UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
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 No. 001-38359
resTORbio, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
81-3305277
(I.R.S. Employer
Identification No.)
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
500 Boylston Street, 13th Floor
Boston, MA 02116
(857) 315-5528
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.0001 per share
Trading Symbol(s)
TORC
Name of each exchange on which registered
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 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 (§232.405 of this chapter)
during the preceding 12 months (or 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, 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
Non-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 is a shell company (as defined in Rule 12b-2 of the Exchange Act.): ☐ Yes ☒ No
As of June 28, 2019, the aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates was approximately $277.5 million based on a closing price of
$10.20 per share as quoted by The Nasdaq Global Select Market as of such date. In determining the market value of non-affiliate common stock, shares of the registrant’s common stock
beneficially owned by officers, directors and affiliates have been excluded. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of March 11, 2020 there were 36,445,751 shares of common stock, $0.0001 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference certain information from the registrant’s definitive Proxy Statement for its 2020 annual meeting of shareholders, scheduled
to be held on May 6, 2020 which the registrant intends to file pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year
end of December 31, 2019. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part of this Form 10-K.
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Annual Report on Form 10-K contains forward-looking statements that involve substantial risks and uncertainties. All statements, other
than statements of historical facts, contained in this Annual Report on Form 10-K, including statements regarding our strategy, future operations, future
financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward-looking
statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,”
“should,” “target,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements
contain these identifying words.
These forward-looking statements include, among other things, statements about:
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our plans to develop and commercialize RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, and other
product candidates for the targeted indications and patient populations, including the therapeutic potential and clinical benefits thereof;
our ongoing and future clinical trials for RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, whether
conducted by us or by any future collaborators
the timing of initiation and the anticipated results of our ongoing and future clinical trials of RTB101 alone or in combination with
rapalogs, such as everolimus or sirolimus;
the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;
the rate and degree of market acceptance and clinical utility of any products for which we receive regulatory approval;
our commercialization, marketing and manufacturing capabilities and strategy;
our intellectual property position and strategy;
our ability to identify additional product candidates with significant commercial potential;
our plans to enter into collaborations for the development and commercialization of product candidates;
the potential benefits of any future collaboration;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
developments relating to our competitors and our industry; and
the impact of government laws and regulations.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place
undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in
the forward-looking statements we make. We have included important factors in the cautionary statements included in this Annual Report on Form 10-K,
particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we make.
Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or
investments that we may make or enter into.
You should read this Annual Report on Form 10-K and the documents that we reference herein and have filed or incorporated by reference as
exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume
any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
This Annual Report on Form 10-K includes statistical and other industry and market data that we obtained from industry publications and
research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their
information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We
are responsible for all of the disclosure contained in this Annual Report on Form 10-K, and we believe these industry publications and third-party research,
surveys and studies are reliable.
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Unless the context requires otherwise, references in this Annual Report on Form 10-K to the “Company,” “resTORbio,” “we,” “us,” and
“our” refer to resTORbio, Inc. and its subsidiary. Our “board of directors” refers to the board of directors of resTORbio, Inc. All brand names or
trademarks appearing in this report are the property of their respective owners.
PART I
Item 1. Business.
Overview
We are a clinical-stage biopharmaceutical company developing innovative medicines that target the biology of aging to prevent or treat age-
related diseases with the potential to extend healthy lifespan. Our lead program selectively inhibits the target of rapamycin complex 1, or TORC1, an
evolutionarily conserved pathway that contributes to the age-related decline in function of multiple organ systems. Our lead product candidate, RTB101, is
an oral, selective, and potent inhibitor of TORC1. RTB101 inhibits the phosphorylation of multiple targets downstream of TORC1. Inhibition of TORC1
has been observed to extend lifespan and healthspan in aging preclinical species and to enhance immune, neurologic and cardiac functions, suggesting
potential benefits in several aging-related diseases. In April of 2019, we initiated a Phase 1b/2a clinical trial of RTB101 alone or in combination with
sirolimus in Parkinson’s disease, or PD. The ongoing multicenter, 2:1 randomized, double-blind, placebo-controlled Phase 1b/2a trial is evaluating the
safety and tolerability of RTB101 alone or in combination with escalating doses of sirolimus (2 mg, 4 mg and 6 mg) once weekly for 4 weeks in patients
with PD. To date, patients have completed enrollment in four cohorts and completed dosing in three cohorts: once weekly with 300 mg of RTB101 alone; 2
mg of sirolimus alone; and a combination of 300 mg RTB101 and 2 mg of sirolimus. Results of an interim study analysis demonstrated that all 3 dosing
regimens were well tolerated and RTB101 300 mg once weekly was observed to cross the blood brain barrier. Sirolimus at the dose of 2 mg, alone or in
combination with RTB101, was not detected in the CSF. Data from the first three cohorts in the study suggest that the concentrations of RTB101 observed
in the CSF four hours after dosing were highest when RTB101 was given as a monotherapy. We expect the full data from this trial by mid-2020.
RTB101 was previously in development for preventing clinically symptomatic respiratory illness in adults age 65 and older. On November 15,
2019, we announced that top line data from the PROTECTOR 1 Phase 3 study, evaluating the safety and efficacy of RTB101 in preventing clinically
symptomatic respiratory illness in adults age 65 and older, did not meet its primary endpoint and that we have stopped the development of RTB101 for
clinically symptomatic respiratory illness.
We licensed the worldwide rights to our TORC1 program, including RTB101 alone or in combination with everolimus, from Novartis
International Pharmaceutical Ltd., or Novartis, in March 2017. Our management team includes our co-founders, Chen Schor, who serves as our President
and Chief Executive Officer, Joan Mannick, M.D., who serves as our Chief Medical Officer, Lloyd Klickstein, M.D., Ph.D., who serves as our Chief
Scientific Officer, and additional veterans in drug development and discovery, with executive experience in leading global pharmaceutical companies. Dr.
Mannick led the TORC1 clinical program at Novartis Institutes for Biomedical Research, Inc., or NIBR, prior to our in-licensing of the program.
In addition, we have retained JMP Securities LLC as a financial advisor to assist us in our evaluation of a broad range of strategic alternatives
to enhance stockholder value, including additional capital raising transactions, an acquisition, merger, business combination, licensing and/or other strategic
transaction involving us. There is no assurance that the review of strategic alternatives will result in us changing our business plan, pursuing any particular
transaction, or, if we pursue any such transaction, that it will be completed.
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Our Strategy
Our goal is to be a leading biopharmaceutical company focused on treating aging-related diseases. We strive to maintain a leadership position
in the TORC1 inhibitor class of pharmaceutical products for aging-related diseases. The key elements of our strategy to achieve this goal include:
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Rapidly advance our TORC1 program to improve and address the function of multiple aging organ systems, including neurologic
function. We initiated our Phase 1b/2a clinical trial of RTB101 in combination with sirolimus in PD. PD is a progressive
neurodegenerative disease that affects approximately 7.5 million people worldwide. The incidence of PD increases rapidly in people 60
years of age and older, with a mean age at diagnosis of 70.5 years. Patients with PD develop shaking, rigidity, slowness of movement
and difficulty walking. PD may be attributed in part to neuronal damage caused by the accumulation within neurons of abnormal
aggregates containing the protein α -synuclein. Preclinical studies in mouse models of PD conducted by third parties have shown that
TORC1 inhibition can induce autophagy, reduce α-synuclein accumulation and decrease neuronal cell death. Research indicates that
inhibition of TORC1 may alter multiple cellular pathways that culminate in improved protein recycling and decreased lipid synthesis,
impacting key pathobiology of PD. The goal of this study is to take the first step in bringing treatments aimed at targeting TORC1 to
patients with PD by understanding the safety, tolerability, and pharmacokinetics of TORC1 inhibitors in this patient population with a
high unmet need for disease-modifying therapies. In preclinical studies, catalytic TORC1 inhibitors including RTB101 in combination
with allosteric TORC1 inhibitors such as sirolimus have been shown to synergistically inhibit TORC1 and lower the dose of catalytic
inhibitors required to achieve maximal activation of autophagy. Therefore, we believe the induction of autophagy with RTB101 alone or
in combination with sirolimus may have therapeutic benefit for patients with PD.
Develop our TORC1 program for additional indications. We also may develop RTB101 for the treatment of additional aging-related
diseases based on preclinical and clinical evidence on the effects of TORC1 inhibition.
Commercialize our product candidates in the United States and potentially collaborate with others globally to maximize their
commercial value. We plan to directly commercialize our product candidates in the United States with a sales force. In other markets for
which commercialization may be less capital efficient for us, we may selectively pursue strategic collaborations with third parties in
order to maximize the commercial potential of our product candidates. We believe there are significant opportunities to market RTB101,
if approved, in Europe and Japan, which we may choose to pursue in collaboration with others.
Maintain and grow a robust intellectual property portfolio in the field of TORC1 inhibition for aging-related diseases. We have an
exclusive license to ten patent families directed to compositions of matter, methods of use and formulations covering RTB101 alone or in
combination with everolimus and have filed additional method of use patent applications. We intend to aggressively pursue and maintain
broad intellectual property protection for RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, or other
compounds for the prevention or treatment of aging-related diseases through U.S. and international patents.
Acquire or in-license product candidates that enhance our global leadership position. We may acquire or in-license other product
candidates targeting TORC1 and other pathways that regulate aging to support our goal to be the leading biopharmaceutical company
focused on the treatment of aging-related diseases.
Strategic Alternatives. We have retained JMP Securities LLC as a financial advisor to assist us in our evaluation of a broad range of
strategic alternatives to enhance stockholder value, including additional capital raising transactions, an acquisition, merger, business
combination, licensing and/or other strategic transaction.
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Our Product Pipeline
The following table summarizes key information about our product candidates.
* For PD, we may be required to file an investigational new drug application, or IND, with the U.S. Food and Drug Administration, or FDA,
prior to initiating Phase 2 clinical trials in the United States.
** For neurodegenerative diseases and diseases associated with TORC1 hyperactivation, subject to review by the FDA, we believe we may
have the ability to initiate Phase 2 clinical trials without the need to conduct additional Phase 1 trials.
Aging and its Regulation by the mTOR Pathway
Advances in the scientific understanding of aging have until recently been limited, despite high growth in the elderly population
The elderly are the fastest growing population around the globe. According to the U.S. Census Bureau, the population age 65 and older in the
United States is expected to double by 2050 compared to 2012 estimates. According to global census data, there are nearly 150 million people age 65 and
older, and approximately 20 million people age 85 years and older in the United States, the major European countries and Japan. Despite age being the
major risk factor for multiple chronic diseases, we believe few therapies are being developed to target aging biology, and none have been approved.
mTOR is an evolutionarily conserved pathway that regulates aging
mTOR is a serine/threonine protein kinase that regulates the process of aging and aging-related diseases and conditions. Inhibition of the
mTOR pathway has been observed to prolong lifespan in multiple animals. These data support the potential for drugs that target the mTOR pathway to
have therapeutic benefits for aging and aging-related conditions in humans.
In preclinical studies, the mTOR pathway has been observed to be hyperactivated in some cell types, including hematopoietic stem cells, or
HSCs, at an advanced age. It was observed that suppressing mTOR activity in these cell types to levels found at younger ages may enhance cell function,
including their ability to generate white blood cells. Furthermore, preclinical studies found that mTOR activity stimulates protein synthesis and cell growth
but inhibits protective processes such as autophagy in which damaged proteins and organelles are broken down and recycled. Therefore, these studies
suggest that increased mTOR activity is beneficial during years of growth and reproduction but may be harmful during post-reproductive years when cells
accumulate damage and require protective mechanisms such as autophagy to prevent and repair damage.
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mTOR signals via two multiprotein complexes, known as TORC1 and TORC2. TORC1 inhibition has been observed to prolong lifespan,
enhance immune responses, ameliorate neurodegenerative diseases, ameliorate heart failure, enhance memory and mobility, decrease adiposity and delay
onset of aging-related diseases in multiple animal studies. On the other hand, TORC2 inhibition has been observed to decrease lifespan and cause
hyperlipidemia and hyperglycemia in certain animals and humans. Therefore, we believe the optimal approach for the treatment of aging-related conditions
through mTOR inhibition is a regimen that inhibits TORC1 without inhibiting TORC2. mTOR within the TORC1 complex introduces phosphates to, or
phosphorylates, multiple proteins including S6K, 4EBP1 and Ulk1, as shown in the figure below. Different dosing regimens that inhibit different spectrum
of TORC1, as measured by decreased phosphorylation of multiple proteins downstream of TORC1, may be more beneficial for the prevention or treatment
of certain aging-related diseases.
We believe TORC1 inhibition may have therapeutic benefit in multiple aging-related diseases. Preclinical studies suggest that key
mechanisms involved in the anti-aging effects of TORC1 inhibition include improved stem cell function, increased autophagy, increased expression of
mitochondrial proteins that are important for energy production, decreased adiposity and increased expression of proteins that are responsible for cellular
maintenance and repair. Based on preclinical data, these biological effects have the potential to improve multiple aging-related pathologies including
decreased autophagy and accumulation of damaged proteins. Autophagy is the process in which a cell breaks down and recycles damaged cellular
components, including damaged and aggregated proteins. Preclinical data suggests that an aging-associated decrease in autophagy leads to the
accumulation of toxic proteins and may result in aging-associated pathologies such as neurodegeneration.
Neurodegenerative Diseases and Parkinson’s Disease in the Elderly
Potential for TORC1 inhibition to ameliorate levodopa-induced dyskinesia and to be neuroprotective in Parkinson’s disease patients
Preclinical studies of RTB101 in rodent models of PD conducted by third parties have shown that mTOR inhibition can induce autophagy,
reduce α-synuclein accumulation and decrease neuronal cell death. Therefore, we believe induction of autophagy with RTB101 alone or in combination
with a rapalog has the potential to be a disease modifying therapy in PD. Moreover, inhibition of TORC1 may have additional benefit in PD patients by
alleviating levodopa-induced dyskinesia, or LID. LID is a distressing side-effect of levodopa treatment that causes patients to experience involuntary
movements. Polymorphisms in the mTOR gene in patients with PD have been linked to increased susceptibility to developing LID. In preclinical PD
models, inhibition of TORC1 activity has been shown to alleviate LID symptoms. Together, these data suggest that TORC1 inhibition may be beneficial to
PD patients both for prevention of disease progression, by virtue of direct effects on autophagy in the brain, and for amelioration of secondary symptoms
created by treatment with levodopa, the mainstay of current therapy.
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Parkinson’s disease
PD is a progressive neurodegenerative disease that affects approximately 7.5 million people worldwide. The incidence of PD increases rapidly
in people 60 years of age and older, with a mean age at diagnosis of 70.5 years. Patients with PD develop shaking, rigidity, slowness of movement and
difficulty walking. PD may be attributed in part to neuronal damage caused by the accumulation in brain cells of abnormal aggregates, in the case of PD,
containing the protein α-synuclein. Preclinical studies in mouse models of PD have shown that mTOR inhibition can induce autophagy, reduce α-synuclein
accumulation and decrease neuronal cell death. Therefore, induction of autophagy with RTB101 alone or in combination with a rapalog may have
therapeutic benefit for patients with PD.
Our TORC1 Program
Overview
In March 2017, we obtained a license from Novartis to the worldwide rights to RTB101 for all indications, and the rights to use everolimus in
combination with RTB101 for all aging-related indications. RTB101 is an orally administered, small molecule, potent TORC1 inhibitor that binds to the
active site of mTOR on the TORC1 complex, a mechanism known as catalytic inhibition. In contrast, rapalogs, such as everolimus or sirolimus, also orally
administered small molecules, inhibit mTOR activity by changing the shape of TORC1, a mechanism known as allosteric inhibition, that is distinct from
and synergistic with catalytic inhibition.
The downstream signaling cascade of TORC1 that we believe occurs in scenarios of baseline, RTB101 alone and RTB101 in combination
with a rapalog, such as everolimus or sirolimus are pictured in the following figure.
Our TORC1 program includes evaluation of RTB101 alone because we believe RTB101 monotherapy can effectively inhibit phosphorylation
of multiple downstream signaling nodes of TORC1, including S6K, 4EBP1 and Ulk1, that are key drivers of TORC1 downstream activity. Decreased
phosphorylation of S6K leads to decreased activity, while decreased phosphorylation of 4EBP1 and Ulk1 leads to increased activity. We believe RTB101
alone consistently inhibits more downstream signaling nodes of TORC1 than a rapalog, such as everolimus or sirolimus, alone. Therefore, we believe
RTB101 alone has the potential to inhibit the targets downstream of TORC1 needed to induce autophagy and have disease modifying effects in PD as well
as to alleviate levodopa-induced dyskinesia.
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Our TORC1 program also includes evaluation of RTB101 in combination with a rapalog, such as everolimus or sirolimus, as the combination
of catalytic and allosteric inhibitors synergistically inhibit TORC1. We believe rapalogs, such as everolimus and sirolimus, may induce a conformation
change in TORC1 that allows lower concentrations of RTB101 to inhibit TORC1. It was observed in preclinical in vitro studies that RTB101 and
everolimus at the comparable doses that we are evaluating in our clinical trials synergistically inhibit S6K and 4EBP1 phosphorylation and induce
autophagy. The synergy of RTB101 with everolimus or sirolimus, as measured by Bliss synergy scoring, was up to 150% in those studies. Bliss scores in
excess of 30% are considered to be high. Preclinical and clinical data suggest that RTB101 monotherapy alone or in combination with sirolimus may
achieve concentrations in the CNS sufficient to inhibit TORC1 and have potential therapeutic benefit in patients with neurodegenerative diseases such as
PD. Accordingly, our TORC1 program includes evaluation of both RTB101 alone and in combination with a rapalog, such as everolimus or sirolimus.
Clinical Development of RTB101
RTB101 was previously in development for preventing clinically symptomatic respiratory illness in adults age 65 and older. On November 15,
2019, we announced that top line data from the PROTECTOR 1 Phase 3 study, evaluating the safety and efficacy of RTB101 in preventing clinically
symptomatic respiratory illness in adults age 65 and older, did not meet its primary endpoint and that we have stopped the development of RTB101 for
clinically symptomatic respiratory illness.
Phase 1b/2a Clinical Development
In April of 2019, we initiated a Phase 1b/2a clinical trial of RTB101 alone or in combination with sirolimus in PD. The four-week,
multicenter, 2:1 randomized, double-blind, placebo-controlled Phase 1b/2a trial is evaluating the safety and tolerability of RTB101 alone or in combination
with sirolimus in PD. We plan to enroll 45 patients with mild to moderate PD who are already on standard-of-care therapy. Patients are expected to be
enrolled into five cohorts and dosed once weekly with RTB101 300 mg alone or in combination with three dose levels of sirolimus (2 mg, 4 mg and 6 mg).
The primary endpoint of the trial is safety and tolerability, and secondary endpoints include exposure in blood, plasma and cerebrospinal fluid, or CSF. The
exploratory endpoints include biomarkers in plasma and CSF, and various clinical assessments. To date, patients have completed enrollment in four cohorts
and completed dosing in three cohorts: once weekly with 300 mg of RTB101 alone; 2 mg of sirolimus alone; and a combination of 300 mg RTB101 and 2
mg of sirolimus. Results of an interim study analysis demonstrated that all 3 dosing regimens were well tolerated and RTB101 300 mg once weekly was
observed to cross the blood brain barrier. Sirolimus at the dose of 2 mg, alone or in combination with RTB101, was not detected in the CSF. Data from the
first three cohorts in the study suggest that the concentrations of RTB101 observed in the CSF four hours after dosing were highest when RTB101 was
given as a monotherapy. We expect the full data from this trial by mid-2020.
Other Potential Indications for Our TORC1 Program
We may evaluate RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, or other drugs for the treatment of
additional neurologic indications, such as Huntington’s disease and Alzheimer’s disease.
Huntington’s disease
Huntington’s disease, or HD, is a disease that affects neurons in the brain and causes movement, psychiatric and cognitive impairment. HD is
caused by mutations in a gene encoding protein called huntingtin. Mutant huntingtin forms aggregate in neurons and cause the neurons to degenerate. The
mutant huntingtin aggregates can be cleared from neurons by a process called autophagy in which cells remove and recycle intracellular debris including
protein aggregates. Preclinical data from brain slices in a HD mouse model has shown that RTB101 in combination with a rapalog, such as everolimus or
sirolimus, synergize to prevent neurodegeneration, likely by inducing autophagy and clearing mutant huntingtin aggregates. We believe these findings
support the potential that RTB101 in combination with a rapalog, such as everolimus or sirolimus, could have therapeutic benefit for the treatment of HD.
We currently have no plans to develop RTB101 for HD without a partner.
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Alzheimer’s disease
Alzheimer’s disease, or AD, is an irreversible, progressive brain disorder that affects neurons in the brain and results in loss of memory and
thinking skills. AD is currently ranked the sixth leading cause of death in the US, and a major risk factor is aging. There is no cure for AD. Amyloid
plaques, neurofibrillary tangles and inflammation are characteristic of the disease. In preclinical models of AD, RTB101 has been shown to reverse changes
in inflammatory cytokines, decrease microglial activation or proliferation, and improve memory deficits. We believe these findings support the potential
that RTB101 could have therapeutic benefit for the treatment of AD. We currently have no plans to develop RTB101 for AD without a partner.
Intellectual Property
We strive to protect the proprietary technologies that we believe are important to our business, including seeking and maintaining patent
protection intended to cover the composition of matter of our product candidates, including RTB101, their methods of use, related technology, and other
inventions that are important to our business. We licensed a patent portfolio of ten patent families from Novartis. See “—License Agreement with
Novartis.” As of March 11, 2020, one family within this patent portfolio covering compositions of matter has 45 issuances in 34 countries; and has six
pending applications in five counties. Our issued patents and pending applications with respect to RTB101 are expected to expire in 2031 or 2032,
(depending on eligibility for patent term extension or supplementary protection). Additional pending applications are expected to expire between 2034 and
2039, exclusive of possible patent term adjustments or extensions.
In addition to patent protection, we rely on trade secrets and confidentiality agreements to protect our technology, know-how and other aspects
of our business that are not amenable to, or that we do not consider appropriate for, patent protection.
Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially important
technology, inventions, and know-how related to our business, defend and enforce the patents we own or control, maintain our licenses to use intellectual
property owned by third parties, preserve the confidentiality of our trade secrets, and operate without infringing the valid and enforceable patents and other
proprietary rights of third parties.
The patent positions of biopharmaceutical companies like us are generally uncertain and involve complex legal, scientific and factual
questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be
reinterpreted after issuance. Consequently, we do not know whether any of our product candidates will be protectable or remain protected by enforceable
patents. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the
claims of any issued patents will provide sufficient proprietary protection from competitors. Any patents that we hold or control may be challenged,
circumvented or invalidated by third parties.
License Agreement with Novartis
In March 2017, we entered into a license agreement with Novartis, pursuant to which we were granted an exclusive, field-restricted,
worldwide license to certain intellectual property rights owned or controlled by Novartis, including patents, patent applications, proprietary information,
know-how and other intellectual property, to develop, commercialize and sell one or more therapeutic products comprising RTB101 alone or RTB101 and
everolimus in a fixed dose combination. Under the license agreement, we have been licensed a patent portfolio of ten patent families directed to
composition of matter of RTB101 and its salts, formulations of everolimus and methods of using RTB101 and everolimus to enhance the immune response
among others. These families include certain granted patents and pending patent applications in the United States and foreign jurisdictions, including
Canada, the United Kingdom, Germany, France, Italy, Spain, Russia, Japan, Korea and China. Patents in these families will begin expiring in 2026, subject
to possible patent term extensions. We believe that patent term extension and the potential grant of certain pending patent applications may provide
exclusivity for RTB101 and RTB101 in combination with everolimus until 2039 in the United States and the major European markets.
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The exclusive field for RTB101 is for the treatment, prevention and diagnosis of diseases and other conditions in all indications in humans and
animals. With respect to the fixed dose combination of RTB101 and everolimus, the exclusive field of use is for any indication in humans related to the
improvement in immune function or immunosenescence in the elderly, the reduction of infection frequency, severity, duration, health care resource
utilization, hospitalization, morbidity or mortality, or the treatment of infections, the reduction of pulmonary disease exacerbation frequency, severity, or
related hospitalization, the enhancement of therapeutic or prophylactic benefits of vaccines, or any aging-related disease, excluding in each case the
application of everolimus in connection with organ transplantation, oncology, immune-oncology or in the cardiac stent field. Novartis has agreed not to
enforce any rights to improvements related to RTB101 developed after the effective date in connection with the exercise of our rights under this
agreement. In addition, we have agreed to grant back to Novartis for use outside of the exclusive fields any improvements related to everolimus that we
develop after the effective date.
We are required to use commercially reasonable efforts to develop and commercialize at least one product in the field in at least one major
market, which includes the United States, Japan and certain identified countries in Europe.
As initial consideration for the license, we issued NIBR 2,587,992 shares of our Series A preferred stock.
As additional consideration for the license, we are required to pay up to an aggregate of $4.3 million upon the satisfaction of clinical
milestones, up to an aggregate of $24 million upon the satisfaction of regulatory milestones for the first indication approved, and up to an aggregate of
$18 million upon the satisfaction of regulatory milestones for the second indication approved. In addition, we are required to pay up to an aggregate of
$125 million upon the satisfaction of commercial milestones, based on the amount of annual net sales. We are also required to pay tiered royalties ranging
from a mid-single digit percentage to a low-teen digit percentage on annual net sales of products. These royalty obligations last on a product-by-product
and country-by-country basis until the latest of (i) the expiration of the last valid claim of a Novartis patent covering a subject product, (ii) the expiration of
any regulatory exclusivity for the subject product in a country, or (iii) the 10th anniversary of the first commercial sale of the product in the country, and are
subject to a reduction after the expiration of the last valid claim of a Novartis patent or the introduction of a generic equivalent of a product in a country. In
addition, if we sublicense the rights under the license agreement, we are required to pay a certain percentage of the sublicense revenue to Novartis.
Either we or Novartis may terminate the license agreement if the other party commits a material breach and fails to cure such breach within 60
days after written notice. Novartis may terminate the license agreement upon our bankruptcy, insolvency, dissolution or winding up. In addition, Novartis
may partially terminate the license agreement with respect to everolimus if we fail or cease to use commercially reasonable efforts to research, develop and
commercialize a product utilizing everolimus for a period of three years, provided that our license related to RTB101 and Novartis’s license to our
improvements related to everolimus will continue. In addition, we may terminate the license agreement, with or without cause, in its entirety or on a
product-by-product or country-by-country basis, upon 60 days’ prior written notice.
Sales and Marketing
We hold worldwide commercialization rights to our product candidates. We do not have our own marketing, sales or distribution capabilities.
In order to commercialize our product candidate if approved for commercial sale, we must either develop a sales and marketing infrastructure or
collaborate with third parties that have sales and marketing experience. We plan to directly commercialize our product candidates in the United States with
a focused sales force. For some indications, we may also directly commercialize our product candidates in the European Union, or the EU. In other markets
or for certain indications outside the United States for which commercialization may be less capital efficient for us, we may selectively pursue strategic
collaborations with third parties in order to maximize the commercial potential of our product candidates.
Manufacturing
RTB101 and rapalogs, such as everolimus or sirolimus, are small molecules that can be manufactured using commercially available
technologies. We acquired data from Novartis related to the chemical synthesis and manufacturing of RTB101, which is currently being manufactured by a
single contract manufacturing organization, and are outsourcing the manufacturing of rapalogs, such as everolimus or sirolimus.
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We believe there are multiple sources for all of the materials required for the manufacture of our product candidates. Our manufacturing
strategy enables us to more efficiently direct financial resources to the research, development, and commercialization of product candidates rather than
diverting resources to internally develop manufacturing facilities. As our product candidates advance through development, we expect to enter into longer-
term commercial supply agreements with key suppliers and manufacturers to fulfill and secure the ongoing and planned preclinical, clinical, and, if our
product candidates are approved for marketing, our commercial supply needs for ourselves and our collaborators. Our long-term strategy is to secure at
least two sources for the manufacturing of our products.
Manufacturing of any product candidate is subject to extensive regulations that impose various procedural and documentation requirements,
which govern recordkeeping, manufacturing processes and controls, personnel, quality control and quality assurance, among others. We expect that all of
our contract manufacturing organizations will manufacture RTB101 under current Good Manufacturing Practice, or cGMP, conditions. cGMP is a
regulatory standard for the production of pharmaceuticals to be used in humans.
Competition
We consider Navitor Pharmaceuticals, Inc., or Navitor, to be our most direct competitor in developing novel therapeutics targeting TORC1 for
aging-related diseases. However, Navitor’s clinical TORC1 candidate is a TORC1 activator that is in Phase 1 clinical trials for treatment-resistant
depression. We are aware of multiple other allosteric and catalytic mTOR inhibitors in development by other companies. We are not aware of any TORC1
inhibitors with TORC1 selectivity comparable to our product candidate, RTB101, being commercially developed.
We are also aware of other companies seeking to develop treatments to prevent or treat aging-related diseases through biological pathways
unrelated to mTOR inhibition, including Calico Life Sciences LLC, or Calico, and UNITY Biotechnology, Inc., or Unity. Calico has not yet disclosed any
pipeline candidates, and Unity’s most advanced candidate, based on publicly disclosed information, is in Phase 1 clinical trials for osteoarthritis. Hence, we
believe that we currently have the most clinically advanced program based on the stage of development of our competitors’ programs.
We are aware of other companies that are potential competitors for prevention or treatment of aging-associated pathologies such as
neurodegeneration. Companies pursuing prevention or treatment of aging-associated pathologies such as neurodegeneration in PD include: Denali
Therapeutics, Inc., Acorda Therapeutics, Inc., Prothena Biosciences, Inc., Takeda Pharmaceutical Company (formerly Shire plc), Affiris AG, Biogen Inc.,
Inflazome Ltd., Casma Therapeutics, Inc., Neuropore Therapies, Inc., Caraway Therapeutics, Inc. (previously called Rheostat Therapeutics), Selphagy
Therapeutics Inc., and others. Companies pursuing treatments for levodopa-induced dyskinesia in PD include: VistaGen Therapeutics, Inc., Prilienia
Therapeutics, Inc., IRLAB Therapeutics AB, Neurolixis Inc, and others.
Drug development is highly competitive and subject to rapid and significant technological advancements. Our ability to compete will
significantly depend upon our ability to complete necessary clinical trials and regulatory approval processes, and effectively market any drug that we may
successfully develop. Our current and potential future competitors may include pharmaceutical and biotechnology companies, academic institutions and
government agencies. The primary competitive factors that will affect the commercial success of any product candidate for which we may receive
regulatory approval include efficacy, safety and tolerability profile, dosing convenience, price, formulary coverage and reimbursement. Our existing or
potential future competitors may have substantially greater financial, technical and human resources than we do and significantly greater experience in the
discovery and development of product candidates, as well as in obtaining regulatory approvals of those product candidates in the United States and in
foreign countries. Our current and potential future competitors may also have significantly more experience commercializing drugs that have been
approved for marketing. Mergers and acquisitions in the pharmaceutical and biotechnology industries could result in even more resources being
concentrated among a small number of our competitors.
Accordingly, our competitors may be more successful than us in obtaining regulatory for therapies and in achieving widespread market
acceptance of their drugs. It is also possible that the development of a more effective treatments by a competitor could render our product candidate non-
competitive or obsolete or reduce the demand for our product candidate before we can recover our development and commercialization expenses.
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Government Regulation
Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the
European Union, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage,
recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical
products. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent
compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.
Review and Approval of Drugs in the United States
In the United States, the FDA regulates drugs primarily under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing
regulations. The failure to comply with applicable U.S. requirements at any time during the product development process, approval process or after
approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending
applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product seizures, total or partial
suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal
investigations and penalties brought by the FDA and the Department of Justice or other governmental entities. In addition, an applicant may need to recall a
product.
An applicant seeking approval to market and distribute a new drug product in the United States must typically undertake the following:
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completion of nonclinical, or preclinical, laboratory tests, animal studies and formulation studies in compliance with the FDA’s good
laboratory practice, or GLP, regulations;
submission to the FDA of an IND, which must take effect before human clinical trials may begin;
approval by an independent Institutional Review Board, or IRB, representing each clinical site before each clinical trial may be initiated
at that site;
performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish the
safety and efficacy of the proposed drug product for each indication;
preparation and submission to the FDA of a new drug application, or NDA, and payment of user fees;
review of the product by an FDA advisory committee, where appropriate or if applicable;
satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components
thereof, are produced to assess compliance with current Good Manufacturing Practices, or cGMP, requirements and to assure that the
facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;
satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical data;
FDA review and approval of the NDA; and
compliance with any post-approval requirements, including Risk Evaluation and Mitigation Strategies, or REMS, and post-approval
studies required by the FDA.
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Preclinical Studies
Before an applicant begins testing a compound in humans, the drug candidate enters the preclinical testing stage. Preclinical studies include
laboratory evaluation of the purity and stability of the manufactured drug substance or active pharmaceutical ingredient and the formulated drug or drug
product, as well as in vitro and animal studies to assess the safety and activity of the drug for initial testing in humans and to establish a rationale for
therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. The results of the
preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other
things, are submitted to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of reproductive adverse events and
carcinogenicity, may continue after the IND is submitted.
The IND and IRB Processes
An IND is an exemption from the FDCA that allows an unapproved drug to be shipped in interstate commerce for use in an investigational
clinical trial and a request for FDA authorization to administer such investigational drug to humans. Such authorization must be secured prior to interstate
shipment and administration of the investigational drug. In an IND, applicants must submit a protocol for each clinical trial and any subsequent protocol
amendments. In addition, the results of the preclinical tests, manufacturing information, analytical data, any available clinical data or literature and plans
for clinical trials, among other things, are submitted to the FDA as part of an IND. The FDA requires a 30-day waiting period after the filing of each IND
before clinical trials may begin. At any time during this 30-day period, the FDA may raise concerns or questions about the conduct of the trials as outlined
in the IND and impose a clinical hold. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin.
Following commencement of a clinical trial under an IND, the FDA may also place a clinical hold or partial clinical hold on that trial. A
clinical hold is an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial
clinical hold is a delay or suspension of only part of the clinical work requested under the IND. No more than 30 days after imposition of a clinical hold or
partial clinical hold, the FDA will provide the sponsor a written explanation of the basis for the hold.
Following issuance of a clinical hold or partial clinical hold, an investigation may only resume after the FDA has notified the sponsor that the
investigation may proceed. The FDA will base that determination on information provided by the sponsor correcting the deficiencies previously cited or
otherwise satisfying the FDA that the investigation can proceed.
A sponsor may choose, but is not required, to conduct a foreign clinical study under an IND. When a foreign clinical study is conducted under
an IND, all FDA IND requirements must be met unless waived. When the foreign clinical study is not conducted under an IND, the sponsor who wishes to
rely upon it in support of its NDA must ensure that the study is conducted in accordance with GCP, including review and approval by an independent ethics
committee, or IEC, and informed consent from subjects. The GCP requirements are intended to help ensure the protection of human subjects enrolled in
non-IND foreign clinical studies, as well as the quality and integrity of the resulting data. FDA must also be able to validate the data from the study through
an on-site inspection if necessary.
In addition to the foregoing IND requirements, an IRB representing each institution participating in the clinical trial must review and approve
the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review of the study at least annually. The IRB
must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate
in compliance with FDA regulations. An IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the
clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious
harm to patients.
Additionally, some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data safety
monitoring board or committee. This group provides authorization for whether or not a trial may move forward at designated check points based on access
that only the group maintains to available data from the study. Suspension or termination of development during any phase of clinical trials can occur if it is
determined that the subjects or patients are being exposed to an unacceptable health risk. Other reasons for suspension or termination may be made by us
based on evolving business objectives and/or competitive climate.
Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health, or NIH, for public
dissemination on its ClinicalTrials.gov website.
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Human Clinical Trials in Support of an NDA
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in
accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing
before their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the inclusion and
exclusion criteria, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated.
Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:
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Phase 1. The drug is initially introduced into healthy human subjects or, in certain indications such as cancer, patients with the target
disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an
early indication of its effectiveness and to determine optimal dosage.
Phase 2. The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily
evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.
Phase 3. The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-
controlled clinical trials to generate enough data to evaluate the efficacy and safety of the product for approval, to establish the overall
risk-benefit profile of the product and to provide adequate information for the labeling of the product.
Phase 4. Post-approval studies may be conducted after initial regulatory approval. These studies are used to gain additional experience
from the treatment of patients in the intended therapeutic indication.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA. In addition, IND safety reports must
be submitted to the FDA for any of the following: serious and unexpected suspected adverse reactions; findings from other studies or animal or in vitro
testing that suggest a significant risk in humans exposed to the drug; and any clinically important increase in the case of a serious suspected adverse
reaction over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety report within 15 calendar days after the sponsor
determines that the information qualifies for reporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse
reaction within seven calendar days after the sponsor’s initial receipt of the information. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed
successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various
grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate
approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s
requirements or if the drug has been associated with unexpected serious harm to patients. The FDA will typically inspect one or more clinical sites to
assure compliance with GCP and the integrity of the clinical data submitted.
A manufacturer of an investigational drug for a serious disease or condition is required to make available, such as by posting on its website, its
policy on evaluating and responding to requests for individual patient access to such investigational drug. This requirement applies on the earlier of the first
initiation of a Phase 2 or Phase 3 trial of the investigational drug or, as applicable, 15 days after the drug receives a designation as a breakthrough therapy,
fast track product, or regenerative advanced therapy.
Concurrent with clinical trials, companies often complete additional animal studies and must also develop additional information about the
chemistry and physical characteristics of the drug as well as finalize a process for manufacturing the product in commercial quantities in accordance with
cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things,
the applicant must develop methods for testing the identity, strength, quality, purity, and potency of the final drug. Additionally, appropriate packaging must
be selected and tested, and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its
shelf life.
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Review of an NDA by the FDA
Assuming successful completion of required clinical testing and other requirements, the results of the preclinical studies and clinical trials,
together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to
the FDA as part of an NDA requesting approval to market the drug product for one or more indications. Under federal law, the submission of most NDAs is
additionally subject to an application user fee, currently exceeding $2.9 million in fiscal year 2020 for applications requiring clinical data, and an annual
prescription drug program fee exceeding $325,000 in fiscal year 2020. These fees are typically increased annually. Certain exceptions and waivers are
available for some of these fees, such as an exception from the application fee for drugs with orphan designation.
The FDA conducts a preliminary review of an NDA within 60 days of its receipt, before accepting the NDA for filing, to determine whether
the application is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In
this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA
accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to specified
performance goals in the review process of NDAs. Applications for drugs containing novel active moieties are meant to be reviewed within ten months
from the date of filing, and applications for “priority review” products containing novel active moieties are meant to be reviewed within six months of
filing. The review process may be extended by the FDA for three additional months to consider new information or clarification provided by the applicant
to address an outstanding deficiency identified by the FDA following the original submission.
Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is or will be manufactured. These pre-
approval inspections may cover all facilities associated with an NDA submission, including drug component manufacturing (such as active pharmaceutical
ingredients), finished drug product manufacturing, and control testing laboratories. The FDA will not approve an application unless it determines that the
manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within
required specifications.
In addition, as a condition of approval, the FDA may require an applicant to develop a REMS. REMS use risk minimization strategies beyond
the professional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will
consider the size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration of treatment,
seriousness of known or potential adverse events, and whether the product is a new molecular entity. REMS can include medication guides, physician
communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU may 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 FDA
may require a REMS before approval or post-approval if it becomes aware of a serious risk associated with use of the product. The requirement for a
REMS can materially affect the potential market and profitability of a product.
The FDA is required to refer an application for a novel drug to an advisory committee or explain why such referral was not made. Typically,
an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a
recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an
advisory committee, but it considers such recommendations carefully when making decisions.
Fast Track, Breakthrough Therapy, and Priority Review
The FDA has a number of programs intended to facilitate and expedite development and review of new drugs if they are intended to address
an unmet medical need in the treatment of a serious or life-threatening disease or condition. Three of these programs are referred to as fast track
designation, breakthrough therapy designation, and priority review designation.
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Specifically, the FDA may designate a product for Fast Track review if it is intended, whether alone or in combination with one or more other
products, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a
disease or condition. For Fast Track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a Fast
Track product’s application before the application is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of
clinical data submitted by the sponsor, that a Fast Track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule
for the submission of the remaining information and the sponsor must pay applicable user fees. However, the FDA’s time period goal for reviewing a Fast
Track application does not begin until the last section of the application is submitted. In addition, the Fast Track designation may be withdrawn by the FDA
if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
Second, a product may be designated as a Breakthrough Therapy if it is intended, either alone or in combination with one or more other
products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial
improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical
development. The FDA may take certain actions with respect to Breakthrough Therapies, including holding meetings with the sponsor throughout the
development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review
process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design the clinical trials in an efficient manner.
Third, the FDA may designate a product for priority review if it is a product that treats a serious or life-threatening disease or condition and, if
approved, would provide a significant improvement in safety or effectiveness. The FDA determines, on a case-by-case basis, whether the proposed product
represents a significant improvement when compared with other available therapies. Significant improvement may be illustrated by evidence of increased
effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting product reaction, documented enhancement of
patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new subpopulation. A priority
designation is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a
marketing application from ten months to six months.
Accelerated Approval Pathway
The FDA may grant accelerated approval to a product for a serious or life-threatening condition that provides meaningful therapeutic
advantage to patients over existing treatments based upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to
predict clinical benefit or on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, or IMM,
and that is reasonably likely to predict an effect on IMM or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and
the availability or lack of alternative treatments. Products granted accelerated approval must meet the same statutory standards for safety and effectiveness
as those granted traditional approval.
For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical
sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured
more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably
likely to predict the clinical benefit of a product, such as an effect on IMM. The FDA has limited experience with accelerated approvals based on
intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval where the therapeutic effect measured by
the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably likely
to predict the ultimate clinical benefit of a product.
The accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended period of time is
required to measure the intended clinical benefit of a product, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly.
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The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approval
confirmatory studies to verify and describe the product’s clinical benefit. As a result, a product candidate approved on this basis is subject to rigorous post-
marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint.
Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, could result in the FDA’s withdrawal of the
approval and require the withdrawal of the product from the market on an expedited basis. All promotional materials for product candidates approved under
accelerated regulations are subject to prior review by the FDA.
The FDA’s Decision on an NDA
On the basis of the FDA’s evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing
facilities and select clinical trial sites, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial
marketing of the product with specific prescribing information for specific indications. 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 and when those deficiencies
have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing
such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA
ultimately may decide that the application does not satisfy the regulatory criteria for approval. If the FDA approves a product, it may limit the approved
indications for use for the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval
studies, including Phase 4 clinical trials, be conducted to further assess the drug’s safety or effectiveness after approval, require testing and surveillance
programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management
mechanisms, including REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further
marketing of a product based on the results of post-market studies or surveillance programs.
Post-Approval Requirements
Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including,
among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting
of adverse experiences with the product. After approval, many changes to the approved product, such as adding new indications or other labeling claims,
are subject to prior FDA review and approval. There also are annual program fee requirements for certain marketed products.
The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require
post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after
commercialization.
In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their
establishments with the FDA and state agencies and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance
with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented.
FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the
NDA holder and any third-party manufacturers that the NDA holder may decide to use. Accordingly, manufacturers must continue to expend time, money,
and effort in the area of production and quality control to maintain cGMP compliance.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained
or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of
unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the
approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution
or other restrictions under a REMS program. Other potential consequences include, among other things:
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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or voluntary product
recalls;
fines, warning or untitled letters or holds on post-approval clinical trials;
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refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or withdrawal of product approvals;
product seizure or detention, or refusal to permit the import or export of products; or
injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs generally may be
promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the
laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to
significant liability.
In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, which
regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors
by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure
accountability in distribution.
Hatch-Waxman Amendments
Section 505 of the FDCA describes three types of marketing applications that may be submitted to the FDA to request marketing
authorization for a new drug. A Section 505(b)(1) NDA is an application that contains full reports of investigations of safety and efficacy. A 505(b)(2)
NDA is an application that contains full reports of investigations of safety and efficacy but where at least some of the information required for approval
comes from investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the
person by or for whom the investigations were conducted. This regulatory pathway enables the applicant to rely, in part, on the FDA’s prior findings of
safety and efficacy for an existing product, or published literature, in support of its application. Section 505(j) establishes an abbreviated approval process
for a generic version of approved drug products through the submission of an Abbreviated New Drug Application, or ANDA. An ANDA provides for
marketing of a generic drug product that has the same active ingredients, dosage form, strength, route of administration, labeling, performance
characteristics and intended use, among other things, to a previously approved product, known as a reference listed drug, or RLD. ANDAs are termed
“abbreviated” because they are generally not required to include preclinical (animal) and clinical (human) data to establish safety and efficacy. Instead,
generic applicants must scientifically demonstrate that their product is bioequivalent to, or performs in the same manner as, the innovator drug through in
vitro, in vivo, or other testing. The generic version must deliver the same amount of active ingredients to the site of drug action in the same amount of time
as the innovator drug and can often be substituted by pharmacists under prescriptions written for the reference listed drug.
Non-Patent Exclusivity
Under the Hatch-Waxman Amendments, the FDA may not approve (or in some cases accept) an ANDA or 505(b)(2) application until any
applicable period of non-patent data exclusivity for the RLD has expired. The FDCA provides a period of five years of non-patent data exclusivity for a
new drug containing a new chemical entity, or an NCE. For the purposes of this provision, an NCE is a drug that contains no active moiety that has
previously been approved by the FDA in any other NDA. An active moiety is the molecule or ion responsible for the physiological or pharmacological
action of the drug substance. In cases where such NCE exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of five
years unless the submission is accompanied by a Paragraph IV certification, which states the proposed generic drug will not infringe one or more of the
already approved product’s listed patents or that such patents are invalid or unenforceable, in which case the applicant may submit its application four years
following the original product approval.
The FDCA also provides for a period of three years of exclusivity for non-NCE drugs if the NDA or a supplement to the NDA includes
reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are
essential to the approval of the application or supplement. This three-year exclusivity period often protects changes to a previously approved drug product,
such as a new dosage form, route of administration, combination or indication, but it generally would not protect the original, unmodified product from
generic competition. Unlike five-year NCE exclusivity, an award of three-year exclusivity does not block the FDA from accepting ANDAs seeking
approval for generic or versions of the drug as of the date of approval of the original drug product; it only prevents FDA from approving such ANDAs.
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Hatch-Waxman Patent Certification and the 30-Month Stay
In seeking approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover
the applicant’s product or an approved method of using the product. Upon approval, each of the patents listed by the NDA sponsor is published in the
FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Upon submission of an ANDA or
505(b)(2) NDA, an applicant is required to certify to the FDA concerning any patents for the RLD required to be listed in the Orange Book that:
•
•
•
•
no patent information on the drug product that is the subject of the application has been submitted to the FDA;
such patent has expired;
the date on which such patent expires; or
such patent is invalid, unenforceable or will not be infringed upon by the manufacture, use, or sale of the drug product for which the
application is submitted.
Generally, the ANDA or 505(b)(2) NDA cannot be approved until all listed patents have expired, except where the ANDA or 505(b)(2) NDA
applicant is not seeking approval of a use covered by the patent or the ANDA or 505(b)(2) applicant challenges a listed patent through the last type of
certification, also known as a paragraph IV certification. If an applicant indicates that it is not seeking approval of a method of use covered by a patent, that
method of use will not delay approval of the ANDA or 505(b)(2). If the applicant otherwise does not challenge the listed patents, the ANDA or 505(b)(2)
NDA application will not be approved until all of the listed patents claiming the referenced product have expired. If the ANDA or 505(b)(2) NDA applicant
has provided a paragraph IV certification the applicant must send notice of the paragraph IV certification to the NDA and patent holders once the
application 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. If the paragraph IV certification is challenged by an NDA holder or the patent owner(s) asserts a patent challenge to the
paragraph IV certification within 45 days of receiving the notice, the FDA may not approve that application until the earlier of 30 months from the receipt
of the notice of the paragraph IV certification, the expiration of the patent, when the infringement case concerning each such patent was favorably decided
in the applicant’s favor or settled, or such shorter or longer period as may be ordered by a court. This prohibition is generally referred to as the 30-month
stay. In instances where an ANDA or 505(b)(2) NDA applicant files a paragraph IV certification, the NDA holder or patent owner(s) regularly take action
to trigger the 30-month stay, recognizing that the related patent litigation may take many months or years to resolve. Thus, approval of an ANDA or 505(b)
(2) application could be delayed for a significant period of time depending on the patent certification the applicant makes and the reference drug sponsor’s
decision to initiate patent litigation. If the drug has NCE exclusivity and the ANDA or 505(b)(2) application is submitted four years after approval, the 30-
month stay is extended so that it expires 7 1⁄2 years after approval of the innovator drug, unless the patent expires or there is a decision in the infringement
case that is favorable to the ANDA applicant before then.
Pediatric Studies and Exclusivity
Under the Pediatric Research Equity Act of 2003, as amended, an NDA or supplement thereto for a drug with certain innovative features (e.g.,
new active ingredient, new indication, new dosage form) must contain data that are adequate to assess the safety and effectiveness of the drug product for
the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the
product is safe and effective. Sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the
proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests, and other
information required by regulation. The applicant, the FDA, and the FDA’s internal review committee must then review the information submitted, consult
with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.
The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after
approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Generally, the pediatric data requirements do not
apply to products with orphan designation.
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Pediatric exclusivity is another type of non-patent exclusivity in the United States and, if granted, provides for the attachment of an additional
six months of marketing protection to the term of certain existing non-patent exclusivity periods, including orphan exclusivity. This six-month exclusivity
may be granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data within certain time periods.
The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the
FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory
time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent
term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application after expiration of a patent.
Orphan Drug Designation and Exclusivity
Under the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug” if it is intended to treat a rare disease or condition
(generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the
cost of developing and making a drug product available in the United States for treatment of the disease or condition will be recovered from sales of the
product). A company must request orphan product designation before submitting an NDA. If the request is granted, the FDA will disclose the identity of
the therapeutic agent and its potential use. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review
and approval process.
If a product with orphan status receives the first FDA approval for the drug for the disease or condition for which it has such designation or
for a select indication or use within the rare disease or condition for which it was designated, the product generally will receive orphan product exclusivity.
Orphan product exclusivity means that the FDA may not approve any other applications for the same product for the same indication for seven years,
except in certain limited circumstances. Competitors may receive approval of different products for the indication for which the orphan product has
exclusivity and may obtain approval for the same product but for a different indication. If a drug or drug product designated as an orphan product
ultimately receives regulatory approval for an indication broader than what was designated in its orphan product application, it may not be entitled to
exclusivity.
Patent Term Restoration and Extension
A patent claiming a new drug product may be eligible for a limited patent term extension under the Hatch-Waxman Amendments, which
permits a patent term restoration of up to five years for patent term lost during product development and the FDA regulatory review. The restoration period
granted is typically one-half the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date
of an NDA and the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the
product’s approval date. Only one patent applicable to an approved drug product is eligible for the extension, and the application for the extension must be
submitted prior to the expiration of the patent in question and within 60 days of drug approval. A patent that covers multiple drugs for which approval is
sought can only be extended in connection with one of the approvals. The U.S. Patent and Trademark Office reviews and approves the application for any
patent term extension or restoration in consultation with the FDA.
Review and Approval of Medicinal Products in the European Union
In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements
of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization,
commercial sales and distribution of products. Whether or not it obtains FDA approval for a product, an applicant will need to obtain the necessary
approvals by the comparable foreign regulatory authorities before it can commence clinical trials or marketing of the product in those countries or
jurisdictions. Specifically, the process governing approval of medicinal products in the European Union generally follows the same lines as in the United
States, although the approval of a medicinal product in the United States is no guarantee of approval of the same product in the European Union, either at
all or within the same timescale as approval may be granted in the United States. It entails satisfactory completion of preclinical studies and adequate and
well-controlled clinical trials to establish the safety and efficacy of the product for each proposed indication. It also requires the submission to the relevant
competent authorities of a marketing authorization application, or MAA, and granting of a marketing authorization by these authorities before the product
can be marketed and sold in the European Union.
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Clinical Trial Approval
The Clinical Trials Directive 2001/20/EC, the Directive 2005/28/EC on GCP, and the related national implementing provisions of the
individual EU Member States govern the system for the approval of clinical trials in the European Union. Under this system, an applicant must obtain prior
approval from the competent national authority of the EU Member States in which the clinical trial is to be conducted. Furthermore, the applicant may only
start a clinical trial at a specific study site after the competent ethics committee has issued a favorable opinion in relation to the trial. The clinical trial
application must be accompanied by, among other documents, an investigational medicinal product dossier (the Common Technical Document) with
supporting information prescribed by Directive 2001/20/EC, Directive 2005/28/EC, where relevant the implementing national provisions of the individual
EU Member States and further detailed in applicable guidance documents.
In April 2014, the new Clinical Trials Regulation, (EU) No 536/2014 (Clinical Trials Regulation) was adopted. The Regulation is anticipated
to come into effect in 2020. The Clinical Trials Regulation will be directly applicable in all the EU Member States (meaning that no national implementing
legislation will be required in each Member State, as is the case for Directives), repealing the current Clinical Trials Directive 2001/20/EC. Conduct of all
clinical trials performed in the European Union will continue to be bound by currently applicable provisions until the new Clinical Trials Regulation
becomes applicable. The extent to which ongoing clinical trials will be governed by the Clinical Trials Regulation will depend on when the Clinical Trials
Regulation becomes applicable and on the duration of the individual clinical trial. If a clinical trial continues for more than three years from the day on
which the Clinical Trials Regulation becomes applicable the Clinical Trials Regulation will at that time begin to apply to the clinical trial.
The new Clinical Trials Regulation aims to simplify and streamline the approval of clinical trials in the European Union. The main
characteristics of the regulation include: a streamlined application procedure via a single entry point, the “EU portal”; a single set of documents to be
prepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for the
assessment of applications for clinical trials, which is divided in two parts. Part I is assessed by the competent authorities of all EU Member States in which
an application for authorization of a clinical trial has been submitted (Member States concerned), although the Part 1 review process will be led by the
“reporting Member State”, which shall be proposed by the sponsor of the proposed clinical trial. Part II is assessed separately by each Member State
concerned. Strict deadlines have been established for the assessment of clinical trial applications. The role of the relevant ethics committees in the
assessment procedure will continue to be governed by the national law of the concerned EU Member State. However, overall related timelines will be
defined by the Clinical Trials Regulation.
Marketing Authorization
To obtain a marketing authorization for a product under European Union regulatory systems, an applicant must submit an MAA either under a
centralized procedure administered by the European Medicines Agency, or EMA, or one of the procedures administered by competent authorities in the EU
Member States (the decentralized procedure, the national procedure or the mutual recognition procedure). A marketing authorization may be granted only
to an applicant established in the European Union. Regulation (EC) No 1901/2006 provides that prior to obtaining a marketing authorization in the
European Union, applicants have to demonstrate compliance with all measures included in an EMA-approved Pediatric Investigation Plan, or PIP, covering
all subsets of the pediatric population, unless the EMA has granted (1) a product-specific waiver, (2) a class waiver or (3) a deferral for one or more of the
measures included in the PIP.
The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid for all EU
Member States and three of the four European Free Trade Association, or EFTA, States, Iceland, Liechtenstein and Norway. Pursuant to Regulation (EC)
No 726/2004, the centralized procedure is compulsory for specific products, including for medicines produced by certain biotechnological processes,
products designated as orphan medicinal products, advanced therapy products and products with a new active substance indicated for the treatment of
certain diseases, including products for the treatment of HIV or AIDS, cancer, diabetes, neurodegenerative diseases, auto-immune and other immune
dysfunctions and viral diseases. For those products for which the use of the centralized procedure is not mandatory, applicants may elect to use the
centralized procedure where either the product contains a new active substance indicated for the treatment of other diseases or where the applicant can
show that the product constitutes a significant therapeutic, scientific or technical innovation, and or for which a centralized process is in the interest of
patients at EU level.
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Under the centralized procedure, the Committee for Medicinal Products for Human Use, or the CHMP, established at the EMA is responsible
for conducting the initial assessment of a product, specifically whether a medicine meets the required quality, safety and efficacy requirements, and whether
the product has a positive benefit/risk profile. The CHMP is also responsible for several post-authorization and maintenance activities, such as the
assessment of modifications or extensions to an existing marketing authorization. Under the centralized procedure in the European Union, the maximum
timeframe for the evaluation of an MAA is 210 days from the receipt of a valid MAA, excluding clock stops, when additional information or written or oral
explanation is to be provided by the applicant in response to questions of the CHMP. Clock stops may extend the timeframe of evaluation of an MAA
considerably beyond 210 days. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is of major interest
from the point of view of public health and in particular from the viewpoint of therapeutic innovation. If the CHMP accepts such request, the timeframe of
210 days will be reduced to 150 days (excluding clock stops), but it is possible that the CHMP can revert to the standard time limit for the centralized
procedure if it considers that it is no longer appropriate to conduct an accelerated assessment. At the end of this period, the CHMP provides a scientific
opinion on whether or not a marketing authorization should be granted in relation to a medicinal product. Within 67 days from the date of the CHMP
Opinion, the European Commission will adopt its final decision on the marketing authorization application.
Unlike the centralized authorization procedure, the decentralized marketing authorization procedure requires a separate application to, and
leads to separate approval by, the competent authorities of each EU Member State in which the product is to be marketed. This application is identical to
the application that would be submitted to the EMA for authorization through the centralized procedure. The reference EU Member State prepares a draft
assessment and drafts of the related materials within 120 days after receipt of a valid application. The resulting assessment report is submitted to the
concerned EU Member States who, within 90 days of receipt, must decide whether to approve the assessment report and related materials. If a concerned
EU Member State cannot approve the assessment report and related materials due to concerns relating to a potential serious risk to public health, disputed
elements may be referred to the European Commission, whose decision is binding on all EU Member States.
The mutual recognition procedure similarly is based on the acceptance by the competent authorities of the EU Member States of the marketing
authorization of a medicinal product by the competent authorities of other EU Member States. The holder of a national marketing authorization may submit
an application to the competent authority of an EU Member State requesting that this authority recognize the marketing authorization delivered by the
competent authority of another EU Member State.
Regulatory Data Protection in the European Union
In the European Union, innovative medicinal products approved on the basis of a complete independent data package qualify for eight years
of data exclusivity upon grant of a marketing authorization and an additional two years of market exclusivity pursuant to Directive 2001/83/EC. Regulation
(EC) No 726/2004 repeats this entitlement for medicinal products authorized in accordance the centralized authorization procedure. Data exclusivity
prevents applicants for authorization of generics of these innovative products from referencing the innovator’s data to assess a generic (abbreviated)
application for a period of eight years. During an additional two-year period of market exclusivity, a generic marketing authorization application can be
submitted and authorized, and the innovator’s data may be referenced, but no generic medicinal product can be placed on the European Union market until
the expiration of the market exclusivity. The overall ten-year period will be extended to a maximum of 11 years if, during the first eight years of those ten
years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior
to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is considered to be a new
chemical entity so that the innovator gains the prescribed period of data exclusivity, another company nevertheless could also market another version of the
product if such company obtained marketing authorization based on an MAA with a complete independent data package of pharmaceutical tests, preclinical
tests and clinical trials.
Periods of Authorization and Renewals
A marketing authorization has an initial validity for five years in principle. The marketing authorization may be renewed after five years on
the basis of a re-evaluation of the risk-benefit balance by the EMA or by the competent authority of the EU Member State. To this end, the marketing
authorization holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy,
including all variations introduced since the marketing authorization was granted, at least nine months before the marketing authorization ceases to be
valid. The European Commission or the competent authorities of the EU Member States may decide, on justified grounds relating to pharmacovigilance, to
proceed with one further five-year period of marketing authorization. Once subsequently definitively renewed, the marketing authorization shall be valid
for an unlimited period. Any authorization which is not followed by the actual placing of the medicinal product on the European Union market (in case of
centralized procedure) or on the market of the authorizing EU Member State within three years after authorization ceases to be valid (the so-called sunset
clause).
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Regulatory Requirements after a Marketing Authorization has been Obtained
In case an authorization for a medicinal product in the European Union is obtained, the holder of the marketing authorization is required to
comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of medicinal products. These include:
•
•
•
Compliance with the European Union’s stringent pharmacovigilance or safety reporting rules must be ensured. These rules can impose
post-authorization studies and additional monitoring obligations.
The manufacturing of authorized medicinal products, for which a separate manufacturer’s license is mandatory, must also be conducted
in strict compliance with the applicable European Union laws, regulations and guidance, including Directive 2001/83/EC, Directive
2003/94/EC, Regulation (EC) No 726/2004 and the European Commission Guidelines for Good Manufacturing Practice. These
requirements include compliance with European Union cGMP standards when manufacturing medicinal products and active
pharmaceutical ingredients, including the manufacture of active pharmaceutical ingredients outside of the European Union with the
intention to import the active pharmaceutical ingredients into the European Union.
The marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising directed
toward the prescribers of drugs, are strictly regulated in the European Union notably under Directive 2001/83/EC, as amended, and EU
Member State laws. The advertising of prescription-only medicines to the general public is not permitted in the European Union.
Brexit and the Regulatory Framework in the United Kingdom
On June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the European Union (commonly referred to as “Brexit”).
Thereafter, on March 29, 2017, the country formally notified the European Union of its intention to withdraw pursuant to Article 50 of the Lisbon Treaty.
The United Kingdom formally left the European Union on January 31, 2020. A transition period began on February 1, 2020, during which European Union
pharmaceutical law remains applicable to the United Kingdom. This transition period is due to end on December 31, 2020. Since the regulatory framework
for pharmaceutical products in the United Kingdom covering quality, safety and efficacy of pharmaceutical products, clinical trials, marketing
authorization, commercial sales and distribution of pharmaceutical products is derived from European Union directives and regulations, Brexit could
materially impact the future regulatory regime which applies to products and the approval of product candidates in the United Kingdom. It remains to be
seen how Brexit will impact regulatory requirements for product candidates and products in the United Kingdom.
Healthcare Law and Regulation
Healthcare providers and third-party payors play a primary role in the recommendation and prescription of drug products that are granted
regulatory approval. Arrangements with providers, consultants, third-party payors and customers are subject to broadly applicable fraud and abuse, anti-
kickback, false claims laws, reporting of payments to physicians and teaching hospitals and patient privacy laws and regulations and other healthcare laws
and regulations that may constrain our business and/or financial arrangements. Restrictions under applicable federal and state healthcare laws and
regulations, include the following:
•
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the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting,
offering, paying, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of
an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole or in
part, under a federal healthcare program such as Medicare and Medicaid; a person or entity need not have actual knowledge of the
federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation; in addition, the government may
assert that a claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or
fraudulent claim for purposes of the False Claims Act;
the federal civil and criminal false claims laws, including the civil False Claims Act, and civil monetary penalties laws, which prohibit
individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for
payment that are false, fictitious or fraudulent; knowingly making a false statement or record material to a false or fraudulent claim or
obligation to pay or transmit money or property to the federal government; or knowingly concealing or knowingly and improperly
avoiding or decreasing an obligation to pay money to the federal government;
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•
•
•
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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, and its implemented regulations, which created
additional federal criminal laws that prohibit, among other things, knowingly and willfully executing, or attempting to execute, 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;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their respective implementing
regulations, including the Final Omnibus Rule published in January 2013, which impose obligations, including mandatory contractual
terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
the federal transparency requirements known as the federal Physician Payments Sunshine Act, under the Patient Protection and
Affordable Care Act, as amended by the Health Care Education Reconciliation Act, or the Affordable Care Act, which requires certain
manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services, or
CMS, within the United States Department of Health and Human Services, information related to payments and other transfers of value
made by that entity 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. Effective January 1,
2022, these reporting obligations will extend to include transfers of value made to certain non-physician providers such as physician
assistants and nurse practitioners;
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to healthcare items
or services that are reimbursed by non-governmental third-party payors, including private insurers; and
European Privacy Laws including the General Data Protection Regulation and the E-Privacy Directive (2002/58/EC), and the national
laws implementing or supplementing each of them.
Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government in addition to requiring manufacturers to report information related to payments to
physicians and other healthcare providers or marketing expenditures and pricing information. State and foreign laws also govern the privacy and security of
health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus
complicating compliance efforts.
In the event one of our product candidates becomes commercial, it is possible that governmental authorities could conclude that our business
practices may not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare
laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may
be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, disgorgement, exclusion from government funded
healthcare programs, such as Medicare and Medicaid, integrity and oversight agreements to resolve allegations of non-compliance, contractual damages,
reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations. Defending against any such actions can be
costly, time-consuming and may require significant financial and personnel resources. 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.
Additional Regulation
In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational
Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, all affect our business. These and other laws
govern our use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes generated by, our operations. If our
operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental
fines. We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith will not have a material
adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations.
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GDPR and EU Privacy Law Reform
In the EU, Regulation 2016/679, known as the General Data Protection Regulation, or GDPR, replaced the EU Data Protection Directive on
May 25, 2018. The GDPR introduced new data protection requirements in the European Union, as well as potential fines for noncompliance of up to the
greater of €20 million or 4% of annual global revenue. The regulation imposes numerous requirements regarding the collection, use and disclosure of
personal information, including: stringent requirements relating to data subject consent; what information must be shared with data subjects regarding how
their personal information is used; the obligation to notify regulators and affected individuals of personal data breaches; extensive new internal privacy
governance obligations; and obligations to honor expanded rights of individuals in relation to their personal information (e.g., the right to access, correct
and delete their data). In addition, the GDPR includes restrictions on cross border data transfer. The GDPR increases the responsibility and liability of
pharmaceutical companies in relation to processing personal data, and companies may be required to put in place additional mechanisms to ensure
compliance with the new EU data protection rules. Further, Brexit has created uncertainty with regard to the status of the United Kingdom as an ‘adequate
country’ for the purposes of data transfers outside the European Economic Area. In particular, it is unclear how data transfers to and from the United
Kingdom will be regulated. These changes may require us to find alternative bases for the compliant transfer of personal data from the United Kingdom to
the United States and we are monitoring developments in this area.
Pharmaceutical Insurance Coverage and Healthcare Reform
In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the
prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Thus, even if a product candidate is
approved, sales of the product will depend, in part, on the extent to which third-party payors, including government health programs in the United States
such as Medicare and Medicaid, commercial health insurers and managed care organizations, provide coverage, and establish adequate reimbursement
levels for, the product. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the
price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors are increasingly challenging the prices
charged, examining the medical necessity, and reviewing the cost-effectiveness of medical products and services and imposing controls to manage costs.
Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the approved
products for a particular indication.
In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive
pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain
FDA or other comparable regulatory approvals. Additionally, companies may also need to provide discounts to purchasers, private health plans or
government healthcare programs. Nonetheless, product candidates may not be considered medically necessary or cost effective. A decision by a third-party
payor not to cover a product could reduce physician utilization once the product is approved and have a material adverse effect on sales, results of
operations and financial condition. Additionally, a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate
will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage and
reimbursement for the product, and the level of coverage and reimbursement can differ significantly from payor to payor.
The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of products have been a
focus in this effort. Governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on
reimbursement 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 a company’s revenue generated from the sale of any approved
products. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained
for one or more products for which a company or its collaborators receive regulatory approval, less favorable coverage policies and reimbursement rates
may be implemented in the future.
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There have been a number of federal and state proposals during the last few years regarding the pricing of pharmaceutical products, limiting
coverage and the amount of reimbursement for drugs and other medical products, government control and other changes to the healthcare system in the
United States. For example, in March 2010, the United States Congress enacted the Affordable Care Act, which, among other things, includes changes to
the coverage and payment for products under government health care programs. Among the provisions of the Affordable Care Act of importance to our
potential product candidates are:
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an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic products,
apportioned among these entities according to their market share in certain government healthcare programs;
expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain
individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate
liability;
expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded
and generic drugs and revising the definition of “average manufacturer price,” or AMP, for calculating and reporting Medicaid drug
rebates on outpatient prescription drug prices;
addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for
drugs that are inhaled, infused, instilled, implanted or injected;
expanded the types of entities eligible for the 340B drug discount program;
established the Medicare Part D coverage gap discount program by requiring manufacturers to provide a point-of-sale-discount off the
negotiated price of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturers’
outpatient drugs to be covered under Medicare Part D; 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.
Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the
Affordable Care Act, and we expect there will be additional challenges and amendments to the Affordable Care Act in the future. Various portions of the
Affordable Care Act are currently undergoing legal and constitutional challenges in the Fifth Circuit Court and the United States Supreme Court; the Trump
Administration has issued various Executive Orders which eliminated cost sharing subsidies and various provisions that would impose a fiscal burden on
states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical
devices; and Congress has introduced several pieces of legislation aimed at significantly revising or repealing the Affordable Care Act. It is unclear
whether the Affordable Care Act will be overturned, repealed, replaced, or further amended. We cannot predict what affect further changes to the
Affordable Care Act would have on our business.
Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. In August 2011,
the Budget Control Act of 2011, among other things, included aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went
into effect in April 2013 and will remain in effect through 2029 unless additional Congressional action is taken. In January 2013, then-President Obama
signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including
hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to
providers from three to five years. In addition, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices
for their commercial 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 pharmaceutical products. Individual states in the United States have also become increasingly active in passing
legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints,
discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage
importation from other countries and bulk purchasing.
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Outside the United States, ensuring coverage and adequate payment for a product also involves challenges. Pricing of prescription
pharmaceuticals is subject to government control in many countries. Pricing negotiations with government authorities can extend well beyond the receipt of
regulatory approval for a product and may require a clinical trial that compares the cost-effectiveness of a product to other available therapies. The conduct
of such a clinical trial could be expensive and result in delays in commercialization.
In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may
be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-
effectiveness of a particular product candidate to currently available therapies or so-called health technology assessments, in order to obtain reimbursement
or pricing approval. For example, the European Union provides options for its member states to restrict the range of products for which their national health
insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a
specific price for a product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the product on the
market. Other member states allow companies to fix their own prices for products but monitor and control prescription volumes and issue guidance to
physicians to limit prescriptions. Recently, many countries in the European Union have increased the amount of discounts required on pharmaceuticals and
these efforts could continue as countries attempt to manage healthcare expenditures, especially in light of the severe fiscal and debt crises experienced by
many countries in the European Union. The downward pressure on healthcare costs in general, particularly prescription products, has become intense. As a
result, increasingly high barriers are being erected to the entry of new products. Political, economic and regulatory developments may further complicate
pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various European Union
member states, and parallel trade, i.e., arbitrage between low-priced and high-priced member states, can further reduce prices. 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 products, if approved in those countries.
Employees
As of March 11, 2020, we had eighteen full-time employees, including a total of ten employees with M.D. or Ph.D. degrees, and no part-time
employees. Of our workforce, twelve employees are directly engaged in research and development activities, and six employees provide administrative,
business and operations support. None of our employees are represented by labor unions or covered by collective bargaining agreements. We consider the
relationship with our employees to be good. We also use outside consultants and contractors for limited engagements.
Facilities
In January 2018, we entered into a multi-year agreement to lease office space in Boston, Massachusetts under an operating lease agreement. In
April 2019, the Company amended its multi-year lease agreement to relocate its office space in Boston, Massachusetts under an operating lease agreement.
The amended lease term is for a period of seven years from the date of relocation on August 1, 2019. Under the lease agreement, we are permitted to
assign, sublease or transfer this lease, with the consent of the landlord, which consent shall not be unreasonably withheld. We believe that this office is
sufficient to meet our current needs and that suitable additional space will be available as and when needed.
Legal Proceedings
In the ordinary course of our business we may, from time to time, be involved in lawsuits, claims, and other legal proceedings related to
contracts, employment arrangements, operating activities, intellectual property or other matters. While the outcome of any such proceedings cannot be
predicted with certainty, as of the date of this Annual Report on Form 10-K, we were not party to any legal proceedings or claims that we would expect to
have a material adverse impact on our financial position, results of operations or cash flow.
Corporate Information
We were incorporated under the laws of the State of Delaware in July 2016. Our principal offices are located at 500 Boylston Street, 13th floor, Boston, MA
02116, and our telephone number is (857) 315-5528. Our website address is www.restorbio.com. Our website and the information contained on, or that can
be accessed through, the website will not be deemed to be incorporated by reference in, and are not considered part of, this Annual Report on Form 10-K.
You should not rely on any such information in making your decision whether to purchase our common stock.
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Available Information
We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (SEC)
under the Securities Exchange Act of 1934, as amended (the Exchange Act). The SEC maintains an Internet website that contains reports, proxy and
information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents
that we file with the SEC at www.sec.gov.
Copies of each of our filings with the SEC on Form 10-K, Form 10-Q, and Form 8-K and all amendments to those reports, can be viewed and
downloaded free of charge at our website, www.restorbio.com after the reports and amendments are electronically filed with, or otherwise furnished to, the
SEC.
Our code of conduct, corporate governance guidelines and the charters of our Audit Committee, Compensation Committee, and Nominating
and Corporate Governance Committee are available through our website at www.restorbio.com.
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Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. In evaluating the Company and our business, you should carefully consider the
following risks and uncertainties, together with all other information in this Annual Report on Form 10-K, including our consolidated financial statements
and related notes and “Management’s Discussion and Analysis of Results of Operations and Financial Condition,” as well as our other filings with the
Securities and Exchange Commission, before investing in our common stock. Any of the risk factors we describe below could adversely affect our business,
financial condition or results of operations. The market price of our common stock could decline if one or more of these risks or uncertainties actually
occur, causing you to lose all or part of your investment in our common stock. The risks and uncertainties we describe below are not the only ones we face.
Additional risks and uncertainties that we currently do not know about or that we currently believe to be immaterial may also impair our business. Certain
statements below are forward-looking statements. See “Special Note Regarding Forward-Looking Statements and Industry Data” in this Annual Report on
Form 10-K.
Risks Related to Our Financial Position and Need for Capital
We have incurred significant losses since our inception. We anticipate that we will continue to incur significant losses for the foreseeable future, and
we may never achieve or maintain profitability.
We are a clinical-stage biopharmaceutical company with a limited operating history. Investment in biopharmaceutical product development is
highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate
adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial
sale and have not generated any revenue from product sales to date, and we will continue to incur significant research and development and other expenses
related to our ongoing operations. As a result, we are not profitable and have incurred losses in each period since our inception in July 2016. We have
devoted a majority of our financial resources and efforts to research and development, including preclinical studies and our clinical trials. Our financial
condition and operating results, including net losses, may fluctuate significantly from quarter to quarter and year to year. Accordingly, you should not rely
upon the results of any quarterly or annual periods as indications of future operating performance. Additionally, net losses and negative cash flows have
had, and will continue to have, an adverse effect on our stockholders’ equity and working capital. For the years ended December 31, 2019 and 2018, we
reported a net loss of $82.7 million and $37.6 million, respectively. As of December 31, 2019, we had an accumulated deficit of $154.1 million. We expect
to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of,
and seek regulatory approvals for, RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, and other product candidates.
We anticipate that our expenses will increase substantially if and as we:
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continue to develop and conduct clinical trials for our lead product candidate, RTB101, alone or in combination with a rapalog, such as
everolimus or sirolimus;
initiate and continue research, preclinical and clinical development efforts for any current or future product candidates;
seek to identify additional product candidates;
seek regulatory approvals for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product
candidates that successfully complete clinical development, if any;
establish sales, marketing, distribution, manufacturing, supply chain and other commercial infrastructure in the future to commercialize
various products for which we may obtain regulatory approval, if any;
require the manufacture of larger quantities of RTB101 alone or in fixed dose combination with a rapalog, such as everolimus or
sirolimus, for clinical development and, potentially, commercialization;
maintain, expand and protect our intellectual property portfolio;
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hire and retain additional personnel, such as clinical, quality control, scientific and commercial personnel;
add operational, financial and management information systems and personnel, including personnel to support our product development
and help us comply with our obligations as a public company;
add equipment and physical infrastructure to support our research and development; and
acquire or in-license other product candidates and technologies.
Our ability to become and remain profitable depends on our ability to generate revenue. We do not expect to generate significant revenue
unless and until we are, or any future collaborator is, able to obtain regulatory approval for, and successfully commercialize, RTB101, alone or in
combination with a rapalog, such as everolimus or sirolimus, or any other product candidates. Successful commercialization will require achievement of
key milestones, including demonstrating safety and efficacy in clinical trials, obtaining regulatory, including marketing, approval for these product
candidates, manufacturing, marketing and selling those products for which we, or any of our future collaborators, may obtain regulatory approval,
satisfying any post-marketing requirements and obtaining reimbursement for our products from private insurance or government payors. Because of the
uncertainties and risks associated with these activities, we are unable to accurately and precisely predict the timing and amount of revenues, the extent of
any further losses or if or when we might achieve profitability. We and any future collaborators may never succeed in these activities and, even if we do, or
any future collaborators do, we may never generate revenues that are large enough for us to achieve profitability. Even if we do achieve profitability, we
may not be able to sustain or increase profitability on a quarterly or annual basis. Additionally, our expenses could increase if we are required by the FDA
or any comparable foreign regulatory authority to perform studies in addition to those currently expected, or if there are any delays in completing our
clinical trials or the development of any of our product candidates.
Our failure to become and remain profitable would depress the market price of our common stock and could impair our ability to raise capital,
expand our business, diversify our product offerings or continue our operations. If we continue to suffer losses as we have in the past, investors may not
receive any return on their investment and may lose their entire investment.
Our company has a limited operating history and no history of commercializing pharmaceutical products, which may make it difficult to evaluate the
prospects for our future viability.
We were formed in July 2016 and commenced research and development operations in March 2017. Our operations to date have been limited
to organizing, staffing and financing our company, raising capital, in-licensing our technology and conducting research and development activities for our
product candidates. We have not yet demonstrated an ability to obtain regulatory approvals, manufacture a commercial-scale product, or arrange for a third
party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Accordingly, you should
consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in clinical development, especially
clinical-stage biopharmaceutical companies such as ours. Any predictions you make about our future success or viability may not be as accurate as they
could be if we had a longer operating history or a history of successfully developing and commercializing pharmaceutical products.
We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business
objectives. We will eventually need to transition from a company with a development focus to a company capable of supporting commercial activities. We
may not be successful in such a transition.
We will need substantial additional funding, and if we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our
product discovery and development programs or commercialization efforts.
Our operations have required substantial amounts of cash since inception. Developing pharmaceutical products, including conducting
preclinical studies and clinical trials, is a very time-consuming, expensive and uncertain process that takes years to complete. For the foreseeable future, we
expect to continue to rely on additional financing to achieve our business objectives.
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For the years ended December 31, 2019 and 2018, we used $73.7 million and $35.5 million, respectively, in net cash for our operating
activities, of which a majority related to research and development activities. We expect our expenses to increase substantially in connection with our
ongoing activities, particularly as we initiate new clinical trials of, initiate new research and preclinical development efforts for and seek regulatory
approval for, RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any product candidates that we develop or acquire, if
any. In addition, if we obtain regulatory approval for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other
product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Some of
these expenses may be incurred in advance of regulatory approval and could be substantial. Furthermore, we expect to incur significant additional costs
associated with our continued operation as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our
continuing operations. If we are unable to raise capital when needed or on attractive terms, we may be forced to delay, reduce or eliminate our research and
development programs or any future commercialization efforts.
We intend to use our existing cash, cash equivalents and marketable securities, to fund the development of RTB101, alone or in combination
with a rapalog, such as everolimus or sirolimus, for PD and other indications, and the remainder, if any, for working capital and general corporate purposes.
We will be required to expend significant funds in order to advance the development of RTB101 alone or in combination with a rapalog, such as everolimus
or sirolimus, as well as other product candidates we may seek to develop or acquire. In addition, while we may seek one or more collaborators for future
development of RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, for one or more additional indications beyond PD or in
geographies outside of the United States, Europe and key territories, we may not be able to enter into a collaboration for RTB101 or any other product
candidates for such indications or in such geographies on suitable terms, on a timely basis, or at all. In any event, our existing cash, cash equivalents, and
marketable securities will not be sufficient to fund all of the efforts that we plan to undertake or to activities related to the development of RTB101, alone
or in combination with a rapalog, such as everolimus or sirolimus, for PD and other indications, and the development of other pipeline candidates.
Accordingly, we will be required to obtain substantial additional funding through public or private equity offerings, debt financings, collaborations and
licensing arrangements or other sources.
We cannot be certain that additional funding will be available on acceptable terms, or at all. We have no committed source of additional
capital and if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or
discontinue the development or commercialization of our product candidates or other research and development initiatives. Any of our current or future
license agreements may also be terminated if we are unable to meet the payment or other obligations under the agreements. We could be required to seek
collaborators for 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 product candidates in markets where we otherwise would seek to pursue development
or commercialization ourselves.
We believe our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expenses and capital
expenditure requirements at least into 2022. Our estimate may prove to be wrong, and we could use our available capital resources sooner than we
currently expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than
we currently anticipate, and we may need to seek additional funds sooner than planned. Our future funding requirements, both short- and long-term, will
depend on many factors, including:
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the scope, progress, timing, costs and results of clinical trials of, and research and preclinical development efforts for, RTB101, alone or
in combination with a rapalog, such as everolimus or sirolimus, and any future product candidates;
our ability to enter into, and the terms and timing of, any collaborations, licensing or other arrangements on favorable terms, if at all;
the number of future product candidates that we pursue and their development requirements;
the outcome, timing and costs of seeking regulatory approvals;
if approved, the costs of commercialization activities for RTB101, alone or in combination with a rapalog, such as everolimus or
sirolimus, or any other product candidate that receives regulatory approval to the extent such costs are not the responsibility of any
future collaborators, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;
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subject to receipt of regulatory approval, revenue, if any, received from commercial sales of RTB101, alone or in combination with a
rapalog, such as everolimus or sirolimus, or any future product candidates;
the extent to which we in-license or acquire rights to other products, product candidates or technologies;
our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure;
the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing,
prosecution, defense and enforcement of any patents or other intellectual property rights, including milestone and royalty payments and
patent prosecution fees that we are obligated to pay pursuant to our license agreement;
the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights including
enforcing and defending intellectual property related claims; and
the costs of operating as a public company.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or
product candidates.
We expect our expenses to increase in connection with our planned operations. Unless and until we can generate a substantial amount of
revenue from our product candidates, we expect to finance our future cash needs through public or private equity offerings, debt financings, collaborations,
licensing arrangements or other sources, or any combination of the foregoing. In addition, we may seek additional capital due to favorable market
conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans.
To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, your
ownership interest may be diluted, and the terms of these securities could include liquidation or other preferences and anti-dilution protections that could
adversely affect your rights as a common stockholder. In addition, debt financing, if available, may result in fixed payment obligations and may involve
agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures,
creating liens, redeeming stock or declaring dividends, that could adversely impact our ability to conduct our business. In addition, securing financing
could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-
to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.
In addition, we have retained JMP Securities LLC as a financial advisor to assist us in our evaluation of a broad range of strategic alternatives
to enhance stockholder value, including additional capital raising transactions, an acquisition, merger, business combination, licensing and/or other strategic
transaction involving us. There is no assurance that the review of strategic alternatives will result in us changing our business plan, pursuing any particular
transaction, or, if we pursue any such transaction, that it will be completed.
If we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to
relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we
are unable to raise additional funds when needed, we 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.
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Our exploration and pursuit of strategic alternatives may not be successful.
In February 2020, we announced that we were evaluating of a broad range of strategic alternatives. Potential strategic alternatives that may be
explored or evaluated as part of this process include the potential for capital raising transactions, an acquisition, merger, business combination, licensing
and/or other strategic transaction involving us. Despite devoting efforts to identify and evaluate potential strategic transactions, the process may not result
in any definitive offer to consummate a strategic transaction, or, if we receive such a definitive offer, the terms may not be as favorable as anticipated or
may not result in the execution or approval of a definitive agreement. Even if we enter into a definitive agreement, we may not be successful in completing
a transaction or, if we complete such a transaction, it may not enhance stockholder value or deliver expected benefits.
Changes in tax law could adversely affect our business and financial condition.
The rules dealing with U.S. federal, state, and local income taxation are constantly under review by persons involved in the legislative process
and by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could
adversely affect us or holders of our common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the
future. For example, the Tax Cuts and Jobs Act, or the TCJA, was enacted in 2017 and significantly reformed the Internal Revenue Code of 1986, as
amended, or the Code. The TCJA, among other things, contained significant changes to corporate taxation, including reduction of the corporate tax rate
from a top marginal rate of 35% to a flat rate of 21%, a limitation of the tax deduction for net interest expense to 30% of adjusted earnings (except for
certain small businesses), a limitation of the deduction for net operating losses to 80% of current year taxable income for losses generated in taxable years
beginning after December 31, 2017 and an elimination of net operating loss carrybacks for losses generated in taxable years ending after December 31,
2017 (though any such net operating losses may be carried forward indefinitely), and the modification or repeal of many business deductions and credits
(including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions
generally referred to as “orphan drugs”). Future changes in tax laws could have a material adverse effect on our business, cash flow, financial condition or
results of operations. Prospective investors in our common stock should consult with their legal and tax advisors with respect to potential changes in tax
laws and the tax consequences of investing in or holding our common stock.
Our ability to use net operating losses and research and development credits to offset future taxable income may be subject to certain limitations.
As of December 31, 2019, we had federal net operating loss carryforwards of $127.0 million, of which $14.0 million will begin to expire in
2036 and $113.0 million can be carried forward indefinitely. As of December 31, 2019, we had state net operating loss carryforwards of $130.8 million,
which begin to expire in various amounts in 2036. As of December 31, 2019, we also had federal research and development tax credit carryforwards of
$3.8 million, which begin to expire in 2037. These net operating loss and tax credit carryforwards could expire unused and be unavailable to offset future
income tax liabilities. In addition, in general, under Sections 382 and 383 of the Code, a corporation that undergoes an “ownership change” is subject to
limitations on its ability to utilize its pre-change net operating losses or tax credits, or NOLs or credits, to offset future taxable income or taxes. For these
purposes, an ownership change generally occurs where the aggregate stock ownership of one or more stockholders or groups of stockholders who owns at
least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing
period. Our existing NOLs or credits may be subject to limitations arising from previous ownership changes. In addition, future changes in our stock
ownership, many of which are outside of our control, could result in an ownership change under Sections 382 and 383 of the Code. Our NOLs or credits
may also be impaired under state law. Accordingly, we may not be able to utilize a material portion of our NOLs or credits. We have not completed a study
to determine whether our public offerings, private placements and other transactions that have occurred over the past three years may have triggered an
ownership change limitation. If we determine that an ownership change has occurred and our ability to use our historical NOLs or credits is materially
limited, it would harm our future operating results by effectively increasing our future tax obligations.
Furthermore, our ability to utilize our NOLs or credits is conditioned upon our attaining profitability and generating U. S. federal and state
taxable income. As described above under “Risk Factors—Risks Related to our Financial Position and Need for Additional Capital,” we have incurred
significant net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future; and therefore, we do not
know whether or when we will generate the U.S. federal or state taxable income necessary to utilize our NOL or credit carryforwards that are subject to
limitation by Sections 382 and 383 of the Code.
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Risks Related to the Discovery, Development and Commercialization of Our Product Candidates
Our business depends virtually entirely upon the success of RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus. If we are
unable to successfully develop, obtain regulatory approval for or successfully commercialize RTB101, alone or in combination with a rapalog, such as
everolimus or sirolimus, our business may be materially harmed.
We currently have no products approved for sale and are investing the majority of our efforts and financial resources in the development of
our lead product candidate, RTB101, either alone or in combination with a rapalog, such as everolimus or sirolimus. Successful continued development and
ultimate regulatory approval of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, for the treatment of aging-related
diseases is critical to the future success of our business. We will need to raise sufficient funds for, and successfully enroll and complete, our clinical
development program for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, to treat PD and possibly other aging-related
diseases. The future regulatory and commercial success of this product candidate is subject to a number of risks, including the following:
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we may not have sufficient financial and other resources to initiate or complete the necessary clinical trials for RTB101, alone or in
combination with a rapalog, such as everolimus or sirolimus;
we may not be able to obtain adequate evidence of clinical efficacy and safety for RTB101, alone or in combination with a rapalog, such
as everolimus or sirolimus, or to obtain regulatory approval of RTB101 for PD or other indications;
even if RTB101 monotherapy succeeds in its clinical development and is approved for one or more targeted indications, there can be no
assurance that RTB101 in combination with a rapalog, such as everolimus or sirolimus, would be developed successfully and approved,
and vice versa;
we may not be able to maintain an acceptable safety profile for RTB101 alone or in combination with a rapalog, such as everolimus or
sirolimus, even if approved;
we do not know the degree to which RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, will have market
uptake as a therapy by patients, the medical community or third-party payors, among others, if approved;
in our clinical programs, we may experience variability in the response of subjects to treatment, the need to adjust clinical trial
procedures and the need for additional clinical trial sites, which could delay our clinical trial progress;
the results of our clinical trials may not meet the level of statistical significance required by the FDA, the European Medicines Agency,
or EMA, or comparable foreign regulatory bodies for regulatory approval for the treatment of PD or for other indications;
we may have difficulty enrolling subjects in trials if, for instance, a current or future effective standard of care limits the desire of
patients, physicians, or regulatory agencies to participate in or support clinical trials, or if patients choose to participate in the trials of
other sponsors’ product candidates;
patients in our clinical trials may die or suffer other adverse effects for reasons that may or may not be related to RTB101, which could
delay or prevent further clinical development;
the requirements implemented by regulatory agencies may change at any time;
the FDA, EMA or foreign regulatory agencies may require efficacy endpoints for a future clinical trial that differ from the endpoints of
our current or future trials, which may require us to conduct additional clinical trials;
the mechanism of action of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, is complex and we cannot
guarantee the degree to which it will translate into a medical benefit in any indications;
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competitor products including generic products may be developed that may have similar or better safety and efficacy or lower costs than
RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus;
we may not be able to establish sales, marketing, distribution and other commercial infrastructure in the future to commercialize various
products for which we may obtain regulatory approval;
we or our contract manufacturers may not be able to manufacture RTB101, rapalogs, such as everolimus or sirolimus, the fixed dose
combination of RTB101 with a rapalog, such as everolimus or sirolimus, or other future product candidates at the appropriate quality or
sufficient quantities to support further clinical development and/or commercialization;
our investigational drug products or manufacturing processes may be considered by regulatory authorities, such as the FDA or EMA, to
be unsuitable for continued development and/or commercialization;
we may observe unexpected toxicities in preclinical safety or efficacy animal studies that delay, limit or prevent further clinical
development;
our intellectual property may not be patentable, valid or enforceable; and
we may not be able to obtain, maintain, defend, protect or enforce our patents, our trade secrets, regulatory exclusivities and other
intellectual property rights, both in the United States and internationally, including those that we have licensed under our license
agreement with Novartis.
Many of these risks are beyond our control, including the risks related to clinical development, the regulatory submission process, potential
threats to our intellectual property rights and the manufacturing, marketing and sales efforts of any future collaborator. If we are unable to develop, receive
regulatory approval for, or successfully commercialize RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, or if we
experience delays as a result of any of these risks or otherwise, our business could be materially harmed.
In addition, of the large number of drugs in development in the pharmaceutical industry, only a small percentage result in the submission of an
NDA to the FDA and even fewer are approved for commercialization. Furthermore, even if we do receive regulatory approval for RTB101, alone or in
combination with a rapalog, such as everolimus or sirolimus, any such approval may be subject to limitations on the indicated uses or patient populations
for which we may market the product. Accordingly, even if we are able to obtain the requisite financing to continue to fund our development programs, we
cannot assure you that we will successfully develop or commercialize RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, for
PD or any other indications. If we or any of our future collaborators are unable to develop, or obtain regulatory approval for, or, if approved, successfully
commercialize RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, for PD or any other indications, we may not be able to
generate sufficient revenue to continue our business.
We depend on the successful initiation and completion of clinical trials for RTB101 alone or in combination with a rapalog, such as everolimus or
sirolimus. The positive clinical results, if any, obtained in prior or ongoing clinical trials may not be predictive of future results or repeated in later-
stage clinical trials.
Before obtaining regulatory approval for the sale of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any
other potential product candidate, we must conduct additional clinical trials to demonstrate safety and efficacy in humans. The regulatory requirements for
demonstrating efficacy and safety for obtaining approval for RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, may differ.
A failure of one or more clinical trials can occur at any stage of testing. For example, in November 2019, we announced that top line data from the
PROTECTOR 1 Phase 3 study, evaluating the safety and efficacy of RTB101 in preventing clinically symptomatic respiratory illness in adults age 65 and
older, did not meet its primary endpoint and that we have stopped the development of RTB101 for clinically symptomatic respiratory illness. A number of
companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience than us, have suffered significant
setbacks in late stage clinical development, even after seeing promising results in earlier clinical trials.
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We may experience a number of unforeseen events during, or as a result of, clinical trials for RTB101, alone or in combination with a rapalog,
such as everolimus or sirolimus, or any other potential product candidate that could adversely affect the costs, timing, or successful completion of our
clinical trials, including:
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regulators or other comparable foreign regulatory authorities may disagree as to the design or implementation of our clinical trials;
regulators, and/or institutional review boards, or IRBs, or other reviewing bodies may not authorize us or our investigators to commence
a clinical trial, or to conduct or continue a clinical trial at a prospective or specific trial site;
we may not reach agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the
terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
clinical trials of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other potential product
candidate 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 subjects or patients required for clinical trials of RTB101, alone or in combination with a rapalog, such as everolimus or
sirolimus, or any other potential product candidate may be larger than we anticipate, enrollment in these clinical trials may be
insufficient or slower than we anticipate, and the number of clinical trials being conducted at any given time may be high and result in
fewer available patients for any given clinical trial, or patients may drop out of these clinical trials at a higher rate than we anticipate;
our third-party contractors, including those manufacturing our product candidates or conducting clinical trials on our behalf, may fail to
comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
we might have to suspend or terminate clinical trials of RTB101, alone or in combination with a rapalog, such as everolimus or
sirolimus, or any other potential product candidate for various reasons, including a finding that the subjects are being exposed to
unacceptable health risks;
we may have to amend a clinical trial protocol submitted to regulatory authorities or conduct additional studies to reflect changes in
regulatory requirements or guidance, which we may be required to resubmit to an IRB and regulatory authorities for re-examination;
regulators, IRBs or data monitoring committees may require or recommend that we or our investigators suspend or terminate clinical
research for various reasons, including safety signals or noncompliance with regulatory requirements;
the cost of clinical trials of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other potential
product candidate may be greater than we anticipate;
regulators, IRBs or other reviewing bodies may fail to approve or subsequently find fault with the manufacturing processes or facilities
of third-party manufacturers with which we enter into agreement for clinical and commercial supplies, or the supply or quality of
RTB101, rapalogs, such as everolimus or sirolimus, or the fixed dose combination of RTB101 and a rapalog, such as everolimus, or
sirolimus or any other potential product candidate or other materials necessary to conduct clinical trials of our product candidates may be
insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply;
the potential for approval policies or regulations of the FDA or the applicable foreign regulatory agencies to significantly change in a
manner rendering our clinical data insufficient for approval; and
RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other potential product candidate may have
undesirable side effects or other unexpected characteristics.
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Regulators, IRBs of the institutions in which clinical trials are being conducted or data monitoring committees may suspend or terminate a
clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols,
inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen
safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, or changes in governmental regulations or administrative actions or
we may have a lack of adequate funding to continue the clinical trial.
Negative or inconclusive results from our clinical trials of RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, or
any other clinical trial or preclinical studies in animals that we conduct, could mandate repeated or additional clinical trials. We do not know whether any
clinical trials that we may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market RTB101, alone or in
combination with a rapalog, such as everolimus or sirolimus, or any other potential product candidate. If later stage clinical trials do not produce favorable
results, our ability to obtain regulatory approval for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other potential
product candidate may be adversely impacted.
Clinical trials must be conducted in accordance with the laws and regulations of the FDA, EMA and other applicable regulatory authorities’
laws, and are subject to oversight by these governmental agencies and IRBs at the medical institutions where the clinical trials are conducted. In addition,
clinical trials must be conducted with supplies of our product candidates produced under cGMP, requirements and other regulations. Furthermore, we rely
on CROs, and clinical trial sites to ensure the proper and timely conduct of our clinical trials and while we have agreements governing their committed
activities, we have limited influence over their actual performance. We depend on our collaborators and on medical institutions and CROs to conduct our
clinical trials in compliance with GCP, requirements. To the extent our collaborators or the CROs fail to enroll participants for our clinical trials, fail to
conduct the study to GCP standards or are delayed for a significant time in the execution of trials, including achieving full enrollment, we may be affected
by increased costs, program delays or both. In addition, clinical trials that are conducted in countries outside the United States and EU may subject us to
further delays and expenses as a result of increased shipment costs, additional regulatory requirements and the engagement of non-U.S. and non-EU CROs,
as well as expose us to risks associated with clinical investigators who are unknown to the FDA or the EMA, and different standards of diagnosis,
screening and medical care.
We may be subject to additional risks because we are administering RTB101 in combination with other mTOR inhibitors, including rapalogs, such as
everolimus or sirolimus.
We are evaluating RTB101 in combination with other mTOR inhibitors. The use of RTB101 in combination with other compounds may
subject us to risks that we would not face if RTB101 were being administered as a monotherapy. For example, other mTOR inhibitors, including rapalogs,
such as everolimus or sirolimus, may have safety issues that are improperly attributed to RTB101 or the administration of RTB101 with such other
therapies may result in safety issues that such other therapies or RTB101 would not have when used alone. In addition, other mTOR inhibitors with which
we may administer RTB101, including a rapalog, such as everolimus or sirolimus, could be removed from the market and thus be unavailable for testing or
commercial use concomitantly with RTB101. The outcome and cost of developing a product candidate to be used with other compounds is difficult to
predict and dependent on a number of factors that are outside our reasonable control. If we experience efficacy or safety issues in our clinical trials in
which RTB101 is being administered with a rapalog, such as everolimus or sirolimus, we may not receive regulatory approval for RTB101, which could
prevent us from ever generating revenue or achieving profitability.
Competitive products may reduce or eliminate the commercial opportunity for RTB101, alone or in combination with a rapalog, such as everolimus or
sirolimus. If our competitors develop technologies or product candidates more rapidly than we do, or their technologies are more effective or safer than
ours, our ability to develop and successfully commercialize RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, may be
adversely affected.
The clinical and commercial landscape for aging-related diseases is highly competitive and subject to rapid and significant technological
change. New data from competitors’ product candidates continue to emerge. It is possible that these data may alter the current standard of care, completely
precluding us from further developing RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, for PD or other aging-related
diseases. Further, it is possible that we may initiate a clinical trial or trials for RTB101, alone or in combination with a rapalog, such as everolimus or
sirolimus, or any other potential product candidate only to find that data from competing products make it impossible for us to complete enrollment in
clinical trials, resulting in our inability to submit applications for regulatory approval with regulatory agencies. Even if RTB101 were approved, alone or in
combination with a rapalog, such as everolimus or sirolimus, it may have limited sales due to competition in the specific indications approved.
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Competitive therapeutic treatments for aging-related diseases, including PD, include those that are currently in development and any new
treatments that enter the market. We believe that a significant number of product candidates are currently under development, and may become
commercially available in the future, for the treatment of conditions for which we may try to develop product candidates. Our potential competitors include
large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, academic institutions, government agencies and
research institutions. We consider Navitor Pharmaceuticals, Inc. to be our most direct competitor in developing novel therapeutics targeting the TORC1 for
aging-related diseases. Additionally, we are also aware of other companies seeking to develop treatments to prevent or treat aging-related diseases through
biological pathways unrelated to mTOR inhibition, including Calico Life Sciences LLC, or Calico, and UNITY Biotechnology, Inc., or Unity. Calico has
not yet disclosed any pipeline candidates, and Unity’s most advanced candidate, based on publicly disclosed information, is in Phase 1 clinical trials for
osteoarthritis.
We are also aware of other companies that are potential competitors for prevention or treatment of aging-associated pathologies such as
neurodegeneration. Companies pursuing prevention or treatment of aging-associated pathologies such as neurodegeneration in PD include: Denali
Therapeutics, Inc., Acorda Therapeutics, Inc., Prothena Biosciences, Inc., Takeda Pharmaceutical Company (formerly Shire plc), Affiris AG, Biogen Inc.,
Inflazome Ltd., Casma Therapeutics, Inc., Neuropore Therapies, Inc., Caraway Therapeutics, Inc. (previously called Rheostat Therapeutics), Selphagy
Therapeutics Inc., and others. Companies pursuing treatments for levodopa-induced dyskinesia in PD include: VistaGen Therapeutics, Inc., Prilienia
Therapeutics, Inc., IRLAB Therapeutics AB, Neurolixis Inc, and others.
Many of our competitors have greater financial, technical, manufacturing, marketing, sales and supply resources, and human resources or
experience than us and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory
approvals of products and the commercialization of those products. Accordingly, our competitors may be more successful than we may be in obtaining
regulatory approval for therapies and achieving widespread market acceptance. Our competitors’ products may be more effective, or more effectively
marketed and sold, than any product candidate we may commercialize and may render our therapies obsolete or non-competitive before we can recover
development and commercialization expenses. If RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, is approved for the
indications we are currently pursuing, it could compete with a range of therapeutic treatments that are in development. In addition, our competitors may
succeed in developing, acquiring or licensing technologies and drug products that are more effective or less costly than RTB101 alone or in combination
with a rapalog, such as everolimus or sirolimus, or any other product candidates that we are currently developing or that we may develop, which could
render our product candidates obsolete and noncompetitive.
If we obtain approval for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other future product
candidate, we may face competition based on many different factors, including the efficacy, safety and tolerability of our products, the ease with which our
products can be administered, the timing and scope of regulatory approvals for these products, the availability and cost of manufacturing, marketing and
sales capabilities, price, reimbursement coverage and patent position. Existing and future competing products could present superior treatment alternatives,
including being more effective, safer, less expensive or marketed and sold more effectively than any products we may develop. Competitive products may
make any products we develop obsolete or noncompetitive before we recover the expense of developing and commercializing our product candidates. Such
competitors could also recruit our employees, which could negatively impact our level of expertise and our ability to execute our business plan. Mergers
and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a small number of
competitors.
We also compete with other clinical stage companies and institutions for clinical trial participants, which could reduce our ability to recruit
participants for our clinical trials. Delay in recruiting clinical trial participants could adversely affect our ability to bring a product to market prior to our
competitors. Further, research and discoveries by others may result in breakthroughs that render our product candidates obsolete even before they begin to
generate any revenue.
In addition, our competitors may obtain patent protection, regulatory exclusivities, or FDA approval and commercialize products more rapidly
than we do, which may impact future approvals or sales of any of our product candidates that receive regulatory approval. If the FDA approves the
commercial sale of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate, we will also be
competing with respect to marketing capabilities and manufacturing efficiency. We expect competition among products will be based on product efficacy
and safety, the timing and scope of regulatory approvals, availability of supply, marketing and sales capabilities, product price, reimbursement coverage by
government and private third-party payors, regulatory exclusivities and patent position. Our profitability and financial position will suffer if our product
candidates receive regulatory approval, but cannot compete effectively in the marketplace.
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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 compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial
sites, as well as in acquiring technologies complementary to, or necessary for, our programs.
Furthermore, regulatory authorities’ assessment of the data and results required to demonstrate safety and efficacy can change over time and
can be affected by many factors, such as the emergence of new information, including on other products, changing policies and agency funding, staffing
and leadership. We cannot be sure whether future changes to the regulatory environment will be favorable or unfavorable to our business prospects. For
example, average review times at the FDA for regulatory approval applications can be affected by a variety of factors, including budget and funding levels
and statutory, regulatory and policy changes.
The regulatory approval processes of the FDA, EMA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable. If
clinical trials of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, fail to satisfactorily demonstrate safety and efficacy
to the FDA or other regulators, or do not otherwise produce favorable results, we, or any future collaborators, may incur additional costs or experience
delays in completing, or ultimately be unable to complete, the development and commercialization of RTB101 alone or in combination with a rapalog,
such as everolimus or sirolimus.
We, and any future collaborators, are not permitted to commercialize, market, promote or sell any product candidate in the United States
without obtaining regulatory approval from the FDA. Foreign regulatory authorities, such as the EMA, impose similar requirements. The time required to
obtain approval by the FDA, EMA and comparable foreign authorities is unpredictable, but typically takes many years following the commencement of
clinical trials and depends upon numerous factors, including substantial discretion of the regulatory authorities. In addition, approval policies, regulations,
or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may
vary among jurisdictions. To date, we have not submitted an NDA to the FDA or similar drug approval submissions to comparable foreign regulatory
authorities for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate. We, and any future
collaborators, must complete additional preclinical or nonclinical studies and clinical trials to demonstrate the safety and efficacy of our product candidates
in humans before we will be able to obtain these approvals.
Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome.
We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. The clinical development of RTB101 alone or
in combination with a rapalog, such as everolimus or sirolimus, or other drugs is susceptible to the risk of failure inherent at any stage of development,
including failure to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of adverse events that are severe or
medically or commercially unacceptable, failure to comply with protocols or applicable regulatory requirements, and determination by the FDA or any
comparable foreign regulatory authority that a product candidate may not continue development or is not approvable. It is possible that even if RTB101,
alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate has a beneficial effect, that effect will not be
detected during clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis
of our clinical trials. Conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect of RTB101, alone or in
combination with a rapalog, such as everolimus or sirolimus, or any other product candidate that is greater than the actual positive effect, if any. For
example, in a topline analysis of our Phase 2b clinical trial, we observed that certain cohorts responded better to study drug treatment than others, and that certain
cohorts did not respond at all. Similarly, in our clinical trials we may fail to detect toxicity of or intolerability caused by RTB101, everolimus or any other
product candidate, or mistakenly believe that our product candidates are toxic or not well tolerated when that is not in fact the case.
Any inability to successfully complete preclinical and clinical development could result in additional costs to us, or any future collaborators.
Moreover, if we, or any future collaborators, are required to conduct additional clinical trials or other testing of RTB101, alone or in combination with a
rapalog, such as everolimus or sirolimus, or any other product candidate beyond the trials and testing that we or they contemplate, if we or they are unable
to successfully complete clinical trials of our product candidates or other testing or the results of these trials or tests are unfavorable, uncertain or are only
modestly favorable, or there are unacceptable safety concerns associated with our product candidates, we, or any future collaborators may:
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be delayed in obtaining regulatory approval for our product candidates;
not obtain regulatory approval at all;
obtain approval for indications or patient populations that are not as broad as intended or desired;
obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed
warnings;
be subject to additional post-marketing testing or other requirements; or
be required to remove the product from the market after obtaining regulatory approval.
Our failure to successfully initiate and complete clinical trials of RTB101, alone or in combination with a rapalog, such as everolimus or
sirolimus, or any other product candidate and to demonstrate the efficacy and safety necessary to obtain regulatory approval to market RTB101, alone or in
combination with a rapalog, such as everolimus or sirolimus, or any other product candidate would significantly harm our business. Our product candidate
development costs will also increase if we experience delays in testing or regulatory approvals and we may be required to obtain additional funds to
complete clinical trials. We cannot assure you that our clinical trials will begin as planned or be completed on schedule, if at all, or that we will not need to
restructure our trials after they have begun. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to
commercialize our product candidates 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. In addition, many of the factors that cause, or lead to, delays
of clinical trials may ultimately lead to the denial of regulatory approval of RTB101 alone or in combination with a rapalog, such as everolimus or
sirolimus, or any other product candidate.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the
commercial profile of an approved label, or result in significant negative consequences following regulatory approval, if obtained.
Undesirable side effects caused by RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product
candidate could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of
regulatory approval by the FDA or comparable foreign regulatory authorities. Results of our clinical trials could reveal a high and unacceptable severity
and prevalence of side effects or unexpected characteristics. In clinical trials of RTB101, alone and in combination with everolimus, to date, there were no
observed study drug-related serious adverse events in the Phase 2a clinical trial. In the Phase 2b clinical trial, 4.5% of subjects in the RTB101 10 mg once
daily cohort had a serious adverse event, none of which were related to the study drug, though 4.5% of subjects in that arm discontinued the study drug due
to an adverse event. The majority of observed study-drug related adverse events were mild or moderate in severity, transient and resolved without stopping
the study drug. However, there can be no guarantee that we would observe a similar tolerability profile of RTB101, alone or in combination with a rapalog,
such as everolimus or sirolimus, in future clinical trials. Many compounds that initially showed promise in clinical or earlier stage testing are later found to
cause undesirable or unexpected side effects that prevented further development of the compound.
If unacceptable side effects arise in the development of our product candidates, we, the FDA or comparable foreign regulatory authorities, the
IRBs, or independent ethics committees at the institutions in which our trials are conducted, or the Data Safety Monitoring Board, or DSMB, could suspend
or terminate our clinical trials or the FDA or comparable foreign regulatory authorities could order us to cease clinical trials or deny approval of our
product candidates for any or all targeted indications. Treatment-emergent side effects that are deemed to be treatment-related could also affect subject
recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims. In addition, these side effects may not be
appropriately recognized or managed by the treating medical staff. We expect to have to train medical personnel using our product candidates to understand
the side effect profiles for our clinical trials and upon any commercialization of any of our product candidates. Inadequate training in recognizing or
managing the potential side effects of our product candidates could result in patient injury or death. Any of these occurrences may harm our business,
financial condition and prospects significantly.
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Moreover, clinical trials of our product candidates are conducted in carefully defined sets of patients who have agreed to enter into clinical
trials. Consequently, it is possible that our clinical trials, or those of any future collaborator, may indicate an apparent positive effect of a product candidate
that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. If, following approval of a product candidate,
we, or others, discover that the product is less effective than previously believed or causes undesirable side effects that were not previously identified, any
of the following adverse consequences could occur:
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regulatory authorities may withdraw their approval of the product, seize the product, or seek an injunction against its manufacture or
distribution;
we, or any future collaborators, may need to recall the product, or be required to change the way the product is administered or conduct
additional clinical trials, or develop a surveillance program;
additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular product;
regulatory authorities may require one or more post-market studies;
regulatory authorities may impose distribution and/or use requirements, such as under a REMS;
we may be subject to fines, injunctions or the imposition of civil or criminal penalties;
regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication, or issue
safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings or other safety information
about the product;
we, or any future collaborators, may be required to create a Medication Guide outlining the risks of the previously unidentified side
effects for distribution to patients;
we, or any future collaborators, could be sued and held liable for harm caused to patients;
the product may become less competitive; and
our reputation may suffer.
Any of these events could harm our business and operations and could negatively impact our stock price.
If we fail to develop RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, for additional indications or fail to discover,
develop and commercialize other product candidates, we may be unable to grow our business and our ability to achieve our strategic objectives would
be impaired.
Although the development of RTB101 for PD is our primary focus, as part of our longer-term growth strategy, we may evaluate RTB101,
alone or in combination with a rapalog, such as everolimus or sirolimus, in other indications and develop other product candidates. We intend to evaluate
strategic alternatives and internal opportunities from RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or other product
candidates from our TORC1 program, and also may choose to in-license or acquire other product candidates as well as commercial products to treat
patients suffering from other disorders with significant unmet medical needs and limited treatment options. These other product candidates will require
additional, time-consuming development efforts prior to commercial sale, including preclinical studies, clinical trials and approval by the FDA and/or
applicable foreign regulatory authorities. All product candidates are prone to the risks of failure that are inherent in pharmaceutical product development,
including the possibility that the product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition,
we cannot assure you that any such products that are approved will be manufactured or produced economically, successfully commercialized or widely
accepted in the marketplace or be more effective than other commercially available alternatives.
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Research programs to identify product candidates require substantial technical, financial and human resources, whether or not any product
candidates are ultimately identified. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product
candidates for clinical development for many reasons, including the following:
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the research methodology used may not be successful in identifying potential product candidates;
competitors may develop alternatives that render our product candidates obsolete;
product candidates that we develop may nevertheless be covered by third parties’ patents or other exclusive rights;
a product candidate may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be
effective or otherwise does not meet applicable regulatory criteria;
a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors.
If we are unsuccessful in identifying and developing additional product candidates, our potential for growth and achieving our strategic
objectives may be impaired.
Our preclinical programs may not produce new product candidates that are suitable for clinical trials or that can be successfully commercialized or
generate revenue through collaborations.
We must successfully complete preclinical testing for our preclinical programs, which may include demonstrating activity and comprehensive
studies to show the lack of toxicity and other adverse effects in established animal models, before commencing clinical trials for any product candidate.
Many pharmaceutical products do not successfully complete preclinical testing and, even if preclinical testing is successfully completed, may fail in clinical
trials. In addition, there can be no assurance that positive results from preclinical studies will be predictive of results obtained from subsequent preclinical
studies or clinical trials. Many pharmaceutical candidates are not suitable for manufacture on the scale or of the quality required for clinical trials or
commercialization. Some pharmaceutical candidates that initially seem suitable may later be found to be insufficiently stable or may generate toxic
impurities over time. We also cannot be certain that any product candidates that do advance into clinical trials will successfully demonstrate safety and
efficacy in clinical trials. Even if we achieve positive results in early preclinical studies or clinical trials, they may not be predictive of the results in later
trials.
Results of preclinical studies and early clinical trials may not be predictive of results of future clinical trials, and such results do not guarantee
approval of a product candidate by regulatory authorities.
The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of
clinical trials do not necessarily predict success in the results of completed clinical trials. Many companies in the pharmaceutical and biotechnology
industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we could face similar
setbacks. The design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not
become apparent until the clinical trial is well advanced. In addition, preclinical and clinical data are often susceptible to varying interpretations and
analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to
obtain the same positive results in later studies or regulatory approval for their product candidates.
For example, in November 2019, we announced that top line data from the PROTECTOR 1 Phase 3 study, evaluating the safety and efficacy
of RTB101 in preventing clinically symptomatic respiratory illness in adults age 65 and older, did not meet its primary endpoint and that we have stopped
the development of RTB101 for clinically symptomatic respiratory illness.
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In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product
candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations,
changes in and adherence to the dosing regimen and other clinical trial procedures and the rate of dropout among clinical trial participants. If we fail to
receive positive results in clinical trials of our product candidates, the development timeline and regulatory approval and commercialization prospects for
our most advanced product candidate, and, correspondingly, our business and financial prospects would be negatively impacted.
We may expend our resources to pursue a particular product candidate or indication and forgo the opportunity to capitalize on product candidates or
indications that may ultimately be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we intend to focus on developing product candidates for specific indications that
we identify as most likely to succeed, in terms of both their potential for regulatory approval and commercialization. As a result, we may forego or delay
pursuit of opportunities with other product candidates or for other indications that may prove to have greater commercial potential.
Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our
spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable
product candidates. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish
valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more
advantageous for us to retain sole development and commercialization rights to the product candidate.
If the FDA or comparable foreign regulatory authorities approve generic versions of RTB101, alone or in combination with a rapalog, such as
everolimus or sirolimus, or any other product candidate of ours that receives regulatory approval, or such authorities do not grant our products
appropriate periods of non-patent exclusivity before approving generic versions of such products, the sales of such products could be adversely affected.
Once an NDA is approved, the product covered thereby becomes a “listed drug” in the FDA’s publication, “Approved Drug Products with
Therapeutic Equivalence Evaluations,” or the Orange Book. Manufacturers may seek approval of generic versions of reference listed drugs through
submission of abbreviated new drug applications, or ANDAs, in the United States. In support of an ANDA, a generic manufacturer generally must show
that its product has the same active ingredient(s), dosage form, strength, route of administration, conditions of use and labeling as the reference listed drug
and that the generic version is bioequivalent to the reference listed drug, meaning, in part, that it is absorbed in the body at the same rate and to the same
extent. Generic products may be significantly less costly to bring to market than the reference listed drug and companies that produce generic products are
generally able to offer them at lower prices. Moreover, many states allow or require substitution of therapeutically equivalent generic drugs at the pharmacy
level even if the branded drug is prescribed. Thus, following the introduction of a generic drug, a significant percentage of the sales of any branded product
or reference listed drug may be lost to the generic product.
The FDA may not approve (or in some cases, accept) an ANDA for a generic product until any applicable period of non-patent exclusivity for
the reference listed drug has expired. The Federal Food, Drug, and Cosmetic Act, or FDCA, provides a period of five years of non-patent exclusivity for a
new drug containing NCE. Specifically, in cases where such exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of
five years unless the submission is accompanied by a Paragraph IV certification that a patent covering the listed drug is invalid, unenforceable or will not
be infringed by the generic product, in which case the applicant may submit its application four years following approval of the listed drug. It is unclear
whether the FDA will treat the active ingredients in our product candidates as NCEs and, therefore, afford them five years of NCE data exclusivity if they
are approved. If any product we develop does not receive five years of NCE exclusivity, it may nevertheless receive three years of exclusivity if it meets
applicable requirements. If so, the FDA may not approve generic versions of such product until three years after its date of approval. Three-year exclusivity
is given to a drug if it contains an active moiety that has previously been approved, and the NDA includes reports of one or more new clinical
investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the
NDA. If approved, manufacturers may seek to launch these generic products following the expiration of the applicable marketing exclusivity period, even
if we still have patent protection for our product.
Competition that our products, if approved, may face from generic versions of our products could negatively impact our future revenue,
profitability and cash flows and substantially limit our ability to obtain a return on our investments in those product candidates.
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If we encounter difficulties enrolling patients in our future clinical trials, our clinical development activities could be delayed or otherwise adversely
affected.
We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in
accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its
conclusion.
Patient enrollment is affected by many factors, including:
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the patient eligibility criteria defined in the protocol;
the size of the patient population required for analysis of the trial’s primary endpoints;
the proximity of patients to study sites;
the design of the trial;
our ability to recruit clinical trial investigators with the appropriate competencies and experience;
competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages and risks of the product candidate being
studied in relation to other available therapies, including any new drugs that may be approved for the indications that we are
investigating;
our ability to obtain and maintain patient consents; and
the risk that patients enrolled in clinical trials will drop out of the trials before completion.
In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product
candidates, and this competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our
trials may instead opt to enroll in a trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we
expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who
are available for our clinical trials in such clinical trial site.
Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays or might require us to abandon
one or more clinical trials altogether. Delays in patient enrollment may result in increased costs, affect the timing or outcome of the planned clinical trials,
product candidate development and approval process and jeopardize our ability to seek and obtain the regulatory approval required to commence product
sales and generate revenue, which could prevent completion of these trials, adversely affect our ability to advance the development of our product
candidates, cause the value of our company to decline and limit our ability to obtain additional financing if needed.
Ingredients, excipients and other materials necessary to manufacture RTB101 or rapalogs, such as everolimus or sirolimus, may not be available on
commercially reasonable terms, or at all, which may adversely affect the development and commercialization of RTB101, alone or in combination with
a rapalog, such as everolimus or sirolimus.
We and our third-party manufacturers must obtain from other third-party suppliers the active pharmaceutical ingredients, excipients and
primary and secondary packaging materials necessary for our contract manufacturers to produce RTB101 or rapalogs, such as everolimus or sirolimus, for
our clinical trials and, to the extent approved or commercialized, for commercial distribution. There is no guarantee that we would be able to enter into all
the necessary agreements with third-party suppliers that we require for the supply of such materials on commercially reasonable terms, or at all. Even if we
were able to secure such agreements or guarantees, our suppliers may be unable or choose not to provide us the ingredients, excipients or materials in a
timely manner or in the quantities required. If we or our third-party manufacturers are unable to obtain the quantities of these ingredients, excipients or
materials that are necessary for the manufacture of commercial supplies of RTB101 or rapalogs, such as everolimus or sirolimus, our ability to generate
revenue from the sale of RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, would be materially and adversely affected.
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Further, if we or our third-party manufacturers are unable to obtain active pharmaceutical ingredients, excipients and materials as necessary
for our clinical trials or for the manufacture of commercial supplies of our product candidates, if approved, potential regulatory approval or
commercialization would be delayed, which would materially and adversely affect our ability to generate revenue from the sale of our product candidates.
As a result of these and other factors, the cost of manufacturing drug material may not support continued development or commercialization or may
materially reduce revenue. We are also unable to predict how changing global economic conditions or potential global health concerns such as the
coronavirus will affect our third-party suppliers and manufacturers. Any negative impact of such matters on our third-party suppliers and manufacturers
may also have an adverse impact on our results of operations or financial condition.
Even if RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate of ours receives regulatory
approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community
necessary for commercial success, in which case we may not generate significant revenues or become profitable.
We have never commercialized a product, and even if RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or
any other product candidate of ours is approved by the appropriate regulatory authorities for marketing and sale, it may nonetheless fail to gain sufficient
market acceptance by physicians, patients, third-party payors and others in the medical community. The market for therapies targeting Parkinson’s disease
with a TORC1 inhibitor is novel, and physicians may be reluctant to adopt novel therapies. In addition, patients and their physicians may not desire to add
RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, even if approved, to their existing treatment regime. Further, patients
often acclimate to the treatment regime that they are currently taking and do not want to switch unless their physicians recommend switching products or
they are required to switch due to lack of coverage and reimbursement. In addition, even if we are able to demonstrate our product candidates’ safety and
efficacy to the FDA and other regulators, safety or efficacy concerns in the medical community may hinder market acceptance.
Efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources,
including management time and financial resources, and may not be successful. If RTB101, alone or in combination with a rapalog, such as everolimus or
sirolimus, or any other product candidate is approved but does not achieve an adequate level of market acceptance, we may not generate significant
revenues and we may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a
number of factors, including:
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the efficacy and safety of the product;
the potential advantages of the product compared to competitive therapies;
the prevalence and severity of any side effects;
whether the product is recommended under physician guidelines;
whether the product is designated under physician treatment guidelines as a first-, second- or third-line therapy;
our ability, or the ability of any future collaborators, to offer the product for sale at competitive prices;
the product’s convenience and ease of administration compared to alternative treatments;
the willingness of the target patient population to try, and of physicians to prescribe, the product;
limitations or warnings, including distribution or use restrictions contained in the product’s approved labeling;
the strength of sales, marketing and distribution support;
changes in the standard of care for the targeted indications for the product; and
availability and adequacy of coverage and reimbursement from government payors, managed care plans and other third-party payors.
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Any failure by RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate of ours that
obtains regulatory approval to achieve market acceptance or commercial success would adversely affect our business prospects.
Even if we, or any future collaborators, are able to commercialize any product candidate that we, or they, develop, the product may become subject to
unfavorable pricing regulations or third-party payor coverage and reimbursement policies, any of which could harm our business.
Patients who are provided medical treatment for their conditions generally rely on third party payors to reimburse all or part of the costs
associated with their treatment. Therefore, our ability, and the ability of any future collaborators to commercialize any of our product candidates will
depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available from third-party payors
including government health administration authorities and private health coverage insurers. Third-party payors decide which medications they will cover
and establish reimbursement levels. We cannot be certain that coverage will be available and that reimbursement will be adequate for RTB101, alone or in
combination with a rapalog, such as everolimus or sirolimus, or any of our other product candidates. Also, we cannot be certain that reimbursement policies
will not reduce the demand for, or the price paid for, our products.
If coverage and reimbursement are not available, or reimbursement is available only to limited levels, we, or any future collaborators, may be
limited in our ability to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be
high enough to allow us, or any future collaborators, to establish or maintain pricing to realize a sufficient return on our or their investment. In the United
States, no uniform policy of coverage and reimbursement for products exists among third-party payors and coverage and reimbursement for products can
differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to
provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement
will be applied consistently or obtained in the first instance.
There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved drugs. Regulatory approvals,
pricing and reimbursement for new drug products vary widely from country to country. Some countries require approval of the sale price of a drug before it
can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets,
prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we, or any future
collaborators, might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay commercial launch
of the product, which may 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 or the ability of any future collaborators to recoup our or their investment in one or more product candidates, even if our product
candidates obtain regulatory approval.
The healthcare industry is acutely focused on cost containment, both in the United States and elsewhere. Government authorities and other
third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for certain medications, which could affect our
ability or that of any future collaborators to sell our product candidates profitably. These payors may not view our products, if any, as cost-effective, and
coverage and reimbursement may not be available to our customers, or those of any future collaborators, or may not be sufficient to allow our products, if
any, to be marketed on a competitive basis. Cost-control initiatives could cause us, or any future collaborators, to decrease the price we, or they, might
establish for products, which could result in lower than anticipated product revenues. If the prices for our products, if any, decrease or if governmental and
other third-party payors do not provide coverage or adequate reimbursement, our prospects for revenue and profitability will suffer.
There may also be delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the
indications for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for reimbursement does not
imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution.
Reimbursement rates may vary, by way of example, according to the use of the product and the clinical setting in which it is used. Reimbursement rates
may also be based on reimbursement levels already set for lower cost drugs or may be incorporated into existing payments for other services.
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In addition, increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies
and are challenging prices. We cannot be sure that coverage will be available for any product candidate that we, or any future collaborator, commercialize
and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement for drug products may be subject to additional reductions if
there are changes to laws that presently restrict imports of drugs from one country to another. An inability to promptly obtain coverage and adequate
payment rates from both government-funded and private payors for any of our product candidates for which we, or any future collaborator, obtain
regulatory approval could significantly harm our operating results, our ability to raise capital needed to commercialize products and our overall financial
condition.
Product liability lawsuits against us or any of our future collaborators could divert our resources and attention, cause us to incur substantial liabilities
and limit commercialization of our product candidates.
We are exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing,
marketing and use of pharmaceutical products. Currently, we have no products that have been approved for commercial sale; however, the current and
future use of our product candidates by us and any collaborators in clinical trials, and the sale of these product candidates, if approved, in the future, may
expose us to liability claims. We face an inherent risk of product liability lawsuits related to the use of our product candidates in elderly patients and will
face an even greater risk if product candidates are approved by regulatory authorities and introduced commercially. Product liability claims may be brought
against us or our partners by participants enrolled in our clinical trials, patients, health care providers, pharmaceutical companies, our collaborators or
others using, administering or selling any of our future approved products. If we cannot successfully defend ourselves against any such claims, we may
incur substantial liabilities or be required to limit commercialization of our product candidates. Regardless of the merits or eventual outcome, liability
claims may result in:
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decreased demand for any of our future approved products;
injury to our reputation;
withdrawal of clinical trial participants;
termination of clinical trial sites or entire trial programs;
significant litigation costs;
substantial monetary awards to, or costly settlements with, patients or other claimants;
product recalls or a change in the indications for which they may be used;
loss of revenue;
diversion of management and scientific resources from our business operations; and
the inability to commercialize our product candidates.
Although the clinical trial process is designed to identify and assess potential side effects, clinical development does not always fully
characterize the safety and efficacy profile of a new medicine, and it is always possible that a drug, even after regulatory approval, may exhibit unforeseen
side effects. If our product candidates were to cause adverse side effects during clinical trials or after approval, we may be exposed to substantial liabilities.
Physicians and patients may not comply with any warnings that identify known potential adverse effects and patients who should not use our product
candidates. If any of our product candidates are approved for commercial sale, we will be highly dependent upon consumer perceptions of us and the safety
and quality of our products. We could be adversely affected if we are subject to negative publicity associated with illness or other adverse effects resulting
from patients’ use or misuse of our products or any similar products distributed by other companies.
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Although we maintain product liability insurance coverage in the amount of up to $10.0 million in the aggregate, including clinical trial
liability, this insurance may not fully cover potential liabilities that we may incur. The cost of any product liability litigation or other proceeding, even if
resolved in our favor, could be substantial. We will need to increase our insurance coverage if we commercialize any product that receives regulatory
approval. In addition, insurance coverage is becoming increasingly expensive. If we are unable to maintain sufficient insurance coverage at an acceptable
cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development and commercial production and sale of our
product candidates, which could harm our business, financial condition, results of operations and prospects.
We currently have limited marketing, sales or distribution infrastructure. If we are unable to develop our sales, marketing and distribution capability
on our own or through collaborations with marketing partners, we will not be successful in commercializing our product candidates.
We currently have limited marketing, sales or distribution infrastructure. If RTB101 is approved for PD, we intend to establish a sales and
marketing organization with technical expertise and supporting distribution capabilities to commercialize the approved product in key territories, which
will require substantial additional resources. Some or all of these costs may be incurred in advance of any approval of RTB101, alone or in combination
with a rapalog, such as everolimus or sirolimus. Any failure or delay in the development of our or third parties’ internal sales, marketing and distribution
capabilities would adversely impact the commercialization of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, and other
future product candidates.
Factors that may inhibit our efforts to commercialize our products on our own include:
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our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any future products;
the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to
companies with more extensive product lines; and
unforeseen costs and expenses associated with creating an independent sales and marketing organization.
With respect to our existing and future product candidates, we may choose to collaborate with third parties that have direct sales forces and
established distribution systems to serve as an alternative to our own sales force and distribution systems. Our product revenue may be lower than if we
directly marketed or sold our products, if approved. In addition, any revenue we receive will depend in whole or in part upon the efforts of these third
parties, which may not be successful and are generally not within our control. If we are not successful in commercializing any approved products, our
future product revenue will suffer, and we may incur significant additional losses.
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.
If we, or any future collaborators, experience any of a number of possible unforeseen events in connection with clinical trials of RTB101, alone or in
combination with a rapalog, such as everolimus or sirolimus, or any other product candidate, potential clinical development, regulatory approval or
commercialization of our product candidates could be delayed or prevented.
We, or any future collaborators, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent
clinical development, regulatory approval or commercialization of our product candidates, including:
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our product candidates may produce unfavorable or inconclusive results;
regulators may require us or any future collaborators, to conduct additional clinical trials or abandon product development programs;
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the number of patients required for clinical trials of our product candidates may be larger than we, or any future collaborators anticipate,
patient enrollment in these clinical trials may be slower than we, or any future collaborators, may anticipate or participants may drop out
of these clinical trials at a higher rate than we, or any future collaborators, anticipate;
the cost of planned clinical trials of our product candidates may be greater than we anticipate;
our third-party contractors or those of any future collaborators, including those manufacturing our product candidates or components or
ingredients thereof or conducting clinical trials on our behalf or on behalf of any future collaborators, may fail to comply with regulatory
requirements or meet their contractual obligations to us or any future collaborators in a timely manner, or at all;
regulators, IRBs or independent ethics committees may not authorize us, any future collaborators or our or their investigators to
commence a clinical trial or conduct a clinical trial at a prospective trial site;
delays in reaching or failure to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
patients who enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial
protocol, resulting in the need to drop the patients from the clinical trial, increase the needed enrollment size for the clinical trial or
extend the clinical trial’s duration;
delay, suspension or termination of clinical trials of our product candidates for various reasons, including a finding that the participants
are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate; and
regulators, IRBs or independent ethics committees may require that we, or any future collaborators, or our or their investigators suspend
or terminate clinical research for various reasons, including noncompliance with regulatory requirements or their standards of conduct, a
finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics
of the product candidate or findings of undesirable effects caused by a chemically or mechanistically similar product or product
candidate.
Further, conducting clinical trials in foreign countries, as we have done and plan to do for our product candidates, presents additional risks that
may delay completion of our clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere to clinical protocol as a result
of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as
political and economic risks relevant to such foreign countries.
Product development costs for us, or any future collaborators, will increase if we, or they, experience delays in testing or pursuing regulatory
approvals and we, or they, may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization of our product
candidates. We do not know whether any preclinical studies or clinical trials will begin as planned, will need to be restructured, or will be completed on
schedule, or at all. Significant preclinical study or clinical trial delays also could shorten any periods during which we, or any future collaborators, may
have the exclusive right to commercialize our product candidates or allow our competitors, or the competitors of any future collaborators, to bring products
to market before we, or any future collaborators, do and impair our ability, or the ability of any future collaborators, to successfully commercialize our
product candidates and may harm our business and results of operations. In addition, many of the factors that lead to clinical trial delays may ultimately
lead to the denial of regulatory approval of any of our product candidates.
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Risks Related to Regulatory Approval and Marketing of Our Product Candidates and Other Legal Compliance Matters
Even if we complete the necessary preclinical studies and clinical trials, the regulatory approval process for product candidates is expensive, time
consuming and uncertain and may prevent us or any future collaborators from obtaining approvals for the commercialization of RTB101 alone or in
combination with a rapalog, such as everolimus or sirolimus, or any other product candidate. As a result, we cannot predict when or if, and in which
territories, we, or any future collaborators, will obtain regulatory approval to commercialize a product candidate.
The research, testing, manufacturing, labeling, approval, selling, marketing, promotion and distribution of products are subject to extensive
regulation by the FDA and comparable foreign regulatory authorities. We, and any future collaborators, are not permitted to market RTB101, alone or in
combination with a rapalog, such as everolimus or sirolimus, or any other product candidate in the United States or in other countries until we, or they,
receive approval of an NDA from the FDA or regulatory approval from applicable regulatory authorities outside the United States. RTB101 is in clinical
development and is subject to the risks of failure inherent in drug development. We have not submitted an application for or received regulatory approval
for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate in the United States or in any other
jurisdiction. We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including obtaining FDA
approval of an NDA.
The process of obtaining regulatory approvals, both in the United States and abroad, is lengthy, expensive and uncertain. It may take many
years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product
candidates involved. Securing regulatory approval requires the submission of extensive preclinical and clinical data and supporting information to
regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing regulatory approval also requires the
submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. The FDA
or other regulatory authorities may determine that RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product
candidates are not safe and effective, only moderately effective or have undesirable or unintended side effects, toxicities or other characteristics that
preclude our obtaining regulatory approval or prevent or limit commercial use. Any regulatory approval we ultimately obtain may be limited or subject to
restrictions or post-approval commitments that render the approved product not commercially viable.
In addition, changes in regulatory approval policies during the development period, changes in or the enactment or promulgation of additional
statutes, regulations or guidance or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an
application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data
are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from
preclinical and clinical testing could delay, limit or prevent regulatory approval of a product candidate. Any regulatory approval we, or any future
collaborators, ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially
viable.
Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive
compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or other
regulatory authority. The FDA or other regulatory authority may conclude that a financial relationship between us and a principal investigator has created a
conflict of interest or otherwise affected interpretation of the study. The FDA or other regulatory authority may therefore question the integrity of the data
generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or
rejection, of our marketing applications by the FDA or other regulatory authority, as the case may be, and may ultimately lead to the denial of regulatory
approval of one or more of our product candidates.
Any delay in obtaining or failure to obtain required approvals could negatively impact our ability or that of any future collaborators to
generate revenue from the particular product candidate, which likely would result in significant harm to our business and adversely impact our stock price.
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Our failure to obtain regulatory approval in foreign jurisdictions would prevent our product candidates from being marketed abroad, and any approval
we are granted for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any of our other product candidates in the
United States would not assure approval of product candidates in foreign jurisdictions.
In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory
requirements of other countries regarding clinical trial design, safety and efficacy. Clinical trials conducted in one country may not be accepted by
regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other
country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods.
Seeking foreign regulatory approvals could result in significant delays, difficulties and costs for us and may require additional preclinical studies or clinical
trials which would be costly and time consuming and could delay or prevent introduction of RTB101, alone or in combination with a rapalog, such as
everolimus or sirolimus, or any of our other product candidates in those countries. We do not have experience in obtaining regulatory approval in
international markets. If we or our partners fail to comply with regulatory requirements or to obtain and maintain required approvals, our target market will
be reduced and our ability to realize the full market potential of our product candidates will be harmed.
The exit of the United Kingdom, or the UK, from the European Union may materially affect the regulatory regime that governs our handling of EU
personal data and expose us to legal and business risks under European data privacy and protection law.
On June 23, 2016, the UK held a referendum in which a majority of the eligible members of the electorate voted to leave the EU. The UK’s
withdrawal from the EU is commonly referred to as Brexit. Pursuant to Article 50 of the Treaty on European Union, the UK ceased being a Member State
of the EU on January 31, 2020. However, the terms of the withdrawal have yet to be fully negotiated. The implementation period began February 1, 2020
and will continue until December 31, 2020. During this 11-month period, the UK will continue to follow all of the EU’s rules and its trading relationship
will remain the same. However, regulations (including data protection laws, health and safety laws and regulations and medicine licensing and regulations),
have yet to be addressed. This lack of clarity on future UK laws and regulations and their interaction with EU laws and regulations could add legal risk,
uncertainty, complexity and cost to our handling of EU personal information and our privacy and data security compliance programs. It is possible that over
time the UK Data Protection Act could become less aligned with the EU General Data Protection Regulation, or GDPR, which could require us to
implement different compliance measures for the UK and the European Union and result in potentially enhanced compliance obligations for EU personal
data. This risk would apply more immediately in the event of a “no-deal” Brexit (including no transition period).
It is unclear whether the European Commission, or EC, will grant an adequacy finding to the UK (a finding that the UK privacy legal
framework provides an adequate level of privacy protection to EU individuals). Absent an adequacy finding, transfers of personal data from the EU to the
UK would be impermissible without adequate safeguards provided for under EC-approved mechanisms, such as current standard contractual clauses or, if
approved in the future, an EU – UK privacy shield similar to the current framework in place between the EU and the U.S. The extensive authority of UK
intelligence and law enforcement agencies, including to conduct surveillance on personal data flows, could reduce the likelihood that the EC would give the
UK an adequacy finding, and reduce the likelihood that the EC would approve an EU – UK privacy shield. Accordingly, we would be exposed to legal risk
for any of our EU-UK personal data transfers, including those that involve sensitive data such as patient and genetic data.
Even if we, or any future collaborators, obtain regulatory approvals for our product candidates, the terms of approvals and ongoing regulation of our
products may limit how we manufacture and market our products, which could impair our ability to generate revenue.
Once regulatory approval has been granted, an approved product and its manufacturer and marketer are subject to ongoing review and
extensive regulation. We, and any future collaborators, must therefore comply with requirements concerning advertising and promotion for any of our
product candidates for which we or they obtain regulatory approval. Promotional communications with respect to prescription drugs are subject to a variety
of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus, we and any future collaborators
will not be able to promote any products we develop for indications or uses for which they are not approved.
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In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with extensive FDA requirements,
including ensuring that quality control and manufacturing procedures conform to cGMPs, which include requirements relating to quality control and
quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We, our contract manufacturers, any
future collaborators and their contract manufacturers could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance
with cGMPs. Despite our efforts to inspect and verify regulatory compliance, one or more of our third-party manufacturing vendors may be found on
regulatory inspection by FDA or other authorities to be not in compliance with cGMP regulations, which may result in shutdown of the third-party vendor
or invalidation of drug product lots or processes. In some cases, a product recall may be warranted or required, which would materially affect our ability to
supply and market our drug products.
Accordingly, assuming we, or any future collaborators, receive regulatory approval for one or more of our product candidates, we, and any
future collaborators, and our and their contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance,
including manufacturing, production, product surveillance and quality control.
If we, and any future collaborators, are not able to comply with post-approval regulatory requirements, we, and any future collaborators, could
have the regulatory approvals for our products withdrawn by regulatory authorities and our, or any future collaborators’, ability to market any future
products could be limited, which could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance with post-approval
regulations may have a negative effect on our operating results and financial condition.
We are subject to extensive government regulation and the failure to comply with these regulations may have a material adverse effect on our
operations and business.
Both before and after approval of any product, we and our suppliers, contract manufacturers and clinical investigators are subject to extensive
regulation by governmental authorities in the United States and other countries, covering, among other things, testing, manufacturing, quality control,
clinical trials, post-marketing studies, labeling, advertising, promotion, distribution, import and export, governmental pricing, price reporting and rebate
requirements. Failure to comply with applicable requirements could result in one or more of the following actions: warning or untitled letters; unanticipated
expenditures; delays in approval or refusal to approve a product candidate; voluntary product recall; product seizure; interruption of manufacturing or
clinical trials; operating or marketing restrictions; injunctions; criminal prosecution and civil or criminal penalties including fines and other monetary
penalties; exclusion from federal health care programs such as Medicare and Medicaid; adverse publicity; and disruptions to our business. Further,
government investigations into potential violations of these laws would require us to expend considerable resources and face adverse publicity and the
potential disruption of our business even if we are ultimately found not to have committed a violation.
Obtaining FDA approval of our product candidates requires substantial time, effort and financial resources and may be subject to both
expected and unforeseen delays, and there can be no assurance that any approval will be granted for any of our product candidates on a timely basis, if at
all. The FDA may decide that our data are insufficient for approval of our product candidates and require additional preclinical, clinical or other studies or
additional work related to chemistry, manufacturing and controls. In addition, we, the FDA, IRBs or independent ethics committees may suspend or
terminate human clinical trials at any time on various grounds, including a finding that the patients are or would be exposed to an unacceptable health risk
or because of the way in which the investigators on which we rely carry out the trials. If we are required to conduct additional trials or to conduct other
testing of our product candidates beyond that which we currently contemplate for regulatory approval, if we are unable to complete successfully our
clinical trials or other testing, or if the results of these and other trials or tests fail to demonstrate efficacy or raise safety concerns, we may face substantial
additional expenses, be delayed in obtaining regulatory approval for our product candidates or may never obtain regulatory approval.
We are also required to comply with extensive governmental regulatory requirements after a product has received marketing authorization.
Governing regulatory authorities may require post-marketing studies that may negatively impact the commercial viability of a product. Once on the market,
a product may become associated with previously undetected adverse effects and/or may experience manufacturing or other commercial difficulties. As a
result of any of these or other problems, a product’s regulatory approval could be withdrawn, suspended or modified which could harm our business and
operating results.
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Any of our product candidates for which we, or any future collaborators, obtain regulatory approval in the future will be subject to ongoing obligations
and continued regulatory review, which may result in significant additional expense. If approved, our product candidates could be subject to post-
marketing restrictions or withdrawal from the market and we, or any future collaborators, may be subject to substantial penalties if we, or they, fail to
comply with regulatory requirements or if we, or they, experience unanticipated problems with our products following approval.
Any of our product candidates for which we, or any future collaborators, obtain regulatory approval, as well as the manufacturing processes,
post-approval studies, labeling, advertising and promotional activities for such product, among other things, will be subject to ongoing requirements of and
review by the FDA, EMA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and
reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of
records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. We and our contract manufacturers will also
be subject to user fees and periodic inspection by the FDA, EMA and other regulatory authorities to monitor compliance with these requirements and the
terms of any product approval we may obtain. Even if regulatory 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, including the requirement to implement a REMS.
The FDA, EMA and other regulatory authorities may also impose requirements for costly post-marketing studies or clinical trials and
surveillance to monitor the safety or efficacy of a product. The FDA and other agencies, including the Department of Justice, closely regulate and monitor
the post-approval marketing and promotion of products to ensure that they are manufactured, marketed and distributed only for the approved indications
and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-
label use and if we, or any future collaborators, do not market any of our product candidates for which we, or they, receive regulatory approval for only
their approved indications, we, or they, may be subject to warnings or enforcement action for off-label marketing if it is alleged that we are doing so.
Violation of the FDCA and other statutes relating to the promotion and advertising of prescription drugs may lead to investigations or allegations of
violations of federal and state health care fraud and abuse laws and state consumer protection laws, including the False Claims Act.
In addition, later discovery of previously unknown adverse events or other problems with our products or their manufacturers or
manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:
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restrictions on the manufacturing of such products;
restrictions on the labeling or marketing of such products;
restrictions on product distribution or use;
requirements to conduct post-marketing studies or clinical trials;
warning letters 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;
restrictions on coverage by third-party payors;
fines, restitution or disgorgement of profits or revenues;
exclusion from federal health care programs such as Medicare and Medicaid;
suspension or withdrawal of regulatory approvals;
refusal to permit the import or export of products;
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injunctions or the imposition of civil or criminal penalties.
The efforts of the current administration to pursue regulatory reform may limit FDA’s ability to engage in oversight and implementation activities in
the normal course, and that could negatively impact our business.
The policies of the FDA and of other regulatory authorities may change and additional government regulations may be enacted that could
prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may
arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the current
administration may impact our business and industry. Namely, the current administration has taken several executive actions, including the issuance of a
number of executive orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and
oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. On
January 30, 2017, President Trump issued an executive order, applicable to all executive agencies, including the FDA, that requires that for each notice of
proposed rulemaking or final regulation to be issued in fiscal year 2017, the agency shall identify at least two existing regulations to be repealed, unless
prohibited by law. These requirements are referred to as the “two-for-one” provisions. This executive order includes a budget neutrality provision that
requires the total incremental cost of all new regulations in the 2017 fiscal year, including repealed regulations, to be no greater than zero, except in limited
circumstances. For fiscal years 2018 and beyond, the executive order requires agencies to identify regulations to offset any incremental cost of a new
regulation. In interim guidance issued by the Office of Information and Regulatory Affairs within OMB on February 2, 2017, the administration indicates
that the “two-for-one” provisions may apply not only to agency regulations, but also to significant agency guidance documents, and on September 8, 2017,
the FDA published notices in the Federal Register soliciting broad public comment to identify regulations that could be modified in compliance with these
Executive Orders. It is difficult to predict how these requirements will be implemented, and the extent to which they will impact the FDA’s ability to
exercise its regulatory authority. If these executive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the
normal course, our business may be negatively impacted.
Our relationships with healthcare providers, physicians and third-party payors will be subject to applicable anti-kickback, fraud and abuse, privacy and
transparency and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion from government
healthcare programs, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any products for
which we obtain regulatory approval. Our future arrangements with third party payors, healthcare providers and physicians may expose us to broadly
applicable fraud and abuse and other healthcare laws and regulations, in addition to legal obligations related to privacy, data protection and information
security, that may constrain the business or financial arrangements and relationships through which we conduct our operations, including how we research,
market, sell and distribute any products for which we obtain regulatory approval. These include the following:
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Anti-Kickback Statute—The federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and
willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in
return for, either the referral of an individual for, or the purchase, order or recommendation or arranging 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 can be found guilty
of violating the federal Anti-Kickback Statute without actual knowledge of the statute or specific intent to violate it in order to have
committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the
Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil money
penalties statute;
False Claims Act—The federal False Claims Act imposes criminal and civil penalties, including through civil whistleblower or qui tam
actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented false or fraudulent
claims for payment by a federal healthcare program; making a false statement or record material to a false or fraudulent claim or an
obligation to pay money to the federal government; or avoiding, decreasing or concealing an obligation to pay money to the federal
government. A claim that includes items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or
fraudulent claim under the False Claims Act. Potential liability for violating the False Claims Act includes mandatory treble damages
and significant per-claim penalties;
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HIPAA—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 making false statements relating to healthcare matters. Similar to the
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. In addition, HIPAA and, as amended by the Health Information Technology for Economic and Clinical
Health Act and its implementing regulations, also imposes obligations on covered entities and their business associates, including
mandatory contractual terms and technical safeguards, with respect to maintaining the privacy, security and transmission of individually
identifiable health information;
Transparency Requirements—Federal laws require applicable manufacturers of covered drugs to report payments and other transfers
of value to physicians, including doctors, dentists, optometrists, podiatrists and chiropractors, and teaching hospitals, as well as
information regarding ownership and investment interests held by the physicians described above and their immediate family members.
Effective January 1, 2022, these reporting obligations will extend to include transfers of value made to certain non-physician providers
such as physician assistants and nurse practitioners;
Analogous State and Foreign Laws—Analogous state and foreign fraud and abuse laws and regulations, such as state anti-kickback
and false claims laws, can apply to our business practices, including but not limited to research, distribution, sales or marketing
arrangements and claims involving healthcare items or services reimbursed by non-governmental third party payors and are generally
broad and are enforced by many different federal and state agencies as well as through private actions; and
European Privacy Laws—The data privacy regime in the EU imposes obligations and restrictions on the collection and use of personal
data relating to individuals located in the EU and includes the GDPR, and any national laws implementing or supplementing the GDPR.
If we do not comply with our obligations under the EU privacy regime, we could be exposed to significant fines and we may be the
subject of litigation and/or adverse publicity, which could have material adverse effect on our reputation and business.
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 require manufacturers to report information related to payments and other
transfers of value to physicians and other healthcare providers or marketing expenditures and pricing information. State and foreign laws also govern the
privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not pre-empted
by HIPAA, thus complicating compliance efforts.
Efforts to ensure that our business arrangements with third parties, and our business generally, 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, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our
operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant
civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such as Medicare and
Medicaid, and the curtailment or restructuring of our operations. Defending against any such actions can be costly, time-consuming and may require
significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our
business may be impaired. 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 criminal, civil or administrative sanctions, including exclusions from government funded
healthcare programs.
The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase,
supply, order or use of medicinal products is generally not permitted in the countries that form part of the EU. Some EU Member States, like the United
Kingdom, through the United Kingdom Bribery Act 2010, have enacted laws explicitly prohibiting the provision of these type of benefits and advantages.
Infringements of these laws can result in substantial fines and imprisonment.
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Payments made to physicians in certain EU Member States (e.g., France or Belgium) must be publicly disclosed. Moreover, agreements with
physicians often must be the subject of prior notification and approval by the physician’s employer, his or her competent professional organization and/or
the regulatory authorities of the individual EU Member States. These requirements are provided in the EU Member State national laws, industry codes (e.g.
the European Federation of Pharmaceutical Industries and Associations Disclosure and Healthcare Professionals Codes) or professional codes of conduct.
Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.
We are subject to governmental regulation and other legal obligations, particularly related to privacy, data protection and information security, and we
are subject to consumer protection laws that regulate our marketing practices and prohibit unfair or deceptive acts or practices. Our actual or perceived
failure to comply with such obligations could harm our business.
The GDPR imposes strict requirements on controllers and processors of personal data, including special protections for “special category
data,” which includes health, biometric and genetic information of data subjects located in the EU. Further, GDPR provides a broad right for EU Member
States to create supplemental national laws, such as laws relating to the processing of health, genetic and biometric data, which could further limit our
ability to use and share such data or could cause our costs to increase, and harm our business and financial condition. GDPR grants individuals the
opportunity to object to the processing of their personal information, allows them to request deletion of personal information in certain circumstances, and
provides the individual with an express right to seek legal remedies in the event the individual believes his or her rights have been violated. Further, the
GDPR imposes strict rules on the transfer of personal data out of the EU to the United States or other regions that have not been deemed to offer
“adequate” privacy protections.
Failure to comply with the requirements of the GDPR and the related national data protection laws of the EU Member States, which may
deviate slightly from the GDPR, may result in fines of up to 4% of global revenues, or €20,000,000, whichever is greater, and in addition to such fines, we
may be the subject of litigation and/or adverse publicity, which could have material adverse effect on our reputation and business. As a result of the
implementation of the GDPR, we are required to put in place additional mechanisms to ensure compliance with the new data protection rules. For example,
the GDPR requires us to make more detailed disclosures to data subjects, requires disclosure of the legal basis on which we can process personal data, may
make it harder for us to obtain valid consent for processing, will require the appointment of a data protection officer where sensitive personal data (i.e.,
health data) is processed on a large scale, introduces mandatory data breach notification requirements throughout the EU, imposes additional obligations on
us when we are contracting with service providers and requires us to adopt appropriate privacy governance including policies, procedures, training and data
audit.
We are subject to the supervision of local data protection authorities in those jurisdictions where we monitor the behavior of individuals in the
EU (i.e., undertaking clinical trials).
We are also subject to evolving European privacy laws on electronic marketing and cookies. The EU is in the process of replacing the e-
Privacy Directive (2002/58/EC) with a new set of rules taking the form of a regulation, which will be directly implemented in the laws of each EU state,
without the need for further enactment. While the e-Privacy Regulation was originally intended to be adopted on May 25, 2018 (alongside the GDPR), it is
still going through the European legislative process. Draft regulations were rejected by the Permanent Representatives Committee of the Council of EU on
November 22, 2019; it is not clear when new regulations will be adopted.
Current and future legislation may increase the difficulty and cost for us and any collaborators to obtain regulatory approval of and commercialize our
product candidates and affect the prices we, or they, may obtain.
In the United States and foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding
the healthcare system that could prevent or delay regulatory approval of our product candidates, restrict or regulate post-approval activities and affect our
ability to profitably sell any product candidates for which we obtain regulatory approval. We expect that current laws, as well as other healthcare reform
measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria,
new payment methodologies and additional downward pressure on the price that we, or any collaborators, may receive for any approved products.
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In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and
Education Reconciliation Act, or collectively the Affordable Care Act. Among the provisions of the Affordable Care Act of potential importance to our
business and our product candidates are the following:
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an annual, non-deductible fee on any entity that manufactures or imports specified branded prescription products and biologic products;
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;
a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for products that
are inhaled, infused, instilled, implanted or injected;
expansion of healthcare fraud and abuse laws, including the civil False Claims Act and the federal 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
(increased pursuant to the Bipartisan Budget Act of 2018, effective as of 2019) off negotiated prices of applicable brand products to
eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient products to be covered under
Medicare Part D;
extension of manufacturers’ Medicaid rebate liability to individuals enrolled in Medicaid managed care organizations;
expansion of eligibility criteria for Medicaid programs;
expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
new requirements to report certain financial arrangements with physicians and teaching hospitals;
a new requirement to annually report product samples that manufacturers and distributors provide to physicians;
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness
research, along with funding for such research; and
established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models.
Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the
Affordable Care Act, and we expect there will be additional challenges and amendments to the Affordable Care Act in the future. Various portions of the
Affordable Care Act are currently undergoing legal and constitutional challenges in the Fifth Circuit Court and the United States Supreme Court; the Trump
Administration has issued various Executive Orders which eliminated cost sharing subsidies and various provisions that would impose a fiscal burden on
states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical
devices; and Congress has introduced several pieces of legislation aimed at significantly revising or repealing the Affordable Care Act. It is unclear
whether the Affordable Care Act will be overturned, repealed, replaced, or further amended. We cannot predict what affect further changes to the
Affordable Care Act would have on our business.
In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. In August 2011, the Budget
Control Act of 2011, among other things, included aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect in
April 2013 and will remain in effect through 2029 unless additional Congressional action is taken. The American Taxpayer Relief Act of 2012, among
other things, reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to
providers from three to five years. These laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices
we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is
prescribed or used.
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The costs of prescription pharmaceuticals in the United States has also been the subject of considerable discussion in the United States, and
members of Congress and the Trump Administration have stated that they will address such costs through new legislative and administrative measures.
There have been several U.S. Congressional inquiries and proposed and enacted state legislation designed to, among other things, bring more transparency
to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform
government program reimbursement methodologies for drug products. At the federal level, Congress and the Trump administration have each indicated that
it will continue to pursue new legislative and/or administrative measures to control drug costs. The Trump administration recently released a plan, or
Blueprint, to reduce the cost of drugs. The Trump administrations’ Blueprint contains certain measures that the U.S. Department of Health and Human
Services is already working to implement.
Individual state legislatures have become increasingly aggressive in passing legislation and implementing regulations designed to control
pharmaceutical and biological product pricing. Some of these measures include price or patient reimbursement constraints, discounts, restrictions on certain
product access, marketing cost disclosure and transparency measures, and, in some cases, measures designed to encourage importation from other countries
and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what
pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs. These measures could reduce the
ultimate demand for our products, once approved, or put pressure on our product pricing.
In addition, individual states in the United States have also become increasingly active in passing legislation and implementing regulations
designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access,
and to encourage importation from other countries and bulk purchasing.
The pricing of prescription pharmaceuticals is also subject to governmental control outside the United States. In these countries, pricing
negotiations with governmental authorities can take considerable time after the receipt of regulatory 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 candidates 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 ability to
generate revenues and become profitable could be impaired.
Governments outside the United States may impose strict price controls, which may adversely affect our revenues, if any.
In some countries, including Member States of the EU, the pricing of prescription drugs is subject to governmental control. Additional
countries may adopt similar approaches to the pricing of prescription drugs. In such countries, pricing negotiations with governmental authorities can take
considerable time after receipt of regulatory approval for a product. In addition, there can be considerable pressure by governments and other stakeholders
on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further
complicate pricing negotiations, and pricing negotiations may continue after coverage and reimbursement have been obtained. Reference pricing used by
various countries and parallel distribution, or arbitrage between low-priced and high-priced countries, can further reduce prices. In some countries, we may
be required to conduct a clinical study or other studies that compare the cost-effectiveness of any of our product candidates to other available therapies in
order to obtain or maintain reimbursement or pricing approval, which is time-consuming and costly. We cannot be sure that such prices and reimbursement
will be acceptable to us or our strategic partners. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or
reimbursement levels within the country of publication and other countries. If pricing is set at unsatisfactory levels or if reimbursement of our products is
unavailable or limited in scope or amount, our revenues from sales by us or our strategic partners and the potential profitability of any of our product
candidates in those countries would be negatively affected.
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Laws and regulations governing any international operations we may have in the future may preclude us from developing, manufacturing and selling
certain products outside of the United States and require us to develop and implement costly compliance programs.
If we further expand our operations outside of the United States, we must dedicate additional resources to comply with numerous laws and
regulations in each jurisdiction in which we plan to operate. The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from
paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the
purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA
also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring us to maintain books and
records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate
system of internal accounting controls for international operations.
Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the
FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and
other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed
to be improper payments to government officials and have led to FCPA enforcement actions.
Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain
non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If we
expand our presence outside of the United States, it will require us to dedicate additional resources to comply with these laws, and these laws may preclude
us from developing, manufacturing, or selling certain products and product candidates outside of the United States, which could limit our growth potential
and increase our development costs.
The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and
suspension or debarment from government contracting. The Securities and Exchange Commission, or SEC, also may suspend or bar issuers from trading
securities on U.S. exchanges for violations of the FCPA’s accounting provisions.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could
harm our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the
handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of
hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if we contract
with third parties for the disposal of these materials and waste products, we cannot completely eliminate the risk of contamination or injury resulting from
these materials. In the event of contamination or injury resulting from the use or disposal of our hazardous materials, we could be held liable for any
resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties
for failure to comply with such laws and regulations.
We maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees, but this
insurance may not provide adequate coverage against potential liabilities. However, we do not maintain insurance for environmental liability or toxic tort
claims that may be asserted against us.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations.
Current or future environmental laws and regulations may impair our research, development or production efforts. In addition, failure to comply with these
laws and regulations may result in substantial fines, penalties or other sanctions.
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The anticipated phasing out of LIBOR in the future may adversely affect the value of any outstanding debt instruments.
National and international regulators and law enforcement agencies have conducted investigations into a number of rates or indices known as
“reference rates.” Actions by such regulators and law enforcement agencies may result in changes to the manner in which certain reference rates are
determined, their discontinuance, or the establishment of alternative reference rates. In particular, in July 2017, the Chief Executive of the U.K. Financial
Conduct Authority, or FCA, which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation
of LIBOR after 2021. Such announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. As a
result, it appears highly likely that LIBOR will be discontinued or modified by 2021.
At this time, it is not possible to predict the effect that these developments, any discontinuance, modification or other reforms to LIBOR or
any other reference rate, or the establishment of alternative reference rates may have on LIBOR, other benchmarks, or LIBOR-based debt instruments.
Uncertainty as to the nature of such potential discontinuance, modification, alternative reference rates or other reforms may materially adversely affect the
trading market for securities linked to such benchmarks. Furthermore, the use of alternative reference rates or other reforms could cause the interest rate
calculated for the LIBOR-based debt instruments to be materially different than expected.
Risks Related to Our Intellectual Property
Our commercial success depends on our ability to protect our intellectual property and proprietary technology.
Our commercial success depends in large part on our ability to obtain and maintain intellectual property rights protection through patents,
trademarks, and trade secrets in the United States and other countries with respect to our proprietary product candidates. If we do not adequately protect our
intellectual property rights, competitors may be able to erode, negate or preempt any competitive advantage we may have, which could harm our business
and ability to achieve profitability. To protect our proprietary position, we have patent applications and may file other patent applications in the United
States or abroad related to our product candidates that are important to our business; we may also license or purchase patent applications filed by others.
The patent application and approval process is expensive and time-consuming. We may not be able to file and prosecute all necessary or desirable patent
applications at a reasonable cost or in a timely manner.
Agreements through which we license patent rights may not give us control over patent prosecution or maintenance, so that we may not be
able to control which claims or arguments are presented, how claims are amended, and may not be able to secure, maintain, or successfully enforce
necessary or desirable patent protection from those patent rights. We have not had and do not have primary control over patent prosecution and
maintenance for certain of the patents and patent applications we license, and therefore cannot guarantee that these patents and applications will be
prosecuted or maintained in a manner consistent with the best interests of our business. We cannot be certain that patent prosecution and maintenance
activities by our licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents.
If the scope of the patent protection we or our licensors obtain is not sufficiently broad, we may not be able to prevent others from developing
and commercializing technology and products similar or identical to ours. The degree of patent protection we require to successfully compete in the
marketplace may be unavailable or severely limited in some cases and may not adequately protect our rights or permit us to gain or keep any competitive
advantage. We cannot provide any assurances that any of our licensed patents have, or that any of our pending owned or licensed patent applications that
mature into issued patents will include, claims with a scope sufficient to protect our proprietary platform or otherwise provide any competitive advantage,
nor can we assure you that our licenses are or will remain in force. Other parties have developed or may develop technologies that may be related or
competitive with our approach, and may have filed or may file patent applications and may have been issued or may be issued patents with claims that
overlap or conflict with our patent applications, either by claiming the same compounds, formulations or methods or by claiming subject matter that could
dominate our patent position. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States.
Furthermore, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally twenty years after it is filed. Various
extensions may be available; however, the life of a patent, and the protection it affords, is limited. Given the amount of time required for the development,
testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are
commercialized. As a result, our patent portfolio may not provide us with adequate and continuing patent protection sufficient to exclude others from
commercializing products similar to our product candidates. In addition, the patent portfolio licensed to us is, or may be, licensed to third parties, such as
outside our field, and such third parties may have certain enforcement rights. Thus, patents licensed to us could be put at risk of being invalidated or
interpreted narrowly in litigation
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filed by or against another licensee or in administrative proceedings brought by or against another licensee in response to such litigation or for other
reasons.
Even if they are unchallenged, our owned and licensed patents and pending patent applications, if issued, may not provide us with any
meaningful protection or prevent competitors from designing around our patent claims to circumvent our patents by developing similar or alternative
technologies or therapeutics in a non-infringing manner. For example, a third party may develop a competitive therapy that provides benefits similar to one
or more of our product candidates but falls outside the scope of our patent protection or license rights. If the patent protection provided by the patents and
patent applications we hold or pursue with respect to our product candidates is not sufficiently broad to impede such competition, our ability to successfully
commercialize our product candidates could be negatively affected, which would harm our business. Currently, a significant portion of our patents and
patent applications are in-licensed, though similar risks would apply to any patents or patent applications that we now own or may own or in-license in the
future.
We, or any future partners, collaborators, or licensees, may fail to identify patentable aspects of inventions made in the course of development
and commercialization activities before it is too late to obtain patent protection on them. Therefore, we may miss potential opportunities to strengthen our
patent position.
It is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, for
example with respect to proper priority claims, inventorship, claim scope, or requests for patent term adjustments. If we or our partners, collaborators,
licensees, or licensors, whether current or future, fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be
reduced or eliminated. If our partners, collaborators, licensees, or licensors, are not fully cooperative or disagree with us as to the prosecution, maintenance
or enforcement of any patent rights, such patent rights could be compromised. If there are material defects in the form, preparation, prosecution, or
enforcement of our patents or patent applications, such patents may be invalid and/or unenforceable, and such applications may never result in valid,
enforceable patents. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our
business.
The patent position of biotechnology and pharmaceutical companies carries uncertainty. In addition, the determination of patent rights with
respect to pharmaceutical compounds commonly involves complex legal and factual questions, which are dependent upon the current legal and intellectual
property context, extant legal precedent and interpretations of the law by individuals. As a result, the issuance, scope, validity, enforceability and
commercial value of our patent rights are characterized by uncertainty.
Pending patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a
patent issues from such applications. Assuming the other requirements for patentability are met, currently, the first to file a patent application is generally
entitled to the patent. However, prior to March 16, 2013, in the United States, the first to invent was entitled to the patent. Publications of discoveries in the
scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are not published until
18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents or
pending patent applications, or that we were the first to file for patent protection of such inventions. Similarly, we cannot be certain that parties from whom
we do or may license or purchase patent rights were the first to make relevant claimed inventions, or were the first to file for patent protection for them. If
third parties have filed prior patent applications on inventions claimed in our patents or applications that were filed on or before March 15, 2013, an
interference proceeding in the United States can be initiated by such third parties to determine who was the first to invent any of the subject matter covered
by the patent claims of our applications. If third parties have filed such prior applications after March 15, 2013, a derivation proceeding in the United States
can be initiated by such third parties to determine whether our invention was derived from theirs.
Moreover, because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, our patents or pending
patent applications may be challenged in the courts or patent offices in the United States and abroad. There is no assurance that all of the potentially
relevant prior art relating to our patents and patent applications has been found. If such prior art exists, it may be used to invalidate a patent, or may prevent
a patent from issuing from a pending patent application. For example, such patent filings may be subject to a third-party submission of prior art to the U.S.
Patent and Trademark Office, or USPTO, or to other patent offices around the world. Alternately or additionally, we may become involved in post-grant
review procedures, oppositions, derivation proceedings, ex parte reexaminations, inter partes review, supplemental examinations, or interference
proceedings or challenges in district court, in the United States or in various foreign patent offices, including both national and regional, challenging
patents or patent applications in which we have rights, including patents on which we rely to protect our business. An adverse determination in
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any such challenges may result in loss of the patent or in patent or patent application claims being narrowed, invalidated or held unenforceable, in whole or
in part, or in denial of the patent application or loss or reduction in the scope of one or more claims of the patent or patent application, any of 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 of
our technology and products. In addition, 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.
Pending and future patent applications may not result in patents being issued that protect our business, in whole or in part, or which effectively
prevent others from commercializing competitive products. Competitors may also be able to design around our patents. 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.
In addition, the laws of foreign countries may not protect our rights to the same extent or in the same manner as the laws of the United States. For example,
patent laws in various jurisdictions, including significant commercial markets such as Europe, restrict the patentability of methods of treatment of the
human body more than United States law does. If these developments were to occur, they could have a material adverse effect on our ability to generate
revenue.
The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our future
development partners will be successful in protecting our product candidates by obtaining and defending patents. These risks and uncertainties include the
following:
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the USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee
payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse
of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event,
competitors might be able to enter the market earlier than would otherwise have been the case;
patent applications may not result in any patents being issued;
patents that may be issued or in-licensed may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or
otherwise may not provide any competitive advantage;
our competitors, many of whom have substantially greater resources and many of whom have made significant investments in competing
technologies, may seek or may have already obtained patents that will limit, interfere with or eliminate our ability to make, use, and sell
our potential product candidates;
there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent protection
both inside and outside the United States for disease treatments that prove successful, as a matter of public policy regarding worldwide
health concerns; and
countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing
foreign competitors a better opportunity to create, develop and market competing product candidates.
Issued patents that we have or may obtain or license may not provide us with any meaningful protection, prevent competitors from competing
with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our patents by developing similar or
alternative technologies or products in a non-infringing manner. Our competitors may also seek approval to market their own products similar to or
otherwise competitive with our products. Alternatively, our competitors may seek to market generic versions of any approved products by submitting
ANDAs to the FDA in which they claim that patents owned or licensed by us are invalid, unenforceable or not infringed. In these circumstances, we may
need to defend or assert our patents, or both, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other
agency with jurisdiction may find our patents invalid or unenforceable, or that our competitors are competing in a non-infringing manner. Thus, even if we
have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business
objectives.
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In addition, we rely on the protection of our trade secrets and proprietary, unpatented know-how. Although we have taken steps to protect our
trade secrets and unpatented know-how, including entering into confidentiality agreements with third parties, and confidential information and invention
assignment agreements with employees, consultants, collaborators, vendors, and advisors, we cannot provide any assurances that all such agreements have
been duly executed, and third parties may still obtain this information or may come upon this or similar information independently. It is possible that
technology relevant to our business will be independently developed by a person who is not a party to such a confidentiality or invention assignment
agreement. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by consultants, collaborators,
vendors, advisors, former employees and current employees. Furthermore, if the parties to our confidentiality agreements breach or violate the terms of
these agreement, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets as a consequence of such
breaches or violations. Our trade secrets could otherwise become known or be independently discovered by our competitors. Additionally, if the steps taken
to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating our trade secrets. If any of
these events occurs or if we otherwise lose protection for our trade secrets or proprietary know-how, our business may be harmed.
We depend on intellectual property licensed from third parties and termination of any of these licenses could result in the loss of significant rights,
which would harm our business.
In March 2017, we entered into a license agreement with Novartis, or the Novartis License, pursuant to which we were granted an exclusive,
field-restricted, worldwide license to certain intellectual property rights owned or controlled by Novartis, including patents, patent applications, proprietary
information, know-how and other intellectual property, to develop, commercialize and sell one or more therapeutic products comprising RTB101 or
RTB101 and everolimus in a fixed dose combination.
We are dependent on these patents, know-how and proprietary technology, licensed from Novartis. Any termination of this license, or a
finding that such intellectual property lacks legal effect, could result in the loss of significant rights and could harm our ability to commercialize any
product candidates. See the section entitled “Business—Intellectual Property” for additional information regarding our license agreements.
Disputes may also arise between us and our licensor, our licensor and its licensors, or us and third parties that co-own intellectual property
with our licensor or its licensors, regarding intellectual property subject to a license agreement, including those relating to:
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the scope of rights, if any, granted under the license agreement and other interpretation-related issues;
whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the
license agreement;
whether our licensor or its licensor had the right to grant the license agreement;
whether third parties are entitled to compensation or equitable relief, such as an injunction, for our use of the intellectual property
without their authorization;
our right to sublicense patent and other rights to third parties under collaborative development relationships;
whether we are complying with our obligations with respect to the use of the licensed technology in relation to our development and
commercialization of product candidates;
our involvement in the prosecution of the licensed patents and our licensors’ overall patent enforcement strategy;
the allocation of ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors
and by us and our partners; and
the amounts of royalties, milestones or other payments due under the license agreement.
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If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on
acceptable terms, or are insufficient to provide us the necessary rights to use the intellectual property, we may be unable to successfully develop and
commercialize the affected product candidates. If we or any such licensors fail to adequately protect this intellectual property, our ability to commercialize
our products could suffer.
Novartis may partially terminate the license agreement with respect to everolimus if we fail or cease for three years to use commercially
reasonable efforts to research, develop and commercialize a product using everolimus, provided that our license related to RTB101 and Novartis’s license
to our improvements related to everolimus will continue. Additionally, either party may terminate the Novartis License if the other party commits a
material breach and fails to cure such breach within 60 days after written notice. If Novartis unilaterally terminates the Novartis License, the research and
development of RTB101 or RTB101 and everolimus in a fixed dose combination would be suspended, and we may be unable to research, develop and
license future product candidates.
We may be required to pay certain milestones and royalties under our license agreements with third-party licensors.
Under our current and future license agreements, we may be required to pay milestones and royalties based on our revenues from sales of our
products utilizing the technologies licensed or sublicensed from Novartis or other licensors and these royalty payments could adversely affect the overall
profitability for us of any products that we may seek to commercialize. In order to maintain our license rights under current and future license agreements,
we may need to meet certain specified milestones, subject to certain cure provisions, in the development of our product candidates and in the raising of
funding. In addition, these agreements may contain diligence milestones and we may not be successful in meeting all of the milestones in the future on a
timely basis, or at all, which could result in termination of our rights under such agreements. We may need to outsource and rely on third parties for many
aspects of the clinical development, sales and marketing of our products covered under our current and future license agreements. Delay or failure by
these third parties could adversely affect the continuation of our license agreements with their third-party licensors.
It is difficult and costly to protect our intellectual property and our proprietary technologies, and we may not be able to ensure their protection.
Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection for the use, formulation
and structure of our products and product candidates, the methods used to manufacture them, the related therapeutic targets and associated methods of
treatment as well as on successfully defending these patents against potential third-party challenges. Our ability to protect our products and product
candidates from unauthorized making, using, selling, offering to sell or importing by third parties is dependent on the extent to which we have rights under
valid and enforceable patents that cover these activities.
The patent positions of pharmaceutical, biotechnology and other life sciences companies can be highly uncertain and involve complex legal
and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws in the
United States and other countries may diminish the value of our intellectual property. Further, the determination that a patent application or patent claim
meets all of the requirements for patentability is a subjective determination based on the application of law and jurisprudence. The ultimate determination
by the USPTO or by a court or other trier of fact in the United States, or corresponding foreign national patent offices or courts, on whether a claim meets
all requirements of patentability cannot be assured. Although we have conducted searches for third-party publications, patents and other information that
may affect the patentability of claims in our various patent applications and patents, we cannot be certain that all relevant information has been identified.
Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our owned patents or patent applications, in our licensed patents or
patent applications or in third-party patents.
We cannot provide assurances that any of our patent applications will be found to be patentable, including over our own or our licensors’ prior
art publications or patent literature, or will issue as patents. Neither can we make assurances as to the scope of any claims that may issue from our pending
and future patent applications nor to the outcome of any proceedings by any potential third parties that could challenge the patentability, validity or
enforceability of our patents and patent applications in the United States or foreign jurisdictions. Any such challenge, if successful, could limit patent
protection for our products and product candidates and/or materially harm our business.
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The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not
adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
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we may not be able to generate sufficient data to support full patent applications that protect the entire breadth of developments in one or
more of our programs;
it is possible that one or more of our pending patent applications will not become an issued patent or, if issued, that the patent(s) claims
will have sufficient scope to protect our technology, provide us with a basis for commercially viable products or provide us with any
competitive advantages;
if our pending applications issue as patents, they may be challenged by third parties as not infringed, invalid or unenforceable under
United States or foreign laws;
if issued, the patents under which we hold rights may not be valid or enforceable;
we may not successfully commercialize RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, if approved,
before our relevant patents expire;
we may not be the first to make the inventions covered by each of our patents and pending patent applications; or
we may not develop additional proprietary technologies or product candidates that are separately patentable.
In addition, to the extent that we are unable to obtain and maintain patent protection for one of our products or product candidates or in the
event that such patent protection expires, it may no longer be cost-effective to extend our portfolio by pursuing additional development of a product or
product candidate for follow-on indications.
We also may rely on trade secrets to protect our technologies or products, especially where we do not believe patent protection is appropriate
or obtainable. Also, we cannot provide any assurances that any of our licensed patents have claims with a scope sufficient to protect our technology or
otherwise provide any competitive advantage, nor can we assure you that our licenses are or will remain in full force or effect, in which case we would
similarly rely on trade secrets. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our
employees, consultants, contractors, outside scientific collaborators and other advisers may unintentionally or willfully disclose our information to
competitors. Enforcing a claim that a third-party entity illegally obtained and is using any of our trade secrets is expensive and time-consuming, and the
outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may
independently develop equivalent knowledge, methods and know-how. Notably, proprietary technology protected by a trade secret does not preempt the
patenting of independently developed equivalent technology, even if such equivalent technology is invented subsequent to the technology protected by a
trade secret.
Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these
requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and applications are required to be paid
to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and applications. The
USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar
provisions during the patent application process and after a patent has issued. There are situations in which non-compliance 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. In such a circumstance, competitors
may be able to enter the market earlier than otherwise would be the case. Under the terms of some of our current and future licenses, we may not have the
ability to maintain patents or prosecute patent applications in the portfolio and may therefore have to rely on third parties to comply with these
requirements.
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Patent terms may be inadequate to protect our competitive position on our products for an adequate amount of time.
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 in the United States and,
if available, in other countries where we are prosecuting patents. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984
permits a patent term extension of up to five years beyond the normal expiration of the patent, which is limited to the approved indication (or any additional
indications approved during the period of extension). We might not be granted an extension because of, for example, failure to apply within applicable
periods, failure to apply prior to the expiration of relevant patents or otherwise failure to satisfy any of the numerous applicable requirements. Moreover,
the applicable authorities, including the FDA and the USPTO 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 obtain approval of competing products following our patent expiration by referencing our clinical
and preclinical data and launch their product earlier than might otherwise be the case. If this were to occur, it could have a material adverse effect on our
ability to generate revenue.
Changes to patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to
protect our products.
As is the case with other biopharmaceutical companies, our commercial success is heavily dependent on intellectual property, particularly
patents. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is therefore costly, time
consuming and inherently uncertain. Recent wide-ranging patent reform legislation in the United States, including the Leahy-Smith America Invents Act,
or the America Invents Act, could increase those uncertainties and costs. The America Invents Act was signed into law on September 16, 2011, and many
of the substantive changes became effective on March 16, 2013. The America Invents Act reforms United States patent law in part by changing the U.S.
patent system from a “first to invent” system to a “first inventor to file” system, expanding the definition of prior art, and developing a post-grant review
system. This legislation changes United States patent law in a way that may weaken our ability to obtain patent protection in the United States for those
applications filed after March 16, 2013.
Further, the America Invents Act created new procedures to challenge the validity of issued patents in the United States, including post-grant
review and inter partes review proceedings, which some third parties have been using to cause the cancellation of selected or all claims of issued patents of
competitors. For a patent with an effective filing date of March 16, 2013 or later, a petition for post-grant review can be filed by a third party in a nine-
month window from issuance of the patent. A petition for inter partes review can be filed immediately following the issuance of a patent if the patent has
an effective filing date prior to March 16, 2013. A petition for inter partes review can be filed after the nine-month period for filing a post-grant review
petition has expired for a patent with an effective filing date of March 16, 2013 or later. Post-grant review proceedings can be brought on any ground of
invalidity, whereas inter partes review proceedings can only raise an invalidity challenge based on published prior art and patents. These adversarial
actions at the USPTO review patent claims without the presumption of validity afforded to U.S. patents in lawsuits in U.S. federal courts and use a lower
burden of proof than used in litigation in U.S. federal courts. Therefore, it is generally considered easier for a competitor or third party to have a U.S. patent
invalidated in a USPTO post-grant review or inter partes review proceeding than invalidated in a litigation in a U.S. federal court. If any of our patents are
challenged by a third party in such a USPTO proceeding, there is no guarantee that we or our licensors or collaborators will be successful in defending the
patent, which may result in a loss of the challenged patent right to us.
In addition, recent court rulings in cases such as Association for Molecular Pathology v. Myriad Genetics, Inc., BRCA1- & BRCA2-Based
Hereditary Cancer Test Patent Litigation, and Promega Corp. v. Life Technologies Corp. have narrowed the scope of patent protection available in certain
circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain
patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained. Depending on future actions by
the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could
change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the
future.
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We may not be able to enforce our intellectual property rights throughout the world.
Filing, prosecuting, enforcing and defending patents on our product candidates in all countries throughout the world would be prohibitively
expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. The
requirements for patentability may differ in certain countries, particularly in developing countries; thus, even in countries where we do pursue patent
protection, there can be no assurance that any patents will issue with claims that cover our products.
Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign
intellectual property laws. Additionally, laws of some countries outside of the United States and Europe do not afford intellectual property protection to the
same extent as the laws of the United States and Europe. Many companies have encountered significant problems in protecting and defending intellectual
property rights in certain foreign jurisdictions. The legal systems of some countries, including India, China and other developing countries, do not favor the
enforcement of patents and other intellectual property rights. This could make it difficult for us to stop the infringement of our patents or the
misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner
must grant licenses to third parties. Consequently, we may not be able to prevent third parties from practicing our inventions in certain countries outside the
United States and Europe or from selling or importing products made from our inventions in and into the United States or other jurisdictions. Competitors
may use our technologies in jurisdictions where we have not obtained patent protection to develop and market their own products and, further, may export
otherwise infringing products to territories where we have patent protection, if our ability to enforce our patents to stop infringing activities is inadequate.
These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from
competing.
Agreements through which we license patent rights may not give us sufficient rights to permit us to pursue enforcement of our licensed
patents or defense of any claims asserting the invalidity of these patents (or control of such enforcement or defense) of such patent rights in all relevant
jurisdictions as requirements may vary.
Proceedings to enforce our patent rights, whether or not successful, could result in substantial costs and divert our efforts and resources from
other aspects of our business. Moreover, such proceedings could put our patents at risk of being invalidated or interpreted narrowly and our patent
applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the
damages or other remedies awarded, if any, may not be commercially meaningful. Furthermore, while we intend to protect our intellectual property rights
in major markets for our products, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to
market our products, if approved. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate.
Others may challenge inventorship or claim an ownership interest in our intellectual property which could expose it to litigation and have a significant
adverse effect on its prospects.
A third party or former employee or collaborator may claim an ownership interest in one or more of our or our licensors’ patents or other
proprietary or intellectual property rights. A third party could bring legal actions against us and seek monetary damages and/or enjoin clinical testing,
manufacturing and marketing of the affected product or products. While we are presently unaware of any claims or assertions by third-parties with respect
to our patents or other intellectual property, we cannot guarantee that a third party will not assert a claim or an interest in any of such patents or intellectual
property. If we become involved in any litigation, it could consume a substantial portion of our resources, and cause a significant diversion of effort by our
technical and management personnel.
If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay
us from developing or commercializing our product candidates.
Our commercial success depends, in part, on our ability to develop, manufacture, market and sell our product candidates without infringing
the intellectual property and other proprietary rights of third parties. Third parties may have U.S. and non-U.S. issued patents and pending patent
applications relating to compounds, methods of manufacturing compounds and/or methods of use for the treatment of the disease indications for which we
are developing our product candidates. If any third-party patents or patent applications are found to cover our product candidates or their methods of use or
manufacture, we may not be free to manufacture or market our product candidates as planned without obtaining a license, which may not be available on
commercially reasonable terms, or at all.
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There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party
to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our products candidates, including
interference and post-grant proceedings before the USPTO. There may be third-party patents or patent applications with claims to materials, formulations,
methods of manufacture or methods for treatment related to the composition, use or manufacture of our product candidates. We cannot guarantee that any
of our patent searches or analyses including, but not limited to, the identification of relevant patents, the scope of patent claims or the expiration of relevant
patents are complete or thorough, nor can we be certain that we have identified each and every patent and pending application in the United States and
abroad that is relevant to or necessary for the commercialization of our product candidates in any jurisdiction. Because patent applications can take many
years to issue, there may be currently pending patent applications which may later result in issued patents that our product candidates may be accused of
infringing. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. Accordingly, third
parties may assert infringement claims against us based on intellectual property rights that exist now or arise in the future. The outcome of intellectual
property litigation is subject to uncertainties that cannot be adequately quantified in advance. The pharmaceutical and biotechnology industries have
produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of
products or methods of use or manufacture. The scope of protection afforded by a patent is subject to interpretation by the courts, and the interpretation is
not always uniform. If we were sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not
infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity
is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of
validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our
management and scientific personnel could be diverted in pursuing these proceedings, which could significantly harm our business and operating results. In
addition, we may not have sufficient resources to bring these actions to a successful conclusion.
If we are found to infringe a third party’s intellectual property rights, we could be forced, including by court order, to cease developing,
manufacturing or commercializing the infringing product candidate or product. Alternatively, we may be required to obtain a license from such third party
in order to use the infringing technology and continue developing, manufacturing or marketing the infringing product candidate or product. If we were
required to obtain a license to continue to manufacture or market the affected product, we may be required to pay substantial royalties or grant cross-
licenses to our patents. We cannot, however, assure you that any such license will be available on acceptable terms, if at all. Ultimately, we could be
prevented from commercializing a product, or be forced to cease some aspect of our business operations as a result of claims of patent infringement or
violation of other intellectual property rights, Further, the outcome of intellectual property litigation is subject to uncertainties that cannot be adequately
quantified in advance, including the demeanor and credibility of witnesses and the identity of any adverse party. This is especially true in intellectual
property cases that may turn on the testimony of experts as to technical facts upon which experts may reasonably disagree. Furthermore, we may not be
able to obtain any required license on commercially reasonable terms, or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby
giving our competitors access to the same technologies licensed to us; alternatively or additionally it could include terms that impede or destroy our ability
to compete successfully in the commercial marketplace. In addition, we could be found liable for monetary damages, including treble damages and
attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product
candidates or force us to cease some of our business operations, which could harm our business. Claims that we have misappropriated the confidential
information or trade secrets of third parties could have a similar negative impact on our business.
We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership
of what we regard as our own intellectual property.
Many of our current and former employees and our licensors’ current and former employees, including our senior management, were
previously employed at universities or at other biotechnology or pharmaceutical companies, including some which may be competitors or potential
competitors. Some of these employees, including members of our senior management, may have executed proprietary rights, non-disclosure and non-
competition agreements, or similar 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 third party. 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 sustain damages or lose key personnel, valuable
intellectual property rights or the personnel’s work product, which could hamper or prevent commercialization of our technology, which could materially
affect our commercial development efforts. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license
from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms, or at all. 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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In addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual
property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in
fact develops intellectual property that we regard as our own, which may result in claims by or against us related to the ownership of such intellectual
property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights.
Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our senior
management and scientific personnel.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and
unsuccessful.
Competitors may infringe our patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, we
may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and
scientific personnel. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we
infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable, or both. In any patent infringement proceeding,
there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other
party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims
narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our patent claims do not cover
the invention. An adverse outcome in a litigation or proceeding involving one or more of our patents could limit our ability to assert those patents against
those parties or other competitors, and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products.
Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party
against whom we have asserted trademark infringement has superior rights to the trademarks in question. In this case, we could ultimately be forced to
cease use of such trademarks.
Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only
monetary damages, which may or may not be an adequate remedy. 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 litigation. There could
also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive
these results to be negative, it could adversely affect the price of shares of our common stock. Moreover, there can be no assurance that we will have
sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we
ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could
outweigh any benefit we receive as a result of the proceedings.
Additionally, for certain of our existing and future in-licensed patent rights, we may not have the right to bring suit for infringement and may
have to rely on third parties to enforce these rights for us. If we cannot or choose not to take action against those we believe infringe our intellectual
property rights, we may have difficulty competing in certain markets where such potential infringers conduct their business, and our commercialization
efforts may suffer as a result.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our trademarks of interest and
our business may be adversely affected.
Our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks.
We rely on both registration and common law protection for our trademarks. We may not be able to protect our rights to these trademarks and trade names
or may be forced to stop using these names, which we need for name recognition by potential partners or customers in our markets of interest. During
trademark registration proceedings, we may receive rejections. Although we would be given an opportunity to respond to those rejections, we may be
unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an
opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed
against our trademarks, and our trademarks may not survive such proceedings. Moreover, any name we propose to use for our products in the United States
must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of
proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed product
names, we may be required to expend significant additional resources in an effort to identify a usable substitute name that would qualify under applicable
trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. If we are unable to establish name recognition based on our
trademarks and trade names, we may not be able to compete effectively and our business may be adversely affected.
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Risks Related to Our Dependence on Third Parties
We rely on third parties to assist in conducting our clinical trials. If they do not perform satisfactorily, we may not be able to obtain regulatory approval
or commercialize our product candidates, or such approval or commercialization may be delayed, and our business could be substantially harmed.
We do not independently conduct clinical trials of any of our product candidates. We have relied upon and plan to continue to rely on third
parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to conduct these clinical trials and expect to
rely on these third parties to conduct clinical trials of any other product candidate that we develop. Any of these third parties may terminate their
engagements with us under certain circumstances. We may not be able to enter into alternative arrangements or do so on commercially reasonable terms. In
addition, there is a natural transition period when a new CRO begins work. As a result, delays may occur, which could negatively impact our ability to meet
our expected clinical development timelines and harm our business, financial condition and prospects.
Further, although our reliance on these third parties for clinical development activities limits our control over these activities, we remain
responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific
standards. For example, notwithstanding the obligations of a CRO for a trial of one of our product candidates, we remain responsible for ensuring that each
of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply
with requirements, commonly referred to as GCPs, for conducting, recording and reporting the results of clinical trials to assure that data and reported
results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. The FDA enforces these GCPs through
periodic inspections of trial sponsors, principal investigators, clinical trial sites and IRBs. If we or our third-party contractors fail to comply with applicable
GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before
approving our product candidates, which would delay the regulatory approval process. We cannot be certain that, upon inspection, the FDA will determine
that any of our clinical trials comply with GCPs. We are also required to register certain clinical trials and post the results of completed clinical trials on a
government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal
sanctions.
Furthermore, the third parties conducting clinical trials on our behalf are not our employees, and except for remedies available to us under our
agreements with such contractors, we cannot control whether or not they devote sufficient time, skill and resources to our ongoing development programs.
These contractors may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical
trials or other drug development activities, which could impede their ability to devote appropriate time to our clinical programs. If these third parties,
including clinical investigators, do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance
with regulatory requirements or our stated protocols, we may not be able to obtain, or may be delayed in obtaining, regulatory approvals for our product
candidates. If that occurs, we will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates. In such an event,
our financial results and the commercial prospects for any product candidates that we seek to develop could be harmed, our costs could increase and our
ability to generate revenues could be delayed, impaired or foreclosed.
We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our
distributors could delay clinical development or regulatory approval of our product candidates or commercialization of any resulting products, producing
additional losses and depriving us of potential product revenue.
Our use of third parties to manufacture our product candidates and products which we are studying in combination with our product candidates may
increase the risk that we will not have sufficient quantities of our product candidates, products, or necessary quantities of such materials on time or at
an acceptable cost.
We do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates, and we
lack the resources and the capabilities to do so. As a result, we currently rely on third parties for the manufacture and supply of the active pharmaceutical
ingredients, or API, in our product candidates. Our current strategy is to outsource all manufacturing of our product candidates to third parties.
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We currently engage one third-party manufacturer to provide the active pharmaceutical ingredient, or API, and two other third-party
manufacturers to provide services for the final drug product formulation of RTB101 that is being used in our clinical trials. Although we believe that there
are several potential alternative manufacturers who could manufacture RTB101 and rapalogs, such as everolimus or sirolimus, we may incur added costs
and delays in identifying and qualifying any such replacement. In addition, we typically order raw materials and services on a purchase order basis and do
not enter into long-term dedicated capacity or minimum supply arrangements with any commercial manufacturer. There is no assurance that we will be able
to timely secure needed supply arrangements on satisfactory terms, or at all. Our failure to secure these arrangements as needed could have a material
adverse effect on our ability to complete the development of our product candidates or, to commercialize them, if approved. We may be unable to conclude
agreements for commercial supply with third-party manufacturers, or may be unable to do so on acceptable terms. There may be difficulties in scaling up to
commercial quantities and formulation of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, and the costs of manufacturing
could be prohibitive.
Even if we are able to establish and maintain arrangements with third-party manufacturers, reliance on third-party manufacturers entails
additional risks, including:
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the failure of the third-party manufacturer to comply with applicable regulatory requirements and reliance on third-parties for
manufacturing process development, regulatory compliance and quality assurance;
manufacturing delays if our third-party manufacturers give greater priority to the supply of other products over our product candidates or
otherwise do not satisfactorily perform according to the terms of the agreement between us;
limitations on supply availability resulting from capacity and scheduling constraints of third-parties;
the possible breach of manufacturing agreements by third-parties because of factors beyond our control;
the possible termination or non-renewal of the manufacturing agreements by the third-party, at a time that is costly or inconvenient to us;
and
the possible misappropriation of our proprietary information, including our trade secrets and know-how.
If we do not maintain our key manufacturing relationships, we may fail to find replacement manufacturers or develop our own manufacturing
capabilities, which could delay or impair our ability to obtain regulatory approval for our products. If we do find replacement manufacturers, we may not
be able to enter into agreements with them on terms and conditions favorable to us and there could be a substantial delay before new facilities could be
qualified and registered with the FDA and other foreign regulatory authorities.
If any of our product candidates are approved by any regulatory agency, we intend to utilize arrangements with third-party contract
manufacturers for the commercial production of those products. This process is difficult and time consuming and we may face competition for access to
manufacturing facilities as there are a limited number of contract manufacturers operating under cGMPs that are capable of manufacturing our product
candidates. Consequently, we may not be able to reach agreement with third-party manufacturers on satisfactory terms, which could delay our
commercialization.
Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on
us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, seizures or voluntary recalls of product
candidates, operating restrictions and criminal prosecutions, any of which could significantly affect supplies of our product candidates. We do not control
the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with cGMPs. If our contract
manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, we
may not be able to secure and/or maintain regulatory approval for our product manufactured at these facilities. In addition, we have no control over the
ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA finds deficiencies or a
comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval
in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval
for or market our product candidates, if approved. Contract manufacturers may face manufacturing or quality control problems causing drug substance
production and shipment delays or a situation where the contractor may not be able to maintain compliance with the applicable cGMP requirements. Any
failure to comply with cGMP requirements or
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other FDA, EMA and comparable foreign regulatory requirements could adversely affect our clinical research activities and our ability to develop our
product candidates and market our products, if approved.
The FDA and other foreign regulatory authorities require manufacturers to register manufacturing facilities. The FDA and corresponding
foreign regulators also inspect these facilities to confirm compliance with cGMPs. Contract manufacturers may face manufacturing or quality control
problems causing drug substance production and shipment delays or a situation where the contractor may not be able to maintain compliance with the
applicable cGMP requirements. Any failure to comply with cGMP requirements or other FDA, EMA and comparable foreign regulatory requirements
could adversely affect our clinical research activities and our ability to develop our product candidates and market our products following approval.
If any third-party manufacturer of our product candidates is unable to increase the scale of its production of our product candidates, and/or increase
the product yield of its manufacturing, then our costs to manufacture the product may increase and commercialization may be delayed.
In order to produce sufficient quantities to meet the demand for clinical trials and, if approved, subsequent commercialization of RTB101,
alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidates that we may develop, our third-party manufacturer
will be required to increase its production and optimize its manufacturing processes while maintaining the quality of the product. The transition to larger
scale production could prove difficult. In addition, if our third-party manufacturer is not able to optimize its manufacturing process to increase the product
yield for our product candidates, or if it is unable to produce increased amounts of our product candidates while maintaining the quality of the product, then
we may not be able to meet the demands of clinical trials or market demands, which could decrease our ability to generate profits and have a material
adverse impact on our business and results of operation.
We may need to maintain licenses for active ingredients from third parties to develop and commercialize some of our product candidates, which could
increase our development costs and delay our ability to commercialize those product candidates.
Should we decide to use active pharmaceutical ingredients in any of our product candidates that are proprietary to one or more third parties,
we would need to maintain licenses to those active ingredients from those third parties. If we are unable to gain or continue to access rights to these active
ingredients prior to conducting preclinical toxicology studies intended to support clinical trials, we may need to develop alternate product candidates for
these programs by either accessing or developing alternate active ingredients, resulting in increased development costs and delays in commercialization of
these product candidates. If we are unable to gain or maintain continued access rights to the desired active ingredients on commercially reasonable terms or
develop suitable alternate active ingredients, we may not be able to commercialize product candidates from these programs.
Use of third parties to conduct testing of our product candidates in tissues or animals may increase the risk that we will have unsuitable or invalidated
data for regulatory submissions and approval.
We currently do not own or operate laboratory facilities in which to conduct preclinical testing of our product candidates in tissues or animals.
Preclinical studies regulated by FDA, EMA and most other health authorities are governed by GLP. Additionally, studies involving animals may be subject
to further regulation by institutional, private or government animal welfare authorities that may vary by territory. Studies involving human tissues may also
be subject to institutional and government human subject privacy policies that may vary by territory. Third-party vendors conducting tissue and/or animal
studies on our behalf may be found to be in violation of one or more of these regulations or policies and may be subject to closure, censure or other
penalties. In some cases, these penalties could materially impact the performance, availability, or validity of studies conducted on our behalf. Even in the
absence of violations resulting in penalties, regulatory and other authorities may refuse to authorize the conduct or to accept the results of studies for
regulatory or ethical reasons.
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We enter into various contracts in the normal course of our business in which we indemnify the other party to the contract. In the event we have to
perform under these indemnification provisions, it could have a material adverse effect on our business, financial condition and results of operations.
In the normal course of business, we periodically enter into academic, commercial, service, collaboration, licensing, consulting and other
agreements that contain indemnification provisions. With respect to our academic and other research agreements, we typically indemnify the institution and
related parties from losses arising from claims relating to the products, processes or services made, used, sold or performed pursuant to the agreements for
which we have secured licenses, and from claims arising from our exercise of rights under the agreement. With respect to our commercial agreements, we
indemnify our vendors from any third-party product liability claims that could result from the production, use or consumption of the product, as well as for
alleged infringements of any patent or other intellectual property right by a third party.
Should our obligation under an indemnification provision exceed applicable insurance coverage or if we were denied insurance coverage, our
business, financial condition and results of operations could be adversely affected. Similarly, if we are relying on a collaborator to indemnify us and the
collaborator is denied insurance coverage or the indemnification obligation exceeds the applicable insurance coverage and does not have other assets
available to indemnify us, our business, financial condition and results of operations could be adversely affected.
We may seek to establish collaborations and, if we are not able to establish them on commercially reasonable terms, we may have to alter our
development and commercialization plans.
We may seek one or more collaborators for the development and commercialization of one or more of our product candidates. Likely
collaborators may include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. In
addition, if we are able to obtain regulatory approval for product candidates from foreign regulatory authorities, we may enter into collaborations with
international biotechnology or pharmaceutical companies for the commercialization of such 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 potential differentiation of our product candidate from competing
product candidates, design or results of clinical trials, the likelihood of approval by the FDA, the EMA or comparable foreign regulatory authorities and the
regulatory pathway for any such approval, the potential market for the product candidate, the costs and complexities of manufacturing and delivering the
product to patients and the potential of competing products. The collaborator may also consider alternative product candidates or technologies for similar
indications that may be available for collaboration and whether such a collaboration could be more attractive than the one with us for our product
candidate. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional
capital, which may not be available to us on acceptable terms, or at all. If we do not have sufficient funds, we may not be able to further develop our
product candidates or bring them to market and generate product revenue.
Collaborations are complex and time-consuming to negotiate and document. Further, there have been a significant number of recent business
combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. Any collaboration
agreements that we enter into in the future may contain restrictions on our ability to enter into potential collaborations or to otherwise develop specified
product candidates. We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have
to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our
other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures
and undertake development or commercialization activities at our own expense.
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If we enter into collaborations with third parties for the development and commercialization of our product candidates, our prospects with respect to
those product candidates will depend in significant part on the success of those collaborations.
We may enter into collaborations for the development and commercialization of certain of our product candidates. If we enter into such
collaborations, we will have limited control over the amount and timing of resources that our collaborators will dedicate to the development or
commercialization of our product candidates. Our ability to generate revenues from these arrangements will depend on any future collaborators’ abilities to
successfully perform the functions assigned to them in these arrangements. In addition, any future collaborators may have the right to abandon research or
development projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed upon terms.
Collaborations involving our product candidates pose a number of risks, including the following:
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collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;
collaborators may not perform their obligations as expected;
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 collaborators’ strategic focus or available
funding or external factors, such as an acquisition, that divert resources or create 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;
a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and
distribution of such product or products;
disagreements with collaborators, including disagreements over proprietary rights, including trade secrets and intellectual property
rights, contract interpretation, or the preferred course of development might cause delays or termination of the research, development or
commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might
result in litigation or arbitration, any of which would be time-consuming and expensive;
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 intellectual property or proprietary information or expose us to potential
litigation;
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and
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.
Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner, or at all. If
any future collaborator of ours is involved in a business combination, it could decide to delay, diminish or terminate the development or commercialization
of any product candidate licensed to it by us.
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We may have to alter our development and commercialization plans if we are not able to establish collaborations.
We will require additional funds to complete the development and potential commercialization of RTB101 alone or in combination with a
rapalog, such as everolimus or sirolimus, and other product candidates. 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 and obtaining 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:
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the design or results of clinical trials;
the likelihood of approval by the FDA or comparable foreign regulatory authorities;
the potential market for the subject product candidate;
the costs and complexities of manufacturing and delivering such product candidate to patients;
the potential for competing products;
our patent position protecting the product candidate, including any uncertainty with respect to our ownership of our technology or our
licensor’s ownership of technology we license from them, which can exist if there is a challenge to such ownership without regard to the
merits of the challenge;
the need to seek licenses or sub-licenses to third-party intellectual property; and
industry and market conditions generally.
The collaborator may also consider alternative product candidates or technologies for similar indications that may be available for
collaboration and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under
future license agreements from entering into agreements on certain terms with potential collaborators. In addition, there have been a significant number of
recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.
If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the
development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential
commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization
activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain additional
expertise and additional capital, which may not be available to us on acceptable terms, or at all. If we fail to enter into collaborations and do not have
sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product
candidates or bring them to market and our business may be materially and adversely affected.
Business or economic disruptions or global health concerns could seriously harm our development efforts and increase our costs and expenses.
Broad-based business or economic disruptions could adversely affect our ongoing or planned research and development activities. For
example, in December 2019 an outbreak of a novel strain of coronavirus originated in Wuhan, China, and has since spread to a number of other countries,
including the United States and several countries in the EU. To date, this outbreak has already resulted in extended shutdowns of certain businesses in the
Wuhan region and has had ripple effects to businesses around the world. Global health concerns, such as coronavirus, could also result in social, economic,
and labor instability in the countries in which we or the third parties with whom we engage operate. We cannot presently predict the scope and severity of
any potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage, including the suppliers, clinical trial sites,
regulators and other third parties with whom we conduct business, were to
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experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be
materially and negatively impacted. It is also possible that global health concerns such as this one could disproportionately impact the hospitals and clinical
sites in which we conduct any of our clinical trials, which could have a material adverse effect on our business and our results of operation and financial
condition.
Risks Related to Employee Matters and Managing Growth
We only have a limited number of employees to manage and operate our business.
As of March 11, 2020, we had eighteen full-time employees and no part-time employees. Our focus on the development of RTB101, alone or
in combination with a rapalog, such as everolimus or sirolimus, requires us to optimize cash utilization and to manage and operate our business in a highly
efficient manner. We cannot assure you that we will be able to hire and/or retain adequate staffing levels to develop RTB101, alone or in combination with
a rapalog, such as everolimus or sirolimus, meet our obligations as a public company, run our operations and/or accomplish all of the objectives that we
otherwise would seek to accomplish.
Our internal computer systems, or those used by our CROs or other independent organizations, advisors, contractors or consultants, may be subject to
cyber-attacks, fail or suffer security breaches.
Despite the implementation of security measures, our internal computer systems and those of our CROs and other independent organizations,
advisors, contractors and consultants are vulnerable to damage from computer viruses and unauthorized access, natural disasters, terrorism, war and
telecommunication and electrical failures. Because information systems, networks and other technologies are critical to many of our operating activities,
shutdowns or service disruptions at our company or vendors that provide information systems, networks or other services to us pose increasing risks.
Disruptions of this nature may be caused by events such as computer hacking, phishing attacks, ransomware, dissemination of computer viruses, worms
and other destructive or disruptive software, denial of service attacks and other malicious activity, as well as power outages, natural disasters (including
extreme weather), terrorist attacks or other similar events. In addition, outside parties may attempt to penetrate our systems or those of our vendors or
fraudulently induce our personnel or the personnel of our vendors to disclose sensitive information in order to gain access to our data and/or systems. Like
other companies, we have on occasion experienced, and will continue to experience, threats and incursions to our data and systems, including malicious
codes and viruses, phishing, business email compromise attacks or other cyber-attacks. The number and complexity of these threats continue to increase
over time. While we have not experienced any material system failure or security breach to date, if an event of that nature were to occur and cause
interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of
clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to
recover or reproduce the data. We currently, and may in the future continue to, rely on third parties for the manufacture of our product candidates and to
conduct clinical trials and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any
disruption or security breach were to result in a loss of, or damage to, our internal computer systems or those used by our CROs or other independent
organizations, advisors, contractors or consultants, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could
incur liability, suffer reputational harm and experience delays in the further development and commercialization of our product candidates.
We could be required to expend significant amounts of money and other resources to respond to these threats or breaches and to repair or
replace information systems or networks. We also could suffer financial loss or the loss of valuable confidential information. In addition, we could be
subject to regulatory actions and/or claims made by individuals and groups in private litigation involving privacy issues related to data collection and use
practices and other data privacy laws and regulations, including claims for misuse or inappropriate disclosure of data, as well as unfair or deceptive
practices. Although we develop and maintain systems and controls designed to prevent these events from occurring and we have a process to identify and
mitigate threats, the development and maintenance of these systems, controls and processes is costly and requires ongoing monitoring and updating as
technologies change and efforts to overcome security measures become increasingly sophisticated. Moreover, despite our efforts, the possibility of these
events occurring cannot be eliminated entirely and there can be no assurance that any measures we take will prevent cyber-attacks or security breaches that
could adversely affect our business.
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We depend heavily on our executive officers, principal consultants and others and the loss of their services would materially harm our business.
Our success depends, and will likely continue to depend, upon our ability to hire, retain the services of our current executive officers, principal
consultants and others, including Chen Schor, our president and chief executive officer, Joan Mannick, our chief medical officer, and Lloyd Klickstein, our
chief scientific officer. We have entered into employment agreements with Mr. Schor, Dr. Mannick, and Dr. Klickstein, but they may terminate their
employment with us at any time. Although we do not have any reason to believe that we will lose the services of Mr. Schor, Dr. Mannick, and Dr.
Klickstein in the foreseeable future, the loss of their services might impede the achievement of our research, development and commercialization
objectives.
Our ability to compete in the biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified
managerial, scientific and medical personnel. Our industry has experienced a high rate of turnover of management personnel in recent years. Replacing
executive officers or other key employees may be difficult and may take an extended period of time because of the limited number of individuals in our
industry with the breadth of skills and experience required to develop, gain regulatory approval of and commercialize products successfully.
Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key employees on
acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience
competition for the hiring of scientific and clinical personnel from universities and research institutions.
We rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and
commercialization strategy. Our consultants and advisors may be employed by other entities and may have commitments under consulting or advisory
contracts with those entities that may limit their availability to us. If we are unable to continue to attract and retain highly qualified personnel, our ability to
develop and commercialize our product candidates will be limited.
Our employees, independent contractors, consultants, collaborators and contract research organizations may engage in misconduct or other improper
activities, including non-compliance with regulatory standards and requirements, which could cause significant liability for us and harm our
reputation.
We are exposed to the risk that our employees, independent contractors, consultants, collaborators and CROs may engage in fraudulent
conduct or other illegal activity. Misconduct by those parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized
activities to us that violates:
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FDA regulations or similar regulations of comparable non-U.S. regulatory authorities, including those laws requiring the reporting of
true, complete and accurate information to such authorities;
manufacturing standards;
federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by
comparable non-U.S. regulatory authorities; and
laws that require the reporting of financial information or data accurately.
Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials,
creating fraudulent data in our preclinical studies or clinical trials or illegal misappropriation of product materials, which could result in regulatory
sanctions and serious harm to our reputation. It is not always possible to identify and deter misconduct, and the precautions we take to detect and prevent
this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions
or lawsuits stemming from a failure to be in compliance with such laws, standards or regulations. Additionally, we are subject to the risk that a person or
government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in
defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition
of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal
healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could
have a material adverse effect on our ability to operate our business and our results of operations.
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We expect to expand our organization, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of
regulatory affairs and sales, marketing and distribution, as well as to support our public company operations. To manage these growth activities, we must
continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional
qualified personnel. Our management may need to devote a significant amount of its attention to managing these growth activities. Moreover, our expected
growth could require us to relocate to a different geographic area of the country. Due to our limited financial resources and the limited experience of our
management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion or relocation of our
operations, retain key employees, or identify, recruit and train additional qualified personnel. Our inability to manage the expansion or relocation of our
operations effectively may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and
reduced productivity among remaining employees. Our expected growth could also require significant capital expenditures and may divert financial
resources from other projects, such as the development of additional product candidates. If we are unable to effectively manage our expected growth, our
expenses may increase more than expected, our ability to generate revenues could be reduced and we may not be able to implement our business strategy,
including the successful commercialization of our product candidates.
Our current operations are concentrated primarily in a single location and any events affecting our headquarters may have material adverse
consequences.
Our current operations are primarily located in our principal office in Boston, Massachusetts. Any unplanned event, such as flood, fire,
explosion, earthquake, extreme weather condition, medical epidemics, power shortage, telecommunication failure or other natural or manmade accidents or
incidents that result in us being unable to fully utilize the office may have a material adverse effect on our ability to operate our business, and have
significant negative consequences on our financial and operating conditions. Loss of access to this office may result in increased costs, delays in the
development of our product candidates or interruption of our business operations. As part of our risk management policy, we maintain insurance coverage
at levels that we believe are appropriate for our business. However, in the event of an accident or incident at our office, our insurance coverage may not be
sufficient to satisfy all of our damages and losses. If our office is unable to operate because of an accident or incident or for any other reason, even for a
short period of time, any or all of our research and development programs may be harmed.
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.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate
disclosure controls and procedures, are designed to prevent fraud. We currently have a limited number of employees performing our accounting functions,
including monitoring and maintaining effective internal control over financial reporting. 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 conducted in
connection with Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, or any subsequent testing by our independent registered public accounting
firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be 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 stock.
We will be required to disclose changes made in our internal controls and procedures on a quarterly basis and our management will be
required to assess the effectiveness of these controls annually. However, for as long as we are an “emerging growth company” under the JOBS Act, our
independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to
Section 404. We could be an “emerging growth company” for up to five years. An independent assessment of the effectiveness of our internal controls over
financial reporting could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls over
financial reporting could lead to financial statement restatements and require us to incur the expense of remediation.
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Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or
submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls.
Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be
detected.
We have conducted and expect to continue to conduct our operations in jurisdictions outside of the United States, and such foreign operations subject
us to additional risks.
A portion of our operations, including our clinical research and development efforts, have been undertaken outside of the United States, and
we expect to continue to conduct a portion of our business in foreign countries. For example, we conducted our Phase 2b clinical trial across two
hemispheres. In addition, we may utilize third party contract organizations, some of which may be located in foreign jurisdictions, for the conduct of our
clinical trials, the manufacturing of our product candidates and the commercialization of our product candidates, if approved. Such operations subject us to
additional risks related to international business operations, including:
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potentially reduced protection for intellectual property rights;
price and currency exchange fluctuations;
unexpected changes in tariffs, trade barriers and regulatory requirements;
economic weakness, including inflation, or political instability in particular foreign economies and markets;
workforce uncertainty in countries where labor unrest is more common than in the United States;
difficulties in complying with tax, employment, immigration and labor laws for personnel living or traveling abroad;
production shortages resulting from any events affecting a product candidate and/or finished drug product supply or manufacturing
capabilities abroad;
business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes,
hurricanes, typhoons, floods and fires; and
failure to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act.
These and other risks may materially adversely affect our ability to conduct our business in international markets.
We may engage in acquisitions that could disrupt our business, cause dilution to our stockholders or reduce our financial resources.
In the future, we may enter into transactions to acquire other businesses, products or technologies. If we do identify suitable candidates, we
may not be able to make such acquisitions on favorable terms, or at all. Any acquisitions we make may not strengthen our competitive position, and these
transactions may be viewed negatively by customers or investors. We may decide to incur debt in connection with an acquisition or issue our common
stock or other equity securities to the stockholders of the acquired company, which would reduce the percentage ownership of our existing stockholders.
We could incur losses resulting from undiscovered liabilities of the acquired business that are not covered by the indemnification we may obtain from the
seller. In addition, we may not be able to successfully integrate the acquired personnel, technologies and operations into our existing business in an
effective, timely and nondisruptive manner. Acquisitions may also divert
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management attention from day-to-day responsibilities, increase our expenses and reduce our cash available for operations and other uses. We cannot
predict the number, timing or size of future acquisitions or the effect that any such transactions might have on our operating results.
Risks Related to Our Common Stock
An active trading market for our common stock may not be sustained. If an active trading market is not sustained, our ability to raise capital in the
future may be impaired.
Our shares began trading on The Nasdaq Global Select Market on January 26, 2018. Given the limited trading history of our common stock,
there is a risk that an active trading market for our shares may not be sustained, which could put downward pressure on the market price of our common
stock and thereby affect your ability to sell shares you purchased. An inactive trading market for our common stock may also impair our ability to raise
capital to continue to fund our operations by selling shares and impair our ability to acquire other companies or technologies by using our shares as
consideration.
The trading price of our common stock is highly volatile, which could result in substantial losses for purchasers of our common stock. Securities class
action or other litigation involving our company or members of our management team could also substantially harm our business, financial condition
and results of operations.
Our stock price is highly volatile. The stock market in general and the market for smaller pharmaceutical and biotechnology companies in
particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this
volatility, you may not be able to sell your common stock at or above the purchase price and you may lose some or all of your investment. The market price
for our common stock may be influenced by many factors, including:
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the success of existing or new competitive products or technologies;
regulatory actions with respect to our product candidates or our competitors’ products and product candidates;
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital
commitments;
the timing and results of clinical trials of RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, and any other
product candidates;
commencement or termination of collaborations for our development programs;
failure or discontinuation of any of our development programs;
results of clinical trials of product candidates of our competitors;
regulatory or legal developments in the United States and other countries;
developments or disputes concerning patent applications, issued patents or other proprietary rights;
the recruitment or departure of key personnel;
the level of expenses related to any of our product candidates or clinical development programs;
the results of our efforts to develop additional product candidates or products;
actual or anticipated changes in estimates as to financial results or development timelines;
announcement or expectation of additional financing efforts;
sales of our common stock by us, our insiders or other stockholders;
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variations in our financial results or those of companies that are perceived to be similar to us;
changes in estimates or recommendations by securities analysts, if any, that cover us;
changes in the structure of healthcare payment systems;
market conditions in the pharmaceutical and biotechnology sectors;
general economic, industry and market conditions; and
the other factors described in this “Risk Factors” section.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities.
This risk is especially relevant for biopharmaceutical companies, which have experienced significant stock price volatility in recent years.
We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common
stock less attractive to investors.
We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage
of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies.” We could remain an
“emerging growth company” for up to five years following our IPO, or until the earliest of (1) the last day of the first fiscal year in which our annual gross
revenue exceeds $1.07 billion, (2) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934,
which would occur if the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most
recently completed second fiscal quarter or (3) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-
year period. So long as we remain an “emerging growth company,” we expect to avail ourselves of the exemption from the requirement that our
independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. When our
independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our
compliance with Section 404 will correspondingly increase. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us
in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that
are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or
other regulatory authorities, which would require additional financial and management resources.
We are also a “smaller reporting company,” and the reduced disclosure requirements applicable to smaller reporting companies may make our
common stock less attractive to investors.
We are considered a “smaller reporting company” under Rule 12b-2 of the Exchange Act. We are therefore entitled to rely on certain reduced
disclosure requirements, such as an exemption from providing selected financial data and executive compensation information. These exemptions and
reduced disclosures in our SEC filings due to our status as a smaller reporting company also mean our auditors are not required to review our internal
control over financial reporting and may make it harder for investors to analyze our results of operations and financial prospects. We cannot predict if
investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a
result, there may be a less active trading market for our common stock and our common stock prices may be more volatile. We will remain a smaller
reporting company until our public float exceeds $250 million or our annual revenues exceed $100 million with a public float greater than $700 million.
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We have and will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to
new compliance initiatives and corporate governance practices.
As a public company, and particularly after we are no longer an “emerging growth company,” we have and will incur significant legal,
accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting requirements. We have
and will incur costs associated with relatively recently adopted corporate governance requirements, including requirements of the Securities and Exchange
Commission, or SEC, and The Nasdaq Global Select Market. We expect these rules and regulations to increase our legal and financial compliance costs and
to make some activities more time-consuming and costly. We also expect that these rules and regulations may make it more difficult and more expensive
for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher
costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of
directors or as executive officers.
We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of
additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their
lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This
could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance
practices.
Pursuant to Section 404, we are required to furnish a report by our management on our internal control over financial reporting in this Annual
Report on Form 10-K with the Securities and Exchange Commission, or the SEC. However, while we remain an emerging growth company, we will not be
required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve
compliance with Section 404 within the prescribed period, we have engaged in a process to document and evaluate our internal control over financial
reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, engage outside consultants and adopt
a detailed work plan to assess and document the adequacy of internal control over financial reporting. We will continue steps to improve control processes
as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for
internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe, or at all,
that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses, it could result in an
adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements.
We have broad discretion over the use of our cash, cash equivalents, and marketable securities and may not use them effectively.
Our management has broad discretion to use our cash, cash equivalents, and marketable securities to fund our operations and could spend
these funds in ways that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply these
funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline
and delay the development of our product candidates. Pending our use to fund operations, we may invest our cash, cash equivalents, and marketable
securities in a manner that does not produce income or that loses value.
Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in
additional dilution of the percentage ownership of stockholders and could cause our stock price to fall.
The Company will need additional capital in the future to continue our planned operations. To the extent we raise additional capital by issuing
equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one
or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in
more than one transaction, investors may be materially diluted by subsequent sales. These sales may also result in material dilution to the Company’s
existing stockholders, and new investors could gain rights superior to our existing stockholders.
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On February 1, 2019, we filed a registration statement on Form S-3 (File No. 333-229499) with the SEC, which was declared effective on
February 12, 2019 (the “Shelf Registration Statement”), in relation to the registration of common stock, preferred stock, warrants and/or units of any
combination thereof for the purposes of selling, from time to time, our common stock, convertible securities or other equity securities in one or more
offerings. The Shelf Registration Statement also registered for resale from time to time up to 12,445,646 shares of common stock held by the selling
stockholders named therein. We also simultaneously entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with SVB
Leerink LLC and Cantor Fitzgerald & Co., (the “Sales Agents”), to provide for the offering, issuance and sale of up to an aggregate amount of $50.0
million of our common stock from time to time in “at-the-market” offerings under the Shelf Registration Statement and subject to the limitations
thereof. As of December 31, 2019, approximately $43.0 million in shares of common stock remain eligible for sale under the Sales Agreement. The
Company will pay to the Sales Agent cash commissions of 3.0 percent of the aggregate gross proceeds of sales of common stock under the Sales
Agreement. Sales of common stock, convertible securities or other equity securities by us or our stockholders under the Shelf Registration Statement may
represent a significant percentage of our common stock currently outstanding. If we or our stockholders sell, or the market perceives that we or our
stockholders intend to sell, substantial amounts of our common stock under the Shelf Registration Statement or otherwise, the market price of our common
stock could decline significantly.
In addition, sales of a substantial number of shares of our outstanding common stock in the public market could occur at any time. These
sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of
our common stock. Persons who were our stockholders prior to our IPO continue to hold a substantial number of shares of our common stock that many of
them are now able to sell in the public market. Significant portions of these shares are held by a relatively small number of stockholders. Sales by our
stockholders of a substantial number of shares, or the expectation that such sales may occur, could significantly reduce the market price of our common
stock.
We do not anticipate paying any cash dividends on our capital stock in the foreseeable future. Accordingly, stockholders must rely on capital
appreciation, if any, for any return on their investment.
We have never declared nor paid cash dividends on our capital stock. We currently plan to retain all of our future earnings, if any, to finance
the operation, development and growth of our business. In addition, the terms of any future debt or credit 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 for the foreseeable future.
Our principal stockholders and management own a significant percentage of our stock and, if they choose to act together, will be able to control or
exercise significant influence over matters subject to stockholder approval.
As of March 11, 2020], our executive officers, directors, five percent or greater stockholders and their affiliates beneficially own
approximately 36.2 percent of our outstanding voting stock. These stockholders may have the ability to influence us through their ownership positions.
These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders, acting together, may be able to
control elections of directors or approval of any merger, sale of assets or other major corporate transaction. This may prevent or discourage unsolicited
acquisition proposals or offers for our common stock that you may believe are in your best interest as one of our stockholders.
Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our
management or hinder efforts to acquire a controlling interest in us.
Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that
stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also
limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common
stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or
prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of
our board of directors. Among other things, these provisions:
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allow the authorized number of our directors to be changed only by resolution of our board of directors;
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limit the manner in which stockholders can remove directors from the board;
establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on
at stockholder meetings;
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 a special meeting of stockholders;
authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill”
that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been
approved by our board of directors; and
require the approval of the holders of at least 66.7% of the votes that all our stockholders would be entitled to cast to amend or repeal
certain provisions of our charter or bylaws.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the
State of Delaware, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of
three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or
combination is approved in a prescribed manner. This could discourage, delay or prevent someone from acquiring us or merging with us, whether or not it
is desired by, or beneficial to, our stockholders. This could also have the effect of discouraging others from making tender offers for our common stock,
including transactions that may be in your best interests. These provisions may also prevent changes in our management or limit the price that investors are
willing to pay for our stock.
Our amended and restated bylaws provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the
State of Delaware will be the sole and exclusive forum for most legal actions between us and our stockholders, which could limit our stockholders’
ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.
Our amended and restated bylaws specifies that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery
of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action
asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s
stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the restated certificate of
incorporation or amended and restated bylaws, or (iv) any action asserting a claim against the Company governed by the internal affairs doctrine. Any
person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the
provisions of our amended and restated bylaws described above.
We believe this provision benefits us by providing increased consistency in the application of Delaware law by chancellors particularly
experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against
the burdens of multi-forum litigation. However, the provision may have the effect of discouraging lawsuits against our directors, officers, employees and
agents as it may limit any stockholder’s ability to bring a claim in a judicial forum that such stockholder finds favorable for disputes with us or our
directors, officers, employees or agents. The enforceability of similar choice of forum provisions in other companies’ bylaws or certificates of
incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could
find the choice of forum provisions contained in our amended and restated bylaws to be inapplicable or unenforceable in such action. If a court were to find
the choice of forum provision contained in our amended and restated bylaws 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, financial condition or results of operations.
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If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading
volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or
our business. If one or more of the analysts who cover us issues an adverse opinion about our company, our stock price would likely decline. If one or more
of these analysts ceases research coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn
could cause our stock price or trading volume to decline.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
Our headquarters are located at 500 Boylston Street, 13th Floor, Boston, Massachusetts, where we occupy approximately 9,501 square feet of
office space. This lease expires on July 31, 2026. We are permitted to assign, sublease or transfer this lease, with the consent of the landlord, which consent
shall not be unreasonably withheld. We believe that this office is sufficient to meet our current needs and that suitable additional space will be available as
and when needed.
Item 3. Legal Proceedings.
We are not currently subject to any material legal proceedings. From time to time, we may be subject to various legal proceedings and claims
that arise in the ordinary course of our business activities. Although the results of litigation and claims cannot be predicted with certainty, as of the date of
this report, we do not believe we are party to any claim or litigation the outcome of which, if determined adversely to us, would individually or in the
aggregate be reasonably expected to have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us
because of defense and settlement costs, diversion of management resources and other factors.
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.
Our common stock trades on The Nasdaq Global Select Market under the symbol “TORC”. Trading of our common stock commenced on
January 26, 2018, in connection with our initial public offering, or IPO. Prior to that time, there was no established public trading market for our common
stock.
As of March 11, 2020, we had approximately 4 holders of record of our common stock. The actual number of holders of our common stock is
greater than this number of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers or held
by other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Dividends
We have never declared or paid any cash dividends on our common stock. We currently intend to retain all available funds and any future
earnings, if any, to fund the development and growth of our business. We do not expect to pay any cash dividends in the foreseeable future. Any future
determination to pay dividends will be made at the discretion of our board of directors and will depend on various factors, including applicable laws, our
results of operations, financial condition, future prospects, then applicable contractual restrictions and any other factors deemed relevant by our board of
directors. Investors should not purchase our common stock with the expectation of receiving cash dividends.
Equity Compensation Plan
The information required by Item 5 of Form 10‑K regarding equity compensation plans is incorporated herein by reference to Item 12 of
Part III of this Annual Report on Form 10‑K.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our equity securities during the period covered by this Annual Report on Form 10-K.
Item 6. Selected Financial Data.
Information requested by this Item 6. Selected Financial Data is not applicable as we are electing scaled disclosure requirements available to
Smaller Reporting Companies with respect to this Item 6.
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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 related notes included elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report on
Form 10-K contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions and beliefs. Our
actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences
include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors” included elsewhere in this Annual Report
on Form 10-K.
Overview
We are a clinical-stage biopharmaceutical company developing innovative medicines that target the biology of aging to prevent or treat age-
related diseases with the potential to extend healthy lifespan. Our lead program selectively inhibits the target of rapamycin complex 1, or TORC1, an
evolutionarily conserved pathway that contributes to the age-related decline in function of multiple organ systems. Our lead product candidate, RTB101, is
an oral, selective, and potent inhibitor of TORC1. RTB101 inhibits the phosphorylation of multiple targets downstream of TORC1. Inhibition of TORC1
has been observed to extend lifespan and healthspan in aging preclinical species and to enhance immune, neurologic and cardiac functions, suggesting
potential benefits in several aging-related diseases. In April of 2019, we initiated a Phase 1b/2a clinical trial of RTB101 alone or in combination with
sirolimus in PD. PD is a progressive neurodegenerative disease that affects approximately 7.5 million people worldwide. The multicenter, 2:1 randomized,
double-blind, placebo-controlled Phase 1b/2a trial is evaluating the safety and tolerability of RTB101 alone or in combination with escalating doses of
sirolimus (2 mg, 4 mg and 6 mg) once weekly for 4 weeks in patients with PD. To date, patients have completed enrollment in four cohorts and completed
dosing in three cohorts: once weekly with 300 mg of RTB101 alone; 2 mg of sirolimus alone; and a combination of 300 mg RTB101 and 2 mg of sirolimus.
Results of an interim study analysis indicated that all 3 dosing regimens were well tolerated and RTB101 300 mg once weekly was observed to cross the
blood brain barrier. Sirolimus at the dose of 2 mg, alone or in combination with RTB101, was not detected in the CSF. Data from the first three cohorts in
the study suggest that the concentrations of RTB101 observed in the CSF four hours after dosing were highest when RTB101 was given as a monotherapy.
We expect the full data from this trial by mid-2020.
RTB101 was previously in development for preventing clinically symptomatic respiratory illness in adults age 65 and older. In November
2019, we announced that top line data from the PROTECTOR 1 Phase 3 study, evaluating the safety and efficacy of RTB101 in preventing clinically
symptomatic respiratory illness in adults age 65 and older, did not meet its primary endpoint and that we have stopped the development of RTB101 for
clinically symptomatic respiratory illness. As a result, we implemented a restructuring plan to reduce operating costs and better align the workforce with
our business needs following the data release.
Since our inception in July 2016, we have devoted substantially all of our resources to: identifying, acquiring, and developing our product
candidate portfolio; organizing and staffing our company; raising capital; developing manufacturing capabilities; conducting clinical trials; and providing
general and administrative support for these operations. To date, we have primarily financed our operations through the issuance and sale of our redeemable
convertible preferred stock and our common stock. On February 1, 2019, we filed a Registration Statement on Form S-3 (the “Shelf”) with the Securities
and Exchange Commission (the “SEC”) in relation to the registration of common stock, preferred stock, warrants and/or units of any combination thereof
(collectively, the “Securities”). We also simultaneously entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with SVB
Leerink LLC and Cantor Fitzgerald & Co. (collectively, the “Sales Agents”), to provide for the offering, issuance, and sale up to an aggregate of $50.0
million of our common stock from time to time in “at-the-market” offerings under the Shelf and subject to the limitations thereof. In 2019, we completed
an underwritten public offering. We received aggregate net proceeds from the offering of approximately $49.7 million, after deducting underwriting
discounts and commissions and other offering expenses payable by us. In 2019, we sold approximately 688,000 shares of common stock at a weighted-
average selling price of $10.18 per share in accordance with the Sales Agreement for aggregate net proceeds of $6.7 million, after payment of cash
commissions of 3.0 percent of the gross proceeds to the Sales Agent and incurred issuance costs of approximately $75,000 related to legal, accounting, and
other fees in connection with the sale. As of December 31, 2019, $43.0 million remained available for sale under the Sales Agreement.
85
We have never generated revenue and have incurred significant net losses since inception. Our net losses were $82.7 million and $37.6 million
for the years ended December 31, 2019 and 2018, respectively. As of December 31, 2019, we had an accumulated deficit of $154.1 million. Our net losses
may fluctuate significantly from quarter to quarter and year to year. We expect to incur significant expenses and operating losses for the foreseeable future.
We anticipate that our expenses will increase substantially as we:
•
•
•
•
invest significantly to further develop and seek regulatory approval for RTB101 alone or in combination with a rapalog, such as
everolimus or sirolimus;
maintain, expand and protect our intellectual property portfolio;
acquire or in-license other assets and technologies; and
add additional operational, financial and management information systems and processes to support our ongoing development efforts,
any future manufacturing or commercialization efforts.
We believe that our available funds will be sufficient to fund our operations at least into 2022. We have based this estimate on assumptions
that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. We do not expect to generate revenue
from product sales unless and until we successfully complete development and obtain regulatory approval for a product candidate or enter into
collaborative agreements with third parties, which we expect will take a number of years and the outcome of which is subject to significant uncertainty.
Additionally, we currently use third parties such as contract research organizations, or CROs, and contract manufacturing organizations, or CMOs, to carry
out our preclinical and clinical development activities and we do not yet have a sales organization. If we obtain regulatory approval for our product
candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. To fund our
current and future operating plans, we will need additional capital, which we may obtain through one or more equity offerings, debt financings or other
third-party funding, including potential strategic alliances and licensing or collaboration arrangements. We may, however, be unable to raise additional
funds or enter into such other arrangements when needed on favorable terms, or at all. Our failure to raise capital or enter into such other arrangements as
and when needed would have a negative impact on our financial condition and our ability to develop our current product candidates, or any additional
product candidates, if developed. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of
our preclinical and clinical development efforts. We cannot assure you that we will ever be profitable or generate positive cash flow from operating
activities.
In addition, we have retained JMP Securities LLC as a financial advisor to assist us in our evaluation of a broad range of strategic alternatives
to enhance stockholder value, including additional capital raising transactions, an acquisition, merger, business combination, licensing and/or other strategic
transaction involving us. There is no assurance that the review of strategic alternatives will result in us changing our business plan, pursuing any particular
transaction, or, if we pursue any such transaction, that it will be completed.
Novartis License Agreement
On March 23, 2017, we entered into a license agreement with Novartis, pursuant to which we were granted an exclusive, field-restricted,
worldwide license to certain intellectual property rights owned or controlled by Novartis, including patents, patent applications, proprietary information,
know-how and other intellectual property, to develop, commercialize and sell one or more therapeutic products comprising RTB101 or RTB101 and
everolimus in a fixed dose combination. Under the license agreement, we have been licensed a patent portfolio of ten patent families directed to
composition of matter of RTB101 and its salts, formulations of everolimus and methods of using RTB101 and everolimus to enhance the immune response
among others. The exclusive field for RTB101 under the license agreement is for the treatment, prevention and diagnosis of diseases and other conditions
in all indications in humans and animals.
As consideration for the license, we issued Novartis Institutes for Biomedical Research, Inc., or NIBR, 2,587,992 shares of our Series A
Preferred Stock.
The agreement may be terminated by either party upon a material breach of obligation by the other party that is not cured with 60 days after
written notice. We may terminate the agreement in its entirety or on a product-by-product or country-by-country basis with or without cause with 60 days’
prior written notice.
Novartis may terminate the portion of the agreement related to everolimus if we fail to use commercially reasonable efforts to research,
develop and commercialize a product utilizing everolimus for a period of three years. Novartis may terminate the license agreement upon our bankruptcy,
insolvency, dissolution or winding up.
86
As additional consideration for the license, we are required to pay up to an aggregate of $4.3 million upon the satisfaction of clinical
milestones, up to an aggregate of $24 million upon the satisfaction of regulatory milestones for the first indication approved, and up to an aggregate of
$18 million upon the satisfaction of regulatory milestones for the second indication approved. In addition, we are required to pay up to an aggregate of
$125 million upon the satisfaction of commercial milestones, based on the amount of annual net sales. We are also required to pay tiered royalties ranging
from a mid-single digit percentage to a low-teen digit percentage on annual net sales of products. These royalty obligations last on a product-by-product
and country-by-country basis until the latest of (i) the expiration of the last valid claim of a Novartis patent covering a subject product, (ii) the expiration of
any regulatory exclusivity for the subject product in a country, or (iii) the 10th anniversary of the first commercial sale in the country, and are subject to a
reduction after the expiration of the last valid claim of a Novartis patent or the introduction of a generic equivalent of a product in a country.
Milestone payments to Novartis are recorded as research and development expenses in our consolidated statements of operations and
comprehensive loss once achievement of each associated milestone has occurred or the achievement is considered probable. In May 2017, we initiated a
Phase 2b clinical trial for a first indication, triggering the first milestone payment under the agreement. Accordingly, we paid the related $0.3 million
payment in May 2017. In May 2019, we initiated a Phase 3 clinical trial for the first indication, triggering a milestone payment of $2.5 million under the
agreement. As of December 31, 2019, none of the remaining clinical milestones, regulatory milestones, sales milestones, or royalties had been reached or
were probable of achievement. The remaining clinical milestones are the initiation of the Phase 2 and Phase 3 clinical trials for the second indication. We
also enter into contracts in the normal course of business with various third parties for preclinical research studies, clinical trials, testing and other services.
These contracts generally provide for termination upon notice, and therefore we believe that our noncancelable obligations under these agreements are not
material.
Financial Operations Overview
Revenue
We have not generated any revenue from the sale of our products, and we do not expect to generate any revenue unless and until we obtain
regulatory approval of and commercialize RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus.
Operating Expenses
Research and Development
Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:
•
•
•
•
•
personnel costs, which include salaries, benefits and stock-based compensation expenses;
expenses incurred under agreements with consultants, third-party contract organizations and investigative clinical trial sites that conduct
research and development activities on our behalf;
costs related to production of preclinical and clinical materials, including fees paid to contract manufacturers;
laboratory and vendor expenses related to the execution of preclinical studies and clinical trials; and
lab supplies and equipment used for internal research and development activities.
We have not provided program costs since inception because historically we have not tracked or recorded our research and development
expenses on a program-by-program basis. We use our personnel and infrastructure resources across multiple research and development programs directed
toward developing our TORC1 program and for identifying and developing product candidates. We manage certain activities such as contract research and
manufacturing of RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, and our discovery programs through our third-party
vendors, and do not track the costs of these activities on a program-by-program basis.
We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are
recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party
service providers.
87
We expect our research and development expenses to decrease substantially for the foreseeable future as we are no longer developing RTB101
for the prevention of clinically symptomatic respiratory illness in adults age 65 and older. We will continue to invest in research and development activities
related to developing our product candidates, however at a much lower expense rate. The process of conducting the necessary clinical research to obtain
regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a result, we are unable
to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the
commercialization and sale of any of our product candidates.
Because of the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration and
completion costs of the current or future preclinical studies and clinical trials or if, when, or to what extent we will generate revenues from the
commercialization and sale of our product candidates. We may never succeed in achieving regulatory approval for our product candidates. The duration,
costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:
•
•
•
•
•
•
•
•
•
•
•
successful completion of preclinical studies and Investigational New Drug-enabling studies;
successful enrollment in, and completion of, clinical trials;
receipt of regulatory approvals from applicable regulatory authorities;
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
obtaining and maintaining patent and trade secret protection and non-patent exclusivity;
launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;
acceptance of our product candidates, if and when approved, by patients, the medical community and third-party payors;
effectively competing with other therapies and treatment options;
a continued acceptable safety profile following approval;
enforcing and defending intellectual property and proprietary rights and claims; and
achieving desirable medicinal properties for the intended indications.
A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of
our current and future preclinical and clinical product candidates. For example, if the FDA, or another regulatory authority were to require us to conduct
clinical trials beyond those that we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in
execution of or enrollment in any of our preclinical studies or clinical trials, we could be required to expend significant additional financial resources and
time on the completion of preclinical and clinical development.
General and Administrative
General and administrative expenses consist primarily of personnel costs, costs related to maintenance and filing of intellectual property,
depreciation expense and other expenses for outside professional services, including legal, human resources, audit and accounting services. Personnel costs
consist of salaries, benefits and stock-based compensation expense. We expect our general and administrative expenses to decrease for the foreseeable
future due to the reductions in headcount as a result of no longer developing RTB101 for the prevention of clinically symptomatic respiratory illness. We
will continue to incur costs as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the
Securities and Exchange Commission, The Nasdaq Global Select Market, additional insurance expenses, investor relations activities and other
administration and professional services.
88
Other Income, Net
Other income, net, consists primarily of interest earned on cash, cash equivalents and marketable securities.
Critical Accounting Polices and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial
statements, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP. The preparation of these
consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the consolidated financial statements, as well as the expenses incurred during the reporting periods. Our
estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding
our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Accrued Research and Development Costs
We accrue for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of
preclinical studies, clinical trials, and contract manufacturing activities. We record the estimated costs of research and development activities based upon
the estimated amount of services provided, and include these costs in accrued liabilities in our consolidated balance sheets and within research and
development expenses in our consolidated statements of operations and comprehensive loss. These costs are a significant component of our research and
development expenses. We estimate the amount of work completed by third-party service providers through discussions with internal personnel and
external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. The majority of our
service providers invoice in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require
advanced payments. We make significant judgments and estimates in determining the accrued balance in each reporting period based on the facts and
circumstances known at that time. As actual costs become known, we adjust our accrued estimates. Although we do not expect our estimates to be
materially different from amounts actually incurred, our understanding of the status and timing of services performed, the number of patients enrolled and
the rate of patient enrollment may vary from our estimates and could result in us reporting amounts that are too high or too low in any particular period.
Our accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from CROs, CMOs and other third-party service providers.
To date, there have been no material differences between estimated costs of research and development activities accrued by us each reporting period and
amounts actually incurred.
Research and Development Costs
Research and development costs are expensed as incurred and consist of personnel costs, lab supplies and other costs, as well as fees paid to
third parties to conduct research and development activities on our behalf.
Amounts incurred in connection with license agreements are also included in research and development expenses. We record payments made
to outside vendors for services performed or goods being delivered for use in research and development activities as either prepaid expenses or accrued
expenses, depending on the timing of when services are performed or goods are delivered.
Stock-Based Compensation Expense
We recognize equity-based compensation expense for awards of equity instruments to employees and non-employees based on the grant date
fair value of those awards in accordance with the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 718,
Stock Compensation, or ASC 718. ASC 718 requires all equity-based compensation awards to employees and non-employee directors, including grants of
restricted stock, restricted stock units, and stock options, to be recognized as expense in the consolidated statements of operations and comprehensive loss
based on their grant date fair values. We estimate the fair value of stock options using the Black-Scholes option pricing model. We use the value of our
common stock to determine the fair value of restricted stock and restricted stock units.
89
We account for restricted stock and common stock options issued to non-employees under FASB ASC Topic 505-50, Equity-Based Payments
to Non-Employees, or ASC 505-50. As such, the value of such awards is periodically remeasured and income or expense is recognized over their vesting
terms. Compensation cost related to awards with service-based vesting schedules is recognized using the straight-line method. We determine the fair value
of the restricted stock and common stock granted to non-employees as either the fair value of the consideration received or the fair value of the equity
instruments issued.
The Black-Scholes option pricing model requires the input of certain subjective assumptions, including (i) the expected volatility, (ii) the
expected term of the award, (iii) the risk-free interest rate and (iv) the expected dividend yield. Due to the lack of company-specific historical and implied
volatility data, we have based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The
historical volatility is calculated based on a period of time commensurate with the expected term assumption. The group of representative companies has
characteristics similar to us, including stage of product development and focus on the life science industry. We use the simplified method, which is the
average of the final vesting tranche date and the contractual term, to calculate the expected term for options granted to employees as we do not have
sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. For options granted to non-employees, we utilize
the contractual term of the arrangement as the basis for the expected term assumption. The risk-free interest rate is based on a treasury instrument whose
term is consistent with the expected term of the stock options. We use an assumed dividend yield of zero as we have never paid dividends and have no
current plans to pay any dividends on our common stock.
The following table presents the assumptions used to estimate the fair value of options granted:
Employees:
Fair value of common stock
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividend yield
Non-employees:
Fair value of common stock
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividend yield
Year Ended December 31,
2019
2018
$1.27 - $10.66
5.5 - 6.1
92.0% - 104.9%
1.4% - 2.6%
0.0%
$1.23 - $10.26
7.4 - 10.0
89.7% - 99.5%
1.7% - 2.8%
0.0%
$8.57 - $15.45
5.8 - 6.2
75.9% - 90.6%
2.4% - 3.1%
0.0%
$8.62 - $15.45
8.4 - 10.0
78.0% - 91.2%
2.7% - 3.1%
0.0%
For the years ended December 31, 2019 and 2018, stock-based compensation expense was $3.7 million and $2.8 million, respectively. As of
December 31, 2019, we had $10.5 million of total unrecognized stock-based compensation expense, which we expect to recognize over a weighted-average
period of 2.91 years.
Results of Operations
Comparison of the Years Ended December 31, 2019 and 2018
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income, net
Loss before income taxes
Income tax expense
Net loss
Year Ended December 31,
2019
2018
(In thousands)
$
$
73,634
11,823
85,457
(85,457)
2,754
(82,703)
(36)
(82,739)
$
$
31,065
8,640
39,705
(39,705)
2,117
(37,588)
(26)
(37,614)
90
Research and Development
Research and development expenses increased to $73.6 million for the year ended December 31, 2019, and were primarily attributable to
$51.2 million of costs from third-party contract organizations and investigative clinical trial sites related to clinical trials, including $49.4 million for the
clinically symptomatic respiratory infection indication and $1.8 million for the ongoing Phase 1b/2a for PD, $9.4 million of costs related to preclinical
studies and the production of preclinical and clinical materials, $2.0 million of costs related to external consulting incurred to supplement our research and
development personnel costs, and $8.5 million of personnel costs, including stock-based compensation. In addition, in May 2019, we initiated a Phase 3
clinical trial for the first indication, triggering a milestone payment of $2.5 million under our license agreement with NIBR. Research and development
expenses were $31.1 million for the year ended December 31, 2018, and were primarily attributable to $18.0 million of costs from third-party contract
organizations and investigative clinical trial sites related to clinical trials, including the Phase 2b clinical trial for respiratory tract infections, $7.4 million of
costs related to preclinical studies and the production of preclinical and clinical materials, $1.2 million of costs related to external consulting incurred to
supplement our research and development personnel costs, and $4.5 million of personnel costs, including stock-based compensation.
General and Administrative
General and administrative expenses increased to $11.8 million for the year ended December 31, 2019, and were primarily attributable to
$6.3 million of personnel costs, including stock-based compensation, and $5.5 million of professional services fees, including costs related to intellectual
property, legal and filing costs, accounting costs, insurance, and external consulting costs incurred to supplement our personnel. General and administrative
expenses were $8.6 million for the year ended December 31, 2018, and were primarily attributable to $5.2 million of personnel costs, including stock-based
compensation, and $3.4 million of professional services fees, including costs related to intellectual property, legal and filing costs, accounting costs,
insurance, and external consulting costs incurred to supplement our personnel.
Other Income, Net
Other income, net was $2.8 million for the year ended December 31, 2019, and primarily consisted of interest income of $2.8 million. Other
income, net was $2.1 million for the year ended December 31, 2018, and primarily consisted of interest income of $2.1 million.
Liquidity, Capital Resources and Plan of Operations
On February 1, 2019, we entered into the Sales Agreement with the Sales Agents, to provide for the offering, issuance and sale by the
Company of up to an aggregate of $50.0 million of its common stock from time to time in “at-the-market” offerings under the Shelf and subject to the
limitations thereof. We sold approximately 688,000 shares of common stock at a weighted-average selling price of $10.18 per share in accordance with the
Sales Agreement for aggregate net proceeds of $6.7 million, after payment of cash commissions of 3.0 percent of the gross proceeds to the Sales Agent and
incurred issuance costs of approximately $75,000 related to legal, accounting, and other fees in connection with the sale. As of December 31, 2019, $43.0
million remained available for sale under the Sales Agreement.
In 2019, we completed an underwritten public offering and received aggregate net proceeds of approximately $49.7 million, after deducting
underwriting discounts and commissions and other offering expenses payable by us.
Since inception, we have not generated any revenue from any sources, including from product sales, and have incurred significant operating
losses and negative cash flows from our operations. We have funded our operations to date primarily with proceeds from the sale of shares of our common
stock and the sale of shares of our redeemable convertible preferred stock. As of December 31, 2019, we had $91.5 million in cash, cash equivalents and
marketable securities and an accumulated deficit of $154.1 million.
Our primary use of cash has been to fund operating expenses, which consist of research and development and general and administrative
expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding
accounts payable and accrued expenses.
91
Based upon our current operating plan, we believe that our existing cash, cash equivalents and marketable securities will enable us to fund our
operating expenses and capital expenditure requirements at least into 2022. We have based this estimate on assumptions that may prove to be wrong, and
we could utilize our available capital resources sooner than we currently expect. We will continue to require additional financing to advance our current
product candidate through clinical development, to develop, acquire or in-license other potential product candidates and to fund operations for the
foreseeable future. Accordingly, we will continue to seek funds through equity or debt financings, collaborative or other arrangements, or through other
sources of financing. Adequate additional funding may not be available to us on acceptable terms, or at all. Any failure to raise capital as and when needed
could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies.
Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical
trials and other research and development activities. We currently have no credit facility or committed sources of capital. Because of the numerous risks
and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased
capital outlays and operating expenditures associated with our current and anticipated product development programs.
If we need to raise additional capital to fund our operations, funding may not be available to us on acceptable terms, or at all. If we are unable
to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our clinical trials, research and
development programs or commercialization efforts. We may seek to raise any necessary additional capital through a combination of public or private
equity offerings, debt financings, and collaborations or licensing arrangements. If we do raise additional capital through public or private equity offerings,
the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that
adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our
ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If additional funding is required, there
can be no assurance that additional funds will be available to us on acceptable terms on a timely basis, if at all. If we are unable to raise capital, we will
need to curtail planned activities to reduce costs. Doing so will likely have an unfavorable effect on our ability to execute our business plans.
The following table summarizes our cash flows for the periods indicated:
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Year Ended December 31,
2018
2019
(In thousands)
$
$
(73,682) $
44,126
56,449
26,893 $
(35,450)
(100,716)
89,943
(46,223)
Cash Flows from Operating Activities
Cash used in operating activities for the year ended December 31, 2019 was $73.7 million, consisting of a net loss of $82.7 million adjusted
for noncash items including stock-based compensation expense of $3.7 million and accretion on marketable securities of $1.0 million. The change in our
net operating assets and liabilities for the year ended December 31, 2019 were due primarily to an increase in accounts payable and accrued liabilities of
$6.5 million primarily due to increased clinical activities, which were partially offset by an increase in prepaid expenses and other current assets of
$0.3 million due to prepayments for our research and development activities. Cash used in operating activities for the year ended December 31, 2018 was
$35.5 million, consisting of a net loss of $37.6 million adjusted for noncash items including stock-based compensation expense of $2.8 million and
accretion on marketable securities of $0.7 million. The change in our net operating assets and liabilities for the year ended December 31, 2018 were due
primarily to an increase in accounts payable and accrued liabilities of $0.6 million primarily due to increased clinical activities, which were partially offset
by an increase in prepaid expenses and other current assets of $0.6 million due to prepayments for our research and development activities.
92
Cash Flows from Investing Activities
Cash provided by investing activities for the year ended December 31, 2019 was $44.1 million and consisted of maturities of marketable
securities of $141.5 million, partially offset by purchases of marketable securities of $97.1 million and purchases of property and equipment of $0.3
million. Cash used in investing activities for the year ended December 31, 2018 was $100.7 million and consisted of $107.9 million for the purchases of
marketable securities and $0.3 million for the purchases of property and equipment, partially offset by $7.5 million from the maturities of marketable
securities.
Cash Flows from Financing Activities
Cash provided by financing activities for the year ended December 31, 2019 was $56.4 million and consisted of $49.7 million, net of issuance
costs, from the proceeds from the public offering completed in March and April 2019 and $6.7 million, net of issuance costs, from the proceeds from the at-
the-market offering. Cash provided by financing activities for the year ended December 31, 2018 was $89.9 million from the proceeds from the IPO, net of
issuance costs paid in 2018.
In March 2017, we entered into a license Agreement with Novartis. See “—Overview—Novartis License Agreement.” In May 2017, the
Company initiated a Phase 2b clinical trial for a first indication, triggering the first milestone payment under the agreement. Accordingly, the Company
paid the related $0.3 million payment in May 2017. In May 2019, the Company initiated a Phase 3 clinical trial for the first indication, triggering another
milestone payment of $2.5 million under the agreement. As of December 31, 2019, none of the remaining clinical milestones, regulatory milestones, sales
milestones, or royalties is probable.
We enter into contracts in the normal course of business with CROs and CMOs to assist in the performance of our research and development
activities and other services and products for operating purposes. These contracts generally provide for termination upon notice, and therefore are
cancelable contracts and not included in the table of contractual obligations and commitments.
Contractual Obligations and Other Commitments
Tabular disclosure of contractual obligations is not applicable as we are electing scaled disclosure requirements available to Smaller Reporting Companies
with respect to this Item 303(a)(5) under Item 303(d).
Net Operating Loss Carryforwards
As of December 31, 2019, we had federal net operating loss carryforwards of $127.0 million, of which $14.0 million will begin to expire in
2036 and $113.0 million can be carried forward indefinitely. As of December 31, 2019, we had state net operating loss carryforwards of $130.8 million,
which will begin to expire in various amounts in 2036. As of December 31, 2019, we also had federal research and development tax credit carryforwards of
$3.8 million, which begin to expire in 2037. These net operating loss and tax credit carryforwards could expire unused and be unavailable to offset future
income tax liabilities. In addition, in general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation
that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses or tax credits, or NOLs or credits,
to offset future taxable income or taxes. For these purposes, an ownership change generally occurs where the aggregate stock ownership of one or more
stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its
lowest ownership percentage within a specified testing period. Our existing NOLs or credits may be subject to limitations arising from previous ownership
changes, and if we undergo an ownership change in connection with or after our IPO, our ability to utilize NOLs or credits could be further limited by
Sections 382 and 383 of the Code. In addition, future changes in our stock ownership, many of which are outside of our control, could result in an
ownership change under Sections 382 and 383 of the Code. Our NOLs or credits may also be impaired under state law. Accordingly, we may not be able to
utilize a material portion of our NOLs or credits. We have not completed a study to determine whether our public offerings, private placements and other
transactions that have occurred over the past three years may have triggered an ownership change limitation. If we determine that an ownership change has
occurred and our ability to use our historical NOLs or credits is materially limited, it would harm our future operating results by effectively increasing our
future tax obligations. We have not performed an ownership change analysis.
93
Furthermore, our ability to utilize our NOLs or credits is conditioned upon our attaining profitability and generating U. S. federal and state
taxable income. As described above under “Risk Factors—Risks Related to our Financial Position and Need for Additional Capital,” we have incurred
significant net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future; and therefore, we do not
know whether or when we will generate the U.S. federal or state taxable income necessary to utilize our NOL or credit carryforwards that are subject to
limitation by Sections 382 and 383 of the Code.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
JOBS Act Accounting Election
In addition to being a smaller reporting company, we are an “emerging growth company,” as defined in the Jumpstart Our Business Startups
Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are
otherwise applicable generally to public companies. We would cease to be an emerging growth company on the date that is the earliest of: (i) the last day of
the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) December 31, 2023; (iii) the date on which we have issued more
than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the
rules of the SEC.
Recently Issued and Adopted Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, in the Notes to our Consolidated Financial Statements in Item 8 of Part II of this
Annual Report on Form 10-K for a description of recent accounting pronouncements and our expectation of their impact, if any, on our results of operations
and financial conditions.
94
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk related to changes in interest rates. As of December 31, 2019, we had cash, cash equivalents and marketable
securities of $91.5 million, primarily comprised of money market mutual funds consisting of U.S. government-backed securities. Our primary exposure to
market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in
short-term securities. Our available for sale securities are subject to interest rate risk and will fall in value if market interest rates increase. Due to the short-
term duration of our investment portfolio and the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have
a material effect on the fair market value of our portfolio.
We contract with CROs and contract manufacturers globally. We may be subject to fluctuations in foreign currency rates in connection with
certain of these agreements. Transactions denominated in currencies other than the United States dollar are recorded based on exchange rates at the time
such transactions arise. We have not engaged in the hedging of our foreign currency transactions to date, we are evaluating the costs and benefits of
initiating such a program and may in the future hedge selected significant transactions denominated in currencies other than the U.S. dollar as we expand
our international operation and our risk grows. As of December 31, 2019, substantially all of our total liabilities were denominated in the United States
dollar.
Inflation generally affects us by increasing our cost of labor. We do not believe that inflation had a material effect on our business, financial
condition or results of operations during the year ended December 31, 2019.
Item 8. Financial Statements and Supplementary Data.
Our consolidated financial statements, together with the report of our independent registered public accounting firm, appear on pages F-1
through F-24 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There has been no change of accountants nor any disagreements with accountants on any matter of accounting principles or practices or
financial disclosure required to be reported under this Item.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company has established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management,
including the principal executive officer (our Chief Executive Officer) and principal financial officer (our Vice President, Finance), to allow timely
decisions regarding required disclosure.
The Company’s management, with the participation of the Company’s Chief Executive Officer and Vice President, Finance, evaluated the
effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
December 31, 2019. 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 cost-benefit relationship of possible controls and
procedures. Our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on the
evaluation of the Company’s disclosure controls and procedures as of December 31, 2019, the Company’s Chief Executive Officer and Vice President,
Finance concluded that, as of such date, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.
95
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over
financial reporting is defined in Rules 13a-15(f) and 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. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—
Integrated Framework (2013 framework) (COSO). Based on its assessment, management believes that, as of December 31, 2019, our internal control over
financial reporting is effective based on those criteria.
Changes in Internal Control over Financial Reporting
There was no other change in our internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2019
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
96
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by this item regarding directors, executive officers and corporate governance will be included in our 2020 Proxy
Statement, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year pursuant to General
Instruction G(3) of Form 10-K, and is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this item regarding executive compensation will be included in our 2020 Proxy Statement, which we intend to
file with the Securities and Exchange Commission within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K, and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item regarding security ownership of certain beneficial owners and management and securities authorized for
issuance under equity compensation plans will be included in our 2020 Proxy Statement, which we intend to file with the Securities and Exchange
Commission within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item regarding certain relationships and related transactions and director independence will be included in
our 2020 Proxy Statement, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year pursuant to
General Instruction G(3) of Form 10-K, and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information required by this item regarding principal accounting fees and services will be included in our 2020 Proxy Statement, which
we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form
10-K, and is incorporated herein by reference.
97
Item 15. Exhibits and Financial Statement Schedules.
(a) The following documents are included in this Annual Report on Form 10-K:
PART IV
(1) The following Report and Consolidated Financial Statements of the Company are included in this Annual Report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(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
financial statements or the notes thereto.
(3) Exhibits. The exhibits filed as part of this Annual Report on Form 10-K are set forth on the Exhibit Index immediately preceding the
signature page of this Annual Report on Form 10-K. The Exhibit Index is incorporated herein by reference.
Item 16. 10-K Summary
The Company has elected not to include summary information.
98
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Financial Statements
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2019, 2018, and 2017
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended
December 31, 2017, 2018, and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018, and 2017
Notes to Consolidated Financial Statements
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
resTORbio, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of resTORbio, Inc. and subsidiary (the Company) as of December 31, 2019 and 2018, the
related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit), and cash
flows for each of the years in the three‑year period ended, December 31, 2019, and the related notes (collectively, 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, 2019
and 2018, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2019, in conformity with
U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
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 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/ KPMG LLP
We have served as the Company’s auditor since 2017.
Boston, Massachusetts
March 12, 2020
F-2
resTORbio, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents
Marketable securities
Prepaid expenses
Other current assets
Total current assets
Restricted cash
Property and equipment, net
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Accrued liabilities
Total current liabilities
Other liabilities
Total liabilities
Commitments and contingencies (see Note 12)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 10,000,000 shares authorized as of December 31, 2019 and 2018; none issued
and outstanding as of December 31, 2019 and 2018
Common stock, $0.0001 par value, 150,000,000 shares authorized as of December 31, 2019 and 2018; 36,444,732
and 28,055,344 shares issued and outstanding as of December 31, 2019 and 2018, respectively; 36,444,732 and
28,054,344 shares vested as of December 31, 2019 and 2018, respectively
Additional paid-in capital
Accumulated deficit
Other comprehensive income (loss)
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to these consolidated financial statements.
F-3
December 31,
2019
2018
33,774 $
57,699
1,707
73
93,253
245
414
93,912 $
6,716 $
5,483
12,199
15
12,214
7,042
100,986
1,491
15
109,534
84
321
109,939
2,989
2,727
5,716
19
5,735
—
—
4
235,777
(154,132)
49
81,698
93,912 $
3
175,635
(71,393)
(41)
104,204
109,939
$
$
$
$
resTORbio, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Interest income
Other expense, net
Loss before income taxes
Income tax expense
Net loss
Net loss per share, basic and diluted
2019
Year Ended December 31,
2018
2017
$
$
$
$
73,634
11,823
85,457
(85,457)
2,817
(63)
(82,703)
36
(82,739) $
(2.41) $
$
31,065
8,640
39,705
(39,705)
2,124
(7)
(37,588)
26
(37,614) $
(1.42) $
16,839
2,043
18,882
(18,882)
—
(14,896)
(33,778)
—
(33,778)
(8.42)
Weighted-average common shares used in computing net loss per share, basic and diluted
34,306,374
26,439,216
4,009,513
Other comprehensive loss:
Net unrealized gains (losses) on marketable securities
Total other comprehensive income (loss)
Comprehensive loss
$
$
$
90
90
(82,649) $
(41) $
(41)
(37,655) $
—
—
(33,778)
See accompanying notes to these consolidated financial statements.
F-4
Balance at December 31,
2016
Issuance of common
shares to PureTech
Issuance of Series A
redeemable convertible
preferred stock, net of
tranche liability
Issuance of Series B
redeemable convertible
preferred stock, net of
issuance costs of $54
Vesting of restricted stock
Stock-based
compensation expense
Net loss
Balance at December 31,
2017
Conversion of convertible
preferred stock into
common stock upon the
closing of initial public
offering
Issuance of common stock
upon closing of initial
public offering, net of
issuance costs of $8,379
Vesting of restricted stock
Exercise of stock options
Stock-based
compensation expense
Net loss
Net unrealized losses on
marketable securities
Balance at December 31,
2018
Issuance of common stock
upon closing of public
offering, net of issuance
costs of $3,683
Issuance of common stock
pursuant to the at-the-
market offering, net of
issuance costs of $285
Vesting of restricted stock
Vesting of restricted stock
units, net of shares
withheld for taxes
Exercise of stock options
Stock-based
compensation expense
Net loss
Net unrealized gains on
marketable securities
Balance at December 31,
2019
resTORbio, Inc.
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(In thousands, except share data)
Series A Redeemable
Series B Redeemable
Convertible Preferred Stock
Convertible Preferred Stock
Common Stock
Additional
Shares
Amount
Shares
Amount
Shares
Amount Capital
Paid In Accumulated Comprehensive
Income (Loss)
Deficit
Shareholders'
(Deficit)
Equity
—
$
—
—
—
—
$
— 2,082,860 $
1 $
— $
—
— 1,886,363
—
—
(1) $
—
— $
—
—
—
15,527,951
41,674
—
—
—
—
1,379
—
—
1,379
—
—
—
—
—
—
4,792,716
—
39,946
—
—
593,417
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
470
—
—
(33,778)
—
—
—
—
—
—
470
(33,778)
15,527,951
$
41,674
4,792,716
$
39,946 4,562,640 $
1 $
1,849 $
(33,779) $
— $
(31,929)
(15,527,951)
(41,674)
(4,792,716)
(39,946) 15,870,559
1
81,619
—
—
81,620
—
—
—
—
—
—
—
$
—
—
—
—
—
—
—
—
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 6,516,667
— 1,097,449
7,029
—
—
—
—
—
—
1
—
—
—
—
89,369
865
5
—
—
—
1,928
—
—
(37,614)
—
—
—
—
—
89,370
865
5
1,928
(37,614)
—
—
—
—
(41)
(41)
—
$
— 28,054,344 $
3 $ 175,635 $
(71,393) $
(41) $
104,204
—
—
— 7,687,934
1
49,746
—
—
49,747
—
—
687,800
1,000
—
—
6,716
1
—
—
—
—
6,625
7,029
—
—
—
—
—
—
(20)
6
3,693
—
—
(82,739)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
90
6,716
1
(20)
6
3,693
(82,739)
90
—
$
— 36,444,732 $
4 $ 235,777 $
(154,132) $
49 $
81,698
See accompanying notes to these consolidated financial statements.
F-5
resTORbio, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Accretion on marketable securities
Depreciation and amortization expense
Loss on disposal of property and equipment
Stock-based compensation expense
Change in fair value of tranche liability
Expense related to acquisition of intellectual property
Changes in operating assets and liabilities:
Prepaid expenses and other current assets
Accounts payable
Accrued liabilities
Other liabilities
Net cash used in operating activities
Investing activities:
Purchases of property and equipment
Maturities of marketable securities
Purchase of marketable securities
Net cash provided by (used in) investing activities
Financing activities:
Proceeds from issuance of Series A redeemable convertible preferred stock
Proceeds from issuance of Series B redeemable convertible preferred stock, net
Proceeds from public offering, net of issuance costs
Proceeds from at-the-market offering, net of issuance costs
Deferred offering costs
Taxes paid related to net share settlement of restricted stock units
Proceeds from exercise of stock options
Net cash provided by financing activities
Net increase (decrease) 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 non-cash investing and financing activities:
Cash paid for income taxes
Conversion of redeemable convertible preferred stock into common stock
2019
Year Ended December 31,
2018
2017
$
(82,739) $
(37,614) $
(33,778)
(1,020)
125
53
3,694
—
—
(274)
3,727
2,756
(4)
(73,682)
(271)
141,500
(97,103)
44,126
—
—
49,747
6,716
—
(20)
6
56,449
26,893
7,126
34,019 $
(673)
80
—
2,793
—
—
(630)
1,597
(1,022)
19
(35,450)
(362)
7,500
(107,854)
(100,716)
—
—
90,908
—
(970)
—
5
89,943
(46,223)
53,349
7,126 $
62 $
— $
— $
81,620 $
—
5
—
470
14,896
3,157
(876)
1,392
3,749
—
(10,985)
(44)
—
—
(44)
25,000
39,946
—
—
(568)
—
—
64,378
53,349
—
53,349
—
—
$
$
$
See accompanying notes to these consolidated financial statements.
F-6
1. Organization
resTORbio, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
resTORbio, Inc. (collectively referred to with its wholly-owned, controlled subsidiary, resTORbio Securities Corp. as “resTORbio” or the “the
Company”) was incorporated in the State of Delaware on July 5, 2016. The Company is a clinical-stage biopharmaceutical company developing innovative
medicines that target the biology of aging to prevent or treat aging-related diseases with the potential to extend healthy lifespan. The Company’s principal
operations are located in Boston, Massachusetts.
In November 2019, the Company announced that top line data from the PROTECTOR 1 Phase 3 study, evaluating the safety and efficacy of
RTB101 in preventing clinically symptomatic respiratory illness in adults age 65 and older, did not meet its primary endpoint and the Company has stopped
the development of RTB101 for clinically symptomatic respiratory illness. In addition, in February 2020, the Company retained JMP Securities LLC as a
financial advisor to assist it in its evaluation of a broad range of strategic alternatives to enhance stockholder value, including additional capital raising
transactions, an acquisition, merger, business combination, licensing and/or other strategic transaction involving the Company. There is no assurance that
the review of strategic alternatives will result in the Company changing its business plan, pursuing any particular transaction, or, if it pursues any such
transaction, that it will be completed.
Since inception, the Company has been primarily involved in research and development activities. The Company devotes substantially all of
its efforts to product research and development, initial market development and raising capital. The Company has not generated any product revenue
related to its primary business purpose to date and is subject to a number of risks similar to those of other early stage companies, including dependence on
key individuals, competition from other companies, the need for development of commercially viable products and the need to obtain adequate additional
financing to fund the development of its product candidates. The Company is also subject to a number of risks similar to other companies in the life
sciences industry, including regulatory approval of products, uncertainty of market acceptance of products, competition from substitute products and larger
companies, the need to obtain additional financing, compliance with government regulations, protection of proprietary technology, dependence on third
parties, product liability and dependence on key individuals.
Public Offering
On March 22, 2019, the Company completed an underwritten public offering, whereby the Company sold 7,200,000 shares of its common
stock at a price of $6.95 per share. The aggregate net proceeds received by the Company from the offering were approximately $46.6 million, after
deducting underwriting discounts and commissions and other offering expenses payable by the Company of $3.5 million. In addition, the Company granted
the underwriters a 30-day option to purchase up to an additional 1,080,000 shares of common stock at the public offering price, less underwriting discounts
and commissions. On April 10, 2019, the Company sold an additional 487,934 shares of its common stock at a price of $6.95 per share. The aggregate net
proceeds received by the Company were approximately $3.2 million, after deducting underwriting discounts and commissions and other offering expenses
payable by the Company of $0.2 million. The remainder of the option expired unexercised.
At-the-Market Offering
On February 1, 2019, the Company filed a Registration Statement on Form S-3 (the “Shelf”) with the Securities and Exchange Commission
(the “SEC”) in relation to the registration of common stock, preferred stock, warrants and/or units of any combination thereof (collectively, the
“Securities”). The Company also simultaneously entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with SVB Leerink
LLC and Cantor Fitzgerald & Co. (collectively, the “Sales Agents”), to provide for the offering, issuance and sale by the Company of up to an aggregate of
$50.0 million of its common stock from time to time in “at-the-market” offerings under the Shelf and subject to the limitations thereof. The Company will
pay to the Sales Agents cash commissions of 3.0 percent of the gross proceeds of sales of common stock under the Sales Agreement. Beginning in June
2019 through September 19, 2019, based on settlement date, the Company sold approximately 688,000 shares of common stock at a weighted-average
selling price of $10.18 per share in accordance with the Sales Agreement for aggregate net proceeds of $6.7 million, after payment of cash commissions of
3.0 percent of the gross proceeds to the Sales Agent and incurred issuance costs of approximately $75,000 related to legal, accounting, and other fees in
connection with the sale. As of December 31, 2019, $43.0 million remained available for sale under the Sales Agreement.
F-7
Liquidity
In the course of its development activities, the Company has sustained operating losses and expects such losses to continue over the next
several years. The Company’s ultimate success depends on the outcome of its research and development activities. The Company has incurred net losses
from operations since inception and has an accumulated deficit of $154.1 million as of December 31, 2019. As of December 31, 2019, the Company had
$91.5 million of cash, cash equivalents, and marketable securities, which the Company believes will be sufficient to fund the Company’s current operating
plan through at least the next twelve months from the date of filing this Annual Report on Form 10-K.
2. Summary of Significant Accounting Policies
Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles
(“U.S. GAAP”). The Company’s fiscal year end is December 31st. Any reference in these notes to applicable guidance is meant to refer to the authoritative
United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates
(“ASUs”) of the Financial Accounting Standards Board (“FASB”). The preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities, as of the date of the consolidated financial statements, and the reported amounts of any expenses during the reporting period. On an ongoing
basis, management evaluates its estimates, including those related to accrued liabilities stock-based compensation expense. Management bases its estimates
on historical experience, and on various other market-specific relevant assumptions that management believes to be reasonable, under the circumstances.
Actual results may differ from those estimates or assumptions.
The consolidated financial statements include the accounts of resTORbio, Inc. and its wholly owned subsidiary, resTORbio Securities Corp.
All inter-company transactions and balances have been eliminated in consolidation.
Marketable securities
The Company classifies marketable securities with remaining maturities when purchased of greater than three months as available-for-sale.
Marketable securities with a remaining maturity date greater than one year are classified as non-current. Available-for-sale securities are maintained by
investment managers and consist of U.S. treasury securities and U.S. government agency securities. Available-for-sale securities are carried at fair value
with the unrealized gains and losses included in other comprehensive income (loss) as a component of stockholders’ equity until realized. Any premium or
discount arising at purchase is amortized and/or accreted to interest income and/or expensed over the life of the instrument.
If any adjustment to fair value reflects a decline in the value of the investment, the Company considers all available evidence to evaluate the
extent to which the decline is “other-than-temporary” and, if so, marks the investment to market through a change to the Company’s statement of
operations and comprehensive loss.
Restricted Cash
The Company maintains a letter of credit for the benefit of the landlord in connection with the Company’s office lease. As of December 31,
2019 and 2018, restricted cash (non-current) related to this letter of credit consisted of $245,000 and $84,000, respectively.
F-8
Fair Value Measurements
Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A
liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the
liability with the creditor. Where available, fair value is based on observable market prices, or parameters derived from such prices. Where observable
prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment.
The degree of management estimation and judgment is dependent on the price transparency for the instruments, or market, and the instruments’ complexity.
The authoritative accounting guidance describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value, of which the
first two are considered observable and the last is considered unobservable. These levels of inputs are as follows:
Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability. These
include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not
active.
Level 3—Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at
the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
The following table summarizes assets measured at fair value on a recurring basis at December 31, 2019 (in thousands):
Description
Money market funds (included in cash and
cash equivalents)
U.S. treasury securities (included in
marketable securities)
Total
December 31,
2019
Active
Markets
(Level 1)
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
$
33,774 $
33,774 $
$
57,699
91,473 $
57,699
91,473 $
— $
—
— $
—
—
—
The following table summarizes assets measured at fair value on a recurring basis at December 31, 2018 (in thousands):
Description
Money market funds (included in cash and
cash equivalents)
U.S. treasury securities (included in cash
and cash equivalents)
U.S. treasury securities (included in
marketable securities)
Total
December 31,
2018
Active
Markets
(Level 1)
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
$
6,804 $
6,804 $
— $
238
238
$
100,986
108,028 $
100,986
108,028 $
—
—
— $
—
—
—
—
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value
requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in
Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value
measurement.
An entity may elect to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent
unrealized gains and losses on items for which the fair value option has been elected will be reported in net loss. The Company did not elect to measure any
additional financial instruments or other items at fair value.
F-9
There have been no changes to the valuation methods utilized by the Company during the years ended December 31, 2019 and 2018. The
Company evaluates transfers between levels at the end of each reporting period. There were no transfers of financial instruments between levels during the
years ended December 31, 2019 and 2018.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and marketable
securities. The Company’s cash, cash equivalents and marketable securities are held by financial institutions in the United States. Amounts on deposit may
at times exceed federally insured limits. Management believes that the financial institution is financially sound, and accordingly, minimal credit risk exists
with respect to the financial institution.
Concentration of Manufacturing Risk
As of December 31, 2019, the Company had manufacturing arrangements with vendors for the supply of materials for use in preclinical and
clinical studies. If the Company were to experience any disruptions in either party’s ability or willingness to continue to provide manufacturing services,
the Company may experience significant delays in its product development timelines and may incur substantial costs to secure alternative sources of
manufacturing.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is recorded using the straight-line method over the
estimated useful lives of the respective assets. Depreciation begins at the time the asset is placed in service. Maintenance and repairs that do not improve or
extend the lives of the respective assets are expensed to operations as incurred. Upon sale or retirement of assets, the cost and related accumulated
depreciation are removed from the consolidated balance sheets and the resulting gain or loss is reflected in the consolidated statements of operations and
comprehensive loss.
The estimated useful lives of property and equipment are as follows:
Leasehold improvements
Machinery and equipment
Furniture and fixtures
Computers
Office equipment
Software
Useful Life
(in years)
Lesser of useful life or
remaining lease term
2-8 years
3-5 years
1-5 years
3-5 years
3-5 years
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances
indicate that the carrying value of these assets may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of
each asset to the future undiscounted cash flows the asset is expected to generate over its remaining life. If the asset is considered to be impaired, the
amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. The Company has recorded no
impairment during any of the periods presented.
F-10
Accrued Research and Development Costs
The Company accrues for estimated costs of research and development activities conducted by third-party service providers, which include
the conduct of preclinical studies and clinical trials, and contract manufacturing activities. The Company records the estimated costs of research and
development activities based upon the estimated amount of services provided and includes these costs in accrued liabilities in the consolidated balance
sheets and within research and development expenses in the consolidated statements of operations and comprehensive loss. These costs are a significant
component of the Company’s research and development expenses. The Company accrues for these costs based on factors such as estimates of the work
completed and in accordance with agreements established with its third-party service providers. The Company estimates the amount of work completed by
its third-party service providers through discussions with internal personnel and external service providers as to the progress or stage of completion of the
services and the agreed-upon fee to be paid for such services. The majority of the Company’s service providers invoice in arrears for services performed, on
a pre-determined schedule or when contractual milestones are met; however, some require advance payments. The Company makes significant judgments
and estimates in determining the accrued balance in each reporting period based on the facts and circumstances known at that time. As actual costs become
known, the Company adjusts its accrued estimates. Although the Company does not expect its estimates to be materially different from amounts actually
incurred, its understanding of the status and timing of services performed, the number of patients enrolled, and the rate of patient enrollment may vary from
its estimates and could result in it reporting amounts that are too high or too low in any particular period. The Company’s accrued expenses are dependent,
in part, upon the receipt of timely and accurate reporting from clinical research organizations, or CROs, clinical manufacturing organizations, or CMOs,
and other third-party service providers. To date, there have been no material differences between estimated costs of research and development activities
accrued by the Company each reporting period and amounts actually incurred.
Research and Development Costs
Research and development costs are expensed as incurred and consist of personnel costs, lab supplies and other costs, as well as fees paid to
third parties to conduct research and development activities on the Company’s behalf. Amounts incurred in connection with license agreements are also
included in research and development expenses. The Company records payments made to outside vendors for services performed or goods being delivered
for use in research and development activities as either prepaid expenses or accrued expenses, depending on the timing of when services are performed or
goods are delivered.
Equity-Based Compensation Expense
The Company recognizes equity-based compensation expense for awards of equity instruments to employees and non-employees based on the
grant date fair value of those awards in accordance with FASB ASC Topic 718, Stock Compensation (“ASC 718”). ASC 718 requires all equity-based
compensation awards to employees and non-employee directors, including grants of restricted stock, restricted stock units, and stock options, to be
recognized as expense in the consolidated statements of operations and comprehensive loss based on their grant date fair values. The Company estimates
the fair value of stock options using the Black-Scholes option pricing model. The Company uses the value of its common stock to determine the fair value
of restricted stock and restricted stock units.
The Company accounts for restricted stock and common stock options issued to non-employees under FASB ASC Topic 505-50, Equity-
Based Payments to Non-Employees (“ASC 505-50”). As such, the value of such awards is periodically remeasured and income or expense is recognized
over their vesting terms. Compensation cost related to awards with service-based vesting schedules is recognized using the straight-line method. The
Company determines the fair value of the restricted stock and common stock granted to non-employees as either the fair value of the consideration received
or the fair value of the equity instruments issued.
The Black-Scholes option pricing model requires the input of certain subjective assumptions, including (i) the expected share price volatility,
(ii) the expected term of the award, (iii) the risk-free interest rate and (iv) the expected dividend yield. Due to the lack of company-specific historical and
implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are
publicly traded. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. The group of
representative companies have characteristics similar to the Company, including stage of product development and focus on the life science industry. The
Company uses the simplified method, which is the average of the final vesting tranche date and the contractual term, to calculate the expected term for
options granted to employees as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term.
For options granted to non-employees,
F-11
the Company utilizes the contractual term of the arrangement as the basis for the expected term assumption. The risk-free interest rate is based on a treasury
instrument whose term is consistent with the expected term of the stock options. The Company uses an assumed dividend yield of zero as the Company has
never paid dividends and has no current plans to pay any dividends on its common stock.
The Company expenses the fair value of its equity-based compensation awards granted to employees on a straight-line basis over the
associated service period, which is generally the period in which the related services are received. The Company measures equity-based compensation
awards granted to non-employees at fair value as the awards vest and recognizes the resulting value as compensation expense at each financial reporting
period. The Company accounts for award forfeitures as they occur.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with FASB ASC Topic 740, Income Taxes.
Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company must then
assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some
portion, or all of a deferred tax asset will not be realized. Due to the Company’s lack of earnings history, the net deferred tax assets have been fully offset
by a valuation allowance.
The Company recognizes benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination
based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. The
Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To
date, the Company has no uncertain tax positions and there have been no interest charges or penalties related to unrecognized tax benefits.
Net Loss per Share
Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding during
the period without consideration of common stock equivalents. Diluted net loss per common share is the same as basic net loss per common share for all
periods presented, since the effects of potentially dilutive securities are antidilutive.
Recently Adopted Accounting Pronouncements
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU
2017-09”). ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply
modification accounting in Topic 718. The guidance is effective for annual periods beginning after December 15, 2017, with early adoption permitted,
including adoption in any interim period for which financial statements have not yet been issued. The Company adopted the provisions of ASU 2017-09 on
January 1, 2018. No modifications of share-based payment awards have occurred as of December 31, 2019.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (“ASU 2016-18”), which requires that amounts generally
described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2018 and
interim periods in fiscal years beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2016-18 on December 31,
2019. Upon adoption of ASU 2016-18, the Company applied the retrospective transition method for each period presented and included $0 and $84,000 of
restricted cash in the beginning-of-period and end-of-period cash, cash equivalents and restricted cash balance, respectively, in the consolidated statement
of cash flows for the year ended December 31, 2018.
F-12
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which requires a lessee to recognize a right-of-use asset and a
lease liability for operating leases, initially measured at the present value of the future lease payments, in the balance sheet. ASU 2016-02 also requires a
lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. This new
guidance is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The adoption of this standard is expected to have an
impact on the amount of the Company’s assets and liabilities presented. The Company expects to utilize the new transition method described in ASU No.
2018-11 and use the effective date as the Company’s date of initial application for the new standard. The Company expects to elect the available package of
practical expedients in transition which would allow it to not re-assess whether existing or expired arrangements contain a lease, the lease classification of
existing or expired leases, or whether previous initial direct costs would qualify for capitalization under the new lease standard. As of December
31, 2019, the Company has not elected to early adopt the guidance and is currently evaluating the impact that the adoption of ASU 2016-02 will have on its
consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments”. This ASU requires that credit losses be reported using an expected losses model rather than the incurred losses model that is
currently used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, this standard now
requires allowances to be recorded instead of reducing the amortized cost of the investment. ASU 2016-13 limits the amount of credit losses to be
recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized
credit losses if fair value increases. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2020 with early adoption permitted, and
requires adoption using a modified retrospective approach, with certain exceptions. Based on the composition of the Company’s investment portfolio as of
December 31, 2019, current market conditions and historical credit loss activity, the adoption of this standard is not expected to have a material impact on
the Company’s consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11, Accounting for Certain Financial Instruments with Down Round Features (“ASU 2017-11”),
which updates the guidance related to the classification analysis of certain equity-linked financial instruments (or embedded features) with down round
features. Under ASU 2017-11, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an
entity’s own stock. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a
derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the
amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down round feature when it
is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. ASU 2017-11 is effective for
public entities for all annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company does not expect the impact
of ASU 2017-11 to be material to its consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-
Based Payment Accounting (“ASU 2018-07”), which intends to simplify aspects of share-based compensation issued to non-employees by making the
guidance consistent with the accounting for employee share-based compensation. For public entities, ASU 2018-07 is required to be adopted for annual
periods beginning after December 15, 2018, including interim periods within those fiscal years. For non-public entities and emerging growth companies
that choose to take advantage of the extended transition period, ASU 2018-07 is effective for annual periods beginning after December 15, 2019. Early
adoption is permitted for all entities but no earlier than the Company’s adoption of ASC 606. The Company does not expect the impact of ASU 2018-07 to
be material to its consolidated financial statements.
3. Marketable Securities
As of December 31, 2019, the fair value of marketable securities by type of security was as follows (in thousands):
Description
U.S. government agency treasuries and securities
Total
Amortized Unrealized Unrealized
Gains
Losses
Cost
Fair
Value
$
$
57,650 $
57,650 $
49 $
49 $
— $
— $
57,699
57,699
F-13
As of December 31, 2018, the fair value of marketable securities by type of security was as following (in thousands):
Description
U.S. government agency treasuries and securities
Total
Cost
101,027 $
101,027 $
$
$
Amortized Unrealized Unrealized
Gains
Losses
4 $
4 $
(45) $
(45) $
Fair
Value
100,986
100,986
The estimated fair value and amortized cost of the Company’s available-for-sale securities by contractual maturity are summarized as follows:
Due in one year or less
Total
Due in one year or less
Total
4. Property and Equipment, Net
Property and equipment, net consists of the following:
Leasehold improvements
Machinery and equipment
Furniture and fixtures
Computers
Office equipment
Software
Total property and equipment
Less: accumulated depreciation
Property and equipment, net
December 31, 2019
Amortized Cost
Fair Value
$
$
(In thousands)
57,650 $
57,650 $
57,699
57,699
December 31, 2018
Amortized Cost
Fair Value
$
$
(In thousands)
101,027 $
101,027 $
100,986
100,986
As of December 31,
2019
2018
(In thousands)
17 $
—
397
125
11
22
572
(158)
414 $
65
38
194
76
11
22
406
(85)
321
$
$
Depreciation expense was $0.1 million, $80,000, and $5,000 for the years ended December 31, 2019, 2018, and 2017, respectively.
5. Accrued Liabilities
Accrued liabilities consist of the following:
Accrued payroll and related expenses
Accrued restructuring cost (see Note 15)
Accrued research and development expenses
Other
Total accrued liabilities
F-14
As of December 31,
2019
2018
(In thousands)
1,643 $
516
3,171
153
5,483 $
1,189
—
1,028
510
2,727
$
$
6. License Agreements
Novartis License Agreement
On March 23, 2017, the Company entered into an exclusive license agreement with Novartis International Pharmaceutical Ltd. (“Novartis”).
Under the agreement, Novartis granted the Company an exclusive, field-restricted, worldwide license, to certain intellectual property rights owned or
controlled by Novartis, to develop, commercialize and sell one or more therapeutic products comprising RTB101 or RTB101 in combination with
everolimus in a fixed dose combination. The exclusive field under the license agreement is for the treatment, prevention and diagnosis of disease and other
conditions in all indications in humans and animals.
As consideration for the licensed rights, the Company issued Novartis Institutes for Biomedical Research (“NIBR”) 2,587,992 shares of the
Company’s Series A Preferred Stock. The fair value of the Novartis license was $3.2 million based on the fair value of the Series A Preferred Stock which
was determined to be $1.22 per share based on an independent third-party valuation and is recorded as research and development expenses in the
consolidated statements of operations and comprehensive loss.
The agreement may be terminated by either party upon a material breach by the other party that is not cured within 60 days after written
notice. The Company may terminate the agreement in its entirety or on a product-by-product or country-by-country basis with or without cause with 60
days’ prior written notice.
Novartis may terminate the portion of the agreement related to everolimus if the Company fails to use commercially reasonable efforts to
research, develop and commercialize a product utilizing everolimus for a period of three years. Novartis may terminate the license agreement upon the
Company’s bankruptcy, insolvency, dissolution or winding up.
As additional consideration for the license, the Company is required to pay up to an aggregate of $4.3 million upon the satisfaction of clinical
milestones, up to an aggregate of $24 million upon the satisfaction of regulatory milestones for the first indication approved, and up to an aggregate of
$18 million upon the satisfaction of regulatory milestones for the second indication approved. In addition, the Company is required to pay up to an
aggregate of $125 million upon the satisfaction of commercial milestones, based on the amount of annual net sales. The Company is also required to pay
tiered royalties ranging from a mid single-digit percentage to a low teen-digit percentage on annual net sales of products. These royalty obligations last on a
product-by-product and country-by-country basis until the latest of (i) the expiration of the last valid claim of a Novartis patent covering a subject product,
(ii) the expiration of any regulatory exclusivity for the subject product in a country, or (iii) the 10th anniversary of the first commercial sale in the country,
and are subject to a reduction after the expiration of the last valid claim of a Novartis patent or the introduction of a generic equivalent of a product in a
country.
Milestone payments to Novartis are recorded as research and development expenses in the consolidated statements of operations and
comprehensive loss once achievement of each associated milestone has occurred or the achievement is considered probable. In May 2017, the Company
initiated a Phase 2b clinical trial for a first indication, triggering the first milestone payment under the agreement. Accordingly, the Company paid the
related $0.3 million payment in May 2017. In May 2019, the Company initiated a Phase 3 clinical trial for the first indication, triggering another milestone
payment of $2.5 million under the agreement. As of December 31, 2019, none of the remaining clinical milestones, regulatory milestones, sales milestones,
or royalties had been reached or were probable of achievement.
7. Research Funding Agreement
Silverstein Foundation
On March 6, 2018, the Company and the Silverstein Foundation for Parkinson’s with GBA (the “Silverstein Foundation”) entered into a
research funding agreement (the “Silverstein Funding Agreement”). One of the Company’s directors is a co-founder and current trustee of the Silverstein
Foundation. Under the terms of the Silverstein Funding Agreement, the Silverstein Foundation will partially fund the preclinical research, development
work, and Phase 2 clinical trial expenses (the “Research”) to be conducted and borne by the Company in connection with the development of RTB101,
alone or in combination with other products (the “Product”).
F-15
Upon execution of the Silverstein Funding Agreement, the Silverstein Foundation paid the Company an upfront sum of $0.5 million (the
“Funding Amount”). The Company is entitled to use the Funding Amount solely to conduct the Research and is obligated to repay the Funding Amount in
full to the Silverstein Foundation if it successfully conducts a positive Phase 3 clinical trial of the Product for PD. The Company is solely responsible for
commencing and conducting the Research and will furnish periodic progress updates to the Silverstein Foundation throughout the term of the Silverstein
Funding Agreement. After completing the Research, the Company must provide the Silverstein Foundation with a formal report describing the work
performed and the results of the Research.
The Company recognizes proceeds received from the Silverstein Foundation as a reduction to research and development expenses, rather than
as revenue, in the consolidated statements of operations and comprehensive loss because the corresponding Silverstein Funding Agreement does not
contain specified performance obligations other than to conduct research on a particular program or in a particular field and there are no obligations to
deliver specified products or technology.
For funds received under the Silverstein Funding Agreement, the Company recognizes a reduction in research and development expenses.
During the year ended December 31, 2018, $0.5 million qualifying expenses have been incurred. Therefore, all amounts received have been recorded as a
reduction of the research and development expense.
National Institute of Health
In May 2019, the Company was awarded a 5-year grant for up to $1.5 million from the National Institutes of Health (the “NIH”) to study
RTB101 and the regulation of antiviral immunity in the elderly. The Company is entitled to use the award solely to conduct the research. The Company is
solely responsible for commencing and conducting the research and will furnish periodic progress updates to the NIH throughout the term of the award.
After completing the research, the Company must provide the NIH with a formal report describing the work performed and the results of the research.
For funds received under the NIH funding agreement, the Company recognizes a reduction in research and development expenses in an amount equal to the
qualifying expenses incurred in each period up to the amount funded by the NIH. Qualifying expenses incurred by the Company in advance of funding by
the NIH are recorded in the consolidated balance sheets as other current assets. As of December 31, 2019, $0.1 million qualifying expenses have been
incurred and $41,000 have been funded by the NIH. Therefore, $61,000 is included in other current assets on the accompanying balance sheet as of
December 31, 2019.
8. Preferred Stock
As of December 31, 2019 and 2018, the Company had 10,000,000 shares of preferred stock authorized and none was issued and outstanding.
9. Common Stock
General
As of December 31, 2019, the Company had 150,000,000 shares of common stock authorized, of which 36,444,732 shares were issued and
outstanding. The common stock has the following characteristics:
Voting
The holders of the common stock are entitled to one vote for each share of common stock held at all meetings of stockholders and written
actions in lieu of meetings, provided, however, that except as otherwise required by law, holders of common stock as such shall not be entitled to vote on
any amendment to the Company’s Certificate of Incorporation that relates solely to the terms of one or more outstanding series of preferred stock if the
holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the
Company’s Certificate of Incorporation or pursuant to Delaware General Corporation Law. There shall be no cumulative voting.
F-16
Dividends
The holders of shares of common stock are entitled to receive dividends, if and when declared by the Board of Directors. Cash dividends may
not be declared or paid to the holders of common stock until paid on the preferred stock. As of December 31, 2019, no dividends have been declared or
paid since the Company’s inception.
Liquidation
After payment to the holders of shares of preferred stock of their liquidation preference, the holders of the common stock are entitled to share
ratably in the Company’s assets available for distribution to stockholders, in the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Company or upon the occurrence of a deemed liquidation event.
Reserve for future issuance
As of December 31, 2019 and 2018, the Company has reserved the following number of shares of common stock for future issuance upon the
exercise of options, vesting of restricted stock units or grant of equity awards:
Options issued and outstanding
Unvested restricted stock units
Options available for future grants
Shares available for issuance under the 2018 ESPP
Total
10. Stock-based Compensation
As of December 31,
2019
2,562,800
828,935
212,308
555,583
4,159,626
2018
1,122,677
24,960
1,350,582
275,030
2,773,249
In 2017, the Company adopted the 2017 Stock Incentive Plan (the “2017 Plan”). Under the 2017 Plan, shares of the Company’s common
stock have been reserved for the issuance of stock options, restricted stock awards and restricted stock units to employees, directors, and consultants under
terms and provisions established by the Board of Directors. A total of 537,914 shares were reserved for issuance under the 2017 Plan. Under the terms of
the 2017 Plan, options may be granted at an exercise price not less than fair market value. The terms of options granted under the 2017 Plan may not
exceed ten years. The Board shall determine the terms and conditions of a restricted stock Award, including the conditions for vesting and repurchase (or
forfeiture) and the issue price, if any. On October 11, 2017, the Company increased the number of shares of common stock available for issuance under the
2017 Plan from 537,914 shares to 630,662 shares. On November 29, 2017, the Company increased the number of shares of common stock available for
issuance under the 2017 Plan from 630,662 shares to 1,866,009 shares.
In connection with the Company’s IPO, the Board adopted, and the Company’s stockholders approved the 2018 Stock Option and Incentive
Plan (“2018 Plan”), which became effective on the date immediately preceding the date on which the Company’s registration statement became effective.
The 2018 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units, stock
appreciation rights, and other stock-based awards. The Company’s employees, officers, directors, consultants and advisors are eligible to receive awards
under the 2018 Plan. The number of shares of common stock that were initially reserved for issuance under the 2018 Plan was 2,200,260 shares. The 2018
Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January
1, 2019, by 4% of the outstanding number of shares of the Company’s common stock on the immediately preceding December 31 or such lesser number of
shares as determined by the Board. On January 1, 2019, as a result of the foregoing evergreen provision, the number of common stock available for
issuance under the 2018 Plan automatically increased from 2,200,260 to 3,322,473 shares.
Since the date of effectiveness of the 2018 Plan, the Company has not and will not grant any further awards under the 2017 Plan. However,
any shares of common stock subject to awards under the 2017 Plan that expire, terminate, or otherwise are surrendered, canceled, forfeited or repurchased
without having been fully exercised or resulting in any common stock being issued will become available for issuance under the 2018 Plan. As of
December 31, 2019, no such shares became available for issuance under the 2018 Plan.
F-17
Stock-based Compensation Expense
Total stock-based compensation expense is recognized for stock-based awards granted to employees and non-employees and has been
reported in the Company’s consolidated statements of operations and comprehensive loss as follows:
Research and development
General and administrative
Total stock-based compensation expense
2019
Year Ended December 31,
2018
(In thousands)
2017
$
$
1,542 $
2,152
3,694 $
1,236 $
1,557
2,793 $
246
224
470
Stock Options
The following table summarizes stock option activity under the Plan:
Shares
Available for
Grant
Number of
Options
Outstanding
Weighted-
Average
Exercise
Price
per Option ($)
(In thousands)
Weighted-
Average
Remaining
Contract
Term (Years)
Aggregate
Intrinsic
Value ($)
Outstanding, December 31, 2018
Shares reserved for issuance
Options granted
Restricted stock units granted
Options exercised
Options forfeited
Outstanding, December 31, 2019
Exercisable, December 31, 2019
Vested and expected to vest, December 31, 2019
1,350,582
1,122,213
(1,896,527)
(813,335)
—
449,375
212,308
1,122,677
11.63
9.22
1,896,527
6.28
(7,029)
(449,375)
2,562,800
461,150
2,562,800
0.79
10.77
7.85
11.40
7.85
8.84
7.06
8.84
200
37
200
The aggregate intrinsic values of options outstanding, exercisable, vested and expected to vest were calculated as the difference between the
exercise price of the options and the fair value of the Company’s common stock as of December 31, 2019. The aggregate intrinsic value of options
exercised during the year ended December 31, 2019, was $67,000. The aggregate intrinsic values of options exercised during the year ended December 31,
2018 was $78,000.
During the year ended December 31, 2019, the Company granted options to employees and directors to purchase an aggregate of 1,886,687
common shares with a weighted-average grant date fair value of $4.83. During the year ended December 31, 2018, the Company granted options to
employees to purchase an aggregate of 926,838 common shares with a weighted-average grant date fair value of $9.23. During the year ended
December 31, 2019, the Company granted options to non-employees to purchase an aggregate of 9,840 common shares with a weighted-average grant date
fair value of $7.61. During the year ended December 31, 2018, the Company granted options to non-employees to purchase an aggregate of 7,200 common
shares with a weighted-average grant date fair value of $12.51.
As of December 31, 2019, the total unrecognized compensation expense related to unvested employee options was $9.4 million which the
Company expects to recognize over an estimated weighted-average period of 2.80 years. As of December 31, 2019, the total unrecognized compensation
expense related to unvested non-employee options was $26,000 which the Company expects to recognize over an estimated weighted-average period of
2.14 years.
F-18
The fair value of stock options for employees and non-employees was estimated using a Black-Scholes option pricing model with the
following assumptions:
Employees:
Fair value of common stock
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividend yield
Non-employees:
Fair value of common stock
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividend yield
Restricted Stock
2019
Year Ended December 31,
2018
2017
$1.27 - $10.66
5.5 - 6.1
92.0% - 104.9%
1.4% - 2.6%
0.0%
$1.23 - $10.26
7.4 - 10.0
89.7% - 99.5%
1.7% - 2.8%
0.0%
$8.57 - $15.45
5.8 - 6.2
75.9% - 90.6%
2.4% - 3.1%
0.0%
$8.62 - $15.45
8.4 - 10.0
78.0% - 91.2%
2.7% - 3.1%
0.0%
$0.79 - $9.33
5.9 - 6.2
74.4% - 74.5%
1.9% - 2.2%
0.0%
$0.79 - $10.28
9.4 - 10.0
74.6% - 77.0%
2.3% - 2.4%
0.0%
On April 17, 2018, the Company granted 2,000 shares of restricted stock to a consultant. The restrictions lapsed in four equal quarterly
installments and was fully vested on the first anniversary of such grant. Compensation expenses of such unvested shares was remeasured at fair value until
vested at each reporting date.
The summary of restricted stock activity and related information follows:
Unvested shares — December 31, 2018
Vested
Unvested shares — December 31, 2019
Number of
Restricted
Shares
Outstanding
1,000
(1,000)
—
The Company recognized $4,000, $0.9 million and $0.4 million of stock-based compensation expense related to restricted shares during the
years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, there was no unrecognized stock-based compensation expense
related to unvested restricted stock.
Restricted Stock Units
In May 2018, the Company granted 24,960 restricted stock units to an employee with a grant date fair value of $9.03 per share. In December
2019, the Company granted 813,335 restricted stock units to employees with a weighted-average grant date fair value of $1.27.
The summary of restricted stock unit activity and related information follows:
Unvested shares — December 31, 2018
Granted
Vested
Unvested shares — December 31, 2019
F-19
Number of
Restricted
Stock Units
Outstanding
24,960
813,335
(9,360)
828,935
The Company recognized $74,000 and $35,000, of stock-based compensation expense related to restricted stock units during the years ended
December 31, 2019 and 2018, respectively. As of December 31, 2019, there was $1.1 million of unrecognized stock-based compensation expense related to
unvested restricted stock units which the Company expects to recognize over a remaining weighted-average period of 3.75 years.
2018 Employee Stock Purchase Plan
The Board adopted and the Company’s stockholders approved the 2018 Employee Stock Purchase Plan (“2018 ESPP”), which became
effective on the date immediately preceding the date on which the Company’s registration statement became effective. The 2018 ESPP enables eligible
employees to purchase shares of the Company’s Common Stock at a discount. The number of shares of common stock that were initially reserved for
issuance under the 2018 ESPP was 275,030 shares. The 2018 ESPP provides that the number of shares reserved and available for issuance will
automatically increase each January 1, beginning on January 1, 2019 and increasing each January 1 thereafter through January 1, 2028, by the least of (i)
1% of the outstanding number of shares of the Company’s common stock on the immediately preceding December 31; (ii) 543,926 shares or (iii) such
number of shares as determined by the ESPP administrator. On January 1, 2019, as a result of the foregoing evergreen provision, the number of common
stock available for issuance under the 2018 ESPP automatically increased from 275,030 to 555,583 shares. No shares have been issued under the 2018
ESPP during the years ended December 31, 2019 and 2018.
11. Income Taxes
Provision for Income Taxes
For the years ended December 31, 2019, 2018, and 2017, the Company did not record a federal current or deferred income tax expense. For
the years ended December 31, 2019 and 2018, the Company did record a state current tax expense. The Company’s consolidated loss before income taxes
consists solely of a domestic loss.
A reconciliation of income tax expense computed at the statutory federal income tax rate to income taxes as reflected in the consolidated
financial statements is as follows:
Income tax benefit at federal statutory rate
State taxes
Tax credits
Stock-based compensation
Federal tax rate change
Change in fair value of tranche rights
Other
Change in valuation allowance
Income tax expense
Effective tax rate
2019
Year Ended December 31,
2018
(In thousands)
2017
$
$
(17,368) $
(5,314)
(2,910)
753
—
—
25
24,850
36
$
(7,899) $
(2,340)
(817)
764
—
3
241
10,074
26
$
(11,484)
(1,011)
(222)
140
2,202
5,065
—
5,310
—
0.0%
0.0%
0.0%
On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into United States law. The TCJA includes a number of changes to
existing tax law, including, among other things, a permanent reduction in the federal corporate income tax rate from 34% to 21%, effective as of January 1,
2018, as well as limitation of the deduction for net operating losses to 80% of annual taxable income and elimination of net operating loss carrybacks, in
each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely).
The tax rate change resulted in (i) a reduction in the gross amount of our deferred tax assets as of December 31, 2017, without an impact on the net amount
of our deferred tax assets, which are recorded with a full valuation allowance, and (ii) no income tax expense or benefit being recognized as of the
enactment date of the TCJA.
F-20
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred income taxes were
as follows:
Deferred tax assets:
Net operating losses
Capitalized license
Research credits
Accruals
Stock-based compensation
Net unrealized loss
Total gross deferred tax assets
Less valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Net unrealized gain
Depreciation and amortization
Total gross deferred tax liability
Net deferred tax assets
As of December 31,
2019
2018
(In thousands)
$
$
34,938 $
771
4,151
401
53
—
40,314
(40,221)
93
13
80
93
— $
13,054
835
1,007
514
51
11
15,472
(15,395)
77
—
77
77
—
Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Due to the lack of
earnings history, the net deferred tax assets have been fully offset by a valuation allowance. A valuation allowance of $40.2 million and $15.4 million has
been recorded for the years ended December 31, 2019 and 2018, respectively.
Net Operating Loss and Tax Credit Carryforwards
As of December 31, 2019, the Company had net operating loss carryforwards for federal income tax purposes of approximately $127.0
million, of which $14.0 million will begin to expire in 2036 and $113.0 million can be carried forward indefinitely. As of December 31, 2019, the Company
had total state net operating loss carryforwards of approximately $130.8 million which will begin to expire in 2036. Utilization of some of the federal and
state net operating loss and credit carryforwards are subject to annual limitations due to the “change of ownership” provisions under Sections 382 and 383
of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitations may result in the expiration of net operating losses
and credits before utilization. The Company has not performed an ownership change analysis.
As of December 31, 2019 and 2018, the Company had federal research credits of $3.8 million and $0.9 million, respectively, which will begin
to expire in 2037 and state research credits of $0.5 million and $0.2 million, respectively, which will begin to expire in 2032. These tax credits are subject
to the same limitations discussed above. The Company has not yet conducted a study of its research and development credit carryforwards. This study may
result in an increase or decrease to the Company's credit carryforwards, however, until a study is completed and any adjustment is known, no amounts are
being presented as an uncertain tax position. A full valuation allowance has been provided against the Company's credits, and if an adjustment is required,
this adjustment would be offset by an adjustment to the valuation allowance. As a result, there would be no impact to the statements of operations and
comprehensive loss or statements of cash flows if an adjustment were required.
F-21
Unrecognized Tax Benefits
The Company has incurred net operating losses since inception and has no significant unrecognized tax benefits. If in the future the Company
recognizes uncertain tax positions, the Company’s effective tax rate will be reduced. Currently, the Company has a full valuation allowance against its net
deferred tax asset which would impact the timing of the effective tax rate benefit should any of these uncertain tax positions be favorably settled in the
future. Any adjustments to uncertain tax positions would result in an adjustment of net operating loss or tax credit carry forwards rather than resulting in a
cash outlay. As of December 31, 2019, the Company had no unrecognized tax benefits and no accrued interest or penalties related to uncertain tax
positions.
Income tax returns are filed in the U.S. and Massachusetts. The Company is not currently under examination. Due to net operating losses and
research credit carryovers, all of the tax years remain open to examination.
12. Commitments and Contingences
Litigation
31, 2019.
Lease
The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities as of December
In April 2019, the Company amended its multi-year lease agreement to relocate its office space in Boston, Massachusetts under an operating
lease agreement. The amended lease term is for a period of seven years from the date of relocation on August 1, 2019. The initial annual base rent of the
relocation premises is $0.6 million per year, increasing 2% annually. In connection with the lease amendment, the Company issued a new cash-
collateralized letter of credit for the benefit of the landlord in the amount of $0.2 million. Rent expense was $0.5 million, $0.3 million and $0 the years
ended December 31, 2019, 2018, and 2017, respectively. Obligations to make future minimum lease payments as of December 31, 2019, are as follows:
Year ending December 31,
2020
2021
2022
2023
2024
Years thereafter
Total
Minimum
Lease Payments
(In thousands)
$
$
594
606
618
630
643
1,043
4,134
Novartis License Agreement
The Company is required to pay up to an aggregate of $1.5 million upon the satisfaction of clinical milestones, up to an aggregate of
$24 million upon the satisfaction of regulatory milestones for the first indication approved, and up to an aggregate of $18 million upon the satisfaction of
regulatory milestones for the second indication approved. In addition, the Company is required to pay up to an aggregate of $125 million upon the
satisfaction of commercial milestones, based on the amount of annual net sales. The Company is also required to pay tiered royalties ranging from a mid
single-digit percentage to a low teen-digit percentage on annual net sales of products. These royalty obligations last on a product-by-product and country-
by-country basis until the latest of (i) the expiration of the last valid claim of a Novartis patent covering a subject product, (ii) the expiration of any
regulatory exclusivity for the subject product in a country, or (iii) the 10th anniversary of the first commercial sale in the country, and are subject to a
reduction after the expiration of the last valid claim of a Novartis patent or the introduction of a generic equivalent of a product in a country.
Silverstein Foundation
The Company is obligated to repay the Funding Amount in full to the Silverstein Foundation if it successfully conducts a positive Phase 3
clinical trial of the Product for PD (see Note 7).
F-22
13. Net Loss per Share
As described in Note 2, the Company computes basic and diluted earnings (losses) per share using a methodology that gives effect to the
impact of outstanding participating securities (the “two-class” method). Basic net loss per share is calculated by dividing net loss by the weighted-average
number of common shares outstanding during the period and excludes any dilutive effects of share-based awards. Diluted net loss per share is computed
giving effect to all potential dilutive common shares, including common stock issuable upon exercise of stock options, convertible preferred stock,
unvested restricted stock, and unvested restricted stock units. For periods in which the Company has reported net losses, diluted net loss per common share
is the same as basic net loss per common share, since dilutive common shares are not assumed to have been issued if their affect is anti-dilutive.
The following potentially dilutive securities, prior to the use of the treasury stock method, have been excluded from the calculation of diluted
net loss per share because including them would have had an anti-dilutive effect (in common stock equivalent shares):
Options issued and outstanding
Unvested restricted stock
Unvested restricted stock units
Total
14. Related Party Transactions
As of December 31,
2019
2018
2,562,800
—
828,935
3,391,735
1,122,677
1,000
24,960
1,148,637
Since the Company’s incorporation in July 2016, the Company has engaged in transactions with related parties.
During the year ended December 31, 2017, the Company issued 1,886,363 shares of common stock and made payments to PureTech for
certain founding services and cost reimbursements. PureTech is a founder of the Company and holds shares of common stock and preferred stock of the
Company.
The Company is a party to an intellectual property license agreement with Novartis. In addition, NIBR is a preferred stock shareholder of the
Company (see Note 6).
Aggregate payments for the above related party transactions totaled $2.5 million, $0, and $0.9 million for the years ended December 31, 2019,
2018 and 2017, respectively.
The Company is a party to a Funding Agreement with the Silverstein Foundation, an entity in which one of the Company’s directors is a co-
founder and current trustee (See Note 7). No funds were received from the Silverstein Foundation during the year ended December 31, 2019 and 2017. The
Company received $0.5 million during the year ended December 31, 2018.
15. Reduction in Workforce
In December 2019, the Company’s Board of Directors approved a restructuring plan to reduce operating costs and better align the Company’s
workforce with its business needs following the Company’s November 2019 announcement regarding that top line data from the PROTECTOR 1 Phase 3
study, evaluating the safety and efficacy of RTB101 in preventing clinically symptomatic respiratory illness in adults age 65 and older, did not meet its
primary endpoint, and that the Company has stopped the development of RTB101 in this indication.
Under the restructuring plan, the Company reduced its workforce by 8 employees (approximately 22% of total employees). Affected
employees are eligible to receive severance payments and outplacement services in connection with the reduction. During the year ended December 31,
2019, the Company recorded aggregate restructuring charges of approximately $0.6 million related to severance payments and other employee-related
costs. The Company does not expect to incur any additional significant costs associated with this restructuring. During the year ended December 31, 2019,
$66,000 of the estimated restructuring charges were paid. The Company expects the remaining accrued restructuring costs of $0.5 million will be paid in
the next 12 months.
F-23
The following table shows the total amount expected to be incurred and the liability related to the 2019 restructuring as of December 31,
2019:
Accrued restructuring costs beginning balance
Restructuring charges incurred during the year
Amounts paid during the year
Accrued restructuring costs as of December 31, 2019
One-time Employee
Termination Benefits
(In thousands)
—
582
(66)
516
$
$
The following table summarizes the restructuring charges reported in the consolidated statements of operations and comprehensive loss for the
year ended December 31, 2019:
Research and development
General and administrative
Total
$
$
306
276
582
$
$
—
—
—
$
$
306
276
582
Cash
Non-cash
(In thousands)
Total Expenses
16. Selected Quarterly Financial Data (Unaudited)
The following table contains quarterly financial information for 2019 and 2018. The Company believes that the following information reflects
all normal recurring adjustments necessary for a fair statement of the information for the periods presented. The operating results for any quarter are not
necessarily indicative of results for any future period.
Total operating expenses
Loss from operations
Net loss
Net loss per share—basic and diluted
Total operating expenses
Loss from operations
Net loss
Net loss per share—basic and diluted
$
$
$
$
First
Quarter
Second
Quarter
2019
Third
Quarter
(In thousands, except per share data)
Fourth
Quarter
11,691 $
(11,691)
(11,069)
(0.38) $
19,169 $
(19,169)
(18,332)
(0.51) $
25,161 $
(25,161)
(24,448)
(0.68) $
29,436 $
(29,436)
(28,890)
(0.79) $
First
Quarter
Second
Quarter
2018
Third
Quarter
(In thousands, except per share data)
Fourth
Quarter
10,200 $
(10,200)
(9,859)
(0.46) $
14,113 $
(14,113)
(13,591)
(0.48) $
9,032 $
(9,032)
(8,407)
(0.30) $
6,360 $
(6,360)
(5,757)
(0.21) $
F-24
Total
85,457
(85,457)
(82,739)
(2.41)
Total
39,705
(39,705)
(37,614)
(1.42)
Exhibit
Number
3.1
3.2
4.1
4.2
4.3*
10.1#
10.2#
EXHIBIT INDEX
Description of Exhibit
Third Amended and Restated Certificate of Incorporation of the Registrant (as currently in effect) (incorporated by reference to Exhibit
3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on January 30, 2018)
Amended and Restated Bylaws of the Registrant (as currently in effect) (incorporated by reference to Exhibit 3.2 to the Registrant’s
Current Report on Form 8-K (File No. 001-38359) filed with the SEC on January 30, 2018)
Specimen stock certificate evidencing the shares of common stock (incorporated by reference to Exhibit 4.1 to the Registrant’s
Registration Statement on Form S-1, as amended, (File No. 333-222373) filed with the SEC on January 16, 2018)
Amended and Restated Investors’ Rights Agreement, dated as of November 29, 2017, among the Registrant and the other parties thereto
(incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1 (File No. 333-222373) filed with the SEC on
December 29, 2017)
Description of Securities
2017 Stock Incentive Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.1 to the Registrant’s
Registration Statement on Form S-1, as amended, (File No. 333-222373) filed with the SEC on January 16, 2018)
2018 Stock Option and Incentive Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.2 to the
Registrant’s Registration Statement on Form S-1, as amended, (File No. 333-222373) filed with the SEC on January 16, 2018)
10.3#
Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on
Form S-1, as amended, (File No. 333-222373) filed with the SEC on January 16, 2018)
10.4#
Form of Officer Indemnification Agreement (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form
S-1, as amended, (File No. 333-222373) filed with the SEC on January 16, 2018)
10.5#
2018 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1, as
amended, (File No. 333-222373) filed with the SEC on January 16, 2018)
10.6#
Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on
Form S-1, as amended, (File No. 333-222373) filed with the SEC on January 16, 2018)
10.7+
License Agreement, dated as of March 23, 2017, by and between the Registrant and Novartis International Pharmaceutical Ltd.
(incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1, as amended, (File No. 333-222373)
filed with the SEC on January 16, 2018)
10.8+
First Amendment to License Agreement, dated as of October 3, 2017, by and among the Registrant and Novartis International
Pharmaceutical Ltd. (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 (File No. 333-
222373) filed with the SEC on December 29, 2017)
10.9#
Offer Letter, dated as of March 31, 2017, between the Registrant and Chen Schor (incorporated by reference to Exhibit 10.7 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-222373) filed with the SEC on December 29, 2017)
10.10#
Offer Letter, dated as of March 31, 2017, between the Registrant and Joan Mannick (incorporated by reference to Exhibit 10.8 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-222373) filed with the SEC on December 29, 2017)
10.11#
Offer Letter, dated as of October 5, 2017, between the Registrant and John McCabe (incorporated by reference to Exhibit 10.9 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-222373) filed with the SEC on December 29, 2017)
99
Exhibit
Number
10.12#
10.13#
10.14
Description of Exhibit
Amendment to Offer Letter, dated as of March 31, 2017, between the Registrant and Joan Mannick (incorporated by reference to Exhibit
10.13 to the Registrant’s Registration Statement on Form S-1, as amended, (File No. 333-222373) filed with the SEC on January 16,
2018)
Amendment to Offer Letter, dated as of March 31, 2017, between the Registrant and Chen Schor (incorporated by reference to Exhibit
10.14 to the Registrant’s Registration Statement on Form S-1, as amended, (File No. 333-222373) filed with the SEC on January 16,
2018)
Office Lease Agreement, dated as of January 8, 2018, by and between the Registrant and 500 Boylston and 222 Berkeley Owner (DE)
LLC (incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement on Form S-1, as amended, (File No. 333-
222373) filed with the SEC on January 16, 2018)
10.15#
Senior Executive Cash Incentive Bonus Plan (incorporated by reference to Exhibit 10.16 of the Registrant’s Annual Report on Form 10-K
(File No. 001-38359) filed with the SEC on March 29, 2018)
10.16#
Second Amendment to Offer Letter, effective as of March 1, 2019, between the Registrant and Joan Mannick (incorporated by reference
to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-38359) filed with the SEC on May 15, 2019)
10.17
First Amendment to Office Lease, dated as of April 1, 2019, by and between the Registrant and 500 Boylston and 222 Berkeley Owner
(DE) LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-38359) filed with
the SEC on May 15, 2019)
10.18#
Employment Agreement, dated as of May 8, by and between the Registrant and Lloyd Klickstein (incorporated by reference to Exhibit
10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-38359) filed with the SEC on August 14, 2019)
10.19
Amendment No. 2 to License Agreement, dated August 20, 2019, by and between the Registrant and Novartis International
Pharmaceutical Ltd. (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-38359)
filed with the SEC on November 5, 2019)
21.1*
23.1*
31.1*
Subsidiaries of the Registrant
Consent of KPMG LLP, independent registered public accounting firm
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
*
+
#
**
Filed herewith.
Confidential treatment granted as to certain portions, which portions have been omitted and filed separately with the Securities and Exchange
Commission.
Indicates a management contract or any compensatory plan, contract or arrangement.
The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference
into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the
Registrant specifically incorporates it by reference.
100
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.
SIGNATURES
Date: March 12, 2020
resTORbio, Inc.
By: /s/ Chen Schor
Chen Schor
President, Chief Executive Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1934, this Annual Report on Form 10-K has been signed by the following persons in the
capacities and on the dates indicated.
Signature
/s/ Chen Schor
Chen Schor
/s/ John McCabe
John McCabe
/s/ Jeffrey Chodakewitz
Jeffrey Chodakewitz
/s/ Paul Fonteyne
Paul Fonteyne
/s/ Michael Grissinger
Michael Grissinger
/s/ Jonathan Silverstein
Jonathan Silverstein
/s/ David Steinberg
David Steinberg
/s/ Lynne Sullivan
Lynne Sullivan
President, Chief Executive Officer and Director (principal executive officer)
March 12, 2020
Title
Date
Senior Vice President, Finance (principal financial officer and principal accounting
officer)
Director
Director
Director
Director
Director
Director
101
March 12, 2020
March 12, 2020
March 12, 2020
March 12, 2020
March 12, 2020
March 12, 2020
March 12, 2020
Description of the Registrant’s Securities Registered Pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended
The summary of the general terms and provisions of the registered securities of resTORbio, Inc.(“resTORbio,” “we,” or “our”) set forth
below does not purport to be complete and is subject to and qualified in its entirety by reference to our Third Amended and Restated
Certificate of Incorporation (our “certificate of incorporation”) and our Amended and Restated By-laws (our “by-laws” and, together with
our certificate of incorporation, our “Charter Documents”), each of which is incorporated by reference as an exhibit to our most recent
Annual Report on Form 10-K filed with the Securities and Exchange Commission. We encourage you to read our Charter Documents and the
applicable provisions of the General Corporation Law of the State of Delaware (the “DGCL”) for additional information.
Exhibit 4.3
General
Our authorized capital stock consists of One Hundred Fifty Million (150,000,000) shares of common stock, par value $0.0001 per share and
Ten Million (10,000,000) shares of undesignated preferred stock, par value $0.0001 per share.
The holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders. The
holders of our common stock do not have any cumulative voting rights. Holders of our common stock are entitled to receive ratably any
dividends declared by our board of directors out of funds legally available for that purpose, subject to any preferential dividend rights of any
outstanding preferred stock. Our common stock has no preemptive rights, conversion rights or other subscription rights or redemption or
sinking fund provisions.
Common Stock
In the event of our liquidation, dissolution or winding up, holders of our common stock will be entitled to share ratably in all assets remaining
after payment of all debts and other liabilities and any liquidation preference of any outstanding preferred stock. All outstanding shares are
fully paid and nonassessable.
Our common stock is listed on the Nasdaq Global Select Market under the trading symbol “TORC.”
The transfer agent and registrar for our common stock is Computershare Trust Company, N.A.
Undesignated Preferred Stock
Our board of directors is authorized, subject to limitations prescribed by Delaware law and by our certificate of incorporation, to issue up to
10,000,000 of preferred stock in one or more series without further action by the holders of our common stock. Our board of directors may
determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges
and liquidation preferences, of each series of preferred stock, any or all of which may be greater than the rights of common stock. The
issuance of our preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will
receive dividend payments and payments upon our liquidation. The issuance could also adversely affect the rights and powers of these
holders and may have the effect of delaying, deterring or preventing a change in control of us.
ACTIVE/102356176.2
Pursuant to the terms of our investors’ rights agreement entered into in November 2017, holders of registrable securities are entitled to rights
with respect to the registration of their shares under the Securities Act until the earliest of (a) January 2023, (b) the date on which such holder
ceases to hold registrable securities, or (c) such holder’s registrable securities could be sold without any restriction on volume or manner of
sale on any three-month period under Rule 144 or any successor rule, as described below. We refer to these shares collectively as registrable
securities.
Registration Rights
Demand Registration Rights
Under the terms of the investors’ rights agreement, we will be required, upon the written request of the holders of at least 20% of our
outstanding registrable securities, as defined in the investors’ rights agreement, to file a registration statement with respect to at least 40% of
the registrable securities and use commercially reasonable efforts to effect the registration of all or a portion of their registrable securities for
public resale so long as the total amount of registrable shares requested to be registered has an anticipated aggregate offering price to the
public, net of selling expenses, of at least $15.0 million.
Short-Form Registration Rights
The holders of at least 10% of our outstanding registrable securities can request that we register all or part of their shares on Form S-3 if we
are eligible to file a registration statement on Form S-3 and if the aggregate offering price, net of selling expenses, is at least $10.0 million.
Piggyback Registration Rights
Pursuant to the investors’ rights agreement, if we register any of our securities either for our own account or for the account of other security
holders, the holders of these shares are entitled to include their shares in the registration.
Indemnification
Our investors’ rights agreement contains customary cross-indemnification provisions, under which we are obligated to indemnify holders of
registrable securities in the event of material misstatements or omissions in the registration statement attributable to us, and they are obligated
to indemnify us for material misstatements or omissions attributable to them.
Anti-Takeover Effects of our Certificate of Incorporation and Bylaws and Delaware Law
Our certificate of incorporation and bylaws include a number of provisions that may have the effect of delaying, deferring or preventing
another party from acquiring control of us and encouraging persons considering unsolicited tender offers or other unilateral takeover
proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. These provisions include the items
described below.
Board Composition and Filling Vacancies
Our certificate of incorporation provides for the division of our board of directors into three classes serving staggered three-year terms, with
one class being elected each year. Our certificate of incorporation also provides that directors may be removed only for cause and then only
by the affirmative vote of the holders of two-thirds or more of the shares then entitled to vote at an election of directors. Furthermore, any
vacancy on our board of directors, however occurring, including a vacancy resulting
ACTIVE/102356176.2
from an increase in the size of our board, may only be filled by the affirmative vote of a majority of our directors then in office even if less
than a quorum. The classification of directors, together with the limitations on removal of directors and treatment of vacancies, has the effect
of making it more difficult for stockholders to change the composition of our board of directors.
No Written Consent of Stockholders
Our certificate of incorporation provides that all stockholder actions are required to be taken by a vote of the stockholders at an annual or
special meeting, and that stockholders may not take any action by written consent in lieu of a meeting. This limit may lengthen the amount of
time required to take stockholder actions and would prevent the amendment of our bylaws or removal of directors by our stockholders
without holding a meeting of stockholders.
Meetings of Stockholders
Our certificate of incorporation and bylaws provide that only a majority of the members of our board of directors then in office may call
special meetings of stockholders and only those matters set forth in the notice of the special meeting may be considered or acted upon at a
special meeting of stockholders. Our bylaws limit the business that may be conducted at an annual meeting of stockholders to those matters
properly brought before the meeting.
Advance Notice Requirements
Our bylaws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as
directors or new business to be brought before meetings of our stockholders. These procedures provide that notice of stockholder proposals
must be timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken. Generally, to be timely,
notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of
the annual meeting for the preceding year. Our bylaws specify the requirements as to form and content of all stockholders’ notices. These
requirements may preclude stockholders from bringing matters before the stockholders at an annual or special meeting.
Amendment to Certificate of Incorporation and Bylaws
Any amendment of our certificate of incorporation must first be approved by a majority of our board of directors, and if required by law or
our certificate of incorporation, must thereafter be approved by a majority of the outstanding shares entitled to vote on the amendment and a
majority of the outstanding shares of each class entitled to vote thereon as a class, except that the amendment of the provisions relating to
stockholder action, board composition, limitation of liability and the amendment of our bylaws and certificate of incorporation must be
approved by not less than two-thirds of the outstanding shares entitled to vote on the amendment, and not less than two-thirds of the
outstanding shares of each class entitled to vote thereon as a class. Our bylaws may be amended by the affirmative vote of a majority of the
directors then in office, subject to any limitations set forth in the bylaws; and may also be amended by the affirmative vote of a majority of
the outstanding shares entitled to vote on the amendment, or, if our board of directors recommends that the stockholders approve the
amendment, by the affirmative vote of the majority of the outstanding shares entitled to vote on the amendment, in each case voting together
as a single class.
ACTIVE/102356176.2
Choice of Forum
Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative form, the Court of Chancery of
the State of Delaware will be the sole and exclusive forum for: (1) any derivative action or proceeding brought on our behalf; (2) any action
asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers, employees or agents to us or our
stockholders; (3) any action asserting a claim against us arising pursuant to any provision of the General Corporation Law of the State of
Delaware or our certificate of incorporation or bylaws; or (4) any action asserting a claim governed by the internal affairs doctrine. Our
certificate of incorporation also provides that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock
will be deemed to have notice of and to have consented to this choice of forum provision. It is possible that a court of law could rule that the
choice of forum provision contained in our restated certificate of incorporation is inapplicable or unenforceable if it is challenged in a
proceeding or otherwise.
Section 203 of the Delaware General Corporation Law
We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a three-year period following the time
that this stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. Under Section
203, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following
conditions:
•
•
•
before the stockholder became interested, our board of directors approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder;
upon consummation of the transaction which 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 commenced,
excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers,
and employee stock plans, in some instances, but not the outstanding voting stock owned by the interested stockholder; or
at or after the time the stockholder became interested, the business combination was approved by our board of directors and
authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding
voting stock which is not owned by the interested stockholder.
Section 203 defines a business combination to include:
•
•
•
•
•
any merger or consolidation involving the corporation and the interested stockholder;
any sale, transfer, lease, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the
corporation;
subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder;
subject to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the
stock of any class or series of the corporation beneficially owned by the interested stockholder; and
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
ACTIVE/102356176.2
In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting
stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.
ACTIVE/102356176.2
SUBSIDIARIES
Subsidiary
resTORbio Securities Corp.
Jurisdiction of Incorporation
Massachusetts
Exhibit 21.1
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Directors
resTORbio, Inc.:
We consent to the incorporation by reference in the registration statements (No. 333-222746 and No. 333-230363) on Form S-8 and in registration
statement (No. 333-229499) on Form S-3 of resTORbio, Inc. of our report dated March 12, 2020, with respect to the consolidated balance sheets of
resTORbio, Inc. as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, redeemable convertible
preferred stock and stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2019, and the related
notes, which report appears in the December 31, 2019 annual report on Form 10-K of resTORbio, Inc.
/s/ KPMG LLP
Boston, Massachusetts
March 12, 2020
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) / RULE
15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Chen Schor, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of resTORbio, Inc.;
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;
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;
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)
b)
c)
d)
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;
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;
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
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)
b)
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
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.
Dated: March 12, 2020
/s/ Chen Schor
Chen Schor
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) / RULE
15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, John J. McCabe, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of resTORbio, Inc.;
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;
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;
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)
b)
c)
d)
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;
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;
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
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)
b)
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
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.
Dated: March 12, 2020
/s/ John J. McCabe
John J. McCabe
Vice President, Finance
(Principal Financial and Accounting Officer)
CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION
1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of resTORbio, Inc. (the “Company”) for the fiscal year ended December 31, 2019 as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certify, pursuant to 18 U.S.C. Section 1350, that,
to the best of their knowledge:
(1)
(2)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Exhibit 32.1
Dated: March 12, 2020
Dated: March 12, 2020
/s/ Chen Schor
Chen Schor
President and Chief Executive Officer
(Principal Executive Officer)
/s/ John J. McCabe
John J. McCabe
Vice President, Finance
(Principal Financial and Accounting Officer)