as well as in Iceland, Liechtenstein and Norway. The centralized procedure is compulsory for human drugs that are: (i) derived from biotechnology processes, such as genetic engineering, (ii) contain a new active substance indicated for the treatment of certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative diseases, autoimmune and other immune dysfunctions and viral diseases, (iii) officially designated “orphan drugs” (drugs used for rare human diseases) and (iv) advanced-therapy medicines, such as gene-therapy, somatic cell-therapy or tissue-engineered medicines. The centralized procedure may at the voluntary request of the applicant also be used for human drugs which do not fall within the above-mentioned categories if the CHMP agrees that (a) the human drug contains a new active substance not yet approved on November 20, 2005; (b) it constitutes a significant therapeutic, scientific or technical innovation or (c) authorization under the centralized procedure is in the interests of patients at the E.U. level.
Under the centralized procedure in the European Union, the maximum timeframe for the evaluation of a marketing authorization application by the EMA is 210 days (excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP), with adoption of the actual marketing authorization by the European Commission thereafter. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest from the point of view of therapeutic innovation, defined by three cumulative criteria: the seriousness of the disease to be treated, the absence of an appropriate alternative therapeutic approach, and anticipation of exceptional high therapeutic benefit. In this circumstance, the EMA ensures that the evaluation for the opinion of the CHMP is completed within 150 days and the opinion issued thereafter.
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For those medicinal products for which the centralized procedure is not available, the applicant must submit marketing authorization applications to the national medicines regulators through one of three procedures: (i) the mutual recognition procedure (which must be used if the product has already been authorized in at least one other E.U. member state, and in which the E.U. member states are required to grant an authorization recognizing the existing authorization in the other E.U. member state, unless they identify a serious risk to public health), (ii) the decentralized procedure (in which applications are submitted simultaneously in two or more E.U. member states) or (iii) national authorization procedures (which results in a marketing authorization in a single E.U. member state).
Mutual Recognition Procedure
The mutual recognition procedure, or MRP, for the approval of human drugs is an alternative approach to facilitate individual national marketing authorizations within the European Union. Basically, the MRP may be applied for all human drugs for which the centralized procedure is not obligatory. The MRP is applicable to the majority of conventional medicinal products and must be used if the product has already been authorized in one or more member states.
The characteristic of the MRP is that the procedure builds on an already–existing marketing authorization in a member state of the European Union that is used as a reference in order to obtain marketing authorizations in other E.U. member states. In the MRP, a marketing authorization for a drug already exists in one or more member states of the European Union and subsequently marketing authorization applications are made in other E.U. member states by referring to the initial marketing authorization. The member state in which the marketing authorization was first granted will then act as the reference member state. The member states where the marketing authorization is subsequently applied for act as concerned member states. The concerned member states are required to grant an authorization recognizing the existing authorization in the reference member state, unless they identify a serious risk to public health.
The MRP is based on the principle of the mutual recognition by E.U. member states of their respective national marketing authorizations. Based on a marketing authorization in the reference member state, the applicant may apply for marketing authorizations in other member states. In such case, the reference member state shall update its existing assessment report about the drug in 90 days. After the assessment is completed, copies of the report are sent to all member states, together with the approved summary of product characteristics, labeling and package leaflet. The concerned member states then have 90 days to recognize the decision of the reference member state and the summary of product characteristics, labeling and package leaflet. National marketing authorizations shall be granted within 30 days after acknowledgement of the agreement.
If any E.U. member state refuses to recognize the marketing authorization by the reference member state, on the grounds of potential serious risk to public health, the issue will be referred to a coordination group. Within a timeframe of 60 days, member states shall, within the coordination group, make all efforts to reach a consensus. If this fails, the procedure is submitted to an EMA scientific committee for arbitration. The opinion of this EMA Committee is then forwarded to the European Commission for the start of the decision making process. As in the centralized procedure, this process entails consulting various European Commission Directorates General and the Standing Committee on Human Medicinal Products.
Data Exclusivity
In the European Union, marketing authorization applications for generic medicinal products do not need to include the results of pre-clinical and clinical trials, but instead can refer to the data included in the marketing authorization of a reference product for which regulatory data exclusivity has expired. If a marketing authorization is granted for a medicinal product containing a new active substance, that product benefits from eight years of data exclusivity, during which generic marketing authorization applications referring to the data of that product may not be accepted by the regulatory authorities, and a further two years of market exclusivity, during which such generic products may not be placed on the market. The two-year period may be extended to three years if during the first eight years a new therapeutic indication with significant clinical benefit over existing therapies is approved.
Orphan Medicinal Products
The EMA’s Committee for Orphan Medicinal Products, or COMP, may recommend orphan medicinal product designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than five in 10,000 persons in the European Union. Additionally, this designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the product in the European Union would be sufficient
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to justify the necessary investment in developing the medicinal product. The COMP may only recommend orphan medicinal product designation when the product in question offers a significant clinical benefit over existing approved products for the relevant indication. Following a positive opinion by the COMP, the European Commission adopts a decision granting orphan status. The COMP will reassess orphan status in parallel with EMA review of a marketing authorization application and orphan status may be withdrawn at that stage if it no longer fulfills the orphan criteria (for instance because in the meantime a new product was approved for the indication and no convincing data are available to demonstrate a significant benefit over that product). Orphan medicinal product designation entitles a party to financial incentives such as a reduction of fees or fee waivers and 10 years of market exclusivity is granted following marketing authorization. During this period, the competent authorities may not accept or approve any similar medicinal product, unless it offers a significant clinical benefit. This period may be reduced to six years if the orphan medicinal product designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.
Pediatric Development
In the European Union, companies developing a new medicinal product must agree to a Pediatric Investigation Plan, or PIP, with the EMA and must conduct pediatric clinical trials in accordance with that PIP unless a waiver applies, for example, because the relevant disease or condition occurs only in adults. The marketing authorization application for the product must include the results of pediatric clinical trials conducted in accordance with the PIP, unless a waiver applies, or a deferral has been granted, in which case the pediatric clinical trials must be completed at a later date. Products that are granted a marketing authorization on the basis of the pediatric clinical trials conducted in accordance with the PIP are eligible for a six-month extension of the protection under a supplementary protection certificate (if the product covered by it qualifies for one at the time of approval). This pediatric reward is subject to specific conditions and is not automatically available when data in compliance with the PIP are developed and submitted.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension of clinical trials, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Pharmaceutical Coverage, Pricing and Reimbursement
Sales of pharmaceutical products in the United States will depend, in part, on the extent to which the costs of the products will be covered by third-party payers, such as government health programs, and commercial insurance and managed health care organizations. These third-party payers are increasingly challenging the prices charged for medical products and services.
Significant uncertainty exists as to the coverage and reimbursement status of any drug products for which we obtain regulatory approval. In the United States, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of coverage and reimbursement from third-party payors. Third-party payors include government authorities, managed care providers, private health insurers and other organizations. Coverage and reimbursement policies for drug products can differ significantly from payor to payor as there is no uniform policy of coverage and reimbursement for drug products among third party payors in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement rates, but also have their own methods and approval process apart from Medicare determinations. The process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the reimbursement rate that the payor will pay for the drug product. Third-party payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drugs for a particular indication. Moreover, a payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.
Additionally, the containment of health care costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, utilization management and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. If these third-party payers do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.
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The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, imposed requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries and included a major expansion of the prescription drug benefit under Medicare Part D. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities that provide coverage of outpatient prescription drugs. Part D is available through both stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Parts A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee.
Government payment for some of the costs of prescription drugs may increase demand for products for which we receive marketing approval. However, any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payers often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payers.
Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. In order to obtain 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 regulatory approvals. Our product candidates may 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.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, collectively, the ACA, was enacted with the goal of expanding coverage for the uninsured while at the same time containing overall health care costs. With regard to pharmaceutical products, among other things, the ACA expanded and increased industry rebates for drugs covered under Medicaid programs and made changes to the coverage requirements under the Medicare D program. There have been challenges to certain aspects of the ACA. For example, former President Trump signed Executive Orders and other directives designed to eliminate the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Concurrently, Congress considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Cuts and Jobs Act was enacted, which, among other things, included a provision which 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 certain high-cost employer-sponsored health insurance plans and the medical device excise tax on non-exempt medical devices and, effective January 1, 2021, also eliminates the health insurer tax. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that 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. The U.S. Supreme Court is currently reviewing this case, but it is unknown when a decision will be reached. Although the U.S. Supreme Court has yet ruled on the constitutionality of the ACA, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how the Supreme Court ruling, other such litigation, and the healthcare reform measures of the Biden administration will impact the ACA. Although the U.S. Supreme Court has yet ruled on the constitutionality of the ACA, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects
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and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA.
In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, some E.U. jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines but monitor and control company profits. Such differences in national pricing regimes may create price differentials between E.U. member states. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of the United States. In the European Union, the downward pressure on healthcare costs in general, particularly prescription medicines, has become intense. As a result, barriers to entry of new products are becoming increasingly high and patients are unlikely to use a drug product that is not reimbursed by their government.
Other Healthcare Laws and Compliance Requirements
Our current and future operations may subject us to various federal and state laws targeting fraud and abuse in the healthcare industry. These laws may impact, among other things, our research and proposed sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states and foreign jurisdictions in which we conduct our business. The laws that may affect our ability to operate include:
•the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;
•federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent;
•the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;
•the federal transparency laws, including the federal Physician Payments Sunshine Act, that require drug manufacturers to disclose payments and other transfers of value provided to physicians, (currently 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. Beginning in 2022, applicable manufacturers also will be required to report such information regarding its payments and other transfers of value to physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified registered nurse anesthetists and certified nurse midwives during the previous year;
•HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and its implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information; and
•Foreign and state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers, state and local laws governing the disclosure of payments to health care professionals, state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, state laws that require the reporting of information related to drug pricing, state and local laws requiring 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 may not have the same effect, thus complicating compliance efforts.
If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to it, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of products from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations.
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Human Capital Policies and Procedures
As of December 31, 2020, we had 72 full-time employees. Of these employees, 48 were engaged in research and development and 24 were engaged in general and administrative functions. All of our employees are located in the United States and Vienna, Austria. We have no collective bargaining agreements with our employees and have not experienced any work stoppages. We consider our relationship with our employees to be good.
Human capital is critical to our success. Our overarching human capital resource strategy is to recruit, hire, incentivize and retain employees consistent with our stage of operations and strategic objectives. We believe we offer our employees compensation that is competitive and consistent with the markets in which we operate, namely the Boston, Massachusetts and Vienna, Austria metropolitan areas. We supplement base cash employee compensation with awards of stock options and/or restricted stock units under our equity incentive plans. We review employee performance annually and our Compensation Committee approves associated merit increases and annual incentive bonus payments during the first quarter annually. When needed, we augment our employee base with outside consultants who specialize in various fields.
Corporate Information
We were incorporated under the laws of the State of Delaware in 2010 under the name Arsanis Inc. Following the Merger with X4 Therapeutics Inc. (formerly X4 Pharmaceuticals Inc.) on March 13, 2019, we changed our name to X4 Pharmaceuticals, Inc. Our principal executive offices are located at 61 North Beacon Street, 4th Floor, Boston, Massachusetts 02134 and our telephone number is (857) 529-8300.
Available Information
We maintain a website at http://www.x4pharma.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge on our website as soon as reasonably practicable after electronically filing such reports with the SEC. Such reports and other information may be accessed through the SEC's website at www.sec.gov. Information contained in our website is not part of this or any other report that we file with or furnish to the SEC.
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ITEM 1A. RISK FACTORS
An investment in our securities involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this Annual Report, including our audited consolidated financial statements and related notes hereto, before deciding to invest in our common stock. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects, or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment. We cannot assure you that any of the events discussed below will not occur.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant losses since our inception. We expect to continue to incur losses for the foreseeable future and we may never achieve or maintain profitability.
We are a late-stage clinical biopharmaceutical company with a limited operating history. Since inception, we have incurred significant operating losses. Our net losses were $62.1 million, $52.8 million and $33.3 million for the years ended December 31, 2020, 2019 and 2018 respectively, and we had an accumulated deficit of $194.2 million as of December 31, 2020. We have funded our operations to date primarily with proceeds from sales of common stock, warrants and prefunded warrants for the purchase of our preferred stock and our common stock, sales of preferred stock, proceeds from the issuance of convertible debt and borrowings under loan and security agreements. In 2019, we completed a merger with Arsanis and acquired $26.4 million of its cash, cash equivalents and restricted cash. In addition, in 2019, we raised $139.4 million, net of offering costs, through public offerings of common stock, prefunded warrants to purchase shares of common stock, and accompanying warrants to purchase shares of common stock. In August 2020, we entered into a Controlled Equity OfferingSM Sales Agreement, or the ATM Sales Agreement, with B. Riley Securities, Inc., Cantor Fitzgerald & Co., and Stifel, Nicolaus & Company, Incorporated, or collectively, the Sales Agents, pursuant to which we may offer and sell, at our sole discretion through one or more of the Sales Agents, shares of our common stock having an aggregate offering price of up to $50.0 million. In October 2020, we entered into a common stock purchase agreement with Aspire Capital LLC, or Aspire Capital, pursuant to which Aspire Capital has committed to purchase, at our request from time to time over a 36-month period, shares of our common stock having an aggregate offering price of up to $50.0 million, subject to certain limitations.
We expect to continue to incur significant expenses and increasing operating losses for at least the next few years as we conduct additional clinical trials for our product candidates; continue to discover and develop additional product candidates; acquire or in-license other product candidates and technologies; maintain, expand and protect our intellectual property portfolio; hire additional clinical, scientific and commercial personnel; establish a commercial manufacturing source and secure supply chain capacity sufficient to provide commercial quantities of any product candidates for which we may obtain regulatory approval; seek regulatory approvals for any product candidates that successfully complete clinical trials; establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain regulatory approval; and add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts.We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. For example, we have already experienced delays in clinical trial site activation and slower patient enrollment in some of our clinical trials as a result of the pandemic, which have delayed our expectations regarding our ability to report data from those trials, and we may encounter additional delays, disruptions and other direct and indirect negative effects of the ongoing COVID-19 pandemic on our clinical trials. 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 revenues. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. The net losses we incur may fluctuate significantly from quarter to quarter and year to year.
Our ability to generate profits from operations and thereafter to remain profitable depends heavily on:
•the scope, number, progress, duration, endpoints, cost, results and timing of clinical trials and nonclinical studies of our current or potential future product candidates, including in particular the scope, progress, duration, endpoints, cost, results and timing for completion of our Phase 3 trial of mavorixafor for the treatment of Warts, Hypogammaglobulinemia, Infections, and Myelokathexis, or WHIM, syndrome, our Phase 1b clinical trial of mavorixafor for the treatment of severe congenital neutropenia, or SCN, and our Phase 1b clinical trial of mavorixafor for the treatment of Waldenström’s macroglobulinemia, or Waldenström’s
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•our ability to raise sufficient funds to support the development and potential commercialization of our product candidates;
•the outcomes and timing of regulatory reviews, approvals or other actions;
•our ability to obtain marketing approval for our product candidates;
•our ability to establish and maintain licensing, collaboration or similar arrangements on favorable terms and whether and to what extent we retain development or commercialization responsibilities under any new licensing, collaboration or similar arrangement;
•the success of any other business, product or technology that we acquire or in which we invest;
•our ability to maintain, expand and defend the scope of our intellectual property portfolio;
•our ability to manufacture any approved products on commercially reasonable terms;
•our ability to establish a sales and marketing organization or suitable third-party alternatives for any approved product; and
•the number and characteristics of product candidates and programs that we pursue.
Based on our current plans, we do not expect to generate significant revenue from product sales unless and until we (or a potential future licensee or collaborator) obtain marketing approval for, and commercialize, one or more of our current or potential future product candidates. Neither we nor a licensee may ever succeed in obtaining marketing approval for, or commercializing, our product candidates and, even if we do, we may never generate revenues that are significant enough to generate profits from operations. Even if we do generate profits from operations, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to generate profits from operations and remain profitable would decrease our value and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or continue our operations. A decline in our value could also cause you to lose all or part of your investment.
We may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors that may alter or delay our plans. Assuming that we complete the development of and obtain marketing approval for any of our product candidates, we will need to transition from a company with a research and development focus to a company capable of supporting commercial activities. We may encounter unforeseen expenses, difficulties, complications and delays, and may not be successful in such a transition.
We will require substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate any product development programs or commercialization efforts.
Our operations have consumed a large amount of cash since inception. We expect our research and development expenses to increase in future periods as we continue to advance the clinical development of our product candidates and prepare for the launch and commercialization of any product candidates for which we receive regulatory approval, including potentially building our own commercial organization to address the United States and certain other markets. In addition, if we obtain marketing approval for any of our product candidates that are not then subject to licensing, collaboration or similar arrangements with third parties, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing. Furthermore, we expect to incur additional costs associated with operating as a public company.
As of December 31, 2020, our cash and cash equivalents of $78.7 million will not be sufficient to fund our current operating plans through at least the next 12 months from the date these consolidated financial statements were issued. We expect to seek additional funding to sustain our future operations, which may include raising funds through public or private equity or debt financings, third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. As discussed in Note 1 to our consolidated financial statements included herein, we have entered into an agreement with several institutional and accredited investors to sell our common stock and pre-funded warrants for the purchase of our common stock in a private placement, which is expected to close in the first quarter of 2021. In addition, we have entered into a non-binding letter of intent with a third party to negotiate a co-development agreement that is expected to provide us with funding when and if the arrangement closes. However, these arrangements have not yet closed. While we have successfully raised capital in the past, the ability to raise capital in future periods is not assured.
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We will require substantial additional funding to carry out our business plans, including the clinical development of mavorixafor. Further, even if and when we believe we have sufficient capital for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations. We cannot be certain that additional funding will be available on acceptable terms, or at all. The ongoing COVID-19 pandemic has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital when and if needed. If we are unable to raise additional capital when needed or in sufficient amounts or on terms acceptable to us, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts of one or more of our product candidates or one or more of our other research and development initiatives.
We also could be required to:
•seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available; or
•relinquish or license on unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves.
Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:
•the scope, number, initiation, progress, timing, costs, design, duration, any potential delays, and results of clinical trials and nonclinical studies for our current or future product candidates, particularly our Phase 3 trial of mavorixafor for the treatment of WHIM syndrome, our Phase 1b clinical trial of mavorixafor for the treatment of SCN, and our Phase 1b clinical trial of mavorixafor for the treatment of Waldenström’s;
•the clinical development plans that we establish for these product candidates;
•the number and characteristics of product candidates and programs that we develop or may in-license;
•the outcome, timing and cost of regulatory reviews, approvals or other actions to meet regulatory requirements established by the U.S. Food and Drug Administration, or FDA, and comparable foreign regulatory authorities, including the potential for the FDA or comparable foreign regulatory authorities to require that we perform more studies for our product candidates than those that we currently expect;
•our ability to obtain marketing approval for our product candidates;
•the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights covering our product candidates, including any such patent claims and intellectual property rights that we have licensed from Genzyme pursuant to the terms of our license agreement with Genzyme or from other third parties;
•our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us or our product candidates;
•the cost and timing of completion of commercial-scale outsourced manufacturing activities with respect to our product candidates;
•our ability to establish and maintain licensing, collaboration or similar arrangements on favorable terms and whether and to what extent we retain development or commercialization responsibilities under any new licensing, collaboration or similar arrangement;
•the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own;
•the success of any other business, product or technology that we acquire or in which we invest;
•the costs of acquiring, licensing or investing in businesses, product candidates and technologies;
•our need and ability to hire additional management and scientific and medical personnel;
•the costs to operate as a public company, including the need to implement additional financial and reporting systems and other internal systems and infrastructure for our business;
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•market acceptance of our product candidates, to the extent any are approved for commercial sale; and
•the effect of competing technological and market developments, and;
•business interruptions resulting from pandemics and public health emergencies, including those related to the ongoing COVID-19 pandemic, geopolitical actions, including war and terrorism or natural disasters including earthquakes, typhoons, floods and fires.
If we do not raise additional capital in sufficient amounts, or on terms acceptable to us, we may be prevented from pursuing discovery, development and commercialization efforts, which will harm our business, operating results and prospects.
Raising additional capital may cause dilution to our investors, restrict our operations or require us to relinquish rights to our technologies or product candidates. Future debt obligations may expose us to risks that could adversely affect our business, operating results and financial condition and may result in further dilution to our stockholders.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through public or private equity or debt financings, third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. The ongoing COVID-19 pandemic has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital. Other than our common stock purchase agreement with Aspire Capital, pursuant to which Aspire Capital is obligated, subject to certain limitations, to purchase up to $50.0 million in the aggregate of shares of our common stock, and a private placement entered into on March 18, 2021 for the sale of our common stock and pre-funded warrants for the purchase of our common stock, which is expected to close on or about March 22, 2021, we do not have any committed external sources of funds and may seek to raise additional capital at any time. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a holder of our common stock. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends or other distributions, acquiring or licensing intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business and may result in liens being placed on our assets and intellectual property. If we default on such indebtedness, we could lose such assets and intellectual property.
If we raise additional funds through licensing, collaboration or similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research and development programs or product candidates or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debt financings or through licensing, collaboration or similar arrangements when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
We have not generated revenues from any product sales since inception and may never become profitable.
To date, we have not generated revenues from any product sales. Our ability to generate revenue and become profitable depends upon our ability to successfully obtain marketing approval and commercialize our product candidates, including mavorixafor, X4P-002, X4P-003 or other product candidates that we may develop, in-license or acquire in the future. Even if we are able to successfully achieve regulatory approval for these product candidates, we are unable to predict the extent of any future losses and do not know when any of these product candidates will generate revenue for us, if at all. Our ability to generate revenue from mavorixafor or any of our current or future product candidates also depends on a number of additional factors, including our ability to:
•successfully complete development activities, including all necessary nonclinical studies and clinical trials;
•complete and submit New Drug Applications, or NDAs, to the FDA and obtain regulatory approval for indications for which there is a commercial market;
•complete and submit marketing applications to, and obtain regulatory approval from, foreign regulatory authorities;
•set and obtain a commercially viable price for our products;
•obtain commercial quantities of our products at acceptable cost levels;
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•develop a commercial organization capable of sales, marketing and distribution for the products we intend to sell ourselves in the markets in which we have retained commercialization rights;
•find suitable collaborators to help us market, sell and distribute our approved products in other markets; and
•obtain coverage and adequate reimbursement from third-party, including government, payors.
In addition, because of the numerous risks and uncertainties associated with product development, including the possibility that our product candidates may not advance through development or demonstrate safety and efficacy for their intended uses, the FDA or any other regulatory agency may require additional clinical trials or nonclinical studies. We are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability, and such expense could increase beyond our expectations if the FDA or any other regulatory agency requires such additional clinical trials or nonclinical studies as part of the application and approval process or post-approval process if we are successful at achieving regulatory approval. Even if we are able to successfully complete the development and regulatory reviews described above, we anticipate incurring significant costs associated with commercializing these products, if they are approved.
Even if we are able to generate revenues from the sale of our product candidates, we may not become profitable and may need to obtain additional funding to continue operations. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of the company and could impair our ability to raise capital, maintain our discovery and preclinical development efforts, expand our business or continue our operations and may require us to raise additional capital that may dilute your ownership interest. A decline in our value could also cause you to lose all or part of your investment.
Risks Related to Development of Our Product Candidates
We depend almost entirely on the success of our lead product candidate, mavorixafor, which we are developing initially for the treatment of WHIM syndrome, for the treatment of SCN, for the treatment of Waldenström’s, and with a potential strategic partner, for the treatment of ccRCC. We cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, mavorixafor or any other product candidate.
Our business depends almost entirely on the successful clinical development, regulatory approval and commercialization of mavorixafor. We currently have no products for sale and may never be able to develop marketable drug products. We initiated a global Phase 3 pivotal clinical trial of our lead product candidate, mavorixafor, in WHIM patients in the second quarter of 2019, and may be required to complete additional nonclinical studies and clinical trials before we can seek regulatory approval. In the fourth quarter of 2019, we also initiated Phase 1b clinical trials of mavorixafor for the treatment of SCN and Waldenström’s. While we completed a Phase 2a clinical trial of mavorixafor for the treatment of ccRCC, we do not plan to develop mavorixafor for this indication on our own. Our other programs, including X4P-002 and X4P-003, are still in the preclinical development stage. The clinical trials of our product candidates are, and the manufacturing and marketing of our product candidates will be, subject to extensive and rigorous review and regulation by government authorities in the United States and in other countries where we intend to test and, if approved, market any product candidate. Before obtaining regulatory approvals for the commercial sale of any product candidate, we must successfully meet a number of critical developmental milestones, including:
•developing dosages that will be well-tolerated, safe and effective;
•completing the development and scale-up to permit manufacture of our product candidates in commercial quantities and at acceptable costs;
•demonstrating through pivotal clinical trials that each product candidate is safe and effective in patients for the intended indication;
•establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers; and
•obtaining and maintaining patent and trade secret protection and non-patent exclusivity for our product candidates.
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The time necessary to achieve these developmental milestones for any individual product candidate is long and uncertain, and we may not successfully complete these milestones for mavorixafor or any other product candidates that we may develop. We have not yet completed development of any product candidate. We also may not be able to finalize the design or formulation for our other programs, X4P-002 for the treatment of glioblastoma multiforme, or GBM, and X4P-003, a next generation molecule for the treatment of rare diseases linked to defects in CXCR4 trafficking.
We are continuing to test and develop our product candidates and may explore possible design or formulation changes to address safety, efficacy, manufacturing efficiency and performance issues to the extent any arise. We may not be able to complete development of any product candidates that demonstrate safety and efficacy and that will have a commercially reasonable treatment and storage period. If we are unable to complete development of mavorixafor or any other product candidates that we may develop, we will not be able to commercialize and earn revenue from them.
We expect to develop mavorixafor, and potentially future product candidates, in combination with other therapies, which exposes us to additional risks.
We intend to develop mavorixafor, and may develop future product candidates, in combination with one or more currently approved cancer therapies. Even if any product candidate we develop were to receive marketing approval or be commercialized for use in combination with other existing therapies, we would continue to be subject to the risks that the FDA or similar regulatory authorities outside of the United States could revoke approval of the therapy used in combination with our product candidate or that safety, efficacy, manufacturing or supply issues could arise with these existing therapies. Combination therapies are commonly used for the treatment of cancer, and we would be subject to similar risks if we develop any of our product candidates for use in combination with other drugs or for indications other than cancer. This could result in our own products being removed from the market or being less successful commercially.
We may also evaluate mavorixafor or any other future product candidates in combination with one or more other cancer therapies that have not yet been approved for marketing by the FDA or similar regulatory authorities outside of the United States. We will not be able to market and sell mavorixafor or any product candidate we develop in combination with any such unapproved cancer therapies that do not ultimately obtain marketing approval.
If the FDA or similar regulatory authorities outside of the United States do not approve these other drugs or revoke their approval of, or if safety, efficacy, manufacturing or supply issues arise with, the drugs that we choose to evaluate in combination with mavorixafor or any product candidate we develop, we may be unable to obtain approval of or market mavorixafor or any product candidate we develop.
The regulatory review and approval processes of the FDA and comparable foreign regulatory authorities are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, including mavorixafor, our business will be substantially harmed.
Of the large number of drugs in development in the United States, only a small percentage receive FDA regulatory approval and are commercialized in the United States. We are not permitted to market mavorixafor or any other product candidate in the United States until we receive approval of an NDA from the FDA, or in any foreign countries until we receive the requisite approval from such countries or jurisdictions, such as the marketing authorization application, or MAA, in the European Union from the European Medicines Agency, or EMA. Prior to submitting an NDA to the FDA for approval of mavorixafor for the treatment of WHIM syndrome, we will need to successfully complete our current Phase 3 pivotal clinical trial of mavorixafor in patients with WHIM syndrome, and we may be required by the FDA to conduct additional clinical trials and/or nonclinical studies to support potential approval. Successfully completing clinical trials and obtaining approval of an NDA is a complex, lengthy, expensive and uncertain process, and the FDA, or a comparable foreign regulatory authority, may delay, limit or deny approval of mavorixafor for the treatment of WHIM syndrome or other indications for many reasons, including, among others:
•disagreement with the design or implementation of our clinical trials;
•disagreement with the sufficiency of our clinical trials;
•failure to demonstrate the safety and efficacy of mavorixafor or any other product candidate for its proposed indications;
•failure to demonstrate that any clinical and other benefits of mavorixafor or any other product candidate outweigh its safety risks;
•a negative interpretation of the data from our nonclinical studies or clinical trials;
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•deficiencies in the manufacturing or control processes or failure of third-party manufacturing facilities with which we contract for clinical and commercial supplies to comply with current Good Manufacturing Practice requirements, or cGMPs;
•insufficient data collected from clinical trials of mavorixafor or changes in the approval requirements that render its nonclinical and clinical data insufficient to support the filing of an NDA or to obtain regulatory approval; or
•changes in clinical practice in or approved products available for the treatment of the target patient population that could have an impact on the indications that we are pursuing for mavorixafor or our other product candidates.
The FDA or a comparable foreign regulatory authority may also require more information, including additional nonclinical or clinical data to support approval, which may delay or prevent approval of our commercialization plans, or cause us to abandon the development program. Even if we obtain regulatory approval, our product candidates may be approved for fewer or more limited indications than we request, such approval may be contingent on the performance of costly post-marketing clinical trials, or we may not be allowed to include the labeling claims necessary or desirable for the successful commercialization of such product candidate. For instance, it is possible that mavorixafor could be approved for an indication but fail to be used for treating patients in that indication due to the availability of other available treatments or then-accepted clinical practice.
We depend on license agreements with Genzyme, Beth Israel Deaconess Medical Center, Georgetown University and Dana-Farber Cancer Institute to permit us to use patents and patent applications. Termination of these rights or the failure to comply with obligations under these agreements could materially harm our business and prevent us from developing or commercializing our product candidates.
We are party to license agreements with Genzyme, Beth Israel Deaconess Medical Center, Georgetown University and Dana-Farber Cancer Institute under which we were granted rights to patents and patent applications that are important to our business. We rely on these license agreements in order to be able to use various proprietary technologies that are material to our business, including certain patents and patent applications that cover our product candidates, including mavorixafor. Our rights to use these patents and patent applications and employ the inventions claimed in these licensed patents are subject to the continuation of and our compliance with the terms of our license agreements.
Our license agreement with Genzyme imposes upon us various diligence, payment and other obligations, including the following:
•our obligation to pay Genzyme milestone payments in the aggregate amount of up to $25.0 million, contingent upon our achievement of certain late-stage regulatory and sales milestones with respect to licensed products.
•our obligation to pay Genzyme tiered royalties based on net sales of licensed products that we commercialize under the agreement.
•our obligation to pay Genzyme a certain percentage of cash payments received by us or our affiliates in consideration for the grant of a sublicense under the license granted to us by Genzyme.
If we fail to comply with any of our obligations under the Genzyme license agreement, or we are subject to a bankruptcy, Genzyme may have the right to terminate the license agreement, in which event we would not be able to market any product candidates covered by the license.
Prior to July 2014, we did not control the prosecution, maintenance, or filing of the patents and patent applications that are licensed to us under the Genzyme license agreement, or the enforcement of these patents and patent applications against infringement by third parties. Thus, these patents and patent applications were not drafted by us or our attorneys, and we did not control or have any input into the prosecution of these patents and patent applications prior to our execution of the Genzyme license agreement in July 2014. Under the terms of the license agreement with Genzyme, since July 2014, we have controlled the right to control the prosecution, maintenance, and filing of the patents and patent applications that are licensed to us, and the enforcement of these patents and patent applications against infringement by third parties. However, we cannot be certain that the same level of attention was given to the drafting and prosecution of these patents and patent applications as we may have used if we had control over the drafting and prosecution of such patents and patent applications. We also cannot be certain that drafting or prosecution of the patents and patent applications licensed to us has been conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents.
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Pursuant to our license agreement with Beth Israel Deaconess Medical Center, we paid an upfront, one-time fee for the rights granted by the license agreement. This license agreement imposes upon us various obligations, including the requirement to provide Beth Israel Deaconess Medical Center with progress reports at regular intervals and to maintain specified levels of insurance. Beth Israel Deaconess Medical Center may terminate the agreement for our non-payment, insolvency or default of material obligations. We have the right to terminate the agreement for any reason upon 90 days’ advance written notice.
Our license agreement with Georgetown imposes upon us various diligence, payment and other obligations, including our obligations to pay Georgetown milestone payments in the aggregate amount of up to $0.8 million, contingent upon our achievement of certain sales milestones with respect to licensed products, to deliver reports upon certain events and at regular intervals and to maintain customary levels of insurance. Georgetown may terminate the agreement for our non-payment, insolvency, failure to maintain insurance or default of material obligations. We have the right to terminate the agreement for any reason upon 60 days advance written notice.
Our license agreement with the Dana-Farber Cancer Institute (“DFCI”) imposes upon us various diligence, payment and other obligations, including our obligations to pay DFCI milestone payments in the aggregate amount of up to approximately $32.0 million, contingent upon our achievement of certain regulatory and sales milestones with respect to licensed products, to deliver reports at regular intervals and to maintain certain minimum levels of insurance. DFCI may terminate the agreement if (i) we cease to carry on our business with respect to the licensed products, (ii) we default on diligence, insurance, payment or any other material obligations, (iii) one of our officers or that of a sublicensee is convicted of a felony relating to the manufacture, use, sale or importation of one or more licensed product, (iv) we become insolvent, (v) we grant a sublicense without notifying DFCI or on terms inconsistent with the terms required of sublicenses under the agreement or (vi) we bring a patent challenge against the licensed products. We have the right to terminate the agreement for any reason upon 90 days advance written notice.
Disputes may arise under any of our license agreements with Genzyme, Beth Israel Deaconess Medical Center, Georgetown University and/or Dana-Farber Cancer Institute regarding the intellectual property that is subject to such license agreement, including:
•the scope of rights granted under the applicable license agreement and other interpretation-related issues;
•whether and the extent to which our technology and processes infringe on intellectual property that is not subject to the applicable license agreement;
•our diligence obligations with respect to the use of the licensed technology under the applicable license agreement to develop and commercialize products and technologies, including the level of effort and specific activities that will satisfy those diligence obligations; and
•the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by us and our collaborators.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain any of our license agreements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates and technologies.
Furthermore, certain of the above risks and uncertainties may be amplified as a result of the impact of the ongoing COVID-19 notwithstanding the commencement of vaccination efforts. The extent to which COVID-19 may impact our license agreements with Genzyme, Beth Israel Deaconess Medical Center, Georgetown University and/or Dana-Farber Cancer Institute, or any other third-party partner, will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19, including virus variants, and the actions to contain COVID-19, treat its impact or develop herd immunity, among others.
The results of clinical trials may not support our product candidate claims.
Even if our clinical trials are completed as planned, we cannot be certain that their results will support the proposed product candidates, that the FDA or foreign government authorities will agree with our conclusions regarding such results, or that the FDA or foreign governmental authorities will not require additional clinical trials. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful and the results of later clinical trials often do not replicate the results of prior clinical trials and preclinical testing. The clinical trial results may fail to demonstrate that our product candidates are safe for humans and effective for the intended indications. This failure could cause us to abandon a product candidate and may delay development of other product candidates. Any delay in, or termination of, our clinical trials will delay or prevent the
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submission of our marketing applications (NDA and/or MAA) and, ultimately, our ability to obtain approval and commercialize our product candidates and generate product revenues. Information about certain clinical trials, including results (positive or negative) will be made public according to each country’s clinical trial register policies. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.
Delays in our clinical trials may lead to a delay in the submission of our marketing approval application and jeopardize our ability to potentially receive approvals and generate revenues from the sale of our products.
We may experience delays in our current or future clinical trials, including our Phase 3 trial of mavorixafor for the treatment of WHIM syndrome, our Phase 1b clinical trial of mavorixafor for the treatment of SCN, and our Phase 1b clinical trial of mavorixafor for the treatment of Waldenström’s. As a result of the ongoing COVID-19 pandemic, we have experienced delays in clinical trial site activation and slower patient enrollment in our clinical trials of mavorixafor for the treatment of WHIM syndrome, Waldenström’s and SCN. Clinical trials may be delayed, suspended or terminated for a variety of reasons, including the following:
•direct and indirect effects of the ongoing COVID-19 pandemic on various aspects and stages of the clinical development process, including the potential impact to expected site activation, enrollment and participation in our clinical trials;
•the diversion of healthcare resources away from the conduct of clinical trials as a result of the ongoing COVID-19 pandemic, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;
•the interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel, quarantines or social distancing protocols imposed or recommended by federal or state governments, employers and others in connection with the ongoing COVID-19 pandemic;
•delay or failure in reaching agreement with the FDA or a comparable foreign regulatory authority on a trial design that we are able to execute;
•delay or failure in obtaining authorization to commence a trial or inability to comply with conditions imposed by a regulatory authority regarding the scope or design of a clinical trial;
•inability, delay or failure in identifying and maintaining a sufficient number of trial sites, many of which may already be engaged in competing clinical trial programs;
•delay or failure in recruiting and enrolling suitable subjects to participate in a trial;
•delay or failure in having subjects complete a trial or return for post-treatment follow-up;
•clinical sites and investigators deviating from trial protocol, failing to conduct the trial in accordance with regulatory requirements, or dropping out of a trial;
•delay or failure in reaching agreement on acceptable terms with prospective clinical 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 trial sites;
•delay or failure in obtaining institutional review board, or IRB, approval to conduct a clinical trial at each site;
•delays resulting from negative or equivocal findings of the Data Safety Monitoring Board, or DSMB, if any;
•ambiguous or negative results;
•decision by the FDA, a comparable foreign regulatory authority, or recommendation by a DSMB to suspend or terminate clinical trials at any time for safety issues or for any other reason;
•inadequate drug product for use in nonclinical studies or clinical trials;
•lack of adequate funding to continue the product development program; or
•changes in governmental regulations or requirements.
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Any delays in completing our clinical trials will increase our costs, slow down our product candidate 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 our product candidates.
We may fail to enroll a sufficient number of patients in our clinical trials in a timely manner, which could delay or prevent clinical trials of our product candidates.
Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. The timing of our clinical trials depends on the rate at which we can recruit and enroll patients in testing our product candidates, and we have made certain assumptions about the rate at which we can enroll patients in our clinical trials. The timing of our clinical trials depends in part on the speed at which we can recruit patients to participate in testing mavorixafor and any other current or future product candidates that we may develop as well as completion of required follow-up periods. For example, as a result of the ongoing COVID-19 pandemic, we have experienced, and expect to continue to experience, enrollment at a slower pace at certain of our clinical trial sites than initially expected. In addition, certain of our clinical trial sites have suspended enrollment due to facility closures, quarantine, travel restrictions and other governmental restrictions. As a result, our original expectations regarding the timing of results from our clinical trials of mavorixafor for the treatment of WHIM syndrome, SCN and Waldenström’s were delayed, which we expect will have a material adverse impact on our clinical trial plans and timelines.
If we cannot identify patients to participate in our clinical trials, whether due to COVID-19 or otherwise, or if patients are unwilling to participate in our clinical trials for any reason, including if patients choose to enroll in competitive clinical trials for similar patient populations, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of mavorixafor and any other current or future product candidates that we may develop may be delayed. These delays could result in increased costs, delays in advancing our current or future product candidates, including mavorixafor, X4P-002 or X4P-003, delays in testing the effectiveness of our product candidates or termination of the clinical trials altogether.
We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity in a trial, to complete our clinical trials in a timely manner. In particular, we are currently evaluating mavorixafor for the treatment of WHIM syndrome, SCN and Waldenström’s, rare diseases with limited patient pools from which to draw for clinical trials. The eligibility criteria of our clinical trials will further limit the pool of available trial participants.
Patient enrollment, a significant factor in the duration of clinical trials, is also affected by many factors, including:
•delays or difficulties in clinical site activation, including difficulties in training clinical site investigators and clinical site staff;
•diversion or prioritization of healthcare resources away from the conduct of our clinical trials as a result of the ongoing COVID-19 pandemic, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials, particularly for clinical trials that require in-patient monitoring following administration of the product candidate;
•increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19, being forced to quarantine, or being unable to visit clinical trial locations;
•the severity of the disease under investigation;
•the size and nature of the patient population (particularly with respect to orphan drugs which, by definition, are intended for a relatively small patient population);
•the eligibility criteria for the clinical trial in question;
•the design of the clinical trial;
•the inability to obtain and maintain patient consents;
•the risk that enrolled subjects will drop out before completion;
•clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drug that may be approved or for which clinical trials are initiated for the indications that we are investigating;
•our CROs and our trial sites’ efforts to facilitate timely screening and enrollment in clinical trials and
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while we will have agreements governing their activities, we have limited control over their actual performance;
•patient referral practices of physicians; and
•our ability to monitor patients adequately during and after treatment, which may be affected by COVID-19.
If we experience difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may be forced to delay, limit or terminate ongoing or planned clinical trials of our product candidates, which would delay our ability to obtain approvals and generate product revenues from any of these product candidates.
If the commercial opportunity in WHIM syndrome, SCN or Waldenström’s is smaller than we anticipate, our potential future revenue from mavorixafor for the treatment of any of the diseases may be adversely affected and our business may suffer.
If the size of the commercial opportunities in any of our target indications is smaller than we anticipate, we may not be able to achieve profitability and growth. We are developing mavorixafor initially as a treatment for patients with WHIM syndrome and also as a treatment for other rare diseases, including primary immunodeficiencies such as SCN and cancer such as Waldenström’s. WHIM syndrome, SCN and Waldenström’s each have a limited patient population.
For example, we are aware of only a few small available patient registries for WHIM syndrome, and we rely on various estimates and assumptions to estimate the addressable WHIM syndrome population. Based on a broad online survey of physicians to validate current prevalence estimates and additional research using artificial intelligence, which interrogated a database of more than 300 million anonymized patient records that spanned 10 years of insurance claims, we estimate there are between 1,800 and 3,700 WHIM patients in the United States, many of whom were previously undiagnosed. If the commercial opportunity in WHIM syndrome is smaller than we anticipate, whether because our estimates of the addressable patient population prove to be incorrect or for other reasons, our potential future revenue from mavorixafor may be adversely affected and our business may suffer.
It is critical to our ability to grow and become profitable that we successfully identify patients with WHIM syndrome, SCN and Waldenström’s. Our projections of the number of people who have WHIM syndrome (or its other potential primary immunodeficiencies), SCN or Waldenström’s are based on a variety of sources, including third-party estimates and analyses in the scientific literature, and may prove to be incorrect. Further, new information may emerge that changes our estimate of the prevalence of these diseases or the number of patient candidates for each disease. The effort to identify patients for treatment is at an early stage, and we cannot accurately predict the number of patients for whom treatment might be possible. Additionally, the addressable patient population for our indications may be limited or may not be amenable to treatment with mavorixafor, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our results of operations and our business.
If we experience any of a number of possible unforeseen events in connection with our clinical trials, potential marketing approval or commercialization of our product candidates, or our entry into licensing, collaboration or similar arrangements, could be delayed or prevented.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:
•diversion or prioritization of healthcare resources away from the conduct of clinical trials as a result of the ongoing COVID-19 pandemic, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;
•the interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel, quarantines or social distancing protocols imposed or recommended by federal or state governments, employers and others in connection with the ongoing COVID-19 pandemic;
•clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;
•the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate;
•our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
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•regulators, institutional review boards or independent ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
•we may experience delays in reaching, or we may fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
•we may have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks or undesirable side effects;
•regulators, institutional review boards or independent ethics committees may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
•the cost of clinical trials of our product candidates may be greater than we anticipate;
•the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and
•our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators, institutional review boards or independent ethics committees to suspend or terminate the clinical trials.
Our product development costs will increase if we experience delays in testing or marketing approvals. We have experienced delays in clinical trial site activation and slower patient enrollment in our Phase 3 clinical trial of mavorixafor in patients with WHIM syndrome and our Phase 1b clinical trial of mavorixafor in patients with Waldenström’s and SCN as a result of the ongoing COVID-19 pandemic. Significant preclinical study or clinical trial delays, including as a result of COVID-19, also could shorten any periods during which we may have the exclusive right to commercialize our product candidates, if they are approved, or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates, which may harm our business and results of operations.
Interim top-line and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publish interim top-line or preliminary 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. Preliminary or top-line 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. Preliminary or top-line data may include, for example, data regarding a small percentage of the patients enrolled in a clinical trial, and such preliminary data should not be viewed as an indication, belief or guarantee that other patients enrolled in such clinical trial will achieve similar results or that the preliminary results from such patients will be maintained. As a result, interim and preliminary data should be viewed with caution until the final data are available. Differences between preliminary or interim data and final data could significantly harm our business prospects and may cause the trading price of our common stock to fluctuate significantly.
Risks Related to the Marketing and Commercialization of Our Product Candidates
A breakthrough therapy designation or Fast Track designation by the FDA for our product candidates may not lead to a faster development or regulatory review or approval process, and neither of these designations increases the likelihood that our product candidates will receive marketing approval.
We have obtained both breakthrough therapy and Fast Track designations for mavorixafor for the treatment of adult patients with WHIM and we may pursue those designations for other product candidates as well. A breakthrough therapy is defined as a product that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening condition, and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. For product candidates that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. A breakthrough therapy designation affords the possibility of rolling review, enabling the FDA to review portions of our marketing application before submission of a complete application, and possibly, priority review.
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If a drug or biologic candidate is intended for the treatment of a serious or life-threatening condition or disease and the drug demonstrates the potential to address unmet medical needs for the condition, the sponsor may apply for Fast Track designation.
Designation as a breakthrough therapy and Fast Track designation are within the discretion of the FDA. Accordingly, even if we believe that our product candidates meet the criteria for designation as a breakthrough therapy or Fast Track designation, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of either or both of a breakthrough therapy designation or Fast Track designation for a product candidate may not result in a faster development process, review or approval compared to products considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies or for Fast Track designation, the FDA may later decide that the products no longer meet the conditions for qualification.
It is possible that we may not be able to obtain or maintain orphan drug designation or exclusivity for our drug candidates, which could limit the potential profitability of our product candidates.
Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for the treatment or prevention of rare diseases or conditions with relatively small patient populations as orphan drugs. Under the Orphan Drug Act of 1983, or the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is defined as a patient population of fewer than 200,000 individuals in the United States. We received orphan drug designation from the FDA for mavorixafor for the treatment of WHIM syndrome in October 2018, and from the EMA in July 2019. If a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a seven-year period of marketing exclusivity, which precludes the FDA from approving another marketing application for the same drug for the same indication during that time period with some exceptions. A similar provision in the European Union allows 10 years of exclusivity in Europe. The European exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that marketing exclusivity is no longer justified. Orphan drug exclusivity may be lost in both the United States and Europe under certain situations, such as the inability of the holder of the orphan drug designation to produce sufficient quantities of the drug to meet the needs of patients with the rare disease or condition or for certain other reasons.
If we are unable to establish sales and marketing capabilities to market and sell our product candidates, we may be unable to generate any revenue.
Even if we are ultimately successful in obtaining regulatory approval of mavorixafor for the treatment of WHIM syndrome or another indication, in order to market and sell mavorixafor and our other product candidates in development, we currently intend to build and develop our own sales, marketing and distribution operations. Although our management team has previous experience with such efforts, there can be no assurance that we will be successful in building these operations. If we are unable to establish adequate sales, marketing and distribution capabilities, we may not be able to generate product revenue and may not become profitable. We will also be competing with many companies that currently have extensive and well-funded sales and marketing operations. If any of our product candidates are approved, we may be unable to compete successfully against these more established companies.
Our commercial success depends upon attaining significant market acceptance of our product candidates, if approved, among hospitals, physicians, patients and healthcare payors.
Even if we obtain regulatory approval for any of our product candidates that we may develop or acquire in the future, the product may not gain market acceptance among hospitals, physicians, health care payors, patients and the medical community. Market acceptance of any of our product candidates for which we receive approval depends on a number of factors, including:
•the efficacy and safety of such product candidates as demonstrated in clinical trials;
•the clinical indications for which the product candidate is approved;
•acceptance by major operators of hospitals, physicians and patients of the product candidate as a safe and effective treatment, particularly the ability of mavorixafor and our other product candidates to establish themselves as a new standard of care in the treatment paradigm for the indications that we are pursuing;
•the potential and perceived advantages of our product candidates over alternative treatments as compared to the relative costs of the product candidates and alternative treatments;
•the prevalence and severity of any side effects with respect to our product candidates, including mavorixafor;
•our ability to offer any approved products for sale at competitive prices;
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•the timing of market introduction of our products as well as competitive products;
•our pricing, and the availability of coverage and adequate reimbursement by third party payors and government authorities;
•relative convenience and ease of administration; and
•the effectiveness of our sales and marketing efforts and those of our potential future collaborators.
There may be delays in getting our product candidates, if approved, on hospital or insurance formularies or limitations on coverages that may be available in the early stages of commercialization for newly approved drugs. If any of our product candidates are approved but fail to achieve market acceptance among hospitals, physicians, patients or health care payors, we will not be able to generate significant revenues, which would have a material adverse effect on our business, prospects, financial condition and results of operations.
Product candidates may cause undesirable side effects that could delay or prevent their marketing approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any, including marketing withdrawal.
Undesirable side effects caused by any of our product candidates that we may develop or acquire could cause us or the FDA or other regulatory authorities to interrupt, delay or halt our clinical trials and could result in more restrictive labels or the delay or denial of marketing approval by the FDA or other regulatory authorities of such product candidates. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. In addition, any drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.
Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of patients, 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. If our product candidates receive marketing approval and we or others identify undesirable side effects caused by such product candidates (or any other similar drugs) after such approval, a number of potentially significant negative consequences could result, including:
•regulatory authorities may withdraw or limit their approval of such product candidates;
•regulatory authorities may require the addition of labeling statements, such as a “boxed” warning or a contraindication;
•we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
•we may be required to change the way such product candidates are distributed or administered, conduct additional clinical trials or change the labeling of the product candidates;
•regulatory authorities may require a Risk Evaluation and Mitigation Strategy plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools;
•we may be subject to regulatory investigations and government enforcement actions;
•we may decide to remove such product candidates from the marketplace after they are approved;
•we could be sued and held liable for injury caused to individuals exposed to or taking our product candidates; and
•our reputation may suffer.
We believe that any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidates and could substantially increase the costs of commercializing our product candidates, if approved, and significantly impact our ability to successfully commercialize our product candidates and generate revenues.
Even if our product candidates receive regulatory approval, they may still face future development and regulatory difficulties and any approved products will be subject to extensive post-approval regulatory requirements.
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If we obtain regulatory approval for a product candidate, it would be subject to extensive ongoing requirements by the FDA and comparable foreign regulatory authorities governing the manufacture, quality control, further development, labeling, packaging, storage, distribution, safety surveillance, import, export, advertising, promotion, recordkeeping and reporting of safety and other post-market information. The safety profile and efficacy of any product will continue to be closely monitored by the FDA and comparable foreign regulatory authorities after approval. If the FDA or comparable foreign regulatory authorities become aware of new safety information after approval of any of our product candidates, these regulatory authorities may require labeling changes or the FDA may require establishment of a Risk Evaluation Mitigation Strategy, or REMS, or similar strategy, impose significant restrictions on a product’s indicated uses or marketing, impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. Progress reports are required at quarterly intervals, every six months and at annual intervals depending upon the country, and more frequently if serious adverse events occur.
In addition, manufacturers of drugs and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP regulations. If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with cGMPs and other applicable regulatory requirements, the FDA may, among other things:
•issue warning letters;
•request modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
•require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;
•seek an injunction or impose civil or criminal penalties or monetary fines;
•suspend or withdraw regulatory approval;
•suspend any ongoing clinical trials;
•refuse to approve pending applications or supplements to applications filed by us;
•suspend or impose restrictions on operations, including costly new manufacturing requirements; or
•seize or detain products, refuse to permit the import or export of products, or require us to initiate a product recall.
The occurrence of any event or penalty described above may inhibit our ability to commercialize our products and generate revenue.
Any product candidate for which we obtain marketing approval could be subject to marketing restrictions or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products.
Any product candidate for which we obtain marketing approval will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements, quality assurance and corresponding maintenance of records and documents and requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the medicine. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure that they are marketed only for the approved indications and in accordance with the provisions of the approved labeling.
In addition, later discovery of previously unknown problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:
•restrictions on such products, manufacturers or manufacturing processes;
•restrictions on the labeling, marketing, distribution or use of a product;
•requirements to conduct post-approval clinical trials;
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•warning or untitled letters;
•withdrawal of the products from the market;
•refusal to approve pending applications or supplements to approved applications that we submit;
•recall of products;
•fines, restitution or disgorgement of profits or revenue;
•suspension or withdrawal of marketing approvals;
•refusal to permit the import or export of our products;
•product seizure; and
•injunctions or the imposition of civil or criminal penalties.
If, in the future, we are unable to establish sales and marketing capabilities or to selectively enter into agreements with third parties to sell and market our product candidates, we may not be successful in commercializing our product candidates if and when they are approved.
We do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for any approved product for which we retain sales and marketing responsibilities, we must either develop a sales and marketing organization or outsource these functions to other third parties. In the future, we may choose to build a focused sales and marketing infrastructure to sell some of our product candidates if and when they are approved.
There are risks involved both with establishing our own sales and marketing capabilities and with entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
Factors that may inhibit our efforts to commercialize our product candidates on our own include:
•our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
•the inability of sales personnel to obtain access to physicians or educate adequate numbers of physicians on the benefits of prescribing any future products; and
•unforeseen costs and expenses associated with creating an independent sales and marketing organization.
If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenue or the profitability of these product revenue to us may be lower than if we were to market and sell any products that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and market our product candidates or may be unable to do so on terms that are favorable to us. We may have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
The development and commercialization of new drug products is highly competitive. We face competition with respect to our current product candidates, and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of cancer, such as ccRCC. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach and others are based on entirely different approaches. Potential competitors also include academic institutions, government agencies and other public and
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private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.
Our lead product candidate, mavorixafor, is in clinical development for the treatment of WHIM syndrome, SCN and Waldenström’s, respectively. We are aware of other companies that are developing CXCR4 inhibitors that are in a similar stage of development as mavorixafor, including Eli Lilly, Pfizer, Bristol-Myers Squibb, or BMS, BioLineRx, Noxxon, Upsher-Smith, Polyphor and Glycomimetics. To our knowledge, there do not appear to be any competitors with programs in development for WHIM syndrome or SCN. With respect to Waldenström’s, the Dana Farber Cancer Institute has completed enrollment for a trial to study the BMS CXCR4 antibody (IV infusion) in the treatment of Waldenström’s patients with CXCR4 mutations. In Waldenström’s, there are several treatment approaches currently being developed, including targeted therapies and immunotherapies (as monotherapies and combination therapies), chemotherapy, stem cell transplantation, and cancer vaccines. With the exception of the BMS monoclonal antibody, none to our knowledge have a mechanism of action that interacts with the CXCR4 receptor.
There are a variety of available drug therapies marketed for cancer. In many cases, these drugs are administered in combination to enhance efficacy. Some of the currently approved drug therapies are branded and subject to patent protection, and others are available on a generic basis. Many of these approved drugs are well-established therapies and are widely accepted by physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic products. We expect that if our product candidates are approved, they will be priced at a significant premium over competitive generic products. This may make it difficult for us to achieve our business strategy of using our product candidates in combination with existing therapies or replacing existing therapies with our product candidates.
Our competitors may develop products that are more effective, have a better safety profile, are more convenient or less costly than any that we are developing or that would render our product candidates obsolete or non-competitive. Our competitors may also obtain marketing approval from the FDA or other regulatory authorities for their products sooner than we may obtain approval for our product candidates, which could result in our competitors establishing a strong market position before we are able to enter the market.
Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties may compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
Even if we obtain and maintain approval for our product candidates from the FDA, we may never obtain approval for our product candidates outside of the United States, which would limit our market opportunities and could harm our business.
Approval of a product candidate in the United States by the FDA does not ensure approval of such product candidate by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. If regulatory approval is obtained, sales of any future product candidates outside of the United States will be subject to foreign regulatory requirements governing clinical trials and marketing approval. Even if the FDA grants marketing approval for a product candidate, comparable foreign regulatory authorities also must approve the manufacturing and marketing of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and more onerous than, those in the United States, including additional preclinical studies or clinical trials. In many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for any product candidates, if approved, is also subject to approval. Obtaining approval for any future product candidates in the European Union from the European Commission following the opinion of the European Medicines Agency, if we choose to submit a marketing authorization application there, would be a lengthy and expensive process. Even if a product candidate is approved, the FDA or the European Commission, as the case may be, may limit the indications for which the drug may be marketed, require extensive warnings on the drug labeling or require expensive and time-consuming additional clinical trials or reporting as conditions of approval. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction
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of any future product candidates in certain countries.
Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Also, regulatory approval for our product candidates may be withdrawn. If we fail to comply with the regulatory requirements, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed and our business, financial condition, results of operations and prospects could be harmed.
If we seek approval to commercialize our product candidates outside of the United States, a variety of risks associated with international operations could harm our business.
If we seek approval of our product candidates outside of the United States, we expect that we will be subject to additional risks in commercialization including:
•different regulatory requirements for approval of therapies in foreign countries;
•reduced protection for intellectual property rights;
•unexpected changes in tariffs, trade barriers and 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 currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;
•foreign reimbursement, pricing and insurance regimes;
•workforce uncertainty in countries where labor unrest is more common than in the United States;
•production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
•business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters and public health epidemics, such as the ongoing COVID-19 pandemic.
We have no prior experience in these areas. In addition, there are complex regulatory, tax, labor and other legal requirements imposed by many of the individual countries in and outside of Europe with which we will need to comply. Many biopharmaceutical companies have found the process of marketing their own products in foreign countries to be very challenging.
Even if we are able to commercialize mavorixafor or any other product candidate that we develop, the product may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which would harm our business.
The laws and regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted and, in some markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.
Our ability to commercialize mavorixafor or any other product candidate successfully also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. and E.U. healthcare industries and elsewhere is cost containment.
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Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that coverage and reimbursement will be available for mavorixafor or any other product that we commercialize and, if coverage and reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. Obtaining and maintaining adequate reimbursement for mavorixafor may be particularly difficult because of the higher prices typically associated with drugs directed at smaller populations of patients. In addition, third-party payors are likely to impose strict requirements for reimbursement of a higher priced drug, and any launch of a competitive product is likely to create downward pressure on the price initially charged. If reimbursement is not available or is available only to a limited degree, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.
There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the applicable regulatory authority. Moreover, eligibility for coverage and 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, intellectual property, manufacturing, sale and distribution expenses. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent.
Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs, and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. In the United States, third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. In the European Union, reference pricing systems and other measures may lead to cost containment and reduced prices. Our inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to develop product candidates and commercialize products and our overall financial condition.
Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.
In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.
Product liability lawsuits against us could cause us to incur substantial liabilities and could limit the commercialization of any product candidates we may develop.
We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and will face an even greater risk with respect to commercial sales of any products that we may develop. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
•reduced resources of our management to pursue our business strategy;
•decreased demand for any products that we may develop;
•injury to our reputation and significant negative media attention;
•withdrawal of clinical trial participants;
•significant costs to defend any related litigation;
•substantial monetary awards to trial participants or patients;
•loss of revenue;
•increased insurance costs; and
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•the inability to commercialize any products that we may develop.
Although we maintain clinical trial insurance coverage, it may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage as we continue clinical trials or begin commercialization of any products. Insurance coverage is increasingly expensive. We may not be able to obtain or maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
Risks Related to Government Regulation
Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to significant penalties, including administrative, civil and criminal penalties, contractual damages, reputational harm and diminished profits and future earnings.
Although we do not currently have any drugs on the market, we are, and once we begin commercializing our product candidates, we will be subject to additional healthcare statutory and regulatory requirements and enforcement by the federal government and the states and foreign governments in the jurisdictions in which we conduct our business. Healthcare providers and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our current and future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we research, as well as market, sell and distribute any products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:
•the federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid; a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;
•the federal false claims laws impose criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; in addition, the government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;
•the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;
•the federal physician payment transparency requirements, sometimes referred to as the “Sunshine Act” under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, require certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report to the Centers for Medicare & Medicaid Services, or CMS, information related to payments and other transfers of value to physicians, (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), and teaching hospitals and the ownership and investment interests of physicians and their immediate family members in such manufacturers, which will be expanded in 2022, to require applicable manufacturers to report such information regarding its payments and other transfers of value to physicians assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified registered nurse anesthetists and certified nurse midwives during the previous year;
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•HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, which also imposes obligations on certain covered entity healthcare providers, health plans, and healthcare clearinghouses as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information, and their subcontractors that use, disclose, or otherwise process individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
•analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers;
•some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers, drug pricing or marketing expenditures;
•state and local laws that require the registration of pharmaceutical sales representatives; and
•state and foreign laws also govern 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.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to it, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of products from government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws 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 to be not in compliance with applicable laws, they may be subject to significant criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
Current and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict post-approval activities and affect our ability to sell profitably any product candidates for which we obtain marketing approval.
In the United States, Medicare covers certain drug purchases by the elderly and eligible disabled people and introduced a reimbursement methodology based on average sales prices for physician-administered drugs. In addition, Medicare may limit the number of drugs that will be covered in any therapeutic class. Ongoing cost reduction initiatives and future laws could decrease the coverage and price that we will receive for any approved products. While Medicare beneficiaries are limited to most elderly and certain disabled individual, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates.
In March 2010, the ACA became law. The ACA is a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Among the provisions of the ACA of importance to our product candidates are the following:
•an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic products;
•an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;
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•expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;
•a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% point-of-sale discounts off negotiated prices;
•extension of manufacturers’ Medicaid rebate liability;
•expansion of eligibility criteria for Medicaid programs;
•expansion of the entities eligible for discounts under the Public Health Service Act’s pharmaceutical pricing program;
•new requirements to report to CMS financial arrangements with physicians, as defined by such law, and teaching hospitals;
•a new requirement to annually report to FDA drug samples that manufacturers and distributors provide to physicians; and
•a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.
There have been challenges to certain aspects of the ACA. For example, the constitutionality of the ACA is currently under review by the U.S. Supreme Court. In addition, other legislative changes have been proposed and adopted since the ACA was enacted. These new laws may result in additional reductions in Medicare and other healthcare funding.
There has also been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products.
We cannot predict what healthcare reform initiatives may be adopted in the future, particularly in light of the new presidential administration. However, we expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we will receive for any approved product. Any reduction in payments 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 products.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals, if any, of our product candidates may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing conditions and other requirements. Further, it is possible that additional governmental action will be taken in response to the COVID-19 pandemic.
We are subject to anti-corruption laws, as well as export control laws, customs laws, sanctions laws and other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures and legal expenses, which could adversely affect its business, results of operations and financial condition.
Our operations are subject to anti-corruption laws, including the Foreign Corrupt Practices Act, or FCPA, and other anti-corruption laws that apply in countries where we do business and may do business in the future. The FCPA and these other laws generally prohibit us, our officers and employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We may in the future operate in jurisdictions that pose a high risk of potential FCPA violations, and may participate in collaborations and relationships with third parties whose actions could potentially subject us to liability under the FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which its international operations might be subject or the manner in which existing laws might be administered or interpreted.
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We are also subject to other laws and regulations governing our international operations, including regulations administered by the U.S. government and authorities in the European Union or the United Kingdom, including applicable export control regulations, economic sanctions on countries and persons, customs requirements and currency exchange regulations, which we collectively refer to as Trade Control Laws.
There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the FCPA or other legal requirements, including Trade Control Laws. If we are not in compliance with the FCPA and other anti-corruption laws or Trade Control Laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential violations of the FCPA, other anti-corruption laws or Trade Control Laws by U.S. or other authorities could also have an adverse impact on our reputation, business, results of operations and financial condition.
Changes in U.S. tax law may materially adversely affect our financial condition, results of operations and cash flows.
On March 27, 2020, the CARES Act was signed into law. The CARES Act is an approximately $2 trillion emergency economic stimulus package that includes numerous U.S. federal income tax provisions, including the modification of: (i) net operating loss (NOL) rules (as discussed above), (ii) the alternative minimum tax refund and (iii) business interest deduction limitations under Section 163(j) of the Internal Revenue Code of 1986, as amended (the Code).
The Tax Act also significantly changed the U.S. federal income taxation of U.S. corporations. However, there remain uncertainties and ambiguities in the application of certain provisions of the Tax Act and, as a result, we made certain judgments and assumptions in the interpretation thereof. The U.S. Treasury Department and the Internal Revenue Service, or the IRS, may issue further guidance on how the provisions of the Tax Act will be applied or otherwise administered that differs from our current interpretation. In addition, the Tax Act could be subject to potential amendments and technical corrections, any of which could materially lessen or increase certain adverse impacts of the legislation on us. We continue to work with our tax advisors and auditors to determine the full impact the Tax Act and the CARES Act will have on us. We urge our investors to consult with their legal and tax advisors with respect to both the Tax Act and the CARES Act and the potential tax consequences of investing in our common stock.
Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, the ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs 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, in our operations as a public company, 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.
Risks Related to Our Dependence on Third Parties
We have minimal experience manufacturing our product candidates on a large clinical or commercial scale and have no manufacturing facility. We are currently dependent on a single third party manufacturer for the manufacture of mavorixafor, the active pharmaceutical ingredient, or API, and a single manufacturer of mavorixafor finished drug product capsules. If we experience problems with these third parties, the manufacturing of mavorixafor could be delayed, which could harm our results of operations.
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We do not own or operate facilities for the manufacture of mavorixafor or any other product candidate. We currently have no plans to build our own clinical or commercial scale manufacturing capabilities. We currently work exclusively with one manufacturer for the production of mavorixafor, the active pharmaceutical ingredient, or API, and a single manufacturer of mavorixafor finished drug product capsules. We cannot guarantee that these third parties will continue to perform their contractual duties in a timely and satisfactory manner as a result of the ongoing COVID-19 pandemic, which could negatively impact our supply chain activities and our clinical supply.
To meet our projected needs for clinical supplies to support our activities through regulatory approval and commercial manufacturing, the manufacturer with whom we currently work will need to increase its frequency and/or scale of production or we will need to find additional or alternative manufacturers. We have not yet secured alternate suppliers in the event the current manufacturer we utilize is unable to meet demand, or if otherwise we experience any problems with them. If such problems arise and we are unable to arrange for alternative third-party manufacturing sources, we are unable to find an alternative third party capable of reproducing the existing manufacturing method or we are unable to do so on commercially reasonable terms or in a timely manner, we may not be able to complete development of our product candidates, or market or distribute them.
Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured our product candidates ourselves, including reliance on the third party for regulatory compliance and quality assurance, the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control (including a failure to synthesize and manufacture our product candidates or any products that we may eventually commercialize in accordance with our specifications), and the possibility of termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or damaging to us. In addition, the FDA and other regulatory authorities require that our product candidates and any products that we may eventually commercialize be manufactured according to cGMP and similar foreign standards. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and some state agencies, and are subject to periodic unannounced inspections for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA or other regulatory authority approval before being implemented. FDA requirements also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, the manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain cGMP compliance. Any failure by our third-party manufacturers to comply with cGMP or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of product candidates or products if they are approved in a timely manner, could lead to a delay in, or failure to obtain, regulatory approval of any of our product candidates. In addition, such failure could be the basis for the FDA to issue a warning letter, withdraw approvals for product candidates previously granted to us, or take other regulatory or legal action, including recall or seizure, total or partial suspension of production, suspension of ongoing clinical trials, refusal to approve pending applications or supplemental applications, detention of product, refusal to permit the import or export of products, injunction, or imposing civil and criminal penalties.
Our current manufacturer and any future manufacturers may not be able to manufacture our product candidates at a cost or in quantities or in a timely manner necessary to make commercially successful products. If we successfully commercialize any of our product candidates, we may be required to establish large-scale commercial manufacturing capabilities. In addition, as our drug development pipeline increases and matures, we will have a greater need for clinical study and commercial manufacturing capacity. We have no experience manufacturing pharmaceutical products on a commercial scale and some of these manufacturers will need to increase their scale of production to meet our projected needs for commercial manufacturing, the satisfaction of which may not be met on a timely basis.
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We rely on third-party CROs to conduct our preclinical studies and clinical trials. If these CROs do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
We have relied upon and plan to continue to rely upon third-party contract research organizations, or CROs, and clinical data management organizations to monitor and manage data for our ongoing preclinical and clinical programs. Although we control only certain aspects of their activities, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities. We also rely on third parties to conduct our preclinical studies in accordance with Good Laboratory Practice, or GLP, requirements and the Laboratory Animal Welfare Act of 1966 requirements. We, our CROs and our clinical trial sites are required to comply with regulations and current Good Clinical Practices, or GCP, and comparable foreign requirements to ensure that the health, safety and rights of patients are protected in clinical trials, and that data integrity is assured. Regulatory authorities ensure compliance with GCP requirements through periodic inspections of trial sponsors and trial sites. If we, any of our CROs or our clinical trial sites fail to comply with applicable GCP requirements, the clinical data generated in our clinical trials or a specific site 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.
Our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical and preclinical programs. If CROs do not successfully carry out their contractual obligations or meet expected timelines or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.
Our CROs may also fail to meet expected timelines as a result of circumstances beyond their control, including the ongoing COVID-19 pandemic. As a result of the ongoing COVID-19 pandemic, we have experienced delays in clinical trial site activation and slower patient enrollment in our clinical trials of mavorixafor in patients with WHIM, Waldenström’s and SCN, which could delay our ability to obtain regulatory approval for or successfully commercialize our product candidates.
Disruptions in our supply chain could delay the commercial launch of our product candidates.
Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier of mavorixafor, as well a single supplier for the finished product capsules for mavorixafor. If either of these single source suppliers suffers a major natural or man-made disaster at its manufacturing facility, we would not be able to manufacture mavorixafor on a commercial scale until a qualified alternative supplier is identified. Although alternative sources of supply exist, the number of third party suppliers with the necessary manufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers. Any significant delay in the supply of a product candidate or its key materials for an ongoing clinical study could considerably delay completion of our clinical studies, product testing and potential regulatory approval of our product candidates. If we or our manufacturers are unable to purchase these key materials after regulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed, which would impair our ability to generate revenues from the sale of our product candidates.
Additionally, if the ongoing COVID-19 pandemic continues to persist for an extended period of time an impacts essential distribution systems such as FedEx and postal delivery, we could experience disruptions to our supply chain and operations, and associated delays in the manufacturing and supply of our products, which would adversely impact our ability to deliver products to clinical trial sites or to generate sales of and revenues from our approved products.
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Our employees, principal investigators, CROs and consultants may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.
We are exposed to the risk that our employees, principal investigators, CROs and consultants may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional failures to comply with FDA regulations or similar regulations of comparable foreign regulatory authorities, to provide accurate information to the FDA or comparable foreign regulatory authorities, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee or third party misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and, particularly in light of the work-from-home policies we have implemented in response to the ongoing COVID-19 pandemic and applicable stay-at-home orders or similar restrictions, the precautions we take to detect and prevent this activity, such as employee training, 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. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.
We have established, and may seek to selectively establish in the future, collaborations, and, if we are unable to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.
Our drug development programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses. For some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates.
We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidates.
We may depend on such collaborations for the development and commercialization of our product candidates. If those collaborations are not successful, we may not be able to capitalize on the market potential of our product candidates.
We have, and may selectively seek in the future, third-party collaborators for the development and commercialization of our product candidates. Our likely collaborators for any collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. If we enter into any such arrangements with any third parties, we will likely have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our product candidates. Our ability to generate revenue from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.
Collaborations involving our product candidates pose many risks to us, including that:
•collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;
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•collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic focus or available funding or external factors such as an acquisition that diverts resources or creates competing priorities;
•collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or 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 or products if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;
•collaborators with marketing and distribution rights to one or more product candidates or products may not commit sufficient resources to the marketing and distribution of such drugs;
•collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential litigation;
•disputes may arise between the collaborators and us that result in the delay or termination of the research, development or commercialization of our product candidates or products or that result in costly litigation or arbitration that diverts management attention and resources;
•we may lose certain valuable rights under circumstances identified in our collaborations if we undergo a change of control;
•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
•collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. In addition, if a future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program under such collaboration could be delayed, diminished or terminated.
We may engage in future acquisitions or in-licenses of technology that could disrupt our business, cause dilution to our stockholders and harm our financial condition and operating results.
While we currently have no specific plans to acquire any other businesses or in-license any additional products or technology, we may, in the future, make acquisitions or licenses of, or investments in, companies, products or technologies that we believe are a strategic or commercial fit with our current product candidates and business or otherwise offer opportunities for us. In connection with these acquisitions or investments, we may:
•issue stock that would dilute our stockholders’ percentage of ownership;
•expend cash;
•incur debt and assume liabilities; and
•incur amortization expenses related to intangible assets or incur large and immediate write-offs.
We also may be unable to find suitable acquisition or license candidates and we may not be able to complete acquisitions or licenses on favorable terms, if at all. If we do complete an acquisition or license, we cannot assure you that it will ultimately strengthen our competitive position or that it will not be viewed negatively by customers, financial markets or investors. Further, the Merger poses, and future acquisitions or licenses could also pose, numerous additional risks to our operations, including:
•problems integrating the purchased or licensed business, products or technologies;
•increases to our expenses
•the failure to have discovered undisclosed liabilities of the acquired or licensed asset or company;
•diversion of management’s attention from their day-to-day responsibilities;
•harm to our operating results or financial condition;
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• entrance into markets in which we have limited or no prior experience; and
•potential loss of key employees, particularly those of the acquired entity.
We may not be able to complete one or more acquisitions or effectively integrate the operations, products or personnel gained through any such acquisition without a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Intellectual Property
Recent laws and rulings by U.S. courts make it difficult to predict how patents will be issued or enforced in our industry.
Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may have a significant impact on our ability to protect our technology and enforce our intellectual property rights.
There have been numerous recent changes to the patent laws and to the rules of the United States Patent and Trademark Office, or USPTO, which may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. For example, the Leahy-Smith America Invents Act, or AIA, which was signed into law in 2011, includes a transition from a “first-to-invent” system to a “first-to-file” system, and changes the way issued patents are challenged. Certain changes, such as the institution of inter partes review proceedings, that allow third parties to challenge newly issued patents, came into effect on September 16, 2012. The burden of proof required for challenging a patent in these proceedings is lower than in district court litigation, and patents in the biologics and pharmaceuticals industry have been successfully challenged using these new post-grant challenges. In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in specified circumstances or weakening the rights of patent owners in specified situations. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, these substantive changes to patent law associated with the AIA may further weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future, all of which could harm our business.
Furthermore, the patent positions of companies engaged in the development and commercialization of biologics and pharmaceuticals are particularly uncertain. Two cases involving diagnostic method claims and “gene patents” have recently been decided by the Supreme Court. On March 20, 2012, the Supreme Court issued a decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc., or Prometheus, a case involving patent claims directed to measuring a metabolic product in a patient to optimize a drug dosage amount for the patient. According to the Supreme Court, the addition of well-understood, routine or conventional activity such as “administering” or “determining” steps was not enough to transform an otherwise patent ineligible natural phenomenon into patent eligible subject matter. On July 3, 2012, the USPTO issued guidance indicating that process claims directed to a law of nature, a natural phenomenon or an abstract idea that do not include additional elements or steps that integrate the natural principle into the claimed invention such that the natural principle is practically applied and the claim amounts to significantly more than the natural principle itself should be rejected as directed to non-statutory subject matter. On June 13, 2013, the Supreme Court issued its decision in Association for Molecular Pathology v. Myriad Genetics, Inc., or Myriad, a case involving patent claims held by Myriad Genetics, Inc. relating to the breast cancer susceptibility genes BRCA1 and BRCA2. Myriad held that isolated segments of naturally occurring DNA, such as the DNA constituting the BRCA1 and BRCA2 genes, is not patent eligible subject matter, but that complementary DNA, which is an artificial construct that may be created from RNA transcripts of genes, may be patent eligible.
We cannot assure you that our efforts to seek patent protection for our technology and products will not be negatively impacted by the changes described above, future rulings in district court cases or changes in guidance or procedures issued by the USPTO. We cannot fully predict what impact the Supreme Court’s decisions may have on the ability of life science companies to obtain or enforce patents relating to their products and technologies in the future.
Moreover, although the Supreme Court has held in Myriad that isolated segments of naturally occurring DNA are not patent-eligible subject matter, certain third parties could allege that activities that we may undertake infringe other gene-related patent claims, and we may deem it necessary to defend ourselves against these claims by asserting non-infringement and/or invalidity positions, or pay to obtain a license to these claims. In any of the foregoing or in other situations involving third-party intellectual property rights, if we are unsuccessful in defending against claims of patent infringement, we could be forced to pay damages or be subjected to an injunction that would prevent us from utilizing the patented subject matter. Such outcomes could harm our business.
If we are unable to protect our intellectual property rights, our competitive position could be harmed.
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We depend on our ability to protect our proprietary technology. We rely on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary technology and products. Where we have the right to do so under our license agreements, we seek to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologies and products that are important to our business.
The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patents, including those patent rights licensed to us by third parties, are highly uncertain.
The steps we have taken to police and protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outside the United States. The rights already granted under any of our currently issued patents and those that may be granted under future issued patents may not provide us with the proprietary protection or competitive advantages that we are seeking. If we are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained is not sufficient, our competitors could develop and commercialize technology and products similar or superior to ours, and our ability to successfully commercialize our technology and products may be adversely affected.
With respect to patent rights, we do not know whether any of the pending patent applications for any of our product candidates will result in the issuance of patents that protect our technology or products, or which will effectively prevent others from commercializing competitive technologies and products. Our pending applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Further, the examination process may require us or our licensors to narrow the claims, which may limit the scope of patent protection that may be obtained. Although our license agreement with Genzyme includes a number of issued patents that are exclusively licensed to us, the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents that we own or have licensed from third parties may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in the loss of patent protection, the narrowing of claims in such patents, or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection for our technology and products. Protecting against the unauthorized use of our patented technology, trademarks and other intellectual property rights is expensive, difficult and may, in some cases, not be possible. In some cases, it may be difficult or impossible to detect third party infringement or misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.
We could be required to incur significant expenses to obtain our intellectual property rights, and we cannot ensure that we will obtain meaningful patent protection for our product candidates.
The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. In addition, it is also possible that we will fail to identify patentable aspects of further inventions made in the course of our development and commercialization activities before they are publicly disclosed, making it too late to obtain patent protection on them. Further, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. We expect to seek extensions of patent terms where these are available in any countries where we are prosecuting patents. This includes in the United States under the Drug Price Competition and Patent Term Restoration Act of 1984, which permits a patent term extension of up to five years beyond the expiration of a patent that covers an approved product where the permission for the commercial marketing or use of the product is the first permitted commercial marketing or use, and as long as the remaining term of the patent does not exceed 14 years. However, the applicable authorities, including the FDA in the United States, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States, and these foreign laws may also be subject to change. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or in some cases not at all. Therefore, we cannot be certain that we or our
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licensors were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions.
In March 2013, the United States transitioned to a “first to file” system in which the first inventor to file a patent application will be entitled to the patent. Third parties are allowed to submit prior art prior to the issuance of a patent by the USPTO and may become involved in post-grant review or derivation proceedings for applications filed on or after March 16, 2013, interference proceedings for applications filed before March 16, 2013, ex parte reexamination, or inter partes review challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, which could adversely affect our competitive position with respect to third parties.
Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees on any issued patent are due to be paid to the USPTO, and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other requirements during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our product candidates, our competitors might be able to enter the market, which would have a material adverse effect on our business.
Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products, including generics or biosimilars. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful.
In addition to the possibility of litigation relating to infringement claims asserted against it, we may become a party to other patent litigation and other proceedings, including inter partes review proceedings, post-grant review proceedings, derivation proceedings declared by the USPTO and similar proceedings in foreign countries, regarding intellectual property rights with respect to our current or future technologies or product candidates or products. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. 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. Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace.
Competitors may infringe or otherwise violate our intellectual property, including patents that may issue to or be licensed by us. As a result, we may be required to file claims in an effort to stop third-party infringement or unauthorized use. Any such claims could provoke these parties to assert counterclaims against us, including claims alleging that we infringe their patents or other intellectual property rights. This can be prohibitively expensive, particularly for a company of our size, and time-consuming, and even if we are successful, any award of monetary damages or other remedy we may receive may not be commercially valuable. In addition, in an infringement proceeding, a court may decide that our asserted intellectual property is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our intellectual property does not cover its technology. An adverse determination in any litigation or defense proceedings could put our intellectual property at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.
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If the breadth or strength of our patent or other intellectual property rights is compromised or threatened, it could allow third parties to commercialize our technology or products or result in our inability to commercialize our technology and products without infringing third-party intellectual property rights. Further, third parties may be dissuaded from collaborating with us.
Interference or derivation proceedings brought by the USPTO or its foreign counterparts may be necessary to determine the priority of inventions with respect to our patent applications, and we may also become involved in other proceedings, such as re-examination proceedings, before the USPTO or its foreign counterparts. Due to the substantial competition in the pharmaceutical space, the number of such proceedings may increase. This could delay the prosecution of our pending patent applications or impact the validity and enforceability of any future patents that we may obtain. In addition, any such litigation, submission or proceeding may be resolved adversely to us and, even if successful, may result in substantial costs and distraction to our management.
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. Moreover, intellectual property law relating to the fields in which we operate is still evolving and, consequently, patent and other intellectual property positions in our industry are subject to change and are often uncertain. We may not prevail in any of these suits or other efforts to protect our technology, and the damages or other remedies awarded, if any, may not be commercially valuable. During the course of this type of litigation, 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, the market price for our common stock could be significantly harmed.
If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose intellectual property rights that are important to our business.
We are a party to several license agreements and may need to obtain additional licenses from others to advance our research and development activities or allow the commercialization of our current product candidates and any that we may identify and pursue in the future. Our currently license agreements impose, and we expect that future license agreements will impose, various development, diligence, commercialization, and other obligations on us. In spite of our efforts, our licensors might conclude that we have materially breached our obligations under such license agreements and might therefore terminate the license agreements, thereby removing or limiting our ability to develop and commercialize products and technology covered by these license agreements. If these in-licenses are terminated, or if the underlying patents fail to provide the intended exclusivity, competitors or other third parties may gain the freedom to seek regulatory approval of, and to market, products identical to ours and we may be required to cease our development and commercialization 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.
Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including:
•the scope of rights granted under the license agreement and other interpretation-related issues;
•the extent to which our product candidates, technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;
•the sublicensing of patent and other rights under our collaborative development relationships;
•our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
•the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and
•the priority of invention of patented technology.
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In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates, which could have a material adverse effect on our business, financial conditions, results of operations, and prospects.
From time to time, we may need to rely on licenses to proprietary technologies, which may be difficult or expensive to obtain or we may lose certain licenses which may be difficult to replace.
We may need to obtain licenses to patents and other proprietary rights held by third parties to develop, manufacture and market our product candidates. If we are unable to timely obtain these licenses on commercially reasonable terms and maintain these licenses, our ability to commercially market our product candidates may be inhibited or prevented, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our commercial success depends upon our ability to develop, manufacture, market and sell our product candidates, and to use our proprietary technologies without infringing the proprietary rights of third parties. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including interference and various post grant proceedings before the USPTO, non-U.S. opposition proceedings, and German nullity proceedings. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future.
As a result of any such infringement claims, or to avoid potential claims, we may choose or be compelled to seek intellectual property licenses from third parties. These licenses may not be available on acceptable terms, or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us likely would be nonexclusive, which would mean that our competitors also could obtain licenses to the same intellectual property. Ultimately, we could be prevented from commercializing a product candidate or technology or be forced to cease some aspect of our business operations if, as a result of actual or threatened infringement claims, we are unable to enter into licenses of the relevant intellectual property on acceptable terms. Further, if we attempt to modify a product candidate or technology or to develop alternative methods or products in response to infringement claims or to avoid potential claims, we could incur substantial costs, encounter delays in product introductions or interruptions in sales. Ultimately, such efforts could be unsuccessful.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our product candidates that we may identify. 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, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.
Parties making claims against us may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have material adverse effect on our ability to raise additional funds or otherwise have a material adverse effect on our business, results of operations, financial condition and prospects.
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Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time consuming and is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. 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 and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock and negatively impact our ability to raise additional funds. 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 adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating or from successfully challenging our intellectual property rights. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
Our trade secrets are difficult to protect and if we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patents for some of our technologies and product candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality, non-competition, non-solicitation, and invention assignment agreements with our employees and consultants that obligate them to assign to us any inventions developed in the course of their work for us. However, we cannot guarantee that we have executed these agreements with each party that may have or have had access to our trade secrets or that the agreements we have executed will provide adequate protection. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. As a result, we may be forced to bring claims against third parties, or defend claims that they bring against us, to determine ownership of what we regard as our intellectual property. Monitoring unauthorized disclosure is difficult and we do not know whether the procedures that we have followed to prevent such disclosure are or will be adequate. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States may be less willing or unwilling to protect trade secrets. If any of the technology or information that we protect as trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to, or independently developed by, a competitor, our competitive position would be harmed.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Our employees, including members of our senior management, were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. All such individuals, including each member of our senior management, executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. We are not aware of any threatened or pending claims related to these matters or concerning the agreements with our senior management, but in the future litigation may be necessary to defend against such 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 could result in substantial costs and be a distraction to management.
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We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on all of our product candidates throughout the world would be prohibitively expensive. In general, we have sought patent protection of our intellectual property in the following jurisdictions: US, Canada, China, Japan and in countries within Europe via the European Patent Office. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but where enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.
Risks Related to Our Business Operations, Employee Matters and Managing Growth
The global coronavirus pandemic is adversely affecting, and is expected to continue to adversely affect, our business, including our clinical trials and preclinical studies.
Our business could be adversely affected by public health crises such as pandemics or similar outbreaks in regions where we have concentrations of clinical trial sites or other business operations, and could cause significant disruption in the operations of third party manufacturers and contract research organizations, or CROs, upon whom we rely. The ongoing COVID-19 pandemic has resulted in a variety of restrictions in order to reduce the spread of the disease, including state and local orders across the United States and other countries worldwide, which, among other things, have directed individuals to stay at their places of residence, directed businesses and governmental agencies to limit non-essential operations at physical locations, prohibited certain non-essential gatherings, and ordered restrictions on travel. In March 2020, the Governor of Massachusetts ordered all individuals living in the Commonwealth of Massachusetts to stay at their place of residence for an indefinite period of time (subject to certain exceptions to facilitate authorized necessary activities) to mitigate the impact of the COVID-19 pandemic, so our workforce transitioned to working remotely. Even as certain restrictions have started to lift and vaccination efforts against the coronavirus have commenced, we have elected to maintain remote working arrangements in the interest of minimizing risk to our employees. The effects of our work-from-home policies, as well as any executive orders and shelter-in-place or stay-at-home orders that may be implemented or re-implemented in the future, may negatively impact productivity, disrupt our business and delay our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions the speed of vaccination efforts, the efficacy of vaccines against current and future variants of the coronavirus and other limitations on our ability to conduct our business in the ordinary course. In addition, because of the challenging immune profile of both immunodeficient patients and cancer patients, COVID-19 may impact our clinical trial patients more significantly than clinical trials with patients who are not immunocompromised. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition.
Quarantines, stay-at-home and similar government orders related to COVID-19 may adversely impact our business operations and the business operations of our CROs conducting our clinical trials and our third-party manufacturing facilities in the United States and other countries. Although vaccination efforts have commenced, many businesses continue to operate remotely, with limited personnel or with other impacts as a result of the ongoing pandemic. We cannot guarantee that these third parties will continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic, which could negatively impact our supply chain activities and our clinical supply. We have experienced challenges in providing trial drugs to patients enrolled in our clinical trials, and where necessary and practical have implemented direct-to-patient shipments from clinical sites. If the COVID-19 pandemic persists for an extended period of time and begins to impact essential distribution systems such as FedEx and postal delivery, we could experience disruptions to our supply chain and operations, and associated delays in the manufacturing and supply of our product candidates, which would adversely impact our ability to carry out our clinical trials.
As a result of the ongoing COVID-19 pandemic, we are experiencing disruptions that could severely impact our business, clinical trials and preclinical studies, including:
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•delays or difficulties in enrolling patients in our clinical trials, including travel restrictions on patients and constraints on the capacity of our clinical trial sites;
•delays or difficulties in clinical site activation, including difficulties in training clinical site investigators and clinical site staff;
•diversion or prioritization of healthcare resources away from the conduct of clinical trials and towards the COVID-19 pandemic, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials, particularly for clinical trials that require in-patient monitoring following administration of the product candidate;
•delays or disruptions in the availability of clinical site staff, who, as healthcare providers, may have heightened exposure to COVID-19or whose services may be diverted to vaccination efforts, would adversely impact our clinical trial operations;
•interruption of our key clinical trial activities, such as clinical assessments at pre-specified timepoints during the trial and clinical trial site data monitoring, due to limitations on travel imposed or recommended by governmental entities, employers and others or interruption of clinical trial subject visits and study procedures (particularly any procedures that may be deemed non-essential), which may impact the integrity of subject data and clinical study endpoints;
•limitations on employee resources that would otherwise be focused on the conduct of our preclinical studies and clinical trials, including because of sickness of employees or their families, the desire of employees to avoid contact with large groups of people, an increased reliance on working from home or mass transit disruptions; and
•reduced ability to engage with the medical and investor communities due to the cancellation of conferences scheduled throughout the year.
These and other factors arising from the ongoing COVID-19 pandemic could worsen in countries that are already afflicted with COVID-19, could continue to spread to additional countries, or could return to countries where the pandemic has been partially contained, whether through vaccination, herd immunity or otherwise, each of which could continue to adversely impact our ability to conduct clinical trials and our business generally, and could have a material adverse impact on our operations and financial condition and results. These and other factors may also arise from future pandemics.
The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the ultimate economic impact brought by, and the duration of, COVID-19 is difficult to assess or predict, a widespread and sustained pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a sustained or deepened recession or market correction resulting from the spread of COVID-19 and the impacts of the pandemic could materially affect our business and the value of our common stock.
The global COVID-19 pandemic continues to evolve. The extent to which the ongoing COVID-19 pandemic will continue to impact our business, our clinical development and regulatory efforts will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, travel restrictions, quarantines, lock-downs, social distancing requirements, business closures in the United States and other countries, and the timing of the roll-out of coronavirus vaccines and the efficacy of those vaccines against current and future variants of the coronavirus and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. Accordingly, we do not yet know the full extent of potential delays or impacts on our business, our clinical and regulatory activities, healthcare systems or the global economy as a whole.
Our future success depends on our ability to retain executives and to attract, retain and motivate key personnel in a competitive environment for skilled biotechnology personnel.
Because of the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel. We are highly dependent upon members of our current management team, including Paula Ragan, Ph.D., our Chief Executive Officer, the loss of whose services may adversely impact the achievement of our objectives. Although we have an employment agreement with Dr. Ragan, this agreement is at-will and does not prevent her from terminating her employment with us at any time by providing the requisite advance notice.
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Our success will depend on our ability to retain our management team and other key employees, and to attract and retain qualified personnel in the future. The loss of the services of certain members of our senior management or key employees could prevent or delay the implementation and completion of our strategic objectives, or divert management’s attention to seeking qualified replacements. The competition for qualified personnel in the pharmaceutical field is intense and we cannot guarantee that we will be able to retain our current personnel or attract and retain new qualified personnel necessary for the development of our business or to recruit suitable replacement personnel.
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 72 full-time employees. As our development and commercialization plans and strategies develop, or as a result of any future acquisitions, we will need additional managerial, operational, development, sales, marketing, financial and other resources. Our management, personnel and systems currently in place will not be adequate to support this future growth. Future growth would impose significant added responsibilities on our employees, including:
•managing our clinical trials effectively;
•identifying, recruiting, maintaining, motivating and integrating additional employees;
•managing our internal development efforts effectively while complying with our contractual obligations to licensors, contractors and other third parties;
•improving our managerial, development, operational and finance systems; and
•expanding our facilities.
As our operations expand, we will need to manage additional relationships with various strategic collaborators, suppliers and other third parties. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management, administrative, research and development, and sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing the company.
The pharmaceutical industry is highly competitive and is subject to rapid and significant technological change, which could render our technologies and products obsolete or uncompetitive.
The pharmaceutical industry is highly competitive and is subject to rapid and significant technological change, which could render certain of our products obsolete or uncompetitive. This is particularly true in the development of therapeutics for oncology indications where new products and combinations of products are rapidly being developed that change the treatment paradigm for patients. There is no assurance that our product candidates will be the best, have the best safety profile, be the first to market, or be the most economical to make or use. The introduction of competitive therapies as alternatives to our product candidates could dramatically reduce the value of those development projects or chances of successfully commercializing those product candidates, which could have a material adverse effect on our long-term financial success.
We will compete with companies in the United States and internationally, including major pharmaceutical and chemical companies, specialized CROs, research and development firms, universities and other research institutions. Many of our competitors have greater financial resources and selling and marketing capabilities, greater experience in clinical testing and human clinical trials of pharmaceutical products and greater experience in obtaining FDA and other regulatory approvals than we do. In addition, some of our competitors may have lower development and manufacturing costs.
We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology or loss of data, including any cyber security incidents, could compromise sensitive information related to our business, prevent us from accessing critical information or expose us to liability which could harm our ability to operate our business effectively and adversely affect our business and reputation.
In the ordinary course of our business, we, our contract research organizations and other third parties on which we rely collect and store sensitive data, including legally protected patient health information, personally identifiable information about our employees, intellectual property, and proprietary business information. We manage and maintain our applications and data utilizing on-site systems. These applications and data encompass a wide variety of business-critical information including research and development information and business and financial information.
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The secure processing, storage, maintenance and transmission of this critical information is vital to our operations and business strategy. Because of the work-from-home policies we implemented due to COVID-19, information that is normally protected, including company confidential information, may be less secure. Additionally, despite the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable to damage from cyber-attacks, computer viruses, breaches, unauthorized access, interruptions due to employee error or malfeasance or other disruptions, or damage from natural disasters, terrorism, war and telecommunication and electrical failures. In addition, due to the COVID-19 pandemic, we have enabled substantially all of our employees to work remotely, which may make us more vulnerable to cyberattacks. Any such event could compromise our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, lost or stolen. We have measures in place that are designed to detect and respond to such security incidents and breaches of privacy and security mandates. 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, government enforcement actions and regulatory penalties. Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to conduct research, development and commercialization activities, process and prepare company financial information, manage various general and administrative aspects of our business and damage our reputation, in addition to possibly requiring substantial expenditures of resources to remedy, any of which could adversely affect our business. The loss of clinical trial data could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. In addition, there can be no assurance that we will promptly detect any such disruption or security breach, if at all. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and our research, development and commercialization efforts could be delayed.
Business disruptions could seriously harm our future revenues and financial condition and increase our costs and expenses.
Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics (including but not limited to the COVID-19 pandemic) and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely on a single third-party manufacturer to provide the active pharmaceutical ingredient for mavorixafor and a single third-party manufacturer to provide fill and finish services for the final drug product formulation of mavorixafor for use in clinical trials. Our ability to obtain clinical supplies of product candidates could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
Our net operating loss, or NOL, carryforwards could expire unused and be unavailable to offset future tax liabilities because of their limited duration or because of restrictions under U.S. tax law. As of December 31, 2020, we had U.S. federal and state NOLs of $242.6 million and $237.5 million, respectively. Our NOLs generated in tax years ending on or prior to December 31, 2017 are only permitted to be carried forward for 20 years under applicable U.S. tax law. Under the Tax Act, as modified by the CARES Act, our federal NOLs generated in tax years ending after December 31, 2017 may be carried forward indefinitely, but the deductibility of federal NOLs, particularly for tax years beginning after December 31, 2020, may be limited. It is uncertain if and to what extent various states will conform to the Tax Act and the CARES Act.
Section 382 of the Internal Revenue Code of 1986, as amended, or Section 382, contains rules that limit the ability of a company that undergoes an ownership change to utilize its net operating losses, or NOLs, and tax credits existing as of the date of such ownership change. Under the rules, such an ownership change is generally any change in ownership of more than 50% of a company’s stock within a rolling three-year period. The rules generally operate by focusing on changes in ownership among stockholders considered by the rules as owning, directly or indirectly, 5% or more of the stock of a company and any change in ownership arising from new issuances of stock by the company. We have experienced multiple ownership changes since our inception and are conducting a study to assess whether an ownership change has occurred and whether these ownership changes will limit the future use of our NOL carryforwards. Future ownership changes as defined by Section 382 may further limit the amount of NOL carryforwards that could be utilized annually to offset future taxable income.
Our term loan contains restrictions that limit our flexibility in operating our business.
In October 2018, we entered into a loan and security agreement, as most recently amended in December 2020, with Hercules, secured by a lien on substantially all of our assets, including intellectual property. This loan contains various covenants that limit our ability to engage in specified types of transactions. These covenants limit our ability to, among other things:
•sell, transfer, lease or dispose of certain assets;
•incur indebtedness;
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•encumber or permit liens on certain assets;
•make certain investments;
•make certain restricted payments, including paying dividends on, or repurchasing or making distributions with respect to, our common stock; and
•enter into certain transactions with affiliates.
The covenants also include a requirement that, from and after an initial test date of January 1, 2022 (which date is extended if we meet certain financial milestones related to third party funding), we maintain cash in an aggregate amount greater than or equal to the greater of (i) $30.0 million, or (ii) six multiplied by a metric based on prior months’ cash expenditures; provided, however, that from and after our achievement of certain performance milestones, the required level shall be reduced to the greater of (x) $20.0 million, or (y) three multiplied by the current metric based on prior months’ cash expenditures; and provided further, that subject to the achievement of certain milestones, this covenant in the Loan Agreement may be extinguished. A breach of any of the covenants under the loan and security agreement could result in a default under the loan. Upon the occurrence of an event of default under the loan, the lenders could elect to declare all amounts outstanding, if any, to be immediately due and payable and terminate all commitments to extend further credit. If there are any amounts outstanding that we are unable to repay, the lenders could proceed against the collateral granted to them to secure such indebtedness.
Risks Related to Ownership of Our Common Stock
Our stock price is expected to continue to be volatile.
The market price of our common stock could continue to be subject to significant fluctuations. Market prices for securities of early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of our common stock to fluctuate include:
•our ability or the ability of our collaborators to develop product candidates and conduct clinical trials that demonstrate such product candidates are safe and effective;
•our ability or the ability of our collaborators to obtain regulatory approvals for product candidates, and delays or failures to obtain such approvals;
•failure of any our product candidates to demonstrate safety and efficacy, receive regulatory approval and achieve commercial success;
•failure to maintain our existing third-party license, manufacturing and supply agreements;
•failure by us or our licensors to prosecute, maintain or enforce our intellectual property rights;
•changes in laws or regulations applicable to our current or future product candidates;
•any inability to obtain adequate supply of product candidates or the inability to do so at acceptable prices;
•adverse decisions by regulatory authorities;
•introduction of new or competing products by our competitors;
•failure to meet or exceed financial and development projections that we may provide to the public;
•the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;
•announcements of significant acquisitions, strategic collaborations, joint ventures or capital commitments by us or our competitors;
•disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain intellectual property protection for our technologies;
•additions or departures of key personnel;
•significant lawsuits, including intellectual property or stockholder litigation;
•announcements by us of material developments in our business, financial condition and/or operations;
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•if securities or industry analysts do not publish research or reports about us, or if they issue an adverse or misleading opinions regarding our business and stock;
•changes in the market valuations of similar companies;
•general market or macroeconomic conditions;
•sales of our common stock or our stockholders in the future;
•trading volume of our common stock;
•adverse publicity relating to our markets generally, including with respect to other products and potential products in such markets;
•changes in the structure of health care payment systems;
•period-to-period fluctuations in our financial results; and
•general economic, industry, political and market conditions, including, but not limited to the ongoing impact of the COVID-19 pandemic.
In addition, companies trading in the stock market in general, and Nasdaq in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies, including recently in connection with the ongoing COVID-19 pandemic, which has resulted in decreased stock prices for many companies notwithstanding the lack of a fundamental change in their underlying business models or prospects. Broad market and industry factors, including potentially worsening economic conditions and other adverse effects or developments relating to the ongoing COVID-19 pandemic, may negatively affect the market price of our common stock, regardless of our actual operating performance. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our business, financial condition, results of operations and reputation.
We are an “emerging growth company,” and a “smaller reporting company” and as a result of the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies, our common stock may be less attractive to investors.
We are an “emerging growth company,” or EGC, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company until December 31, 2022. For so long as we remain an EGC, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
•not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;
•not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements;
•reduced disclosure obligations regarding executive compensation; and
•exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Investors may find our common stock less attractive as a result of our reliance on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Even following the termination of our status as an emerging growth company, we will be able to take advantage of the reduced disclosure requirements applicable to smaller reporting companies (as that term is defined in Rule 12b-2 of the Exchange Act) and, in particular, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. To the extent that we are no longer eligible to use exemptions from various reporting requirements, we may be unable to realize our anticipated cost savings from these exemptions, which could have a material adverse impact on our operating results.
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If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock could decline.
The trading market for our common stock will be influenced, in part, on the research and reports that industry or financial analysts publish about us or our business. Equity research analysts may elect not to provide research coverage of our common stock, and such lack of research coverage may adversely affect the market price of our common stock. In the event we do have equity research analyst coverage, we will not have any control over the analysts or the content and opinions included in their reports. The price of our common stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of us or fails to publish reports on us regularly, demand for our common stock could decrease, which in turn could cause our stock price or trading volume to decline.
We do not anticipate that we will pay any cash dividends in the foreseeable future.
The current expectation is that we will retain our future earnings to fund the development and growth of our business. In addition, the terms of our debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain, if any, for the foreseeable future. We are prohibited from declaring or paying any cash dividends under our existing loan and security agreement with Hercules Capital, Inc.
Sales of a substantial number of shares of our common stock in the public market could cause our stock price to decline.
Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales, particularly sales by our directors, executive officers, and significant stockholders, may have on the prevailing market price of our common stock.
In addition, we have filed registration statements on Form S-8 registering the issuance of shares of common stock subject to options or other equity awards issued or reserved for future issuance under our equity incentive plans. Shares registered under these registration statements are available for sale in the public market subject to vesting arrangements and exercise of options, as well as Rule 144 in the case of our affiliates.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.
We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 and the rules and regulations of The Nasdaq Global Market. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we are required to perform system and process evaluation and testing of our internal control over financial reporting to allow our management to report on the effectiveness of our internal control over financial reporting in this Annual Report.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, is designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. In addition, any testing by us, as and when required, conducted in connection with Section 404 of the Sarbanes-Oxley Act, or Section 404, or any subsequent testing by our independent registered public accounting firm, as and when required, may reveal deficiencies in our internal control over financial reporting that are deemed to be significant deficiencies or material weaknesses or that may require prospective or retroactive changes to our consolidated financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.
Pursuant to Section 404, we are required to furnish a report by our management on our internal control over financial reporting beginning with this Annual Report. However, while we remain an EGC, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. When we cease to be an emerging growth company, we will be required to incur substantial additional professional fees and internal costs to expand our accounting and finance functions in order to include such attestation report.
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We may in the future discover weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our consolidated financial statements. Our internal control over financial reporting will not prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected. If we identify one or more material weaknesses in our internal controls, investors could lose confidence in the reliability of our consolidated financial statements, the market price of our stock could decline and we could be subject to sanctions or investigations by The Nasdaq Global Market, the SEC or other regulatory authorities.
We may become involved in securities class action litigation or shareholder derivative litigation that could divert management’s attention and harm our business and insurance coverage may not be sufficient to cover all costs and damages.
In the past, securities class action or shareholder derivative litigation has often followed certain significant business transactions, such as the sale of a business division or announcement of a merger. This risk is especially relevant for us because biopharmaceutical companies have experienced significant stock price volatility in recent years. We may become involved in this type of litigation in the future, including litigation, if any, that may result in connection with the Merger. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect our business.
Provisions in our corporate charter documents and under Delaware law could make an acquisition of our company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our corporate charter and by-laws may discourage, delay or prevent a merger, acquisition or other change in control of our Company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:
•establish a classified board of directors such that not all members of the board are elected at one time;
•allow the authorized number of our directors to be changed only by resolution of the board of directors;
•limit the manner in which stockholders can remove directors from the board;
•establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to the board of directors;
•require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;
•limit who may call stockholder meetings;
•authorize the board of directors to issue preferred stock without stockholder approval, which could be used to institute a shareholder rights plan, or so-called “poison pill,” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by the board of directors; and
•require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or by-laws.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with the Company for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between the Company and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with the Company or our directors, officers, employees or stockholders.
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Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on the Company’s behalf, any action asserting a breach of fiduciary duty owed by our directors, officers, other employees or stockholders to the Company or our stockholders, any action asserting a claim against the Company arising pursuant to the Delaware General Corporation Law or as to which the Delaware General Corporation Law confers jurisdiction on the Court of Chancery of the State of Delaware, or any action asserting a claim arising pursuant to our certificate of incorporation or by-laws or governed by the internal affairs doctrine. This provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or our directors, officers, employees or stockholders, which may discourage such lawsuits against the Company and our directors, officers, employees or stockholders.
Alternatively, if a court were to find this provision in our certificate of incorporation 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 business and financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We lease approximately 28,000 square feet of office space at 61 North Beacon Street, 4th Floor, Boston, Massachusetts, which serves as our corporate headquarters. The lease expires on November 30, 2026. The base monthly payment on the lease is approximately $82.0 thousand as of December 31, 2020, subject to specified annual increases of approximately 3% during the term of the lease and not including operating expenses, certain utilities, taxes and insurance for which we are responsible. We have the right to sublease the premises, subject to landlord consent and we have the right to renew the lease for an additional five years at the then-prevailing effective market rental rate.
We also lease approximately 400 square meters of laboratory and office space in Vienna, Austria under a lease that will expire in March 2021. We have signed a new lease for 1,200 square meters of laboratory and office space in Vienna, Austria. The lease expires in March 2027 and the monthly payments are approximately $25 thousand.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not currently subject to any material legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock commenced trading on the Nasdaq Global Market under the symbol “ASNS” on November 16, 2017. Prior to that date, there was no public trading market for our common stock. On March 13, 2019, we completed a business combination in accordance with the terms of the Merger Agreement, by and among us, X4 Therapeutics, Inc. (formerly X4 Pharmaceuticals, Inc.) and the Merger Sub, pursuant to which, among other matters, Merger Sub merged with and into X4 Therapeutics, Inc., with X4 Therapeutics, Inc. continuing as our wholly-owned subsidiary and the surviving corporation of the merger. Following the Merger, on March 13, 2019, we effected a 1-for-6 reverse stock split of our common stock and changed our name to “X4 Pharmaceuticals, Inc.” On March 13 2019, following the completion of the Merger, our common stock began trading on the Nasdaq Global Market under the symbol “XFOR”.
Holders of Our Common Stock
As of March 1, 2021, there were 87 holders of record of our common stock.
Dividend Policy
We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination to declare and pay dividends will be made at the discretion of our board of directors and will depend on then-existing conditions, including our results of operations, financial condition, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.
Recent Sales of Unregistered Securities
None.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, we are not required to provide disclosure for this Item.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and the other financial information included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report, our actual results could differ materially from the results described in or implied by these forward-looking statements.
For the discussion of the financial condition and results of operations for the year ended December 31, 2019 compared to the year ended December 31, 2018, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to our Annual Report on Form 10-K filed with the SEC on March 12, 2020.
Overview
We are a late-stage clinical biopharmaceutical company focused on the research, development and commercialization of novel therapeutics for the treatment of rare diseases. Our pipeline is comprised of potentially first-in-class, oral, small molecule antagonists of chemokine receptor CXCR4, which have the potential to treat a broad range of rare diseases, including primary immunodeficiencies, or PIs, and certain types of cancer. Our lead product candidate, mavorixafor, is a potentially first-in-class, oral, allosteric antagonist of the CXCR4 receptor designed to correct the abnormal signaling caused by the receptor/ligand interaction and enable mobilization and trafficking of immune cells.
We have completed the dose-titration portion of the Phase 2 clinical trial of mavorixafor in patients with Warts, Hypogammaglobulinemia, Infections, and Myelokathexis, or WHIM, syndrome, which is a rare, inherited primary immunodeficiency disease. In June 2019, we initiated 4WHIM, a pivotal, 52-week Phase 3 global clinical trial of mavorixafor for the treatment of patients with WHIM syndrome. The U.S. Food and Drug Administration, or FDA, has granted Breakthrough Therapy Designation for mavorixafor for the treatment of adults with WHIM. In October 2020, the FDA granted Fast Track Designation for mavorixafor for adults with WHIM and in December 2020, the FDA granted Rare Pediatric Designation for mavorixafor for the treatment of WHIM. We expect to report top line data from 4WHIM in 2022.
We are also investigating mavorixafor in combination with axitinib (Inlyta®) in the Phase 2a portion of an open-label Phase 1/2 clinical trial in clear cell renal cell carcinoma, or ccRCC. In September 2019, we announced positive results from the Phase 2a portion of this trial. We hope to pursue future development and potential commercialization of mavorixafor in ccRCC and other possible immuno-oncology indications outside of greater China only as part of a potential strategic collaboration.
In November 2019, we initiated a 14-day, proof-of-concept Phase 1b clinical trial of mavorixafor in patients with severe congenital neutropenia, or SCN. The trial is designed to enroll up to 45 patients in total. SCN patients are immunocompromised and the two-week duration of dosing with mavorixafor provides little potential opportunity for clinical benefit. As a result, the SCN trial has been very difficult to enroll during the COVID pandemic due to the risk of COVID and this difficulty could continue throughout 2021. We plan to share initial data on a small number of patients from the SCN trial in 2021, assuming sufficient progress is made on the trial.
In December 2019, we initiated a Phase 1b clinical trial of mavorixafor in Waldenström’s macroglobulinemia, or Waldenström’s. We expect to report initial data from the Waldenström’s trial in the first half of 2021.
We are also advancing two early stage candidates towards the clinic: X4P-003, a second-generation CXCR4 antagonist designed to have an enhanced pharmacokinetic profile relative to mavorixafor, potentially enabling improved patient compliance and ease of use; and X4P-002, a CXCR4 antagonist designed to cross blood-brain barrier and provide appropriate therapeutic exposures to treat brain cancers.
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To date, we have not generated revenue from product sales and do not expect to generate significant revenue from the sale of our products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.
Our Pipeline:
COVID-19 Business Update
In light of the ongoing COVID-19 pandemic, we have implemented business continuity measures designed to address and mitigate the impact of the COVID-19 pandemic on our employees, our business, including our clinical trials, supply chains and third-party providers. We continue to closely monitor the COVID-19 pandemic as we evolve our business continuity plans and response strategy. In March 2020, the Governor of Massachusetts ordered all individuals living in the Commonwealth of Massachusetts to stay at their place of residence for an indefinite period of time (subject to certain exceptions to facilitate authorized necessary activities) to mitigate the impact of the COVID-19 pandemic. As a result, our workforce transitioned to working remotely. In the fourth quarter of 2020, we opened our new office in Boston, Massachusetts under a return-to-work plan with a limited phased approach that is principles-based, local in design, with focused on employee safety and optimal work environment. While we are experiencing limited financial impacts at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, our business, financial condition, results of operations and growth prospects could be materially adversely affected.
Clinical Development
With respect to clinical development, we continue to implement risk-based approaches in accordance with FDA and the European Medicines Agency, or EMA, COVID-19 guidance, which includes virtual and remote patient visits and monitoring where possible, while prioritizing patient safety, maintaining trial continuity and preserving data integrity. We have experienced, and expect to continue to experience, a disruption or delay in our ability to initiate trial sites and/or enroll and assess patients in several of our clinical programs as a result of the ongoing COVID-19 pandemic, notwithstanding the commencement of vaccination efforts. We have experienced challenges in providing trial drugs to patients enrolled in our clinical trials, and where
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necessary and practical, have implemented direct-to-patient shipments from clinical sites. While not currently impacted, there could be an impact on our ability to supply study drug, report trial results, or interact with regulators, ethics committees or other important agencies due to limitations in regulatory authority employee resources or otherwise. In addition, we rely on contract research organizations, or CROs, or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the ongoing COVID-19 pandemic. If the COVID-19 pandemic continues and persists for an extended period of time, we could experience further disruptions to our clinical development timelines, which would adversely affect our business, financial condition, results of operations and growth prospects.
Supply Chain
We continue to work closely with our third-party manufacturers, distributors and other partners to manage our supply chain activities and mitigate potential disruptions to our clinical supply as a result of the ongoing COVID-19 pandemic. We have business continuity plans in place and expect to have adequate global supply of mavorixafor well into 2021. To best support our patients, we continue to work with our vendors to provide the option for direct-to-patient drug shipments from clinical sites. If the ongoing COVID-19 pandemic impacts essential distribution systems we could experience disruptions to our supply chain and operations, which would adversely impact our ability to carry out our clinical trials.
Regulatory Activities
We expect that we could experience delays in the timing of review and/or our interactions with the FDA or the European Commission, or EC, due to, for example, inability to conduct planned physical inspections related to regulatory approval, or the diversion of efforts of the FDA or EC and attention to approval of other therapeutics or other activities related to COVID-19, which could delay approval decisions with respect to the preparation and submission to the FDA of a new drug application, or NDA, or the preparation and submission to the EC of a Marketing Authorization Application, or MAA, and otherwise delay or limit our ability to make planned regulatory submissions or obtain new product approvals.
Financial Impact
The ongoing COVID-19 pandemic continues to evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations.
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Results of Operations
Comparison of the Years Ended December 31, 2020 and 2019
The following table summarizes the results of our operations for the periods indicated:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | Change | |||||||||||||||
| (in millions) | |||||||||||||||||
| License revenue | $ | 3.0 | $ | — | $ | 3.0 | |||||||||||
| Operating expenses: | |||||||||||||||||
| Research and development | 41.9 | 30.2 | 11.7 | ||||||||||||||
| General and administrative | 21.0 | 17.6 | 3.4 | ||||||||||||||
| Loss on transfer of nonfinancial assets | — | 3.9 | (3.9) | ||||||||||||||
| Total operating expenses | 62.9 | 51.7 | 11.2 | ||||||||||||||
| Loss from operations | (59.9) | (51.7) | (8.2) | ||||||||||||||
| Total other expense, net | (2.1) | (1.1) | (1.0) | ||||||||||||||
| Loss before provision for income taxes | (62.0) | (52.8) | (9.2) | ||||||||||||||
| Provision for income taxes | 0.1 | — | 0.1 | ||||||||||||||
| Net loss | $ | (62.1) | $ | (52.8) | $ | (9.3) | |||||||||||
License Revenue
For the year ended December 31, 2020, we recorded $3.0 million in revenue related to our license agreement with Abbisko Therapeutics Co., Ltd., or Abbisko, due to the achievement of a financial milestone in March 2020. There was no similar revenue recorded in the year ended December 31, 2019. Pursuant to our license agreement with Abbisko, we are eligible to receive potential development and regulatory milestone payments, which vary based on the number of indications developed, and potential commercial milestone payments based on annual net sales of mavorixafor-based licensed products. The transaction price related to these development and regulatory milestones has been allocated to the delivery to Abbisko of the license to develop and commercialize mavorixafor, was satisfied at the inception of the arrangement in July 2019 and has been fully constrained. We have determined that the future sales of clinical and commercial supplies to Abbisko represent optional goods that will be recognized as revenue at a point in time when such clinical or commercial supplies are delivered to Abbisko in the future. With respect to the remaining development and regulatory milestones, we will re-evaluate the constraint on the transaction price associated with these milestones in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates, including employee salaries and related expenses, expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with third parties, such as consultants and contract research organizations, or CROs; the cost of manufacturing drug products for use in our preclinical studies and clinical trials, including under agreements with third parties, such as consultants and contract manufacturing organizations, or CMOs; facilities, depreciation and other expenses, which include direct or allocated expenses for rent and maintenance of facilities and insurance; costs related to compliance with regulatory requirements; and payments made under third-party licensing agreements. We expense research and development costs as incurred.
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| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | Change | |||||||||||||||
| (in millions) | |||||||||||||||||
| Direct research and development expenses by product candidate: | |||||||||||||||||
| Mavorixafor (X4P-001) | $ | 22.8 | $ | 16.3 | $ | 6.5 | |||||||||||
| X4P-002 | 1.2 | 0.5 | 0.7 | ||||||||||||||
| X4P-003 | 1.3 | 0.6 | 0.7 | ||||||||||||||
| Unallocated expense | 16.6 | 12.8 | 3.8 | ||||||||||||||
| Total research and development expenses | $ | 41.9 | $ | 30.2 | $ | 11.7 | |||||||||||
Research and development expenses were $41.9 million for the year ended December 31, 2020 compared to $30.2 million for the year ended December 31, 2019, reflecting an increase of $11.7 million. The increase in research and development expenses for the year ended December 31, 2020 as compared to 2019 was primarily due to higher clinical expenses related to mavorixafor to support our three ongoing clinical trials, an increase in outsourced costs related to our early stage drug candidates and an increase in unallocated expenses, primarily due to an increase in compensation expenses, including stock-based compensation, due to additional personnel within our manufacturing, regulatory and clinical operations functions.
We expect that our research and development expenses, particularly for our mavorixafor programs, will increase over the next several years as we continue to conduct our Phase 3 pivotal trial of mavorixafor in patients with WHIM syndrome, and to conduct our Phase 1b clinical trials of mavorixafor in SCN and Waldenström’s. Research and development expenses related to our X4P-002 and X4P-003 programs were not significant in 2020 relative to our overall research and development expenses.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting, and audit services.
General and administrative expenses were $21.0 million for the year ended December 31, 2020 compared to $17.6 million for the year ended December 31, 2019, reflecting an increase of $3.4 million. The increase in general and administrative expenses for the year ended December 31, 2020 was primarily due to an increase in personnel-related costs, including stock compensation, due to an increase in head count to support the growth of our business. We expect the growth of general and administrative expenses will slow relative to prior years, but will continue to grow as we prepare for the possible commercial launch of mavorixafor.
Loss on Transfer of Nonfinancial Assets
During the year ended December 31, 2019, we entered into contractual arrangements with two third parties that transferred the rights to develop and commercialize the programs underlying in-process research and development, or IPR&D, intangible assets that we acquired in the merger with Arsanis. As a result of the transfer of control of the IPR&D projects to third parties, we recorded a charge of $3.9 million to “loss on transfer of nonfinancial assets” during 2019. The loss included the carrying value of the IPR&D intangible assets prior to the transfer of control, partially offset by non-refundable, upfront fees received from the third parties. There was no such loss in the year ended December 31, 2020.
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Other Expense, Net
Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | Change | |||||||||||||||
| (in millions) | |||||||||||||||||
| Interest income | $ | 0.3 | $ | 1.2 | $ | (0.9) | |||||||||||
| Interest expense | (2.7) | (2.1) | (0.6) | ||||||||||||||
| Change in fair value of preferred stock warrant and derivative liabilities | (0.4) | (0.1) | (0.3) | ||||||||||||||
| Loss on extinguishment of debt | (0.2) | (0.6) | 0.4 | ||||||||||||||
| Other income | 0.9 | 0.5 | 0.4 | ||||||||||||||
| Total other expense, net | $ | (2.1) | $ | (1.1) | $ | (1.0) | |||||||||||
The increase in other expense, net, of $1.0 million for the year ended December 31, 2020 as compared to 2019 was primarily due to lower interest income due to a general decline in interest rates on our cash equivalent investments and higher interest expense on our borrowings due to higher average outstanding borrowings under our Amended and Restated Loan and Security Agreement, as amended, with Hercules Capital Inc., or the “Hercules Loan Agreement”. These increases in other expense were partially offset by lower losses on the extinguishment of debt in 2020 as compared to 2019.
Income Taxes
For the year ended December 31, 2020, we recorded a $0.1 million income tax provision related to local withholdings associated with a milestone payment received from a customer in a foreign jurisdiction. No income tax benefit or expense was recorded in the prior year due to the requirement for a full valuation allowance against our net deferred tax assets in all jurisdictions.
Liquidity and Capital Resources
We have funded our operations to date primarily with proceeds from sales of common stock, warrants and prefunded
warrants for the purchase of our preferred stock and our common stock, sales of preferred stock, proceeds from the issuance of
convertible debt and borrowings under loan and security agreements. In August 2020, we entered into a Controlled Equity OfferingSM Sales Agreement, or the ATM Sales Agreement, with B. Riley Securities, Inc., Cantor Fitzgerald & Co., and Stifel, Nicolaus & Company, Incorporated, or collectively, the Sales Agents, pursuant to which we may offer and sell, at our sole discretion through one or more of the Sales Agents, shares of our common stock having an aggregate offering price of up to $50.0 million. In October 2020, we entered into a common stock purchase agreement with Aspire Capital LLC, or Aspire Capital, pursuant to which Aspire Capital has committed to purchase, at our request from time to time over a 36-month period, shares of our common stock having an aggregate offering price of up to $50.0 million, subject to certain limitations. As further discussed in Note 16 to our consolidated financial statements, on March 18, 2021, we entered into a securities purchase agreement with several institutional and accredited investors, or Investors, pursuant to which we agreed to issue and sell to the Investors in a private placement shares of common stock and, in lieu of common stock, pre-funded warrants to purchase shares of common stock for estimated gross proceeds of up to approximately $55.0 million, before deducting offering expenses payable by us. We have agreed to register for resale the common stock and the issuance of the shares of common stock underlying the pre-funded warrants held by the Investors by no later than June 30, 2021, subject to liquidated damages should we fail to do so. In addition, on March 18, 2021, we entered into a non-binding letter of intent with a third-party, who is also an Investor, to negotiate a co-development agreement that would provide us with up to $65.0 million in funding when and if the arrangement closes. If we do not execute a definitive co-development agreement by May 15, 2021, this Investor may, at its option, sell the shares it purchased in the private placement back to us to at the original purchase price of $2.0 million. The funds associated with the private placement and co-development arrangement, which have not yet been received, are not considered in our going concern evaluation below.
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During the years ended December 31, 2020, 2019 and 2018, we received $12.5 million, $10.0 million and $10.0 million, respectively, in gross proceeds through our Hercules Loan Agreement. Under this facility, as amended most recently in December 2020, we have borrowed $32.5 million in term loans and may borrow an additional $7.5 million in term loans upon the achievement of certain operational milestones through June 2022 and an additional $10.0 million in term loans through December 2022, at the sole discretion of Hercules. Principal payments under the Hercules Loan Agreement commence in February 2023 and the agreement matures in July 2024.
Going Concern
Since our inception, we have incurred significant operating losses and negative cash flows from our operations. We have not yet commercialized any products and we do not expect to generate revenue from sales of any products for several years, if at all. As of December 31, 2020, our cash and cash equivalents were $78.7 million and our restricted cash balance was $2.0 million. We expect that our research and development and general and administrative expenses will continue to increase as we focus on completing the necessary development, obtaining regulatory approval and preparing for potential commercialization of our product candidates. Based on our current operating plan, we believe that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements into the first quarter of 2022. However, we have a covenant under our Hercules Loan Agreement that requires that we maintain a minimum level of cash, as defined, beginning on January 1, 2022, (which date is extended if we meet certain financial milestones related to third party funding). If we are in violation of this covenant, Hercules could require the repayment of all outstanding debt.
These conditions and events raise substantial doubt about our ability to continue as a going concern for the one-year period following the issuance of our consolidated financial statements for the year ended December 31, 2020. To finance our operations, we will need to raise additional capital, which cannot be assured. Unless and until we reach profitability in the future, we will require additional capital to fund our operations, which could be raised through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations and strategic alliances. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which would adversely affect our business prospects, or we may be unable to continue operations.
Cash Flows
The following table summarizes our cash flow activities for each of the periods presented:
| Year Ended December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| (in thousands) | |||||||||||
| Net loss | $ | (62,131) | $ | (52,807) | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities | 7,376 | 7,988 | |||||||||
| Changes in operating assets and liabilities | (4,063) | (3,236) | |||||||||
| Net cash used in operating activities | (58,818) | (48,055) | |||||||||
| Net cash (used in) provided by investing activities | (1,362) | 27,232 | |||||||||
| Net cash provided by financing activities | 12,394 | 140,661 | |||||||||
| Impact of foreign exchange on cash and restricted cash | 402 | (250) | |||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | (47,384) | 119,588 | |||||||||
| Cash, cash equivalents and restricted cash, beginning of period | 128,086 | 8,498 | |||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 80,702 | $ | 128,086 | |||||||
Operating Activities: During the year ended December 31, 2020, net cash used in operating activities was $58.8 million, primarily resulting from our net losses of $62.1 million, adjusted for noncash expenses of $7.4 million and changes in our operating assets and liabilities of $4.1 million. Noncash expenses primarily includes stock-based compensation expense. The change in operating assets and liabilities was primarily due to an increase cash used in related to funding certain upfront costs associated with our leased office in Boston, Massachusetts. Cash used in operating activities was higher for the year ended December 31, 2020 as compared to the prior year due to higher net losses in the current year.
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Investing Activities: During the year ended December 31, 2020, cash used in investing activities of $1.4 million, primarily related to furniture and laboratory equipment purchases related to our Boston lease, and our research and development center in Vienna, Austria. During the year ended December 31, 2019, net cash provided by investing activities consisted primarily of $26.4 million of cash and restricted cash acquired in connection with our Merger with Arsanis.
Financing Activities: During the year ended December 31, 2020, net cash provided by financing activities was $12.4 million
million, consisting primarily of proceeds from our Hercules Loan Agreement, as amended, in the first and fourth quarters of 2020. During the year ended December 31, 2019, net cash provided by financing activities was $140.7 million, consisting primarily of $139.4 million of net proceeds for the sale in April 2019 and November 2019 of our common stock, warrants and prefunded warrants and net proceeds of $9.8 million received in our Hercules Loan Agreement, partially offset by $9.4 million for the settlement of X4 Austria’s loan facility with FFG.
Loan and Security Agreement with Hercules Capital, Inc.
In October 2018, we entered into the Hercules Loan Agreement, which was subsequently amended in December 2018, June 2019, March 2020 and December 2020. As of December 31, 2020, we have borrowed an aggregate of $32.5 million under the Hercules Loan Agreement, as amended, which provides for aggregate maximum borrowings of $50.0 million, including $32.5 million of current borrowings, an additional $7.5 million of term loans available through June 20, 2022, the funding of which are subject to the achievement of certain performance milestones and conditions, and $10.0 million subject to Hercules’ investment committee’s sole discretion, through December 31, 2022.
Borrowings under the Hercules Loan Agreement bear interest at a variable rate equal to the greater of (i) 8.75% or (ii) 8.75% plus The Wall Street Journal prime rate minus 6.0%. In an event of default and until such event is no longer continuing, the interest rate applicable to borrowings under the agreement would be increased by 4.0%. As of December 31, 2020, the interest rate applicable to borrowings was 8.75% and the Company was not in default on the Hercules Loan Agreement.
Borrowings are repayable in monthly interest-only payments through January 1, 2023, and in equal monthly payments of principal and accrued interest from February 1, 2023 until the maturity date of the loan, which is July 1, 2024. At our option, we may prepay all, but not less than all, of the outstanding borrowings, subject to a prepayment premium of up to 2.0% of the principal amount outstanding as of the date of repayment. In addition, aggregate end-of-term charges of $2.9 million are payable in the amounts of $0.8 million, $1.3 million and $0.8 million on January 1, 2022, July 1, 2023 and July 1, 2024, respectively, which dates are accelerated upon the prepayment of the Hercules Loan Agreement at our election or upon an event of default.
Borrowings under the Hercules Loan Agreement are collateralized by substantially all of our personal property and other assets except for our intellectual property (but including rights to payment and proceeds from the sale, licensing or disposition of the intellectual property). Our obligations under the agreement are subject to acceleration upon occurrence of specified events of default, including payment default, insolvency and a material adverse change in our business, operations or financial or other conditions.
Under the agreement, we have agreed to affirmative and negative covenants. The covenants also include a requirement that, from and after a defined initial test date of January 1, 2022 (which date is extended if we meet certain financial milestones related to third party funding), we maintain cash in an aggregate amount greater than or equal to the greater of (i) $30.0 million, or (ii) 6 multiplied by a metric based on prior months’ cash expenditures; provided, however, that from and after our achievement of certain performance milestones, the required level shall be reduced to the greater of (x) $20.0 million, or (y) three multiplied by the current metric based on prior months’ cash expenditures; and provided further, that subject to the achievement of certain milestones, this covenant in the Loan Agreement may be extinguished. A breach of any of the covenants under the Hercules Loan Agreement could result in a default under the loan. Upon the occurrence of an event of default under the loan, the lenders could elect to declare all amounts outstanding, if any, to be immediately due and payable and terminate all commitments to extend further credit. If there are any amounts outstanding that we are unable to repay, the lenders could proceed against the collateral granted to them to secure such indebtedness.
Funding Requirements
We believe that our cash and cash equivalents will allow us to fund operations into the first quarter of 2022. However, as noted above, in order to satisfy a minimum cash covenant in our Hercules Loan Agreement, we will be required to raise additional capital, which may be through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations and strategic alliances. During 2021 and beyond, we expect our expenses to continue to increase in connection with our ongoing activities, particularly as we advance the current and anticipated clinical trials
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of our product candidates in development. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our funding requirements. Our short term and long term funding requirements will depend on and could increase significantly as a result of many factors, including:
•the scope, number, initiation, progress, timing, costs, design, duration, any potential delays, and results of clinical trials and nonclinical studies for our current or future product candidates, particularly our Phase 3 pivotal clinical trial of mavorixafor for the treatment of patients with WHIM syndrome, our Phase 1b clinical trial of mavorixafor in SCN and our Phase 1b clinical trial of mavorixafor in Waldenström’s;
•the continued global impact of the ongoing COVID-19 pandemic and its effect on our ongoing clinical trials, our supply chain and the financial markets in general;
•the outcome, timing and cost of regulatory reviews, approvals or other actions to meet regulatory requirements established by the FDA and comparable foreign regulatory authorities, including the potential for the FDA or comparable foreign regulatory authorities to require that we perform more studies for our product candidates than those that we currently expect;
•our ability to obtain marketing approval for our product candidates;
•the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights covering our product candidates, including any such patent claims and intellectual property rights that we have licensed from Genzyme pursuant to the terms of our license agreement with Genzyme;
•our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us or our product candidates;
•the cost and timing of completion of commercial-scale outsourced manufacturing activities with respect to our product candidates;
•our ability to establish and maintain licensing, collaboration or similar arrangements on favorable terms and whether and to what extent we retain development or commercialization responsibilities under any new licensing, collaboration or similar arrangement;
•the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own;
•the success of any other business, product or technology that we acquire or in which we invest;
•the costs of acquiring, licensing or investing in businesses, product candidates and technologies;
•our need and ability to hire additional management and scientific and medical personnel;
•the costs to continue to operate as a public company, including the need to implement additional financial and reporting systems and other internal systems and infrastructure for our business;
•market acceptance of our product candidates, to the extent any are approved for commercial sale; and
•the effect of competing technological and market developments.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution or licensing arrangements with third parties. We have effective universal shelf registration statements on Form S-3 registering the sale of up to $300.0 million of our common stock, warrants to purchase our common stock and other securities on terms that we may determine. We have entered into the ATM Sales Agreement with the Sales Agents, pursuant to which we may offer and sell, at our sole discretion through one or more of the Sales Agents, shares of our common stock having an aggregate offering price of up to $50.0 million. We have entered into a common stock purchase agreement with Aspire Capital, pursuant to which Aspire Capital has committed to purchase, at our request from time to time over a 36-month period, shares of our common stock having an aggregate offering price of up to $50.0 million, subject to certain limitations.
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To the extent that we raise additional capital through future equity offerings or debt financings, the ownership interest of our stockholders may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, reduce or eliminate our product development efforts or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Contractual Obligations and Commitments
As a smaller reporting company, we are not required to provide the disclosure required by Item 303(a)(5) of Regulation S-K.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements included elsewhere in this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Accrued Research and Development Expenses. As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to them at that time. We periodically confirm the accuracy of these estimates with the service providers and make adjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid to:
•vendors in connection with preclinical development activities;
•CROs and investigative sites in connection with preclinical studies and clinical trials; and
•CMOs in connection with the production of preclinical and clinical trial materials.
We base the expense recorded related to external research and development on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that supply, conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly.
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Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.
Stock-Based Compensation. We measure all stock-based awards granted to employees, directors and consultants based on the grant-date fair value of the award and recognized compensation expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. The stock-based awards that we have issued to date include a service-based vesting condition and the expense for these awards is recognized using the straight-line method. We have also issued stock-based awards with performance-based vesting conditions that vest in part upon our achievement of operational milestones and over time thereafter for the subsequent two years as the employee continues to provide services. We assess the probability of achievement of these operational milestones and recognize stock-based compensation for these awards using the accelerated attribution model based on the fair value of the awards as of the date of grant and our best estimate of the date each operational milestone will be achieved. We update our estimates related to the probability and timing of achievement of the operational milestones each period until the award either vests or is forfeited.
The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of the stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and an expected dividend yield. Prior to the closing of the Merger and the listing of our common stock on the Nasdaq Capital Market, our board of directors historically determined, as of the date of each option grant and with input from our management, the assistance of a third-party valuation specialist the estimated fair value of our common stock on the date of grant based on a number of objectives and subjective factors. Since the Merger and the listing of our common stock on the Nasdaq Capital Market, we have relied on the market price of our common stock to determine the fair value on the date of grant. As our common stock does not have a sufficient history of trading, we estimate our volatility based on the historical volatility of publicly traded peer companies. We estimate the expected term of our stock awards by utilizing the “simplified” method, which calculates the expected term based on weighted average midpoint of the award’s vesting and expiration dates. We determine the risk-free interest rate by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. We estimate that no dividends will be paid as we do not expect to pay cash dividends in the foreseeable future.
The assumptions underlying these valuations represent the best estimates of our management, which involve inherent uncertainties and the application of our judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, the resulting share-based compensation expense could be materially different.
Revenue Recognition. Our revenues are generated primarily through research, development and commercialization agreements. The terms of such agreements may contain multiple promised goods and services, which may include (i) licenses, or options to obtain licenses, to our intellectual property, and (ii) in certain cases, payment in connection with the manufacturing and delivery of clinical supply materials. Payments to us under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; milestone payments; payments for clinical product supply, and royalties on future product sales. To date, our license agreement with Abbisko represents our only revenue-generating agreement.
We analyze our arrangements to assess whether such arrangements involve joint operating activities. For collaboration arrangements that are deemed to be within the scope of ASC Topic 808, Collaborative Arrangements, or ASC 808, we allocate the contract consideration between such joint operating activities and elements that are reflective of a vendor-customer relationship and, therefore, within the scope of ASC Topic 606, Revenue from Contracts with Customers, or ASC 606. Our policy is to recognize amounts allocated to joint operating activities as a reduction in research and development expense.
Under ASC 606, we recognize revenue when our customers obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligation(s) in the contract and determine whether these are distinct; (3) determine the transaction price; (4) allocate the transaction price to the performance obligation(s) in the contract; and (5) recognize revenue when (or as) we satisfy our performance obligation(s).
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We must make significant judgments in our revenue recognition process, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each performance obligation. In addition, arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered discretionary purchase options. We assess if these options provide a material right to the customer and if so, they are considered performance obligations.
Valuation of Embedded Derivative Liability. Our Hercules Loan Agreement contains a redemption feature that, upon an event of loan default, provides Hercules the option to accelerate and demand repayment of the debt, including a prepayment premium, or, at its election, charge additional contingent interest fees on any overdue interest or principal payments. We have concluded that the redemption feature meets the definition of a embedded derivative instrument and, accordingly, the fair value of this redemption feature is classified as a non-current liability on our consolidated balance sheet. Changes in the fair value of this derivative liability are recognized as a component of other income (expense), net in the consolidated statement of operations and comprehensive loss. The fair value is estimated by us each reporting date based, in part, on the results of third-party valuations, which are prepared based on a discounted cash flow model that considers the timing and probability of occurrence of a redemption upon an event of default, the potential amount of prepayment fees or contingent interest upon an event of default, discounted to present value at our risk-adjusted discount rate.
Purchase Accounting. Business combinations are accounted for under the acquisition method, whereby the total purchase price of an acquisition is allocated to the underlying identifiable net assets, based on their respective estimated fair values as of the acquisition date. Application of the acquisition method is complex and can require significant judgment. For example, to properly account for a business combination, management must determine the following:
•Whether the entity acquired constitutes a business or a set of assets. Management considers whether the majority (i.e. 90%) of the value of the acquired entity is concentrated in one asset or set of similar assets.
•The identification of the acquirer for accounting purposes, which may differ from the legal acquirer. To make this determination, management considers which entity's stockholders own a substantial majority of the voting rights in the combined organization, (ii) the composition of the initial board of directors of the combined organization and (iii) the senior management team of the combined organization.
•Identification of transactions that must be accounted for separately from the acquired entity. For example, severance and retention bonuses which were arranged for the benefit of the acquirer.
•The fair value of consideration transferred to effect the acquisition, including the value of shares of common stock issued and contingent consideration transferred;
•The accounting for equity compensation arrangement acquired, including the fair value of replacement awards and whether the value of these awards is ascribed to compensation for past services, which is included in the consideration transferred to effect the acquisition, or for future services, which is accounted for prospectively as stock-based compensation expense
•The fair value of assets acquired and liabilities assumed, which requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, probabilities of success, discount rates, and asset lives, among other items.
Lease Accounting. We adopted the new lease standard effective January 1, 2019 as further described in Note 2 to the consolidated financial statements included in this Annual Report on Form 10-K. The new standard requires that all leases, with the exception of leases with a remaining term of less than 12 months, are accounted for as a right-of-use asset with an associated lease liability on the consolidated balance sheet. Management must apply judgment in the application of the new lease standard in the determination of the following:
•Whether a contract contains a lease. We consider whether the contract conveys the right to control an asset for a period of time in excess of one year. We also consider whether the counterparty has the right to substitute the asset without our consent, in which case the contract would generally not contain a lease.
•The term of the lease, which includes a determination of the probability that management will exercise its option to extend the lease.
•The discount rate applied to the lease liability, which in most cases is not a rate that is implicit and readily determinable within the lease. In this case, management calculates its incremental collateralized borrowing rate by reference to recent third-party borrowings, such as observed in its Hercules Loan Agreement, as adjusts this rate to match the term of the lease.
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•The commencement date of the lease for accounting purposes, which occurs when the lessor provides management with unfettered access to the leased asset. Management also considers the condition of the leased asset at the inception of the lease agreement and whether unreimbursed costs incurred by management to enhance or construct the leased asset represent prepaid rent and are part of the right-of-use asset or represent leasehold improvements. Management considers the nature and significance of the improvements to the leased asset and whether these improvements were required by the lessor, which indicates that the improvements relate to the lessor's asset, or were at management's election, which indicates that the costs represent leasehold improvements.
Emerging Growth Company Status
The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing at the end of this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide disclosure for this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial statements is found in Item 15 of Part IV of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, who serve as our principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of such date.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
•pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in the Exchange Act Rule 13a-15(f). Management conducted an assessment of our internal control over financial reporting based on the framework established in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on the assessment, management concluded that, as of December 31, 2020, our internal control over financial reporting was effective.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting due to an exemption established by the JOBS Act for “emerging growth companies”.
Changes in Internal Control over Financial Reporting
There has been no significant change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is incorporated by reference to the information set forth in the sections titled “Proposal 1- Election of Directors,” “Information Regarding the Board of Directors and Corporate Governance” and “Executive Officers” in our 2021 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the information set forth in the sections titled “Executive Compensation” in our 2021 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to the information set forth in the section titled “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in our 2021 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated by reference to the information set forth in the section titled “Transactions with Related Persons and Indemnification” and “Information regarding the Board of Directors and Corporate Governance” in our 2021 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated by reference to the information set forth in the section titled “Principal Accountant Fees and Services” contained in our 2021 Proxy Statement.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(1) Financial Statements
The following documents are included on pages F-1 through F-36 attached hereto and are filed as part of this Annual Report.
| Page | |||||
| Report of Independent Registered Public Accounting Firm | |||||
| Consolidated Balance Sheets | |||||
| Consolidated Statements of Operations and Comprehensive Loss | |||||
| Consolidated Statements of Convertible Preferred Stock, Redeemable Common Stock and Stockholders’ Equity (Deficit) | F-5 | ||||
| Consolidated Statements of Cash Flows | F-6 | ||||
| Notes to Consolidated Financial Statements | F-7 | ||||
(2) Financial Statement Schedules:
All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the consolidated financial statements or the notes thereto.
(3) Exhibits.
| Exhibit No. | Exhibit Description | Form | Exhibit | Date | Se File/ Ref No. | |||||||||||||||||||||
| 2.1 | 8-K | 2.1 | 11/27/2018 | 001-38295 | ||||||||||||||||||||||
| 2.2 | 8-K | 2.1 | 12/20/2018 | 001-38295 | ||||||||||||||||||||||
| 2.3 | 8-K | 2.1 | 3/8/2019 | 001-38295 | ||||||||||||||||||||||
| 3.1 | 8-K | 3.1 | 6/11/2020 | 001-38295 | ||||||||||||||||||||||
| 3.2 | 8-K | 3.2 | 11/20/2017 | 001-38295 | ||||||||||||||||||||||
| 4.1 | 8-K | 4.1 | 3/13/2019 | 001-38295 | ||||||||||||||||||||||
| 4.2 | 8-K | 4.2 | 3/13/2019 | 001-38295 | ||||||||||||||||||||||
| 4.3 | 8-K | 4.3 | 3/13/2019 | 001-38295 | ||||||||||||||||||||||
| 4.4 | 8-K | 4.4 | 3/13/2019 | 001-38295 | ||||||||||||||||||||||
| 4.5 | 8-K | 4.5 | 3/13/2019 | 001-38295 | ||||||||||||||||||||||
| 4.6 | 8-K | 4.6 | 3/13/2019 | 001-38295 | ||||||||||||||||||||||
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| 4.7 | 8-K | 4.1 | 04/12/2019 | 001-38295 | ||||||||||||||||||||||
| 4.8 | 8-K | 4.2 | 04/12/2019 | 001-38295 | ||||||||||||||||||||||
| 4.9 | 8-K | 4.1 | 11/29/2019 | 001-38295 | ||||||||||||||||||||||
| 4.10 | 8-K | 4.2 | 11/29/2019 | 001-38295 | ||||||||||||||||||||||
| 4.11 | 10-K | 10.37 | 3/9/2018 | 001-38295 | ||||||||||||||||||||||
| 4.12* | ||||||||||||||||||||||||||
| 4.13 | 8-K | 4.1 | 10/16/2020 | 001-38295 | ||||||||||||||||||||||
| 4.14 | 8-K | 10.1 | 10/16/2020 | 001-38295 | ||||||||||||||||||||||
| 4.15 | S-3 | 1.2 | 8/7/2020 | 333-242372 | ||||||||||||||||||||||
10.1@ | 8-K | 10.1.1 | 3/13/2019 | 001-38295 | ||||||||||||||||||||||
10.2@ | 8-K | 10.1.2 | 4/2/2019 | 001-38295 | ||||||||||||||||||||||
10.3@ | 8-K | 10.6 | 6/17/2019 | 001-38295 | ||||||||||||||||||||||
10.4@ | S-8 | 99.1 | 6/10/2020 | 333-239082 | ||||||||||||||||||||||
10.5@ | S-1 | 10.8 | 10/20/2017 | 001-38295 | ||||||||||||||||||||||
10.6@ | S-1 | 10.9 | 10/20/2017 | 001-38295 | ||||||||||||||||||||||
10.7@ | 8-K | 10.6 | 11/27/2018 | 001-38295 | ||||||||||||||||||||||
10.8@ | 8-K | 10.5 | 6/19/2019 | 001-38295 | ||||||||||||||||||||||
| 10.9@ | S-8 | 99.6 | 6/10/2020 | 333-239082 | ||||||||||||||||||||||
10.10@ | S-1 | 10.10 | 10/20/2017 | 001-38295 | ||||||||||||||||||||||
10.11@ | 8-K | 10.1 | 6/17/2019 | 001-38295 | ||||||||||||||||||||||
| 10.12@ | 8-K | 10.2 | 6/17/2019 | 001-38295 | ||||||||||||||||||||||
| 10.13@ | 8-K | 10.3 | 6/17/2019 | 001-38295 | ||||||||||||||||||||||
| 10.14@ | 8-K | 10.4 | 6/17/2019 | 001-38295 | ||||||||||||||||||||||
| 10.15@ | S-1/A | 10.36 | 11/06/2017 | 001-38295 | ||||||||||||||||||||||
| 10.16@ | 8-K | 10.2 | 3/13/2019 | 001-38295 | ||||||||||||||||||||||
| 10.17@ | 8-K | 10.3 | 3/13/2019 | 001-38295 | ||||||||||||||||||||||
| 10.18@ | 10-K | 10.17 | 3/12/2020 | 001-38295 | ||||||||||||||||||||||
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| 10.19@ | 8-K | 10.4 | 3/13/2019 | 001-38295 | ||||||||||||||||||||||
| 10.20@ | 10-K | 10.19 | 3/12/2020 | 001-38295 | ||||||||||||||||||||||
| 10.21@ | 10-K | 10.20 | 3/12/2020 | 001-38295 | ||||||||||||||||||||||
| 10.22@ | 10-K | 10.21 | 3/12/2020 | 001-38295 | ||||||||||||||||||||||
| 10.23@ | 8-K | 10.1 | 3/20/2020 | 001-38295 | ||||||||||||||||||||||
| 10.24@ | 10-K | 10.22 | 3/12/2020 | 001-38295 | ||||||||||||||||||||||
| 10.25@ | 10-K | 10.23 | 3/12/2020 | 001-38295 | ||||||||||||||||||||||
| 10.26@* | ||||||||||||||||||||||||||
| 10.27@* | ||||||||||||||||||||||||||
| 10.28@ | 10-Q | 10.2 | 11/05/2020 | 001-38295 | ||||||||||||||||||||||
| 10.29# | 8-K | 10.5# | 3/13/2019 | 001-38295 | ||||||||||||||||||||||
| 10.30# | 8-K/A | 10.6# | 5/13/2019 | 001-38295 | ||||||||||||||||||||||
| 10.31# | 8-K/A | 10.7# | 5/13/2019 | 001-38295 | ||||||||||||||||||||||
| 10.32# | 8-K/A | 10.8# | 5/13/2019 | 001-38295 | ||||||||||||||||||||||
| 10.33* | ||||||||||||||||||||||||||
| 10.34 | 8-K | 10.9 | 3/13/2019 | 001-38295 | ||||||||||||||||||||||
| 10.35 | 8-K | 10.10 | 3/13/2019 | 001-38295 | ||||||||||||||||||||||
| 10.36 | 8-K | 10.1 | 6/28/2019 | 001-38295 | ||||||||||||||||||||||
| 10.37 | 8-K | 10.1 | 3/17/2020 | 001-38295 | ||||||||||||||||||||||
| 10.38 | 8-K | 10.1 | 12/23/2020 | 001-38295 | ||||||||||||||||||||||
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| 10.39 | 8-K | 10.11 | 3/13/2019 | 001-38295 | ||||||||||||||||||||||
| 10.40 | 10-Q | 10.3 | 11/05/2020 | 001-38295 | ||||||||||||||||||||||
| 10.41 | 10-K | 10.32 | 3/12/2020 | 001-38295 | ||||||||||||||||||||||
| 10.42 | 8-K | 10.1 | 4/11/2019 | 001-38295 | ||||||||||||||||||||||
| 10.43 | 10-K | 10.35 | 3/12/2020 | 001-38295 | ||||||||||||||||||||||
| 10.44 | 10-K | 10.36 | 3/12/2020 | 001-38295 | ||||||||||||||||||||||
| 10.45 | 10-K | 10.37 | 3/12/2020 | 001-38295 | ||||||||||||||||||||||
| 10.46 | 10-K | 10.38 | 3/12/2020 | 001-38295 | ||||||||||||||||||||||
| 10.47 | 10-K | 10.39 | 3/12/2020 | 001-38295 | ||||||||||||||||||||||
| 10.48* | ||||||||||||||||||||||||||
| 21.1* | ||||||||||||||||||||||||||
| 23.1* | ||||||||||||||||||||||||||
| 31.1* | ||||||||||||||||||||||||||
| 31.2* | ||||||||||||||||||||||||||
| 32.1** | ||||||||||||||||||||||||||
| 32.2** | ||||||||||||||||||||||||||
| 101.INS | XBRL Instance Document | |||||||||||||||||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||||||||||||||||||||||||
| 101.CAL | SXRL Taxonomy Extension Calculation Linkbase Document | |||||||||||||||||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||||||||||||||||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||||||||||||||||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL) | |||||||||||||||||||||||||
*Filed herewith
** Furnished and not filed herewith
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# Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[***]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed
@ Indicates management contract or compensatory plan
ITEM 16. FORM 10-K SUMMARY
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| X4 PHARMACEUTICALS, INC. | |||||||||||
Date: March 19, 2021 | By: | /s/ Paula Ragan | |||||||||
| Paula Ragan, Ph D. | |||||||||||
| President and Chief Executive Officer | |||||||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||||||||||||
| /s/ Paula Ragan | President, Chief Executive Officer and Director | March 19, 2021 | ||||||||||||
| Paula Ragan, Ph.D. | (Principal Executive Officer) | |||||||||||||
| /s/ Adam S. Mostafa | Chief Financial Officer and Treasurer | March 19, 2021 | ||||||||||||
| Adam S. Mostafa | (Principal Financial Officer and Principal Accounting Officer) | |||||||||||||
| /s/ Michael S. Wyzga | Chairman of the Board of Directors | March 19, 2021 | ||||||||||||
| Michael S. Wyzga | ||||||||||||||
| /s/ William Aliski | Director | March 19, 2021 | ||||||||||||
| William E. Aliski | ||||||||||||||
| /s/ Gary J. Bridger | Director | March 19, 2021 | ||||||||||||
| Gary J. Bridger, Ph.D. | ||||||||||||||
| /s/ Alison Lawton | Director | March 19, 2021 | ||||||||||||
| Alison F. Lawton | ||||||||||||||
| /s/ David McGirr | Director | March 19, 2021 | ||||||||||||
| David McGirr | ||||||||||||||
| /s/ René Russo | Director | March 19, 2021 | ||||||||||||
| René Russo, Pharm D | ||||||||||||||
| /s/ Murray W. Stewart | Director | March 19, 2021 | ||||||||||||
| Murray W. Stewart, M.D. | ||||||||||||||
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of X4 Pharmaceuticals, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of X4 Pharmaceuticals, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019 and the related consolidated statements of operations and comprehensive loss, of convertible preferred stock, redeemable common stock and stockholders’ equity (deficit) and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses and negative cash flows from operations since its inception that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
| /s/ PricewaterhouseCoopers LLP | ||
| Boston, Massachusetts | ||
| March 19, 2021 | ||
| We have served as the Company’s auditor since 2016. | ||
F-2
Table of Contents
X4 PHARMACEUTICALS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| December 31, 2020 | December 31, 2019 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Research and development incentive receivable | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Right-of-use assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Current portion of lease liability | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, including accretion, net of discount | |||||||||||
| Lease liabilities | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 9) | |||||||||||
| Stockholders’ equity: | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
| The accompanying notes are an integral part of these consolidated financial statements | |||||||||||
F-3
Table of Contents
X4 PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share amounts)
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| License revenue | $ | $ | $ | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Research and development | |||||||||||||||||
| General and administrative | |||||||||||||||||
| Loss on transfer of nonfinancial assets | |||||||||||||||||
| Total operating expenses | |||||||||||||||||
| Loss from operations | ( | ( | ( | ||||||||||||||
| Other income (expense): | |||||||||||||||||
| Interest income | |||||||||||||||||
| Interest expense | ( | ( | ( | ||||||||||||||
| Change in fair value of preferred stock warrant liability | ( | ( | |||||||||||||||
| Change in fair value of derivative liability | ( | ( | |||||||||||||||
| Loss on extinguishment of debt | ( | ( | ( | ||||||||||||||
| Other income | |||||||||||||||||
| Total other expense, net | ( | ( | ( | ||||||||||||||
| Loss before provision for income taxes | ( | ( | ( | ||||||||||||||
| Provision for income taxes | |||||||||||||||||
| Net loss | ( | ( | ( | ||||||||||||||
| Accruing dividends on Series A convertible preferred stock | ( | ( | |||||||||||||||
Adjustment to accumulated deficit in connection with repurchase of Series Seed convertible preferred stock | ( | ||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | $ | ( | $ | ( | |||||||||||
Net loss per share attributable to common stockholders—basic and diluted | $ | ( | $ | ( | $ | ( | |||||||||||
Weighted average shares of common stock outstanding—basic and diluted | |||||||||||||||||
| Net loss | $ | ( | $ | ( | ( | ||||||||||||
| Currency translation adjustments | ( | ||||||||||||||||
| Total comprehensive loss | $ | ( | $ | ( | $ | ( | |||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | |||||||||||||||||
F-4
X4 PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share amounts)
Series Seed, A and B Convertible Preferred | Redeemable Common Stock | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders' (Deficit) Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2017 | $ | $ | $ | $ | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of Series Seed convertible preferred stock, net of issuance costs of $ | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance costs of convertible preferred stock, net of issuance costs of $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2018 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of redeemable common stock into common stock | ( | ( | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible preferred shares into common stock | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exchange of common stock in connection with Merger | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value of replacement equity awards | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of warrant liability to permanent equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock and prefunded warrants for the purchase of common stock, net of issuance costs of $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares under employee stock purchase plan | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units, less shares withheld and retired to satisfy tax obligations | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | $ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The accompanying notes are a integral part of these consolidated financial statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
F-5
Table of Contents
X4 PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | |||||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||
| Depreciation and amortization expense | |||||||||||||||||
| Loss on transfer of non-financial assets | |||||||||||||||||
| Non-cash lease expense | |||||||||||||||||
| Accretion of debt discount | |||||||||||||||||
| Loss on extinguishment of debt | |||||||||||||||||
| Change in fair value of preferred stock warrant and derivative liability | |||||||||||||||||
| Other | ( | ||||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Prepaid expenses, other current assets and research & development incentive receivable | ( | ||||||||||||||||
| Accounts payable | ( | ||||||||||||||||
| Accrued expenses | |||||||||||||||||
| Lease liabilities | ( | ( | |||||||||||||||
| Operating lease right-of-use asset, net of non-cash portion | ( | ||||||||||||||||
| Net cash used in operating activities | ( | ( | ( | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Cash, cash equivalents and restricted cash acquired in connection with the Merger | |||||||||||||||||
| Proceeds from transfer of non-financial assets | |||||||||||||||||
| Purchase of property, equipment and intangible assets | ( | ( | |||||||||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Proceeds from exercise of stock options and warrants | |||||||||||||||||
| Employee taxes paid related to net share settlement of vested restricted stock units | ( | ||||||||||||||||
| Proceeds from borrowings under loan and security agreements, net of issuance costs | |||||||||||||||||
| Proceeds from issuance of Series B convertible preferred stock, net of issuance costs | |||||||||||||||||
| Repurchase of Series Seed convertible preferred stock | ( | ||||||||||||||||
| Repayments of borrowings under loan and security agreement | ( | ( | |||||||||||||||
| Proceeds from sale of common stock and warrants, net of issuance costs | ( | ||||||||||||||||
| Net cash provided by financing activities | |||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ||||||||||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | ( | ( | |||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | $ | ||||||||||||||
| Supplemental disclosure of cash flow information | |||||||||||||||||
| Cash paid for interest | $ | $ | $ | ||||||||||||||
| Supplemental disclosure of non-cash investing and financing activities: | |||||||||||||||||
| Purchase of property, equipment and intangible assets included in accounts payable | $ | $ | $ | ||||||||||||||
| Issuance costs related to sale of common stock and warrants, not yet paid | $ | $ | $ | ||||||||||||||
| Conversion of convertible preferred stock into common stock | $ | $ | $ | ||||||||||||||
| Conversion of redeemable common stock into common stock | $ | $ | $ | ||||||||||||||
| Conversion of convertible preferred stock warrants into common stock warrants | $ | $ | $ | ||||||||||||||
| Fair value of net assets acquired in the Merger in exchange for common shares, excluding cash acquired | $ | $ | $ | ||||||||||||||
| Initial fair value of derivative liability in connection with loan and security agreement | $ | $ | $ | ||||||||||||||
| Issuance of warrants in connection with Series B convertible preferred stock financing | $ | $ | $ | ||||||||||||||
| Issuance of warrants in connection with loan and security agreement | $ | $ | $ | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS AND BASIS OF PRESENTATION
X4 Pharmaceuticals, Inc., (together with its subsidiaries ,the “Company”), is a late-stage clinical biopharmaceutical company focused on the research, development and commercialization of novel therapeutics for the treatment of rare diseases. The Company’s lead product candidate, mavorixafor, is a potential first-in-class, once-daily, oral inhibitor of CXCR4 and is currently in a Phase 3 clinical trial for the treatment of WHIM syndrome, a rare, inherited, primary immunodeficiency disease caused by genetic mutations in the CXCR4 receptor gene. The Company is also conducting a 14-day, proof-of-concept Phase 1b clinical trial of mavorixafor in patients with severe congenital neutropenia (“SCN”) and a Phase 1b clinical trial of mavorixafor in combination with ibrutinib in Waldenström’s macroglobulinemia (“Waldenström’s”). The Company is headquartered in Boston, Massachusetts.
Going Concern Assessment—In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) (“ASU 2014-15”), the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. As of December 31, 2020, the Company had $78.7 million of cash and cash equivalents and an accumulated deficit of $194.2 million. As further discussed in Note 2, the Company has a covenant under its Amended and Restated Loan Agreement (the “Hercules Loan Agreement”) with Hercules Capital Inc. (“Hercules”), which will require that the Company maintain a minimum level of cash, as defined, beginning on January 1, 2022, which date is extended if the Company meets certain financial milestones related to third party funding. If the Company is in violation of this covenant, Hercules could require the repayment of all outstanding debt. Based on its current cash expenditure forecast and considering this covenant, the Company expects that its existing cash and cash equivalents will fund its operations into the first quarter of 2022.
As described in Note 16, the Company has entered into an agreement with several institutional and accredited investors to sell its common stock and pre-funded warrants for the purchase of its common stock in a private placement, which is expected to close on or about March 23, 2021, subject to the satisfaction of customary closing conditions. Aggregate gross proceeds from this private placement are expected to provide gross proceeds of approximately $55.0 million, before deducting offering expenses payable by the Company. In addition, the Company entered into an option agreement related to a non-binding letter of intent with a third party to negotiate a co-development agreement that is expected to provide the Company with up to $65.0 million in funding when and if the arrangement closes. If the co-development agreement is not executed prior to May 15, 2021, the third party has the right, at their sole option, to sell the 229,885 shares of common stock expected to be purchased in the private placement back to the Company at the original purchase price of $8.70 per share. The receipt of funds from the private placement and co-development arrangements cannot be considered probable, as defined in ASU 2014-15, until the closings occur and the funds are received. Therefore, these funds are not considered in the Company’s going concern evaluation.
As a result, the Company believes that, in the aggregate, these conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. Nevertheless, the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In order to fund its operations beyond 2021, the Company plans to raise funds through the private placement and co-development arrangement noted above. If these arrangements do not close or otherwise result in a lower level of funding than expected, the Company would seek to raise funds potentially through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations and strategic alliances. If the Company is unable to obtain future funding when needed, the Company may be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or pre-commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. There is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.
Impact of the COVID-19 Pandemic— The impact of the COVID-19 pandemic has been and, notwithstanding the recent commencement of vaccination efforts, is expected to continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. Impacts to the Company’s business have included temporary closures or postponements of activation of its clinical trial sites or facilities, disruptions or restrictions on its employees’ ability to travel, disruptions to or delays in ongoing clinical trials, including patient enrollment at a slower pace than initially projected and the diversion of healthcare resources away from the conduct of the Company’s clinical trials as a result of the ongoing COVID-19 pandemic, including the diversion of hospitals serving as the Company’s clinical trial sites and hospital staff supporting the conduct of the Company’s clinical trials.
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Table of Contents
X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Merger with Arsanis—On November 26, 2018, Arsanis, Inc., a publicly held Delaware corporation (“Arsanis”), Artemis AC Corp., a Delaware corporation and a wholly-owned subsidiary of Arsanis (“Merger Sub”), and X4 Therapeutics, Inc. (“X4”) entered into an Agreement and Plan of Merger, as amended on December 20, 2018 and March 8, 2019 (the “Merger Agreement”), pursuant to which the Merger Sub merged with and into X4, with X4 surviving the merger as a wholly-owned subsidiary of Arsanis. The transactions described in the foregoing sentence may be referred to in these consolidated financial statements as “the Merger.”
The transaction was accounted for as a reverse merger in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Under this method of accounting, X4 was deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the facts that, immediately following the Merger: (i) the Company’s stockholders own a substantial majority of the voting rights in the combined organization, (ii) the Company designated a majority of the members of the initial board of directors of the combined organization and (iii) the Company’s senior management hold all key positions in the senior management of the combined organization. Accordingly, for accounting purposes, the business combination was treated as the equivalent of X4 issuing stock to acquire the net assets of Arsanis. As a result, as of the closing date of the Merger, the net assets of Arsanis were recorded at their acquisition-date fair values in the consolidated financial statements of the Company and the reported operating results prior to the business combination are those of the Company. In addition, transaction costs incurred by the Company in connection with the business combination have been expensed as incurred.
On March 13, 2019, Arsanis, X4 and Merger Sub completed the Merger pursuant to the terms of the Merger Agreement. Pursuant to the terms of the Merger Agreement, each outstanding share of X4’s common stock and preferred stock was exchanged for 0.5702 shares of Arsanis’ common stock (the “Exchange Ratio”). In addition, all outstanding options exercisable for common stock and warrants exercisable for convertible preferred stock of X4 became options and warrants exercisable for the same number of shares of common stock of Arsanis multiplied by the Exchange Ratio. In connection with the Merger, X4 changed its name to X4 Therapeutics, Inc. Following the closing of the Merger, X4 Therapeutics, Inc. became a wholly-owned subsidiary of the Company, which changed its name to X4 Pharmaceuticals, Inc. As used herein, the words “the Company” refers to, for periods following the Merger, X4 Pharmaceuticals, Inc. (formerly Arsanis, Inc.), together with is direct and indirect subsidiaries, and for periods prior to the Merger, X4 Therapeutics, Inc. (formerly X4 Pharmaceuticals, Inc.), and its direct and indirect subsidiaries, as applicable.
Immediately following the Merger, stockholders of X4 owned approximately 64 % of the combined organization’s outstanding common stock. On March 14, 2019, the combined organization’s common stock began trading on The Nasdaq Capital Market under the ticker symbol “XFOR.”
Reverse Stock Split— On March 13, 2019, immediately following the closing of the Merger, the Company effected a 1-for-6 reverse stock split of its common stock (the “Reverse Stock Split”). Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the Reverse Stock Split. No fractional shares were issued in connection with the Reverse Stock Split. Unless otherwise noted, all references to common stock share and per share amounts have also been adjusted to reflect the exchange ratio of 0.5702 .
Principles of Consolidation— The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including X4 Pharmaceuticals (Austria) GmbH (“X4 Austria”), which is incorporated in Vienna, Austria, and X4 Therapeutics, Inc. All significant intercompany accounts and transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Concentrations of Credit Risk and Significant Suppliers— Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and research and development incentive receivables. The Company generally maintains cash balances in various operating accounts at financial institutions that management believes to be of high credit quality in amounts that may exceed federally insured limits. The Company has not experienced losses related to its cash and cash equivalents.
The Company is dependent on third-party manufacturers to supply products for research and development activities in its programs. The Company relies and expects to continue to rely on a small number of manufacturers to supply it with its requirements for the active pharmaceutical ingredients and formulated drugs related to these programs. These programs could be adversely affected by a significant interruption in these manufacturing services or in the supply of active pharmaceutical ingredients and formulated drugs.
Restricted Cash—
(in thousands) | As of December 31, 2020 | As of December 31, 2019 | |||||||||
Letter of credit security: Cambridge lease | $ | $ | |||||||||
Letter of credit security: Waltham lease | |||||||||||
Letter of credit security: Vienna Austria lease | |||||||||||
| Letter of credit security: Boston lease | |||||||||||
Corporate credit card collateral | |||||||||||
| Total restricted cash | $ | $ | |||||||||
| Restricted cash included in prepaid expenses and other current assets | $ | $ | |||||||||
| Restricted cash included in other assets | $ | $ | |||||||||
In connection with the Company’s lease agreement for its facilities in Massachusetts and Austria, the Company maintains letters of credit, which are secured by restricted cash, for the benefit of the landlord. In addition, as of December 31, 2019, the Company was required to maintain a separate cash balance of $150 thousand to collateralize corporate credit cards with a bank.
In accordance with the Company’s Amended and Restated Loan Agreement with Hercules, as most recently amended on December 21, 2020 and as further described in Note 7, effective as of the earlier of (a) certain specified events impacting the Company’s Phase III trial of mavorixafor for the treatment of WHIM syndrome and (b) January 1, 2022 (which date is extended if the Company meets certain financial milestones related to third party funding), the Company at all times thereafter must maintain cash in an account or accounts in which Hercules has a first priority security interest, in an aggregate amount greater than or equal to the greater of (i) $30.0 million or (ii) six multiplied by a metric based on prior months’ cash expenditures; provided, however, that from and after the Company’s achievement of certain performance milestones, the required level shall be reduced to the greater of (x) $20.0 million, or (y) three multiplied by the current cash expenditures metric; and provided further, that subject to
F-9
Table of Contents
X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the achievement of certain milestones, this covenant will be extinguished.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets to the sum to the total of amounts shown in the Company’s consolidated statements of cash flows as of December 31, 2020, 2019 and 2018:
| (in thousands) | December 31, 2020 | December 31, 2019 | December 31, 2018 | December 31, 2017 | |||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
| Restricted cash, current (included within prepaid expenses and other current assets) | |||||||||||||||||||||||
| Restricted cash, non-current (included within other assets) | |||||||||||||||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | $ | $ | |||||||||||||||||||
Property and Equipment— Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset, as follows:
| Estimated Useful Life | |||||
| Office furniture | |||||
| Computer equipment | |||||
| Laboratory equipment | |||||
| Leasehold improvements | Shorter of lease term or | ||||
Estimated useful lives are periodically assessed to determine if changes are appropriate. Maintenance and repairs are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated from the consolidated balance sheet and any resulting gains or losses are included in the consolidated statements of operations and comprehensive loss in the period of disposal. Costs for capital assets not yet placed into service are capitalized as construction-in-progress and depreciated once placed into service.
Right-of-Use Assets and Leases— Effective January 1, 2019, the Company adopted Accounting Standards Codification (“ASC”), Topic 842, Leases (“ASC 842”), using the modified retrospective approach through a cumulative-effect adjustment and utilizing the effective date as its date of initial application, with prior periods unchanged and presented in accordance with the guidance in Topic 840, Leases (“ASC 840”).
At the inception of an arrangement, the Company determines whether the arrangement contains a lease based on the unique facts and circumstances present. Leases with a non-cancellable term greater than one year are recognized on the balance sheet as right-of-use assets with associated current and non-current lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. Options to renew a lease are not included in the Company’s initial lease term assessment unless there is reasonable certainty that the Company will renew the lease. If a lease is cancellable without penalty, the Company excludes from the lease term periods following the cancellation notice period unless it is reasonably certain that the Company will not cancel the lease.
Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use operating asset may be required for items such as incentives received or accrued rent. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates it incurs to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company has referenced the effective rate of its Hercules borrowings, as adjusted for differences terms, to determine calculate its incremental borrowing rate for each of its operating leases.
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X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Goodwill— Business combinations are accounted for under the acquisition method. The total purchase price of an acquisition is allocated to the underlying identifiable net assets, based on their respective estimated fair values as of the acquisition date. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, probabilities of success, discount rates, and asset lives, among other items. Assets acquired and liabilities assumed are recorded at their estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.
Goodwill is tested quantitatively for impairment at the reporting unit level annually in the fourth quarter, or more frequently when events or changes in circumstances indicate that the asset might be impaired. Examples of such events or circumstances include, but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated competition.
The Company has determined that it operates in a single operating segment and has a single reporting unit. To perform its quantitative test, the Company compares the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of its net assets, goodwill is not impaired, and no further testing is required. If the fair value of the reporting unit is less than the carrying value, the Company measures the amount of impairment loss, if any, as the excess of the carrying value over the fair value of the reporting unit. The Company determined that goodwill was not impaired as of December 31, 2020 based on its quantitative test.
Intangible Assets— In connection with the Merger, the Company acquired certain in-process research and development (“IPR&D”) assets, which were classified as indefinite-lived intangible assets. Acquired IPR&D represents the fair value assigned to research and development assets that the Company acquires and have not been completed at the acquisition date. The fair value of IPR&D acquired in a business combination is recorded on the Company’s consolidated balance sheets at the acquisition-date fair value and is determined by estimating the costs to develop the technology into commercially viable products, estimating the resulting revenue from the projects, and discounting the projected net cash flows to present value. IPR&D is not amortized, but rather is reviewed for impairment on an annual basis or more frequently if indicators of impairment are present, until the project is completed, abandoned or transferred to a third party.
The projected discounted cash flow models used to estimate the Company’s IPR&D reflect significant assumptions regarding the estimates a market participant would make in order to evaluate a drug development asset, including the following:
•Probability of successfully completing clinical trials and obtaining regulatory approval;
•Market size, market growth projections, and market share;
•Estimates of future cash flows from potential milestone payments and royalties related to out-licensed product sales; and
•A discount rate reflecting the Company's weighted average cost of capital and specific risk inherent in the underlying assets.
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X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements— Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
•Level 1—Quoted prices in active markets for identical assets or liabilities.
•Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
•Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
Revenue Recognition— Effective January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), as amended, using the modified retrospective transition method. The modified retrospective method requires that the cumulative effect of initially applying ASC 606 be recognized as an adjustment to the opening balance of retained earnings or accumulated deficit of the annual period that includes the date of initial application. The Company had no arrangements that were in the scope of ASC 606 on January 1, 2018 and thus there was no impact to the consolidated financial statements as a result of the adoption. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as collaboration arrangements and leases.
The Company’s revenues are generated primarily through research, development and commercialization agreements. The terms of these agreements may contain multiple promised goods and services, which may include (i) licenses, or options to obtain licenses, to the Company’s technology, and (ii) in certain cases, services in connection with the manufacturing of preclinical and clinical materials. Payments to the Company under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; milestone payments; payments for clinical and commercial product supply, and royalties on future product sales. To date, the Company’s license agreement with Abbisko Therapeutics Co., Ltd. (“Abbisko”) represents its only revenue-generating agreement.
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Table of Contents
X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company analyzes its arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and are therefore within the scope of ASC Topic 808, Collaborative Arrangements (“ASC 808”). This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements that are deemed to be within the scope of ASC 808, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and, therefore, within the scope of ASC 606. The Company’s policy is generally to recognize amounts received from collaborators in connection with joint operating activities that are within the scope of ASC 808 as a reduction in research and development expense. To date, there have been no transactions within the scope of ASC 808.
Under ASC 606, the Company recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration which the Company determines it expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligation(s) in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligation(s) in the contract; and (5) recognize revenue when (or as) the Company satisfies its performance obligation(s).
As part of the accounting for these arrangements, the Company must make significant judgments, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and; allocating the transaction price to each performance obligation.
Once a contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within the contract and determines those that are performance obligations. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations.
The Company assesses whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that:
i.the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (that is, the good or service is capable of being distinct) and
ii.the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (that is, the promise to transfer the good or service is distinct within the context of the contract).
In assessing whether a promised good or service is distinct, the Company considers factors such as the research, manufacturing and commercialization capabilities of the customer and the availability of the associated expertise in the general marketplace. The Company also considers the intended benefit of the contract in assessing whether a promised good or service is separately identifiable from other promises in the contract. If a promised good or service is not distinct, an entity is required to combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct.
The transaction price is then determined and allocated to the identified performance obligations in proportion to their standalone selling prices (“SSP”) on a relative SSP basis. SSP is determined at contract inception and is not updated to reflect changes between contract inception and when the performance obligations are satisfied. Determining the SSP for performance obligations requires significant judgment. In developing the SSP for a performance obligation, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. The Company validates the SSP for performance obligations by evaluating whether changes in the key assumptions used to determine the SSP will have a significant effect on the allocation of arrangement consideration between multiple performance obligations.
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Table of Contents
X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If the consideration promised in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the promised goods or services to a customer. The Company determines the amount of variable consideration by using either the expected value method or the most-likely-amount method. The Company includes the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price reflects the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.
In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if the timing of payments provides the Company with a significant benefit of financing. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less. The Company assesses each of its revenue generating arrangements in order to determine whether a significant financing component exists and concluded that a significant financing component does not exist in any of its arrangements.
The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time based on the use of an output or input method.
At the inception of each arrangement that includes non-refundable payments for contingent milestones, including preclinical research and development, clinical development and regulatory, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most-likely-amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each reporting period, the Company re-evaluates the probability of the achievement of contingent milestones and the likelihood of a significant reversal of such milestone revenue, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect licensing revenue in the period of adjustment. This quarterly assessment may result in the recognition of revenue related to a contingent milestone payment before the milestone event has been achieved.
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X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation— The Company measures all stock-based awards granted to employees, nonemployees and directors based on the fair value on the date of the grant and recognizes compensation expense for those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. The Company issues stock-based awards with service-based vesting conditions and records the expense for these awards using the straight-line method. The Company has also issued stock-based awards with performance-based vesting conditions that vest in part upon the Company’s achievement of operational milestones and over time thereafter for the subsequent two years as the employee continues to provide services. The Company assesses the probability of achievement of these operational milestones and recognizes stock-based compensation for these awards using the accelerated attribution model based on the fair value of the awards as of the date of grant and its best estimate of the date each operational milestone will be achieved.
The Company classifies stock-based compensation expense in its consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
The Company recognizes compensation expense for only the portion of awards that are expected to vest. In developing a forfeiture rate estimate, the Company has considered its historical experience to estimate pre-vesting forfeitures for service-based awards. The impact of a forfeiture rate adjustment is recognized in full in the period of adjustment, and if the actual forfeiture rate is materially different from the Company’s estimate, the Company may be required to record adjustments to stock-based compensation expense in future periods.
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Prior to March 13, 2019, the Company had been a private company and lacked company-specific historical and implied volatility information for its common stock. Therefore, the Company estimates its expected common stock price volatility based on the historical volatility of publicly traded peer companies and expects to continue to do so until it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to non-employee consultants is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield considers the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future.
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X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes— The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.
The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.
Net Loss per Share— For periods prior to the Merger with Arsanis on March 13, 2019, the Company followed the two-class method when computing net loss per share as the Company had issued shares that met the definition of participating securities. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.
Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Basic shares outstanding includes the weighted average effect of the Company’s outstanding prefunded warrants, the exercise of which requires little or no consideration for the delivery of shares of common stock. Diluted net loss attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period, including potential dilutive shares of common stock. For purpose of this calculation, outstanding stock options, convertible preferred stock and warrants to purchase shares of convertible preferred stock or common stock are considered potential dilutive shares of common stock.
The Company’s convertible preferred stock contractually entitled the holders of such shares to participate in dividends but did not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders, such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive shares of common stock are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholders for the years ended December 31, 2020, 2019 and 2018.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), as amended. ASU 2016-13 requires that financial assets measured at amortized cost, such as trade receivables, be presented net of expected credit losses, which may be estimated based on relevant information such as historical experience, current conditions, and future expectation for each pool of similar financial asset. The new guidance requires enhanced disclosures related to trade receivables and associated credit losses. In accordance with ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivative and Hedging (Topic 815), and Leases (Topic 842)- Effective Dates, as the Company meets the definition of a “smaller reporting company”, the Company has elected to defer the adoption of ASU 2016-13 until January 1, 2023. The Company expects that the adoption of ASU 2016-13 may accelerate the timing and could increase the level of credit loss expense in the consolidated statement of operations and will likely require an increased level of disclosure in the notes to the consolidated financial statements.
3. LICENSE, COLLABORATION AND FUNDING ARRANGEMENTS
Genzyme Agreement
In July 2014, the Company entered into a license agreement with Genzyme (the “Genzyme Agreement”) pursuant to which the Company was granted an exclusive license to certain patents and intellectual property owned or controlled by Genzyme related to the CXCR4 receptor to develop and commercialize products containing licensed compounds (including but not limited to mavorixafor) for all therapeutic, prophylactic and diagnostic uses, with the exception of autologous and allogenic human stem cell therapy. Under the terms of the Genzyme Agreement, the Company is obligated to use commercially reasonable efforts to develop and commercialize licensed products for use in the field in the United States and at least one other major market country. The Company has the right to grant sublicenses of the licensed rights that cover mavorixafor to third parties.
Under the Genzyme Agreement, the Company is obligated to pay Genzyme milestone payments in the aggregate amount of up to $25.0 million, contingent upon the achievement by the Company of certain clinical-stage regulatory and sales milestones with respect to licensed products. The Company is also obligated to pay Genzyme tiered royalties based on net sales of licensed products that the Company commercializes under the agreement. The obligation to pay royalties for each licensed product expires on a country-by-country basis on the latest of (i) the expiration of licensed patent rights that cover that licensed product in that country, (ii) the expiration of regulatory exclusivity in that country and (iii) ten years after the first commercial sale of such licensed product in that country. Royalty rates are subject to reduction under the agreement in specified circumstances, including in any country if the Company is required to obtain a license from any third party to the extent the Company’s patent rights might infringe the third party’s patent rights, if a licensed product is not covered by a valid claim in that country or if sales of generic products reach certain thresholds in that country. If the Company enters into a sublicense under the Genzyme Agreement, the Company will be obligated to pay Genzyme a percentage of certain upfront fees, maintenance fees, milestone payments and royalty payments paid to the Company by the sublicensee. Under the Genzyme Agreement, the Company will itself manufacture and supply, or enter into manufacturing or supply agreements with Genzyme or third parties to manufacture and supply, clinical and commercial supplies of licensed compounds and each licensed product. The Company is also responsible for all costs related to the filing, prosecution and maintenance of the licensed patent rights.
The Genzyme Agreement will remain in effect until the expiration of the royalty term in all countries for all licensed products. The Genzyme Agreement may be terminated by either party with at least 90 days’ notice in the event of material breach by the other party that remains uncured for 90 days, by either party for insolvency or bankruptcy of the other party, immediately by Genzyme if the Company challenges the licensed patents, or immediately by the Company if a material safety issue arises.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the twelve months ended December 31, 2020, the Company incurred $0.9 million of payment obligations to Genzyme and for the twelve months ended December 31, 2019 and 2018 did no
Georgetown Agreement
In December 2016, the Company entered into a license agreement (the “Georgetown Agreement”) with Georgetown University (“Georgetown”) pursuant to which the Company obtained an exclusive, worldwide license to make, have made, use, sell, offer for sale and import of products covered by patent rights co-owned by Georgetown. The rights licensed to the Company are for all therapeutic, prophylactic and diagnostic uses in all disease indications in humans and animals.
Under the terms of the Georgetown Agreement, the Company paid a one-time only, upfront fee of $50 thousand and the Company may be required to make milestone payments of up to an aggregate of $800 thousand related to commercial sales of a product. The Company recorded the upfront payment as research and development expense in the consolidated statement of operations and comprehensive loss because the acquired technology represented in-process research and development and had no alternative future use. Under the Georgetown Agreement, the Company is solely responsible for all development and commercialization activities and costs in its respective territories. The Company is also responsible for all costs related to the filing, prosecution and maintenance of the licensed patent rights. The term of the Georgetown Agreement will continue until the expiration of the last valid claim within the patent rights covering the product. Georgetown may terminate the agreement in the event (i) the Company fails to pay any amount and fails to cure such failure within 30 days after receipt of notice, (ii) the Company defaults in its obligation to obtain and maintain insurance and fails to remedy such breach within 45 days after receipt of notice, or (iii) the Company declares insolvency or bankruptcy. The Company may terminate the Georgetown Agreement at any time upon at least 60 days’ written notice. During the twelve months ended December 31, 2020, 2019 and 2018, the Company did no no
Beth Israel Deaconess Medical Center Agreement
In December 2016, the Company entered into a license agreement (the “BIDMC Agreement”) with Beth Israel Deaconess Medical Center (“BIDMC”), pursuant to which the Company obtained an exclusive, worldwide license to make, have made, use, sell, offer for sale and import products covered by patent rights co-owned by BIDMC. The rights licensed to the Company are for all fields of use. Under the terms of the BIDMC Agreement, the Company paid a one-time, upfront fee of $20 thousand and the Company is responsible for all future patent prosecution costs. The Company recorded the upfront payment as research and development expense in the consolidated statement of operations because the acquired technology represented in-process research and development and had no alternative future use. The term of the BIDMC Agreement will continue until the expiration of the last valid claim within the patent rights covering the licensed products. BIDMC may terminate the agreement in the event (i) the Company fails to pay any amount and fails to cure such failure within 15 days after receipt of notice, (ii) the Company is in material breach of any material provision of the BIDMC Agreement and fails to remedy such breach within 60 days after receipt of notice, or (iii) the Company declares insolvency or bankruptcy. The Company may terminate the BIDMC Agreement at any time upon at least 90 days’ written notice. The Company did no
Dana Farber Cancer Institute Agreement
In November 2020, the Company entered into a license agreement (the “DFCI Agreement”) with the Dana Farber Cancer Institute (“DFCI”) pursuant to which the Company obtained a non-exclusive, royalty-bearing license to use, make, have made, develop, market, import, distribute, sell and have sold products covered by patent rights owned by DFCI. Under the terms of the DFCI Agreement, the Company paid a one-time, upfront fee of $25 thousand and approximately $35 thousand for reimbursement of DFCI’s past patent expenses relating to the patent rights. The Company will pay 25 % of DFCI’s ongoing patent prosecution expenses and an annual license maintenance fee of $10 thousand in each of the first three years, $40 thousand in each of the subsequent three years and $50 thousand every year after that until commercialization. The Company may be required to make milestone payments of up to an aggregate of approximately $32.0 million related to development, regulatory and commercial sales events. The Company recorded the upfront payment as research and development expense in the consolidated statement of operations and comprehensive loss because the acquired technology represented in-process research and development and had no alternative future use. The term of the DCFI Agreement will continue until the expiration of the last valid claim within the patent rights covering the product. DFCI may terminate the agreement if certain events occur.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Research and Development Incentive Program
The Company's wholly-owned subsidiary X4 Austria participates in a research and development incentive program provided by the Austrian government whereby the Company is entitled to reimbursement by the Austrian government for a percentage of qualifying research and development expenses incurred by X4 Austria. Under the program, the reimbursement rate for qualifying research and development expenses incurred by the Company through X4 Austria is 14 % for the current year. X4 Austria also participated in a COVID-19 incentive program, which provides reimbursement for qualified capital spending during a defined time period.
The Company recognizes incentive income from Austrian research and development incentives when qualifying expenses have been incurred, there is reasonable assurance that the payment will be received, and the consideration can be reliably measured. Management has assessed the Company’s research and development activities and expenditures to determine which activities and expenditures are likely to be eligible under the research and development incentive program described above. At each reporting date, management estimates the reimbursable incentive income available to the Company based on available information at the time.
As of December 31, 2020, the amount due under these programs was $0.9 million, which is included in research and development incentive receivable on the consolidated balance sheet. During the year ended December 31, 2020, the Company recorded $494.0 thousand of income related to the program on the consolidated statement of operations and comprehensive loss within “other income”.
Abbisko Agreement
In July 2019, the Company entered into a license agreement with Abbisko (the “Abbisko Agreement”). Under the terms of the Abbisko Agreement, the Company granted Abbisko the exclusive right to develop, manufacture and commercialize mavorixafor in mainland China, Taiwan, Hong Kong and Macau, the (“Abbisko Territory”). The agreement provides Abbisko with the exclusive rights in the Abbisko Territory to develop and commercialize mavorixafor in combination with checkpoint inhibitors or other agents in multiple oncology indications. The Company retains the full rest-of-world rights to develop and commercialize mavorixafor outside of Greater China for all indications and the ability to utilize data generated pursuant to the Abbisko collaboration for rest-of-world development. Assuming mavorixafor is developed by Abbisko in six indications, the Company would be entitled to milestone payments of up to $208.0 million, which will vary based on the ultimate sales, if any, of the approved licensed products. In addition, upon commercialization of mavorixafor in the Abbisko Territory, the Company is eligible to receive a tiered royalty, with a percentage range in the low double-digits, on net sales of approved licensed products. Abbisko is obligated to use commercially reasonable efforts to develop and commercialize mavorixafor in the Abbisko Territory. Abbisko has responsibility for all activities and costs associated with the further development, manufacture and commercialization of mavorixafor in the Abbisko Territory.
Following the closing of a qualified financing (as such term is defined in the Abbisko Agreement), Abbisko was required to pay
the Company a one-time, non-refundable, non-creditable financial milestone payment of $3.0 million. Abbisko achieved such qualified financing in March 2020 and, as a result, the Company was eligible to receive the milestone payment, which was
received by the Company in April 2020. The Company is also eligible to receive potential development and regulatory
milestone payments, which vary based on the number of indications developed, and potential commercial milestone payments
based on annual net sales of mavorixafor-based licensed products.
Upon entering into the Abbisko Agreement, the Company evaluated the Abbisko Agreement under ASC 606 and determined the Abbisko Agreement contained a single performance obligation related to the exclusive license to develop and commercialize mavorixafor and the transfer of know-how that was satisfied at the inception of the arrangement. The transaction price related to the transfer of the license and know-how was fully constrained and the Company ascribed no transaction price to the development, regulatory and commercial milestones under the “most-likely amount” method. The Company concluded that any consideration related to the initial transfer of the license and know-how will be recognized when it is probable that Abbisko will achieve the related financial milestone and other operational milestones. Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the license granted to Abbisko and therefore are recognized at the later of when the performance obligation is satisfied or the related sales occur. As a result of Abbisko’s achievement of the qualified financing, the Company reversed the constraint related to this milestone and recognized $3.0 million of license revenue during the year ended December 31, 2020.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company determined that the future sale of clinical and commercial supply are optional goods that will be subject to the customer's future purchasing decisions and do not represent performance obligations in the Abbisko Agreement. The Company concluded that the amount to be charged for the clinical supply will be reflective of market value and, therefore, the Abbisko Agreement does not provide a discount on such supply that would be accounted for as material right at the outset of the contract. In arriving at these conclusions, the Company considered the complexity of the manufacturing process for the licensed compound and the potential ability for Abbisko to obtain the compound directly from other manufactures in the future. The Company expects that it will recognize revenue at a point in time when such clinical supply (and commercial supply, if applicable) is delivered to Abbisko in the future.
The Company re-evaluates the transaction price, including its estimated variable consideration for milestones included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
4. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values:
| Fair Value Measurements as of December 31, 2020 Using: | |||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents—money market funds | $ | $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Embedded derivative liability | $ | $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Fair Value Measurements as of December 31, 2019 Using: | |||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents—money market fund | $ | $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Embedded derivative liability | $ | $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
The Company’s cash equivalents consisted of money market funds invested in U.S. Treasury securities. The money market funds were valued based on reported market pricing for the identical asset or by using inputs observable in active markets for similar securities, which represents a Level 2 measurement in the fair value hierarchy.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| (in thousands) | Preferred Stock Warrant Liability | Embedded Derivative Liability | |||||||||
| Balance as of December 31, 2018 | $ | $ | |||||||||
| Change in fair value | ( | ||||||||||
Conversion of convertible preferred stock warrant into common stock warrant in connection with Merger | ( | ||||||||||
| Balance as of December 31, 2019 | |||||||||||
| Change in fair value | |||||||||||
| Balance at December 31, 2020 | $ | $ | |||||||||
Valuation of Preferred Stock Warrant Liabilities— The preferred stock warrant liability in the table above consists of the fair values of warrants to purchase shares of convertible preferred stock that were issued prior to the Merger in March 2019 that was recorded at fair value on the dates the warrants were issued and exercisable and was subsequently remeasured to fair value at each reporting date through the closing of the Merger on March 13, 2019, at which point all preferred stock warrants were converted to warrants for Company’s common stock. As a result, the warrants were adjusted to fair value and reclassified to permanent equity. The aggregate fair value of the warrant liability was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.
Valuation of Embedded Derivative Liabilities— Derivative liabilities consist of:
(1) The fair value of an embedded derivative in the Genzyme Agreement, which was initially recognized in 2015 in connection with the signing of the Genzyme Agreement, was determined based on significant inputs not observable in the market representing a Level 3 measurement within the fair value hierarchy. The fair value of this liability was estimated at each reporting date based, in part, on the results of third-party valuations, which were prepared using the option-pricing method or the hybrid method, each of which considered as inputs the type, timing and probability of occurrence of a change of control event, the potential amount of the payment under potential exit scenarios, the fair value per share of the underlying common stock and the risk-adjusted discount rate. As of December 31, 2018, the fair value of this derivative liability was $183.0 thousand. The Merger qualified as a change of control event, as defined in the Genzyme Agreement, but resulted in no payment being due to Genzyme under the Genzyme Agreement. As a result, on March 13, 2019, the closing date of the Merger with Arsanis, this derivative liability was remeasured to fair value, which was zero , and subsequent changes in fair value are no longer recognized in the consolidated statements of operations and comprehensive loss because the contingent payment obligation to Genzyme expired at that time.
(2) The fair value of the embedded derivative liability recognized in connection with the Company’s loan agreement with Hercules (see Note 7), which is associated with additional fees due to Hercules upon events of default, was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of this embedded derivative liability, which is reported within other non-current liabilities on the consolidated balance sheets, is estimated by the Company at each reporting date based, in part, on the results of third-party valuations, which were prepared based on a discounted cash flow model that considered the timing and probability of occurrence of a redemption upon an event of default, the potential amount of prepayment fees or contingent interest upon an event of default and the Company’s risk-adjusted discount rate of 14%. As of December 31, 2020 and December 31, 2019, the fair value of this derivative liability was $455.0 thousand and $18.0 thousand, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PROPERTY AND EQUIPMENT
Property and equipment, net consisted of the following:
| (in thousands) | December 31, 2020 | December 31, 2019 | |||||||||
| Leasehold improvements | $ | $ | |||||||||
| Furniture and fixtures | |||||||||||
| Computer equipment | |||||||||||
| Software | |||||||||||
| Lab equipment | |||||||||||
| Less: Accumulated depreciation and amortization | ( | ( | |||||||||
| $ | $ | ||||||||||
6. ACCRUED EXPENSES
Accrued expenses consisted of the following
| (in thousands) | December 31, 2020 | December 31, 2019 | |||||||||
| Accrued employee compensation and benefits | $ | $ | |||||||||
| Accrued external research and development expenses | |||||||||||
| Accrued professional fees | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
7. LONG-TERM DEBT
Long-term debt consisted of the following:
| (in thousands) | December 31, 2020 | December 31, 2019 | |||||||||
| Principal amount of long-term debt | $ | $ | |||||||||
| Debt premium (discount), net of accretion | ( | ||||||||||
| Cumulative accrual of end of term payments | |||||||||||
| Long-term debt, including discount and accrued end of term payments | $ | $ | |||||||||
SVB Loan Agreement— In October 2016, the Company entered into a loan and security agreement with Silicon Valley Bank ( the “SVB Loan Agreement”), which was terminated in October 2018 in connection with the Company entering into the Hercules Loan Agreement as defined below. The Company accounted for the termination of the SVB Loan Agreement as an extinguishment and recognized a loss of $229 thousand, which was calculated as the difference between the reacquisition price of the borrowings under the SVB Loan Agreement and the carrying value of the debt at the time of the extinguishment. The Company recognized aggregate interest expense under the SVB Loan Agreement of $484 thousand for the year ended December 31, 2018, reflecting an effective interest rate of approximately 11.8 %.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FFG Loan Agreements— Between September 2011 and March 2017, X4 Austria (formerly Arsanis GmbH) entered into a series of funding agreements with FFG, a quasi-government agency in Austria, that provided for loans and grants to fund qualifying research and development expenditures of X4 Austria on a project-by-project basis. During 2019, following its Merger with Arsanis, the Company recognized interest expense under the FFG agreement of $316 thousand. In September 2019, the Company repaid all amounts due under the FFG loans and recognized a loss on extinguishment of debt of $566 thousand, which was calculated as the difference between the reacquisition price of the borrowings under the FFG Loan Agreement and the carrying value of the debt at the time of the extinguishment.
Hercules Loan Agreements
Hercules Loan Agreement
In October 2018, the Company entered into a loan agreement with Hercules the (“Hercules Loan Agreement”), which consisted of a term loan of up to $8.0 million and other available borrowings as well as warrants for the purchase of the Company’s series B convertible preferred stock. In December 2018, the Company borrowed an additional $2.0 million under the Hercules Loan Agreement, as amended by the first amendment. The Company recorded the aggregate initial fair value of the warrants of $132 thousand as a preferred stock warrant liability, with a corresponding amount recorded as a debt discount on the Company’s consolidated balance sheet. As of December 31, 2018, the fair value of the warrants were $282 thousand, and upon the closing of the Merger on March 13, 2019, the warrants were converted to warrants for common stock and are no longer adjusted to fair value. The Hercules Loan Agreement includes end-of-term payments of $795 thousand due upon maturity of the related tranches (currently January 2022), or upon prepayment of the loan.
Amended and Restated Loan Agreement
In June 2019, the Company refinanced the Hercules Loan Agreement, as amended, and entered into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”) with Hercules. The Amended and Restated Loan Agreement provided for aggregate maximum borrowings of $35.0 million, including $10.0 million of amounts previously outstanding, $10.0 million in new borrowings, an additional $5.0 million in available for borrowings and, subject to approval by Hercules. Borrowings under the Amended and Restated Loan Agreement bear interest at a variable rate equal to the greater of (i) 8.75 % or (ii) 8.75 % plus The Wall Street Journal prime rate minus 6.0 %. In an event of default, as defined in the Amended and Restated Loan Agreement, and until such event is no longer continuing, the interest rate applicable to borrowings under the Amended and Restated Loan Agreement would be increased by 4.0 %.
First Amended Loan Agreement
On March 13, 2020, the Company entered into a First Amendment to the Amended and Restated Loan Agreement dated June 27, 2019 (collectively, the “First Amended Loan Agreement”) with Hercules, which provides for aggregate maximum borrowings of up to $50.0 million. The First Amended Loan Agreement provides for (i) a term loan of $25.0 million, including the $20.0 million previously outstanding under the Amended and Restated Loan Agreement and an additional $5.0 million drawn at the closing of the First Amended Loan Agreement on March 13, 2020, (ii) subject to the achievement of certain performance milestones and other conditions, a right of the Company to request that Hercules make additional term loan advances in an aggregate amount of up to $7.5 million through June 30, 2021, (iii) subject to the achievement of certain performance milestones and conditions, a right of the Company to request that Hercules make additional term loan advances in an aggregate amount of up to $7.5 million through June 30, 2022 and (iv) subject to Hercules investment committee’s sole discretion, a right of the Company to request that Hercules make additional term loan advances in an aggregate amount of up to $10.0 million through December 31, 2022.
Second Amended Loan Agreement
On December 21, 2020, the Company entered into the Second Amendment to the Amended and Restated Loan Agreement dated June 27, 2019, as amended on March 13, 2020 (collectively the “Second Amended Loan Agreement”). The Second Amended Loan Agreement provides for (i) a term loan of $25.0 million, which amount was borrowed prior to December 21, 2020, (ii) an additional term loan advance of $7.5 million, which amount was borrowed on December 21, 2020, (iii) subject to the achievement of certain performance milestones and conditions, a right of the Company to request that Hercules make additional term loan advances in an aggregate amount of up to $7.5 million through June 30, 2022 and (iv) subject to Hercules’ investment committee’s sole discretion, a right of the Company to request additional term loan advances in an aggregate amount of up to $10.0 million through December 31, 2022. Additionally, the Second Amended Loan Agreement (i) extended the expiration of the period in which interest-only payments on borrowings are required from January 1, 2022 to January 1, 2023, (ii) extended the final maturity date on borrowings from July 1, 2023 to July 1, 2024 and (iii) provided for an additional end-of-term charge as noted below.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Further, the Second Amendment modified the effective date of the minimum cash covenant applicable to the Company. Pursuant to the Second Amended Loan Agreement, effective as of the earlier of (a) certain specified events impacting the Company’s Phase III trial of mavorixafor for the treatment of WHIM syndrome and (b) January 1, 2022 (which date is extended if the Company meets certain financial milestones related to third party funding), the Company at all times thereafter must maintain cash in an account or accounts in which Hercules has a first priority security interest, in an aggregate amount greater than or equal to the greater of (i) $30.0 million or (ii) six multiplied by a metric based on prior months’ cash expenditures; provided, however, that from and after the Company’s achievement of certain performance milestones, the required level shall be reduced to the greater of (x) $20.0 million, or (y) three multiplied by the current cash expenditures metric; and provided further, that subject to the achievement of certain milestones, this covenant will be extinguished.
Borrowings under the Second Amended Loan Agreement are repayable in monthly interest-only payments through January 1, 2023, and in equal monthly payments of principal and accrued interest from February 1, 2023 until the maturity date of the loan, which is July 1, 2024. At the Company’s option, the Company may prepay all, but not less than all, of the outstanding borrowings, subject to a prepayment premium of up to 2.0 % of the principal amount outstanding as of the date of repayment. In addition, the Second Amended Loan Agreement provides for aggregate end-of-term charges of $2.9 million by the Company to Hercules in the amounts of $0.8 million, $1.3 million and $0.8 million on January 1, 2022, July 1, 2023 and July 1, 2024, respectively, which payments are accelerated upon the prepayment of the borrowings upon the Company’s election on upon default of the loan.
Borrowings under the Second Amended Loan Agreement are collateralized by substantially all of the Company’s personal property and other assets except for the Company’s intellectual property (but including rights to payment and proceeds from the sale, licensing or disposition of the intellectual property). Under the Second Amended Loan Agreement, the Company has agreed to affirmative and negative covenants to which it will remain subject until maturity or repayment of the loan in full. The covenants include (a) maintaining a minimum cash amount as noted above and (b) restrictions on the Company’s ability to incur additional indebtedness, pay dividends, encumber its intellectual property, or engage in certain fundamental business transactions, such as mergers or acquisitions of other businesses.
The Company recognized aggregate interest expense under its loan agreements with Hercules of $2.7 million, $1.8 million and $0.2 million during the years ended December 31, 2020, 2019, and 2018, respectively. Interest expense includes $0.5 million, $0.4 million and $0.1 million of non-cash interest expense related to the accretion of the debt discount and end-of-term payment for the years ended December 31, 2020, 2019 and 2018, respectively. The annual effective interest rate on the Second Amended Loan Agreement is 10.7 %. There have been no principal payments due or paid to date under the Second Amended Loan Agreement.
As of December 31, 2020, future principal payments and the final payment due under the Second Amended Loan Agreement were as follows (in thousands):
| Year Ending December 31 | Total | ||||
| 2021 | $ | ||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| Long-term debt | $ | ||||
8. LEASES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
agreements.
Cambridge Lease— In August 2017, the Company entered into a non-cancellable operating lease agreement for office space of approximately 13,000 square feet in Cambridge, Massachusetts (“Cambridge Lease”), which had an original expiration date of July 31, 2022. Base rent was approximately $832 thousand annually and the monthly rent expense was recognized on a straight-line basis over the term of the lease as the Company amortizes the associated operating lease right-of-use asset. The Company reached an agreement with the landlord on July 17, 2020 to terminate the lease effective September 30, 2020 in exchange for a fee. The Company accounted for the lease modification prospectively from the date of the termination through the new lease termination date of September 30, 2020, at which time the right-of-use asset and associated lease liabilities were retired from the consolidated balance sheet. The Company was required to maintain a letter of credit of $264 thousand, secured by restricted cash, for the benefit of the landlord through December 31, 2020.
Waltham Lease— The Company leases approximately 6,000 square feet of office space in Waltham, Massachusetts (“Waltham Lease”). The Waltham Lease, as amended, commenced on January 1, 2019, and expires approximately 5 years from the commencement date. The base rent is approximately $263 thousand annually. In addition to the base rent, the Company is also responsible for its share of operating expenses, electricity and real estate taxes, which costs are not included in the determination of the leases’ right-of-use assets or lease liabilities. The Company is subleasing the space to a third party for the duration of the lease. The right-of-use asset is being amortized to rent expense over the 5 year term of the lease.
Vienna Austria Leases— The Company has an operating lease, as amended, for approximately 400 square meters of laboratory and office space in Vienna, Austria, (the “2019 Vienna Lease”) which commenced on March 1, 2019 for a term of 2 years. The lease expired on February 28, 2021. The annual base rent was approximately $154 thousand. The Company classified this lease as a short-term lease as it was not reasonably certain that the Company would not terminate the lease within one year and, accordingly, the lease was not reflected as a right-of-use asset. In September 2020, X4 Austria entered into a new operating lease for approximately 1,200 square meters of laboratory and office space in Vienna, Austria (“Vienna Lease”), which commenced in February 2021 for a term of 7 years, replacing the 2019 Vienna Lease. The Company contributed approximately $675 thousand to building improvements in connection with the Vienna Lease. The annual base rent for the Vienna Lease, following a 6 -month rent free period, will be approximately $300 thousand. The Company will record a right-of-use asset and associated lease liabilities upon the commencement of the Vienna Lease in the first quarter of 2021.
Boston Lease— On November 11, 2019, the Company entered into a lease agreement for approximately 28,000 square feet of office space that was subsequently constructed in a building located in Boston, Massachusetts (the “Boston Lease”). The office space is the Company’s current headquarters, replacing the Cambridge Lease. Monthly rent payments under the Boston Lease commenced in May 2020. Base rental payments will be approximately $1.0 million annually, plus certain operating expenses. The term of the lease will continue until November 2026, unless earlier terminated in accordance with the terms of the lease. The Company has the right to sublease the premises, subject to landlord consent. The Company also has the right to renew the lease for an additional five years at the then prevailing effective market rental rate. The Company is required to maintain a $1.1 million security deposit in the form of a letter of credit, which is classified as restricted cash, for the benefit of the landlord.
For the Boston lease, the Company participated in the construction of the office space and incurred construction costs to prepare the office space for its use, which have been partially reimbursed by the landlord. The Company has concluded that these construction costs generate and enhance the landlord’s assets, and, as such, unreimbursed construction costs incurred to prepare the office space for its use have been classified a part of the right-of-use asset. The commencement date for the Boston Lease was September 1, 2020 upon substantial completion of the landlord's asset. On the commencement date, the Company recognized a lease liability of $4.6 million reflecting the future rent payments for the term of the Boston Lease discounted at the Company’s collateralized borrowing rate, and a right-of-use asset of $8.0 million measured as the lease liability plus rent payments made and unreimbursed construction costs incurred prior to the commencement date. The Company began recognizing rent expense following the commencement date.
As the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments. The Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
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X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| For the Year Ended December 31, | ||||||||||||||
| Lease Cost | 2020 | 2019 | ||||||||||||
| Fixed operating lease cost | $ | $ | ||||||||||||
| Short-term lease costs | ||||||||||||||
| Total lease expense | $ | $ | ||||||||||||
| Other information | ||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||
| Operating cash flows from operating leases | $ | $ | ||||||||||||
Leased assets obtained in exchange for new operating lease liabilities | $ | $ | ||||||||||||
| Weighted-average remaining lease term—operating leases | ||||||||||||||
| Weighted-average discount rate—operating leases | % | % | ||||||||||||
| Sublease income | $ | $ | ||||||||||||
Maturities of lease liabilities as of December 31, 2020 are as follows (in thousands):
| Maturity of lease liabilities | Operating Leases | ||||
| 2021 | $ | ||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| 2025 and thereafter | |||||
| Total lease payments | |||||
| Less: interest | ( | ||||
| Total operating lease liabilities as of December 31, 2020 | $ | ||||
9. COMMITMENTS AND CONTINGENCIES
The Company has agreements with clinical research organizations (“CROs”) pursuant to which the Company and the CROs are conducting clinical trials of mavorixafor for the treatment of WHIM syndrome, Waldenström’s and SCN. The Company may terminate these agreements by providing notice pursuant to the contractual provisions of such agreements and would incur early termination fees. The Company also has agreements with contract manufacturing organizations (“CMOs”) for the production of mavorixafor for use in clinical trials.
Indemnification Agreements— In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and its executive officers that will require the Company to, among other things, indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnification obligations. The Company is not currently aware of any indemnification claims and has not accrued any liabilities related to such obligations in its consolidated financial statements as of December 31, 2020 or December 31, 2019.
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X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
License Agreements— In February 2017, Arsanis entered into an option and license agreement with Adimab to obtain rights to certain RSV antibodies, which are being used in the “ASN500” program. The Company exercised this option for an up-front payment of $250 thousand. In July 2019, as further described in Note 15, the Company transferred the intellectual property related to the ASN500 program through an exclusive, worldwide license with a third party. The third party subsequently cancelled the sublicense agreement effective October 2020. The Company remains obligated to make payments to Adimab based on future clinical and regulatory milestones of up to approximately $25.0 million, as well as royalty payments on a product-by-product and country-by-country basis of a mid-single-digit percentage based on net sales of products based on certain RSV antibodies during the applicable term for such product in that country.
Legal Proceedings— The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings.
10. PREFERRED AND COMMON STOCK WARRANTS
Prior to the Merger, the Company issued warrants for the purchase of its preferred stock and had classified these preferred stock warrants as a liability on its consolidated balance sheet as the warrants were deemed to be freestanding financial instruments that may have required the Company to transfer assets upon exercise. The liability associated with each of these warrants was initially recorded at fair value upon the issuance date of each warrant and was subsequently remeasured to fair value as a component of other income (expense), net in the consolidated statement of operations and comprehensive loss. Upon the closing of the Merger, pursuant to the Merger Agreement, all of the outstanding X4 preferred stock was converted to common stock and the X4 preferred stock warrants converted to warrants for the purchase of common stock. The Company assessed the features of the warrants and determined that they qualified for classification as permanent equity upon the closing of the Merger. Accordingly, the Company remeasured the warrants to fair value upon the closing of the Merger, which was $5.2 million at March 13, 2019, with $288 thousand of expense recorded during the three months ended March 31, 2019. Upon the closing of the Merger, the warrant liability was reclassified to additional paid-in capital.
In connection with its issuance of common stock in public offerings that closed on April 16, 2019 and November 29, 2019, the Company issued 3,900,000 Class A warrants, which are exercisable for shares of the Company's common stock, and 5,416,667 Class B warrants, which are exercisable for shares of the Company's common stock or prefunded warrants to purchase shares of the Company's common stock. The Class A warrants have an exercise price of $13.20 per warrant, expire on April 15, 2024 and were immediately exercisable upon issuance. The Class B warrants were immediately exercisable upon issuance, have an initial exercise price of $15.00 per warrant, which includes a down-round contingent price adjustment feature, and expire on a date that is the earlier of (a) the date that is 30 calendar days from the date on which the Company issues a press release announcing top-line data from its Phase 3 clinical trial of mavorixafor for the treatment of patients with WHIM syndrome (or, if such date is not a business day, the next business day) and (b) November 28, 2024. In addition, in connection with the April 16, 2019 and November 29, 2019 offerings, the Company issued 2,130,000 and 1,750,000 prefunded warrants, respectively, for proceeds of $10.999 and $11.999 per share, respectively. Each of the prefunded warrants is exercisable into one share of the Company's common stock, has a remaining exercise price of $0.001 per share and was immediately exercisable upon issuance.
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X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Number of warrants | Weighted Average Exercise Price | Weighted Average Contractual Term (Years) | |||||||||||||||
| Outstanding and exercisable warrants to purchase shares preferred stock as of 12/31/2018 | $ | ||||||||||||||||
| Conversion of warrants to purchase preferred shares to warrants for the purchase of common stock and adjusted for the Exchange Ratio and Reverse Stock Split | ( | ||||||||||||||||
| Issuance of warrants for the purchase of common stock or prefunded warrants to purchase common stock | |||||||||||||||||
| Exercised | ( | ||||||||||||||||
| Outstanding and exercisable as of December 31, 2019 | $ | ||||||||||||||||
| Expired | ( | ||||||||||||||||
| Outstanding and exercisable as of December 31, 2020 | $ | ||||||||||||||||
As of December 31, 2020, the Company’s outstanding warrants to purchase shares of common stock consisted of the following:
| Issuance Date | Number of Shares of Common Stock Issuable | Exercise Price | Expiration Date | |||||||||||||||||
| October 25, 2016 | $ | October 24, 2026 | ||||||||||||||||||
| December 28, 2017 | $ | December 28, 2027 | ||||||||||||||||||
| September 12, 2018 | $ | September 12, 2021 | ||||||||||||||||||
| September 12, 2018 | $ | September 12, 2028 | ||||||||||||||||||
| October 19, 2018 | $ | October 19, 2028 | ||||||||||||||||||
| March 13, 2019 | $ | March 12, 2029 | ||||||||||||||||||
| April 16, 2019 | $ | April 15, 2024 | ||||||||||||||||||
| April 16, 2019 | $ | (a) | n/a | |||||||||||||||||
| November 29, 2019 | $ | November 28, 2024 | ||||||||||||||||||
| November 29, 2019 | $ | (b) | n/a | |||||||||||||||||
(a) In April 2019, the Company received $10.999 per pre-funded warrant, or $23.4 million in aggregate proceeds. Each pre-funded warrant may be exercised for an additional $0.001 per pre-funded warrant.
11. COMMON STOCK, REDEEMABLE COMMON STOCK AND PREFERRED STOCK
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X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 12, 2019, the Company entered into an underwriting agreement with Cowen and Company, LLC and Stifel, Nicolaus & Company, Incorporated, as representatives of the several underwriters named therein pursuant to which it sold 5,670,000 shares of common stock and, in lieu of common stock, prefunded warrants to purchase 2,130,000 shares of common stock, and accompanying Class A warrants to purchase 3,900,000 shares of its common stock. The common stock was issued at a price to the public of $11.00 per share and accompanying Class A warrant and the prefunded warrants were issued at a price of $10.999 per prefunded warrant and accompanying Class A warrant. The Class A warrants have an exercise price of $13.20 , will expire 5 years from the date of issuance, and are immediately exercisable with certain restrictions. The gross proceeds from the offering, which closed on April 16, 2019, were $85.8 million before deducting underwriting discounts and offering expenses.
On November 26, 2019, the Company entered into an underwriting agreement with Cowen and Company, LLC and Stifel, Nicolaus & Company, Incorporated, as representatives of the several underwriters named therein pursuant to which it sold 3,666,667 shares of common stock and, in lieu of common stock, prefunded warrants to purchase 1,750,000 shares of common stock, and accompanying Class B warrants to purchase 5,416,667 shares of its common stock or prefunded warrants to purchase shares of common stock. The common stock was issued at a price to the public of $12.00 per share and accompanying Class B warrant and the prefunded warrants were issued at a price of $11.999 per prefunded warrant and accompanying Class B warrant. The Class B warrants have an exercise price of $15.00 per warrant, which includes a down-round contingent price adjustment feature; expire on a date that is the earlier of (a) the date that is 30 calendar days from the date on which the Company issues a press release announcing top-line data from its Phase 3 clinical trial of mavorixafor for the treatment of patients with WHIM syndrome (or, if such date is not a business day, the next business day) and (b) November 28, 2024; and were immediately exercisable upon issuance. The gross proceeds from the offering, which closed on November 29, 2019, were $65.0 million before deducting underwriting discounts and offering expenses.
On August 7, 2020, the Company entered into a Controlled Equity OfferingSM Sales Agreement (the “ATM Sales Agreement”) with B. Riley Securities, Inc., Cantor Fitzgerald & Co., and Stifel, Nicolaus & Company, Incorporated (collectively the “Sales Agents”), pursuant to which the Company may offer and sell, at the Company’s sole discretion through one or more of the Sales Agents, shares of its common stock having an aggregate offering price of up to $50.0 million. The Sales Agents may sell the common stock by any method deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, including, without limitation, sales made directly on the Nasdaq Capital Market or any other existing trading market for the Company's common stock. Any shares of common stock sold will be issued pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-242372). No shares of common stock were sold pursuant to the ATM Sales Agreement during year ended December 31, 2020.
On October 14, 2020, the Company entered into a common stock purchase agreement (the “Aspire Purchase Agreement”) with Aspire Capital Fund, LLC, (“Aspire Capital”), which provides that, upon the terms and subject to the conditions and limitations set forth in the Aspire Purchase Agreement, Aspire Capital is committed to purchase up to an aggregate of $50.0 million of shares of the Company’s common stock at the Company’s request from time to time during the 36 -month term of the Purchase Agreement. Concurrently with entry into the Aspire Purchase Agreement, the Company also entered into a registration rights agreement with Aspire Capital (the “Registration Rights Agreement”), pursuant to which the Company filed with the SEC a prospectus supplement to the Company’s shelf registration statement on Form S-3 (File No. 333-242372), registering the issuance and sale of common stock that the Company may offer to Aspire Capital from time to time under the Aspire Purchase Agreement. No shares of common stock were sold pursuant to the Aspire Purchase Agreement during year ended December 31, 2020.
See Note 16 for a discussion of the sale of common shares closing subsequent to December 31, 2020.
For each of the common stock offerings, the Company evaluated the Class A, Class B and prefunded warrants for liability or equity classification in accordance with the provisions of ASC 480, Distinguishing Liabilities from Equity, and ASC 815-40, Derivatives and Hedging, and determined that equity treatment was appropriate because neither the Class A, Class B or prefunded warrants meet the definition of a liability.
Redeemable Common Stock— Pursuant to the requirements of the July 2014 license agreement with Genzyme (see Note 3), in August 2015, the Company issued to Genzyme for no additional consideration 107,371 shares of common stock, which had an aggregate fair value of $734 on the date of issuance. Genzyme had the right to require the Company to repurchase all, but not less than all, of these shares of common stock at any time during the term of the license agreement for a price of $0.001 per share. Because of this redemption feature, the shares of common stock issued to Genzyme were classified outside of stockholders’ deficit on the consolidated balance sheets. As a result of the Merger, these shares were exchanged for common stock.
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X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCK-BASED COMPENSATION
Summary of Plans— Upon completion of the Merger on March 13, 2019, X4’s 2015 Employee, Director and Consultant Equity Incentive Plan, as amended (the “2015 Plan”), Arsanis’ 2017 Equity Incentive Plan (the “2017 Plan”) and Arsanis’ 2017 Employee Stock Purchase Plan (the “2017 ESPP”) were assumed by the Company. In June 2019, the Company adopted the 2019 Inducement Equity Incentive Plan (the “2019 Plan”). These plans are administered by the Board of Directors or by a committee thereof. The exercise prices, vesting and other restrictions are determined at the discretion of the Board of Directors, or its committee if so delegated, except that the exercise price per share of stock options may not be less than 100 % of the fair market value of the share of common stock on the date of grant and the term of the stock option may not be greater than ten years . Incentive stock options granted to employees and restricted stock awards granted to employees, officers, members of the Board of Directors, advisors, and consultants of the Company typically vest over four years . Non-statutory options granted to employees, officers, members of the Board of Directors, advisors, and consultants of the Company typically vest over or four years . Shares that are expired, terminated, surrendered or canceled under the Plans without having been fully exercised will be available for future awards. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards.
2015 Employee, Director and Consultant Equity Incentive Plan— In 2015, the Board of Directors and shareholders of X4 adopted the 2015 Plan, which provided for the Company to grant incentive stock options or nonqualified stock options, restricted stock awards and other stock-based awards to employees, directors and consultants of the Company. The total number of shares of common stock that may be issued under the 2015 Plan is 1.0 million shares. As of December 31, 2020, there were a de minimis number shares available for issuance under the 2015 Plan.
2017 Equity Incentive Plan— Under the 2017 Plan, the Company may grant incentive stock options, non-qualified options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards. On June 10, 2020, the Company's stockholders approved an amendment and restatement of the 2017 Plan. The amendments increased the number of shares of common stock reserved for issuance under the 2017 Plan by an additional 474 thousand shares and amended the “evergreen” provision of the 2017 Plan to provide for an automatic increase in the share reserve on the first day of each year, beginning on January 1, 2021 and ending on January 1, 2027, in an amount equal to the lower of 4.0 % of the number of shares of the Company’s common stock outstanding on January 1 of each year or an amount determined by the Company’s Board of Directors. As of December 31, 2020, approximately 26 thousand shares were available for future issuance under the 2017 Plan. Pursuant to the evergreen provision of the 2017 Plan, as of January 1, 2021, an additional 652 thousand shares became available for future issuance under the 2017 Plan.
2017 Employee Stock Purchase Plan— The 2017 ESPP provides participating employees with the opportunity to purchase shares of the Company’s common stock at defined purchase prices over six-month offering periods. For the twelve months ended December 31, 2020, 26,643 shares of common stock were issued under the 2017 ESPP. As of December 31, 2020, approximately 144 thousand shares were available for future issuance under the 2017 ESPP. Pursuant to the evergreen provision of the 2017 ESPP, on January 1, 2021, an additional 85 thousand shares became available for future issuance under the 2017 ESPP.
2019 Inducement Equity Incentive Plan— On June 17, 2019, the Board of Directors approved the adoption of the 2019 Plan, which is used exclusively for the grant of equity awards to individuals who were not previously employees of the Company (or following a bona fide period of non-employment), as an inducement material to such individual’s entering into employment with the Company, pursuant to Nasdaq Listing Rule 5635(c)(4). The total number of shares of common stock that may be issued under the 2019 Plan, as amended, is 800,000 shares. Shares that are expired, forfeited, canceled or otherwise terminated without having been fully exercised will be available for future grant under the 2019 Plan. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for future grants. As of December 31, 2020, approximately 173 thousand shares were available for future issuance under the 2019 Plan.
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X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Option Valuation— The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted:
| Year Ended December 31, | |||||||||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||||||||
| Risk-free interest rate | % | % | % | ||||||||||||||||||||
| Expected term (in years) | |||||||||||||||||||||||
| Expected volatility | % | % | % | ||||||||||||||||||||
| Expected dividend yield | % | % | % | ||||||||||||||||||||
Stock Options
The following table summarizes the Company’s stock option activity for the twelve months ended December 31, 2020:
Number of Shares | Weighted Average Exercise Price | Weighted Average Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Outstanding as of December 31, 2019 | $ | $ | |||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Forfeited | ( | ||||||||||||||||||||||
| Outstanding as of December 31, 2020 | $ | $ | |||||||||||||||||||||
| Exercisable as of December 31, 2020 | $ | $ | |||||||||||||||||||||
| Vested and expected to vest as of December 31, 2020 | $ | $ | |||||||||||||||||||||
The aggregate intrinsic value of options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock to the extent the stock option had a lower exercise price. The aggregate intrinsic value of stock options exercised during the twelve months ended December 31, 2020 and 2019 was $42 thousand and $363 thousand, respectively. The intrinsic value of options exercised during the years ended December 31, 2018 was not significant. The weighted average grant-date fair value per share of stock options granted during the years ended December 31, 2020, 2019 and 2018 was $6.12 , $10.78 , and $7.05 , respectively.
Restricted Stock Units— During the twelve months ended December 31, 2020, the Company granted 692,331 restricted stock units to employees at a weighted average grant date fair value of $9.34 per share. The restricted stock units granted were primarily performance-based restricted stock units, which vest in part upon on the Company’s achievement of operational milestones and over time thereafter for the subsequent two years as the employee continues to provide services to the Company. As of December 31, 2020, two out of the four performance criteria had been achieved. The Company believes that the achievement of the remaining operational milestones is probable and, accordingly, stock-based compensation expense has been recognized for the awards using the accelerated attribution model based on the fair value of the awards as of the date of grant and management’s best estimate of the date each operational milestone will be achieved. The Company updates its estimates related to the probability and timing of achievement of the operational milestones each period until the award either vests or is forfeited. These restricted stock units had a grant date fair value of $6.5 million, which will be recognized as stock-based compensation expense, net of estimated forfeitures, over the estimated vesting period.
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X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the Company’s restricted stock activity for the twelve months ended December 31, 2020:
| Number of Shares | |||||
| Unvested at December 31, 2019 | |||||
| Granted | |||||
| Vested | ( | ||||
| Forfeited | ( | ||||
| Unvested at December 31, 2020 | |||||
Stock-Based Compensation— As of December 31, 2020, total unrecognized compensation expense related to unvested stock options and restricted stock units was $8.6 million, which is expected to be recognized over a weighted average period of 2.4 years.
Stock-based compensation expense was classified in the consolidated statements of operations as follows:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Research and development expense | $ | $ | $ | ||||||||||||||
| General and administrative expense | |||||||||||||||||
| Total stock-based compensation | $ | $ | $ | ||||||||||||||
13. INCOME TAXES
During the years ended December 31, 2020, 2019, and 2018, the Company recorded no income tax benefits for the net operating losses incurred and research and development credits generated due to the uncertainty of realizing a benefit from those items. Additionally during the year ended December 31, 2020, the Company recorded a tax provision of $0.1 million related to an uncertain tax position. The Company's losses before income taxes were generated in the United States and were partially offset by income before taxes in its Austrian subsidiary.
Loss before the provision for income taxes for the years ended December 31, 2020, 2019 and 2018 consisted of the following:
| Year Ended December 31, | |||||||||||||||||
| (in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
| United States | $ | ( | $ | ( | $ | ( | |||||||||||
| Foreign (Austria) | ( | ||||||||||||||||
| $ | ( | $ | ( | $ | ( | ||||||||||||
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X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the U.S. federal statutory income tax rate to the Company's effective income tax rate is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| U.S. federal statutory income tax rate | ( | % | ( | % | ( | % | |||||||||||
| State income taxes, net of federal benefit | ( | ( | ( | ||||||||||||||
| Foreign rate differential | ( | ||||||||||||||||
| Research and development tax credits | ( | ( | ( | ||||||||||||||
| Change in fair value of preferred stock warrant liability | |||||||||||||||||
| Other permanent differences | |||||||||||||||||
| Change in deferred tax asset valuation allowance | |||||||||||||||||
| Other | ( | ( | |||||||||||||||
| Effective income tax rate | % | % | % | ||||||||||||||
Net deferred tax assets as of December 31, 2020 and 2019 consisted of the following:
| December 31, | |||||||||||
| (in thousands) | 2020 | 2019 | |||||||||
| Net operating loss carryforwards | $ | $ | |||||||||
| Research and development tax credit carryforwards | |||||||||||
| Capitalized research and development expenses | |||||||||||
| Lease liabilities | |||||||||||
| Other | |||||||||||
| Total deferred tax assets | |||||||||||
| Valuation allowance | ( | ( | |||||||||
| Deferred tax assets, net of valuation allowance | $ | $ | |||||||||
| Right of use assets | |||||||||||
| Total deferred tax liabilities | $ | $ | |||||||||
| Total deferred tax assets, net | $ | $ | |||||||||
As of December 31, 2020, the Company had U.S. federal and state net operating loss carryforwards of $242.6 million and $237.5 million, respectively, which may be available to offset future taxable income and begin to expire in 2031 and 2035, respectively. The Company has federal net operating losses $188.5 million, which do not expire, and $54.1 million of federal net operating losses generated prior to 2018 that will expire at various dates through 2037. In addition, as of December 31, 2020, the Company had foreign net operating loss carryforward of $70.8 million, which do not expire but are generally limited in their usage to an annual deduction equal to 75% of taxable income. As of December 31, 2020, the Company also had U.S. federal and state research and development tax credit carryforwards of $3.7 million and $0.9 million, respectively, which may be available to offset future tax liabilities and each begin to expire in 2032 and 2030, respectively.
As of December 31, 2020, uncertain tax position reserves recorded were $0.2 million for U.S. federal and state research and development tax credits. Additionally, during the year ended December 31, 2020, the Company recorded an uncertain tax position of $0.1 million related to withholding taxes on a milestone payment received from a non-US customer.
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X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the Company’s reserve for uncertain tax positions for the three years ended December 31, 2020:
| (in millions) | Reserve for Uncertain Tax Position | ||||
| Balance as of December 31, 2018 | $ | ||||
| Acquisition of uncertain tax position reserves through Merger | |||||
| Balance as of December 31, 2019 | |||||
| Increase in unrecognized tax benefit for tax positions taken during year | |||||
| Balance as of December 31, 2020 | $ | ||||
Utilization of the U.S. net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the U.S. net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization.
Each period, the Company evaluates the positive and negative evidence bearing upon its ability to realize its federal, state and foreign deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception and has concluded that it is more likely than not that the Company will not realize the benefits of its deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2020, 2019 and 2018.
Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2020, 2019 and 2018 related primarily to the increases in net operating loss carryforwards and research and development tax credit carryforwards and were as follows:
| Year Ended December 31, | |||||||||||||||||
| (in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
| Valuation allowance, beginning of year | $ | ( | $ | ( | $ | ( | |||||||||||
| Increases recorded to income tax provision | ( | ( | ( | ||||||||||||||
| Acquisition of business | ( | ||||||||||||||||
| Valuation allowance, end of year | $ | ( | $ | ( | $ | ( | |||||||||||
The Company’s U.S. federal and state income tax returns are generally subject to tax examinations for the tax years ended December 31, 2016 through December 31, 2020. There are currently no pending income tax examinations. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state tax authorities to the extent utilized in a future period. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision.
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Table of Contents
X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. NET LOSS PER SHARE
Basic and diluted net loss per share attributable to common stockholders was calculated as follow:
| Year Ended December 31, | |||||||||||||||||
| (in thousands, except per share data) | 2020 | 2019 | 2018 | ||||||||||||||
| Numerator: | |||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | |||||||||||
| Accruing dividends on Series A convertible preferred stock | ( | ( | |||||||||||||||
| Adjustment to accumulated deficit in connection with repurchase of Series Seed convertible preferred stock | ( | ||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | $ | ( | $ | ( | |||||||||||
| Denominator: | |||||||||||||||||
| Weighted average shares of common stock—basic and diluted | |||||||||||||||||
Net loss per share attributable to common stockholders— basic and diluted | $ | ( | $ | ( | $ | ( | |||||||||||
The Company has included 107,371 2,130,000 and 1,750,000 prefunded warrants for the purchase of shares of common stock, which were issued in April 2019 and November 2019, respectively, and for which the remaining unfunded exercise price is less than $0.001 per share.
The Company’s potentially dilutive securities included outstanding stock options, unvested restricted stock units and warrants to purchase shares of common stock for the years ended December 31, 2020 and 2019. Potentially dilutive securities also included warrants to purchase preferred stock for the year ended 2018. These potentially dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share, and thus they are considered “anti-dilutive.” Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential shares of common stock, presented based on amounts outstanding at each period end and adjusted for the Exchange Ratio and Reverse Stock Split, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Options to purchase common stock | |||||||||||||||||
| Convertible preferred stock (as converted to common stock) | |||||||||||||||||
| Unvested restricted stock units | |||||||||||||||||
| Warrants to purchase common stock (excluding prefunded warrants, which are included in basic shares outstanding) | |||||||||||||||||
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Table of Contents
X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. LOSS ON TRANSFER OF NONFINANCIAL ASSETS
16. SUBSEQUENT EVENTS
Securities Purchase Agreement
On March 18, 2021, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with several institutional and accredited investors (the “Investors”) pursuant to which the Company agreed to issue and sell to the Investors in a private placement (the “Private Placement”) an aggregate of 6,271,836 shares of common stock and, to certain Investors, in lieu of common stock, pre-funded warrants (the “Pre-Funded Warrants”) to purchase an aggregate of 50,000 shares of common stock at a price of $8.70 per share of common stock (or $8.69 per Pre-Funded Warrant). The price per Pre-Funded Warrant represents the price of $8.70 per share sold in the Private Placement, minus the $0.01 per share exercise price of each such Pre-Funded Warrant. The Pre-Funded Warrants are exercisable, subject to certain beneficial ownership restrictions, at any time after their original issuance and will not expire. The Private Placement is expected to close on or about March 23, 2021 and the Company expects to receive gross proceeds of approximately $55.0 million, before deducting offering expenses payable by the Company.
Option Agreement and Co-Development Agreement
Also on March 18, 2021, the Company entered into an Option Agreement (the “Option Agreement”) with Abingworth Bioventures 8 LP (“Abingworth Bioventures 8”), which is one of the Investors party to the Securities Purchase Agreement. Pursuant to the Option Agreement, if the Company and a syndicate, of which Abingworth Bioventures 8 is a part, do not execute a definitive co-development agreement (as defined in the Option Agreement and described below) by May 15, 2021, Abingworth Bioventures 8 may, at its option, require the Company to repurchase the common shares Abingworth Bioventures 8 purchased in the Private Placement at the original purchase price of $8.70 per share. This option must be exercised, if at all, by June 15, 2021.
The Company and Abingworth LLP (“Abingworth”), an affiliate of Abingworth Bioventures 8, are parties to a non-binding letter of intent pursuant to which the Company and Abingworth have expressed an intention to negotiate a co-development agreement (the “Co-Development Agreement”) that is expected to provide the Company with up to $65.0 million in funding from a syndicate of investors including Abingworth, in addition to the $2.0 million of common stock purchased by Abingworth Bioventures 8 in the Private Placement and an additional purchase of up to $5.5 million of the Company’s common stock on the same terms and conditions, including the purchase price per common share, as the Private Placement. The Company expects that, pursuant to the Co-Development Agreement, the Company will grant to Abingworth a security interest in substantially all of its assets and property, excluding its intellectual property, that will contain such other terms, conditions and covenants as are customary in similar financings. The granting of any security interest, or the sale or transfer of any rights, in the Company’s intellectual property would be subject to a negative covenant in favor of Abingworth. Contingent upon and commencing 120 days following regulatory approval of mavorixafor as a treatment for WHIM Syndrome in the United States or the European Union, the Company would be required to make annual repayments of amounts funded by the syndicate, with the total amount of repayments contingent upon the total amount of funding accepted by the Company under the Co-Development Agreement, if executed. The Co-Development Agreement has not been finalized and is still subject to material items of due diligence, term negotiation, and approval by the Company’s board of directors. There is no assurance that the Co-Development Agreement will be executed and the Company may not receive the $65.0 million in financing, in which case the Company may be required to repurchase the $2.0 million of common shares purchased by Abingworth Bioventures 8 in the Private Placement.
Registration Rights Agreement
Also on March 18, 2021, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the Investors, pursuant to which the Company agreed to register for resale the common stock and the issuance of the shares of
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Table of Contents
X4 PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
common stock underlying the Pre-Funded Warrants held by the Investors by no later than June 30, 2021 (the “Filing Deadline”). The Company has agreed to use commercially reasonable efforts to cause such registration statement to become effective as soon as practicable and to keep such registration statement effective until the date common shares and the shares of common stock underlying the Pre-Funded Warrants covered by such registration statement have been sold or may be resold pursuant to Rule 144 without restriction. The Company is subject to liquidated damages payable to the Investors should the Company fail to comply with the terms of the Registration Rights Agreement.
Class B Warrant Price Adjustment
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EX-4.12
DESCRIPTION OF COMMON STOCK
The following description of our common stock and provisions of our restated certificate of incorporation, as amended, or restated certificate, and amended and restated by-laws are summaries. You should also refer to the restated certificate and the amended and restated by-laws.
General
Our restated certificate authorizes us to issue up to 125,000,000 shares of common stock, $0.001 par value per share.
Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. An election of directors by our stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote on the election. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of any series of preferred stock that we may designate and issue in the future.
In the event of our liquidation or dissolution, the holders of common stock are entitled to receive proportionately our net assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.
Anti-Takeover Provisions
Section 203 of the Delaware General Corporation Law
We are subject to Section 203 of the DGCL, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, with the following exceptions:
• before such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
• upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining the voting stock outstanding, but not the outstanding voting stock owned by the interested stockholder, those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
• on or after such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of the stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.
EX-4.12
In general, Section 203 defines a “business combination” to include the following:
• any merger or consolidation involving the corporation and the interested stockholder;
• any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
• subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
• any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation beneficially owned by the interested stockholder; or
•the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits by or through the corporation.
•In general, Section 203 defines an “interested stockholder” as an entity or person who, together with the person’s affiliates and associates, beneficially owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding voting stock of the corporation.
Staggered Board
Our restated certificate and by-laws divide our board of directors into three classes with staggered three year terms. In addition, our restated certificate and by-laws provide that directors may be removed only for cause and only by the affirmative vote of the holders of 75% of our shares of capital stock present in person or by proxy and entitled to vote. Under our restated certificate and by-laws, any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled only by vote of a majority of our directors then in office. Furthermore, our restated certificate provides that the authorized number of directors may be changed only by the resolution of our board of directors, subject to the rights of any holders of preferred stock to elect directors. The classification of our board of directors and the limitations on the ability of our stockholders to remove directors, change the authorized number of directors and fill vacancies could make it more difficult for a third party to acquire, or discourage a third party from seeking to acquire, control of us.
Authorized but Unissued Shares
The authorized but unissued shares of common stock are available for future issuance without stockholder approval, subject to any limitations imposed by the listing standards of any exchange on which our shares are listed. These additional shares may be used for a variety of corporate finance transactions, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved common stock could make more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Special Meeting of Stockholders; Advance Notice Requirements for Stockholder Proposals and Director Nominations; Stockholder Action
Our restated certificate and restated by-laws provide that any action required or permitted to be taken by our stockholders at an annual meeting or special meeting of stockholders may only be taken if it is properly brought before such meeting and may not be taken by written action in lieu of a meeting. Our restated certificate and our restated by-laws also provide that, except as otherwise required by law, special
EX-4.12
meetings of the stockholders can only be called by the chairman of our board of directors, our chief executive officer or our board of directors. In addition, our restated by-laws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of stockholders, including proposed nominations of candidates for election to our board of directors. Stockholders at an annual meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of our board of directors, or by a stockholder of record on the record date for the meeting who is entitled to vote at the meeting and who has delivered timely written notice in proper form to our secretary of the stockholder’s intention to bring such business before the meeting. These provisions could have the effect of delaying until the next stockholder meeting stockholder actions that are favored by the holders of a majority of our outstanding voting securities. These provisions also could discourage a third party from making a tender offer for our common stock because even if the third party acquired a majority of our outstanding voting stock, it would be able to take action as a stockholder, such as electing new directors or approving a merger, only at a duly called stockholders meeting and not by written consent.
Super Majority Voting
The DGCL provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation’s certificate of incorporation or by-laws, unless a corporation’s certificate of incorporation or by-laws, as the case may be, require a greater percentage. Our amended and restated by-laws may be amended or repealed by a majority vote of our board of directors or the affirmative vote of the holders of at least 75% of the votes that all of our stockholders would be entitled to cast in any election of directors. In addition, the affirmative vote of the holders of at least 75% of the votes that all of our stockholders would be entitled to cast in any election of directors is required to amend or repeal or to adopt any provisions inconsistent with certain of the provisions of our restated certificate.
Exclusive Forum Selection
Our restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (1) any derivative action or proceeding brought on behalf of our company, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or stockholders to our company or our stockholders, (3) any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware or as to which the General Corporation Law of the State of Delaware confers jurisdiction on the Court of Chancery of the State of Delaware, or (4) any action asserting a claim arising pursuant to any provision of our restated certificate or restated by-laws (in each case, as they may be amended from time to time) or governed by the internal affairs doctrine. This exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. 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
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. Although our restated certificate contains the choice of forum provision described above, it is possible that a court could rule that such a provision is inapplicable for a particular claim or action or that such provision is unenforceable.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Computershare Trust Company, N.A., with offices at 250 Royall Street, Canton, Massachusetts 02021.
EX-4.12
Listing on Nasdaq
Our common stock is listed on the Nasdaq Capital Market under the symbol “XFOR.”
Exhibit 10-26
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as of October 21, 2020, (the “Effective Date”) by and between X4 Pharmaceuticals, Inc. (the “Company”), and Dr. Arthur Taveres (“Executive”) (collectively referred to as the “Parties” or individually referred to as a “Party”).
R E C I T A L S
WHEREAS, the Company desires to employ Executive as its Chief Scientific Officer, and to enter into an agreement embodying the terms of such employment;
WHEREAS, Executive desires to accept such employment and enter into such an agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other good and valuable consideration, the Parties agree as follows:
1.Duties and Scope of Employment.
(a)Positions and Duties. As of November 2, 2020, Executive will serve as Chief Scientific Officer of the Company. Executive will render such business and professional services in the performance of Executive’s duties, consistent with Executive’s position within the Company, as shall reasonably be assigned to Executive by the Company’s Chief Executive Officer. The period of Executive’s at-will employment under the terms of this Agreement is referred to herein as the “Employment Term.”
(b)Obligations. During the Employment Term, Executive will perform Executive’s duties faithfully and to the best of Executive’s ability and will devote Executive’s full business efforts and time to the Company. For the duration of the Employment Term, Executive agrees not to actively engage in any other employment, occupation or consulting activity, for any direct or indirect remuneration, that may create a conflict of interest or interfere with Executive’s duties to the Company, without the prior approval of the Company’s Chief Executive Officer
(c)No Conflicts. As a condition of Executive’s employment, Executive certifies to the Company that: (a) Executive is free to enter into and fully perform the duties of Executive’s position; (b) Executive is not subject to any employment, confidentiality, non-competition or other agreement that would restrict Executive’s performance for the Company; (c) Executive’s signing this Agreement does not violate any order, judgment or injunction applicable to Executive, or conflict with or breach any agreement to which Executive is a party or by which Executive is bound; and (d) all facts Executive has presented to the Company are accurate and true, including, but not limited to, all oral and written statements Executive has made (including those pertaining to Executive’s education, training, qualifications, licensing and prior work experience) in any job application, resume, c.v., interview or discussion with the Company.
2.At-Will Employment. Subject to Sections 6, 7, and 8 below, the parties agree that Executive's employment with the Company will be “at-will” employment and may be terminated at any time with or without cause or notice, for any reason or no reason. Executive understands and agrees that neither Executive’s job performance nor promotions, commendations, bonuses or the like from the Company give rise to or in any way serve as the basis for modification, amendment, or extension, by implication or otherwise, of Executive’s employment with the Company.
3.Compensation.
(a)Base Salary. During the Employment Term, the Company will pay Executive as compensation for Executive’s services a base salary at a rate of $390,000.00 per year, as modified from time to time at the discretion of the Company (the “Base Salary”). The Base Salary will be paid in regular installments in accordance with the Company’s normal payroll practices (subject to required withholding). Any increase or decrease in Base Salary (together with the then existing Base Salary) shall serve as the “Base Salary” for future employment under this Agreement. The first and last payment will be adjusted, if necessary, to reflect a commencement or termination date other than the first or last working day of a pay period.
(b)Annual Bonus. Beginning for the calendar year 2021, Executive will also be eligible to earn an annual discretionary bonus with a target amount equal to 40% of the Base Salary (“Target Bonus”). The amount of this bonus, if any, will be determined in the sole discretion of the Company and based, in part, on Executive’s performance and the performance of the Company during the calendar year. The Company will pay Executive this bonus, if any, by no later than March 15th of the following calendar year. The bonus is not earned until paid and no pro-rated amount will be paid if Executive’s employment terminates for any reason prior to the payment date.
(c)Stock Option. In connection with the commencement of Executive’s employment and subject to the approval of the Board of Directors of the Company or the Compensation Committee thereof, the Company will grant Executive a non-qualified stock option (the “Option”) for the purchase of an aggregate of 121,150 shares of Common Stock of the Company at a price per share equal to the fair market value on the date of grant, as an inducement material to Executive joining the Company, pursuant to Rule 5635(c)(4) of the Nasdaq Listed Company Manual, under the Company’s 2019 Inducement Equity Incentive Plan (the “Plan”). The Option shall be subject to all terms, vesting, and other provisions set forth in a separate option agreement under the Plan. The Option will have a term of 10 years, except as set forth in the option agreement and the Plan, and be subject to a vesting schedule of four years, with 25% of the shares vesting on the first anniversary of Executive’s employment start date and the remainder vesting in equal installments over the following 36 months, provided, that Executive remains continuously employed by the Company on such vesting dates.
(i)Executive will be eligible to receive awards of stock options, restricted stock or other equity awards pursuant to any plans or arrangements the Company may have in effect from time to time. The Board or a committee of the Board shall determine in its discretion whether Executive shall be granted any such equity awards and the terms of any such award in accordance with the terms of any applicable plan or arrangement that may be in effect from time to time.
4.Employee Benefits. During the Employment Term, Executive may take advantage of various benefits offered by the Company, such as group medical insurance, dental insurance, short-term disability, long-term disability and the Company’s 401(k) plan. Executive will also be entitled to fifteen (15) days of paid time off per year, as well as two (2) personal days and eleven (11) paid holidays, exclusive of any sick days Executive may need. These benefits may be modified or changed from time to time at the sole discretion of the Company. The details of the Company’s full benefit offerings can be found in its Employee Handbook.
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5.Business Expenses. During the Employment Term, the Company will reimburse Executive for reasonable business travel, entertainment or other business expenses incurred by Executive in the furtherance of or in connection with the performance of Executive’s duties hereunder, in accordance with the Company’s expense reimbursement policy as in effect from time to time. All reimbursements provided under this Agreement will be made or provided in accordance with the requirements of Section 409A of the Internal Revenue Code (“Section 409A”) and the rules and regulations thereunder, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during Executive’s lifetime (or during a shorter period of time specified in this Agreement); (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year; (iii) the reimbursement of an eligible expense shall be made no later than the last day of the calendar year following the year in which the expense is incurred; and (iv) the right to reimbursement or in kind benefits is not subject to liquidation or exchange for another benefit.
6.Termination on Death or Disability.
(a)Effectiveness. Executive’s employment will terminate automatically upon Executive’s Death or, upon fourteen (14) days prior written notice from the Company, in the event of Disability.
(b)Effect of Termination. Upon any termination for death or Disability, Executive shall be entitled to: (i) Executive’s Base Salary through the effective date of termination; (ii) the right to continue health care benefits under Title X of the Consolidated Budget Reconciliation Act of 1985, as amended (“COBRA”), at Executive’s cost, to the extent required and available by law; (iii) reimbursement of expenses for which Executive is entitled to be reimbursed pursuant to Section 6 above, but for which Executive has not yet been reimbursed; and (iv) no other severance or benefits of any kind, unless required by law or pursuant to any other written Company plans or policies, as then in effect.
7.Involuntary Termination for Cause; Resignation without Good Reason.
i.Effectiveness. Notwithstanding any other provision of this Agreement, the Company may terminate Executive’s employment at any time for Cause, which shall be effective on the date the Company gives notice to Employee of such termination in accordance with this Agreement unless otherwise agreed by the Parties. Executive may resign from Executive’s employment with the Company without Good Reason, provided that Executive provide at least four (4) weeks prior written notice (the “Notice Period”). Such resignation shall be effective upon the expiration of the Notice Period. In the event that the Company accelerates the effective date of a resignation, such acceleration shall not be construed as a termination of Executives employment by the Company or deemed Good Reason for such resignation.
ii.Effect of Termination. In the case of the Company’s termination of Executive’s employment for Cause, or Executive’s resignation without Good Reason, Executive shall be entitled to receive: (i) Base Salary through the effective date of the termination or resignation, as applicable; (ii) reimbursement of all business expenses for which Executive is entitled to be reimbursed pursuant to Section 6 above, but for which Executive has not yet been reimbursed; (iii) the right to continue health care benefits under COBRA, at Executive’s cost, to the extent required and available by law; and (iv) no other severance or benefits of any kind, unless required by law or pursuant to any other written Company plans or policies, as then in effect.
8.Involuntary Termination Without Cause; Resignation for Good Reason.
iii.Effect of Termination. The Company shall be entitled to terminate Executive with or without Cause at any time, subject to the following:
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a.If Executive is terminated by the Company involuntarily without Cause (excluding any termination due to death or Disability) or Executive resigns for Good Reason, then, subject to the limitations of Sections 8(b) and 23 below, Executive shall be entitled to receive: (A) Executive’s Base Salary through the effective date of the termination or resignation; (B) continuing severance pay at a rate equal to one hundred percent (100%) of Executive’s Base Salary, as then in effect (less applicable withholding), for a period of twelve (12) months from the date of such termination, to be paid periodically in accordance with the Company’s normal payroll practices; (C) reimbursement of all business expenses for which Executive is entitled to be reimbursed pursuant to Section 6 above, but for which Executive has not yet been reimbursed; (D) pro-rata portion of the Target Bonus for the calendar year in which the termination occurs based on the period worked by Executive during such calendar year prior to termination; (E) provided that Executive elects COBRA coverage, the Company shall reimburse Executive for a portion of each COBRA premium payment equal to the portion the Company contributed to such health insurance premium cost as of the date Executive’s employment terminates, until the earlier of six months from the date of termination or the date upon which Executive becomes eligible to receive health benefits through another employer; (F) accelerated vesting of the Option equal to the number of shares subject to the Option that would have vested had Executive otherwise remained employed for an additional six months after the date his employment with the Company terminated; (G) the benefit under the Change of Control Severance Policy in the Confidential Information Agreement; and (H) no other severance or benefits of any kind, unless required by law or pursuant to any written Company plans or policies, as then in effect.
iv.Conditions Precedent. Any severance payments contemplated by Section 8(a)(i)(B) above are conditional on Executive: (i) continuing to comply with the terms of this Agreement and the Confidential Information Agreement; and (ii) signing and not revoking a separation agreement and release of known and unknown claims in the form provided by the Company (including nondisparagement and no cooperation provisions) (the “Release”) and provided that such Release becomes effective and irrevocable no later than sixty (60) days following the termination date or such earlier date required by the release (such deadline, the “Release Deadline”). If the Release does not become effective by the Release Deadline, Executive will forfeit any rights to severance or benefits under this Section 8(a)(i)(B) or elsewhere in this Agreement. Any severance payments or other benefits under this Agreement will be paid on, or, in the case of installments, will not commence until, the sixtieth (60th) day following Executive’s separation from service, or, if later, such time as required by Section 23(b). Except as required by Section 23(b), any installment payments that would have been made to Employee during the sixty (60) day period immediately following Executive’s separation from service but for the preceding sentence will be paid to Executive on the sixtieth (60th) day following Executive’s separation from service and the remaining payments will be made as provided in this Agreement, unless subject to the 6-month payment delay described herein. Notwithstanding the foregoing, this Section 8(b) shall not limit Executive’s ability to obtain expense reimbursements under Section 6 or any other compensation or benefits otherwise required by law or in accordance with written Company plans or policies, as then in effect.
9.Definitions.
v.Cause. For purposes of this Agreement, “Cause” shall mean: (i) Executive’s continued failure to substantially perform the material duties and obligations under this Agreement (for reasons other than death or Disability), which failure, if curable within the reasonable discretion of the Company, is not cured to the reasonable satisfaction of the Company within thirty (30) days after receipt of written notice from the Company of such failure; (ii) Executive’s failure or refusal to comply with the policies, standards and regulations established by the Company from time to time which failure, if curable in the reasonable discretion of the Company, is not cured to the reasonable satisfaction of the Company within thirty (30) days after receipt of written notice of such failure from the Company; (iii) any act of willful misconduct, fraud, embezzlement, misrepresentation, or other unlawful act committed by Executive that benefits Executive at the expense of the Company; (iv) the Executive’s violation of a federal or state law or regulation applicable to the Company’s
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business; (v) the Executive’s violation of, or a plea of nolo contendre or guilty to, a felony under the laws of the United States or any state; (vi) the Executive’s material breach of the terms of this Agreement or the Confidential Information Agreement (defined below); or (vii) the Company’s severe financial distress, whereby the Company is in the process of winding down its business and Executive’s employment is terminated in connection with such winding down; provided that prior to such termination, a determination is made by the Company’s Board of Directors that none of the Company’s Officers (as that term is defined in Section 16 of the Securities Exchange Act of 1934) will receive severance payments in connection with the winding down of the Company’s business.
vi.Disability. For purposes of this Agreement, “Disability” means that Executive, at the time notice is given, has been unable to substantially perform Executive’s duties under this Agreement for not less than one-hundred and twenty (120) work days within a twelve (12) consecutive month period as a result of Executive’s incapacity due to a physical or mental condition and, if reasonable accommodation is required by law, after any reasonable accommodation.
vii.Good Reason. For purposes of this Agreement, “Good Reason” means Executive’s written notice of Executive’s intent to resign for Good Reason with a reasonable description of the grounds therefor within 10 days after the occurrence of one or more of the following without Executive’s consent, and subsequent resignation within 30 days following the expiration of any Company cure period (discussed below): (i) a material reduction of Executive’s duties, position or responsibilities (provided, however, that any change in duties, position, or responsibilities due to the Company becoming a subsidiary or division of another entity in connection with a Change of Control shall not be Good Reason); (ii) a material reduction in Executive’s Base Salary or Target Bonus (with materiality being defined for purposes of this subsection as five percent (5%) or more of the Base Salary or Target Bonus); (iii) a material breach of this Agreement by the Company; or (iv) any directive given to Executive by the Company that the Company knows is in violation of a law, regulation, or material Company policy and the Company requires Executive to implement as a condition of his continued employment. Executive will not resign for Good Reason without first providing the Company with written notice of the acts or omissions constituting the grounds for “Good Reason” within 30 days of the initial existence of the grounds for “Good Reason” and a reasonable cure period of not less than 30 days following the date of such notice if such act or omission is capable of cure.
10.Company Matters.
viii.Proprietary Information and Inventions. In connection with Executive’s employment with the Company, Executive will receive and have access to Company confidential information and trade secrets. Accordingly, enclosed with this Agreement is a Confidentiality, Non-Solicitation, Intellectual Property and Change of Control Agreement (the “Confidential Information Agreement”) which contains restrictive covenants and prohibits unauthorized use or disclosure of the Company’s confidential information and trade secrets, among other obligations. Executive agrees to review the Confidential Information Agreement and only sign it after careful consideration.
ix.Resignation on Termination. On termination of Executive’s employment, regardless of the reason for such termination, Executive shall immediately (and with contemporaneous effect) resign any directorships, offices or other positions that Executive may hold in the Company or any affiliate, unless otherwise agreed in writing by the Parties.
x.Notification of New Employer. In the event that Executive leaves the employ of the Company, Executive grants consent to notification by the Company to Executive’s new employer about Executive’s rights and obligations under this Agreement and the Confidential Information Agreement. Company agrees not to notify Executive’s new employer unless it has a reasonable belief that Executive has violated or intends to violate a provision of the Confidential Information Agreement.
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11.Arbitration. To ensure the timely and economical resolution of disputes that may arise in connection with Executive’s employment with the Company, Executive and the Company agree that any and all disputes, claims, or causes of action arising from or relating to the enforcement, breach, performance, negotiation, execution, or interpretation of this Agreement, Confidential Information Agreement, or Executive’s employment, or the termination of Executive’s employment, including but not limited to all statutory claims, will be resolved pursuant to the Federal Arbitration Act, 9 U.S.C. §1-16, and to the fullest extent permitted by law, by final, binding and confidential arbitration by a single arbitrator conducted in Boston, Massachusetts by Judicial Arbitration and Mediation Services Inc. (“JAMS”) under the then applicable JAMS rules (at the following web address: https://www.jamsadr.com/rules-employment-arbitration/); provided, however, this arbitration provision shall not apply to sexual harassment claims to the extent prohibited by applicable law. A hard copy of the rules will be provided to you upon request. A hard copy of the rules will be provided to Executive upon request. By agreeing to this arbitration procedure, both Executive and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. In addition, all claims, disputes, or causes of action under this section, whether by Executive or the Company, must be brought in an individual capacity, and shall not be brought as a plaintiff (or claimant) or class member in any purported class or representative proceeding, nor joined or consolidated with the claims of any other person or entity. The Arbitrator may not consolidate the claims of more than one person or entity, and may not preside over any form of representative or class proceeding. To the extent that the preceding sentences regarding class claims or proceedings are found to violate applicable law or are otherwise found unenforceable, any claim(s) alleged or brought on behalf of a class shall proceed in a court of law rather than by arbitration. The Company acknowledges that Executive will have the right to be represented by legal counsel at any arbitration proceeding. Questions of whether a claim is subject to arbitration under this Agreement) shall be decided by the arbitrator. Likewise, procedural questions which grow out of the dispute and bear on the final disposition are also matters for the arbitrator. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; (b) issue a written arbitration decision, to include the arbitrator’s essential findings and conclusions and a statement of the award; and (c) be authorized to award any or all remedies that Executive or the Company would be entitled to seek in a court of law. Executive and the Company shall equally share all JAMS’ arbitration fees. Except as modified in the Confidential Information Agreement, each party is responsible for its own attorneys’ fees. Nothing in this Agreement is intended to prevent either Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent jurisdiction. To the extent applicable law prohibits mandatory arbitration of sexual harassment claims, in the event you intend to bring multiple claims, including a sexual harassment claim, the sexual harassment may be publicly filed with a court, while any other claims will remain subject to mandatory arbitration.
12.Assignment. This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Executive upon Executive's death and (b) any successor of the Company. Any such successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes. For this purpose, “successor” means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance or other disposition of Executive’s right to compensation or other benefits will be null and void.
13.Notices. All notices, requests, demands and other communications called for under this Agreement shall be in writing and shall be delivered via e-mail, personally by hand or by courier, mailed by United States first-class mail, postage prepaid, or sent by facsimile directed to the Party to be notified at the
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address or facsimile number indicated for such Party on the signature page to this Agreement, or at such other address or facsimile number as such Party may designate by ten (10) days’ advance written notice to the other Parties hereto. All such notices and other communications shall be deemed given upon personal delivery, three (3) days after the date of mailing, or upon confirmation of facsimile transfer or e-mail. Notices sent via e-mail under this Section shall be sent to either the e-mail address in this Agreement, or for e-mails sent by the Company to Executive, to the last e-mail address on file with the Company.
14.Severability. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement will continue in full force and effect without said provision.
15.Integration. This Agreement, together with the Plan and related agreements, and the Confidential Information Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral. No waiver, alteration, or modification of any of the provisions of this Agreement will be binding unless in writing and signed by duly authorized representatives of the parties hereto.
16.Tax Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable taxes.
17.Waiver. No Party shall be deemed to have waived any right, power or privilege under this Agreement or any provisions hereof unless such waiver shall have been duly executed in writing and acknowledged by the Party to be charged with such waiver. The failure of any Party at any time to insist on performance of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions, nor in any way to affect the validity of this Agreement or any part hereof. No waiver of any breach of this Agreement shall be held to be a waiver of any other subsequent breach
18.Governing Law. This Agreement will be governed by the laws of the Commonwealth of Massachusetts (with the exception of its conflict of laws provisions).
19.Acknowledgment. Executive acknowledges that Executive has had the opportunity to discuss this matter with and obtain advice from Executive’s legal counsel, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement.
20.Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, and all such counterparts shall constitute but one instrument.
21.Effect of Headings. The section and subsection headings contained herein are for convenience only and shall not affect the construction hereof.
22.Construction of Agreement. This Agreement has been negotiated by the respective Parties, and the language shall not be construed for or against either Party.
23.Section 409A.
xi.Notwithstanding anything to the contrary in this Agreement, no severance pay or benefits to be paid or provided to Executive, if any, pursuant to this Agreement, when considered together with any other severance payments or separation benefits that are considered deferred compensation under Section 409A (together, the “Deferred Compensation Separation Benefits”) will be paid or otherwise provided until Executive has a “separation from service” within the meaning of Section 409A.
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xii.Notwithstanding anything to the contrary in this Agreement, if Executive is a “specified employee” within the meaning of Section 409A at the time of Executive’s termination (other than due to death), then the Deferred Compensation Separation Benefits that are payable within the first six (6) months following Executive’s separation from service, will become payable on the first payroll date that occurs on or after the date six (6) months and one (1) day following the date of Executive’s separation from service. All subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. Notwithstanding anything herein to the contrary, if Executive dies following Executive’s separation from service, but prior to the six (6) month anniversary of the separation from service, then any payments delayed in accordance with this paragraph will be payable in a lump sum as soon as administratively practicable after the date of Executive’s death and all other Deferred Compensation Separation Benefits will be payable in accordance with the payment schedule applicable to each payment or benefit. Each payment and benefit payable under this Agreement is intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.
xiii.Any amount paid under this Agreement that satisfies the requirements of the “short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations will not constitute Deferred Compensation Separation Benefits for purposes of clause (a) above.
xiv.Any amount paid under this Agreement that qualifies as a payment made as a result of an involuntary separation from service pursuant to Section 1.409A-1(b)(9)(iii) of the Treasury Regulations that does not exceed the Section 409A Limit will not constitute Deferred Compensation Separation Benefits for purposes of clause (a) above. For purposes of this Agreement, “Section 409A Limit” will mean the lesser of two (2) times: (i) Executive’s annualized compensation based upon the annual rate of pay paid to Executive during the Executive’s taxable year preceding Executive’s taxable year of Executive’s termination of employment as determined under Treasury Regulation Section 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidance issued with respect thereto; or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Internal Revenue Code for the year in which Executive’s employment is terminated.
xv.The foregoing provisions are intended to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. The Company and Executive agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to Executive under Section 409A.
IN WITNESS WHEREOF, each of the Parties has executed this Agreement as of the day and year first above written.
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“COMPANY”
X4 PHARMACEUTICALS, INC.
By: /s/ Paula M. Ragan
Address:
X4 Pharmaceuticals, Inc
61 N. Beacon Street, 4th Floor
Boston, MA 02134
Attn: Ronny Mosston
Email: Ronny.Mosston@x4pharma.com
“EXECUTIVE”
DR. ARTHUR TAVERES
/s/ Arthur Taveres
Executive Name
Address:
Email: ________________________________
Enclosure
Confidentiality, Non-Solicitation, Intellectual Property and Change of Control Agreement
x4 PHARMACEUTICALS, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
SIGNATURE PAGE
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Exhibit 10.27
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as of November 23, 2020, (the “Effective Date”) by and between X4 Pharmaceuticals, Inc. (the “Company”), and Dr. Diego Cadavid (“Executive”) (collectively referred to as the “Parties” or individually referred to as a “Party”).
R E C I T A L S
WHEREAS, the Company desires to employ Executive as its Chief Medical Officer, and to enter into an agreement embodying the terms of such employment;
WHEREAS, Executive desires to accept such employment and enter into such an agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other good and valuable consideration, the Parties agree as follows:
1. Duties and Scope of Employment.
(a)Positions and Duties. As of December 14, 2020 (the “Start Date”), Executive will serve as Chief Medical Officer. Executive will render such business and professional services in the performance of Executive’s duties, consistent with Executive’s position within the Company, as shall reasonably be assigned to Executive by the Company’s Chief Executive Officer. The period of Executive’s at-will employment under the terms of this Agreement is referred to herein as the “Employment Term.”
(b)Obligations. During the Employment Term, Executive will perform Executive’s duties faithfully and to the best of Executive’s ability and will devote Executive’s full business efforts and time to the Company. For the duration of the Employment Term, Executive agrees not to actively engage in any other employment, occupation or consulting activity, for any direct or indirect remuneration, that may create a conflict of interest or interfere with Executive’s duties to the Company, without the prior approval of the Company’s Chief Executive Officer. Notwithstanding the foregoing, it is agreed and understood that the Executive may continue his current teaching clinical care activities at the University of Massachusetts Medical School for which he may receive nominal compensation for so long as such activities do not create a conflict of interest or otherwise interfere with the performance of the Executive’s duties hereunder.
(c)No Conflicts. As a condition of Executive’s employment, Executive certifies to the Company that: (a) Executive is free to enter into and fully perform the duties of Executive’s position; (b)
Exhibit 10.27
Executive is not subject to any employment, confidentiality, non-competition or other agreement that would restrict Executive’s performance for the Company; (c) Executive’s signing this Agreement does not violate any order, judgment or injunction applicable to Executive, or conflict with or breach any agreement to which Executive is a party or by which Executive is bound; and (d) all facts Executive has presented to the Company are accurate and true, including, but not limited to, all oral and written statements Executive has made (including those pertaining to Executive’s education, training, qualifications, licensing and prior work experience) in any job application, resume, c.v., interview or discussion with the Company.
2. At-Will Employment. Subject to Sections 6, 7, and 8 below, the parties agree that Executive's employment with the Company will be “at-will” employment and may be terminated at any time with or without cause or notice, for any reason or no reason. Executive understands and agrees that neither Executive’s job performance nor promotions, commendations, bonuses or the like from the Company give rise to or in any way serve as the basis for modification, amendment, or extension, by implication or otherwise, of Executive’s employment with the Company.
3. Compensation.
(a)Base Salary. During the Employment Term, the Company will pay Executive as compensation for Executive’s services a base salary at a rate of $415,000.00 per year, as modified from time to time at the discretion of the Company (the “Base Salary”). The Base Salary will be paid in regular installments in accordance with the Company’s normal payroll practices (subject to required withholding). Any increase or decrease in Base Salary (together with the then existing Base Salary) shall serve as the “Base Salary” for future employment under this Agreement. The first and last payment will be adjusted, if necessary, to reflect a commencement or termination date other than the first or last working day of a pay period.
(b)Annual Bonus. Beginning for the calendar year 2021, Executive will also be eligible to earn an annual discretionary bonus with a target amount equal to 40% of the Base Salary (“Target Bonus”). The amount of this bonus, if any, will be determined in the sole discretion of the Company and based, in part, on Executive’s performance and the performance of the Company during the calendar year. The Company will pay Executive this bonus, if any, by no later than March 15th of the following calendar year. The bonus is not earned until paid and no pro-rated amount will be paid if Executive’s employment terminates for any reason prior to the payment date.
(c)Stock Option. In connection with the commencement of Executive’s employment and subject to the approval of the Board of Directors of the Company or the Compensation Committee thereof, the Company will grant Executive a non-qualified stock option (the “Option”) for the purchase of an aggregate of 121,500 shares of Common Stock of the Company at a price per share equal to the fair market value on the date of grant, as an inducement material to Executive joining the Company, pursuant to Rule 5635(c)(4) of the Nasdaq Listed Company Manual, under the Company’s 2019 Inducement Equity Incentive Plan (the “Plan”). The Option shall be subject to all terms, vesting, and other provisions set forth in a separate option agreement under the Plan. The Option will have a term of 10 years, except as set forth in the option agreement and the Plan, and be subject to a vesting schedule of four years, with 25% of the shares vesting on the first anniversary of Executive’s employment start date and the remainder vesting in equal installments over the following 36 months, provided, that Executive remains continuously employed by the Company on such vesting dates.
(i) Executive will be eligible to receive awards of stock options, restricted stock or other equity awards pursuant to any plans or arrangements the Company may have in effect from time to time. The Board or a committee of the Board shall determine in its discretion whether Executive shall be granted any
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Exhibit 10.27
such equity awards and the terms of any such award in accordance with the terms of any applicable plan or arrangement that may be in effect from time to time.
4. Employee Benefits. During the Employment Term, Executive may take advantage of various
benefits offered by the Company, such as group medical insurance, dental insurance, short-term disability, long term disability and the Company’s 401(k) plan. Executive will also be entitled to fifteen (15) days of paid time off per year, as well as two (2) personal days and eleven (11) paid holidays, and holiday shutdowns exclusive of any sick days Executive may need. These benefits may be modified or changed from time to time at the sole discretion of the Company. The details of the Company’s full benefit offerings can be found in its Employee Handbook.
5. Business Expenses. During the Employment Term, the Company will reimburse Executive for
reasonable business travel, entertainment or other business expenses incurred by Executive in the furtherance of or in connection with the performance of Executive’s duties hereunder, in accordance with the Company’s expense reimbursement policy as in effect from time to time. All reimbursements provided under this Agreement will be made or provided in accordance with the requirements of Section 409A of the Internal Revenue Code (“Section 409A”) and the rules and regulations thereunder, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during Executive’s lifetime (or during a shorter period of time specified in this Agreement); (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year; (iii) the reimbursement of an eligible expense shall be made no later than the last day of the calendar year following the year in which the expense is incurred; and (iv) the right to reimbursement or in kind benefits is not subject to liquidation or exchange for another benefit.
6. Termination on Death or Disability.
(a)Effectiveness. Executive’s employment will terminate automatically upon Executive’s Death or, upon fourteen (14) days prior written notice from the Company, in the event of Disability.
(b)Effect of Termination. Upon any termination for death or Disability, Executive shall be entitled to: (i) Executive’s Base Salary through the effective date of termination; (ii) the right to continue health care benefits under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), at Executive’s cost, to the extent required and available by law; (iii) reimbursement of expenses for which Executive is entitled to be reimbursed pursuant to Section 5 above, but for which Executive has not yet been reimbursed; and (iv) no other severance or benefits of any kind, unless required by law or pursuant to any other written Company plans or policies, as then in effect.
7. Involuntary Termination for Cause; Resignation without Good Reason.
(a)Effectiveness. Notwithstanding any other provision of this Agreement, the Company may terminate Executive’s employment at any time for Cause, which shall be effective on the date the Company gives notice to Employee of such termination in accordance with this Agreement unless otherwise agreed by the Parties. Executive may resign from Executive’s employment with the Company without Good Reason, provided that Executive provide at least four (4) weeks prior written notice (the “Notice Period”). Such resignation shall be effective upon the expiration of the Notice Period. In the event that the Company accelerates the effective date of a resignation, such acceleration shall not be construed as a termination of Executives employment by the Company or deemed Good Reason for such resignation, provided however that the Company will pay the Executive for the full Notice Period.
Exhibit 10.27
(b)Effect of Termination. In the case of the Company’s termination of Executive’s employment for Cause, or Executive’s resignation without Good Reason, Executive shall be entitled to receive: (i) Base Salary through the effective date of the termination or resignation, as applicable; (ii) reimbursement of all business expenses for which Executive is entitled to be reimbursed pursuant to Section 5 above, but for which Executive has not yet been reimbursed; (iii) the right to continue health care benefits under COBRA, at Executive’s cost, to the extent required and available by law; and (iv) no other severance or benefits of any kind, unless required by law or pursuant to any other written Company plans or policies, as then in effect.
8. Involuntary Termination Without Cause; Resignation for Good Reason.
(a)Effect of Termination. The Company shall be entitled to terminate Executive with or without Cause at any time, subject to the following:
(i) If Executive is terminated by the Company involuntarily without Cause (excluding any termination due to death or Disability) or Executive resigns for Good Reason, then, subject to the limitations of Sections 8(b) and 23 below, Executive shall be entitled to receive: (A) Executive’s Base Salary through the effective date of the termination or resignation; (B) continuing severance pay at a rate equal to one hundred percent (100%) of Executive’s Base Salary, as then in effect (less applicable withholding), for a period of twelve (12) months from the date of such termination, to be paid periodically in accordance with the Company’s normal payroll practices; (C) reimbursement of all business expenses for which Executive is entitled to be reimbursed pursuant to Section 5 above, but for which Executive has not yet been reimbursed; (D) pro-rata portion of the Target Bonus for the calendar year in which the termination occurs based on the period worked by Executive during such calendar year prior to termination; (E) provided that Executive elects COBRA coverage, the Company shall reimburse Executive for a portion of each COBRA premium payment equal to the portion the Company contributed to such health insurance premium cost as of the date Executive’s employment terminates, until the earlier of twelve months from the date of termination or the date upon which Executive becomes eligible to receive health benefits through another employer; (F) accelerated vesting of the Option equal to the number of shares subject to the Option that would have vested had Executive otherwise remained employed for an additional six months after the date his employment with the Company terminated; (G) assuming a Change of Control has occurred, the benefit under the Change of Control Severance Policy in the Confidential Information Agreement; and (H) no other severance or benefits of any kind, unless required by law or pursuant to any written Company plans or policies, as then in effect.
(b)Conditions Precedent. Any severance payments contemplated by Section 8(a)(i) above are conditional on Executive: (i) continuing to comply with the terms of this Agreement and the Confidential Information Agreement; and (ii) signing and not revoking a separation agreement and release of known and unknown claims in the form provided by the Company (including non-disparagement and no cooperation provisions) (the “Release”) and provided that such Release becomes effective and irrevocable no later than sixty (60) days following the termination date or such earlier date required by the release (such deadline, the “Release Deadline”). If the Release does not become effective by the Release Deadline, Executive will forfeit any rights to severance or benefits under this Section 8(b) or elsewhere in this Agreement. Any severance payments or other benefits under this Agreement will be paid on, or, in the case of installments, will not commence until, the sixtieth (60th) day following Executive’s separation from service, or, if later, such time as required by Section 23(b). Except as required by Section 23(b), any installment payments that would have been made to Employee during the sixty (60) day period immediately following Executive’s separation from service but for the preceding sentence will be paid to Executive on the sixtieth (60th) day following Executive’s separation from service and the remaining payments will be made as provided in this Agreement, unless subject to the 6-month payment delay described herein. Notwithstanding the foregoing, this Section 8(b) shall not limit Executive’s
4
Exhibit 10.27
ability to obtain expense reimbursements under Section 5 or any other compensation or benefits otherwise required by law or in accordance with written Company plans or policies, as then in effect.
Exhibit 10.27
9. Definitions.
(a)Cause. For purposes of this Agreement, “Cause” shall mean: (i) Executive’s continued failure to substantially perform the material duties and obligations under this Agreement (for reasons other than death or Disability), which failure, if curable within the reasonable discretion of the Company, is not cured to the reasonable satisfaction of the Company within thirty (30) days after receipt of written notice from the Company of such failure; (ii) Executive’s failure or refusal to comply with the policies, standards and regulations established by the Company from time to time which failure, if curable in the reasonable discretion of the Company, is not cured to the reasonable satisfaction of the Company within thirty (30) days after receipt of written notice of such failure from the Company; (iii) any act of willful misconduct, fraud, embezzlement, misrepresentation, or other unlawful act committed by Executive that benefits Executive at the expense of the Company; (iv) the Executive’s violation of a federal or state law or regulation applicable to the Company’s business; (v) the Executive’s violation of, or a plea of nolo contendere or guilty to, a felony under the laws of the United States or any state; (vi) the Executive’s material breach of the terms of this Agreement or the Confidential Information Agreement (defined below) if not cured to the reasonable satisfaction of the Company within thirty (30) days after receipt of written notice from the Company describing the breach in reasonable detail; or (vii) the Company’s severe financial distress, whereby the Company is in the process of winding down its business and Executive’s employment is terminated in connection with such winding down; provided that prior to such termination, a determination is made by the Company’s Board of Directors that none of the Company’s Officers (as that term is defined in Section 16 of the Securities Exchange Act of 1934) will receive severance payments in connection with the winding down of the Company’s business.
(b)Disability. For purposes of this Agreement, “Disability” means that Executive, at the time notice is given, has been unable to substantially perform Executive’s duties under this Agreement for not less than one-hundred and twenty (120) work days within a twelve (12) consecutive month period as a result of Executive’s incapacity due to a physical or mental condition and, if reasonable accommodation is required by law, after any reasonable accommodation.
(c)Good Reason. For purposes of this Agreement, “Good Reason” means Executive’s written notice of Executive’s intent to resign for Good Reason with a reasonable description of the grounds therefor within 10 days after the occurrence of one or more of the following without Executive’s consent, and subsequent resignation within 30 days following the expiration of any Company cure period (discussed below): (i) a material reduction of Executive’s duties, position or responsibilities (ii) a material reduction in Executive’s Base Salary or Target Bonus (with materiality being defined for purposes of this subsection as five percent (5%) or more of the Base Salary or Target Bonus); (iii) a material breach of this Agreement by the Company; (iv) any directive given to Executive by the Company that the Company knows is in violation of a law, regulation, or material Company policy and the Company requires Executive to implement as a condition of his continued employment. Executive will not resign for Good Reason without first providing the Company with written notice of the acts or omissions constituting the grounds for “Good Reason” within 30 days of the initial existence of the grounds for “Good Reason” and a reasonable cure period of not less than 30 days following the date of such notice if such act or omission is capable of cure.
10. Company Matters.
(a)Proprietary Information and Inventions. In connection with Executive’s employment with the Company, Executive will receive and have access to Company confidential information and trade secrets. Accordingly, enclosed with this Agreement is a Confidentiality, Non-Solicitation, Intellectual Property and Change of Control Agreement (the “Confidential Information Agreement”) which contains restrictive covenants and prohibits unauthorized use or disclosure of the Company’s confidential information and trade secrets, among
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Exhibit 10.27
other obligations. Executive agrees to review the Confidential Information Agreement and only sign it after careful consideration.
(b)Resignation on Termination. On termination of Executive’s employment, regardless of the reason for such termination, Executive shall immediately (and with contemporaneous effect) resign any directorships, offices or other positions that Executive may hold in the Company or any affiliate, unless otherwise agreed in writing by the Parties.
(c)Notification of New Employer. In the event that Executive leaves the employ of the Company, Executive grants consent to notification by the Company to Executive’s new employer about Executive’s rights and obligations under this Agreement and the Confidential Information Agreement. Company agrees not to notify Executive’s new employer unless it has a reasonable belief that Executive has violated or intends to violate a provision of the Confidential Information Agreement.
11. Arbitration. To ensure the timely and economical resolution of disputes that may arise in
connection with Executive’s employment with the Company, Executive and the Company agree that any and all disputes, claims, or causes of action arising from or relating to the enforcement, breach, performance, negotiation, execution, or interpretation of this Agreement, Confidential Information Agreement, or Executive’s employment, or the termination of Executive’s employment, including but not limited to all statutory claims, will be resolved pursuant to the Federal Arbitration Act, 9 U.S.C. §1-16, and to the fullest extent permitted by law, by final, binding and confidential arbitration by a single arbitrator conducted in Boston, Massachusetts by Judicial Arbitration and Mediation Services Inc. (“JAMS”) under the then applicable JAMS rules (at the following web address: https://www.jamsadr.com/rules-employment-arbitration/); provided, however, this arbitration provision shall not apply to sexual harassment claims to the extent prohibited by applicable law. A hard copy of the rules will be provided to Executive upon request. By agreeing to this arbitration procedure, both Executive and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. In addition, all claims, disputes, or causes of action under this section, whether by Executive or the Company, must be brought in an individual capacity, and shall not be brought as a plaintiff (or claimant) or class member in any purported class or representative proceeding, nor joined or consolidated with the claims of any other person or entity. The Arbitrator may not consolidate the claims of more than one person or entity, and may not preside over any form of representative or class proceeding. To the extent that the preceding sentences regarding class claims or proceedings are found to violate applicable law or are otherwise found unenforceable, any claim(s) alleged or brought on behalf of a class shall proceed in a court of law rather than by arbitration. The Company acknowledges that Executive will have the right to be represented by legal counsel at any arbitration proceeding. Questions of whether a claim is subject to arbitration under this Agreement) shall be decided by the arbitrator. Likewise, procedural questions which grow out of the dispute and bear on the final disposition are also matters for the arbitrator. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; (b) issue a written arbitration decision, to include the arbitrator’s essential findings and conclusions and a statement of the award; and (c) be authorized to award any or all remedies that Executive or the Company would be entitled to seek in a court of law. Executive and the Company shall equally share all JAMS’ arbitration fees. Except as modified in the Confidential Information Agreement, each party is responsible for its own attorneys’ fees. Nothing in this Agreement is intended to prevent either Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent jurisdiction. To the extent applicable law prohibits mandatory arbitration of sexual harassment claims, in the event you intend to bring multiple claims, including a sexual harassment claim, the sexual harassment may be publicly filed with a court, while any other claims will remain subject to mandatory arbitration.
Exhibit 10.27
12.Assignment. This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Executive upon Executive's death and (b) any successor of the Company. Any such successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes. For this purpose, “successor” means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance or other disposition of Executive’s right to compensation or other benefits will be null and void.
13.Notices. All notices, requests, demands and other communications called for under this Agreement shall be in writing and shall be delivered via e-mail, personally by hand or by courier, mailed by United States first-class mail, postage prepaid, or sent by facsimile directed to the Party to be notified at the address or facsimile number indicated for such Party on the signature page to this Agreement, or at such other address or facsimile number as such Party may designate by ten (10) days’ advance written notice to the other Parties hereto. All such notices and other communications shall be deemed given upon personal delivery, three (3) days after the date of mailing, or upon confirmation of facsimile transfer or e-mail. Notices sent via e-mail under this Section shall be sent to either the e-mail address in this Agreement, or for e-mails sent by the Company to Executive, to the last e-mail address on file with the Company.
14.Severability. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement will continue in full force and effect without said provision.
15.Integration. This Agreement, together with the Plan and related agreements, and the Confidential Information Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral. No waiver, alteration, or modification of any of the provisions of this Agreement will be binding unless in writing and signed by duly authorized representatives of the parties hereto.
16.Tax Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable taxes.
17.Waiver. No Party shall be deemed to have waived any right, power or privilege under this Agreement or any provisions hereof unless such waiver shall have been duly executed in writing and acknowledged by the Party to be charged with such waiver. The failure of any Party at any time to insist on performance of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions, nor in any way to affect the validity of this Agreement or any part hereof. No waiver of any breach of this Agreement shall be held to be a waiver of any other subsequent breach.
18.Governing Law. This Agreement will be governed by the laws of the Commonwealth of Massachusetts (with the exception of its conflict of laws provisions).
19.Acknowledgment. Executive acknowledges that Executive has had the opportunity to discuss this matter with and obtain advice from Executive’s legal counsel, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement.
20.Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, and all such counterparts shall constitute but one instrument.
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21.Effect of Headings. The section and subsection headings contained herein are for convenience only and shall not affect the construction hereof.
22.Construction of Agreement. This Agreement has been negotiated by the respective Parties, and the language shall not be construed for or against either Party.
23.Section 409A.
(a)Notwithstanding anything to the contrary in this Agreement, no severance pay or benefits to be paid or provided to Executive, if any, pursuant to this Agreement, when considered together with any other severance payments or separation benefits that are considered deferred compensation under Section 409A (together, the “Deferred Compensation Separation Benefits”) will be paid or otherwise provided until Executive has a “separation from service” within the meaning of Section 409A.
(b)Notwithstanding anything to the contrary in this Agreement, if Executive is a “specified employee” within the meaning of Section 409A at the time of Executive’s termination (other than due to death), then the Deferred Compensation Separation Benefits that are payable within the first six (6) months following Executive’s separation from service, will become payable on the first payroll date that occurs on or after the date six (6) months and one (1) day following the date of Executive’s separation from service. All subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. Notwithstanding anything herein to the contrary, if Executive dies following Executive’s separation from service, but prior to the six (6) month anniversary of the separation from service, then any payments delayed in accordance with this paragraph will be payable in a lump sum as soon as administratively practicable after the date of Executive’s death and all other Deferred Compensation Separation Benefits will be payable in accordance with the payment schedule applicable to each payment or benefit. Each payment and benefit payable under this Agreement is intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.
(c)Any amount paid under this Agreement that satisfies the requirements of the “short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations will not constitute Deferred Compensation Separation Benefits for purposes of clause (a) above.
(d)Any amount paid under this Agreement that qualifies as a payment made as a result of an involuntary separation from service pursuant to Section 1.409A-1(b)(9)(iii) of the Treasury Regulations that does not exceed the Section 409A Limit will not constitute Deferred Compensation Separation Benefits for purposes of clause (a) above. For purposes of this Agreement, “Section 409A Limit” will mean the lesser of two (2) times: (i) Executive’s annualized compensation based upon the annual rate of pay paid to Executive during the Executive’s taxable year preceding Executive’s taxable year of Executive’s termination of employment as determined under Treasury Regulation Section 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidance issued with respect thereto; or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Internal Revenue Code for the year in which Executive’s employment is terminated.
(e) The foregoing provisions are intended to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. The Company and Executive agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to Executive under Section 409A.
Exhibit 10.27
IN WITNESS WHEREOF, each of the Parties has executed this Agreement as of the day and year first above written.
“COMPANY”
X4 PHARMACEUTICALS, INC.
By: /s/ Paula M. Ragan
Address:
X4 Pharmaceuticals, Inc
61 North Beacon Street, 4th Floor
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Exhibit 10.27
Boston, MA 02134
Attn: Ronny Mosston
Email: Ronny.Mosston@x4pharma.com
“EXECUTIVE”
DR. DIEGO CADAVID
/s/ Diego Cadavid
Executive Name
Address:
24 Blueberry Lane
Concord, MA 01742
Email: cadavid.diego@gmail.com
Enclosure
Confidentiality, Non-Solicitation, Intellectual Property and Change of Control Agreement
x4 PHARMACEUTICALS, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
SIGNATURE PAGE
Exhibit 10.27
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Exhibit-10.33
Non-Exclusive LICENSE AGREEMENT
This Non-Exclusive License Agreement, effective as of November 13, 2020 (“Effective Date”), is between the Dana-Farber Cancer Institute, Inc., a Massachusetts non-profit organization having a principal place of business at 450 Brookline Ave., Boston, MA 02215, USA (“DFCI”) and X4 Pharmaceuticals, Inc. a Delaware corporation having a principal place of business at 61 North Beacon Street, 4th Floor, Boston, Massachusetts 02134 (“Licensee”). Each of DFCI and Licensee may be referred to herein as a “Party” or collectively as the “Parties.”
Background
WHEREAS, DFCI desires to promote the public interest by granting a license to the Patent Rights as later defined;
WHEREAS, Licensee has represented to DFCI that it has the capabilities and/or experience to develop, produce, market and sell products utilizing technology that is similar to the technology that is the subject of this Agreement and has the financial capacity and the strategic commitment to facilitate the transfer of the technology for the public interest; and
WHEREAS, Licensee desires to obtain a license to DFCI’s rights and DFCI is willing to grant a license upon the terms and conditions of this Agreement.
NOW, THEREFORE, DFCI and Licensee agree as follows.
ARTICLE I. – DEFINITIONS
The following terms set forth in this ARTICLE I have the meanings set forth below:
1.1. “Agreement” means this Non-Exclusive License Agreement, including all attached schedules.
1.2. “Affiliate” means any Person that is controlled by, controls, or is under common control with Licensee. For this purpose “control” means either (a) direct or indirect beneficial ownership of at least fifty percent (50%) interest in the voting stock (or the equivalent) of the relevant entity, (b) having the right to direct, appoint or remove a majority of members of such entity’s board of directors (or their equivalents) or (c) having the power to control the general management of such entity, in each case whether by law or contract.
1.3. “Applicable Law” means any national, international, supra-national, federal, state or local laws, treaties, statutes, ordinances, rulings, rules and regulations, including any rules, regulations, guidance or guidelines, or requirements of any regulatory authorities, national securities exchanges or securities listing organizations, governmental authorities, courts, tribunals, agencies, legislative bodies and commissions that are in effect from time to time during the Term and applicable to a particular activity hereunder.
1.4. “Calendar Quarter” means a period of three (3) consecutive months corresponding to the calendar quarters commencing on the first day of January, April, July or October, or any partial period thereof immediately following the Effective Date or immediately prior to the termination or expiration of this Agreement.
1.5. “Calendar Year” means a period of twelve (12) consecutive months corresponding to the calendar year commencing on the first day of January, or any partial period thereof immediately following the Effective Date or immediately prior to the termination or expiration of this Agreement.
1.6. “Commercially Reasonable Efforts” means, with respect to the research, development, manufacture or commercialization of a Licensed Product or Licensed Process, efforts and resources commonly used by a Person in the pharmaceutical industry in the exercise of reasonable commercial judgment in a manner consistent with such Person’s overall business strategy for products of similar commercial potential at a similar stage of development,
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taking into consideration their safety and efficacy, their cost to develop, the competitiveness of alternative products, their proprietary position, the likelihood of regulatory approval, their profitability, and all other relevant factors.
1.7. “Confidential Information” means all proprietary or confidential information or material in tangible form disclosed hereunder, or proprietary or confidential information otherwise disclosed in non-tangible form hereunder; including all technical and non-technical information disclosed by either Party to the other Party in any form, electronic data and other proprietary information, samples, compounds, methods, formulas, processes, protocols, technologies and equipment employed, information relating to quality assurance, procedures for and record keeping, techniques, inventions, Know-How, apparatus, and formulae, related to the disclosing Party’s current, future and proposed compounds, compositions, and biological materials.
1.8 This section is intentionally left blank.
1.9. “Cover” means, with respect to a given product, process, method or service, that a Valid Claim (and in the event such Valid Claim is contained in a pending patent, assuming such patent is issued) would, absent a license thereunder, be infringed by the research, development, making, using, sale, offering for sale, importation or other Exploitation of such product, process, method or service.
1.10. This section is intentionally left blank.
1.11. This section is intentionally left blank.
1.12. “Distributor” means any Third Party that purchases its requirements for Licensed Product in final packaged form from Licensee or its Affiliates or Sublicensees and is appointed as a distributor to distribute, market and resell such Licensed Product in a country; provided that a Third Party that pays Licensee, or an Affiliate or Sublicensee, a royalty or similar payment based on the sale or transfer by such Third Party of Licensed Product shall be a Sublicensee, and not a Distributor, for purposes of this Agreement.
1.13. “Exploit” shall mean to make, import, use, sell, or offer for sale, research, develop, commercialize, register, manufacture, export, transport, distribute, promote, or market.
1.14. “Field of Use” means the therapeutic use of Licensee’s CXCR4 antagonist for treatment of Waldenstrom’s Macroglobulinemia in combination with BTK inhibitors, including ibrutinib.
1.15. “First Commercial Sale” means with respect to a Licensed Product or Licensed Process and regulatory jurisdiction, the first transfer to a third party of such Licensed Product or Licensed Process in such regulatory jurisdiction after regulatory approval has been obtained in such jurisdiction for such Licensed Product or Licensed Process for which Net Sales are generated.
1.16. “Indemnitees” shall have the meaning set forth in Section 9.1.
1.17. “Inventor” means Steven Treon, M.D., Ph.D.
1.18. This section is intentionally left blank.
1.19. “Licensed Process” means any process or method the use, performance, sale or offer for sale of which (or a part thereof) is covered by a Valid Claim.
1.20. “Licensed Product” means any product (a) the making, using, selling, offering for sale or importing of which product (or part thereof) is covered by a Valid Claim, (b) that is made, used or sold according to a Licensed Process.
1.21. “Net Sales” means:
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a.the gross income billed or invoiced (or, if greater or not otherwise billed or invoiced, the gross amount received) by Licensee, its Affiliates or Sublicensees from the sale or transfer of a Licensed Product or a service performed using a Licensed Product or a Licensed Process to Third Parties (including Distributors and end users) less the following deductions to the extent such deductions (i) are appropriately allocated to the Licensed Product, (ii) do not exceed reasonable and customary amounts in the country in which the transaction occurs and (iii) are consistent with the accounting standards of the selling Person:
i.Outbound transportation charges or allowances actually paid or granted;
ii.Trade, quantity or cash discounts, if any, to the extent actually allowed and taken;
iii.Credits or allowances made or given due to rejects, returns, or retroactive price reductions for any amount not collected that are specifically identifiable to Licensed Products;
iv.Any tax or governmental charge directly on the sale or transportation, use or delivery of Licensed Products paid by Licensee, its Affiliate or Sublicensee that is reflected on a document of sale and not recovered from the purchaser.
b.In the case of a sale or other transfer of a Licensed Product within Licensee or between or among Licensee, a Sublicensee or their Affiliates for further sale or other transfer by such transferee, Net Sales shall be based on the gross amount billed, invoiced, or received (as applicable) for the first sale or other transfer of such Licensed Product to (i) an entity other than Licensee, a Sublicensee or their Affiliates, or (ii) a transferee that is the final purchaser or transferee.
c.No deductions will be made for commissions paid to individuals whether they are with independent sales agencies or regularly employed by Licensee, its Affiliates or Sublicensees, and on its payroll, or for cost of collections.
d.Neither Licensee nor an Affiliate or Sublicensee of Licensee shall accept non-monetary consideration for any Licensed Product or any service performed using any Licensed Product or Licensed Process without the prior written consent of DFCI.
e.If a Licensed Product or a service performed using any Licensed Product or Licensed Process is billed, invoiced or otherwise transferred at a discounted price that is substantially lower than the customary prices charged by Licensee, its Affiliate or Sublicensee, or billed, invoiced, or in accordance with the preceding paragraph or otherwise transferred for non-monetary consideration (whether or not at a discount), Net Sales will be calculated based on the average non-discounted amount charged for the Licensed Product or such service in an arms-length transaction to an independent Third Party during the same Calendar Quarter in the same country or, in the absence of such sales, on the fair market value of the Licensed Product or such service at the time of the transaction assuming an arm’s length transaction made in the ordinary course of business.
f.Notwithstanding the foregoing, transfers or dispositions of Licensed Product:
i.in connection with patient assistance programs,
ii.for charitable or promotional purposes, or
iii.for preclinical, clinical, regulatory or regulatory purposes or under so-called “named patient” or other limited access programs, shall not, in any such case, result in Net Sales or constitute a First Commercial Sale of such Licensed Product if Licensee, its Affiliates or Sublicensees do not receive compensation for such transfers or dispositions in excess of Licensee’s, its Affiliates’ or Sublicensees’ cost for such Licensed Product.
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g.Net Sales shall be deemed to occur on the earlier of the date of billing, invoicing or receiving consideration for a Licensed Product or a service performed using any Licensed Product or Licensed Process.
1.22. “Patent Challenge” shall mean any challenge to the validity, patentability, enforceability or non-infringement of any of the Patent Rights or otherwise opposing any of the Patent Rights through a legal or administrative proceeding.
1.23. “Patent Rights” means (a) the patent applications listed in Exhibit A, (b) any conversion, continuation, division, or substitution thereof, (c) any continuation-in-part to the extent directed to subject matter specifically described in, and entitled under 35 U.S.C. § 120 to the priority date of, the patent application described in clause (a) of this Section 1.22, (d) any patents issuing on the patent applications described in clauses (a) through (c) of this Section 1.22 and (e) any reissues, reexaminations or extensions of the patents and any foreign counterparts of the patent applications and patents, in each case as described in clauses (a) through (d) of this Section 1.22.
1.24. “Person” means an individual, sole proprietorship, partnership, limited partnership, limited liability partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or other similar entity or organization.
1.25. “Regulatory Exclusivity” means any exclusive marketing rights or data exclusivity rights conferred by any regulatory authority with respect to a Licensed Product or Licensed Process in a country or jurisdiction in the Territory, other than a patent, including exclusivity for an approved New Drug Application (as defined in the FFDCA) or any corresponding foreign application in the Territory, new chemical entity exclusivity, new clinical data exclusivity, orphan drug exclusivity, pediatric exclusivity, or rights similar thereto in other countries or regulatory jurisdictions.
1.26. “Royalty Term” means, on a Licensed Product-by-Licensed Product or Licensed Process-by-Licensed Process and country-by-country basis, the period of time commencing with the First Commercial Sale of a Licensed Product or Licensed Process in a country and continue until the later of (i) the expiration or termination of the last to expire Valid Claim of a Patent Right Covering such Licensed Product or Licensed Process in such country, (ii) the tenth (10th) anniversary of the First Commercial Sale of such Licensed Product or Licensed Process in such country, and (iii) the expiration of all Regulatory Exclusivity for such Licensed Product or Licensed Process in such country.
1.27. “Sublicense” means an agreement in which Licensee (a) grants or otherwise transfers any of the rights licensed to Licensee hereunder or other rights that are relevant to designing, developing, testing, making, using, selling, performing or practicing of Licensed Products or Licensed Processes or use or practice of Patent Rights, (b) agrees not to assert such rights or to sue, prevent or seek a legal remedy for the performance or practice of same, or (c) is under an obligation to grant, assign or otherwise transfer any such rights or non-assertion, or to forebear from granting or otherwise transferring such rights to any other entity. Agreements expressly considered Sublicenses include (x) licenses, option agreements, “lock up” agreements, right of first refusal agreements, non-assertion agreements, covenants not to sue, distribution agreements that grant or otherwise transfer any rights licensed to Licensee hereunder, or similar agreements and (y) agreements that grant or otherwise transfer rights licensed to Licensee under this Agreement along with rights owned by Licensee or granted to Licensee by a Third Party. For the avoidance of doubt, if a Sublicense is entered into pursuant to an option or similar agreement that is also a Sublicense, then the date of execution of the Sublicense shall be the execution date of the option or similar agreement, not the date of the exercise of the option or similar agreement.
1.28 “Sublicense Income” means consideration in any form other than running royalties on Net Sales that Licensee or an Affiliate receives from a Sublicensee or its Affiliates. Sublicense Income shall include any upfront payments, license or option fees, lump sum payment, equity securities, milestone payments and other payments. In the event Licensee or any of its Affiliates receives non-cash consideration in connection with a Sublicense, Sublicense Income shall be calculated based on the fair market value of such consideration at the time of the transaction, assuming an arm’s length transaction made in the ordinary course of business.
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1.29 “Sublicensee” means a Person to which Licensee has granted a Sublicense.
1.30 “Taxes” shall have the meaning set forth in Section 4.3(b).
1.31 “Term” shall have the meaning set forth in Section 8.1.
1.32 “Territory” means worldwide.
1.33 “Third Party” means any Person other than DFCI, Licensee or any of their respective Affiliates.
1.34 “Valid Claim” means (a) a claim in an issued and unexpired patent included in the Patent Rights that: (i) has not been permanently revoked or held unenforceable, unpatentable or invalid by a decision of a court or other governmental agency of competent jurisdiction, and is not subject to appeal, (ii) has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise and (iii) has not been lost through an interference, reexamination or reissue proceeding, and is not subject to appeal, or (b) a pending claim of a pending patent application included in the Patent Rights which has not been finally rejected by an administrative agency action from which no appeal can be taken.
ARTICLE II. – Grant of Licenses, Reserved Rights and Sublicensing
2.1 License Grant.
Subject to all of the terms and conditions of this Agreement (including without limitation the non-exclusive license granted to the United States government in Section 2.4) DFCI grants to Licensee a non-exclusive, royalty-bearing license under Patent Rights, with the right to grant Sublicenses in accordance with Section 2.5, to use, make, have made, develop, market, import, distribute, sell and have sold Licensed Products and Licensed Processes in the Territory for the Field of Use during the Term.
2.2 Affiliates. Licensee has the right to have some or all of its rights or obligations under this Agreement exercised or performed on Licensee’s behalf by one or more of its Affiliates, such exercise or performance to be consistent with all of the terms and conditions of this Agreement. If an Affiliate of Licensee does assume any of Licensee’s obligations under the Agreement, Licensee guarantees performance by the Affiliate of such obligation. Any act or omission of an Affiliate which would be a breach of this Agreement if performed by Licensee shall be deemed to be a breach by Licensee of this Agreement. If DFCI has a claim arising under this Agreement against an Affiliate, DFCI may seek a remedy directly against Licensee and may, but is not required to, seek a remedy against the Affiliate. Notwithstanding anything to the contrary in this Agreement, in no event shall an Affiliate of Licensee have the right to grant a sublicense of any rights licensed to Licensee under this Agreement.
2.3 No Implied Licenses. This Agreement confers no license or rights by implication, estoppel or otherwise under any other technology, patent applications or patents owned, licensed or otherwise controlled in whole or in part by DFCI other than the Licensed Process or Licensed Product as set forth in this Agreement.
2.4 Reserved Rights. Notwithstanding anything to the contrary in this Agreement, the licenses granted by DFCI under this Agreement are subject to the following reserved rights:
a.The rights of the United States of America, as set forth in (i) Public laws 96-517 and 98-620, the regulations promulgated thereunder and any successor statutes and regulations, in each case as amended from time to time and (ii) the policy of any funding agencies. Any rights granted hereunder which are greater than permitted by the rights reserved by the United States of America detailed in the preceding sentence are subject to modification as required to conform to such rights reserved.
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b.DFCI’s right to grant non-exclusive, non-transferable licenses under Patent Rights to other academic, government or non-profit institutions in the Field of Use in the Territory for non-commercial purposes, including research, teaching and education purposes.
c.DFCI’s right to grant field-limited non-exclusive licenses, under Patent Rights to for-profit companies for commercial purposes.
d.DFCI’s right to make, have made, use, import, perform and practice Licensed Products and Licensed Processes in the Territory for the Field of Use for non-commercial purposes, including research, teaching and educational purposes.
2.5 Sublicensing.
a.General. Licensee has the right to grant Sublicenses under this Agreement during the Term in accordance with and subject to the terms and conditions of this Agreement. Notwithstanding anything to the contrary in this Agreement, it is expressly understood that Licensee and its Sublicensees shall not grant a Sublicense to any company engaged in the sales of tobacco or tobacco-related products; for the avoidance of doubt, “tobacco” or “tobacco-related” products shall not include products aimed at curbing or ceasing tobacco use. Licensee remains responsible for the operations of any Sublicensee under a Sublicense, as if the operations were carried out by Licensee under this Agreement. Notwithstanding any Sublicense, Licensee shall remain primarily liable to DFCI for all of Licensee’s duties and obligations contained in this Agreement, and any act or omission of a Sublicensee which would be a breach of this Agreement if performed by Licensee shall be deemed to be a breach by Licensee of this Agreement. Any Sublicenses granted by Licensee shall not include the right to grant any further Sublicenses other than as may be agreed in writing by DFCI, any permitted further Sublicenses to be subject to all restrictions on the granting of Sublicenses herein. If DFCI has a claim arising under this Agreement against a Sublicensee, then DFCI may seek a remedy directly against Licensee and may, but is not required to, seek a remedy against the Sublicensee. If a Sublicensee (or an Affiliate of such Sublicensee) undertakes a Patent Challenge of any such Patent Right under which such Sublicensee is sublicensed, then Licensee, upon receipt of notice from DFCI of such Patent Challenge, will terminate the applicable Sublicense.
b.Notice and Approval. Licensee shall promptly notify DFCI in writing of the identity of any prospective Sublicensee for DFCI’s approval, which shall not be unreasonably withheld.
c.Form and Content of Sublicenses. Licensee shall issue any Sublicense(s) granted by it under this Agreement in writing. Licensee shall include the equivalent of at least the following provisions in all Sublicenses:
i.Sublicensee shall use its best efforts to bring the subject matter of the Sublicense into commercial use as quickly as possible and shall report at least annually to Licensee on such efforts and its operations under the Sublicense;
ii.DFCI shall be an intended third party beneficiary under the Sublicense with the right to enforce the applicable terms of the Sublicense, including intellectual property ownership and enforcement, indemnification obligations, insurance and compliance with laws, and termination provisions;
iii.Sublicensee shall indemnify, defend and hold the Indemnitees harmless to at least the extent that Licensee is obligated to indemnify the Indemnitees under Section 9.1 of this Agreement;
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iv.Sublicensee shall make payments due to Licensee in relation to Net Sales of Licensed Products in a timely manner, so that Licensee may comply with its obligations to make payments to DFCI as set forth in ARTICLE III and ARTICLE IV of this Agreement;
v.If Sublicensee undertakes a Patent Challenge with respect to any Patent Rights under which the Sublicensee is sublicensed, then Licensee will be permitted to terminate such sublicense agreement;
vi.Sublicensee will comply with the applicable terms and conditions of this Agreement, including Section 2.4 (Reserved Rights), Section 4.2(a) (Books and Records) and 2.5 (Inspections), Sections 5.2-5.6, (U.S. Manufacture, Other Government Laws, Patent Marking, Publicity, Other Agreements), ARTICLE VI (Patent Preparation, Filing, Prosecution and Maintenance ), ARTICLE VII (Patent Infringement and Enforcement), Section 8.4(f) (Termination-Sublicenses) and ARTICLE IX (Indemnification, Defense and Insurance), ARTICLE X (Disclaimer of Warranties) and ARTICLE XII (Dispute Resolution).
vii.Sublicensees do not have the right to grant further sublicenses without the prior written approval of DFCI, which shall not be unreasonably withheld.
d.Copies of Sublicenses to DFCI. Licensee shall forward to DFCI a copy of any and all fully executed Sublicenses within thirty (30) days of the execution of the Sublicense, which copy may be redacted to omit proprietary and other sensitive information to the extent that such redaction does not impact DFCI’s ability to confirm Licensee’s compliance with this Agreement. Licensee shall also forward to DFCI annually a copy of any reports received by Licensee from its Sublicensee during the preceding twelve (12) month period under a Sublicense that relate to (1) the Sublicensee’s operations under the Sublicense and (2) a royalty or Sublicense Income accounting under the Sublicense.
e.Licensee’s Continuing Obligations. Nothing in this Section 2.5 may be construed to relieve Licensee of its obligations to DFCI under this Agreement, including but not limited to Licensee’s obligations under ARTICLE IX.
ARTICLE III. – CONSIDERATION
3.1 Reimbursements and Other Financial Consideration. In partial consideration of the rights granted by DFCI to Licensee under this Agreement, Licensee shall make the following payments to DFCI according to this ARTICLE III and ARTICLE IV, on behalf of itself, any Affiliate(s) or Sublicensee(s).
a.Past Patent Expenses. Within thirty (30) days after the Effective Date, Licensee shall reimburse DFCI for twenty-five percent (25%) of all out-of-pocket expenses incurred by DFCI for filing, prosecuting, maintaining and enforcing Patent Rights prior to the Effective Date. Licensee acknowledges that the total amount of these patent expenses is one hundred thirty-eight thousand eight hundred twenty-three dollars and eighty-seven cents ($138,823.87). Licensee shall reimburse DFCI for these expenses in the amount of thirty-four thousand seven hundred five dollars and ninety-seven cents ($34,705.97).
b.Future Patent Expenses. Licensee shall pay twenty-five percent (25%) of all reasonable out-of-pocket patent expenses incurred or paid by DFCI on or after the Effective Date for preparing, filing, prosecuting, and maintaining Patent Rights according to ARTICLE VI. DFCI shall submit to Licensee via email at accounts.payable@x4pharma.com invoices that document the out-of-pocket expenses incurred or paid by DFCI during the period being invoiced and state the total amount owed to DFCI. DFCI shall include X4 purchase order number X4C20-0369 on all such invoices. Undisputed invoices will be paid by Licensee within thirty (30) days of receipt.
c.Initial License Fee. Licensee shall pay to DFCI a non-creditable, non-refundable license issue fee in the sum of twenty-five thousand dollars ($25,000), which is due and payable to DFCI within
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fifteen (15) days of receipt of an invoice. DFCI shall include X4 purchase order number X4C20-0369 on the invoice.
d.License Maintenance Fees. Licensee shall pay DFCI a non-refundable license maintenance fee of ten thousand dollars ($10,000) on or before the first anniversary, the second anniversary, and the third anniversary of the Effective Date. Licensee shall pay DFCI a non-refundable license maintenance fee of forty thousand dollars ($40,000) on or before the fourth anniversary, the fifth anniversary, and the sixth anniversary of the Effective Date. Licensee shall pay DFCI a non-refundable license maintenance fee of fifty thousand dollars ($50,000) on or before the seventh anniversary of the Effective Date and each anniversary thereafter. License Maintenance Fees shall cease to be due in the first Calendar Year in which the First Commercial Sale of a Licensed Product or Licensed Process occurs. License Maintenance Fees shall be creditable toward a Milestone Fee due in the same Calendar Year.
e.Milestone Payments. Licensee shall make the following non-creditable, non-refundable milestone payments to DFCI within forty-five (45) days of the occurrence of the following events achieved with respect to a Licensed Product, whether Licensee, an Affiliate or Sublicensee achieves the events, payable once per Licensed Product.
i.Development Milestones
A.Phase II clinical trial first patient, first visit: $100K
B.Phase III clinical trial first patient, first visit: $200K
ii.Marketing Authorization Milestones
A.US regulatory approval: $250K
B.EU regulatory approval: $150K
iii.Commercialization Milestones
A.Each milestone payment set forth below is payable once for the first Licensed Product in the first indication to meet or exceed the specified Net Sales threshold in a Calendar Year.
B.First commercial sale: $100K
C.Total aggregate Net Sales > $100M: $500K
D.Total aggregate Net Sales > $200M: $1M
E.Total aggregate Net Sales > $2B: $10M
F.Total aggregate Net Sales > $4B: $20M
f.Running Royalties. Licensee shall pay DFCI the following running royalties on Net Sales by Licensee, its Affiliates or its Sublicensees of each Licensed Product or Licensed Process in a country in the Territory during the Royalty Term for such Licensed Product or Licensed Process in such country as follows:
1.Three-quarter percent (0.75%) of Net Sales of Licensed Products or Licensed Processes sold in such country which are covered by one or more Patent Rights in such country.
2.One-half percent (0.5%) of Net Sales of Licensed Products or Licensed Processes in such country which are not covered by any Patent Right in such country.Notwithstanding anything to the contrary in this Agreement, a Licensed Product that has commenced its Royalty Term in a country shall be deemed a “Licensed Product” in such country until the Royalty Term terminates for such product in such country
3.Sublicense Income. Licensee shall pay DFCI a royalty of two percent (2%) of Sublicense Income during the Term. Licensee shall pay these royalties to DFCI within forty-five (45) days of each Calendar Quarter in which the relevant Sublicense Income is received by Licensee or its Affiliate for a Licensed Product or Licensed Process.
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3.2. Consequences of a Patent Challenge. In the event that: (i) Licensee or any of its Affiliates brings a Patent Challenge (except as required under a court order or subpoena), or (ii) Licensee or any of its Affiliates assists another party in bringing a Patent Challenge (except as required under a court order or subpoena or (iii) a Sublicensee or any of its Affiliates brings a Patent Challenge or assists another in bringing a Patent Challenge and Licensee does not terminate such Sublicensee’s Sublicense within thirty (30) days after notice to Licensee of the relevant Patent Challenge from DFCI and (iv) DFCI does not choose to exercise its rights to terminate this Agreement pursuant to Section 8.2(i), then the royalties due under Section 3.1(h) shall be doubled for the remainder of the Term of this Agreement. In the event that such a Patent Challenge is successful, Licensee will have no right to recoup any royalties paid during the period of challenge. In the event that a Patent Challenge is unsuccessful, Licensee shall reimburse DFCI for all reasonable legal fees and expenses incurred in its defense against the relevant Patent Challenge. For the sake of clarity, royalties due during the pendency of the Patent Challenge shall be paid directly to DFCI and not placed in escrow or other account.
3.3. Waiver or Deferral. Waiver or deferral by DFCI of any payment owed under any paragraph under Section 3.1 may not be construed as a waiver or deferral of any subsequent payment owed by Licensee to DFCI.
ARTICLE IV. – Royalty Reports, Payments and Financial Records
4.1. Royalty Reports. Within thirty (30) days after each Calendar Quarter, Licensee shall deliver to DFCI full, true and accurate reports of its activities and those of its Affiliates or Sublicensee(s), if any, relating to this Agreement or the rights licensed hereunder during the preceding Calendar Quarter. These reports must include at least the following, each on a country-by-country and Licensed Product-by-Licensed Product and Licensed Process-by-Licensed Process basis:
a.Number of Licensed Products and Licensed Processes manufactured or sold by Licensee, and any Affiliates or Sublicensees, in the Territory with the country of manufacture specified for each Licensed Product and Licensed Processes sold;
b.Total billings for the Licensed Products and Licensed Processes sold by Licensee, its Affiliates and Sublicensees in the Territory;
c.Itemized deductions applicable to determining Net Sales;
d.The nature and amount of Sublicense Income received by Licensee or its Affiliates; and
e.Total royalties due to DFCI, and the applicable royalty rate(s) applied.
If multiple Licensed Products or Licensed Process are covered by the license granted under this Agreement, Licensee shall separately identify each Licensed Product or Licensed Process in the royalty report and specify which patents/application within Patent Rights, if any, are used for the Exploitation of each Licensed Product or Licensed Process. Following receipt of such report, DFCI shall invoice Licensee for the royalties, if any, due and payable to DFCI under Section 3.1(h) and Licensee shall submit payment for amounts due under such invoice within thirty (30) days of invoice receipt.
4.2 Record Keeping.
a.Books and Records. Licensee shall keep, and shall require its Affiliates and Sublicensees to keep, true books of account containing an accurate record (together with supporting documentation) of all data necessary for determining the amounts payable to DFCI. Licensee shall keep its records at its principal place of business or the principal place of business of the appropriate division of Licensee to which this Agreement relates and shall require its Affiliates and Sublicenses to keep their books and records in the same manner.
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b.Inspections. In order for DFCI to determine the correctness of any report or payment made under this Agreement, Licensee shall make its records available to DFCI for inspection for a period of three (3) years following the end of the Calendar Year to which they pertain. Licensee shall also require any Affiliates or Sublicensees to make their records available for inspection by DFCI, in the same manner as provided in this Section 4.2(b). DFCI may inspect the records during regular business hours by a certified public accountant selected by DFCI and reasonably acceptable to the licensed entity whose records are being inspected. In conducting inspections under this Section 4.2(b), Licensee agrees that DFCI’s accountant may have access to all records which DFCI reasonably believes to be relevant to calculating payments owed to DFCI under ARTICLE III. DFCI is responsible for the cost of any inspection, unless the examination shows an underreporting or underpayment by any entity to DFCI in excess of five percent (5%) for any twelve month period, in which case Licensee shall pay the cost of the inspection as well as any additional sum that would have been payable to DFCI had the Licensee reported correctly, plus interest as set forth in Section 4.5.
4.3 Form of Payments and Taxes.
(1)Licensee shall direct all payments to Dana Farber Cancer Institute in Boston, Massachusetts, or at such other place or in such other way as DFCI may reasonably designate. All payments shall reference DFCI Agr # A15627, and payments shall either:
be paid by check payable to Dana-Farber Cancer Institute and sent to:
Belfer Office for Dana-Farber Innovations (BODFI)
Attn: Finance
Dana Farber Cancer Institute
450 Brookline Ave.
BP304
Boston, MA 02215
or be paid by wire transfer, using the following information:
Bank: Bank of America
Bank Address: 100 Federal Street, Boston, MA 02110
Account #431-72001
ABA# 026009593
or be paid by wire transfers using ACH/EFT:
Beneficiary: Dana-Farber Cancer Institute, Inc.
Bank of America
100 Federal Street
Boston, MA 02110
ABA# 011 000 138
Account#: 00431 72001
SWIFT BOFAUS3N
(2)Unless otherwise required under Applicable Law, Licensee shall pay all amounts payable to DFCI under this Agreement in United States Dollars without deduction or withholding for or on account of any taxes, exchange, collection or other charges that may be imposed by any country or political subdivision (“Taxes”). If any Taxes are required by Applicable Law to be withheld on amounts payable to DFCI under this Agreement, Licensee will pay to DFCI an additional amount as is necessary to ensure that the amount actually received by DFCI is equal to the amount of payment that would have been made if no such Taxes had applied. If Taxes are imposed on a
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payment to DFCI under Applicable Law, Licensee will, to the extent such is available, promptly provide evidence that Licensee has paid such Taxes to the proper taxing authority.
4.4 Currency Conversion. If any currency conversion is required in connection with any payment owed to DFCI, the conversion will be made at the buying rate for the transfer of such other currency as quoted by the Wall Street Journal on the last business day of the applicable accounting period in the case of any payment payable with respect to a specified accounting period or, in the case of any other payment, the last business day before the date the payment is due.
4.5 Interest. Any payment owed to DFCI under this Agreement that is not made when due will accrue interest beginning on the first day following the due date specified in ARTICLE III and such interest payment will be due immediately but in no event later than the payment of the overdue amount to DFCI. The interest will be calculated at the annual rate of the sum of (a) two percent (2%) plus (b), the prime interest rate quoted by Bank of America on the date the payment is due, the interest being compounded on the last day of each Calendar Quarter; provided that the annual rate may not exceed the maximum legal interest rate permitted by Applicable Law. The payment of interest as required by this Section 4.5 does not foreclose or in any way limit DFCI from exercising any other rights or remedies it has as a consequence of the lateness of any payment.
ARTICLE V. – Operations under the License
5.1 Due Diligence.
a.General Obligations. Licensee shall use Commercially Reasonable Efforts to bring one or more Licensed Products or Licensed Processes to the marketplace as soon as reasonably practicable. After commercialization, Licensee shall continue Commercially Reasonable Efforts to keep Licensed Products and Licensed Processes available to the public.
b.Development and Commercialization Reports. On or before each anniversary of the Effective Date, Licensee shall provide to DFCI a written report describing the efforts by Licensee, or any Affiliates or Sublicensees, to bring one or more Licensed Products or Licensed Processes to the marketplace. The report must be in sufficient detail to permit DFCI to monitor Licensee’s compliance with the diligence provisions and requirements of this Agreement. Licensee shall include at least the following in these reports: (a) a summary of Licensee’s progress toward meeting the goals and objectives that had been established for the previous Calendar Year; (b) a summary of Licensee’s goals and objectives for the ensuing Calendar Year for developing and commercializing Patent Rights, including an identification of additional Licensed Products or Licensed Processes that Licensee intends to develop, if any and, if after the date of First Commercial Sale in any country, a summary of the activities of Licensee, and any Affiliates and Sublicensees, directed toward promoting the sale of Licensed Products in the Territory.
c.Failure to Perform. Licensee’s failure to satisfy any diligence obligations set forth in Section 5.1(a) shall give rise to DFCI’s ability to terminate this Agreement pursuant to Section 8.2(c).
d.Decision Not to Further Exploit. If at any time during the Term, Licensee decides not to Exploit or further Exploit a particular Licensed Product or Licensed Process, either by itself, with an Affiliate or through sublicensing, it shall promptly inform DFCI in writing. Unless within sixty (60) days of such notice to DFCI, Licensee establishes to DFCI’s satisfaction that the particular Licensed Product or Licensed Process that will no longer be Exploited is directly comparable to another Licensed Product or Licensed Process that Licensee is diligently developing or commercializing pursuant to this Agreement, DFCI has the right to terminate this Agreement by immediate written notice insofar as it applies to the particular Licensed Product or Licensed Process by providing written notice to Licensee. For clarity, any decision by Licensee to not develop or to not commercialize a Licensed Product or Licensed Process shall be a decision not to “Exploit” such Licensed Process or Licensed Product under this Section 5.1(d). In no event shall
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this Section 5.1(d) limit or eliminate, in any way, DFCI’s other rights and remedies under this Agreement and under Applicable Law, including DFCI’s right to terminate this Agreement as described in Section 5.1(c).
This section is intentionally left blank.
5.3 Other Government Laws. Licensee shall comply with, and ensure that its Affiliates and Sublicensees comply with, all Applicable Laws that relate to Licensed Processes or Licensed Products. These include but are not limited to FDA statutes and regulations, the Export Administration Act of 1979, as amended, codified in 50 App. U.S.C. 2041 et seq. and the regulations promulgated thereunder or other applicable export statutes or regulations.
5.4 This section is intentionally left blank.
5.5 Publicity; Use of Name. Licensee, its Affiliates and Sublicensees are not permitted to use the names of DFCI, the Inventor, its related entities or its employees, or any adaptations thereof, in any advertising, promotional or sales literature, or in any securities report required by the Securities and Exchange Commission (except as required by law), without the prior written consent of DFCI in each case. However, Licensee may (a) refer to publications in the scientific literature by employees of DFCI or (b) state that a license from DFCI has been granted as provided in this Agreement.
5.6 Confidentiality. All Confidential Information that is provided by one Party (the “disclosing Party”) to the other Party (the “receiving Party”) hereunder shall be maintained in confidence by the receiving Party, and shall not be disclosed to any Third Party or used for any purpose other than performance of its obligations and exercise of its rights under this Agreement. The Parties agree that disclosure by Licensee of development plan information constituting Exhibit B of this Agreement shall be considered Confidential Information despite such disclosure having occurred prior to the Effective Date hereof, and such information shall be subject to this Section 5.6. For the avoidance of doubt, Confidential Information of DFCI includes analyses or opinions of Third Party intellectual property that may be provided to Licensee by DFCI’s external counsel and any information in connection with patent preparation, filing, prosecution and maintenance under the terms of ARTICLE VI, and Confidential Information of Licensee includes reports submitted to DFCI pursuant to Section 5.1(b). Each Party agrees, during the Term and for five (5) years thereafter, to employ all reasonable efforts to keep the Confidential Information secret and confidential, such efforts to be no less than the degree of care employed by such Party to preserve and safeguard its own confidential information. The Confidential Information shall not be disclosed or revealed to anyone except employees or agents of or consultants to receiving Party who have a need to know the information and who have entered into a secrecy agreement with Licensee under which such employees, agents, or consultants are required to maintain as confidential the Confidential Information and such employees, agents, or consultants shall be advised by Licensee of the confidential nature of the Confidential Information and that the Confidential Information shall be treated accordingly. The receiving Party’s obligations under this Section shall not extend to any part of the information:
a.that can be demonstrated to have been in the public domain prior to the date of the disclosure;
b.that can be demonstrated, from written records, to have been in the receiving Party’s possession prior to the disclosure;
c.that becomes part of the public domain or publicly known by publication or otherwise, not due to any act or omission of the receiving Party, its employees, agents or consultants; or
d.that is demonstrated from written records to have been independently developed by or for the receiving Party without reference to the Confidential Information.
Notwithstanding anything to the contrary in this Agreement, the receiving Party may disclose the Confidential Information in order to comply with Applicable Law or a valid court order, in each case in connection with the receiving Party’s rights and obligations pursuant to this Agreement. Notwithstanding
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the foregoing, in the event the receiving Party is required to make a disclosure of Confidential Information pursuant to the preceding sentence, it will, (x) to the extent permissible under Applicable Law, give reasonable advance notice to the disclosing Party of such disclosure to provide an opportunity for the disclosing Party to challenge or limit the disclosure obligations, (y) use reasonable efforts to secure confidential treatment of such Confidential Information and (z) use reasonable efforts to avoid disclosure of Confidential Information.
5.7 Terms of the Agreement. Each Party agrees not to, and to cause its Affiliates not to, disclose to any Third Party the terms of this Agreement without the prior written consent of the other Party hereto, which consent shall not be withheld unreasonably, except each Party and its Affiliates may disclose the terms of this Agreement without such consent: (a) to advisors (including financial advisors, legal advisors and accountants), actual or potential acquisition partners or private investors, licensees and other financial parties on a reasonable need to know basis, in each case under appropriate confidentiality provisions substantially equivalent to those in this Agreement; or (b) to the extent necessary to comply with Applicable Law and court orders (including securities laws or regulations and the applicable rules of any public stock exchange); provided that in the case of clause (b), the disclosing Party or its Affiliate shall promptly notify the other Party and (other than in the case where such disclosure is necessary, in the reasonable opinion of the disclosing Party’s legal counsel, to comply with securities laws or regulations) allow the other Party a reasonable opportunity to intervene to protect the confidentiality of the information and oppose such disclosure and, to the extent allowable by law, to seek limitations on the portion of the Agreement that is required to be disclosed. Where such disclosure is necessary, in the reasonable opinion of the disclosing Party’s legal counsel, to comply with securities laws or regulations, the disclosing Party shall allow the other Party a reasonable opportunity to review such proposed disclosure and suggest portions of such disclosure for confidential treatment, which suggestions the disclosing Party shall reasonably consider. Notwithstanding any other provisions of this Agreement: (x) the Parties may provide information about this Agreement and amounts paid as part of routinely prepared summary documents that do not disclose any terms that were not disclosed in a mutually agreed press release; (y) the Parties may make factual statements regarding the existence, nature, and type of this Agreement, provided that such statements do not disclose specific terms hereof; and (z) DFCI may report consideration to institutions, inventors or others to whom royalties are payable based on activities performed hereunder and to the government as necessary or required.
5.8 Publications.
a.Notwithstanding anything to the contrary in this Agreement, DFCI retains the right to publish, present and otherwise publicly disseminate any results or other information stemming from the rights retained as set forth in Section 2.4.
ARTICLE VI. – Patent Preparation, Filing, Prosecution and Maintenance
6.1 Responsibility. Subject to Section 3.1(b), DFCI, in its sole discretion, is responsible for preparing, filing, prosecuting and maintaining the patent applications and patents included within Patent Rights, in consultation with Licensee. For purposes of this Agreement, patent “prosecution” and “prosecuting” includes ex parte prosecution, interference proceedings, reissues, reexaminations, oppositions and all proceedings before a patent office in the Territory, including inter partes review, appeals and post grant review proceedings, and any judicial or other appeals of the foregoing. DFCI shall provide, or cause its agent to provide, to Licensee copies of relevant material correspondence between DFCI and the United States Patent Office or the various foreign patent offices with respect to the filing, prosecution and maintenance of Patent Rights.
6.2 Relinquishing Rights. Licensee may surrender its licenses under any of the patents or patent applications within Patent Rights in any country of the Territory by giving ninety (90) days advance written notice to DFCI. However, if Licensee is surrendering any patent or application within Patent Rights on which an inter partes review, post grant review proceeding, interference proceeding, other opposition or any appeal thereof has been declared or filed, the notice period is one hundred and eighty (180) days. If Licensee so surrenders its rights, it will remain responsible for all patent-related expenses incurred by DFCI before or during the applicable notice period. Thereafter, Licensee will have no further obligation to pay any patent expenses for the patents or patent applications
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that it surrendered. Notwithstanding the foregoing, if such surrender results in termination of all rights under this Agreement, then such surrender shall be deemed a termination of this Agreement in its entirety and the termination notice provision in Section 8.3 shall apply.
ARTICLE VII. - Patent Infringement and Enforcement
7.1 Responsibility. Subject to the rights of co-applicants or co-owners of any Patent Rights, DFCI, in its sole discretion, is responsible for preparing, filing, prosecuting, maintaining, enforcing and defending the patent applications and patents included within Patent Rights. For purposes of this Agreement, patent “prosecution” and “prosecuting” includes ex parte prosecution, interference proceedings, reissues, reexaminations, oppositions and all proceedings before a patent office in the Territory, including inter partes review, appeals and post grant review proceedings, and any judicial or other appeals of the foregoing.
7.2 Cooperation. Licensee shall cooperate with DFCI in preparing, filing, prosecuting, maintaining, extending, enforcing and defending the patent applications and patents within Patent Rights, as applicable. Licensee shall provide prompt notice to DFCI of any matter that comes to its attention that may affect the patentability, validity, enforceability, or infringement, or support any extension (including patent term extension pursuant to 35 U.S.C. § 156 and comparable laws and supplementary protection certificates) of any patent application or patent within Patent Rights.
If, at any time during the term of this Agreement, Licensee becomes aware of any infringement of or challenge to the Patent Rights, it will promptly notify DFCI.
7.3 Paragraph IV Type Notices. Without limiting any other obligation under this Agreement, each Party will immediately (but in no event more than five (5) days after awareness) give written notice to the other of any certification of which it becomes aware filed pursuant to any statutory or regulatory requirement in any country in the Territory similar to 21 U.S.C. § 355(b)(2)(A)(iv) or § 355(j)(2)(A)(vii)(IV) (or any amendment or successor statute thereto) claiming that any Patent Right Covering any Licensed Product or License Process is invalid or that infringement will not arise from the development, manufacture, use or commercialization in the Territory of such Licensed Product or Licensed Process by a Third Party. Licensee shall promptly provide to DFCI copies of all correspondence by or to Licensee or its Affiliates related to such certification.
ARTICLE VIII. – Term and Termination
8.1 Term. The term of this Agreement shall commence on the Effective Date and remain in effect until, unless terminated earlier under the provisions of this Agreement, the later of the (a) expiration date of the last to expire of patents within Patent Rights and (b) the expiration of all of Licensee’s payment obligations to DFCI pursuant to this Agreement (such time period, the “Term”).
8.2 Termination by Licensor. DFCI has the right to immediately terminate this Agreement and all licenses granted hereunder by providing Licensee with written notice of termination, upon the occurrence of any of the following events:
a.Licensee ceases to carry on its business with respect to Licensed Products or Licensed Processes.
b.Licensee fails to pay any royalty or other payment pursuant to this Agreement that has become due and is payable under ARTICLE III or ARTICLE IV of this Agreement and has not cured the default by making the required payment, together with interest due, within thirty (30) days of receiving a written notice of default from DFCI requesting such payment.
c.Licensee fails to comply with any of the due diligence obligation provided for in Sections 5.1(a) through 5.1(c) or Section 5.1(e) and Licensee has not cured the default by satisfying such obligation within sixty (60) days of receiving written notice of default from DFCI.
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d.Licensee defaults in its obligations to procure and maintain insurance under Section 9.2.
e.An officer of the Licensee, its Affiliate or Sublicensee is convicted of a felony relating to the manufacture, use, sale or importation of one or more Licensed Products.
f.Licensee has granted a Sublicense (i) without notifying DFCI pursuant to this Agreement or (ii) on terms inconsistent with the terms required of Sublicenses hereunder.
g.Licensee materially breaches any other material obligation under this Agreement, unless Licensee has cured breach within ninety (90) days of receiving written notice from DFCI specifying the nature of the breach.
h.Licensee becomes insolvent, makes an assignment for the benefit of creditors, or has a petition in bankruptcy filed for or against it.
i.Licensee or any of its Affiliates, Sublicensees or Sublicensees’ Affiliates directly or indirectly brings a Patent Challenge or assists others in bringing a Patent Challenge, in each case except as may be required under a court order or subpoena.
8.3 Termination by Licensee. Licensee has the right to terminate this Agreement without cause by (a) giving DFCI ninety (90) days prior written notice and (b) paying all amounts due to DFCI through such effective date of termination.
8.4 Effect of Termination.
a.No Release. Upon termination or expiration of this Agreement for any reason, nothing in this Agreement may be construed to release either Party from any obligation that accrued prior to, or that are expressly indicated to survive, the effective date of the termination or expiration, as applicable.
b.Survival. The provisions of ARTICLE I (to the extent defined terms are contained in the following Articles and Sections), Section 3.1(b) (Future Patent Expenses), ARTICLE IV (Royalty Reports, Payments and Financial Records), Section 5.1(b) (Development and Commercialization Reports), Section 5.3 (Other Government Laws), Section 5.5 (Publicity – Use of Names), Section 5.6 (Confidentiality), Section 5.8 (Publications), Section 8.4 (Effect of Termination), ARTICLE IX (Indemnification, Defense and Insurance), Section 10.2 (Warranty Disclaimers; Limitation of Liability), ARTICLE XI (Notices), ARTICLE XII (Dispute Resolution) and all of ARTICLE XIII (Miscellaneous) except Section 13.3 (Assignment) and, solely with respect to Licensed Processes or Licensed Products Licensee has the right to Exploit in any way following termination of this Agreement pursuant to Section 8.4(d), Section 3.1(e) (Milestone Payments), and Section 3.1(f) (Running Royalties), survive termination or expiration of this Agreement.
c.Rights. Upon termination of this Agreement for any reason, all rights and licenses granted to Licensee under the terms of this Agreement will terminate, subject to Section 8.4(d).
d.Inventory. Licensee, any Affiliate(s) and any Sublicensees whose Sublicenses are not converted as provided in Section 8.4(f), may, after the effective date of termination, sell all Licensed Products that are in inventory or have otherwise been distributed with the intent to sell as of the date of written notice of termination, and complete and sell Licensed Products which the licensed entity(ies) can clearly demonstrate were in the process of manufacture as of the date of written notice of termination, provided that Licensee shall pay to DFCI the royalties thereon as required by ARTICLE III and shall submit the reports required by ARTICLE IV on the sales of Licensed Products.
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e.Return of Confidential Information. Within sixty (60) days of the effective date of any termination of this Agreement (but not the expiration of this Agreement in accordance with the terms hereof), each Party shall, at the disclosing Party’s option, either return or destroy all materials relating to or containing Confidential Information, except to the extent such Confidential Information is maintained by the receiving Party as part of a permitted disclosure under Section 5.7. Notwithstanding the foregoing, (i) the receiving Party will be permitted to retain one copy of such materials for archival and legal compliance purposes and (ii) the receiving Party will not be required to delete or destroy any electronic back-up tapes or other electronic back-up files that have been created solely by the automatic or routine archiving and back-up procedures of the receiving Party, to the extent created and retained in a manner consistent with its or their standard archiving and back-up procedures.
f.Sublicenses. Any Sublicenses will terminate contemporaneously with this Agreement. However, any Sublicensee not in default under its Sublicense may request conversion of the Sublicense to a license directly between DFCI and Sublicensee on or before the thirtieth day following termination of this Agreement. DFCI shall not unreasonably withhold its acceptance of such conversion, however, as a condition of DFCI’s acceptance, the Sublicensee must first agree to be bound by all of the provisions of this Agreement.
ARTICLE IX. – Indemnification, Defense and Insurance
9.1 Indemnification and Defense.
a.Licensee shall indemnify, defend and hold harmless DFCI and its trustees, officers, medical and professional staff, employees, and agents and their respective successors, heirs and assigns (collectively, the “Indemnitees” and each, an “Indemnitee”) against any liability, damage, loss or expense (including attorneys’ fees and expenses of litigation) incurred by or imposed upon the Indemnitees, or any one of them, in connection with any claims, suits, actions, demands or judgments arising from or occurring as a result of: (i) the research, development, design, production, manufacture, sale, use in commerce, lease, promotion or other Exploitation of any product, process or service relating to, or developed pursuant to, this Agreement (including any Licensed Process or Licensed Product) by Licensee or by a Sublicensee, Affiliate or agent of Licensee, (ii) a breach of this Agreement by Licensee or (iii) any activities carried out pursuant to this Agreement or the exercise of any rights granted under this Agreement by Licensee, its Affiliates, Sublicensees or permitted subcontractors.
b.Licensee’s indemnification obligations under Section 9.1(a) which relate to or arise out of any theory of product liability (including but not limited to action in the form of tort, warranty, strict liability) concerning a product, process or service made, used or sold pursuant to any right or license granted under this Agreement apply to any liability, damage, loss or expense whether or not it is attributable to the negligent or grossly negligent activities of the Indemnitees and any other indemnification obligations of Licensee under Section 9.1(a) shall not apply to any liability, damage, loss or expense to the extent that it is attributable to (i) the grossly negligent activities of the Indemnitees, or (ii) the intentional wrongdoing or intentional misconduct of the Indemnitees.
c.If any such action is commenced or claim made or threatened against DFCI or other Indemnitees as to which Licensee is obligated to indemnify it (them) or hold it (them) harmless, DFCI or the other Indemnitees shall promptly notify Licensee of such event; provided that any failure to do so shall not affect the Indemnitee’s right to indemnification hereunder, except to the extent that such failure or delay impairs the Licensee’s ability to defend or contest any such claim. The right of Licensee to assume the defense of any action is limited to that part of the action commenced against DFCI and/or Indemnitees that relates to Licensee’s obligation of indemnification and holding harmless Licensee shall assume the defense of any suit or claim for which indemnification is sought under this Section 9.1. Licensee shall, at its own expense, provide attorneys reasonably
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acceptable to DFCI to defend against any actions brought or filed against any Indemnitee hereunder with respect to the subject of indemnity contained herein, whether or not such actions are rightfully brought. Licensee shall keep DFCI informed of the progress of the indemnified claim. DFCI may participate in the defense thereof at its sole cost and expense. Licensee may not enter into any settlement, consent judgment, or other voluntary final disposition of any claim that has an adverse effect on the rights of any Indemnitee(s) hereunder or admits any wrongdoing or fault by any Indemnitee(s) or imposes on any Indemnitee(s) any payment or other liability or obligation, without the prior written consent of DFCI.
d.Licensee shall require any Affiliates or Sublicensee(s) to indemnify, hold harmless and defend DFCI under the same terms set forth in this ARTICLE IX.
9.2 Insurance.
a.At such time as any product, process or service relating to, or developed pursuant to, this Agreement is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by Licensee or by a Sublicensee, Affiliate or agent of Licensee, Licensee shall, at its sole cost and expense, procure and maintain policies of commercial general liability insurance in amounts not less than $1,000,000 per incident and $2,000,000 annual aggregate and products liability insurance in amounts not less than $5,000,000 per incident and $5,000,000 annual aggregate, . Such commercial general liability insurance must provide contractual liability coverage for Licensee’s indemnification under Section 9.1 of this Agreement. If Licensee elects to selfinsure all or part of the limits described above (including deductibles or retentions which are in excess of $250,000 annual aggregate), such selfinsurance program must be acceptable to the DFCI and the DFCI’s associated Risk Management Foundation. The minimum amounts of insurance coverage required under these provisions may not be construed to create a limit of Licensee’s liability with respect to its indemnification obligation under Section 9.1 of this Agreement.
b.Licensee shall provide DFCI with written evidence of such insurance upon request of DFCI. Licensee shall provide DFCI with written notice at least fifteen (15) days prior to the cancellation, nonrenewal or material change in such insurance; if Licensee does not obtain replacement insurance providing comparable coverage within such fifteen (15) day period, DFCI has the right to terminate this Agreement effective at the end of such fifteen (15) day period without any notice or additional waiting periods.
c.Licensee shall maintain such comprehensive general liability insurance beyond the expiration or termination of this Agreement during (i) the period that any product, process, or service, relating to, or developed pursuant to, this Agreement is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by Licensee or by a Sublicensee, Affiliate or agent of Licensee and (ii) a reasonable period after the period referred to in clause (i) of this Section 9.2(c) above which in no event shall be less than seven (7) years.
d.Licensee shall require any Affiliates or Sublicensee(s) to maintain insurance in favor of DFCI and the Indemnitees under the same terms set forth in this Section 9.2.
ARTICLE X. – REPRESENTATIONS AND WARRANTIES; LIABILITY LIMITATIONS
10.1 Representations, Warranties and Covenants of Licensee. Licensee represents, warrants and covenants that (a) it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization; (b) it has the authority and right to enter into and perform its obligations under this Agreement, (c) as of the Effective Date, the execution, delivery and performance of this Agreement by Licensee does not conflict with, or constitute a breach of, any order, judgment, agreement or instrument to which it is a Party or, to its knowledge, is otherwise bound, (d) no consent of any Third Party, including without limitation any governmental authority, is
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required for such Party to execute, deliver and perform under this Agreement, and (e) it will comply, and will ensure that its Affiliates and Sublicensees comply, with all Applicable Laws in the performance of its obligations and exercise of its rights under this Agreement.
10.2 Warranty Disclaimers; Limitation of Liability.
a.DFCI MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY LICENSED PROCESS OR LICENSED PRODUCT, PATENT RIGHT, TRADEMARK, SOFTWARE, NONPUBLIC OR OTHER INFORMATION, OR TANGIBLE RESEARCH PROPERTY, LICENSED OR OTHERWISE PROVIDED TO LICENSEE HEREUNDER AND HEREBY DISCLAIMS THE SAME.
b.DFCI DOES NOT WARRANT THE VALIDITY OF THE PATENT RIGHTS LICENSED HEREUNDER AND MAKES NO REPRESENTATION WHATSOEVER WITH REGARD TO THE SCOPE OF THE PATENT RIGHTS OR THAT SUCH PATENT RIGHTS MAY BE EXPLOITED BY LICENSEE, AFFILIATE OR SUBLICENSEE WITHOUT INFRINGING OTHER PATENTS. IF BIOLOGICAL MATERIALS ARE LICENSED HEREUNDER, DFCI MAKES NO REPRESENTATION THAT SUCH MATERIALS OR THE METHODS USED IN MAKING OR USING SUCH MATERIALS ARE FREE FROM LIABILITY FOR PATENT INFRINGEMENT.
c.THE LIABILITY OF DFCI, ITS AGENTS, OR ITS EMPLOYEES, WITH RESPECT TO ANY AND ALL SUITS, ACTIONS, LEGAL PROCEEDINGS, CLAIMS, DEMANDS, DAMAGES, COSTS AND EXPENSE ARISING OUT OF THE PERFORMANCE OR NON PERFORMANCE OF ANY OBLIGATION UNDER THIS AGREEMENT WHETHER BASED ON CONTRACT, WARRANTY, TORT (INCLUDING WITHOUT LIMITATION NEGLIGENCE), STRICT LIABILITY, STATUTORY OR OTHERWISE SHALL BE LIMITED TO DIRECT, ACTUAL DAMAGES INCURRED AS A RESULT OF DFCI’S FAILURE TO PERFORM ITS OBLIGATIONS AS REQUIRED BY THIS AGREEMENT AND EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, DFCI SHALL IN NO EVENT BE LIABLE FOR ANY LOST PROFITS, LOST BUSINESS OPPORTUNITY OR INDIRECT, SPECIAL, INCIDENTIAL OR CONSEQUENTIAL DAMAGES OF ANY KIND.
ARTICLE XI. – Notices
Unless otherwise expressly specified in this Agreement, reports, notices and other communications under this Agreement shall be in writing, shall specifically refer to this agreement # A15627, and shall be deemed given only if delivered by hand, recognized national overnight courier (with confirmation) or registered or certified mail with postage prepaid and return receipt requested, to the following addresses of the Parties:
If to DFCI: Senior Director, Licensing
Dana-Farber Cancer Institute
450 Brookline Ave.
Boston, MA 02215
With a copy to: Chief Innovation Officer
Dana-Farber Cancer Institute
450 Brookline Ave.
Boston, MA 02215
If to Licensee: Chief Executive Officer
X4 Pharmaceuticals, Inc.
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61 North Beacon Street, 4th Floor
Boston, Massachusetts 02134
With a copy to: General Counsel
X4 Pharmaceuticals, Inc.
61 North Beacon Street, 4th Floor
Boston, Massachusetts 02134
Such notice shall be deemed to have been given and effective as of the date of receipt. A Party may change its contact information immediately upon written notice to the other Party in the manner provided in this ARTICLE XI.
ARTICLE XII. – Dispute Resolution
12.1 Negotiation between the Parties. Subject to Section 12.2, the Parties shall first attempt to resolve any controversy that arises from this Agreement, or claim for breach of the Agreement, by good faith negotiations, first between their respective business development representatives and then, if necessary, between senior representatives for the Parties, such as the Senior Vice-President for Research or President of DFCI and the Chief Financial Officer or Chief Executive Officer of Licensee.
12.2 Injunctive Relief. Notwithstanding anything to the contrary in this Agreement, either Party may seek a preliminary injunction or other provisional equitable relief if such Party believes that such action is necessary to avoid irreparable harm to itself or preserve its rights under this Agreement.
ARTICLE XIII. Miscellaneous
13.1 Independent Contractors. For the purpose of this Agreement and all services to be provided hereunder, both Parties are and will be deemed to be, independent contractors and not agents or employees of the other. Neither Party has authority to make any statements, representations or commitments of any kind, or to take any action, that will be binding on the other Party. Nothing herein contained shall be deemed to create an employment, agency, joint venture or partnership relationship between the Parties or any of their agents or employees for any purpose, including tax purposes, or to create any other legal arrangement that would impose liability upon one Party for the act or failure to act of the other Party.
13.2 Severability. If any one or more of the provisions of this Agreement is held to be invalid, illegal or unenforceable, (a) the validity, legality or enforceability of the remaining provisions of this Agreement will not in any way be affected or impaired thereby and shall remain in full force and effect and (b) the Parties shall negotiate in good faith to modify the Agreement to preserve (to the extent possible) their original intent.
13.3 Assignment. DFCI may assign, delegate or subcontract any or all of its rights or obligations under this Agreement at any time without the prior consent of Licensee. Except as expressly permitted in this Agreement, Licensee may not assign, delegate or subcontract any of its rights or obligations under this Agreement, in part or in whole, without the express written consent of DFCI, which consent DFCI will not unreasonably withhold; provided that Licensee may assign this agreement to an Affiliate or to a successor in interest in conjunction with the sale of all or substantially all of its assets, so long as such successor shall agree in writing to be bound by the terms and conditions hereof prior to such assignment, and such writing is disclosed to DFCI. Any attempted assignment not permitted under this Section 13.3 shall be null and void.
13.4 Change of Control. Licensee will notify DFCI in writing promptly (and in any event within twenty (20) days) following the entering into of a definitive agreement with respect to a Change of Control.
13.5 Entire Agreement. This Agreement (including any schedules, exhibits or the like) contains the entire agreement between the Parties with respect to the subject matter. No verbal agreement, conversation or
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representation between any officers, agents, or employees of the Parties either before or after the execution of this Agreement may affect or modify any of the terms or obligations herein contained.
13.6 Modifications in Writing. No change, modification, extension, or waiver of this Agreement, or any of the provisions herein contained is valid unless made in writing and signed by a duly authorized representative of each Party.
13.7 Governing Law. The validity and interpretation of this Agreement and the legal relations of the Parties to it are governed by the laws of the Commonwealth of Massachusetts without regard to any choice of law principle that would dictate the application of the law of another jurisdiction.
13.8 Further Assurance. Each Party shall duly execute and deliver or cause to be duly executed and delivered, such further instruments and do and cause to be done such further acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.
13.9 Interpretation. The captions are provided for convenience and are not to be used in construing this Agreement. Unless the context of this Agreement otherwise requires, (a) words of any gender include either or both genders; (b) words using the singular or plural number also include the plural or singular number, respectively; (c) the term “or” shall have the inclusive meaning of the term “and/or”; (d) “including” and its cognates shall have the non-limiting meaning of “including, without limitation”; (e) the term “will” shall have the same meaning and import as the term “shall”; (f) the terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Agreement; (g) the terms “Article” or “Section” refer to the specified Article or Section of this Agreement.
13.10 Construction. The Parties agree that they have participated equally in the formation of this Agreement and that the language herein should not be presumptively construed against either of them.
13.11 Counterparts. This Agreement may be executed in one (1) or more counterparts, each of which shall be deemed an original, and together shall constitute one and the same agreement and shall become effective when one (1) or more counterparts have been signed by each of the Parties and delivered to the other Party, it being understood that both Parties need not sign the same counterpart. This Agreement, following its execution, may be delivered via PDF copies or other form of electronic delivery, which shall constitute delivery of an execution original for all purposes.
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly authorized representatives as of Effective Date.
DANAFARBER CANCER INSTITUTE, INC. (DFCI)
By: ___/s/Emy Chen__________________________; Date: _____11/16/2020_____________
Name: Emy Chen, PhD
Title: Sr. Director Licensing, Dana-Farber Innovations
X4 PHARMACEUTICALS, INC. (Licensee)
By: ____/s/_Derek Meisner___________________________; Date: ___11/16/2020_______________
Name:
Title:
58000218_19
Confidential
Exhibit A
Patent Rights
| DFCI IP # | Application Number | Type | Application Date | Issued # | Issued Date | Country | ||||||||||||||
| 1788.01 | 61/877,009 | PRO | 12-Sep-2013 | US | ||||||||||||||||
| 1788.02 | 61/889,150 | PRO | 10-Oct-2013 | US | ||||||||||||||||
| 1788.010 | PCT/US2014/055386 | PCT | 12-Sep-2014 | WO | ||||||||||||||||
| 1788.020 | 15/021,323 | National | 11-Mar-2016 | 10,526,660 | 07-Jan-2020 | US | ||||||||||||||
| 1788.021 | 16/684,193 | DIV | 14-Nov-2019 | US | ||||||||||||||||
| 1788.030 | 2014318614 | National | 12-Sep-2014 | Australia | ||||||||||||||||
| 1788.035 | 2,922,398 | National | 12-Sep-2014 | Canada | ||||||||||||||||
| 1788.080 | 14844516.6 | National | 12-Sep-2014 | EP | ||||||||||||||||
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Exhibit B
Development Plan
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Exhibit-10.48
AMENDMENT NO. 2 TO MASTER SERVICES AGREEMENT
This amendment no. 2 (the “Amendment No. 2”) to the Master Services Agreement by and between X4 Pharmaceuticals, Inc., a Delaware corporation with a business address at 61 North Beacon Street, 4th Floor, Boston, Massachusetts 02134 (“X4”), and Aptuit (Oxford) Limited an Evotec company, incorporated in England and Wales, having an address at 111 Innovation Drive, Milton Park, Abingdon, Oxfordshire, OX14 4RZ, England (the “Company”), dated February 19, 2016 as amended by Amendment No. 1 entered into on on 23rd November 2016 (collectively the “Agreement”), incorporated by reference herein, is effective on 18th February 2021(the “Amendment No. 2 Effective Date”).
Recitals
Whereas, X4 and Company wish to amend the Agreement to, among other things, renew the Term of the Agreement, which expires on February 19, 2021 by this Amendment No. 2; and
Whereas, this Amendment No. 2 sets out and/or refers to the additional terms and conditions upon which such change shall be undertaken.
Now, Therefore, in consideration of the foregoing and the mutual covenants and promises contained in this Amendment No. 2, the Parties hereto agree as follows:
1.Defined terms in the Agreement shall have the same meaning in this Amendment.
2.In accordance with Section 7.4 of the Agreement, which requires that changes to the Agreement be in writing, the Term of the Agreement is renewed for an additional three (3) years, with a new expiration date of February 19, 2024.
3.A new Section 3.5 is added to the end of Section 3 of Agreement as follows:
3.5 Material, Non-Public Information. Each Receiving Party agrees to abide by all securities and related laws, rules and regulations in connection with the use of Confidential Information, including, without limitation, those laws, rules and regulations relating to the receipt, handling and use of material, non-public information (“MNPI”). Each Receiving Party (on behalf of itself and its Affiliates) agrees that it will not buy or sell common stock or other securities (including, but not limited to,
Aptuit Agreement Reference: 00040607_to_00039364 Page 1 of 1
Exhibit-10.48
derivatives and options) of the other Party or its Affiliates on the basis of MNPI or otherwise.
4.The business address of X4 is updated to the following:
61 North Beacon Street, 4th Floor, Boston, Massachusetts 02134.
5.Section 5.3(I) of the Agreement shall be deleted in its entirety and replaced with the following:
“(I) NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT OR ANY STATEMENT OF WORK OTHER THAN SECTION 5.3(II) BELOW AND EXCEPT WITH RESPECT TO ANY BREACH OF ARTICLE 3, EITHER PARTY’S LIABILITY, DAMAGE, LOSS OR EXPENSE UNDER THIS AGREEMENT AND ANY STATEMENT OF WORK TO THE OTHER PARTY SHALL BE LIMITED TO TWO TIMES THE AGGREGATE SERVICE FEES PAID FOR THE SERVICES PERFORMED UNDER THE RELEVANT STATEMENT OF WORK. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY OF ITS AFFILIATES FOR ANY SPECIAL, PUNITIVE, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION, LOST PROFITS OR LOST REVENUES, COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES, WHETHER UNDER ANY CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY.”
6.The reference to “the actual or alleged infringement” in Section 5.4 (b) shall be deleted in its entirety and replaced with the following: “the actual and knowing infringement”.
7.Save as otherwise expressly referred to in this Amendment No. 2 the terms and conditions of the Agreement shall apply in all other respects and remain in full force and effect.
[Remainder of Page Intentionally Left Blank]
In Witness Whereof, the parties hereto have executed this Amendment on the Amendment No. 2 Effective Date.
Aptuit Agreement Reference: 00040607_to_00039364 Page 2 of 1
Exhibit-10.48
| X4 Pharmaceuticals, Inc. | Aptuit (Oxford) Limited | ||||
By: /s/ Derek Meisner | By: /s/ Christian Dargel | ||||
Printed Name: Derek Meisner | Printed Name: Dr . Christian Dargel | ||||
Title: General Counsel | Title: Officers and holders of commerical power of attorney | ||||
By: /s/ Enno Spillner | |||||
Printed Name: Enno Spillner | |||||
Title: Director | |||||
Aptuit Agreement Reference: 00040607_to_00039364 Page 3 of 1
Exhibit 21.1
Subsidiaries
The following is the name, jurisdiction of organization and percentage ownership by the Company of its subsidiaries.
| Subsidiary | Jurisdiction of Incorporation | Company Owned by Percentage | ||||||
| X4 Pharmaceuticals, Inc. | Delaware | 100% | ||||||
| X4 Pharmaceuticals (Austria) GmbH | Austria | 100% | ||||||
| X4 Pharmaceuticals Securities Corporation | Massachusetts | 100% | ||||||
| X4 Therapeutics Inc. | Delaware | 100% | ||||||
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-229377, 333-233161, 333-242372 and 333-249544) and Form S-8 (Nos. 333-221622, 333-223539, 333-230181, 333-230499, 333-233162, 333-237164 and 333-239082) of X4 Pharmaceuticals, Inc. of our report dated March 19, 2021 relating to the financial statements, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 19, 2021
Exhibit 31.1
CERTIFICATION
I, Paula Ragan, Ph.D., certify that:
1.I have reviewed this Annual Report on Form 10-K of X4 Pharmaceuticals, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 19, 2021
| /s/ Paula Ragan, Ph.D. | |||||
| Paula Ragan, Ph.D. President, Chief Executive Officer and Secretary (Principal Executive Officer) | |||||
Exhibit 31.2
CERTIFICATIONS
I, Adam S. Mostafa, certify that:
1.I have reviewed this Annual Report on Form 10-K of X4 Pharmaceuticals, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 19, 2021
| /s/ Adam S. Mostafa | |||||
| Adam S. Mostafa Chief Financial Officer and Treasurer (Principal Financial Officer) | |||||
Exhibit 32.1
CERTIFICATIONS UNDER SECTION 906
I, Paula Ragan, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Annual Report on Form 10-K of X4 Pharmaceuticals, Inc. for the fiscal year ended December 31, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of X4 Pharmaceuticals, Inc.
| Dated: March 19, 2021 | /s/ Paula Ragan, Ph.D. | ||||
| Name: Paula Ragan, Ph.D. | |||||
| President, Chief Executive Officer and Secretary | |||||
| (Principal Executive Officer) | |||||
Exhibit 32.2
CERTIFICATIONS UNDER SECTION 906
I, Adam Mostafa, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Annual Report on Form 10-K of X4 Pharmaceuticals, Inc. for the fiscal year ended December 31, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of X4 Pharmaceuticals, Inc.
| Dated: March 19, 2021 | /s/ Adam Mostafa | ||||
| Name: Adam S. Mostafa | |||||
| Chief Financial Officer and Treasurer | |||||
| (Principal Financial Officer) | |||||