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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________________
FORM 10-K
___________________________________________
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED December 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _ TO _
COMMISSION FILE NUMBER 001-38501
___________________________________________
BLACK DIAMOND THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
___________________________________________
Delaware
(State or other jurisdiction
of incorporation or organization)
One Main Street, 10th Floor
Cambridge, Massachusetts
(Address of principal executive offices)
81-4254660
(I.R.S. Employer
Identification No.)
02142
(Zip Code)
(617) 252-0848
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $0.0001
Trading Symbol(s)
BDTX
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 Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§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, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
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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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
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 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s
common stock held by non-affiliates of the registrant was approximately $1,010,084,331 based on a closing price of $42.16 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 15, 2021, the registrant had 36,137,635 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 definitive Proxy Statement for the registrant’s 2021
Annual Meeting of Stockholders, or the Proxy Statement, 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, 2020. Except with respect to information specifically
incorporated by reference, the Proxy Statement is not deemed to be filed as part of this Annual Report on Form 10-K.
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Summary of the Material and Other Risks Associated with Our Business
Our business is subject to numerous material and other risks and uncertainties that you should be aware of in evaluating our business,
including those described in Part II, Item IA. “Risk Factors” in this Annual Report on Form 10-K. These risks include, but are not limited to,
the following:
• We are very early in our development efforts and are substantially dependent on our lead product candidate, BDTX-189. If we are
unable to advance BDTX-189 or any of our other product candidates through clinical development, obtain regulatory approval and
ultimately commercialize BDTX-189 or any of our other product candidates, or experience significant delays in doing so, our
business will be materially harmed.
• Difficulty in enrolling patients could delay or prevent clinical trials of our product candidates. We may find it difficult to enroll
patients in our open-label Phase 1/2 clinical trial for BDTX-189 with the genetic mutations that BDTX-189 is designed to target.
• Our discovery and preclinical development is focused on the development of precision medicines for patients with genetically
defined cancers, which is a rapidly evolving area of science, and the approach we are taking to discover and develop drugs is novel
and may never lead to marketable products.
• Our approach to the discovery and development of product candidates is unproven, and we may not be successful in our efforts to use
and expand our MAP platform to build a pipeline of product candidates with commercial value.
• Business or economic disruptions or global health concerns could seriously harm our development efforts and increase our costs and
expenses.
• Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future
viability.
• We have incurred significant losses since inception, and we expect to incur losses over the next several years and may not be able to
achieve or sustain revenues or profitability in the future.
• We have not generated any revenue from our product candidates and may never be profitable.
• We will need substantial additional funding. If we are unable to raise capital when needed, we would be compelled to delay, reduce
or eliminate our product development programs or commercialization efforts.
• We are very early in our development efforts. Most of our product candidates are still in preclinical development. If we are unable to
advance our product candidates to clinical development, obtain regulatory approval and ultimately commercialize our product
candidates or experience significant delays in doing so, our business will be materially harmed.
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If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals for our product candidates, we will not
be able to commercialize, or will be delayed in commercializing, our product candidates, and our ability to generate revenue will be
materially impaired.
• Our clinical trials may fail to demonstrate adequately the safety and efficacy of any of our product candidates, which would prevent
or delay regulatory approval and commercialization.
• We do not currently own or in-license any issued patents relating to our product candidates or technology, including BDTX-189. If
we are unable to obtain and maintain patent and other intellectual property protection for BDTX-189, our MAP platform and our
other product candidates and technology, or any other product candidates or technology we may develop, or if the scope of
intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize products and
technology similar or identical to ours, and our ability to commercialize BDTX-189 or any other product candidates or technology
may be adversely affected.
• We plan to rely on third parties to conduct our preclinical studies and clinical trials. If these third parties do not properly and
successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of or
commercialize our product candidates.
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• We may form or seek collaborations or strategic alliances or enter into additional licensing arrangements in the future, and we may
not realize the benefits of such collaborations, alliances or licensing arrangements.
• We are highly dependent on our key personnel and anticipate hiring new key personnel. If we are not successful in attracting and
retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
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The price of our stock is volatile, and you could lose all or part of your investment.
• We have recently remediated material weaknesses in our internal control over financial reporting. If we identify additional material
weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or
timely report our financial condition or results of operations, which may adversely affect our business.
• Data collection is governed by restrictive regulations governing the use, processing and cross-border transfer of personal information.
• Changes to patent law in the United States and in foreign jurisdictions could diminish the value of patents in general, thereby
impairing our ability to protect our products.
• Changes in tax law could adversely affect our business and financial condition.
• We may be unable to adequately protect our information systems from cyberattacks, which could result in the disclosure of
confidential or proprietary information, including personal data, damage our reputation, and subject us to significant financial and
legal exposure.
The material and other risks summarized above should be read together with the text of the full risk factors below and in the other
information set forth in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes, as well as in
other documents that we file with the Securities and Exchange Commission. If any such material and other risks and uncertainties actually
occur, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks summarized
above or described in full below are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we
currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition and results of operations.
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BLACK DIAMOND THERAPEUTICS, INC.
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Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART I
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Reserved
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
PART III
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
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We have applied for various trademarks that we use in connection with the operation of our business. This Annual Report on Form 10-K, or
Annual Report, may also contain trademarks, service marks and trade names of third parties, which are the property of their respective
owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this Annual Report is not intended to, and
does not imply a relationship with, or endorsement or sponsorship by us. Solely for convenience, the trademarks, service marks and trade
names referred to in this Annual Report may appear without the ®, TM or SM symbols, but the omission of such references is not intended to
indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner of these
trademarks, service marks and trade names will not assert, to the fullest extent under applicable law, its rights.
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From time to time, we may use our website or our LinkedIn profile at linkedin.com/company/black-diamond-therapeutics to distribute
material information. Our financial and other material information is routinely posted to and accessible on the Investors section of our
website, available at www.blackdiamondtherapeutics.com. Investors are encouraged to review the Investors section of our website because
we may post material information on that site that is not otherwise disseminated by us. Information that is contained in and can be accessed
through our website or our LinkedIn page is not incorporated into, and does not form a part of, this Annual Report.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the
Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. All statements other than statements of historical facts contained in this Annual Report are forward-looking statements. In
some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “intends”, “plans”,
“anticipates”, “believes”, “estimates”, “predicts”, “potential”, “continue” or the negative of these terms or other comparable terminology.
These statements are not guarantees of future results or performance and involve substantial risks and uncertainties. Forward-looking
statements in this Annual Report include, but are not limited to, statements about:
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the initiation, timing, progress and results of our research and development programs, preclinical studies, any clinical trials and
investigational new drug applications, or IND, and other regulatory submissions;
our ability to obtain and maintain regulatory approval for BDTX-189 or any of our other current or future product candidates that we
may identify or develop;
our need to raise additional funding before we can expect to generate any revenues from product sales;
our ability to identify future product candidates for treatment of additional disease indications;
our ability to develop our current product candidates for the treatment of various cancers;
the rate and degree of market acceptance and clinical utility for any current or future product candidates we may develop;
the effects of competition with respect to BDTX-189 or any of our other current or future product candidates, as well as innovations
by current and future competitors in our industry;
the implementation of our strategic plans for our business, any product candidates we may develop and our MAP platform;
our ability to successfully develop companion diagnostics for use with our current or future product candidates;
our intellectual property position, including the scope of protection we are able to establish, maintain and enforce for intellectual
property rights covering our product candidates and MAP platform;
our ability to use the proceeds of our initial public offering in ways that increase the value of your investment;
our ability to obtain additional funding for our operations, when needed, including funding necessary to complete further
development and commercialization of our product candidates, if approved, and to further expand our MAP platform;
the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
our financial performance and our ability to effectively manage our anticipated growth;
our estimates regarding the market opportunities for our product candidates;
our ability to maintain an effective system of internal controls;
the ultimate impact of the current coronavirus pandemic, or any other health epidemic, on our business, our clinical trials, our
research programs, healthcare systems or the global economy as a whole; and
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other material risks and uncertainties, including those discussed in Part I, Item 1A, “Risk Factors” in this Annual Report.
Any forward-looking statements in this Annual Report reflect our current views with respect to future events and with respect to our future
financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-
looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those
described under Part I, Item 1A, “Risk Factors” and elsewhere in this Annual Report. Given these uncertainties, you should not place undue
reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking
statements for any reason, even if new information becomes available in the future.
All of our forward-looking statements are as of the date of this Annual Report only. In each case, actual results may differ materially from
such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct.
An occurrence of or any material adverse change in one or more of the risk factors or risks and uncertainties referred to in this Annual Report
or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the Securities
and Exchange Commission, or the SEC, could materially and adversely affect our business, prospects, financial condition and results of
operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual
results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring
after the date of this Annual Report, even if such results, changes or circumstances make it clear that any forward-looking information will
not be realized. Any public statements or disclosures by us following this Annual Report that modify or impact any of the forward-looking
statements contained in this Annual Report will be deemed to modify or supersede such statements in this Annual Report.
We may from time to time provide estimates, projections and other information concerning our industry, the general business environment,
and the markets for certain diseases, including estimates regarding the potential size of those markets and the estimated incidence and
prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar
methodologies is inherently subject to uncertainties, and actual events, circumstances or numbers, including actual disease prevalence rates
and market size, may differ materially from the information reflected in this Annual Report. Unless otherwise expressly stated, we obtained
this industry, business information, market data, prevalence information and other data from reports, research surveys, studies and similar
data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar
sources, in some cases applying our own assumptions and analysis that may, in the future, prove not to have been accurate.
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PART I
Except where the context otherwise requires or where otherwise indicated, the terms “Black Diamond,” “Black Diamond Therapeutics,”
“we,” “us,” “our,” “our company,” the “Company,” “we,” “us,” “our” and similar designations in this Annual Report to refer to Black
Diamond Therapeutics, Inc. and, where appropriate, its subsidiaries.
Item 1. Business
We are a precision oncology medicine company pioneering the discovery and development of small molecule, MasterKey therapies. We
target undrugged oncogenic driver mutations in patients with genetically defined cancers. The foundation of our company is built upon a
deep understanding of cancer genetics, protein structure and function, and medicinal chemistry. Our proprietary technology platform, which
we refer to as our Mutation-Allostery-Pharmacology, or MAP, platform, is designed to allow us to analyze population-level genetic
sequencing data to discover oncogenic mutations that promote cancer across tumor types. Our goal is to identify families of mutations that
can be inhibited with a single small molecule therapy in a tumor-agnostic manner, termed a MasterKey therapy.
We have designed our lead product candidate, BDTX-189, to potently and selectively inhibit a spectrum of oncogenic proteins defined by
mutations which occur outside the adenosine triphosphate, or ATP, site, and which we refer to as non-canonical mutations. Non-canonical
mutations occur across a range of tumor types that affect both the epidermal growth factor receptor, or EGFR, and the tyrosine-protein kinase
ErbB-2, or HER2. We have designed BDTX-189 to bind to the active site of these mutant kinases and inhibit their function. BDTX-189 is
also designed to spare normal, or wild type, EGFR, which we believe will improve upon the toxicity profiles of current ErbB kinase
inhibitors. We are also leveraging our MAP platform to identify other families of non-canonical mutations in validated oncogenes beyond
ErbB, which has the potential to expand the reach of targeted therapies.
Approved targeted therapies, such as kinase inhibitors, have transformed the treatment of cancers and demonstrated a significant benefit to
certain patients by treating active site mutations in a single tumor type. Improved genetic sequencing of cancers has led to the discovery of
additional oncogenic genetic alterations. These genetic alterations were previously unaddressed, unsuccessfully targeted or overlooked. Our
MAP platform is designed to reveal the oncogenic nature of families of undrugged driver mutations and their associated protein
conformations. We believe this approach offers a substantial opportunity to expand the number of patients who could benefit from precision
oncology medicines.
Our proprietary MAP platform is built on three central pillars:
• Mutations—Through comprehensive analysis of population-level genetic sequencing data, we identify oncogenic mutations among
hundreds of unique alterations within a single gene. We use our algorithm as a machine-learning tool to predict the oncogenicity of
various uncharacterized mutations, thereby isolating oncogenic driver mutations from those mutations that are not believed to cause
cancer, which are referred to as silent and passenger mutations.
• Allostery—We confirm the oncogenicity of the identified mutations through cell and tumor models and reveal how these mutations
drive conformational changes in proteins. This enables us to aggregate subsets of mutations into families based upon similar protein
structures and shared selectivity profiles.
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Pharmacology—Using these shared characteristics, we seek to develop single small molecule product candidates, each designed to
inhibit an entire family of allosteric mutations.
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Our pipeline
Utilizing our proprietary MAP platform, we are building a pipeline of orally available, potent and selective small molecule kinase inhibitors
that target a range of driver mutations in cancer. An overview of our pipeline of product candidates is shown in the table below.
BDTX-189: An inhibitor of allosteric oncogenic mutations of ErbB
BDTX-189 is designed as an orally available, irreversible small molecule inhibitor that targets a spectrum of 48 non-canonical and canonical
driver mutations of the ErbB kinases EGFR and HER2 while sparing wild type EGFR. These mutations are prevalent in non-small cell lung
cancer, or NSCLC, breast, gastric, colon, and endometrial cancers. Currently, there are no drugs approved by the FDA that target all of these
oncogenic mutations with a single therapy.
BDTX-189 is designed as a highly selective, potent inhibitor that targets this spectrum of oncogenic proteins defined by the non-canonical
ErbB driver mutations, while also sparing WT EGFR. In preclinical models, BDTX-189 exhibited anti-tumor activity evidenced by potent
tumor growth inhibition and tumor regression.
We initiated the MasterKey-01 trial in January of 2020 and are currently evaluating BDTX-189 in the Phase 1 dose-escalation portion of the
trial. This portion is designed to determine the recommended Phase 2 dose, characterize pharmacokinetics, or PK, and safety, and assess
preliminary indications of anti-tumor activity for BDTX-189.
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The Phase 2 portion will determine the anti-tumor activity of BDTX-189, as measured by the overall response rate, or ORR, and duration of
response, or DOR, in patients with solid tumors that have an EGFR or HER2 exon 20 insertion mutation or allosteric HER2 mutation
determined using NGS, or next-generation sequencing.
The results from the Phase 1/2 trial will help to inform our subsequent clinical development strategy, subject to discussions with the FDA,
with a potential to pursue an accelerated approval of BDTX-189 for patients with mutations of the ErbB family across one or more solid
tumor types as a tumor agnostic indication.
BDTX-1535: A brain-penetrant inhibitor of EGFR mutations, including allosteric and canonical EGFR mutations
BDTX-1535 is designed as a brain-penetrant small molecule inhibitor that targets a spectrum of EGFR mutations, including allosteric and
canonical mutations. EGFR mutations covered by BDTX-1535 include those that are frequently observed in glioblastoma, sometimes in
groups. Therefore, there is a critical need for a brain-penetrant inhibitor that potently and selectively targets the full array of mutations that
contribute to the development of glioblastoma. Additionally, BDTX-1535 is designed to inhibit a spectrum of allosteric, canonical and
resistance (C797S, associated with resistance to osimertinib) EGFR mutations found in solid tumors, such as NSCLC, including those with
brain metastases.
Glioblastoma is a difficult-to-treat, aggressive type of cancer that can occur in the brain or spinal cord. Current therapy consists primarily of
surgical resection of the tumor followed by radiation and chemotherapy and has only a 25 percent survival rate two years after diagnosis.
Almost 50 percent of glioblastoma tumors express one or more allosteric EGFR mutations that affect the extracellular region of the receptor
tyrosine kinase, consequently promoting oncogenic activation. We believe that current targeted therapies have been unsuccessful in treating
glioblastoma due to (i) the concurrent expression of these allosteric EGFR mutations within individual patients, (ii) insufficient drug potency
for allosteric EGFR mutations and (iii) low levels of brain penetration. We have shown that the mechanism of activation for these allosteric
EGFR mutations involves the formation of a constitutive dimer and a shared conformation by the spectrum of allosteric EGFR mutations
expressed in glioblastoma. BDTX-1535 potently and selectively inhibited this spectrum of allosteric mutants and achieved tumor-growth
inhibition and regression in the in vivo animal models we have utilized. Additionally, we have observed measurable brain exposure in animal
models.
Investigational New Drug application, or IND,-enabling studies of BDTX-1535 are ongoing, and we anticipate submitting an IND for
BDTX-1535 in the first half of 2022.
Early-stage programs
We are also progressing our early-stage research programs targeting groups of allosteric mutations in kinases relevant to cancer and/or rare
genetic diseases that we have developed utilizing our MAP platform. Our programs in B-Raf Proto-Oncogene, or BRAF, and fibroblast
growth factor receptor, or FGFR, are advancing through lead optimization, and we anticipate filing an IND for each program in 2022.
Our strategy
Our vision is to build a differentiated, global biopharmaceutical company by discovering, developing and commercializing novel precision
medicines for every genetically defined patient. We are advancing the field of precision medicines through improved understanding of mutant
protein conformations to (i) identify novel oncogenic driver mutations and (ii) target families of mutations with individual small molecule
therapies. We believe our strategy will enable us to become an industry leader in precision oncology medicine and advance a portfolio of
tumor-agnostic product candidates aimed at delivering safe and effective medicines to patients. The critical components of our strategy
include:
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• Rapidly advance our lead product candidate, BDTX-189, through clinical development, as a tumor-agnostic, spectrum-
selective small molecule therapy. We believe BDTX-189 has the potential to treat multiple tumors and become the first agent
approved to address allosteric ErbB mutations. Enrollment and dosing are ongoing in the Phase 1 dose-escalation portion of our
MasterKey-01 Phase 1/2 trial in solid tumors with genetically defined alterations, including allosteric mutations in EGFR and HER2.
Eligible patients are identified by standard, commercially available NGS panels. If successful in achieving clinically meaningful anti-
tumor activity across a range of allosteric ErbB mutations and solid tumor types, we plan to meet with regulatory authorities to
discuss expedited regulatory approval strategies.
• Rapidly advance BDTX-1535 through IND-enabling studies and into clinical development. We believe that BDTX-1535 could
offer an improved approach in glioblastoma by potently and selectively inhibiting the spectrum of allosteric mutant EGFR kinases
expressed in glioblastoma tumors with a brain-penetrant compound. We anticipate filing an IND in the first half of 2022.
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Select a development candidate from the lead molecules in each of our BRAF and FGFR programs and rapidly advance each
into clinical development. We believe that the lead molecules in our BRAF and FGFR programs could overcome the limitations of
current therapies in each target area. Our BRAF molecules are designed as potent MasterKey inhibitors of Class II/III (non-V600)
mutations without inducing paradoxical activation. Our FGFR molecules are designed as potent and selective MasterKey inhibitors
of allosteric FGFR2/3 mutations that spare FGFR1 and have activity against gatekeeper mutations. We anticipate filing an IND for
each program in 2022.
• Expand our pipeline of potent and selective small molecule inhibitors to fully exploit the potential of our proprietary MAP
platform. We believe that the general principles for mutation-driven conformational change that we have identified for our lead
programs can be applied to other oncogenic proteins. We also believe that our MAP platform has identified undrugged driver
mutations for cancer for which we intend to design and develop highly selective and potent inhibitors to block the activity of these
oncogenic proteins. We are advancing several early-stage programs focused on targeting a range of driver mutations, including
allosteric activating mutations.
• Continue to invest in our proprietary MAP platform to identify and characterize new mutation families. We plan to continue
to innovate our MAP platform to enable new insights into canonical and non-canonical mutations and to accelerate our ability to
identify other mutational drivers, both in oncology and non-oncology settings. We will continue to enhance our proprietary
computational algorithms by leveraging both our extensive in-house expertise in allosteric mutations and deep understanding of
chemistry, as well as both internally and externally available computational technologies. By continuing to strengthen and expand
our MAP platform, we believe we can exploit the growing amount of genetic sequencing data to characterize mutations underlying
human disease.
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Selectively evaluate strategic partnerships that may maximize the potential of our pipeline and our proprietary MAP
platform. Given our potential to generate novel product candidates addressing a wide variety of cancers, we may consider and
opportunistically enter into strategic partnerships around certain targets, product candidates and disease areas. These collaborations
could advance and accelerate our development programs to maximize their market potential and expand our MAP platform
capabilities.
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Our history and team
We were founded by Dr. David M. Epstein and Dr. Elizabeth Buck in 2014 and, beginning in 2017, together with Versant Ventures began
building the MAP platform and chemistry discovery engine. We have assembled a team with significant expertise in drug discovery and
development with particular strengths in the discovery of small molecule protein kinase inhibitors. David M. Epstein, Ph.D., our President
and Chief Executive Officer, was previously Chief Scientific Officer at OSI Pharmaceuticals, Inc. and founder of Archemix Corporation,
where he led the advancement of multiple product candidates into the clinic across several therapeutic areas. Thomas Leggett, our Chief
Financial Officer, was previously Chief Financial Officer at Axcella Health, Inc. Christopher D. Roberts, our Chief Scientific Officer, was
previously Entrepreneur in Residence at S.R. One Limited, the corporate venture capital arm of GlaxoSmithKline plc. Elizabeth Buck, Ph.D.,
our Executive Vice President of Discovery & Translational Sciences, previously led preclinical pharmacology and oncology translational
research at OSI Pharmaceuticals, Inc. Rachel Humphrey, M.D., our Chief Medical Officer, previously served as Chief Medical Officer at
CytomX Therapeutics, Inc. Dr. Humphrey supervised the development of the early and late-stage clinical development of Yervoy
(ipilimumab) at Bristol Myers Squibb and Nexavar (sorafenib) at Bayer AG. Brent Hatzis-Schoch, our Chief Operating Officer and General
Counsel, was previously General Counsel at Radius Health, Inc. Fang Ni, Pharm.D. our Chief Business Officer, previously served as
Principal and was a member of the investment team at Versant Ventures. Karsten Witt, M.D., our Senior Vice President of Non-Clinical
Development, previously led clinical development at Array Biopharma Inc. and OSI Pharmaceuticals, Inc. Dr. Witt has been involved in
eight regulatory approvals, four of which are related to Tarceva (erlotinib), an approved kinase inhibitor for the treatment of certain lung and
pancreatic cancers.
Background on and limitations of previous generations of targeted therapies
Background on targeted therapies
Cancer is a genetic disease that is caused by changes in DNA that control the way cells function, especially how they grow and divide, and
has historically been diagnosed and treated based on a tumor’s organ site or tissue of origin. Oncogene addiction, which is the dependency of
tumors on genetic drivers for their growth and survival advantage, has enabled the pharmacological development of targeted therapies that
exploit this dependency. Recent advances in genetic sequencing and a better understanding of genetic alterations that drive cancers have
facilitated more precise and histologically agnostic cancer drug development.
These targeted therapies have transformed the treatment of some cancers by providing substantial clinical benefit and have emerged as an
important part of standard of care for cancer patients. Worldwide sales of kinase inhibitors, one class of targeted therapies, exceeded $35
billion in 2019. Furthermore, patients with tumors driven by oncogene addiction typically show rapid and measurable tumor shrinkage when
exposed to drugs targeting the relevant alteration. Such clinical responses can be dramatic enough in many cases to support expedited
regulatory approval of these targeted therapies. Yet, a recent analysis found that only nine percent of patients with metastatic cancer have
tumors with genetic profiles that could make them eligible for treatment with an approved precision oncology medicine.
Existing targeted therapies have been effective because they target genetically defined cancers driven by a single set of mutations. Genetic
sequencing of tumors reveals that many mutations remain uncharacterized, suggesting that there are additional mutations that can lead to
oncogene addiction. With its supplemental approval by the FDA in 2017, pembrolizumab, or Keytruda, was the first targeted oncology
treatment approved for any solid tumor based on a molecular profile, regardless of the tumor’s site of origin. In 2018, larotrectinib, or
Vitrakvi, was approved by the FDA for neurotrophic tropomyosin receptor kinase, or NTRK, driven cancers, making it the first drug to be
approved to treat a specific genetic alteration in a tissue agnostic fashion. We believe that these advancements represent a fundamental
change in the development of targeted therapies and will increasingly lead to cancer being characterized for treatment in a genetic, rather than
in a tissue-specific manner.
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Limitations of current targeted therapies
Current targeted therapies provide clinical benefit to patients expressing the ATP-site mutations but not to patients expressing other
mutations. Numerous mutations beyond active site mutations are known to the oncology clinical and research community, but those
mutations are not currently targeted by approved inhibitors. For example, while EGFR-targeted therapies, including erlotinib and osimertinib,
have proven to be effective in patients with ATP-site mutations, limited response to these inhibitors has been observed when treating patients
with cancers expressing other types of oncogenic EGFR mutations, including those expressed outside of the ATP site, such as EGFR exon 20
insertions and extracellular domain mutations. There remains a significant unmet medical need for new drugs that can extend precision
medicines to these patients expressing non-ATP site or non-canonical mutations. The figure below depicts the oncogenic EGFR mutations,
shown in magenta. These include the ATP-site mutations, EGFR exon 19 deletions and L858R (left panel), as well as an additional spectrum
of mutations occurring outside of the ATP site, including EGFR-Viii (middle panel) and EGFR exon 20 insertions (right panel).
Emergence of genetic sequencing as standard of care in treating cancer
The cancer treatment landscape is rapidly evolving, and there is now widespread recognition that cancer is a disease of genetics, as much as it
is a disease defined by histology or anatomical location. This shift has been driven by the increased use of genetic sequencing coupled with
the availability of approved targeted therapies. The FDA has approved Foundation Medicine’s comprehensive genetic profiling test
FoundationOne CDx and the Centers for Medicare & Medicaid Services announced coverage of next generation genetic sequencing tests,
which we believe will further drive the use of genetic testing. A recent study demonstrated that 75 percent of oncologists in the United States
employ genetic sequencing. As technological advancements in genetic sequencing improve and an increasing number of targeted therapies
are developed, we believe that physicians will require molecular information about their patients’ cancers to determine the optimal course of
treatment. Not only have advances in genetic sequencing changed the standard of care for oncology patients, they are leading to
transformations in the discovery and development of oncology drugs.
We believe that genetic sequencing enables the discovery of additional targets for drug development. More than 400 cancer-associated genes
are routinely sequenced, and analysis of this data has shown that mutations are not restricted to specific regions, but rather are spread more
broadly throughout entire sequences of genes. We believe that such mutations have not yet been systematically studied as potential drug
targets or their oncogenic proteins targeted in drug discovery efforts, and that our ability to do so represents a significant opportunity to
develop precision medicines in areas of major unmet medical need.
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The Black Diamond Therapeutics approach
At Black Diamond Therapeutics, our goal is to bring precision oncology medicine to a greater number of patients. Our drug development
efforts leverage our novel findings that:
• mutations throughout a gene can drive oncogenic activation and change the drug selectivity profile of their active sites;
•
•
these oncogenic mutations can be aggregated into families because they drive similar protein structural changes, and exhibit a shared
selectivity profile; and
a family of oncogenic proteins can therefore be inhibited by a single small molecule that targets the active site regardless of where it
appears on the receptor.
We believe we can address certain key limitations of current generation precision medicine therapies in oncology by applying our MAP
platform to identify and target novel classes of oncogenic mutations. We believe this enables us to design and develop potential therapies for
patients for whom there are currently no targeted treatment options.
Our MAP platform
Our MAP platform is built on three central pillars: Mutation—Allostery—Pharmacology.
Mutation—identify mutations and rank for potential oncogenicity
Our discovery process begins by identifying oncogenic mutations. We use population-level cancer genetic data obtained from all tumor types,
to identify potential families of mutations that occur within individual oncogenes.
We have developed unique insights into the specific structural features of a protein that are associated with oncogenic mutations. The
algorithm underlying our MAP platform scores each mutation for its potential oncogenicity, which we refer to as a MAP score. We use our
algorithm as a machine-learning tool to predict the oncogenicity of various uncharacterized mutations, isolating oncogenic driver mutations
from the silent and passenger mutations. We map these mutations onto the 3-dimensional structure of a protein to determine which of the
many mutations expressed by human tumors occur at sites associated with oncogenicity.
For HER2 and EGFR, we observed that oncogenic mutations are distributed nearly uniformly throughout the sequence of these two genes,
revealing many mutations occurring outside of the ATP site, which have not been targeted by drugs.
For example, applying our algorithm to all currently known mutations in HER2 alone reveals a subset of mutations with high MAP scores,
which we believe is a predictor of oncogenicity. For the ErbB family, we observed 3,868 unique mis-sense mutations (935 mutations in
EGFR, 670 mutations in HER2, 794 mutations in HER3 and 1,469 mutations in HER4). These mutations are distributed throughout the target
sequence. As illustrated in the figure below, we observed 670 unique mutations expressed in HER2, detected within a combined human
tumor data set of approximately 70,000 cases (GENIE 5.0 and TCGA data sets). Through this analysis, we re-identified or confirmed the
known HER2 allosteric oncogenic mutations, which are the mutations that we targeted with our BDTX-189 product candidate. We also
identified an additional subset of mutations with high MAP scores, and we are currently validating these putative oncogenic mutations
experimentally. Our goal is to expand our targeted mutation family to potentially include this additional group of non-canonical mutations.
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Our genetic sequencing analysis has identified a family of 48 non-canonical mutations in both the extracellular and kinase domains of EGFR
and HER2. The figure below is a compilation of the non-canonical EGFR and HER2 oncogenic mutations that we are targeting in both of our
ErbB programs. Each dot represents a unique non-canonical EGFR and HER2 oncogenic mutation found in individual tumors, while the
height of each dot represents the frequency at which such mutation was found. The sites of two mutations defined as canonical mutations are
indicated. The frequency for EGFR oncogenic mutations expressed in glioblastoma was calculated as relative frequency within glioblastoma.
The frequency for all other EGFR and HER2 mutations was calculated relative to all solid tumors (approximately 70,000 tumors within
project GENIE 5.0 / TCGA dataset). Specifically, the figure shows the prevalence of various types of alterations of EGFR expressed in
glioblastoma (EGFR-Viii, EGFR-Vii, EGFR-Vvi, three mutations affecting EGFR-A289 and two mutations affecting EGFR-G598) and
various types of EGFR and HER2 alterations expressed across solid tumors (two mutations affecting HER2-S310, HER2-R678Q, six unique
mutations affecting HER2-L755, four unique mutations affecting HER2-V777, HER2-V842I, 46 unique mutations that are deletions within
exon 19, and 28 unique mutations that are insertions within exon 20 and EGFR-L858R).
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We selected 43 additional HER2 mutations to experimentally test for oncogenicity using the BaF3 transformation assay. Thirty-three of the
43 mutations tested had high MAP scores and were therefore predicted to have oncogenic behavior, while ten of the 43 mutations had low
MAP scores and were therefore not predicted to be oncogenic. In this screen, we also tested wild type HER2 and three HER2 mutations that
we had already observed to have oncogenic behavior. Wild type HER2 was unable to transform BaF3 cells to IL-3 independent proliferation,
while all three validated HER2 oncogenic mutations (HER2-V842I, L755S and S310F) successfully transformed cells, as evidenced by
greater than three-fold proliferation over a seven-day period. Of the 33 mutations with high MAP scores that were predicted to be oncogenic,
15 were transformative. In contrast, among the group of mutations with low MAP scores that were not predicted to have oncogenic behavior,
only two transformed BaF3 cells to proliferate greater than three-fold over seven days. We found newly characterized mutations to be
sensitive to BDTX-189, as evidenced below with potent inhibition of proliferation against cells transformed by the HER2-R103Q mutation.
Allostery—understanding the mechanism for oncogenic activation
We evaluate the oncogenicity of these mutations occurring outside of the ATP site and use our preclinical models to reveal how they drive
protein conformation change to promote oncogenicity. We then use these models to determine whether the drug sensitivity profile, or
pharmacology, of the ATP site is altered. We use this information to aggregate mutations into oncogene families that share a similar ATP site
pharmacology.
In the ErbB space, the drug selectivity patterns of mutant EGFR and HER2 kinases provide evidence of unique conformational states driven
by mutation. As illustrated in the figure below, dimerization is required for receptor activation, an important step in oncogenic signaling. In
wild type EGFR, the binding of a ligand to the extracellular domain promotes an active dimer conformation. In the case of wild type EGFR,
this is a transient dimer conformation. We have discovered that a family of EGFR and HER2 mutations activate these kinases and promote
oncogenicity by stabilizing the kinase in a unique constitutive dimer conformation. Importantly, the constitutive dimer conformation results
in a change in selectivity for drugs which bind to the ATP site, potentially reducing the effectiveness of currently approved targeted therapies,
such as erlotinib.
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The protein conformation for the active form of allosteric mutant ErbB receptors is unique from the conformation of wild type EGFR. Wild
type EGFR is inactive in its monomeric form and activated upon the binding of an EGF ligand (shown in dark purple) to the extracellular
domain, forming an active transient dimer conformation. Allosteric ErbB mutations (highlighted in magenta in this example) can promote a
constitutive dimer conformation which has high activity and is oncogenic.
Pharmacology—develop mutation spectrum-selective drugs to our targets
Our team of experienced medicinal chemists seek to design and identify small molecules that bind to the active site and inhibit the target only
when it is in the unique conformation promoted by the non-canonical oncogenic mutations we identified. Combining a multidimensional
medicinal chemistry lead identification and optimization strategy with our proprietary know-how in drug design, we aim to identify small
molecules with bespoke selectivity against the entire desired spectrum of mutations as a family, while at the same time sparing inhibition of
the wild type form of the protein or other unwanted targets.
For the development of BDTX-189, our ErbB product candidate that is currently in clinical development, we utilized these cell and tumor
models as biological screens that recapitulate the tumor biology for these mutations. BDTX-189 binds to the ATP-site to inhibit the
constitutive dimer in a family of EGFR and HER2 mutations, while at the same time sparing inhibition of the normal wild type EGFR. We
have validated the activity for BDTX-189 against the most commonly occurring mutations representing each of these types of mutations
(HER2-S310F, HER2-R678Q, HER2-L755S, HER2-V777L, HER2-V842I, the EGFR Exon 20 insertions EGFR-ASV/SVD/NPH/FQEA, the
HER2 Exon 20 insertions HER2-YVMA/GSP, the EGFR Exon 19 deletion EGFR-746-750, and EGFR-L858R).
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Our product candidates and development programs
We are leveraging our MAP platform to develop a drug pipeline of orally available, potent and spectrum-selective small molecule kinase
inhibitors that target genetic drivers in several cancers. We own worldwide commercial rights to all of our product candidates.
BDTX-189: An inhibitor of allosteric oncogenic drivers of ErbB
Overview
Allosteric ErbB mutations are found in one to two percent of a large variety of solid tumors but are overexpressed in tumors such as
advanced NSCLC, invasive breast, bladder and endometrial cancer, where incidence ranges from two to seven percent. Currently available
EGFR and HER2 tyrosine kinase inhibitors or monoclonal antibodies have limited or no anti-tumor activity against these genetic alterations
due to insufficient potency or lack of selectivity, which results in toxicity before adequate exposures can be achieved. There remains a
significant unmet medical need for new drugs that can extend targeted therapies to patients expressing non-canonical mutations outside of the
ATP site.
BDTX-189 is designed as an orally available irreversible, small molecule inhibitor that targets undrugged oncogenic driver mutations of
ErbB kinases in HER2 and EGFR. These include extracellular domain allosteric mutations of HER2, as well as EGFR and HER2 kinase
domain exon 20 insertions, and additional activating oncogenic drivers of ErbB. Currently, there are no FDA approved drugs that targets all
of these mutations with a single small molecule therapy.
We are currently enrolling patients in the Phase 1 dose-escalation portion of the trial, which is designed to determine the recommended Phase
2 dose, characterize the PK and safety, and assess preliminary indications of anti-tumor activity of BDTX-189.
The open-label Phase 2 portion is expected to determine the ORR and DOR in patients with solid tumors that have an allosteric HER2
mutation, or EGFR or HER2 exon 20 insertion mutation determined using NGS, or next-generation sequencing.
The results from the Phase 1/2 trial will help to inform our subsequent clinical development strategy, subject to discussions with the FDA,
with a potential to pursue an accelerated approval of BDTX-189 for patients with mutations of the ErbB family across one or more solid
tumor types as a tumor agnostic indication.
The figure below shows the selectivity pattern for BDTX-189 for non-canonical oncogenic mutations and additional oncogenic drivers of
ErbB (with wild type for reference), each as determined by measuring 50 percent inhibition, or IC50, values.
In cell-based assays, BDTX-189 achieved potent inhibition of each of the 48 allosteric ErbB mutant variants tested with an average
selectivity versus wild type EGFR of greater than 50-fold, including the family of EGFR and HER2 Exon 20 insertion mutations.
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BDTX-189 has demonstrated in vitro activity against the canonical activating EGFR mutations (exon 19 deletion and L858R mutation), as
well as potent HER2 wild-type activity, or HER2-positive. We continue to evaluate BDTX-189’s activity in areas where we believe there
may be additional opportunities.
As shown in the figure below, BDTX-189 inhibited the proliferation of both BaF3 transformants (engineered cell lines) and patient derived
cell lines expressing the EGFR Exon 20 insertion mutants EGFR-NPH and EGFR-ASV.
A favorable therapeutic window over wild type EGFR was a key design objective in the ErbB program. BDTX-189 achieved high selectivity
for cells expressing the targeted allosteric EGFR and HER2 mutants and the compound spares cells expressing wild type EGFR (A431 and
H292).
We believe BDTX-189 has an excellent kinome selectivity profile, as determined using the DiscoverX KINOMEscan methodology testing
468 kinases. BDTX-189 exhibited binding affinity for the isolated kinase domains of EGFR and HER2 of less than 1nM. All but eight
kinases outside of the ErbB family showed no or very poor binding when BDTX-189 was tested at a single concentration of 100nM, with
selectivity estimated to be greater than 125-fold for EGFR selectivity and greater than 30-fold for HER2 selectivity. The selectivity for ErbB
kinases versus a small subset of kinases (BLK, BTK, LCK, LOK and MEK5) was determined to be greater than 10-fold. The only kinase that
was bound with less than 10-fold selectivity is RIPK2, and this activity is not expected to be dose limiting.
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In preclinical animal models, BDTX-189 was observed to have high potency and fast irreversible inactivation of the desired mutations.
BDTX-189 displayed a favorable pharmacokinetic profile with fast absorption, good exposure and subsequent swift elimination, together
with rapid irreversible target inhibition. As illustrated in the figures below, BDTX-189 was observed to be well suited to engage and
inactivate the allosteric ErbB mutants in vivo. In acute dose pharmacokinetic/pharmacodynamic, or PK/PD, studies, oral administration of
BDTX-189 to athymic nude mice bearing a range of HER2-S310F, EGFR-Viii (both BaF3 and GBM6 patient derived glioblastoma tumors)
or HER2-YVMA BaF3 allograft tumors resulted in potent and sustained suppression of target phosphorylation for at least 24 hours following
dosing.
BDTX-189 inhibits the activity across a range of EGFR and HER2 mutants in vivo (50mpk QD acute oral dosing), including mutants with a
range of in vitro IC50 values.
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As shown in the figures below, BDTX-189 demonstrated dose-dependent tumor inhibition and regression in both engineered HER2 S310F
tumor models and EGFR Exon 20 insertion patient-derived xenograft, or PDX, models.
(a) Daily dosing of BDTX-189 was evaluated in athymic nude mice bearing HER2 S310F Ba/F3 allograft tumors up to 100 mg/kg daily dose;
(b) Daily dosing of BDTX-189 at an oral dose of 1 to 50 mg/kg was evaluated in athymic nude mice bearing CUTO-14 PDX tumors that
express the EGFR mutation EGFR ASV.
We used a PK/PD analysis of the HER2-S310F BaF3 allograft tumor inhibition studies to assess the PK/PD driver for efficacy using different
doses and dose regimens to project expected human exposures to be associated with anti-tumor activity.
Clinical development plan
We submitted our IND for BDTX-189 in November 2019, which was allowed by the FDA on December 13, 2019. Enrollment and dosing of
patients is ongoing in the Phase 1 dose-escalation portion of our MasterKey-01 trial. We intend to pursue a tumor agnostic development
strategy. We have designed the initial study to be a combined Phase 1/2 clinical trial which is intended to allow a seamless transition from the
Phase 1 dose-escalation portion into a Phase 2 portion to expedite development of this product candidate. The Phase 1 portion is designed to
determine the recommended Phase 2 dose, characterize the PK and safety, and assess preliminary indications of anti-tumor activity of
BDTX-189.
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Our Phase 1 portion is designed to allow for greater flexibility and precision to determine the appropriate dose for further clinical evaluation.
The Phase 1 trial is a two-step process where step one is a single-patient cohort, accelerated dose-escalation process until grade 2 drug-related
adverse events are observed or until a predefined dose level is reached. Step 2 is designed to provide the flexibility to enroll three or more
patients in dose-escalating cohorts, which is intended to allow evaluation of drug tolerability as well as enrollment of patients with allosteric
ErbB mutations or HER2 amplification at relevant exposures to evaluate early anti-tumor proof-of-concept. The study is primarily evaluating
once daily dosing, but will also assess more frequent dosing schedules, such as twice daily, if the drug pharmacology or patient tolerability
suggest this could be a better approach. In the Phase 1 portion, we plan to enroll up to 100 patients with advanced or metastatic solid tumors
for whom no standard therapy is available or for whom standard therapy is considered unsuitable or intolerable, as determined by the
investigator. In the Phase 1 portion, we are enrolling and dosing patients with solid tumors that have alterations that may be associated with
BDTX-189 anti-tumor activity based on preclinical data such as allosteric HER2 or HER3 mutation, EGFR/HER2 exon 20 insertion
mutation, HER2 amplified/overexpressing tumor, EGFR exon 19 deletion or L858R mutation. We are on track to complete the dose-
escalation portion of the Phase 1 clinical trial in the first half of 2021. We are working toward selection of the recommended Phase 2 dose for
BDTX-189 and plan to initiate the safety expansion cohort in the second quarter 2021.
The open-label Phase 2 portion is expected to enroll up to 100 patients in multiple cohorts with solid tumors that have allosteric HER2
mutations, or EGFR or HER2 exon 20 insertion mutations determined using NGS, or next-generation sequencing. The patient population will
already have been treated with standard approved cancer therapies and have either relapsed or failed to respond to those therapies. To be
enrolled, patients must also be willing to provide tumor tissue for confirmatory mutation testing in order to facilitate our development of a
companion diagnostic test. We expect to enroll a population with a variety of different advanced or metastatic cancers including lung, breast,
endometrial, and many other solid tumors. The planned primary objective of the Phase 2 portion is to determine the anti-tumor activity of
BDTX-189 in patients preselected with allosteric ErbB mutations and evaluate this in each of the cohorts. The Phase 2 portion of the
MasterKey-01 study is on track to begin in the second half of 2021.
If the combined efficacy data from the Phase 1 and 2 portions of the trial show adequate anti-tumor activity across the mutation spectrum and
tumor types, we anticipate that we may either expand the Phase 2 portion or initiate a second Phase 2 trial in order to pursue an accelerated
approval path, if available, with the FDA for a tumor agnostic indication. This approach is similar to the precedent established by Keytruda in
MSI-high/dMMR cancers and Vitrakvi or larotrectinib, or Rozlytrek or entrectinib, in NTRK fusions cancers. A larger sample size may be
needed for some mutations and/or tumor types to achieve this goal.
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Our regulatory strategy includes periodic dialogue with the FDA regarding the study design, patient population, study endpoint and
companion diagnostic strategy for the BDTX-189 development program. For example, in March 2021, we met with the FDA to discuss the
registrational potential and design of the Phase 2 portion of the trial. At the meeting with the FDA, the FDA notified us that, because the
Phase 2 portion of the trial is potentially registrational and may support a new drug application, we may only enroll up to 50 patients in Phase
2 before results of routine three-month good laboratory practice, or GLP, toxicology studies have been submitted and accepted by the FDA.
This partial clinical hold on Phase 2 enrollment is not based on any safety findings from the MasterKey-01 trial and has no impact on
completion of our Phase 1 study (including the planned safety expansion cohort). We have initiated the three-month GLP toxicology studies
and do not anticipate any delays to our clinical trial timelines for BDTX-189.
We believe that ORR and DOR combined with a favorable safety profile may, subject to further discussions with FDA, support filing for
accelerated approval provided we can obtain data from a sufficiently large sample size across the mutation spectrum and tumor types. While
an accelerated approval path cannot be guaranteed, if we obtain accelerated approval based on the outlined plan, the FDA will still require the
conduct of a post-approval study to confirm clinical benefit.
Should the anti-tumor activity in certain subgroups be inadequate to support further development, we may not pursue the broader tumor
agnostic population and instead limit enrollment to patients with tumor types and/or mutations that appear to derive the greatest clinical
benefit. We believe, subject to discussion with the FDA, that this may be achieved by either amending the Phase 2 portion of the planned
study or opening a separate pivotal Phase 2 study to support accelerated approval. In July 2020, the FDA granted Fast Track designation to
BDTX-189 for the treatment of adult patients with solid tumors harboring an allosteric HER2 mutation or an EGFR or HER2 Exon 20
insertion mutation who have progressed following prior treatment and who have no satisfactory treatment options. We may also seek
Breakthrough Therapy designation by the FDA.
We plan on using one of the existing NGS tests which already include the allosteric ErbB mutations of interest to identify patients and to
collaborate with one or more partners on development of a companion diagnostic test.
BDTX-1535: A brain-penetrant inhibitor of EGFR mutations, including allosteric EGFR mutations
Overview
According to the American Society of Clinical Oncology, there will be approximately 24,000 new cases of brain or spinal cord cancer in the
United States in 2021. Fifteen percent of patients with brain cancer have glioblastoma, a particularly aggressive form, and most of those
patients die within 15 months of diagnosis.
Almost 50 percent of glioblastoma tumors express one or more allosteric EGFR mutations that affect the extracellular region of the receptor
kinase and promote oncogenic activation. These include large deletions of portions of the extracellular domain, including the mutants EGFR-
Viii, EGFR-Vvi, and EGFR-Vii. These also include any one of a number of short variant, single amino acid substitutions affecting the
extracellular domain, the most common of which are substitutions at position A289. These mutants are constitutively activated, exhibit
sustained signaling that is resistant to downregulation, and are both transforming and tumorigenic. Their expression has been associated with
metastasis and with poor long-term overall survival.
EGFR oncogenic mutations are expressed throughout the target sequence. The figure below shows the frequency for EGFR oncogenic
mutations expressed in glioblastoma (EGFR-Viii, EGFR-Vii, EGFR-Vvi, EGFR-G598 mutations, EGFR-A289V mutations) which was
calculated as relative frequency within glioblastoma (Brennan et al Cell 2013). Each dot represents a unique oncogenic mutation found in
individual tumors and the height of each dot represents the frequency with which it was found. A given glioblastoma tumor may co-express
multiple different EGFR oncogenic mutations. Therefore, we believe a critical challenge to overcome in drug discovery and clinical
development of targeted therapies is to develop precision medicines for glioblastoma that efficiently block the oncogenic activity across all of
these various allosteric-EGFR species.
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We have shown that the mechanism of activation for these EGFR mutants requires formation of a covalent dimer, which is always active,
also known as a constitutive dimer. The formatting of these constitutive dimers is essential for oncogenicity. No current generation EGFR-
directed therapy has proved effective in treating patients that express these mutations. We believe this is due to (i) inability to inhibit the
entire group of allosteric glioblastoma mutations expressed in a given tumor, (ii) the inability to target the constitutive dimer conformation
and (iii) poor brain penetration. The figure below illustrates distinct allosteric EGFR oncogenic mutations (EGFR-Viii, EGFR-Vii, EGFR-Vi,
EGFR-A289V) that similarly promote a constitutive dimer conformation, which is different from the transient dimer conformation for wild
type EGFR. For mutants, the region surrounding each mutation site is highlighted in magenta. For wild type EGFR, bound EGF ligand is
shown in dark purple.
We have applied our platform and our proprietary chemistry know-how to design and develop potent and selective inhibitors targeting a
group of glioblastoma constitutive dimer EGFR mutations described above.
In November 2020, we announced the nomination of BDTX-1535 as a development candidate for the treatment of glioblastoma. In cell-
based assays, BDTX-1535 achieved potent MasterKey inhibition of all members of the family of oncogenic EGFR variants expressed in
glioblastoma with selectivity versus wild type EGFR.
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Anti-proliferative activity against BaF3 transformants expressing allosteric EGFR oncogenes versus EGFR WT expressing A431 cells
Additionally, in mouse models, BDTX-1535 demonstrated a pharmacokinetic profile that supports its ability to penetrate the blood-brain
barrier. BDTX-1535 achieved complete and sustained inhibition of the phosphorylated state of EGFR in mouse models bearing Ba/F3
allosteric EGFR mutants, as well as tumor growth inhibition in mouse models bearing intracranial PDX tumors expressing allosteric EGFR
mutants.
Bioluminescence imaging in mice expressing intracranial GBM6 patient derived tumors. Mice were treated orally with 50mg/kg of BDTX-
1535
IND-enabling studies for BDTX-1535 are ongoing, and we anticipate filing an IND in the first half of 2022.
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Early-stage programs
We are applying our MAP platform to the analysis of the mutation landscape of more than 300 genes, including 92 kinases within Foundation
Medicine’s FoundationOne CDx test panel. Of these 92 kinases, we applied our MAP scoring algorithm to six kinases, including all ErbB
family members, other RTKs (FGFR2/3) and a non-receptor kinase (BRAF). We are advancing several early programs focused on targeting a
range of driver mutations, including allosteric activating mutations. We believe these general principles also apply to targets associated with
diseases outside of oncology, and we are currently evaluating additional groups of targets for drug discovery. As part of our on-going efforts
to leverage our know-how regarding mutations in the ErbB family, we continue to investigate novel potent and selective compounds directed
against this family of targets.
BRAF program
Oncogenic mutations affecting BRAF include the V600E (Class I) active site mutation together with families of allosteric and non-canonical
mutations (Class II and Class III). While the V600E Class I mutation has been successfully targeted in melanoma, there are currently no
approved therapies that target the full spectrum of Class II and Class III mutations that are expressed in melanoma together with a range of
other solid tumors. Additionally, both approved drugs and product candidates that are currently in clinical development lead to paradoxical
activation of wild type-RAF and select non-canonical mutations, which can lead to secondary malignancies.
Our BRAF program leverages our MAP Platform to (i) define the full spectrum of oncogenic Class II and Class III mutations expressed by
human cancers, which includes groups of novel oncogenic mutations that we have validated internally; (ii) classify mutations according to
unifying conformational changes; and (iii) design small molecule inhibitors that are active against the full spectrum of BRAF oncogenic
mutations.
Our BRAF program compounds are MasterKey therapies designed to target clusters of known and novel oncogenic BRAF Class II/Class III
alterations, while avoiding paradoxical activation independent of context. Tumor regression in mouse models has been observed. We
anticipate filing an IND for the BDTX BRAF program in 2022.
FGFR program
Oncogenic mutations affecting FGFR2 and FGFR3 (including short variant point mutations and fusions) are expressed across a range of
cancers such as bladder and cholangiocarcinoma. While these mutations have been targeted by two first generation pan-FGFR inhibitors
(erdafitinib and pemigatinib), clinical success has been hindered by dose limiting toxicities related to on-target inhibition of FGFR1, which
causes hyperphosphatemia and the need for significant dose interruptions and dose reductions, and even discontinuation. Furthermore,
current FGFR inhibitors are limited by acquired resistance due to mutation of gatekeeper positions in FGFR2/3, which are residues that
modulate access to the ATP-binding site. These limitations limit the efficacy of current generation FGFR targeted therapies.
Our FGFR program leverages our MAP Platform to (i) define the full spectrum of FGFR2/3 oncogenic mutations, which are allosteric; (ii)
classify mutations according to unifying conformational changes; and (iii) design small molecule inhibitors that are active against the full
spectrum of oncogenic FGFR2/3 mutations, exhibit improved resistance profile versus the clinically relevant gatekeeper mutations and
achieve selectivity versus FGFR1. We believe that our MAP Platform drug discovery platform is differentiated by its capability to identify
development candidates that are selective versus FGFR1.
BDTX FGFR program compounds are MasterKey inhibitors of allosteric FGFR2/3 mutations with selectivity versus FGFR1 and activity
against gatekeeper mutations. Tumor regression in mouse models has been observed. We anticipate filing an IND for the BDTX FGFR
program in 2022.
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Our collaboration with Ridgeline Therapeutics
During our initial years of operation, we built and conducted our research and development activities via a collaborative model with
Ridgeline Therapeutics GmbH, or Ridgeline, a wholly-owned subsidiary of Versant Ventures, our largest shareholder. Ridgeline is a company
incubator and discovery engine of Versant focused on providing drug discovery expertise. By leveraging Ridgeline’s deep experience in the
areas of discovery, drug design and medicinal chemistry together with our biology expertise, we were able to accelerate the discovery and
development of spectrum selective and highly potent small molecule inhibitors targeting the oncogenic driver mutations in our lead
programs.
We entered into a services agreement (the “Service Agreement”) with Ridgeline in March 2017, amended in November 2017, December
2018 and March 2020, or the Service Agreement.
In March 2020, we transitioned from our previous service model with Ridgeline to a more limited consulting arrangement. We have
continued to build our internal chemistry, manufacturing and controls, biology and preclinical development capabilities through key
additional hires and have assumed all activities that were previously conducted by Ridgeline on our behalf. All results, inventions, and
products and any related intellectual property that arose from services provided by Ridgeline are owned by us.
Competition
Our industry is intensely competitive and subject to rapid and significant technological change. While we believe that our knowledge,
experience and scientific resources provide us with competitive advantages, we face substantial competition from major pharmaceutical
companies and biotechnology companies worldwide. Many of our competitors have significantly greater financial, technical and human
resources. Smaller and early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements
with large and established companies. As a result, our competitors may discover, develop, license or commercialize products before or more
successfully than we do.
We face competition with respect to our current product candidates and will face competition with respect to future product candidates, from
segments of the pharmaceutical, biotechnology and other related markets that pursue targeted therapies for patients with genetically defined
cancers. For example, we expect BDTX-189 will compete against approved and in-development compounds in the following spaces:
•
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In the EGFR Exon 20 insertion NSCLC space: amivantamab, which is under development by Janssen Research & Development,
LLC and has been submitted to the FDA for accelerated approval; mobocertinib (TAK-788), which is under development by Takeda
Pharmaceutical Company Ltd; CLN-081, which is under development by Cullinan Management, Inc.; and ORIC-114 (formerly
VRN-07), which is under development by ORIC Pharmaceuticals, Inc.
In the HER2 Exon 20 insertion NSCLC space: trastuzumab deruxtecan (DS-8201), which is marketed by Daiichi Sankyo Company
Ltd. and AstraZeneca plc under the trade name Enhertu and is currently approved for HER2+ breast and gastric cancers; poziotinib,
which is under development by Spectrum Pharmaceuticals, Inc.; and pyrotinib, which is under development by Jiansu Hengrui
Medicine Co Ltd.
In the allo-HER2 space: neratinib, which is marketed by Puma Biotechnology, Inc. under the trade name Nerlynx and is currently
approved for HER2+ breast cancer.
In addition, there are other small molecule and precision oncology-focused companies with whom we may eventually compete, including
Loxo Oncology, Inc. (acquired by Eli Lilly and Company), Blueprint Medicines Corporation, Deciphera Pharmaceuticals, Inc., Turning Point
Therapeutics, Inc., Mirati Therapeutics, Inc., Relay Therapeutics, Inc. and Kinnate Biopharma, Inc.
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Our competitors may obtain regulatory approval of their products more rapidly than we may or may obtain patent protection or other
intellectual property rights that limit our ability to develop or commercialize our product candidates. Our competitors may also develop drugs
that are more effective, more convenient, more widely used and less costly or have a better safety profile than our products and these
competitors may also be more successful than us in manufacturing and marketing their products.
In addition, we will likely need to develop our product candidates in collaboration with diagnostic companies, and we will face competition
from other companies in establishing these collaborations. Our competitors will also compete with us in recruiting and retaining qualified
scientific, management and commercial personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in
acquiring technologies complementary to, or necessary for, our programs.
Furthermore, we also face competition more broadly across the market for cost-effective and reimbursable cancer treatments. The most
common methods of treating patients with cancer are surgery, radiation and drug therapy, including chemotherapy, hormone therapy and
targeted drug therapy or a combination of such methods. There are a variety of available drug therapies marketed for cancer. In many cases,
these drugs are administered in combination to enhance efficacy. While our product candidates, if any are approved, may compete with these
existing drug and other therapies, to the extent they are ultimately used in combination with or as an adjunct to these therapies, our product
candidates may not be competitive with them. Some of these drugs are branded and subject to patent protection, and others are available on a
generic basis. Insurers and other third-party payors may also encourage the use of generic products or specific branded products. We expect
that if our product candidates are approved, they will be priced at a significant premium over competitive generic, including branded generic,
products. As a result, obtaining market acceptance of, and a gaining significant share of the market for, any of our product candidates that we
successfully introduce to the market will pose challenges. In addition, many companies are developing new therapeutics, and we cannot
predict what the standard of care will be as our product candidates progress through clinical development.
The acquisition or licensing of pharmaceutical products is also very competitive. If we seek to acquire or license products, we will face
substantial competition from a number of more established companies, some of which have acknowledged strategies to license or acquire
products and many of which are bigger than us and have more institutional experience and greater cash flows than we have. These more
established companies may have competitive advantages over us, as may other emerging companies taking similar or different approaches to
product licenses and/or acquisitions. In addition, a number of established research-based pharmaceutical and biotechnology companies may
acquire products in late stages of development to augment their internal product lines, which may provide those companies with an even
greater competitive advantage.
Manufacturing
We do not have any manufacturing facilities or personnel. We currently rely, and expect to continue to rely, on third parties for the
manufacture of our product candidates undergoing preclinical testing, as well as for clinical testing and commercial manufacture if our
product candidates receive marketing approval.
All of our product candidates are small molecules and are manufactured via synthetic processes from available starting materials. The
chemistry appears amenable to scale up and does not currently require unusual equipment in the manufacturing process. We expect to
continue to develop product candidates that can be produced cost-effectively at contract manufacturing facilities.
We generally expect to rely on one or more potential partners for the manufacture of companion diagnostics for our products, which are
assays or tests to identify an appropriate patient population.
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Commercialization
Subject to receiving marketing approvals, we expect to commence commercialization activities by building a focused sales and marketing
organization in the United States to sell our products. We believe that such an organization will be able to address the community of
oncologists who are the key specialists in treating the patient populations for which our product candidates are being developed. Outside the
United States, we may enter into distribution and other marketing arrangements with third parties for any of our product candidates that
obtain marketing approval.
We also plan to build a marketing and sales management organization to create and implement marketing strategies for any products that we
market through our own sales organization and to oversee and support our sales force. The responsibilities of the marketing organization
would include developing educational initiatives with respect to approved products and establishing relationships with researchers and
practitioners in relevant fields of medicine.
Intellectual property
We seek to protect the intellectual property and proprietary technology that we consider important to our business, including by pursuing
patent applications that cover our product candidates and methods of using the same, as well as any other relevant inventions and
improvements that are considered commercially important to the development of our business. We also rely on trade secrets, know-how and
continuing technological innovation to develop and maintain our proprietary and intellectual property position. Our commercial success
depends, in part, on our ability to obtain, maintain, enforce and protect our intellectual property and other proprietary rights for the
technology, inventions and improvements we consider important to our business, and to defend any patents we may own or in-license in the
future, prevent others from infringing any patents we may own or in-license in the future, preserve the confidentiality of our trade secrets,
and operate without infringing, misappropriating or otherwise violating the valid and enforceable patents and proprietary rights of third
parties.
As with other biotechnology and pharmaceutical companies, our ability to maintain and solidify our proprietary and intellectual property
position for our product candidates and technologies will depend on our success in obtaining effective patent claims and enforcing those
claims if granted. However, our pending provisional and PCT patent applications, and any patent applications that we may in the future file
or license from third parties, may not result in the issuance of patents and any issued patents we may obtain do not guarantee us the right to
practice our technology in relation to the commercialization of our products. We also cannot predict the breadth of claims that may be
allowed or enforced in any patents we may own or in-license in the future. Any issued patents that we may own or in-license in the future
may be challenged, invalidated, circumvented or have the scope of their claims narrowed. For example, we cannot be certain of the priority
of inventions covered by pending third-party patent applications. If third parties prepare and file patent applications in the United States that
also claim technology or therapeutics to which we have rights, we may have to participate in interference proceedings in the USPTO to
determine priority of invention, which could result in substantial costs to us, even if the eventual outcome is favorable to us, which is highly
unpredictable. In addition, because of the extensive time required for clinical development and regulatory review of a product candidate we
may develop, it is possible that, before any of our product candidates can be commercialized, any related patent may expire or remain in
force for only a short period following commercialization, thereby limiting the protection such patent would afford the respective product and
any competitive advantage such patent may provide.
The term of individual patents depends upon the date of filing of the patent application, the date of patent issuance and the legal term of
patents in the countries in which they are obtained. In most countries, including the United States, the patent term is 20 years from the earliest
filing date of a non-provisional patent application. In the United States, a patent’s term may be lengthened by patent term adjustment, which
compensates a patentee for administrative delays by the USPTO in examining and granting a patent, or may be shortened if a patent is
terminally disclaimed over an earlier filed patent. The term of a patent claiming a new drug product may also be eligible for a limited patent
term extension when FDA approval is granted, provided statutory and regulatory requirements are met. The restoration period granted on a
patent covering a product is typically one-half the time between the effective date of a clinical investigation involving human beings is begun
and the submission date of an application, plus the time between the submission date of an application and the ultimate approval date. The
restoration period cannot be longer than five
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years and the total patent term, including the restoration period, must not exceed 14 years following FDA approval. Only one patent
applicable to an approved product is eligible for the extension, and only those claims covering the approved product, a method for using it, or
a method for manufacturing it may be extended. Additionally, the application for the extension must be submitted prior to the expiration of
the patent in question. A patent that covers multiple products for which approval is sought can only be extended in connection with one of the
approvals. The United States Patent and Trademark Office reviews and approves the application for any patent term extension or restoration
in consultation with the FDA. In the future, if our product candidates receive approval by the FDA, we expect to apply for patent term
extensions on any issued patents covering those products, depending upon the length of the clinical studies for each product and other factors.
There can be no assurance that our pending provisional or PCT patent applications will issue or that we will benefit from any patent term
extension or favorable adjustments to the terms of any patents we may own or in-license in the future. In addition, the actual protection
afforded by a patent varies on a product-by-product basis, from country-to-country, and depends upon many factors, including the type of
patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and
the validity and enforceability of the patent. Patent term may be inadequate to protect our competitive position on our products for an
adequate amount of time.
As of February 28, 2021, we own eleven U.S. provisional patent applications, two pending U.S. patent applications, and four Patent
Cooperation Treaty, or PCT, patent applications. We currently do not own or in-license any issued patents with respect to BDTX-189, our
MAP platform or our Glioblastoma program, and our intellectual property portfolio is in its very early stages. We do not currently own or in-
license any issued patents or provisional or non-provisional patent applications covering our other product candidates or technology.
BDTX-189
As of February 28, 2021, we own six U.S. provisional patent applications, one pending U.S. patent application, and three PCT patent
applications that cover our tumor agnostic program. The program includes six U.S. provisional patent applications, one pending U.S. patent
application, and one PCT patent application that collectively cover the composition of matter for BDTX-189, polymorphs of BDTX-189, as
well as methods of using and making BDTX-189. Any U.S. or foreign patent issued from these pending applications would be scheduled to
expire between 2039 and 2041, excluding any additional term for patent term adjustment or patent term extension, and assuming national
phase entries are timely made based upon the pending PCT application and payment of all applicable maintenance or annuity fees.
MAP platform
As of February 28, 2021, we own one U.S. patent application that covers our MAP platform and the use thereof in developing and applying
therapeutics. Any U.S. patent issued from this U.S. patent application would be scheduled to expire in 2040, excluding any additional term
for patent term adjustment or patent term extension.
BDTX-1535
As of February 28, 2021, we own two U.S. provisional patent applications and one PCT patent application that cover our glioblastoma
program, which are directed to the composition of matter for the drug candidates of the program, analogs thereof, as well as methods of using
and making these compounds. Any U.S. or foreign patent issued from these U.S. pending applications would be scheduled to expire between
2040 and 2041, excluding any additional term for patent term adjustment or patent term extension.
BRAF program
As of February 28, 2021, we own one U.S. provisional patent application that covers our BRAF program, which is directed to the
composition of matter for the compounds of the program, analogs thereof, as well as methods of using and making these compounds. Any
U.S. or foreign patent issued from this pending application would be scheduled to expire in 2042, excluding any additional term for patent
term adjustment or patent term extension.
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FGFR program
As of February 28, 2021, we own one U.S. provisional patent application that covers our FGFR program, which is directed to the
composition of matter for the compounds of the program, analogs thereof, as well as methods of using and making these compounds. Any
U.S. or foreign patent issued from this pending application would be scheduled to expire in 2042, excluding any additional term for patent
term adjustment or patent term extension.
Prosecution for these patent applications has not commenced and will not commence unless and until they are timely converted into U.S.
non-provisional or national stage applications. Prosecution is a lengthy process, during which the scope of the claims initially submitted for
examination by the USPTO are often significantly narrowed by the time they issue, if they issue at all. Any U.S. or foreign patent issuing
from these provisional or PCT patent applications (if timely converted to U.S. non-provisional or foreign patent applications and such non-
provisional or foreign applications are granted as issued patents), would be scheduled to expire in 2039 or 2040, excluding any additional
term for patent term adjustment or patent term extension, and assuming national phase entries are timely made based upon the pending PCT
application and payment of all applicable maintenance or annuity fees. Any of our pending PCT patent applications are not eligible to
become issued patents until, among other things, we file national stage patent applications within 30 months in the countries in which we
seek patent protection. If we do not timely file any national stage patent applications, we may lose our priority date with respect to our PCT
patent applications and any patent protection on the inventions disclosed in such PCT patent applications. Our provisional patent applications
may never result in issued patents and are not eligible to become issued patents until, among other things, we file a non-provisional patent
application within 12 months of filing the related provisional patent application. If we do not timely file non-provisional patent applications,
we may lose our priority date with respect to our provisional patent applications and any patent protection on the inventions disclosed in our
provisional patent applications. While we intend to timely file non-provisional and national stage patent applications relating to our
provisional and PCT patent applications, we cannot predict whether any of our future patent applications for BDTX-189 or any of our other
product candidates or technology will result in the issuance of patents that effectively protect BDTX-189 or our other product candidates or
technology. If we do not successfully obtain patent protection, or, even if we do obtain patent protection, if the scope of the patent protection
we or our potential licensors obtain with respect to BDTX-189 or our other product candidates or technology is not sufficiently broad, we
will be unable to prevent others from using our technology or from developing or commercializing technology and products similar or
identical to ours or other competing products and technologies. For more information regarding the risks related to our intellectual property,
please see “Risk Factors—Risks Related to our Intellectual Property.”
In addition to patent applications, we rely on unpatented trade secrets, know-how and continuing technological innovation to develop and
maintain our competitive position. However, trade secrets and confidential know-how are difficult to protect. In particular, we anticipate that
with respect to the building of our compound library, our trade secrets and know-how will over time be disseminated within the industry
through independent development and public presentations describing the methodology. We seek to protect our proprietary information, in
part, by executing confidentiality agreements with our collaborators and scientific advisors and non-competition, non-solicitation,
confidentiality and invention assignment agreements with our employees and consultants. We have also executed agreements requiring
assignment of inventions with selected consultants, scientific advisors and collaborators. The confidentiality agreements we enter into are
designed to protect our proprietary information and the agreements or clauses requiring assignment of inventions to us are designed to grant
us ownership of technologies that are developed through our relationship with the respective counterparty. We cannot guarantee that we will
have executed such agreements with all applicable employees and contractors, or that these agreements will afford us adequate protection of
our intellectual property and proprietary information rights. In addition, our trade secrets and/or confidential know-how may become known
or be independently developed by a third party, or misused by any collaborator to whom we disclose such information. These agreements
may also be breached, and we may not have an adequate remedy for any such breach. Despite any measures taken to protect our intellectual
property, unauthorized parties may attempt to copy aspects of our products or to obtain or use information that we regard as proprietary.
Although we take steps to protect our proprietary information, third parties may independently develop the same or similar proprietary
information or may otherwise gain access to our proprietary information. As a result, we may be unable to meaningfully protect our
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trade secrets and proprietary information. For more information regarding the risks related to our intellectual property, please see “Risk
Factors—Risks Related to our Intellectual Property.”
Government regulation
The FDA and other regulatory authorities at federal, state and local levels, as well as in foreign countries, extensively regulate, among other
things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage,
distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring and post-approval reporting of drugs.
We, along with our vendors, contract research organizations and contract manufacturers, will be required to navigate the various preclinical,
clinical, manufacturing and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to
conduct studies or seek approval of our product candidates. The process of obtaining regulatory approvals of drugs and ensuring subsequent
compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial
resources.
In the United States, where we are initially focusing our drug development, the FDA regulates drug products under the federal Food, Drug
and Cosmetic Act, its implementing regulations and other laws. Our product candidates are early-stage and none of our product candidates
has been approved by the FDA for marketing in the United States. If we fail to comply with applicable FDA or other requirements at any
time with respect to product development, clinical testing, approval or any other legal requirements relating to product manufacture,
processing, handling, storage, quality control, safety, marketing, advertising, promotion, packaging, labeling, export, import, distribution, or
sale, we may become subject to administrative or judicial sanctions or other legal consequences. These sanctions or consequences could
include, among other things, the FDA’s refusal to approve pending applications, issuance of clinical holds for ongoing studies, suspension or
revocation of approved applications, warning or untitled letters, product withdrawals or recalls, product seizures, relabeling or repackaging,
total or partial suspensions of manufacturing or distribution, injunctions, fines, civil penalties or criminal prosecution.
The process required by the FDA before our product candidates are approved as drugs for therapeutic indications and may be marketed in the
United States generally involves the following:
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completion of extensive preclinical studies in accordance with applicable regulations, including studies conducted in accordance with
GLP requirements;
submission to the FDA of an IND application, which must become effective before clinical trials may begin;
approval by an Institutional Review Board, or IRB, or independent ethics committee at each clinical trial site before each trial may be
initiated;
performance of adequate and well-controlled clinical trials in accordance with applicable IND regulations, good clinical practice, or
GCP, requirements and other clinical trial-related regulations to establish the safety and efficacy of the investigational product for
each proposed indication;
submission to the FDA of a New Drug Application, or NDA;
a determination by the FDA within 60 days of its receipt of an NDA, to accept the filing for review;
satisfactory completion of one or more FDA pre-approval inspections of the manufacturing facility or facilities where the drug will
be produced to assess compliance with current good manufacturing practices, or cGMP, requirements to assure that the facilities,
methods and controls are adequate to preserve the drug’s identity, strength, quality and purity;
potential FDA audit of the clinical trial sites that generated the data in support of the NDA;
payment of user fees for FDA review of the NDA;
FDA review and approval of the NDA, including consideration of the views of any FDA advisory committee, prior to any
commercial marketing or sale of the drug in the United States; and
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The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our
product candidates will be granted on a timely basis, if at all.
Preclinical and clinical trials for drugs
Before testing any drug in humans, the product candidate must undergo rigorous preclinical testing. Preclinical studies include laboratory
evaluations of drug chemistry, formulation and stability, as well as in vitro and animal studies to assess safety and in some cases to establish
the rationale for therapeutic use. The conduct of preclinical studies is subject to federal and state regulations and requirements, including
GLP requirements for safety/toxicology studies. The results of the preclinical studies, together with manufacturing information and analytical
data must be submitted to the FDA as part of an IND. An IND is a request for authorization from the FDA to administer an investigational
product to humans, and must become effective before clinical trials may begin. Some long-term preclinical testing may continue after the
IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time
period, raises concerns or questions about the conduct of the clinical trial, including concerns that human research subjects will be exposed to
unreasonable health risks, and imposes a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns
before the clinical trial can begin. Submission of an IND may result in the FDA not allowing clinical trials to commence or not allowing
clinical trials to commence on the terms originally specified in the IND. A separate submission to an existing IND must also be made for
each successive clinical trial conducted during product development of a product candidate, and the FDA must grant permission, either
explicitly or implicitly by not objecting, before each clinical trial can begin.
The clinical stage of development involves the administration of the product candidate to healthy volunteers or patients under the supervision
of qualified investigators, generally physicians not employed by or under the trial sponsor’s control, in accordance with GCP requirements,
which include the requirements that all research subjects provide their informed consent for their participation in any clinical trial. Clinical
trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and
exclusion criteria and the parameters and criteria to be used in monitoring safety and evaluating effectiveness. Each protocol, and any
subsequent amendments to the protocol, must be submitted to the FDA as part of the IND. Furthermore, each clinical trial must be reviewed
and approved by an IRB for each institution at which the clinical trial will be conducted to ensure that the risks to individuals participating in
the clinical trials are minimized and are reasonable related to the anticipated benefits. The IRB also approves the informed consent form that
must be provided to each clinical trial subject or his or her legal representative, and must monitor the clinical trial until completed. The FDA,
the IRB, or the sponsor may suspend or discontinue a clinical trial at any time on various grounds, including a finding that the subjects are
being exposed to an unacceptable health risk. There also are requirements governing the reporting of ongoing clinical trials and completed
clinical trials to public registries. Information about clinical trials, including clinical trials results, must be submitted within specific
timeframes for publication on the www.clinicaltrials.gov website.
While we plan to conduct any international clinical trials under our INDs we obtain with the FDA in the future, a sponsor who wishes to
conduct a clinical trial outside of the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If
a foreign clinical trial is not conducted under an IND, the sponsor must submit data from the clinical trial to the FDA in support of an NDA.
The FDA will accept a well-designed and well-conducted foreign clinical study not conducted under an IND if the study was conducted in
accordance with GCP requirements, and the FDA is able to validate the data through an onsite inspection if deemed necessary.
Clinical trials to evaluate therapeutic indications to support NDAs for marketing approval are typically conducted in three sequential phases,
which may overlap.
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Phase 1—Phase 1 clinical trials involve initial introduction of the investigational product into healthy human volunteers or patients
with the target disease or condition. These studies are typically designed to test the safety, dosage tolerance, absorption, metabolism
and distribution of the investigational product in humans, excretion the side effects associated with increasing doses, and, if possible,
to gain early evidence of effectiveness.
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Phase 2—Phase 2 clinical trials typically involve administration of the investigational product to a limited patient population with a
specified disease or condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible
adverse side effects and safety risks.
Phase 3—Phase 3 clinical trials typically involve administration of the investigational product to an expanded patient population to
further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety, generally at
multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the
investigational product and to provide an adequate basis for product approval and physician labeling.
In August 2018, the FDA released a draft guidance entitled “Expansion Cohorts: Use in First-In-Human Clinical Trials to Expedite
Development of Oncology Drugs and Biologics,” which outlines how drug developers can utilize an adaptive trial design commonly referred
to as a seamless trial design in early stages of oncology drug development (i.e., the first-in-human clinical trial) to compress the traditional
three phases of trials into one continuous trial called an expansion cohort trial. Information to support the design of individual expansion
cohorts are included in IND applications and assessed by FDA. Expansion cohort trials can potentially bring efficiency to drug development
and reduce developmental costs and time.
Post-approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These trials are used
to gain additional experience from the treatment of patients in the intended therapeutic indication and are commonly intended to generate
additional safety data regarding use of the product in a clinical setting. In certain instances, the FDA may mandate the performance of Phase
4 clinical trials as a condition of approval of an NDA.
Progress reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA and
written IND safety reports must be submitted to the FDA and the investigators fifteen days after the trial sponsor determines the information
qualifies for reporting for serious and unexpected suspected adverse events, findings from other studies or animal or in vitro testing that
suggest a significant risk for human volunteers and any clinically important increase in the rate of a serious suspected adverse reaction over
that listed in the protocol or investigator brochure. The sponsor must also notify the FDA of any unexpected fatal or life-threatening
suspected adverse reaction as soon as possible but in no case later than seven calendar days after the sponsor’s initial receipt of the
information.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the
chemistry and physical characteristics of the product candidate and finalize a process for manufacturing the drug product in commercial
quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of
the product candidate and manufacturers must develop, among other things, methods for testing the identity, strength, quality and purity of
the final drug product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to
demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
U.S. marketing approval for drugs
Assuming successful completion of the required clinical testing, 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 product for one or more indications. An NDA is a request for approval to market a new
drug for one or more specified indications and must contain proof of the drug’s safety and efficacy. The marketing application may include
both negative and ambiguous results of preclinical studies and clinical trials, as well as positive findings. Data may come from company-
sponsored clinical trials intended to test the safety and efficacy of a product’s use or from a number of alternative sources, including studies
initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety
and efficacy of the investigational product to the satisfaction of the FDA. FDA approval of an NDA must be obtained before a drug may be
marketed in the United States.
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The FDA reviews all submitted NDAs before it accepts them for filing, and may request additional information rather than accepting the
NDA for filing. The FDA must make a decision on accepting an NDA for filing within 60 days of receipt, and such decision could include a
refusal to file by the FDA. Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the NDA. The FDA
reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facility in which it is
manufactured, processed, packaged or held meets standards designed to assure the product’s continued safety, quality and purity. Under the
goals and polices agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, the FDA targets ten months, from the filing
date, in which to complete its initial review of a new molecular entity NDA and respond to the applicant, and six months from the filing date
of a new molecular entity NDA for priority review. The FDA does not always meet its PDUFA goal dates for standard or priority NDAs, and
the review process is often extended by FDA requests for additional information or clarification.
Further, under PDUFA, as amended, each NDA must be accompanied by a user fee. FDA adjusts the PDUFA user fees on an annual basis.
Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a
small business. Additionally, no user fees are assessed on NDAs for products designated as orphan drugs, unless the product also includes a
non-orphan indication.
The FDA also may require submission of a Risk Evaluation and Mitigation Strategy, or REMS, plan to ensure that the benefits of the drug
outweigh its risks. The REMS plan could include medication guides, physician communication plans, assessment plans, and/or elements to
assure safe use, such as restricted distribution methods, patient registries, or other risk-minimization tools.
The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts,
including clinicians and other scientific experts, which 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.
Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. 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 Sponsor product within required specifications. Additionally, before approving an NDA, the
FDA may inspect one or more clinical trial sites to assure compliance with GCP and other requirements and the integrity of the clinical data
submitted to the FDA.
After evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports
regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a complete response
letter. A complete response letter generally contains a statement of specific conditions that must be met in order to secure final approval of
the NDA and may require additional clinical or preclinical testing in order for the FDA to reconsider the application. Even with submission
of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and
when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes
commercial marketing of the drug with specific prescribing information for specific indications.
Even if the FDA approves a product, depending on the specific risk(s) to be addressed it may limit the approved indications for use of 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 a drug’s safety after approval, require testing and surveillance programs to
monitor the product after commercialization, or impose other conditions, including distribution and use restrictions or other risk management
mechanisms under a 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-marketing studies or surveillance programs. After approval, some types of changes
to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing
requirements and FDA review and approval.
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Orphan drug designation and exclusivity
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition, which is a disease
or condition that affects fewer than 200,000 individuals in the United States, or if it affects more than 200,000 individuals in the United
States, there is no reasonable expectation that the cost of developing and making the product available in the United States for the disease or
condition will be recovered from sales of the product. Orphan designation must be requested before submitting an NDA. Orphan designation
does not convey any advantage in or shorten the duration of the regulatory review and approval process, though companies developing
orphan products are eligible for certain incentives, including tax credits for qualified clinical testing and waiver of application fees.
If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such
designation, the product is entitled to a seven-year period of marketing exclusivity during which the FDA may not approve any other
applications to market the same therapeutic agent for the same indication, except in limited circumstances, such as a subsequent product’s
showing of clinical superiority over the product with orphan exclusivity or where the original applicant cannot produce sufficient quantities
of product. Competitors, however, may receive approval of different therapeutic agents for the indication for which the orphan product has
exclusivity or obtain approval for the same therapeutic agent for a different indication than that for which the orphan product has exclusivity.
Orphan product exclusivity could block the approval of one of our products for seven years if a competitor obtains approval for the same
therapeutic agent for the same indication before we do, unless we are able to demonstrate that our product is clinically superior. If an orphan
designated product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan
exclusivity. Further, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for
designation was materially defective or the manufacturer of the approved product is unable to assure sufficient quantities of the product to
meet the needs of patients with the rare disease or condition.
Rare pediatric disease designation and priority review vouchers
Under the FD&C Act, the FDA incentivizes the development of drugs that meet the definition of a “rare pediatric disease,” defined to mean a
serious or life-threatening disease in which the serious of life-threatening manifestations primarily affect individuals aged from birth to 18
years and the disease affects fewer than 200,000 individuals in the United States or affects more than 200,000 in the United States and for
which there is no reasonable expectation that the cost of developing and making in the United States a drug for such disease or condition will
be received from sales in the United States of such drug. The sponsor of a product candidate for a rare pediatric disease may be eligible for a
voucher that can be used to obtain a priority review for a subsequent human drug application after the date of approval of the rare pediatric
disease drug product, referred to as a priority review voucher, or PRV. A sponsor may request rare pediatric disease designation from the
FDA prior to the submission of its NDA. A rare pediatric disease designation does not guarantee that a sponsor will receive a PRV upon
approval of its NDA. Moreover, a sponsor who chooses not to submit a rare pediatric disease designation request may nonetheless receive a
PRV upon approval of their marketing application if they request such a voucher in their original marketing application and meet all of the
eligibility criteria. If a PRV is received, it may be sold or transferred an unlimited number of times. Congress has extended the PRV program
through September 30, 2024, with potential for PRVs to be granted through September 30, 2026.
Expedited development and review programs for drugs
The FDA maintains several programs intended to facilitate and expedite development and review of new drugs to address unmet medical
needs in the treatment of serious or life-threatening diseases or conditions. These programs include Fast Track designation, Breakthrough
Therapy designation, Priority Review and Accelerated Approval, and the purpose of these programs is to either expedite the development or
review of important new drugs to get them to patients earlier than under standard FDA development and review procedures.
A new drug is eligible for Fast Track designation if it is intended to treat a serious or life-threatening disease or condition and demonstrates
the potential to address unmet medical needs for such disease or condition. Fast Track
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designation provides increased opportunities for sponsor interactions with the FDA during preclinical and clinical development, in addition to
the potential for rolling review once a marketing application is filed, meaning that the agency may review portions of the marketing
application before the sponsor submits the complete application, as well as Priority Review, discussed below. In addition, a new drug may be
eligible for Breakthrough Therapy designation if it is intended to treat a serious or life-threatening disease or condition and preliminary
clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically
significant endpoints, such as substantial treatment effects observed early in clinical development. Breakthrough Therapy designation
provides all the features of Fast Track designation in addition to intensive guidance on an efficient drug development program beginning as
early as Phase 1, and FDA organizational commitment to expedited development, including involvement of senior managers and experienced
review staff in a cross-disciplinary review, where appropriate.
Any product submitted to the FDA for approval, including a product with Fast Track or Breakthrough Therapy designation, may also be
eligible for additional FDA programs intended to expedite the review and approval process, including Priority Review designation and
accelerated approval. A product is eligible for Priority Review if it has the potential to provide a significant improvement in safety or
effectiveness in the treatment, diagnosis or prevention of a serious disease or condition. Under priority review, the FDA must review an
application in six months compared to ten months for a standard review. Additionally, products are eligible for accelerated approval if they
can be shown to have an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or an effect on a clinical endpoint
that can be measured earlier than an effect on irreversible morbidity or mortality which is reasonably likely to predict an effect on irreversible
morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or
lack of alternative treatments.
Accelerated approval is usually contingent on a sponsor’s agreement to conduct additional post-approval studies to verify and describe the
product’s clinical benefit. The FDA may withdraw approval of a drug or indication approved under accelerated approval if, for example, the
confirmatory trial fails to verify the predicted clinical benefit of the product. In addition, unless otherwise informed by the FDA, the FDA
currently requires, as a condition for accelerated approval, that all advertising and promotional materials that are intended for dissemination
or publication within 120 days following marketing approval be submitted to the agency for review during the pre-approval review period,
and that after 120 days following marketing approval, all advertising and promotional materials must be submitted at least 30 days prior to
the intended time of initial dissemination or publication.
Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for
qualification or the time period for FDA review or approval may not be shortened. Furthermore, Fast Track designation, Breakthrough
Therapy designation, Priority Review and Accelerated Approval do not change the scientific or medical standards for approval or the quality
of evidence necessary to support approval but may expedite the development or review process.
Pediatric information and pediatric exclusivity
Under the Pediatric Research Equity Act, or PREA, certain NDAs and certain supplements to an NDA must contain data to assess the safety
and efficacy of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each
pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of pediatric data or full or
partial waivers. The Food and Drug Administration Safety and Innovation Act, or FDASIA, amended the FD&C Act to require that a sponsor
who is planning to submit a marketing application for a drug that includes a new active ingredient, new indication, new dosage form, new
dosing regimen or new route of administration submit an initial Pediatric Study Plan, or PSP, within 60 days of an end-of-Phase 2 meeting or,
if there is no such meeting, as early as practicable before the initiation of the Phase 3 or Phase 2/3 study. The initial PSP must include an
outline of the pediatric study or studies that the sponsor plans to conduct, including study objectives and design, age groups, relevant
endpoints and statistical approach, or a justification for not including such detailed information, and any request for a deferral of pediatric
assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. The FDA
and the sponsor must reach an agreement on the PSP. A sponsor can submit amendments to an agreed-upon
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initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from preclinical studies, early phase
clinical trials and/or other clinical development programs.
A drug can also obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing
exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may
be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study.
U.S. post-approval requirements for drugs
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, reporting of adverse
experiences with the product, complying with promotion and advertising requirements, which include restrictions on promoting products for
unapproved uses or patient populations (known as “off-label use”) and limitations on industry-sponsored scientific and educational activities.
Although physicians may prescribe legally available products for off-label uses, manufacturers may not market or promote such uses. The
FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to
have improperly promoted off-label uses may be subject to significant liability, including investigation by federal and state authorities.
Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use or first publication. Further, if there
are any modifications to the drug, including changes in indications, labeling or manufacturing processes or facilities, the applicant may be
required to submit and obtain FDA approval of a new NDA or NDA supplement, which may require the development of additional data or
preclinical studies and clinical trials.
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-market 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 their subcontractors involved in the manufacture and distribution of approved drugs are required to
register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and
certain state agencies for compliance with ongoing regulatory requirements, including cGMP, which impose certain procedural and
documentation requirements upon us and our contract manufacturers. Failure to comply with statutory and regulatory requirements can
subject a manufacturer to possible legal or regulatory action, such as warning letters, suspension of manufacturing, product seizures,
injunctions, civil penalties or criminal prosecution. There is also a continuing, annual prescription drug product program user fee.
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, requirements for post-market studies or clinical trials to assess new safety risks, or imposition of distribution or other
restrictions under a REMS. 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 product recalls;
safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings or other safety
information about the product;
fines, warning letters or holds on post-approval clinical trials;
refusal of the FDA to approve applications or supplements to approved applications, or suspension or revocation of product
approvals;
product seizure or detention, or refusal to permit the import or export of products;
injunctions or the imposition of civil or criminal penalties; and
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consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; or mandated modification
of promotional materials and labeling and issuance of corrective information.
Regulation of companion diagnostics
We believe that the success of certain of our product candidates may depend, in part, on the development and commercialization of a
companion diagnostic. Companion diagnostics identify patients who are most likely to benefit from a particular therapeutic product; identify
patients likely to be at increased risk for serious side effects as a result of treatment with a particular therapeutic product; or monitor response
to treatment with a particular therapeutic product for the purpose of adjusting treatment to achieve improved safety or effectiveness.
Companion diagnostics are regulated as medical devices by the FDA. In the United States, the FD&C Act and its implementing regulations,
and other federal and state statutes and regulations govern, among other things, medical device design and development, preclinical and
clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage, advertising and promotion, sales
and distribution, export and import, and post-market surveillance. Unless an exemption or FDA exercise of enforcement discretion applies,
diagnostic tests generally require marketing clearance or approval from the FDA prior to commercialization. The two primary types of FDA
marketing authorization applicable to a medical device are clearance of a premarket notification, or 510(k), application, and approval of a
premarket approval, or PMA, application.
To obtain 510(k) clearance for a medical device, or for certain modifications to devices that have received 510(k) clearance, a manufacturer
must submit a premarket notification demonstrating that the proposed device is substantially equivalent to a previously cleared 510(k) device
or to a preamendment device that was in commercial distribution before May 28, 1976, or a predicate device, for which the FDA has not yet
called for the submission of a PMA. In making a determination that the device is substantially equivalent to a predicate device, the FDA
compares the proposed device to the predicate device or predicate devices and assesses whether the subject device is comparable to the
predicate device or predicate devices with respect to intended use, technology, design and other features which could affect safety and
effectiveness. If the FDA determines that the subject device is substantially equivalent to the predicate device or predicate devices, the
subject device may be cleared for marketing. The 510(k) premarket notification pathway generally takes from three to twelve months from
the date the application is completed, but can take significantly longer.
PMA applications must be supported by valid scientific evidence, which typically requires extensive data, including technical, preclinical,
clinical and manufacturing data, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device. For diagnostic tests, a
PMA application typically includes data regarding analytical and clinical validation studies. As part of its review of the PMA, the FDA will
conduct a pre-approval inspection of the manufacturing facility or facilities to ensure compliance with the Quality System Regulation, or
QSR, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures. The FDA’s
review of an initial PMA application is required by statute to take between six to ten months, although the process typically takes longer, and
may require several years to complete. If the FDA evaluations of both the PMA application and the manufacturing facilities are favorable, the
FDA will either issue an approval letter or an approvable letter, which usually contains a number of conditions that must be met in order to
secure the final approval of the PMA. If the FDA’s evaluation of the PMA or manufacturing facilities is not favorable, the FDA will deny the
approval of the PMA or issue a not approvable letter. A not approvable letter will outline the deficiencies in the application and, where
practical, will identify what is necessary to make the PMA approvable. Once granted, PMA approval may be withdrawn by the FDA if
compliance with post-approval requirements, conditions of approval or other regulatory standards is not maintained or problems are
identified following initial marketing.
On July 31, 2014, the FDA issued a final guidance document addressing the development and approval process for “In Vitro Companion
Diagnostic Devices.” According to the guidance document, for novel therapeutic products that depend on the use of a diagnostic test and
where the diagnostic device could be essential for the safe and effective use of the corresponding therapeutic product, the premarket
application for the companion diagnostic device should be developed and approved or cleared contemporaneously with the therapeutic,
although the FDA recognizes that there may be cases when contemporaneous development may not be possible. However, in cases where a
drug cannot be
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used safely or effectively without the companion diagnostic, the FDA’s guidance indicates it will generally not approve the drug without the
approval or clearance of the diagnostic device. The FDA also issued a draft guidance in July 2016 setting forth the principles for co-
development of an in vitro companion diagnostic device with a therapeutic product. The draft guidance describes principles to guide the
development and contemporaneous marketing authorization for the therapeutic product and its corresponding in vitro companion diagnostic.
Once cleared or approved, the companion diagnostic device must adhere to post-marketing requirements including the requirements of the
FDA’s quality system regulation, adverse event reporting, recalls and corrections along with product marketing requirements and limitations.
Like drug makers, companion diagnostic makers are subject to unannounced FDA inspections at any time during which the FDA will
conduct an audit of the product(s) and the company’s facilities for compliance with its authorities.
Other regulatory matters
Manufacturing, sales, promotion and other activities of product candidates following product approval, where applicable, or
commercialization are also subject to regulation by numerous regulatory authorities in the United States in addition to the FDA, which may
include the Centers for Medicare & Medicaid Services, or CMS, other divisions of the Department of Health and Human Services, or HHS,
the Department of Justice, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission,
the Occupational Safety & Health Administration, the Environmental Protection Agency and state and local governments and governmental
agencies.
Other healthcare laws
Healthcare providers, physicians, and third-party payors will play a primary role in the recommendation and prescription of any products for
which we obtain marketing approval. Our business operations and any current or 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 that may constrain
the business or financial arrangements and relationships through which we develop, market, sell and distribute any drugs for which we obtain
marketing approval. In the United States, these laws include, without limitation, state and federal anti-kickback, false claims, physician
transparency, and patient data privacy and security laws and regulations, including but not limited to those described below.
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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 any remuneration (including any kickback, bride, or certain rebate), directly or indirectly,
overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase,
order or recommendation of, any good or service, for which payment may be made, 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. Violations are subject to civil and criminal fines and penalties for
each violation, plus up to three times the remuneration involved, imprisonment, and exclusion from government healthcare programs.
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 civil False Claims Act.
The federal civil and criminal false claims laws, including the civil False Claims Act, or FCA, which prohibit individuals or entities
from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment or
approval that are false, fictitious or fraudulent; knowingly making, using, or causing to be made or used, 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.
Manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are
deemed to “cause” the submission of false or fraudulent claims. The FCA also permits a private individual acting as a
“whistleblower” to bring actions on behalf of the federal government alleging
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violations of the FCA and to share in any monetary recovery. When an entity is determined to have violated the federal civil False
Claims Act, the government may impose civil fines and penalties for each false claim, plus treble damages, and exclude the entity
from participation in Medicare, Medicaid and other federal healthcare programs. On November 20, 2020, the Office of Inspector
General, or OIG, finalized further modifications to the federal Anti-Kickback Statute. Under the final rules, OIG added safe harbor
protections under the Anti-Kickback Statute for certain coordinated care and value-based arrangements among clinicians, providers,
and others. These rule (with exceptions) became effective January 19, 2021. We continue to evaluate what effect, if any, these rules
will have on our business.
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The federal civil monetary penalties laws, which impose civil fines for, among other things, the offering or transfer or remuneration
to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s
selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health care program, unless
an exception applies.
The Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for knowingly and
willfully executing a scheme, or attempting to execute a scheme, to defraud any healthcare benefit program, including private payors,
knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a
healthcare offense, or falsifying, concealing or covering up a material fact or making any materially false statements in connection
with the delivery of or payment for healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person
or entity does not need to have actual knowledge of the healthcare fraud statute implemented under HIPAA 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 of 2009, or HITECH, and their
respective implementing regulations, imposes, among other things, specified requirements on covered entities and their business
associates relating to the privacy and security of individually identifiable health information including mandatory contractual terms
and required implementation of technical safeguards of such information. HITECH also created new tiers of civil monetary penalties,
amended HIPAA to make civil and criminal penalties directly applicable to business associates in some cases, and gave state
attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws
and seek attorneys’ fees and costs associated with pursuing federal civil actions.
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The Physician Payments Sunshine Act, enacted as part of the Patient Protection and Affordable Care Act, as amended by the Health
Care and Education Reconciliation Act of 2010, or collectively, the ACA, imposed new annual reporting requirements for certain
manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the
Children’s Health Insurance Program, for certain payments and “transfers of value” provided to physicians (defined to include
doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests
held by physicians and their immediate family members. Effective January 1, 2022, these reporting obligations will extend to include
transfers of value made to certain non-physician providers such as physician assistants and nurse practitioners. In addition, many
states also require reporting of payments or other transfers of value, many of which differ from each other in significant ways, are
often not pre-empted, and may have a more prohibitive effect than the Sunshine Act, thus further complicating compliance efforts.
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Federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially
harm consumers.
• Analogous state and foreign fraud and abuse laws and regulations, such as state anti-kickback and false claims laws, which may be
broader in scope and apply regardless of payor. These laws are enforced by various state agencies and through private actions. Some
state laws require pharmaceutical companies implement compliance to comply with the pharmaceutical industry’s voluntary
compliance guidelines and the relevant federal government compliance guidance, require drug manufacturers to report information
related to payments and other transfers of value to physicians and other healthcare providers, and restrict marketing practices or
require disclosure of marketing expenditures and pricing information. State and foreign laws also govern the privacy and security of
health information in some circumstances. These data privacy and security
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laws may differ from each other in significant ways and often are not pre-empted by HIPAA, which may complicate compliance
efforts.
State and foreign laws also govern the privacy and security of health information in some circumstances. These data privacy and security
laws may differ from each other in significant ways and often are not pre-empted by HIPAA, which may complicate compliance efforts.
California recently enacted the California Consumer Privacy Act, or CCPA, which creates new individual privacy rights for California
consumers (as defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or
households. The CCPA will require covered companies to provide certain disclosures to consumers about its data collection, use and sharing
practices, and to provide affected California residents with ways to opt-out of certain sales or transfers of personal information. The CCPA
went into effect on January 1, 2020, and the California Attorney General commenced enforcement actions against violators beginning July 1,
2020. While there is currently an exception for protected health information that is subject to HIPAA and clinical trial regulations, as
currently written, the CCPA may impact our business activities. The California Attorney General has proposed draft regulations, which have
not been finalized to date, that may further impact our business activities if they are adopted. The uncertainty surrounding the implementation
of CCPA exemplifies the vulnerability of our business to the evolving regulatory environment related to personal data and protected health
information.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform,
especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their
scrutiny of interactions between healthcare companies, including pharmaceutical manufacturers, and healthcare providers, which has led to a
number of investigations, prosecutions, convictions and settlements in the healthcare industry. It is possible that governmental authorities will
conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and
abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other related
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, reputational harm,
additional oversight and reporting obligations if we become subject to a corporate integrity agreement or similar settlement to resolve
allegations of non-compliance with these laws and the curtailment or restructuring of our operations. If any of the physicians or other
healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be
subject to similar actions, penalties and sanctions. Ensuring business arrangements comply with applicable healthcare laws, as well as
responding to possible investigations by government authorities, can be time- and resource-consuming and can divert a company’s attention
from its business.
Insurance Coverage and Reimbursement
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. In the United States, the principal decisions about reimbursement for
new medicines are typically made by the CMS, an agency within HHS. CMS decides whether and to what extent a new medicine will be
covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree. No uniform policy of coverage and
reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ
significantly from payor to payor. The process for determining whether a third-party 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.
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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, our operations and financial condition. Additionally, a third-party 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 payor 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. Further, due to the
COVID-19 pandemic, millions of individuals have lost or will be losing employer-based insurance coverage, which may adversely affect our
ability to commercialize our products.
Current and future healthcare reform legislation
In the United States and some foreign jurisdictions, there have been, and likely will continue to be, a number of legislative and regulatory
changes and proposed changes regarding the healthcare system directed at broadening the availability of healthcare, improving the quality of
healthcare, and containing or lowering the cost of healthcare. For example, in March 2010, the United States Congress enacted the ACA,
which, among other things, includes changes to the coverage and payment for products under government health care programs. The ACA
includes provisions of importance to our potential product candidates that:
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created 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;
expanded 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 point-of-sale-discounts 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
created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical
effectiveness research, along with funding for such research.
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Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA,
and we expect there will be additional challenges and amendments to the ACA in the future. For example, various portions of the ACA are
currently undergoing legal and constitutional challenges in the Fifth Circuit Court, and the United States Supreme Court. Additionally, the
Trump Administration 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 ACA. It is unclear whether the ACA will be overturned, repealed, replaced, or further amended, especially under the Biden
administration. We cannot predict what affect further changes to the ACA would have on our business.
Other legislative changes have been proposed and adopted in the United States since the ACA 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, due to subsequent legislative amendments to the statute, will remain in effect through 2030, unless additional
Congressional action is taken. Pursuant to the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, as well
as subsequent legislation, these reductions have been suspended from May 1, 2020 through March 31, 2021 due to the COVID-19 pandemic.
Proposed legislation, if passed, would extend this suspension until the end of the pandemic. In January 2013, the American Taxpayer Relief
Act of 2012 was signed into law, 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.
Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS may
develop new payment and delivery models, such as bundled payment models. 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 and enacted state and federal legislation designed to, among other things, bring more transparency to product pricing,
review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies
for pharmaceutical products. For example, at the federal level, the Trump administration’s budget for fiscal year 2021 included a $135 billion
allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients,
and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for
drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy
expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical price
increases. Additionally, the Trump administration also previously released a “Blueprint” to lower drug prices and reduce out of pocket costs
of drugs that contains additional proposals to increase drug manufacturer competition, increase the negotiating power of certain federal
healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products
paid by consumers. HHS solicited feedback on some of these measures and has implemented others under its existing authority. For example,
in May 2019, CMS issued a final rule to allow Medicare Advantage Plans the option of using step therapy, a type of prior authorization, for
Part B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019. It is unclear
whether the Biden administration will challenge, reverse, revoke or otherwise modify these executive and administrative actions after
January 20, 2021. Congress and the Trump administration each indicated that it will continue to seek new legislative and/or administrative
measures to control drug costs. The FDA published a final rule, effective November 30, 2020, that allows for the importation of certain
prescription drugs from Canada. Under the final rule, states and Indian Tribes, and in certain future circumstances pharmacists and
wholesalers, may submit importation program proposals to the FDA for review and authorization. Separately, the FDA also issued a final
guidance document outlining a potential pathway for manufacturers to obtain an additional National Drug Code, or NDC, for an FDA-
approved drug that was originally intended to be marketed in a foreign country and that was authorized for sale in that foreign country.
Individual states in the United States have also increasingly passed legislation and implemented regulations designed to control
pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain
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product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other
countries and bulk purchasing.
On May 30, 2018, the Right to Try Act was signed into law. The law, among other things, provides a federal framework for certain patients to
access certain investigational new drug products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA
approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA
permission under the FDA expanded access program. There is no obligation for a drug manufacturer to make its drug products available to
eligible patients as a result of the Right to Try Act, but the manufacturer must develop an internal policy and respond to patient requests
according to that policy.
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, or EU, 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.
Compliance with other federal and state laws or requirements; changing legal requirements
If any products that we may develop are made available to authorized users of the Federal Supply Schedule of the General Services
Administration, additional laws and requirements apply. Products must meet applicable child-resistant packaging requirements under the U.S.
Poison Prevention Packaging Act. Manufacturing, labeling, packaging, distribution, sales, promotion and other activities also are potentially
subject to federal and state consumer protection and unfair competition laws, among other requirements to we may be subject.
The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping,
licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.
The failure to comply with any of these laws or regulatory requirements subjects firms to possible legal or regulatory action. Depending on
the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions,
exclusion from federal healthcare programs, requests for recall, seizure of products, total or partial suspension of production, denial or
withdrawal of product approvals, relabeling or
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repackaging, or refusal to allow a firm to enter into supply contracts, including government contracts. Any claim or action against us for
violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our
management’s attention from the operation of our business. Prohibitions or restrictions on marketing, sales or withdrawal of future products
marketed by us could materially affect our business in an adverse way.
Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example:
(i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling or packaging; (iii) the recall or
discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could
adversely affect the operation of our business.
Other U.S. environmental, health and safety laws and regulations
We may be 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.
Government regulation of drugs outside of the United States
To market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other
countries regarding safety and efficacy and governing, among other things, clinical trials, marketing authorization or identification of an
alternate regulatory pathway, manufacturing, commercial sales and distribution of our products. For instance, in the United Kingdom and the
European Economic Area, or the EEA (comprised of the 28 EU Member States plus Iceland, Liechtenstein and Norway), medicinal products,
including advanced therapy medicinal products, or ATMPs, are subject to extensive pre- and post-market regulation by regulatory authorities
at both the EEA and national levels. ATMPs comprise gene therapy products, somatic cell therapy products and tissue engineered products.
Gene therapy products deliver genes into the body that lead to a therapeutic, prophylactic or diagnostic effect. Libmeldy is authorized as a
gene therapy product in the EEA, and we anticipate that our gene therapy development products would also be regulated as ATMPs in the
EEA.
• Centralized procedure—If pursuing marketing authorization of a product candidate for a therapeutic indication under the centralized
procedure, following the opining of the European Medicines Agency’s, or EMA, Committee for Medicinal Products for Human Use,
or CHMP, the European Commission issues a single marketing authorization valid across the EEA. The centralized procedure is
compulsory for human medicines derived from biotechnology processes or advanced therapy medicinal products (such as gene
therapy, somatic cell therapy and tissue engineered products), products that contain a new active substance indicated for the treatment
of certain diseases, such as HIV/AIDS, cancer, neurodegenerative disorders, diabetes, autoimmune diseases and other immune
dysfunctions, viral diseases, and officially designated orphan medicines. For medicines that do not fall within these categories, an
applicant has the option of
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submitting an application for a centralized marketing authorization to the EMA, as long as the medicine concerned contains a new
active substance not yet authorized in the EEA, is a significant therapeutic, scientific or technical innovation, or if its authorization
would be in the interest of public health in the EEA. Under the centralized procedure the maximum timeframe for the evaluation of
an MAA by the EMA is 210 days, excluding clock stops, when additional written or oral information is to be provided by the
applicant in response to questions asked by the CHMP. Accelerated assessment might be granted by the CHMP in exceptional cases,
when a medicinal product is expected to be of a major public health interest, particularly from the point of view of therapeutic
innovation. The timeframe for the evaluation of an MAA under the accelerated assessment procedure is 150 days, excluding clock
stops.
• National authorization procedures—There are also two other possible routes to authorize products for therapeutic indications in
several countries, which are available for products that fall outside the scope of the centralized procedure:
◦ Decentralized procedure—Using the decentralized procedure, an applicant may apply for simultaneous authorization in more
than one EU country of medicinal products that have not yet been authorized in any EU country and that do not fall within
the mandatory scope of the centralized procedure.
◦ Mutual recognition procedure—In the mutual recognition procedure, a medicine is first authorized in one EU Member State,
in accordance with the national procedures of that country. Following this, additional marketing authorizations can be sought
from other EU countries in a procedure whereby the countries concerned recognize the validity of the original, national
marketing authorization.
In the EEA, new products for therapeutic indications that are authorized for marketing (i.e., reference products) qualify for eight years of data
exclusivity and an additional two years of market exclusivity upon marketing authorization. The data exclusivity period, if granted, prevents
generic or biosimilar applicants from relying on the preclinical and clinical trial data contained in the dossier of the reference product when
applying for a generic or biosimilar marketing authorization for a period of eight years from the date on which the reference product was first
authorized in the EEA. During the additional two-year period of market exclusivity, a generic or biosimilar marketing authorization can be
submitted, and the innovator’s data may be referenced, but no generic or biosimilar product can be marketed until the expiration of the
market exclusivity period. The ten-year market exclusivity period can be extended to a maximum of eleven 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 an innovative medicinal product gains the prescribed period of data exclusivity, another company may market another
version of the product if such company obtained marketing authorization based on a MAA with a complete independent data package of
pharmaceutical tests, preclinical tests and clinical trials.
The criteria for designating an “orphan medicinal product” in the EEA are similar in principle to those in the United States. In the EEA a
medicinal product may be designated as orphan medicinal product if it meets the following criteria: (1) it is intended for the diagnosis,
prevention or treatment of a life-threatening or chronically debilitating condition; (2) either (a) the prevalence of such condition must not be
affecting more than five in 10,000 persons in the EEA when the application is made, or (b) without the benefits derived from orphan status, it
must be unlikely that the marketing of the medicine would generate sufficient return in the EEA to justify the investment needed for its
development; and (3) there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in
the EEA, or if such a method exists, the product will be of significant benefit to those affected by the condition. Orphan medicinal products
are eligible for financial incentives such as reduction of fees or fee waivers and are, upon grant of a marketing authorization, entitled to ten
years of market exclusivity for the approved therapeutic indication. During this ten-year orphan market exclusivity period, no marketing
authorization application shall be accepted, and no marketing authorization shall be granted for a similar medicinal product for the same
indication. An orphan product can also obtain an additional two years of market exclusivity in the EEA for pediatric studies. The ten-year
market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for
orphan designation, for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity. Otherwise, orphan
medicine marketing
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exclusivity may be revoked only in very select cases, such as if (i) it is established that a similar medicinal product is safer, more effective or
otherwise clinically superior; (ii) the marketing authorization holder consents to a second orphan medicinal product application; or (iii) the
marketing authorization holder cannot supply enough orphan medicinal product.
From January 1, 2021, a separate process for orphan drug designation will apply in Great Britain. There will be no pre-marketing
authorization orphan designation (as there is in the EEA) and the application for orphan designation will be reviewed by the MHRA at the
time of the marketing authorization application. The criteria are the same as in the EEA, save that they apply to Great Britain only (e.g. there
must be no satisfactory method of diagnosis, prevention or treatment of the condition concerned in Great Britain).
Similar to the United States, the various phases of non-clinical and clinical research in the European Union are subject to significant
regulatory controls.
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. 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. It is expected that the new
Clinical Trials Regulation (EU) No 536/2014 will apply following confirmation of full functionality of the Clinical Trials Information System
(CTIS), the centralized European Union portal and database for clinical trials foreseen by the regulation, through an independent audit. The
regulation becomes applicable six months after the European Commission publishes notice of this confirmation. The Clinical Trials
Regulation will be directly applicable in all the EU Member States, 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). 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. It is
expected that the new Clinical Trials Regulation will come into effect following confirmation of full functionality of the Clinical Trials
Information System, the centralized European Union portal and database for clinical trials foreseen by the new Clinical Trials regulation,
through an independent audit, which is currently expected to occur in December 2021.
The collection and use of personal health data in the European Union, previously governed by the provisions of the Data Protection
Directive, is now governed by the General Data Protection Regulation, or the GDPR, which became effective on May 25, 2018. While the
Data Protection Directive did not apply to organizations based outside the EU, the GDPR has expanded its reach to include any business,
regardless of its location, that provides goods or services to
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residents in the EU. This expansion would incorporate any clinical trial activities in EU members states. The GDPR imposes strict
requirements on controllers and processors of personal data, including special protections for “sensitive information” which includes health
and genetic information of data subjects residing in the EU. 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 European Union 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
European Union 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. As a result of the implementation of the GDPR, we may be required to put in place additional mechanisms
ensuring compliance with the new data protection rules.
There is significant uncertainty related to the manner in which data protection authorities will seek to enforce compliance with GDPR. For
example, it is not clear if the authorities will conduct random audits of companies doing business in the EU, or if the authorities will wait for
complaints to be filed by individuals who claim their rights have been violated. Enforcement uncertainty and the costs associated with
ensuring GDPR compliance are onerous and may adversely affect our business, financial condition, results of operations and prospects.
Should we utilize third party distributors, compliance with such foreign governmental regulations would generally be the responsibility of
such distributors, who may be independent contractors over whom we have limited control.
Brexit and the Regulatory Framework in the United Kingdom
In June 2016, the electorate in the United Kingdom voted in favor of leaving the European Union (commonly referred to as “Brexit”).
Thereafter, in March 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. There was a transitional period, during which European
Union’s rules continued to apply in the United Kingdom, however this ended on December 31, 2020. The United Kingdom and European
Union have signed a European Union-United Kingdom Trade and Cooperation Agreement, which became provisionally applicable on
January 1, 2021 and will become formally applicable once ratified by both the United Kingdom and the European Union. This agreement
provides details on how some aspects of the United Kingdom and European Union’s relationship regarding medicinal products will operate,
particularly in relation to Good Manufacturing Practice, however there are still many uncertainties. Many of the regulations that now apply in
the United Kingdom following the transition period (including financial laws and regulations, tax, intellectual property rights, data protection
laws, supply chain logistics, environmental, health and safety laws and regulations, medicine approval and regulations, immigration laws and
employment laws), will likely be amended in future as the United Kingdom determines its new approach, which may result in significant
divergence from European Union regulations. This lack of clarity on future United Kingdom laws and regulations and their interaction with
the European Union laws and regulations increases our regulatory burden of operating in and doing business with both the United Kingdom
and the European Union.
The long-term effects of Brexit will depend in part on how the European Union-United Kingdom Trade and Cooperation Agreement, and any
future agreements signed by the United Kingdom and the European Union, take effect in practice. Such a withdrawal from the European
Union is unprecedented, and it is unclear how the restrictions on the United Kingdom’s access to the European single market for goods,
capital, services and labor within the European Union and the wider commercial, legal and regulatory environment, could impact our current
and future operations and clinical activities in the United Kingdom.
We may also face new regulatory costs and challenges that could have an adverse effect on our operations as a result of Brexit. The European
Union, the United Kingdom will lose the benefits of global trade agreements negotiated by the European Union on behalf of its members,
which may result in increased trade barriers that could make our doing business in the European Union or European Economic Area more
difficult. We expect that, now the transition period has expired, Brexit could lead to legal uncertainty and potentially divergent national laws
and regulations as the
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United Kingdom determines which European Union laws to replicate or replace, including those related to the regulation of medicinal
products. Any of these effects of Brexit, and others we cannot anticipate, could negatively impact our business and results of operations in
the United Kingdom. Any of these effects of Brexit, among others, could materially adversely affect the business, business opportunities, and
financial condition of our Company.
The uncertainty concerning the United Kingdom’s legal, political and economic relationship with the European Union following Brexit may
also be a source of instability in the international markets, create significant currency fluctuations, and/or otherwise adversely affect trading
agreements or similar cross-border co-operation arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise).
Human Capital Resources
In order to achieve the goals and expectations of our Company, it is crucial that we continue to attract and retain top talent. To facilitate talent
attraction and retention, we strive to make Black Diamond a safe and rewarding workplace, with opportunities for our employees to grow and
develop in their careers, supported by strong compensation, benefits and health and wellness programs, and by programs that build
connections between our employees.
As of February 28, 2021, we had 73 full-time employees. 31 of our employees have Ph.D. degrees. The following table shows the number of
full-time employees as of February 28, 2021 engaged in either research and development or administrative functions, broken out by location.
Function
Research and development
Administrative
Total
US
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22
71
Canada
2
—
2
None of our employees are represented by labor unions or covered by collective bargaining agreements. We consider our relationship with
our employees to be good.
The success of our business is fundamentally connected to the well-being of our employees. Accordingly, we are committed to their health,
safety and wellness. We provide our employees and their families with access to a variety of innovative, flexible and convenient health and
wellness programs, including benefits that provide protection and security so they can have peace of mind concerning events that may require
time away from work or that impact their financial well-being; that support their physical and mental health by providing tools and resources
to help them improve or maintain their health status and encourage engagement in healthy behaviors; and that offer choice where possible so
they can customize their benefits to meet their needs and the needs of their families. In response to the COVID-19 pandemic, we
implemented significant changes that we determined were in the best interest of our employees, as well as the communities in which we
operate, and which comply with government regulations. This includes having most of our non-laboratory employees work from home, while
implementing additional safety measures for employees continuing critical on-site work.
We provide robust compensation and benefits programs to help meet the needs of our employees. In addition to salaries, these programs
include potential annual discretionary bonuses, stock awards, a 401(k) Plan, healthcare and insurance benefits, health savings and flexible
spending accounts, paid time off, family leave, and flexible work schedules, among others. In addition to our broad-based equity award
programs, we have used targeted equity-based grants with vesting conditions to facilitate retention of personnel.
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Facilities
We lease a facility containing approximately 25,578 square feet of office space for our principal office, which is located at One Main Street,
Cambridge, MA 02142. The lease expires on August 31, 2028, subject to an option to extend the lease for five additional years. We also lease
a facility containing approximately 2,357 square feet of office space, which is located at 139 Main Street, Cambridge, MA 02142. The lease
expires on April 30, 2022, subject to an option to extend the lease for three additional years. We also lease approximately 1,500 square feet of
laboratory space and 500 square feet of office space at 25 Health Sciences Drive, Stony Brook, NY 11790 and we are in the process of
renegotiating our lease for this location. In December 2020 we entered into an agreement to lease approximately 18,120 square feet of office
and laboratory space at 430 East 29th Street, New York, New York 10016. The lease expires on June 30, 2032, subject to an option to extend
the lease for five additional years. In addition, we also have a license to use the private and shared laboratory and office facilities at 180
Varick Street, New York, NY 10014. The license expires on December 31, 2021, however, the Company may terminate the lease with 30-
days’ notice. For our Canadian subsidiary, we have a non-exclusive license to occupy a portion of a building located at 661 University
Avenue, Toronto, Ontario M5G 0B7, for the purposes of conducting laboratory research, business planning and related activities. The license
expires on April 1, 2022.
We believe that our current facilities are adequate for our current needs and that suitable additional or substitute space at commercially
reasonable terms will be available as needed to accommodate any future expansion of our operations.
Legal proceedings
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. As of the date of this Annual
Report, we were not a party to, or aware of, any material legal matters or claims. In the future, we may become party to legal matters and
claims in the ordinary course of business, the resolution of which we do not anticipate would have a material adverse impact on our financial
position, results of operations or cash flows.
Corporate Information
We were formed as an LLC in December 2014 and we converted to a corporation in September 2016 under the laws of the State of Delaware
under the name ASET Therapeutics, Inc. On January 2, 2018, we changed our name to Black Diamond Therapeutics, Inc. Our principal
executive offices are located at One Main Street, Cambridge, MA 02142, and our telephone number is 617-252-0848. We have two
subsidiaries, Black Diamond Therapeutics (Canada) Inc., which was incorporated in 2018, and Black Diamond Therapeutics Security
Corporation, which was incorporated in 2019. Our website address is https://www.blackdiamondtherapeutics.com. The information contained
in or accessible from our website is not incorporated into this Annual Report, and you should not consider it part of this Annual Report. We
have included our website address in this Annual Report solely as an inactive textual reference.
On February 3, 2020, we completed our initial public offering, or IPO, pursuant to which we issued and sold, 12,174,263 shares of our
common stock, including the exercise in full by the underwriters of their option to purchase up to 1,587,947 additional shares of common
stock, at a public offering price of $19.00 per share. The gross proceeds from the IPO were $231.3 million and the net proceeds were $212.1
million, after deducting underwriting discounts and commissions and other estimated offering expenses.
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth
company until the earlier of: (i) the last day of the fiscal year (a) following the fifth anniversary of the completion of the IPO, (b) in which we
have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the
market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, and (ii) the date on which
we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
As of June 30, 2020, the market value of our stock held by non-affiliates was greater than $700 million. As of January 1, 2021, we ceased to
be a smaller reporting company.
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Financial Information and Segments
The financial information required under this Item 1 is incorporated herein by reference to the section of this Annual Report titled “Part II—
Item 8—Financial Statements and Supplementary Data.” The company manages its operations as a single segment for the purposes of
assessing performance and making operating decisions. The Company’s singular focus is the development of selective medicines for patients
with genetically defined cancers driven by oncogenes activated by allosteric mutations. See Note 2 to our consolidated audited financial
statements included in this Annual Report. For financial information regarding our business, see “Part II—Item 7—Management’s
Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report and our consolidated audited financial
statements and related notes included elsewhere in this Annual Report.
Available Information
Our Internet address is www. blackdiamondtherapeutics.com. Our Annual Reports, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, including exhibits, proxy and information statements and amendments to those reports filed or furnished pursuant to Sections
13(a), 14, and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available through the “Investors & News”
portion of our website free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the
SEC. Information on our website is not part of this Annual Report or any of our other securities filings unless specifically incorporated herein
by reference. Our filings with the SEC may be accessed through the SEC’s Interactive Data Electronic Applications system at
http://www.sec.gov. All statements made in any of our securities filings, including all forward-looking statements or information, are made as
of the date of the document in which the statement is included, and we do not assume or undertake any obligation to update any of those
statements or documents unless we are required to do so by law.
Item 1A. Risk Factors
Careful consideration should be given to the following risk factors, in addition to the other information set forth in this Annual Report and in
other documents that we file with the SEC, in evaluating the Company and our business. Investing in our common stock involves a high
degree of risk. If any of the following risks and uncertainties actually occurs, our business, prospects, financial condition and results of
operations could be materially and adversely affected. The risks and uncertainties summarized and described below are not intended to be
exhaustive and are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem
immaterial may also impair our business, prospects, financial condition and results of operations. Certain statements in this Annual Report
are forward-looking statements. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.”
Risks related to the development of our product candidates
Risks related to clinical development
We are very early in our development efforts and are substantially dependent on our lead product candidate, BDTX-189. If we are unable
to advance BDTX-189 or any of our other product candidates through clinical development, obtain regulatory approval and ultimately
commercialize BDTX-189 or any of our other product candidates, or experience significant delays in doing so, our business will be
materially harmed.
We are very early in our development efforts. Most of our product candidates are still in preclinical development and have never been tested
in human subjects. Our ability to generate product revenues, which we do not expect will occur for many years, if ever, will depend heavily
on the successful clinical development and eventual commercialization of BDTX-189 and one or more of our other product candidates. In
addition, our drug development programs contemplate the development of companion diagnostics, which are assays or tests to identify an
appropriate patient population. Companion diagnostics are subject to regulation as medical devices and must themselves be approved for
marketing by the FDA or certain other foreign regulatory agencies before we may commercialize our product candidates. The success of our
product candidates will depend on several factors, including the following:
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•
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successful completion of preclinical studies;
approval of INDs for our planned clinical trials or future clinical trials;
FDA acceptance of our tumor-agnostic development strategy;
successful initiation of clinical trials;
successful patient enrollment in and completion of clinical trials;
successful development of companion diagnostics for use with our product candidates;
safety, tolerability and efficacy profiles for our product candidates that are satisfactory to the FDA or any foreign regulatory authority for
marketing approval;
receipt of marketing approvals for our product candidates and any companion diagnostics from applicable regulatory authorities;
the extent of any required post-marketing approval commitments to applicable regulatory authorities;
obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
• making arrangements with third-party manufacturers, or establishing manufacturing capabilities, for both clinical and commercial
supplies of our product candidates, if any product candidates are approved;
•
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establishing sales, marketing and distribution capabilities and launching commercial sales of our products, if and when approved,
whether alone or in collaboration with others;
acceptance of our products, if and when approved, by patients, the medical community and third-party payors;
effectively competing with other cancer therapies;
obtaining and maintaining third-party coverage and adequate reimbursement;
• maintaining a continued acceptable safety profile of our products following approval; and
•
factors we may not be able to control, such as current or potential pandemics that may limit patients, principal investigators or staff or
clinical site availability (e.g. the COVID-19 pandemic).
There is no guarantee that the results obtained in current preclinical studies or our open-label Phase 1/2 clinical trial of BDTX-189 will be
sufficient to obtain regulatory approval or marketing authorization for such product candidate. Negative results in the development of our
lead product candidate may also impact our ability to obtain regulatory approval for our other product candidates, either at all or within
anticipated timeframes because, although other product candidates may target different indications, the underlying technology platform,
manufacturing process and development process is the same for all of our product candidates. Accordingly, a failure in any one program may
affect the ability to obtain regulatory approval to continue or conduct clinical programs for other product candidates. For example, although
we believe based on our preclinical studies that the conformational change to the active site receptor is similar for all of the genetic mutations
we are targeting and therefore the chemical structure of BDTX-189 will suffice to bind adequately to such receptor for all such mutations,
this may not prove true in clinical testing of BDTX-189 for all or any of the targeted mutations. Moreover, anti-tumor activity may be
different in each of the different tumor types we plan on evaluating in the clinical trial. Therefore, even though we plan on pursuing tumor-
agnostic clinical development of BDTX-189, the tumor response may be low in patients with some cancers compared to others. This may
result in discontinuation of development of BDTX-189 for patients with these tumor types and/or mutations due to insufficient clinical
benefit while continuing development for a more limited population of patients more likely to benefit. As a consequence, we may have to
negotiate with the FDA to reach agreement on defining the optimal patient population, study design and size in order to obtain regulatory
approval, any of which may require significant additional resources and delay the timing of our clinical trials and ultimately the approval, if
any, of any of our product candidates.
In addition, because we have limited financial and personnel resources and are placing significant focus on the development of our lead
product candidate, we may forgo or delay pursuit of opportunities with other future product candidates that later prove to have greater
commercial potential. Our resource allocation decisions may cause us to
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fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and
development programs and other future product candidates for specific indications may not yield any commercially viable future product
candidates. If we do not accurately evaluate the commercial potential or target market for a particular future product candidate, we may
relinquish valuable rights to those future product candidates 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 such future product candidates.
Difficulty in enrolling patients could delay or prevent clinical trials of our product candidates. We may find it difficult to enroll patients in
our open-label Phase 1/2 clinical trial for BDTX-189 with the genetic mutations that BDTX-189 is designed to target.
Identifying and qualifying patients to participate in clinical studies of our product candidates is critical to our success. The timing of
completion of our clinical studies depends in part on the speed at which we can recruit patients to participate in testing our product
candidates, and we may experience delays in our clinical trials if we encounter difficulties in enrollment. We may not be able to initiate or
continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in
these trials as required by the FDA or similar regulatory authorities outside the United States. In particular, because we are focused on
patients with specific genetic mutations, our ability to enroll eligible patients may be limited or may result in slower enrollment than we
anticipate. For example, with respect to BDTX-189, we cannot be certain how many patients will have each of the genetic mutations that
BDTX-189 is designed to target or that the number of patients enrolled for each mutation will suffice for regulatory approval and inclusion of
each such mutation in the approved label. In addition, some of our competitors have ongoing clinical trials for product candidates that treat
the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in
clinical trials of our competitors’ product candidates.
In addition to the potentially small populations, the eligibility criteria of our planned clinical trials will further limit the pool of available
study participants as we will require that patients have specific characteristics that we can measure to assure their disease is either severe
enough or not too advanced to include them in a study. Additionally, the process of finding and diagnosing patients may prove costly. We also
may not be able to identify, recruit and enroll a sufficient number of patients to complete our clinical studies because of the perceived risks
and benefits of the product candidate under study, the availability and efficacy of competing therapies and clinical trials, the proximity and
availability of clinical study sites for prospective patients, the availability of genetic sequencing information for patient tumors so that we can
identify patients with the targeted genetic mutations, and the patient referral practices of physicians. If patients are unwilling to participate in
our studies for any reason, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of potential products
may be delayed.
We intend to engage third parties to develop companion diagnostics for use in our clinical trials, but such third parties may not be successful
in developing such companion diagnostics, furthering the difficulty in identifying patients with the targeted genetic mutations for our clinical
trials. Further, if we are unable to include patients with the targeted genetic mutations, this could compromise our ability to seek participation
in FDA’s expedited review and development programs, including Breakthrough Therapy Designation and Fast Track Designation, or
otherwise seek to accelerate clinical development and regulatory timelines.
The enrollment of patients further depends on many factors, including:
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the proximity of patients to clinical trial sites;
the design of the clinical trial;
our ability to recruit clinical trial investigators with the appropriate competencies and experience;
our ability to obtain and maintain patient consents;
reporting of the preliminary results of any of our clinical trials; and
the risk that patients enrolled in clinical trials will drop out of the clinical trials before clinical trial completion.
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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 clinical trials may instead opt to enroll in a clinical trial being conducted by one of our competitors. Since the number
of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our
competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial sites. Moreover,
because our product candidates represent a departure from more commonly used methods for cancer treatment and because most of our
product candidates have not been tested in humans before, potential patients and their doctors may be inclined to use conventional therapies,
such as chemotherapy, rather than enroll patients in any future clinical trial. Additionally, because our clinical trials are in patients with
relapsed/refractory cancer, the patients are typically in the late stages of their disease and may experience disease progression independent
from our product candidates, making them unevaluable for purposes of the clinical trial and requiring additional patient enrollment.
If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our
product candidates will be harmed, and our ability to generate product revenue from any of these product candidates could be delayed or
prevented.
We have no experience as a company in conducting clinical trials.
We have no experience as a company in conducting clinical trials. In part because of this lack of experience, we cannot be certain that our
ongoing preclinical studies will be completed on time or if the planned preclinical studies and clinical trials will begin or be completed on
time, if at all. Large-scale clinical trials would require significant additional financial and management resources and reliance on third-party
clinical investigators, contract research organizations, or CROs, and consultants. Relying on third-party clinical investigators, CROs and
consultants may force us to encounter delays that are outside of our control. We may be unable to identify and contract with sufficient
investigators, CROs and consultants on a timely basis or at all. For our lead product candidate, BDTX-189, we entered in to a master services
agreement with a CRO to lead our first-in-human open-label Phase 1/2 clinical trial. There can be no assurance that we will be able to
negotiate and enter into any additional master services agreement with other CROs, as necessary, on terms that are acceptable to us on a
timely basis or at all.
Our preclinical studies and clinical trials may fail to demonstrate adequately the safety, potency, purity and efficacy of any of our product
candidates, which would prevent or delay development, regulatory approval and commercialization.
Before obtaining regulatory approvals for the commercial sale of our product candidates, including BDTX-189, we must demonstrate
through lengthy, complex and expensive preclinical studies and clinical trials that our product candidates are both safe and effective for use in
each target indication. Preclinical and clinical testing is expensive and can take many years to complete, and its outcome is inherently
uncertain. Failure can occur at any time during the preclinical study and clinical trial processes, and, because our product candidates are in an
early stage of development, there is a high risk of failure and we may never succeed in developing marketable products.
The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical
trials. Although product candidates may demonstrate promising results in preclinical studies and early clinical trials, they may not prove to be
effective in subsequent clinical trials. For example, testing on animals occurs under different conditions than testing in humans and therefore,
the results of animal studies may not accurately predict human experience. There is typically an extremely high rate of attrition from the
failure of product candidates proceeding through preclinical studies and clinical trials. Product candidates in later stages of clinical trials may
fail to show the desired safety, potency, purity and efficacy profile despite having progressed through preclinical studies and initial clinical
trials. Likewise, early, smaller-scale clinical trials may not be predictive of eventual safety or effectiveness in large-scale pivotal clinical
trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of
potency or efficacy, insufficient durability of potency or efficacy or unacceptable safety issues, notwithstanding promising results in earlier
trials. Most product candidates that commence preclinical studies and clinical trials are never approved as products.
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Any preclinical studies or clinical trials that we may conduct may not demonstrate the safety, potency, purity and efficacy necessary to obtain
regulatory approval to market our product candidates. If the results of our ongoing or future preclinical studies and clinical trials are
inconclusive with respect to the safety, potency, purity and efficacy of our product candidates, if we do not meet the clinical endpoints with
statistical and clinically meaningful significance, or if there are safety concerns associated with our product candidates, we may be prevented
or delayed in obtaining marketing approval for such product candidates. In some instances, there can be significant variability in safety,
potency, purity or efficacy results between different preclinical studies and clinical trials of the same product candidate due to numerous
factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and
adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. As is the case with all oncology drugs, it is
likely that there may be side effects associated with their use. Results of our trials could reveal a high and unacceptable severity and
prevalence of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign
regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted
indications. Drug-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in
potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.
Further, our product candidates could cause undesirable side effects in clinical trials related to on-target toxicity. For example, other EGFR
inhibitors have experienced dose limiting toxicities due to rash in patients and, although we have designed BDTX-189 to be “wild-type”
sparing to limit the risk of similar toxicities, clinical results may differ and patients may also experience similar or different toxicities that
limit the dose and/or efficacy of BDTX-189. If on-target toxicity is observed, or if our product candidates have characteristics that are
unexpected, we may need to abandon their development or limit development to more narrow uses or subpopulations in which the
undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many
compounds that initially showed promise in early stage testing for treating cancer have later been found to cause side effects that prevented
further development of the compound.
We may not be able to file INDs or IND amendments to commence additional clinical trials on the timelines we expect, and even if we are
able to, the FDA may not permit us to proceed.
We submitted an IND for BDTX-189 in November 2019, which was allowed by the FDA on December 13, 2019, but we may not be able to
file INDs for our other product candidates on the timelines we expect. For example, we may experience manufacturing delays or other delays
with IND-enabling studies. Moreover, we cannot be sure that submission of an IND will result in the FDA allowing further clinical trials to
begin, or that, once begun, issues will not arise that suspend or terminate clinical trials. Additionally, even if such regulatory authorities agree
with the design and implementation of the clinical trials set forth in an IND, we cannot guarantee that such regulatory authorities will not
change their requirements in the future. These considerations also apply to new clinical trials we may submit as amendments to existing INDs
or to a new IND. Any failure to file INDs on the timelines we expect or to obtain regulatory approvals for our trials may prevent us from
completing our clinical trials or commercializing our products on a timely basis, if at all.
Failure to successfully validate, develop and obtain regulatory approval for companion diagnostics for our product candidates could
harm our drug development strategy and operational results.
As one of the central elements of our business strategy and approach, we seek to screen and identify subsets of patients with a genetic
alteration who may derive meaningful benefit from our development product candidates. To achieve this, our product development program
is dependent on the development and commercialization of a companion diagnostic by us or by third party collaborators. Companion
diagnostics are developed in conjunction with clinical programs for the associated product and are subject to regulation as medical devices.
Each agency that approves a product candidate will independently need to approve the companion diagnostic before or concurrently with its
approval of the product candidate, and before a product can be commercialized. The approval of a companion diagnostic as part of the
product label will also limit the use of the product candidate to only those patients who express the specific genetic alteration it was
developed to detect.
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Companion diagnostics are subject to regulation by the FDA and comparable foreign regulatory authorities as medical devices and require
separate clearance or approval prior to their commercialization. To date, the FDA has required premarket approval of all companion
diagnostics for cancer therapies. We and our third-party collaborators may encounter difficulties in developing and obtaining approval for
these companion diagnostics. Any delay or failure by us or third- party collaborators to develop or obtain regulatory approval of a companion
diagnostic could delay or prevent approval of our related product candidates.
Since the number of patients that we plan to dose in our open-label Phase 1/2 clinical trial of BDTX-189 is small, the results from such a
clinical trial, once completed, may be less reliable than results achieved in larger clinical trials, which may hinder our efforts to obtain
regulatory approval for our product candidates.
In our open-label Phase 1/2 clinical trial of BDTX-189, we are evaluating the safety profile of BDTX-189 and establishing the recommended
Phase 2 dose in patients with bladder cancer, endometrial cancer, breast cancer, gastric cancer, colon cancer and non-small cell lung cancer,
or NSCLC, and other solid tumors. The Phase 1 portion of the trial is expected to enroll up to 100 patients with solid tumors that have
alterations likely to be associated with anti-tumor activity based on preclinical studies as well as some patients with the targeted genetic
mutations and is designed to establish the recommended dose for the Phase 2 portion of the trial. The Phase 1 portion may have to evaluate
different dosing schedules if the pharmacokinetic or safety data suggest once daily dosing is suboptimal. This may delay initiation of the
Phase 2 portion. The open-label Phase 2 portion of the trial is expected to enroll up to 100 patients with the targeted mutations to evaluate
efficacy as determined by objective response rate, or ORR, a measure of tumor response and tumor duration response, or DOR. This portion
may need to be expanded to provide additional safety and efficacy data to support an application for accelerated approval even if tumor
response and duration is adequate. The preliminary results of clinical trials with smaller sample sizes, such as our ongoing open-label Phase
1/2 clinical trial of BDTX-189, can be disproportionately influenced by various biases associated with the conduct of small clinical trials,
such as the potential failure of the smaller sample size to accurately depict the features of the broader patient population, which limits the
ability to generalize the results across a broader community, thus making the clinical trial results less reliable than clinical trials with a larger
number of patients. As a result, there may be less certainty that such product candidates would achieve a statistically significant effect in any
future clinical trials. If we conduct any future clinical trials of BDTX-189, we may not achieve a statistically significant result or the same
level of statistical significance, if any, that we might have anticipated based on the results observed in our initial open-label Phase 1/2 clinical
trial.
Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of patients and limited
duration of exposure, rare and severe side effects of our product candidates may only be uncovered with a significantly larger number of
patients exposed to the drug candidate. If our product candidates receive marketing approval and we or others identify undesirable side
effects caused by such product candidates (or any other similar drugs) after such approval, a number of potentially significant negative
consequences could result, including:
•
•
regulatory authorities may withdraw or limit their approval of such product candidates;
regulatory authorities may require the addition of labeling statements, such as a “boxed” warning or a contraindication;
• we may be required to change the way such product candidates are distributed or administered, conduct additional clinical trials or
change the labeling of the product candidates;
•
regulatory authorities may require a REMS plan to mitigate risks, which could include medication guides, physician communication
plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools;
• we may be subject to regulatory investigations and government enforcement actions;
• we may decide to remove such product candidates from the marketplace;
• we could be sued and held liable for injury caused to individuals exposed to or taking our product candidates; and
•
our reputation may suffer.
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We believe that any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidates and
could substantially increase the costs of commercializing our product candidates, if approved, and significantly impact our ability to
successfully commercialize our product candidates and generate revenues.
Clinical development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may
not be predictive of future clinical trial results. We may encounter substantial delays in clinical trials, or may not be able to conduct or
complete clinical trials on the expected timelines, if at all. If our preclinical studies and clinical trials are not sufficient to support
regulatory approval of any of our product candidates, we may incur additional costs or experience delays in completing, or ultimately be
unable to complete, the development of such product candidate.
All of our lead product candidates are in preclinical development and their risk of failure is high. It is impossible to predict when or if any of
our product candidates will prove effective and safe in humans or will receive regulatory approval. Before obtaining marketing approval from
regulatory authorities for the sale of any drug candidate, we must complete preclinical studies and then conduct extensive clinical trials to
demonstrate the safety and efficacy of our product candidates in humans. A failure of one or more clinical trials can occur at any stage of
testing. The outcome of preclinical development testing and early clinical trials may not be predictive of the success of later clinical trials,
and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to
varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical
studies and clinical trials have nonetheless failed to obtain marketing approval of their product candidates. Our preclinical studies and future
clinical trials may not be successful.
We cannot be certain that our preclinical study and clinical trial results will be sufficient to support regulatory approval of our product
candidates. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Human clinical trials
are expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Failure or delay can
occur at any time during the clinical trial process.
Additionally, some of the clinical trials we conduct may be open-label in study design and may be conducted at a limited number of clinical
sites on a limited number of patients. An “open-label” clinical trial is one where both the patient and investigator know whether the patient is
receiving the investigational product candidate or either an existing approved drug or placebo. Most typically, open-label clinical trials test
only the investigational product candidate and sometimes may do so at different dose levels. Open-label clinical trials are subject to various
limitations that may exaggerate any therapeutic effect as patients in open-label clinical trials are aware when they are receiving treatment.
Open-label clinical trials may be subject to a “patient bias” where patients perceive their symptoms to have improved merely due to their
awareness of receiving an experimental treatment. Moreover, patients selected for early clinical studies often include the most severe
sufferers and their symptoms may have been bound to improve notwithstanding the new treatment. In addition, open-label clinical trials may
be subject to an “investigator bias” where those assessing and reviewing the physiological outcomes of the clinical trials are aware of which
patients have received treatment and may interpret the information of the treated group more favorably given this knowledge. Given that our
Phase 1/2 clinical trial of BDTX-189 includes an open-label dosing design, the results from this clinical trial may not be predictive of future
clinical trial results with this or other product candidates for which we conduct an open-label clinical trial when studied in a controlled
environment with a placebo or active control.
We may experience delays in obtaining the FDA’s authorization to initiate clinical trials under future INDs, completing ongoing preclinical
studies of our other product candidates, and initiating our planned preclinical studies and clinical trials. Additionally, we cannot be certain
that preclinical studies or clinical trials for our product candidates will begin on time, not require redesign, enroll an adequate number of
subjects on time, or be completed on schedule, if at all. For example, at a meeting with the FDA in March 2021, the FDA notified us that,
because the Phase 2 portion of our ongoing Phase 1/2 clinical trial of BDTX-189 is potentially registrational and may support a new drug
application, we may only enroll up to 50 patients in Phase 2 before results of routine three-month good laboratory practice, or GLP,
toxicology studies have been submitted and accepted by the FDA.
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Clinical trials can be delayed or terminated for a variety of reasons, including delays or failures related to:
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the FDA or comparable foreign regulatory authorities disagreeing as to the design or implementation of our clinical trials;
the FDA or comparable foreign regulatory authorities disagreeing with our tumor-agnostic development strategy;
delays in obtaining regulatory approval to commence a clinical trial;
reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive
negotiation and may vary significantly among different CROs and clinical trial sites;
obtaining IRB approval at each clinical trial site;
recruiting an adequate number of suitable patients to participate in a clinical trial;
the number of patients required for clinical trials of our product candidates may be larger than we anticipate;
having subjects complete a clinical trial or return for post-treatment follow-up;
clinical trial sites deviating from clinical trial protocol or dropping out of a clinical trial;
addressing subject safety concerns that arise during the course of a clinical trial;
adding a sufficient number of clinical trial sites; or
obtaining sufficient product supply of product candidate for use in preclinical studies or clinical trials from third-party suppliers.
We may experience numerous adverse or unforeseen events during, or as a result of, preclinical studies and clinical trials that could delay or
prevent our ability to receive marketing approval or commercialize our product candidates, including:
• we may receive feedback from regulatory authorities that requires us to modify the design of our clinical trials;
•
•
•
•
clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us,
to conduct additional clinical trials or abandon our research efforts for our other product candidates;
clinical trials of our product candidates may not produce differentiated or clinically significant results across tumor types or indications;
the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical
trials may be slower than we anticipate or participants may drop out of our clinical trials at a higher rate than we anticipate;
our third-party contractors may fail to comply with regulatory requirements, fail to maintain adequate quality controls or be unable to
provide us with sufficient product supply to conduct and complete preclinical studies or clinical trials of our product candidates in a
timely manner, or at all;
• we or our investigators might have to suspend or terminate clinical trials of our product candidates for various reasons, including non-
compliance with regulatory requirements, a finding that our product candidates have undesirable side effects or other unexpected
characteristics or a finding that the participants are being exposed to unacceptable health risks;
•
•
the cost of clinical trials of our product candidates may be greater than we anticipate, for example, if we experiences delays or challenges
in identifying patients with the mutations required for our clinical trials, we may have to reimburse sites for genetic sequencing costs in
order to encourage sequencing of additional patients;
the quality of our product candidates or other materials necessary to conduct preclinical studies or clinical trials of our product candidates
may be insufficient or inadequate, and any transfer of manufacturing activities may require unforeseen manufacturing or formulation
changes;
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•
•
regulators may revise the requirements for approving our product candidates, or such requirements may not be as we anticipate; and
future collaborators may conduct clinical trials in ways they view as advantageous to them but that are suboptimal for us.
If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate,
if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not
positive or are only moderately positive or if there are safety concerns, our business and results of operations may be adversely affected and
we may incur significant additional costs.
We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such clinical trials
are being conducted, by the Data Safety Monitoring Board, if any, for such clinical trial or by the FDA or other regulatory authorities. Such
authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance
with regulatory requirements or our clinical trial protocols, inspection of the clinical trial operations or trial site by the FDA or other
regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a
benefit from the product candidates, changes in governmental regulations or administrative actions or lack of adequate funding to continue
the clinical trial.
Moreover, principal investigators for our future 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 comparable foreign regulatory authorities. The FDA or comparable foreign 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 comparable foreign 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 comparable foreign regulatory authority, as the case may be, and may ultimately lead to the denial of
marketing approval of one or more of our product candidates.
If we experience delays in the completion, or termination, of any preclinical study or clinical trial of our product candidates, the commercial
prospects of our product candidates may be harmed, and our ability to generate revenues from any of these product candidates will be
delayed or not realized at all. In addition, any delays in completing our preclinical studies or clinical trials may increase our costs, slow down
our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any
of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or
lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our
product candidates. If one or more of our product candidates generally prove to be ineffective, unsafe or commercially unviable, our entire
pipeline and MAP platform could have little, if any, value, which would have a material and adverse effect on our business, financial
condition, results of operations and prospects.
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We may in the future conduct clinical trials for product candidates outside the United States, and the FDA and comparable foreign
regulatory authorities may not accept data from such trials.
We may in the future choose to conduct one or more clinical trials outside the United States, including in Europe. The acceptance of study
data from clinical trials conducted outside the United States or another jurisdiction by the FDA or comparable foreign regulatory authority
may be subject to certain conditions or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve as the
basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless
(i) the data are applicable to the U.S. population and U.S. medical practice; and (ii) the trials were performed by clinical investigators of
recognized competence and pursuant to GCP regulations. Additionally, the FDA’s clinical trial requirements, including sufficient size of
patient populations and statistical powering, must be met. Many foreign regulatory authorities have similar approval requirements. In
addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can
be no assurance that the FDA or any comparable foreign regulatory authority will accept data from trials conducted outside of the United
States or the applicable jurisdiction. If the FDA or any comparable foreign regulatory authority does not accept such data, it would result in
the need for additional trials, which could be costly and time-consuming, and which may result in product candidates that we may develop
not receiving approval for commercialization in the applicable jurisdiction.
Risks related to our approach
Our discovery and preclinical development is focused on the development of precision medicines for patients with genetically defined
cancers, which is a rapidly evolving area of science, and the approach we are taking to discover and develop drugs is novel and may never
lead to marketable products.
The discovery and development of precision medicines for patients with genetically defined cancers is an emerging field, and the scientific
discoveries that form the basis for our efforts to discover and develop product candidates are relatively new. The scientific evidence to
support the feasibility of developing product candidates based on these discoveries is both preliminary and limited. Although we believe,
based on our preclinical work, that the mutations targeted by our programs are oncogenic drivers, clinical results may not confirm this
hypothesis or may only confirm it for certain mutations or certain tumor types. The patient populations for our product candidates are limited
to those with specific target mutations and may not be completely defined but are substantially smaller than the general treated cancer
population, and we will need to screen and identify these patients with the targeted mutations. Successful identification of patients is
dependent on several factors, including achieving certainty as to how specific genetic alterations respond to our product candidates and
developing companion diagnostics to identify such genetic alterations. Furthermore, even if we are successful in identifying patients, we
cannot be certain that the resulting patient populations for each mutation will be large enough to allow us to successfully obtain approval for
each mutation type and commercialize our products and achieve profitability. In addition, even if our approach is successful in showing
clinical benefit for tumors harboring the targeted mutations affecting the ErbB proteins EGFR and HER2, we may never successfully identify
additional oncogenic mutations for other receptor tyrosine kinases. Therefore, we do not know if our approach of treating patients with
genetically defined cancers will be successful, and if our approach is unsuccessful, our business will suffer.
In addition, we are pursuing a tumor-agnostic development strategy (i.e., pursuing approval based on a biomarker rather than a specific
cancer indication). There is currently a limited number of approved tumor-agnostic therapies. We may not receive approval for a tumor-
agnostic indication or may be delayed in receiving tumor-agnostic approval.
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Our approach to the discovery and development of product candidates is unproven, and we may not be successful in our efforts to use and
expand our MAP platform to build a pipeline of product candidates with commercial value.
A key element of our strategy is to use and expand our MAP platform to build a pipeline of product candidates and progress these product
candidates through clinical development for the treatment of various cancers. Although our research and development efforts to date have
resulted in our discovery and preclinical development of BDTX-189, BDTX-189 may not be safe or effective as a cancer treatment, and we
may not be able to develop any other product candidates. Our MAP platform is evolving and may not reach a state at which building a
pipeline of product candidates is possible. For example, we may not be successful in identifying additional genetic mutations which are
oncogenic and which can be “basketed” into a group that is large enough to present a sufficient commercial opportunity or that is druggable
with one chemical compound. Even if we are successful in building our pipeline of product candidates, the potential product candidates that
we identify may not be suitable for clinical development or generate acceptable clinical data, including as a result of being shown to have
unacceptable toxicity or other characteristics that indicate that they are unlikely to be products that will receive marketing approval from the
FDA or other regulatory authorities or achieve market acceptance. If we do not successfully develop and commercialize product candidates,
we will not be able to generate product revenue in the future, which likely would result in significant harm to our financial position and
adversely affect our stock price.
The market opportunities for our product candidates may be relatively small as it will be limited to those patients who are ineligible for or
have failed prior treatments and our estimates of the prevalence of our target patient populations may be inaccurate.
Cancer therapies are sometimes characterized as first line, second line, or third line, and the FDA often approves new therapies initially only
for a particular line of use. When cancer is detected early enough, first line therapy is sometimes adequate to cure the cancer or prolong life
without a cure. Whenever first line therapy, usually chemotherapy, antibody drugs, tumor-targeted small molecules, hormone therapy,
radiation therapy, surgery, or a combination of these, proves unsuccessful, second line therapy may be administered. Second line therapies
often consist of more chemotherapy, radiation, antibody drugs, tumor-targeted small molecules, or a combination of these. Third line
therapies can include chemotherapy, antibody drugs and small molecule tumor-targeted therapies, more invasive forms of surgery and new
technologies. We expect to initially seek approval of our product candidates in most instances at least as a second or third line therapy, for use
in patients with relapsed or refractory metastatic cancer. Subsequently, for those product candidates that prove to be sufficiently safe and
beneficial, if any, we would expect to seek approval as a second line therapy and potentially as a first line therapy, but there is no guarantee
that our product candidates, even if approved as a second or third or subsequent line of therapy, would be approved for an earlier line of
therapy, and, prior to any such approvals, we may have to conduct additional clinical trials.
Our projections of both the number of people who have the cancers we are targeting, who may have their tumors genetically sequenced, as
well as the subset of people with these cancers in a position to receive a particular line of therapy and who have the potential to benefit from
treatment with our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources,
including scientific literature, surveys of clinics, patient foundations or market research, and may prove to be incorrect. Further, new
therapies may change the estimated incidence or prevalence of the cancers that we are targeting. Consequently, even if our product candidates
are approved for a second or third line of therapy, the number of patients that may be eligible for treatment with our product candidates may
turn out to be much lower than expected. In addition, we have not yet conducted market research to determine how treating physicians would
expect to prescribe a product that is approved for multiple tumor types if there are different lines of approved therapies for each such tumor
type.
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Risks related to the COVID-19 pandemic
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 a virus named SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2),
or coronavirus, which causes coronavirus disease (COVID-19) was reported to have surfaced in Wuhan, China, and has since spread to other
regions and countries worldwide. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. Almost all
U.S. states and many local jurisdictions issued “shelter-in-place” orders, quarantines, executive orders and similar government orders,
restrictions, and recommendations for their residents to control the spread of COVID-19. Such orders, restrictions and recommendations, and
the perception that additional orders, restrictions or recommendations could occur, have resulted in widespread closures of businesses not
deemed “essential,” work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellation of events, as well
as volatility in stock prices, among other effects. There is a risk that government actions will not be effective at containing COVID-19 or
other infectious diseases, and that government actions, including the orders and restrictions described above, that are intended to contain the
spread of COVID-19 will have a devastating negative impact on the world economy at large, in which case the risks to our operating results
and financial condition described herein would be elevated significantly.
The continued spread of COVID-19 or other global health matters, has impacted and may continue to impact our target patient populations as
well as the hospitals and clinical sites in which we conduct any of our clinical trials, which could lead to delays in completing enrollment of
our clinical trials. For instance, the COVID-19 outbreak may continue to impair our ability to recruit and retain patients and engage principal
investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak occurs in their
geography or due to prioritization of hospital resources toward the outbreak and restrictions on travel. Furthermore, some patients may be
unwilling to enroll in our trials or be unable to comply with clinical trial protocols if quarantines or travel restrictions impede patient
movement or interrupt healthcare services. COVID-19 already has affected and may further negatively affect the operations of third party
contract research organizations that we rely upon to carry out our discovery work, clinical trials or the operations of our third party
manufacturers, which could result in delays or disruptions in the supply of our product candidates and the conduct of experiments and
studies. Any negative impact COVID-19 has to patient enrollment or treatment or the timing and execution of our preclinical studies or
clinical trials could cause costly delays to our development programs, which could adversely affect our ability to obtain regulatory approval
for and to commercialize our product candidates, increase our operating expenses and have a material adverse effect on our business and
financial results. COVID-19 has also caused, and may continue to cause for an extended period, volatility in the global financial markets and
threatened a slowdown in the global economy, which would reduce our ability to access capital and could negatively affect our liquidity.
Although states have implemented “shelter-in-place” orders, quarantines and similar restrictions, the regulations vary on a state by state basis
and the effectiveness of those restrictions on controlling the spread of COVID-19 varies. While our lab-based employees have returned to our
labs with enhanced safety measures, our office-based employees continue to work primarily from home and we expect this to continue for an
extended period. Furthermore, there has been a resurgence of COVID-19 cases, which could prompt a reinstatement of “shelter-in-place”
orders and restrictions at the state and local levels impacting our reentry to the workplace and causing hospital and clinical sites to suspend
our clinical trials or could deter patients from continuing to participate in our trials.
Three vaccines for COVID-19 were granted Emergency Use Authorization by the FDA in late 2020 and early 2021, and more are likely to be
authorized in the coming months. The resultant demand for vaccines and potential for manufacturing facilities and materials to be
commandeered under the Defense Production Act of 1950, or equivalent foreign legislation, may make it more difficult to obtain materials or
manufacturing slots for the products needed for our clinical trials, which could lead to delays in these trials.
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The global outbreak of COVID-19 continues to rapidly evolve. The extent to which COVID-19 impacts our business, results of operations
and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the
duration of the outbreak, travel restrictions, new information that may emerge concerning the severity of COVID-19 or the effectiveness of
actions taken in the United States and other countries to contain COVID-19 or treat its impact, among others. We cannot presently predict the
scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage, including
the suppliers, clinical trial sites, service providers, regulators and other third parties with whom we conduct business, were to experience
prolonged business shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently
planned could be materially and negatively impacted.
Risks related to manufacturing and supply
We will rely on third parties to manufacture our clinical product supplies, and we may rely on third parties to produce and process our
product candidates, if approved.
We do not currently own any facility that may be used as our clinical scale manufacturing facility and expect to rely on outside vendors to
manufacture supplies of our product candidates. We will need to negotiate and maintain contractual arrangements with these outside vendors
for the supply of our product candidates and we may not be able to do so on favorable terms. We have not yet caused any product candidates
to be manufactured on a commercial scale and may not be able to do so for any of our product candidates.
The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA or other foreign
regulatory authorities following inspections that will be conducted after we submit an application to the FDA or other foreign regulatory
authorities. We may not control the manufacturing process of, and may be completely dependent on, our contract manufacturing partners for
compliance with cGMPs and any other regulatory requirements of the FDA or other regulatory authorities for the manufacture of our product
candidates. Beyond periodic audits, we have no control over the ability of our contract manufacturers to maintain adequate quality control,
quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the
manufacture of our product candidates or if it withdraws any approval in the future, we may need to find alternative manufacturing facilities,
which would require the incurrence of significant additional costs and significantly impact our ability to develop, obtain regulatory approval
for or market our product candidates, if approved. Similarly, if any third-party manufacturers on which we will rely fail to manufacture
quantities of our product candidates at quality levels necessary to meet regulatory requirements and at a scale sufficient to meet anticipated
demand at a cost that allows us to achieve profitability, our business, financial condition and prospects could be materially and adversely
affected.
Manufacturing our product candidates is complex and we may encounter difficulties in production. If we encounter such difficulties, our
ability to provide supply of our product candidates for preclinical studies and clinical trials or for commercial purposes could be delayed
or stopped.
The process of manufacturing of our product candidates is complex and highly regulated.
We rely on third parties for the manufacture of our product candidates. These third-party manufacturers may incorporate their own
proprietary processes into our product candidate manufacturing processes. We have limited control and oversight of a third party’s
proprietary process, and a third party may elect to modify its process without our consent or knowledge. These modifications could
negatively impact our manufacturing, including product loss or failure that requires additional manufacturing runs or a change in
manufacturer, both of which could significantly increase the cost of and significantly delay the manufacture of our product candidates.
As our product candidates progress through preclinical studies and clinical trials towards approval and commercialization, it is expected that
various aspects of the manufacturing process will be altered in an effort to optimize processes and results. Such changes may require
amendments to be made to regulatory applications which may further delay the timeframes under which modified manufacturing processes
can be used for any of our product candidates and additional bridging studies or trials may be required.
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We do not have our own clinical-scale manufacturing facility and are currently reliant on a limited number of manufacturers for our product
candidates. These third-party manufacturing providers may not be able to provide adequate resources or capacity to meet our needs.
Risks related to sales, marketing, and competition
We currently have no marketing and sales organization and have no experience in marketing products. If we are unable to establish
marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if approved, we
may not be able to generate product revenue.
We currently have no sales, marketing or distribution capabilities and have no experience in marketing products. We intend to develop an in-
house marketing organization and sales force, which will require significant capital expenditures, management resources and time. We will
have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel.
If we are unable or decide not to establish internal sales, marketing and distribution capabilities, we will pursue arrangements with third-party
sales, marketing, and distribution collaborators regarding the sales and marketing of our products, if approved. However, there can be no
assurance that we will be able to establish or maintain such arrangements on favorable terms or if at all, or if we are able to do so, that these
third-party arrangements will provide effective sales forces or marketing and distribution capabilities. Any revenue we receive will depend
upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of
such third parties and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also
face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates.
There can be no assurance that we will be able to develop in-house sales and distribution capabilities or establish or maintain relationships
with third-party collaborators to commercialize any product in the United States or overseas.
A variety of risks associated with marketing our product candidates internationally could materially adversely affect our business.
We plan to seek regulatory approval of our product candidates outside of the United States and, accordingly, we expect that we will be
subject to additional risks related to operating in foreign countries if we obtain the necessary approvals, including:
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differing regulatory requirements in foreign countries, for example, no country other than the United States has a pathway for accelerated
drug approval and so obtaining regulatory approvals outside of the United States will take longer and be more costly than obtaining
approval in the United States;
unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;
economic weakness, including inflation, or political instability in particular foreign economies and markets;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
foreign taxes, including withholding of payroll taxes;
foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to
doing business in another country;
difficulties staffing and managing foreign operations;
• workforce uncertainty in countries where labor unrest is more common than in the United States;
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potential liability under the Foreign Corrupt Practices Act of 1977 or comparable foreign regulations;
challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect
intellectual property rights to the same extent as the United States;
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting from geo-political actions, including war and terrorism.
These and other risks associated with international operations may materially adversely affect our ability to attain or maintain profitable
operations.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates
or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we must focus on a limited number of research programs and product
candidates and on specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other
indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable
commercial products or profitable market opportunities. Our spending on current and future discovery and preclinical development programs
and product candidates for specific indications may not yield any commercially viable products.
Even if we obtain regulatory approval of our product candidates, the products may not gain market acceptance among physicians,
patients, hospitals, cancer treatment centers and others in the medical community.
The use of precision medicines as a potential cancer treatment is a recent development and may not become broadly accepted by physicians,
patients, hospitals, cancer treatment centers and others in the medical community. Various factors will influence whether our product
candidates are accepted in the market, including:
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the clinical indications for which our product candidates are licensed;
physicians, hospitals, cancer treatment centers and patients considering our product candidates as a safe and effective treatment;
the potential and perceived advantages of our product candidates over alternative treatments;
our ability to demonstrate the advantages of our product candidates over other cancer medicines;
the prevalence and severity of any side effects;
the prevalence and severity of any side effects for other precision medicines and public perception of other precision medicines;
product labeling or product insert requirements of the FDA or other regulatory authorities;
limitations or warnings contained in the labeling approved by the FDA;
the timing of market introduction of our product candidates as well as competitive products;
the cost of treatment in relation to alternative treatments;
the availability of adequate coverage, reimbursement and pricing by third-party payors and government authorities;
the willingness of patients to pay out-of-pocket in the absence of coverage by third-party payors and government authorities;
relative convenience and ease of administration, including as compared to alternative treatments and competitive therapies; and
the effectiveness of our sales and marketing efforts.
If our product candidates are licensed but fail to achieve market acceptance among physicians, patients, hospitals, cancer treatment centers or
others in the medical community, we will not be able to generate significant revenue.
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In addition, although our product candidates differ in certain ways from other precision medicine approaches, serious adverse events or
deaths in other clinical trials involving precision medicines, even if not ultimately attributable to our product or product candidates, could
result in increased government regulation, unfavorable public perception and publicity, potential regulatory delays in the testing or licensing
of our product candidates, stricter labeling requirements for those product candidates that are licensed, and a decrease in demand for any such
product candidates.
Even if our products achieve market acceptance, we may not be able to maintain that market acceptance over time if new products or
technologies are introduced that are more favorably received than our products, are more cost effective or render our products obsolete.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more
successfully than we do.
The biotechnology and pharmaceutical industries utilize rapidly advancing technologies and are characterized by intense competition. While
we believe that our scientific knowledge, platform technology and development expertise provide us with competitive advantages, we face
potential competition from many different sources, including major pharmaceuticals, specialty pharmaceuticals and biotechnology
companies, academic institutions and government agencies, and public and private research institutes that conduct research, development,
manufacturing and commercialization. Many of our competitors have significantly greater financial resources and expertise in research and
development, manufacturing, preclinical testing, regulatory approvals and product marketing than we do. Our competitors may compete with
us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for
clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. As a result, our competitors may
discover, develop, license or commercialize products before or more successfully than we do.
Product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become
available in the future. Specifically for BDTX-189, we expect competition primarily in the EGFR and HER2 Exon 20 insertion NSCLC
patient populations, including: mobocertinib (TAK-788), which is under development by Takeda Pharmaceutical Company Ltd;
amivantamab (JNJ-61186372), which is under development by Janssen Research & Development, LLC; trastuzumab deruxtecan (DS-8201),
marketed by Daiichi Sankyo Company Ltd. and AstraZeneca plc under the trade name Enhertu, which is currently approved for HER2+
breast cancer, but under development for HER2 mutan t solid tumors; poziotinib, which is under development by Spectrum Pharmaceuticals,
Inc; CLN-081 (formerly TAS6417), which is under development by Cullinan Oncology, LLC; and DZD9008, which is under development by
Dizal Pharmaceutical Co., Ltd. In addition, there are other small molecule and precision oncology-focused companies with whom we may
eventually compete, including Loxo Oncology, Inc. (recently acquired by Eli Lilly and Company), Blueprint Medicines Corporation,
Deciphera Pharmaceuticals, Inc., Turning Point Therapeutics, Inc., and Mirati Therapeutics, Inc.
If our drug candidates, including BDTX-189, are approved for the indications for which we are currently planning clinical trials, they will
likely compete with the competitor drugs mentioned above and with other drugs that are currently in development. Key product features that
would affect our ability to effectively compete with other therapeutics include the efficacy, safety and convenience of our products. Our
competitors may obtain patent protection or other intellectual property rights that limit our ability to develop or commercialize our product
candidates. The availability of reimbursement from government and other third-party payors will also significantly affect the pricing and
competitiveness of our products. Our competitors may also obtain FDA or other regulatory approval for their products more rapidly than we
may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the
market. For additional information regarding our competition, see “Business—Competition.”
Risks related to our financial position and capital requirements
Risks related to past financial condition
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Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future
viability.
We are a biotechnology company with a limited operating history. We commenced operations in December 2014, and our operations to date
have been limited to organizing and staffing our company, business planning, raising capital, conducting discovery and research activities,
filing patent applications, identifying potential product candidates, undertaking preclinical studies and establishing arrangements with third
parties for the manufacture of initial quantities of our product candidates and component materials. Most of our product candidates are still in
preclinical development. We have not yet demonstrated our ability to successfully conduct or complete any clinical trials, obtain marketing
approvals, manufacture a commercial-scale product or arrange for a third party to do so on our behalf, or conduct sales, marketing and
distribution activities necessary for successful product commercialization. Consequently, any predictions you make about our future success
or viability may not be as accurate as they could be if we had a longer operating history.
In addition, as a young business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown
factors. We will need to transition at some point from a company with a research and development focus to a company capable of supporting
commercial activities. We may not be successful in such a transition.
We have incurred significant losses since inception, and we expect to incur losses over the next several years and may not be able to
achieve or sustain revenues or profitability in the future.
Investment in biopharmaceutical product development is a highly speculative undertaking and entails substantial upfront capital expenditures
and significant risk that any potential product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, gain
regulatory approval and become commercially viable. We are still in the early stages of development of our product candidates. We have
begun enrollment and dosing of patients in the Phase 1 portion of our MasterKey-01 trial to pursue a tumor-agnostic development strategy.
We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur
significant research and development and other expenses related to our ongoing operations. We have financed our operations primarily
through private placements of our preferred stock.
We have incurred significant net losses in each period since we commenced operations in December 2014. For the years ended December 31,
2020 and 2019, we reported net losses of $67.3 million and $35.3 million, respectively. As of December 31, 2020, we had an accumulated
deficit of $118.2 million. We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase
substantially if and as we:
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continue our research and development efforts and submit INDs for our lead product candidates;
conduct preclinical studies and clinical trials for our current and future product candidates based on our Mutation—Allostery—
Pharmacology, or MAP, platform;
seek marketing approvals for any product candidates that successfully complete clinical trials;
experience any delays or encounter any issues with any of the above, including but not limited to failed studies, complex results,
safety issues or other regulatory challenges;
establish a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities, whether alone or with third
parties, to commercialize any product candidates for which we may obtain regulatory approval, if any;
obtain, expand, maintain, enforce and protect our intellectual property portfolio;
hire additional clinical, regulatory and scientific personnel; and
operate as a public company.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the
timing or amount of increased expenses we will incur or when, if ever, we will be able to
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achieve profitability. Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial
research and development and other expenditures to develop, seek regulatory approval for and market additional product candidates. We may
encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size
of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses
and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.
We have not generated any revenue from our product candidates and may never be profitable.
Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue from any of our
product candidates. We do not expect to generate significant revenue unless or until we successfully complete clinical development and
obtain regulatory approval of, and then successfully commercialize, at least one of our product candidates. Most of our product candidates
are in the preclinical stages of development and will require additional preclinical studies, clinical development, regulatory review and
approval, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can
generate any revenue from product sales. We have begun enrollment and dosing of patients in the Phase 1 portion of our MasterKey-01 trial
to pursue a tumor-agnostic development strategy. Our other product candidates are in various stages of preclinical development. We face
significant translational risk as our product candidates in preclinical development advance to the clinical stage, as promising results in
preclinical studies may not be replicated in subsequent clinical trials and testing on animals may not accurately predict human experience.
Our ability to generate revenue depends on a number of factors, including, but not limited to:
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timely completion of our preclinical studies and clinical trials, which may be significantly slower or cost more than we currently
anticipate and will depend substantially upon the performance of third-party contractors;
our ability to complete IND-enabling studies and successfully submit INDs or comparable applications;
• whether we are required by the U.S. Food and Drug Administration, or the FDA, or similar foreign regulatory authorities to conduct
additional clinical trials or other studies beyond those planned to support the approval and commercialization of our product candidates
or any future product candidates;
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our ability to demonstrate to the satisfaction of the FDA and similar foreign regulatory authorities the safety, potency, purity, efficacy and
acceptable risk to benefit profile of our product candidates or any future product candidates and such regulatory authorities’ acceptance
of our tumor-agnostic development strategy (i.e., our pursuit of approval based on a biomarker rather than a specific cancer indication);
the prevalence, duration and severity of potential side effects or other safety issues experienced with our product candidates or future
product candidates, if any;
the timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities;
the willingness of physicians, operators of clinics and patients to utilize or adopt any of our product candidates or future product
candidates over alternative or more conventional therapies, such as chemotherapy, to treat solid tumors;
the actual and perceived availability, cost, risk profile and side effects and efficacy of our product candidates, if approved, relative to
existing and future alternative cancer therapies and competitive product candidates and technologies;
our ability and the ability of third parties with whom we contract to manufacture adequate clinical and commercial supplies of our
product candidates or any future product candidates, remain in good standing with regulatory authorities and develop, validate and
maintain commercially viable manufacturing processes that are compliant with cGMP;
our ability to successfully develop a commercial strategy and thereafter commercialize our product candidates or any future product
candidates in the United States and internationally, if approved for marketing, reimbursement, sale and distribution in such countries and
territories, whether alone or in collaboration with others;
patient demand for our product candidates and any future product candidates, if approved; and
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our ability to establish and enforce intellectual property rights in and to our product candidates or any future product candidates.
Many of the factors listed above are beyond our control and could cause us to experience significant delays or prevent us from obtaining
regulatory approvals or commercializing our product candidates. Even if we are able to commercialize our product candidates, we may not
achieve profitability soon after generating product sales, if ever. If we are unable to generate sufficient revenue through the sale of our
product candidates or any future product candidates, we may be unable to continue operations without continued funding.
Risks related to future financial condition
We will need substantial additional funding. If we are unable to raise capital when needed, we would be compelled to delay, reduce or
eliminate our product development programs or commercialization efforts.
We expect our expenses to increase in parallel with our ongoing activities, particularly as we continue our discovery and preclinical
development activities to identify new product candidates and initiate clinical trials of, and seek marketing approval for, our product
candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization
expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we will need to obtain substantial additional
funding in connection with our continuing operations. However, we have estimated our current additional funding needs based on
assumptions that may prove to be wrong. Additionally, changing circumstances may cause us to consume capital significantly faster than we
currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. We cannot
be certain that additional funding will be available on acceptable terms, or at all. Until such time, if ever, as we can generate substantial
product revenue, we expect to finance our operations through a combination of public or private equity offerings, debt financings,
governmental funding, collaborations, strategic partnerships and alliances or marketing, distribution or licensing arrangements with third
parties. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our discovery
and preclinical development programs or any future commercialization efforts.
We had cash, cash equivalents and investments of $315.1 million as of December 31, 2020. Our net proceeds from our initial public offering
were $212.1 million, based the initial public offering price of $19.00 per share, after deducting underwriting discounts and commissions and
offering expenses payable by us. We believe that, based upon our current operating plan, our existing capital resources, including net
proceeds from our initial public offering will be sufficient to fund our anticipated operations into 2023, including the Phase 1/2 clinical trial
of BDTX-189 and the identification of a lead product candidate and IND-enabling studies in our glioblastoma program, with additional
resources for continued development of our MAP platform. Our future capital requirements will depend on many factors, including:
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the scope, progress, results and costs of discovery, preclinical development and clinical trials for our product candidates;
the extent to which we enter into collaboration arrangements with regard to product discovery or acquire or in-license products or
technologies;
our ability to establish discovery collaborations on favorable terms, if at all;
the costs, timing and outcome of regulatory review of our product candidates;
the costs of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our
product candidates for which we receive marketing approval;
revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing
approval; and
the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining, enforcing and protecting our intellectual
property rights and defending intellectual property-related claims.
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Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain
process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and
achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if
any, will be derived from sales of products that we do not expect to be commercially available for many years, if at all. Accordingly, we will
need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us
on acceptable terms, or at all.
Risks related to government regulation
We are very early in our development efforts. Most of our product candidates are still in preclinical development. If we are unable to
advance our product candidates to clinical development, obtain regulatory approval and ultimately commercialize our product candidates
or experience significant delays in doing so, our business will be materially harmed.
We are very early in our development efforts, and most of our product candidates are still in preclinical development. We have invested
substantially all of our efforts and financial resources in the identification and preclinical development of our product candidates, including
the development of our initial product candidate, BDTX-189. Our ability to generate product revenues, which we do not expect will occur for
many years, if ever, will depend on the successful development, approval and eventual commercialization of our product candidates, which
may never occur. We currently generate no revenue from sales of any products, and we may never be able to develop or commercialize a
marketable product. The success of our product candidates will depend on several factors, including the following:
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successful completion of preclinical studies;
approval of INDs for our planned clinical trials or future clinical trials;
FDA acceptance of our tumor-agnostic development strategy;
successful enrollment in future clinical trials;
positive results from future clinical trials that are supportive of safety and efficacy in the intended patient populations;
successful development of companion diagnostics for use with certain of our product candidates;
receipt of regulatory approvals from applicable regulatory authorities;
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers for clinical supply and
commercial manufacturing;
obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our product candidates;
launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;
acceptance of the product candidates, if and when approved, by patients, the medical community and third-party payors;
effectively competing with other therapies;
obtaining and maintaining third-party insurance coverage and adequate reimbursement;
obtaining, enforcing and defending intellectual property rights and claims; and
• maintaining a continued acceptable safety profile of the product candidates following approval.
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to
successfully commercialize our product candidates, which would materially harm our business. If we do not receive regulatory approvals for
our product candidates, we may not be able to continue our operations.
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If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals for our product candidates, we will not be
able to commercialize, or will be delayed in commercializing, our product candidates, and our ability to generate revenue will be
materially impaired.
Our product candidates and the activities associated with their development and commercialization, including their design, testing,
manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, distribution, import and export are
subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other
countries. Before we can commercialize any of our product candidates, we must obtain marketing approval. Depending on results from our
open-label Phase 1/2 clinical trial for BDTX-189, we expect, subject to discussions with FDA, to either expand the Phase 2 portion of the
trial or initiate a second Phase 2 trial in order to seek accelerated approval from the FDA for the treatment of patients with advanced solid
tumors that harbor one or more of the targeted genetic mutations detected by an NGS test requiring contemporaneous FDA clearance or
approval, who have progressed or relapsed following prior treatment and who have no satisfactory treatment options. Whether the results
from our open-label Phase 1/2 clinical trial and other trials will suffice to obtain accelerated approval will be a review issue and the FDA may
not grant accelerated approval and may require that we conduct one or more controlled, randomized Phase 3 clinical trials to obtain approval.
In addition, because there is limited experience of the FDA with the approval of tumor-agnostic cancer treatments and since we will need to
show that there is no available therapy for each of the tumors tested in our open-label Phase 1/2 clinical trial, we may experience challenges
in obtaining accelerated approval across all such tumor types. To date, we have had no interactions with regulatory authorities outside of the
United States. We intend to engage with the EMA following the results of the Phase 2 portion of the planned trial regarding regulatory
requirements for registration in the EU. There is limited experience of regulatory authorities outside of the United States with the approval of
tumor-agnostic precision cancer medicines.
Securing regulatory approval also requires the submission of information about the drug manufacturing process to, and inspection of
manufacturing facilities by, the relevant regulatory authority. Further, our product candidates may not be effective, may be only moderately
effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining
marketing approval or prevent or limit commercial use.
The process of obtaining regulatory approvals, both in the United States and abroad, is expensive, may take many years if additional clinical
trials are required, 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. Changes in marketing approval policies during the development period, changes in or the
enactment of additional statutes or regulations, or changes in regulatory review for each submitted IND, NDA, or equivalent application
types, may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries 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. Our product candidates could be delayed in receiving, or fail to receive,
regulatory approval for many reasons, including the following:
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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials, including our
Phase 1/2 clinical trial design for BDTX-189;
the FDA or comparable foreign regulatory authorities may disagree with our tumor-agnostic development strategy;
• we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a drug candidate is safe
and effective for its proposed indication or a related companion diagnostic is suitable to identify appropriate patient populations;
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the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory
authorities for approval;
• we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
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the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical
trials;
the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA or other
submission or to obtain regulatory approval in the United States or elsewhere;
the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party
manufacturers with which we contract for clinical and commercial supplies; and
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner
rendering our clinical data insufficient for approval.
Of the large number of drugs in development, only a small percentage successfully complete the FDA or foreign regulatory approval
processes and are commercialized. The lengthy approval process as well as the unpredictability of future clinical trial results may result in
our failing to obtain regulatory approval to market our product candidates, which would significantly harm our business, results of operations
and prospects.
Our clinical trials may fail to demonstrate adequately the safety and efficacy of any of our product candidates, which would prevent or
delay regulatory approval and commercialization.
To obtain the requisite regulatory approvals to market and sell any of our product candidates, including BDTX-189 and any other future
product candidates, we must demonstrate through extensive preclinical studies and clinical trials that our products are safe and effective in
humans. Our product candidates may fail to demonstrate efficacy in humans, and particularly across tumor types. Clinical testing is
expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial
process and our future clinical trial results may not be successful. Further, the process of obtaining regulatory approval is expensive, often
takes many years following the commencement of clinical trials and can vary substantially based upon the type, complexity and novelty of
the product candidates involved, as well as the target indications, patient population and regulatory agency. Prior to obtaining approval to
commercialize a product candidate in the United States or abroad, we or our potential future collaborators must demonstrate with substantial
evidence from adequate and well-controlled clinical trials, and to the satisfaction of the FDA, the EMA or other comparable foreign
regulatory authorities, that such product candidates are safe and effective for their intended uses.
Clinical trials that we conduct may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market our product
candidates. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same
product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the
patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. If the
results of our ongoing or future clinical trials are inconclusive with respect to the efficacy of our product candidates, if we do not meet the
clinical endpoints with statistical and clinically meaningful significance, or if there are safety concerns associated with our product
candidates, we may be delayed in obtaining marketing approval, if at all.
Even if the trials are successfully completed, clinical data are often susceptible to varying interpretations and analyses, and we cannot
guarantee that the FDA, the EMA, or other comparable foreign regulatory authorities will interpret the results as we do, and more trials could
be required before we submit our product candidates for approval. We cannot guarantee that the FDA, the EMA or other comparable foreign
regulatory authorities will view our product candidates as having sufficient efficacy to support a tumor-agnostic indication even if positive
results are observed in clinical trials. To the extent that the results of the trials are not satisfactory to the FDA, the EMA or other comparable
foreign regulatory authorities for support of a marketing application, approval of our product candidates may be significantly delayed, or we
may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of
potential approval of our product candidates. Additionally, any safety or efficacy concerns observed in any tumor-specific subgroup of our
clinical trials could limit the prospects for regulatory approval of our product candidates for a tumor-agnostic indication, which could have a
material adverse effect on our business, financial condition and results of operations.
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We may in the future seek orphan drug status for BDTX-189 and some of our other future product candidates, but we may be unable to
obtain such designations or to maintain the benefits associated with orphan drug status, including market exclusivity, which may cause
our revenue, if any, to be reduced.
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, defined
as a disease or condition with a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in
the United States when there is no reasonable expectation that the cost of developing and making available the drug or biologic in the United
States will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before
submitting an NDA. In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant
funding towards clinical trial costs, tax advantages and user-fee waivers. After the FDA grants orphan drug designation, the generic identity
of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or
shorten the duration of, the regulatory review and approval process.
If a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the disease
for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other
applications, including an NDA, to market the same biologic for the same indication for seven years, except in limited circumstances such as
a showing of clinical superiority to the product with orphan drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity
has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or
condition for which the drug was designated. As a result, even if one of our product candidates receives orphan exclusivity, the FDA can still
approve other drugs that have a different active ingredient for use in treating the same indication or disease. Furthermore, the FDA can waive
orphan exclusivity if we are unable to manufacture sufficient supply of our product.
We may seek orphan drug designation for BDTX-189 and some or all of our other future product candidates in additional orphan indications
in which there is a medically plausible basis for the use of these products. Even when we obtain orphan drug designation, exclusive
marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan designated indication and
may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure
sufficient quantities of the product to meet the needs of patients with the rare disease or condition. In addition, although we intend to seek
orphan drug designation for other product candidates, we may never receive such designations. For example, the FDA has expressed
concerns regarding the regulatory considerations for orphan drug designation as applied to tissue agnostic therapies, and the FDA may
interpret the FD&C Act and regulations promulgated thereunder in a way that limits or blocks our ability to obtain orphan drug designation
or orphan drug exclusivity, if our product candidates are approved, for our targeted indications.
On August 3, 2017, Congress passed the FDA Reauthorization Act of 2017, or FDARA. FDARA, among other things, codified the FDA’s
pre-existing regulatory interpretation, to require that a drug sponsor demonstrate the clinical superiority of an orphan drug that is otherwise
the same as a previously approved drug for the same rare disease in order to receive orphan drug exclusivity. The legislation reverses prior
precedent holding that the Orphan Drug Act unambiguously requires that the FDA recognize the orphan exclusivity period regardless of a
showing of clinical superiority. Moreover, in the Consolidated Appropriations Act of 2021, Congress did not further change this
interpretation when it clarified that the interpretation codified in FDARA would apply in cases where FDA issued an orphan designation
before the enactment of FDARA but where product approval came after the enactment of FDARA. The FDA may further reevaluate the
Orphan Drug Act and its regulations and policies. We do not know if, when, or how the FDA may change the orphan drug regulations and
policies in the future, and it is uncertain how any changes might affect our business. Depending on what changes the FDA may make to its
orphan drug regulations and policies, our business could be adversely impacted.
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A Breakthrough Therapy designation by the FDA, even if granted for any of our product candidates, may not lead to a faster
development or regulatory review or approval process and it does not increase the likelihood that our product candidates will receive
marketing approval.
We may seek Breakthrough Therapy designation for BDTX-189 and some or all of our future product candidates. A breakthrough therapy is
defined as a drug or biologic that is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-
threatening disease or condition and preliminary clinical evidence indicates that the drug or biologic may demonstrate substantial
improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in
clinical development. For product candidates that have been designated as breakthrough therapies, interaction and communication between
the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of
patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA may also be eligible for other
expedited approval programs, including accelerated approval.
Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates
meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In
any event, the receipt of a Breakthrough Therapy designation for a product candidate may not result in a faster development process, review
or approval compared to candidate products considered for approval under non-expedited FDA review procedures and does not assure
ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may
later decide that the product no longer meets the conditions for qualification. Thus, even though we intend to seek Breakthrough Therapy
designation for BDTX-189 and some or all of our future product candidates for the treatment of various cancers, there can be no assurance
that we will receive breakthrough therapy designation.
A Fast Track designation by the FDA may not lead to a faster development or regulatory review or approval process, and does not
increase the likelihood that our product candidates will receive marketing approval.
If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet
medical needs for this condition, the drug sponsor may apply for FDA Fast Track designation for a particular indication. We have been
granted Fast Track designation for BDTX-189 for the treatment of adult patients with solid tumors harboring an allosteric human epidermal
growth factor receptor 2 (HER2) mutation or an epidermal growth factor receptor (EGFR) or HER2 Exon 20 insertion mutation who have
progressed following prior treatment and who have no satisfactory treatment options. We may seek Fast Track designation for other
indications or for certain of our future product candidates, but there is no assurance that the FDA will grant this status to any of our other
proposed product candidates. Marketing applications filed by sponsors of products in Fast Track development may qualify for priority review
under the policies and procedures offered by the FDA, but the Fast Track designation does not assure any such qualification or ultimate
marketing approval by the FDA. The FDA has broad discretion whether or not to grant Fast Track designation, so even if we believe a
particular product candidate is eligible for this designation, there can be no assurance that the FDA would decide to grant it. Even if we do
receive Fast Track designation, we may not experience a faster development process, review or approval compared to conventional FDA
procedures, and receiving a Fast Track designation does not provide assurance of ultimate FDA approval. In addition, the FDA may
withdraw Fast Track designation if it believes that the designation is no longer supported by data from our clinical development program. In
addition, the FDA may withdraw any Fast Track designation at any time.
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Accelerated approval by the FDA, even if granted for BDTX-189 or any other future product candidates, may not lead to a faster
development or regulatory review or approval process and it does not increase the likelihood that our product candidates will receive
marketing approval.
We plan to seek approval of BDTX-189 and may seek approval of future product candidates using the FDA’s accelerated approval pathway.
A product may be eligible for accelerated approval if it treats a serious or life-threatening condition and generally provides a meaningful
advantage over available therapies. In addition, it must demonstrate an effect on a surrogate endpoint that is reasonably likely to predict
clinical benefit. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate
and well-controlled post-marketing clinical trials. These confirmatory trials must be completed with due diligence. In addition, the FDA
currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of
the commercial launch of the product. Even if we do receive accelerated approval, we may not experience a faster development or regulatory
review or approval process, and receiving accelerated approval does not provide assurance of ultimate full FDA approval.
If we are unable to successfully validate, develop and obtain regulatory approval for companion diagnostic tests for our drug candidates
that are required or experience significant delays in doing so, we may not realize the full commercial potential of these drug candidates.
In connection with the clinical development of our drug candidates for certain indications, we intend to engage third parties to develop or
obtain access to in vitro companion diagnostic tests to identify patient subsets within a disease category who may derive selective and
meaningful benefit from our drug candidates. Such companion diagnostics would be used during our clinical trials as well as in connection
with the FDA approval of our product candidates. To be successful, we or our collaborators will need to address a number of scientific,
technical, regulatory and logistical challenges. The FDA regulates in vitro companion diagnostics as medical devices and, under that
regulatory framework, will require the test to be analytically validated and used for patient selection in the clinical trial, which we expect will
require separate regulatory clearance or approval prior to commercialization if not already approved.
We intend to rely on third parties for the design, development and manufacture of companion diagnostic tests for our therapeutic drug
candidates that may require such tests. If we enter into such collaborative agreements, we will be dependent on the sustained cooperation and
effort of our future collaborators in developing and obtaining approval for these companion diagnostics. It may be necessary to resolve issues
such as selectivity/specificity, analytical validation, reproducibility, or clinical validation of companion diagnostics during the development
and regulatory approval processes. Moreover, even if data from preclinical studies and early clinical trials appear to support development of a
companion diagnostic for a product candidate, data generated in later clinical trials may fail to support the analytical and clinical validation of
the companion diagnostic. We and our future collaborators may encounter difficulties in developing, obtaining regulatory approval for,
manufacturing and commercializing companion diagnostics similar to those we face with respect to our therapeutic candidates themselves,
including issues with achieving regulatory clearance or approval, production of sufficient quantities at commercial scale and with appropriate
quality standards, and in gaining market acceptance. If we are unable to successfully develop companion diagnostics for these therapeutic
drug candidates, or experience delays in doing so, the development of these therapeutic drug candidates may be adversely affected, these
therapeutic drug candidates may not obtain marketing approval, and we may not realize the full commercial potential of any of these
therapeutics that obtain marketing approval. As a result, our business, results of operations and financial condition could be materially
harmed. In addition, a diagnostic company with whom we contract may decide to discontinue selling or manufacturing the companion
diagnostic test that we anticipate using in connection with development and commercialization of our product candidates or our relationship
with such diagnostic company may otherwise terminate. We may not be able to enter into arrangements with another diagnostic company to
obtain supplies of an alternative diagnostic test for use in connection with the development and commercialization of our product candidates
or do so on commercially reasonable terms, which could adversely affect and/or delay the development or commercialization of our
therapeutic candidates.
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Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in
obtaining regulatory approval of our product candidates in other jurisdictions.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain
or maintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may
have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product
candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the
product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review
periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials as clinical trials
conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United
States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the
price that we intend to charge for our products is also subject to approval.
We may also submit marketing applications in other countries. Regulatory authorities in jurisdictions outside of the United States have
requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign
regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and
could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in
international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full
market potential of our product candidates will be harmed.
Risks related to ongoing regulatory obligations
Even if we receive regulatory approval of our product candidates, we will be subject to ongoing regulatory obligations and continued
regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with
regulatory requirements or experience unanticipated problems with our product candidates.
Any regulatory approvals that we receive for our product candidates will require surveillance to monitor the safety and efficacy of the
product candidate. The FDA may also require a REMS in order to approve our product candidates, which could entail requirements for a
medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient
registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves our product
candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import,
export and recordkeeping for our product candidates will be subject to extensive and ongoing regulatory requirements. These requirements
include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with applicable
cGMP, GLP and GCP requirements, for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems
with our product candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or
manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:
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restrictions on the marketing or manufacturing of our product candidates, withdrawal of the product from the market or voluntary or
mandatory product recalls;
• manufacturing delays and supply disruptions where regulatory inspections identify observations of noncompliance requiring remediation;
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revisions to the labeling, including limitation on approved uses or the addition of additional warnings, contraindications or other safety
information, including boxed warnings;
imposition of a REMS, which may include distribution or use restrictions;
requirements to conduct additional post-market clinical trials to assess the safety of the product;
fines, warning letters or holds on clinical trials;
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refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of
approvals;
product seizure or detention, or refusal to permit the import or export of our product candidates; and
injunctions or the imposition of civil or criminal penalties.
The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent,
limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that
may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes
in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may
lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.
If any of our product candidates are approved and we are found to have improperly promoted off-label uses of those products, we may
become subject to significant liability. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made
about prescription products, if approved. In particular, while the FDA permits the dissemination of truthful and non-misleading information
about an approved product, a manufacturer may not promote a product for uses that are not approved by the FDA or such other regulatory
agencies as reflected in the product’s approved labeling. If we are found to have promoted such off-label uses, we may become subject to
significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion of
off-label use and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter
into consent decrees, corporate integrity agreements or permanent injunctions under which specified promotional conduct must be changed or
curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to significant
liability, which would materially adversely affect our business and financial condition.
The insurance coverage and reimbursement status of newly-approved products is uncertain. Our product candidates may become subject
to unfavorable pricing regulations, third-party coverage and reimbursement practices, or healthcare reform initiatives, which would
harm our business. Failure to obtain or maintain adequate coverage and reimbursement for new or current products could limit our
ability to market those products and decrease our ability to generate revenue.
The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drugs vary widely from country to country. In
the United States, recently enacted legislation may significantly change the approval requirements in ways that could involve additional costs
and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many
countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription
pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain
marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the
product, possibly for lengthy time periods, and negatively impact the revenue we are able to generate from the sale of the product in that
country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if any product
candidates we may develop obtain marketing approval.
In the United States and markets in other countries, patients generally rely on third-party payors to reimburse all or part of the costs
associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and
Medicaid, and commercial payors is critical to new product acceptance. Our ability to successfully commercialize our product candidates will
depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from
government health administration authorities, private health insurers and other organizations. Government authorities and other third-party
payors, such as private health insurers and health maintenance organizations, decide which medications they
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will pay for and establish reimbursement levels. The availability of coverage and extent of reimbursement by governmental and private
payors is essential for most patients to be able to afford treatments such as gene therapy products. Sales of these or other product candidates
that we may identify will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will
be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by
government health administration authorities, private health coverage insurers and other third-party payors. If coverage and adequate
reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our product
candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain
pricing sufficient to realize a sufficient return on our investment.
Reimbursement by a third-party payor may depend upon a number of factors, including, but not limited to, the third-party payor’s
determination that use of a product is:
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a covered benefit under its health plan;
safe, effective and medically necessary;
appropriate for the specific patient;
cost-effective; and
neither experimental nor investigational.
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have
attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. In many countries, the prices of
medical products are subject to varying price control mechanisms as part of national health systems. In general, the prices of medicines under
such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for medicines, but
monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that
we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for products may be
reduced compared with the United States and may be insufficient to generate commercially reasonable revenues and profits.
There is also significant uncertainty related to the insurance coverage and reimbursement of newly approved products and coverage may be
more limited than the purposes for which the medicine is approved by the FDA or comparable foreign regulatory authorities. In the United
States, the principal decisions about reimbursement for new medicines are typically made by CMS, an agency within HHS. CMS decides
whether and to what extent a new medicine will be covered and reimbursed under Medicare and private payors tend to follow CMS to a
substantial degree. No uniform policy of coverage and reimbursement for products exists among third-party payors and coverage and
reimbursement levels for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time
consuming and costly process that may 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. It is
difficult to predict what CMS will decide with respect to reimbursement for fundamentally novel products such as ours. Reimbursement
agencies in Europe may be more conservative than CMS. For example, a number of cancer drugs have been approved for reimbursement in
the United States and have not been approved for reimbursement in certain European countries. Moreover, eligibility for reimbursement does
not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale, and
distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made
permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on
reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Our inability to
promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved products we may
develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize product candidates,
and our overall financial condition.
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Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by
any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United
States. Our inability to promptly obtain coverage and profitable reimbursement rates third-party payors for any approved products that we
develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our
overall financial condition.
Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are
challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product candidate that
we commercialize and, if reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the price
of, any product candidate for which we obtain marketing approval. In order to obtain reimbursement, physicians may need to show that
patients have superior treatment outcomes with our products compared to standard of care drugs, including lower-priced generic versions of
standard of care drugs. We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the
trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The
downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become
very intense. As a result, increasingly high barriers are being erected to the entry of new products.
Additionally, we may develop companion diagnostic tests for use with our product candidates. We, or our collaborators, may be required to
obtain coverage and reimbursement for these tests separate and apart from the coverage and reimbursement we seek for our product
candidates, once approved. Even if we obtain regulatory approval or clearance for such companion diagnostics, there is significant
uncertainty regarding our ability to obtain coverage and adequate reimbursement for the same reasons applicable to our product candidates.
Medicare reimbursement methodologies, whether under Part A, Part B, or clinical laboratory fee schedule may be amended from time to
time, and we cannot predict what effect any change to these methodologies would have on any product candidate or companion diagnostic
for which we receive approval. Our inability to promptly obtain coverage and adequate reimbursement from both third-party payors for the
companion diagnostic tests that we develop and for which we obtain regulatory approval could have a material and adverse effect on our
business, financial condition, results of operations and prospects.
Healthcare legislative measures aimed at reducing healthcare costs may have a material adverse effect on our business and results of
operations.
The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system
that could prevent or delay marketing approval of our product candidates or any future product candidates, restrict or regulate post-approval
activities and affect our ability to profitably sell a product for which we obtain marketing approval. Changes in regulations, statutes or the
interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing
arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-
keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March
2010, the ACA was passed, which substantially changed the way healthcare is financed by both governmental and private insurers, and
significantly impacted the U.S. pharmaceutical industry. The ACA, among other things, subjects biological products to potential competition
by lower-cost biosimilars, addresses 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, increases the minimum Medicaid rebates owed by
manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care
organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and creates a new Medicare Part D
coverage gap discount program, in which manufacturers must agree to offer 70% (increased pursuant to the Bipartisan Budget Act of 2018,
effective as of 2019) point-of-sale
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discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the
manufacturer’s outpatient drugs to be covered under Medicare Part D.
Since its enactment, there have been judicial, administrative, executive and Congressional legislative challenges to certain aspects of the
ACA, and we expect there will be additional challenges and amendments to the ACA in the future. For example,. various portions of the
ACA are currently undergoing constitutional challenges in the Fifth Circuit Court and the United States Supreme Court, and the Trump
Administration issued various Executive Orders eliminating 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. Additionally, Congress introduced several pieces of legislation aimed at significantly revising or
repealing the ACA. It is unclear whether the ACA will be overturned, repealed, replaced, or further amended. We cannot predict what affect
further changes to the ACA would have on our business, especially given the new administration.
Members of the U.S. Congress and the Trump administration expressed an intent to pass legislation or adopt executive orders to
fundamentally change or repeal parts of the ACA. While Congress has not passed repeal legislation to date, the Tax Cuts and Jobs Act of
2017, or TCJA, repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals
who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” On
December 14, 2018, a federal district court in Texas ruled the individual mandate is a critical and inseverable feature of the ACA, and
therefore, because it was repealed as part of the TCJA, the remaining provisions of the ACA are invalid as well. The Trump Administration
and CMS both stated that the ruling will have no immediate effect, and on December 18, 2019, the Fifth Circuit U.S. Court of Appeals held
that the individual mandate is unconstitutional, and remanded the case to the lower court to reconsider its earlier invalidation of the full ACA.
Pending review, the ACA remains in effect, but it is unclear at this time what effect the latest ruling will have on the status of the ACA.
Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results. We will continue to evaluate the
effect that the ACA and its possible repeal and replacement has on our business.
Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities
under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA 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. On October 13, 2017, President Trump signed an Executive Order terminating the cost-sharing subsidies
that reimburse insurers under the ACA. The Trump administration concluded that cost-sharing reduction, or CSR, payments to insurance
companies required under the ACA have not received necessary appropriations from Congress and announced that it will discontinue these
payments immediately until those appropriations are made. The loss of the CSR payments is expected to increase premiums on certain
policies issued by qualified health plans under the ACA. Several state Attorneys General filed suit to stop the administration from
terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. On
August 14, 2020, the U.S. Court of Appeals for the Federal Circuit ruled in two separate cases that the federal government is liable for the
full amount of unpaid CSRs for the years preceding and including 2017. For CSR claims made by health insurance companies for years 2018
and later, further litigation will be required to determine the amounts due, if any. Further, on June 14, 2018, the U.S. Court of Appeals for the
Federal Circuit ruled that the federal government was not required to pay to third-party payors more than $12 billion in ACA risk corridor
payments that they argued were owed to them. On April 27, 2020, the United States Supreme Court reversed the U.S. Court of Appeals for
the Federal Circuit decision and remanded the case to the U.S. Court of Federal Claims, concluding the government has an obligation to pay
these risk corridor payments under the relevant formula. On March 2, 2020, the United States Supreme Court granted the petitions for writs
of certiorari to review this case, and held oral arguments on November 10, 2020. The Supreme Court’s decision in this case is forthcoming.
The effects of this gap in reimbursement on third-party payors, the viability of the ACA marketplace, providers, and potentially our business,
are not yet known.
On December 20, 2019, President Trump signed into law the Further Consolidated Appropriations Act (H.R. 1865), which repealed the so
called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee
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imposed on certain health insurance providers based on market share, and the medical devise excise tax on non-exempt medical devises. It is
impossible to determine whether similar taxes could be instated in the future. The Bipartisan Budget Act of 2018, also amended the ACA,
effective January 1, 2019, by increasing the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare
Part D and closing the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” CMS published a final rule
permitting further collections and payments to and from certain ACA qualified health plans and health insurance issuers under the ACA risk
adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk
adjustment. In addition, CMS published a final rule that gives states greater flexibility, as of 2020, in setting benchmarks for insurers in the
individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for
plans sold through such marketplaces. Other legislative changes have been proposed and adopted in the United States since the ACA was
enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A
Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years
2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government
programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, and, due to subsequent legislative
amendments, will remain in effect through 2030 unless additional Congressional action is taken. Pursuant to the Coronavirus Aid, Relief, and
Economic Security Act, also known as the CARES Act, as well as subsequent legislation, these reductions have been suspended from May 1,
2020 through March 31, 2021 due to the COVID-19 pandemic. Proposed legislation, if passed, would extend this suspension until the end of
the pandemic. In January 2013, the American Taxpayer Relief Act of 2012, or ATRA, was signed into law, which, among other things,
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.
There has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices.
Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other
things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between
pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. Additionally, the
Trump administration also previously released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains
additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize
manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. HHS solicited
feedback on some of these measures and has implemented others under its existing authority. For example, in May 2019, CMS issued a final
rule to allow Medicare Advantage Plans the option of using step therapy, a type of prior authorization, for Part B drugs beginning January 1,
2020.
Further, on May 30, 2018, the Right to Try Act was signed into law. The law, among other things, provides a federal framework for certain
patients to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are undergoing investigation
for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining
FDA permission under the FDA expanded access program. There is no obligation for a pharmaceutical manufacturer to make its drug
products available to eligible patients as a result of the Right to Try Act.
Additionally, the FDA published a final rule, effective November 30, 2020, that allows for the importation of certain prescription drugs from
Canada. Under the final rule, states and Indian Tribes, and in certain future circumstances pharmacists and wholesalers, may submit
importation program proposals to the FDA for review and authorization. On September 25, 2020, CMS stated drugs imported by States under
this rule will not be eligible for federal rebates under Section 1927 of the Social Security Act and manufacturers would not report these drugs
for “best price” or Average Manufacturer Price purposes. Since these drugs are not considered covered outpatient drugs, CMS further stated
it will not publish a National Average Drug Acquisition Cost for these drugs. Separately, the FDA also issued a final guidance document
outlining a potential pathway for manufacturers to obtain an additional National Drug Code, or NDC, for an FDA-approved drug that was
originally intended to be marketed in a foreign country and that was authorized for sale in that foreign country.
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At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control
pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product
access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries
and bulk purchasing. 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.
Some of these proposed measures, including drug importation and pharmacy benefit manager rebate rule changes, face legal challenges from
industry groups and participants. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our
product pricing.
We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts
that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product
candidates or additional pricing pressures.
Our revenue prospects could be affected by changes in healthcare spending and policy in the United States and abroad. We operate in a
highly regulated industry and new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions,
related to healthcare availability, the method of delivery or payment for healthcare products and services could negatively impact our
business, operations and financial condition.
There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at
broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be
adopted in the future, including repeal, replacement or significant revisions to the ACA. The continuing efforts of the government, insurance
companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price
controls may adversely affect:
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•
•
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•
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the demand for our product candidates, if we obtain regulatory approval;
our ability to set a price that we believe is fair for our products;
our ability to obtain coverage and reimbursement approval for a product;
our ability to generate revenue and achieve or maintain profitability;
the level of taxes that we are required to pay; and
the availability of capital.
Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private
payors, which may adversely affect our future profitability.
Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and
other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent
those agencies from performing normal business functions on which the operation of our business may rely, which could negatively
impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding
levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes. Average
review times at the agency have fluctuated in recent years as a result. Disruptions at the FDA and other agencies may also slow the time
necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. In
addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund
research and development activities, is subject to the political process, which is inherently fluid and unpredictable.
For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several
times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough
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critical FDA, SEC and other government employees and stop critical activities. Additionally, as of June 23, 2020, the FDA noted it is
continuing to ensure timely reviews of applications for medical products during the COVID-19 pandemic in line with its user fee
performance goals; however, FDA may not be able to continue its current pace and approval timelines could be extended, including where a
pre-approval manufacturing inspection or an inspection of clinical sites is required and due to the COVID-19 pandemic and travel restrictions
FDA is unable to complete such required inspections during the review period. On March 10, 2020 the FDA announced its intention to
postpone most inspections of foreign manufacturing facilities while local, national and international conditions warrant. On March 18, 2020,
the FDA announced its intention to temporarily postpone routine surveillance inspections of domestic manufacturing facilities and provided
guidance regarding the conduct of clinical trials which the FDA continues to update. As of June 23, 2020, the FDA noted it was conducting
mission critical domestic and foreign inspections to ensure compliance of manufacturing facilities with FDA quality standards. On July 10,
2020, the FDA announced its goal of restarting domestic on-site inspections during the week of July 20, 2020, but such activities will depend
on data about the virus’ trajectory in a given state and locality and the rules and guidelines that are put in place by state and local
governments. The FDA has developed a rating system to assist in determining when and where it is safest to conduct prioritized domestic
inspections. Should FDA determine that an inspection is necessary for approval and an inspection cannot be completed during the review
cycle due to restrictions on travel, FDA has stated that it generally intends to issue a complete response letter. Further, if there is inadequate
information to make a determination on the acceptability of a facility, FDA may defer action on the application until an inspection can be
completed. In 2020, several companies announced receipt of complete response letters due to the FDA’s inability to complete required
inspections for their applications. Regulatory authorities outside the U.S. may adopt similar restrictions or other policy measures in response
to the COVID-19 pandemic and may experience delays in their regulatory activities. If a prolonged government shutdown occurs, it could
significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse
effect on our business. Further, future government shutdowns could impact our ability to access the public markets and obtain necessary
capital in order to properly capitalize and continue our operations.
Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper
activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of employee fraud or other illegal activity by our employees, independent contractors, consultants, commercial
partners and vendors. Misconduct by these parties could include intentional, reckless and/or negligent conduct that fails to: comply with the
regulations of the FDA and other similar foreign regulatory authorities, provide true, complete and accurate information to the FDA and other
similar foreign regulatory authorities, comply with manufacturing standards we have established, comply with healthcare fraud and abuse
laws in the United States and similar foreign fraudulent misconduct laws or report financial information or data accurately or to disclose
unauthorized activities to us. If we obtain FDA approval of any of our product candidates and begin commercializing those products in the
United States, our potential exposure under such laws and regulations will increase significantly, and our costs associated with compliance
with such laws and regulations are also likely to increase. These laws may impact, among other things, our current activities with principal
investigators and research patients, as well as proposed and future sales, marketing and education programs. In particular, the promotion,
sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to
extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or
prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commission(s), certain customer incentive programs
and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the
course of patient recruitment for clinical trials. The laws that may affect our ability to operate include, but are not limited to:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving,
offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in
kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility,
item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and
Medicaid programs. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to
have committed a violation. Violations are subject to civil and criminal fines and penalties for each violation, plus
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up to three times the remuneration involved, imprisonment, and exclusion from government healthcare programs. In addition, the
government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes
a false or fraudulent claim for purposes of the False Claims Act. There are a number of statutory exceptions and regulatory safe harbors
protecting some common activities from prosecution;
federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claims Act, which impose criminal and
civil penalties, including through civil “qui tam” or “whistleblower” actions, against individuals or entities for, among other things,
knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid, or other federal health care
programs that are false or fraudulent; knowingly making or causing a false statement material to a false or fraudulent claim or an
obligation to pay money to the federal government; or knowingly concealing or knowingly and improperly avoiding or decreasing such
an obligation. Manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if
they are deemed to “cause” the submission of false or fraudulent claims. The FCA also permits a private individual acting as a
“whistleblower” to bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary
recovery. When an entity is determined to have violated the federal civil False Claims Act, the government may impose civil fines and
penalties for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal
healthcare programs;
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that
prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by
means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or
control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying,
concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery
of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a
person or entity can be found guilty of violating HIPAA without actual knowledge of the statute or specific intent to violate it;
• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their
respective implementing regulations, which impose requirements on certain covered healthcare providers, health plans, and healthcare
clearinghouses as well as their respective business associates that perform services for them that involve the use, or disclosure of,
individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health
information without appropriate authorization. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make
civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions
for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with
pursuing federal civil actions;
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the federal Physician Payment Sunshine Act, created under the ACA and its implementing regulations, which require manufacturers of
drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health
Insurance Program (with certain exceptions) to report annually to HHS information related to payments or other transfers of value made
to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as
ownership and investment interests held by physicians and their immediate family members. Effective January 1, 2022, these reporting
obligations will extend to include transfers of value made to certain non-physician providers such as physician assistants and nurse
practitioners;
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially
harm consumers; and
analogous state and foreign laws and regulations, such as state and foreign anti-kickback, false claims, consumer protection and unfair
competition laws which may apply to pharmaceutical business practices, including but not limited to, research, distribution, sales and
marketing arrangements as well as submitting claims involving healthcare items or services reimbursed by any third-party payor,
including commercial insurers; state laws that
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require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant
compliance guidance promulgated by the federal government that otherwise restricts payments that may be made to healthcare providers
and other potential referral sources; state laws that require drug manufacturers to file reports with states regarding pricing and marketing
information, such as the tracking and reporting of gifts, compensations and other remuneration and items of value provided to healthcare
professionals and entities; state and local laws requiring the registration of pharmaceutical sales representatives; and state and foreign
laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in
significant ways and may not have the same effect, thus complicating compliance efforts.
We have adopted a code of business conduct and ethics, but it is not always possible to identify and deter employee misconduct, and the
precautions we take to detect and prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or
in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or
regulations.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve
substantial costs. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible
that some of our business activities could be subject to challenge under one or more of such laws. It is possible that governmental authorities
will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud
and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other
governmental regulations that may apply to us, we may be subject to significant criminal, civil and administrative sanctions including
monetary penalties, damages, fines, disgorgement, individual imprisonment, and exclusion from participation in government funded
healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate
integrity agreement or similar agreement to resolve allegations of noncompliance with these laws, contractual damages, reputational harm,
diminished profits and future earnings, and we may be required to curtail or restructure our operations, any of which could adversely affect
our ability to operate our business and our results of operations.
Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses
and divert our management’s attention from the operation of our business. The shifting compliance environment and the need to build and
maintain robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements
increases the possibility that a healthcare company may run afoul of one or more of the requirements.
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 also prohibited in the EU. The provision of benefits or advantages to physicians is governed by
the national anti-bribery laws of EU Member States, such as the U.K. Bribery Act 2010, or the Bribery Act. Infringement of these laws could
result in substantial fines and imprisonment. Payments made to physicians in certain EU Member States 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 national laws, industry codes or professional codes of conduct, applicable in the EU Member States.
Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or
imprisonment.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur
costs that could have a material adverse effect on the success of our business.
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We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the
handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable
materials, including chemicals and biological and radioactive materials. Our operations also produce hazardous waste products. We generally
contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these
materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting
damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and
penalties.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees
resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not
maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal
of biological, hazardous or radioactive materials.
Risks related to our intellectual property
Risks related to protecting our intellectual property
We do not currently own or in-license any issued patents relating to our product candidates or technology, including BDTX-189. If we are
unable to obtain and maintain patent and other intellectual property protection for BDTX-189, our MAP platform and our other product
candidates and technology, or any other product candidates or technology we may develop, or if the scope of intellectual property
protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or
identical to ours, and our ability to commercialize BDTX-189 or any other product candidates or technology may be adversely affected.
Our success depends in large part on our ability to obtain and maintain patent and other intellectual property protection in the United States
and other countries with respect to our product candidates, including BDTX-189, their respective components, formulations, combination
therapies, methods used to manufacture them and methods of treatment and development that are important to our business, as well as
successfully defending these patents against third-party challenges. If we do not adequately protect our intellectual property rights,
competitors may be able to erode or negate any competitive advantage we may have, which could harm our business and ability to achieve
profitability.
We intend to rely upon a combination of patent applications, confidentiality agreements, trade secret protection and license agreements to
protect the intellectual property related to our product candidates and technologies. Any disclosure to or misappropriation by third parties of
our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus
eroding our competitive position in our market. 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 establish our patent position.
To protect our proprietary position, we plan to file patent applications in the United States and abroad relating to our product candidates and
MAP platform that are important to our business; we may in the future also license or purchase patents or patent applications owned by
others. Our ability to stop unauthorized third parties from making, using, selling, offering to sell or importing our product candidates is
dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. If we are
unable to secure or maintain patent protection with respect to BDTX-189, our MAP platform or any other proprietary products and
technology we develop, our business, financial condition, results of operations, and prospects would be materially harmed.
We do not currently own or in-license any issued patents relating to BDTX-189, including its composition of matter, and we do not currently
own or in-license any issued patents relating to any of our other product candidates or technology. We own six U.S. provisional patent
applications, one pending U.S. patent application, and one Patent Cooperation Treaty, or PCT, patent application that collectively cover the
composition of matter for BDTX-189,
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polymorphs of BDTX-189, as well as methods of using and making BDTX-189. The U.S. provisional patent applications, the U.S. patent
application, or the PCT application may never result in an issued patent. The U.S. provisional patent applications may not be eligible to
become an issued patent until, among other things, we convert the U.S. provisional patent applications to one or more non-provisional patent
applications within 12 months. If we do not timely convert the U.S. provisional patent applications to any non-provisional application, we
may lose our priority date with respect to our U.S. provisional patent applications and any patent protection on the inventions disclosed in
such U.S. provisional patent applications. The pending PCT patent application is not eligible to become an issued patent until, among other
things, we file a national stage patent application within 30 months in the countries in which we seek patent protection. If we do not timely
file any national stage patent applications, we may lose our priority date with respect to our PCT patent application and any patent protection
on the inventions disclosed in such PCT patent application. While we intend to timely convert the U.S. provisional patent applications to one
or more non-provisional patent applications and to timely file a national stage patent application relating to our PCT patent application, we
cannot predict whether any of our future patent applications for BDTX-189 or any of our other product candidates will result in the issuance
of patents that effectively protect BDTX-189 or our other product candidates. If we do not successfully obtain patent protection, or, even if
we do obtain patent protection, if the scope of the patent protection we or our potential licensors obtain with respect to BDTX-189 or our
other product candidates and technology is not sufficiently broad, we will be unable to prevent others from using our technology or from
developing or commercializing technology and products similar or identical to ours or other competing products and technologies. Any
failure to obtain or maintain patent protection with respect to BDTX-189 and our other product candidates would have a material adverse
effect on our business, financial condition, results of operations and prospects.
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
patents we may own or in-license in the future will have, or that any of our patent applications that mature into issued patents will include,
claims with a scope sufficient to protect our current and future product candidates or otherwise provide any competitive advantage. In
addition, to the extent that we license intellectual property in the future, we cannot assure you that those licenses will remain in force. 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, and the term of any patents we may own or in-license in the future may be inadequate to protect our competitive
position of our product candidates or technology for an adequate amount of time. In the United States, the natural expiration of a patent is
generally 20 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.
Even if they are unchallenged, our patent applications, if issued, and any patents we may own or in-license in the future, may not provide us
with any meaningful protection or prevent competitors from designing around our patent claims to circumvent any patents we may own or in-
license in the future 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 that uses a formulation and/or
a device that falls outside the scope of any patent protection we may have in the future. If the patent protection provided by our patent
applications or any patents we may 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. Although we
currently own our patent applications, similar risks would apply to any patents or patent applications that we may own or in-license in the
future.
Patent positions of life sciences companies can be uncertain and involve complex factual and legal questions. Changes in either the patent
laws or their interpretation in any jurisdiction that we seek patent protection may diminish our ability to protect our inventions, maintain and
enforce our intellectual property rights; and, more generally, may affect the value of our intellectual property, including the narrowing of the
scope of our patent applications or any patents we may own or in-license in the future.
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The patent prosecution process is complex, expensive, time-consuming and inconsistent across jurisdictions. Patent license negotiations also
can be complex and protracted, with uncertain results. We may not be able to file, prosecute, maintain, enforce, or license all necessary or
desirable patent rights at a commercially reasonable cost or in a timely manner. In addition, we may not pursue or obtain patent protection in
all relevant markets. It is possible that we will fail to identify important patentable aspects of our research and development efforts in time to
obtain appropriate or any patent protection. While we enter into non-disclosure and confidentiality agreements with parties who have access
to confidential or patentable aspects of our research and development efforts, including for example, our employees, corporate collaborators,
external academic scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties, any of these parties
may breach the agreements and disclose results before a patent application is filed, thereby endangering our ability to seek patent protection.
In addition, publications of discoveries in the scientific and scholarly literature often lag behind the actual discoveries, and patent
applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all.
Consequently, we cannot be certain that we were the first to file for patent protection on the inventions claimed in our patent applications.
It is possible that defects of form in the preparation or filing of our patent applications, or any patents we may own or in-license in the future,
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 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 patent applications or patents we may own or in-license in the
future, 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.
Additionally, we cannot be certain that the claims in our patent applications covering composition of matter of our product candidates or
technology will be considered patentable by the USPTO, or by patent offices in foreign countries, or that the claims in any issued patents we
may own or in-license in the future will be considered patentable by courts in the United States or foreign countries.
Method of use patents protect the use of a product for the specified method. These types of patents do not prevent a competitor from making
and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if
competitors do not actively promote their product for our targeted indications, physicians may prescribe these products “off-label.” Although
off-label prescriptions may induce or contribute to the infringement of method of use patents, the practice is common and such infringement
is difficult to prevent or prosecute.
The patent position of pharmaceutical and biotechnology companies generally is highly uncertain and involves complex legal and factual
questions for which many legal principles remain unresolved. In recent years, patent rights have been the subject of significant litigation. As
a result, the issuance, scope, validity, enforceability and commercial value of any rights we may have from our patent applications are highly
uncertain. Our patent applications may not result in patents being issued in the United States or in other jurisdictions which protect our
technology or products or which effectively prevent others from commercializing competitive technologies and products. Moreover, our
ability to obtain and maintain valid and enforceable patents depends on whether the differences between our inventions and the prior art,
including our own previously filed patent applications and scientific publications, allow our inventions to be patentable over the prior art.
Even if our patent applications issue as patents, third parties could challenge the validity of such patents based on such scientific publications
and we could potentially lose valuable patent rights. Further, the scope of the invention claimed in a patent application can be significantly
reduced before the patent is issued, and this scope can be reinterpreted after issuance. Even where patent applications we currently own or
that we may license in the future issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent
competitors or other third parties from competing with us, or otherwise provide us with a competitive advantage. Any patents that eventually
issue may be challenged, narrowed or invalidated by third parties.
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Consequently, we do not know whether any of our product candidates will be protectable or remain protected by valid and enforceable patent
rights. Our competitors or other third parties may be able to evade any rights we may have from our patent applications by developing new
compounds or alternative technologies or products in a non-infringing manner.
The issuance or grant of a patent is not irrefutable as to its inventorship, scope, validity or enforceability, and any patents we may own or in-
license in the future may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in the
patent claims of any patents we may own or in-license being narrowed, invalidated or held unenforceable, which could limit our ability to
stop or prevent us from stopping others from using or commercializing similar or identical technology and products, or limit the duration of
the patent protection of our technology and products. There may be prior art of which we are not aware that may affect the validity or
enforceability of a patent claim. There also may be prior art of which we are aware, but which we do not believe affects the validity or
enforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. We may in the future,
become subject to a third-party pre-issuance submission of prior art or opposition, derivation, revocation, re-examination, post-grant and
inter partes review, or interference proceeding and other similar proceedings challenging any rights we may have from our patent
applications or the patent rights of others in the U.S. Patent and Trademark Office, or USPTO, or other foreign patent office, or in declaratory
judgment actions or counterclaims. An unfavorable determination in any such submission, proceeding or litigation could reduce the scope of,
or invalidate, any rights we may have from our patent applications, allow third parties to commercialize our technology or products and
compete directly with us, without payment to us, or extinguish our ability to manufacture or commercialize products without infringing third-
party patent rights.
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. As a result, our intellectual property may
not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
Moreover, some of our intellectual property, including any patents we may own or in-license in the future, may be co-owned with third
parties. If we are unable to obtain an exclusive license to any such third-party co-owners’ interest in such intellectual property, including
patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, and our
competitors could market competing products and technology. In addition, we or our future licensors may need the cooperation of any such
co-owners of our owned and in-licensed intellectual property, including patents and patent applications, in order to enforce such intellectual
property against third parties, and such cooperation may not be provided to us or our future licensors. Any of the foregoing could have a
material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.
We are generally also subject to all of the same risks with respect to protection of intellectual property that we license, as we are for
intellectual property that we own, which are described below. If we or our future licensors fail to adequately protect this intellectual property,
our ability to commercialize products could suffer.
If we fail to comply with our obligations in any future agreements under which we may license intellectual property rights from third
parties or otherwise experience disruptions to our business relationships with our future licensors, we could lose license rights that are
important to our business.
In the future, we may be party to license or collaboration agreements with third parties to advance our research or allow commercialization of
product candidates. Such future agreements may impose numerous obligations, such as development, diligence, payment, commercialization,
funding, milestone, royalty, sublicensing, insurance, patent prosecution, enforcement and other obligations on us and may require us to meet
development timelines, or to exercise commercially reasonable efforts to develop and commercialize licensed products, in order to maintain
the licenses. In spite of our best efforts, our future licensors might conclude that we have materially breached our future license agreements
and might therefore terminate the license agreements, thereby removing or limiting our ability to develop and commercialize products and
technologies covered by these license agreements.
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Any termination of these licenses, or if the underlying patents fail to provide the intended exclusivity, could result in the loss of significant
rights and could harm our ability to commercialize our product candidates, and competitors or other third parties would have the freedom to
seek regulatory approval of, and to market, products identical to ours and we may be required to cease our development and
commercialization of certain of our product candidates. Any of the foregoing could have a material adverse effect on our competitive
position, business, financial conditions, results of operations, and prospects.
Disputes may also arise between us and our future licensors regarding intellectual property subject to a license agreement, including:
•
the scope of rights granted under the license agreement and other interpretation-related issues;
• whether and the extent to which our technology and processes infringe, misappropriate or otherwise violate intellectual property rights of
the licensor that is not subject to the licensing agreement;
•
•
•
•
our right to sublicense patent and other rights to third parties under collaborative development relationships;
our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our
product candidates, and what activities satisfy those diligence obligations;
the priority of invention of any patented technology; and
the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our future licensors and us
and our partners.
In addition, the agreements under which we may license intellectual property or technology from third parties in the future are likely to be
complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract
interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or
technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a
material adverse effect on our business, financial condition, results of operations and prospects. Moreover, if disputes over intellectual
property that we may license in the future prevent or impair our ability to maintain future licensing arrangements on acceptable terms, we
may be unable to successfully develop and commercialize the affected product candidates, which could have a material adverse effect on our
business, financial conditions, results of operations and prospects.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to the protection afforded by patents we may own or in-license in the future, we seek to rely on trade secret protection,
confidentiality agreements, and license agreements to protect proprietary know-how that is not patentable, processes for which patents are
difficult to enforce and any other elements of our product discovery and development processes, including our MAP platform that involve
proprietary know-how, information, or technology that is not covered by patents. Although we require all of our employees, consultants,
advisors and any third parties who have access to our proprietary know-how, information, or technology to enter into confidentiality
agreements, trade secrets can be difficult to protect and we have limited control over the protection of trade secrets used by our collaborators
and suppliers. We cannot be certain that we have or will obtain these agreements in all circumstances and we cannot guarantee that we have
entered into such agreements with each party that may have or have had access to our trade secrets or proprietary information.
Moreover, any of these parties might breach the agreements and intentionally or inadvertently disclose our trade secret information and we
may not be able to obtain adequate remedies for such breaches. In addition, competitors may otherwise gain access to our trade secrets or
independently develop substantially equivalent information and techniques. Furthermore, the laws of some foreign countries do not protect
proprietary rights and trade secrets to the same extent or in the same manner as the laws of the United States. As a result, we may encounter
significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent
unauthorized material disclosure of our intellectual property to third parties, we will not be able to establish
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or maintain a competitive advantage in our market, which could materially adversely affect our business, financial condition, results of
operations and future prospects.
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the
outcome is unpredictable. If we choose to go to court to stop a third party from using any of our trade secrets, we may incur substantial costs.
These lawsuits may consume our time and other resources even if we are successful. For example, significant elements of our MAP platform,
including aspects of oncogenicity computational algorithms, in vivo experiments to validate mechanisms and pharmacology, drug design, and
related processes, are based on unpatented trade secrets that are not publicly disclosed. Although we take steps to protect our proprietary
information and trade secrets, including through contractual means with our employees and consultants, third parties may independently
develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our
technology. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we
would have no right to prevent them from using that technology or information to compete with us.
Thus, we may not be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific
collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or
consulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs
developed or made known to the individual or entity during the course of the party’s relationship with us is to be kept confidential and not
disclosed to third parties except in specific circumstances. In addition, we take other appropriate precautions, such as physical and
technological security measures, to guard against misappropriation of our proprietary technology by third parties. In the case of employees,
the agreements provide that all inventions conceived by the individual, and which are related to our current or planned business or research
and development or made during normal working hours, on our premises or using our equipment or proprietary information, are our
exclusive property. Although we require all of our employees to assign their inventions to us, we may be unsuccessful in executing such an
agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual
property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third
parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such
claims could have a material adverse effect on our business, financial condition, results of operations, and prospects.
We may not be successful in obtaining or maintaining necessary rights to product components and processes for our development
pipeline through acquisitions and in-licenses.
Presently we own six U.S. provisional patent applications, one pending U.S. patent application, and one PCT patent application related to
BDTX-189. Because additional product candidates may require the use of proprietary rights held by third parties, the growth of our business
will likely depend in part on our ability to acquire, in-license or use these proprietary rights.
Our product candidates may also require specific formulations to work effectively and efficiently and these rights may be held by others.
Similarly, efficient production or delivery of our product candidates may also require specific compositions or methods, and the rights to
these may be owned by third parties. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-
party intellectual property rights from third parties that we identify as necessary or important to our business operations. We may fail to
obtain any of these licenses at a reasonable cost or on reasonable terms, if at all, which would harm our business. We may need to cease use
of the compositions or methods covered by such third-party intellectual property rights, and may need to seek to develop alternative
approaches that do not infringe on such intellectual property rights which may entail additional costs and development delays, even if we
were able to develop such alternatives, which may not be feasible. Even if we are able to obtain a license, it may be nonexclusive, thereby
giving our competitors access to the same technologies licensed to us. In that event, we may be required to expend significant time and
resources to develop or license replacement technology. Moreover, the molecules that will be used with our product candidates may be
covered by the intellectual property rights of others.
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Additionally, we sometimes collaborate with academic institutions to accelerate our preclinical research or development under written
agreements with these institutions. In certain cases, these institutions provide us with an option to negotiate a license to any of the
institution’s rights in technology resulting from the collaboration. Regardless of such option, we may be unable to negotiate a license within
the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property
rights to others, potentially blocking our ability to pursue our program and allowing third parties to compete with us. If we are unable to
successfully obtain rights to required third-party intellectual property or to maintain the existing intellectual property rights we have, we may
have to abandon development of such program and our business and financial condition could suffer.
The licensing and acquisition of third-party intellectual property rights is a competitive area, and companies, which may be more established,
or have greater resources than we do, may also be pursuing strategies to license or acquire third-party intellectual property rights that we may
consider necessary or attractive in order to commercialize our product candidates. More established companies may have a competitive
advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. In addition,
companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire
third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all. There can be no
assurance that we will be able to successfully complete such negotiations and ultimately acquire the rights to the intellectual property
surrounding the additional product candidates that we may seek to acquire. If we are unable to successfully obtain rights to required third-
party intellectual property or to maintain the existing intellectual property rights we have, we may have to abandon development of such
program and our business, results of operations, financial condition and prospects could suffer.
Any issued patents we may own or in-license in the future covering our product candidates could be narrowed or found invalid or
unenforceable if challenged in court or before administrative bodies in the United States or abroad, including the USPTO.
If we or our future licensors or strategic partners initiate legal proceedings against a third party to enforce a patent covering one of our
product candidates, the defendant could counterclaim that the patent covering our product candidate, as applicable, is invalid and/or
unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace,
and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Grounds for a validity
challenge could be an alleged failure to meet any of several statutory requirements, including lack of patentable subject matter, lack of
written description, lack of novelty, obviousness, or non-enablement. Grounds for an unenforceability assertion could be an allegation that
someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during
prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context
of litigation. Such mechanisms include re-examination, inter partes review, post grant review and equivalent proceedings in foreign
jurisdictions (such as opposition proceedings). Such proceedings could result in revocation or amendment to our patent applications or any
patents we may own or in-license in the future in such a way that they no longer cover our product candidates. The outcome following legal
assertions of invalidity and unenforceability is unpredictable. An adverse determination in any such submission, proceeding or litigation
could reduce the scope of, or invalidate or render unenforceable, any rights we may have from our patent applications or any patents we may
own or in-license in the future, allow third parties to commercialize our product candidates or other technologies and compete directly with
us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights.
Moreover, we may have to participate in interference proceedings declared by the USPTO to determine priority of invention or in post-grant
challenge proceedings, such as oppositions in a foreign patent office, that challenge our or priority of invention or other features of
patentability with respect to our patent applications and any patents we may own or in-license. Such challenges may result in loss of patent
rights, loss of exclusivity, or in patent claims being narrowed, invalidated, or held unenforceable, which could limit our ability to stop others
from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our product
candidates and other technologies. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior
art, of which we or our future licensing partners and the patent examiner were
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unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, or if we are otherwise
unable to adequately protect our rights, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a
loss of patent protection could have a material adverse impact on our business and our ability to commercialize or license our technology and
product candidates.
Such proceedings also may result in substantial cost and require significant time from our scientists and management, even if the eventual
outcome is favorable to us. If we are unsuccessful in any such proceeding or other priority or inventorship dispute, we may be required to
obtain and maintain licenses from third parties, including parties involved in any such interference proceedings or other priority or
inventorship disputes. Such licenses may not be available on commercially reasonable terms or at all, or may be non-exclusive. If we are
unable to obtain and maintain such licenses, we may need to cease the development, manufacture, and commercialization of one or more of
the product candidates we may develop. The loss of exclusivity or the narrowing of our patent application claims could limit our ability to
stop others from using or commercializing similar or identical technology and products. Any of the foregoing could have a material adverse
effect on our business, results of operations, financial condition and prospects.
Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and
other requirements imposed by governmental patent agencies, and patent protection could be reduced or eliminated for non-compliance
with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other government fees on any issued patent are due to be paid to the
USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent
agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent
application process and following the issuance of a patent. While an inadvertent lapse can in some cases be cured by payment of a late fee or
by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of
the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that
could result in abandonment or lapse of a patent include, but are not limited to, failure to respond to official actions within prescribed time
limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to
enter the market with similar or identical products or platforms, which could have a material adverse effect on our business prospects and
financial condition.
We have limited foreign intellectual property rights and may not be able to protect our intellectual property rights throughout the world.
We may not be able to pursue generic coverage of our product candidates or MAP platform outside of the United States. Filing, prosecuting
and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and intellectual property
rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign
countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may
not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing
products made using 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 their own products and further, may export otherwise infringing products to
territories where we have patent protection, but where enforcement is not as strong as that in the United States. These products may compete
with our product candidates and in jurisdictions where we do not have any issued patents our patent applications or other intellectual property
rights may not be effective or sufficient to prevent them from competing. Our patent portfolio is at the very early stage. We will need to
decide whether and in which jurisdictions to pursue protection for the various inventions in our portfolio prior to applicable deadlines.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The
legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other
intellectual property protection, particularly those relating to
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biopharmaceutical products, which could make it difficult for us to stop the infringement of any patents we may own or in-license in the
future or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce any rights we may have in
our patent applications or any patents we may own or in-license in the future in foreign jurisdictions could result in substantial costs and
divert our efforts and attention from other aspects of our business, could put any patents we may own or in-license in the future 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. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant
commercial advantage from the intellectual property that we develop or license.
Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition,
many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent
owner may have limited remedies, which could materially diminish the value of such patent. If we are forced to grant a license to third parties
with respect to any patents we may own or license in the future that are relevant to our business, our competitive position may be impaired,
and our business, financial condition, results of operations, and prospects may be adversely affected.
If we do not obtain patent term extension and data exclusivity for any of our current or future product candidates we may develop, our
business may be materially harmed.
Depending upon the timing, duration and specifics of any FDA marketing approval of any of our current or future product candidates we may
develop, one or more U.S. patents we may own or in-license in the future may be eligible for limited patent term extension under the Drug
Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a
patent term extension of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term
extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be
extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended.
However, we may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or
regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise
failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than
we request. If we are unable to obtain patent term extension or the term of any such extension is shorter than what we request, our
competitors may obtain approval of competing products following expiration of any patents that issue from our patent applications, and our
business, financial condition, results of operations, and prospects could be materially harmed.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our marks of
interest and our business may be adversely affected.
Our trademarks or trade names may be challenged, infringed, diluted, circumvented or declared generic or determined to be infringing on
other marks. We intend to rely on both registration and common law protection for our trademarks. We may not be able to protect our rights
to these trademarks and trade names or may be forced to stop using these names, which we need for name recognition by potential partners or
customers in our markets of interest. During the trademark registration process, we may receive Office Actions from the USPTO objecting to
the registration of our trademark. Although we would be given an opportunity to respond to those objections, we may be unable to overcome
such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to
oppose pending trademark applications and/or to seek the cancellation of registered trademarks. Opposition or cancellation proceedings may
be filed against our trademarks, and our trademarks may not survive such proceedings. If we are unable to obtain a registered trademark or
establish name recognition based on our trademarks and trade names, we may not be able to compete effectively and our business may be
adversely affected.
Numerous factors may limit any potential competitive advantage provided by our intellectual property rights.
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The degree of future protection afforded by our intellectual property rights, whether owned or in-licensed, is uncertain because intellectual
property rights have limitations, and may not adequately protect our business, provide a barrier to entry against our competitors or potential
competitors, or permit us to maintain our competitive advantage. Moreover, if a third party has intellectual property rights that cover the
practice of our technology, we may not be able to fully exercise or extract value from our intellectual property rights. The following examples
are illustrative:
•
•
•
•
patent applications that we own or may in-license in the future may not lead to issued patents;
patents, should they issue, that we may own or in-license in the future, may not provide us with any competitive advantages, may be
narrowed in scope, or may be challenged and held invalid or unenforceable;
others may be able to develop and/or practice technology, including compounds that are similar to the chemical compositions of our
product candidates, that is similar to our technology or aspects of our technology but that is not covered by the claims of any patents we
may own or in-license in the future, should any patents issue;
third parties may compete with us in jurisdictions where we do not pursue and obtain patent protection;
• we, or our future licensors or collaborators, might not have been the first to make the inventions covered by a patent application that we
own or may in-license in the future;
• we, or our future licensors or collaborators, might not have been the first to file patent applications covering a particular invention;
•
•
others may independently develop similar or alternative technologies without infringing, misappropriating or otherwise violating our
intellectual property rights;
our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor
from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent
rights, and may then use the information learned from such activities to develop competitive products for sale in our major commercial
markets;
• we may not be able to obtain and/or maintain necessary licenses on reasonable terms or at all;
•
third parties may assert an ownership interest in our intellectual property and, if successful, such disputes may preclude us from
exercising exclusive rights, or any rights at all, over that intellectual property;
• we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent
covering such trade secrets or know-how;
• we may not be able to maintain the confidentiality of our trade secrets or other proprietary information;
• we may not develop or in-license additional proprietary technologies that are patentable; and
•
the patents of others may have an adverse effect on our business.
Should any of these events occur, they could significantly harm our business, financial condition, results of operations and prospects.
Risks related to intellectual property litigation
Third-party claims of intellectual property infringement, misappropriation or other violations may be costly and time consuming and may
prevent or delay our product discovery and development efforts.
The intellectual property landscape around precision medicine is crowded, and third parties may initiate legal proceedings alleging that we
are infringing, misappropriating, or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could
have a material adverse effect on the success of our business. Our commercial success depends upon our ability to develop, manufacture,
market and sell our current and future product candidates and use our proprietary technologies without infringing, misappropriating or
otherwise violating the intellectual property rights of third parties. There is a substantial amount of litigation involving patents and other
intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents,
including derivation, interference, reexamination, inter partes review, and post grant review
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proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. We or any of our future licensors or
strategic partners may be party to, exposed to, or threatened with, future adversarial proceedings or litigation by third parties having patent or
other intellectual property rights alleging that our current or future product candidates and/or proprietary technologies infringe,
misappropriate or otherwise violate their intellectual property rights. We cannot assure you that our product candidates and other technologies
that we have developed, are developing or may develop in the future do not or will not infringe, misappropriate or otherwise violate existing
or future patents or other intellectual property rights owned by third parties. Numerous U.S. and foreign issued patents and pending patent
applications, which are owned by third parties, exist in the fields in which we are developing our product candidates. As the biotechnology
and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may give rise to claims of
infringement of the patent rights of others. Moreover, it is not always clear to industry participants, including us, which patents cover various
types of drugs, products or their methods of use or manufacture. Thus, because of the large number of patents issued and patent applications
filed in our fields, there may be a risk that third parties may allege they have patent rights encompassing our product candidates, technologies
or methods.
If a third party claims that we infringe, misappropriate or otherwise violate its intellectual property rights, we may face a number of issues,
including, but not limited to:
•
•
•
•
•
•
infringement, misappropriation and other intellectual property claims which, regardless of merit, may be expensive and time-consuming
to litigate and may divert our management’s attention from our core business and may impact our reputation;
substantial damages for infringement, misappropriation or other violations, which we may have to pay if a court decides that the product
candidate or technology at issue infringes, misappropriates or violates the third party’s rights, and, if the court finds that the infringement
was willful, we could be ordered to pay treble damages and the patent owner’s attorneys’ fees;
a court prohibiting us from developing, manufacturing, marketing or selling our product candidates, including BDTX-189, or from using
our proprietary technologies, unless the third party licenses its product rights to us, which it is not required to do, on commercially
reasonable terms or at all;
if a license is available from a third party, we may have to pay substantial royalties, upfront fees and other amounts, and/or grant cross-
licenses to intellectual property rights for our products, or the license to us may be non-exclusive, which would permit third parties to use
the same intellectual property to compete with us;
redesigning our product candidates or processes so they do not infringe, misappropriate or violate third party intellectual property rights,
which may not be possible or may require substantial monetary expenditures and time; and
there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and, if securities
analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have
substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a
material adverse effect on our ability to raise the funds necessary to continue our operations or could otherwise have a material adverse effect
on our business, results of operations, financial condition and prospects. The occurrence of any of the foregoing could have a material
adverse effect on our business, financial condition, results of operations or prospects.
We may choose to challenge the patentability of claims in a third party’s U.S. patent by requesting that the USPTO review the patent claims
in an ex-parte re-exam, inter partes review or post-grant review proceedings. These proceedings are expensive and may consume our time or
other resources. We may choose to challenge a third party’s patent in patent opposition proceedings in the EPO, or other foreign patent office.
The costs of these opposition proceedings could be substantial, and may consume our time or other resources. If we fail to obtain a favorable
result
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at the USPTO, EPO or other patent office then we may be exposed to litigation by a third party alleging that the patent may be infringed by
our product candidates or proprietary technologies.
Third parties may assert that we are employing their proprietary technology without authorization. Patents issued in the United States by law
enjoy a presumption of validity that can be rebutted only with evidence that is “clear and convincing,” a heightened standard of proof. There
may be issued third-party patents of which we are currently unaware with claims to compositions, formulations, methods of manufacture or
methods for treatment related to the use or manufacture of our product candidates. Patent applications can take many years to issue. In
addition, because some patent applications in the United States may be maintained in secrecy until the patents are issued, patent applications
in the United States and many foreign jurisdictions are typically not published until 18 months after filing, and publications in the scientific
literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications covering our product
candidates or technology. If any such patent applications issue as patents, and if such patents have priority over our patent applications or
patents we may own or in-license, we may be required to obtain rights to such patents owned by third parties which may not be available on
commercially reasonable terms or at all, or may only be available on a non-exclusive basis. There may be currently pending patent
applications which may later result in issued patents that our product candidates may infringe. It is also possible that patents owned by third
parties of which we are aware, but which we do not believe are relevant to our product candidates or other technologies, could be found to be
infringed by our product candidates or other technologies. In addition, third parties may obtain patents in the future and claim that use of our
technologies infringes upon these patents. Moreover, we may fail to identify relevant patents or incorrectly conclude that a patent is invalid,
not enforceable, exhausted, or not infringed by our activities. If any third-party patents were held by a court of competent jurisdiction to
cover the manufacturing process of our product candidates, molecules used in or formed during the manufacturing process, or any final
product itself, the holders of any such patents may be able to block our ability to commercialize the product candidate unless we obtained a
license under the applicable patents, or until such patents expire or they are finally determined to be held invalid or unenforceable. Similarly,
if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or
methods of use, including combination therapy or patient selection methods, the holders of any such patent may be able to block our ability
to develop and commercialize the product candidate unless we obtained a license or until such patent expires or is finally determined to be
held invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all. If we are unable
to obtain a necessary license to a third-party patent on commercially reasonable terms, or at all, our ability to commercialize our product
candidates may be impaired or delayed, which could in turn significantly harm our business. Even if we obtain a license, it may be
nonexclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, if the breadth or strength of
protection provided by our patent applications or any patents we may own or in-license in the future is threatened, it could dissuade
companies from collaborating with us to license, develop or commercialize current or future product candidates.
Parties making claims against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further
develop and commercialize our product candidates. Defense of these claims, regardless of their merit, could involve substantial litigation
expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement,
misappropriation or other violation against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for
willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which may be
impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available at all or
whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need or may choose
to obtain licenses from third parties to advance our research or allow commercialization of our product candidates. We may fail to obtain any
of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize
our product candidates, which could harm our business significantly.
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We may be involved in lawsuits to protect or enforce our intellectual property rights, including any patents we may own or in-license in
the future, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe any patents we may own or in-license in the future. In addition, any patents we may own or in-license also may
become involved in inventorship, priority, validity or unenforceability disputes. To counter infringement or unauthorized use, we may be
required to file infringement claims, which can be expensive and time-consuming. We may not prevail in any lawsuits that we initiate, and
the damages or other remedies awarded, if any, may not be commercially meaningful. In addition, in an infringement proceeding, a court may
decide that one or more of any patents we may own or in-license in the future is not valid or is unenforceable or that the other party’s use of
our technology that may be patented falls under the safe harbor to patent infringement under 35 U.S.C. §271(e)(1). There is also the risk that,
even if the validity of these patents is upheld, the court may refuse to stop the other party from using the technology at issue on the grounds
that any patents we may own or in-license in the future do not cover the technology in question or that such third party’s activities do not
infringe our patent applications or any patents we may own or in-license in the future. An adverse result in any litigation or defense
proceedings could put one or more of any patents we may own or in-license in the future at risk of being invalidated, held unenforceable, or
interpreted narrowly and could put our patent applications at risk of not issuing. Defense of these claims, regardless of their merit, would
involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a
successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful
infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which may be impossible or
require substantial time and monetary expenditure. Such litigation or proceedings could substantially increase our operating losses and reduce
the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient
financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of
such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed
intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could
have a material adverse effect on our ability to compete in the marketplace.
Post-grant proceedings provoked by third parties or brought by the USPTO may be necessary to determine the validity or priority of
inventions with respect to our patent applications or any patents we may own or in-license in the future. These proceedings are expensive and
an unfavorable outcome could result in a loss our current patent rights and could require us to cease using the related technology or to attempt
to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on
commercially reasonable terms. In addition to potential USPTO review proceedings, we may become a party to patent opposition
proceedings in the European Patent Office, or EPO, or similar proceedings in other foreign patent offices, where either our foreign patents are
challenged. The costs of these opposition or similar proceedings could be substantial, and may result in a loss of scope of some claims or a
loss of the entire patent. An unfavorable result at the USPTO, EPO or other patent office may result in the loss of our right to exclude others
from practicing one or more of our inventions in the relevant country or jurisdiction, which could have a material adverse effect on our
business.
Litigation or post-grant proceedings may result in a decision adverse to our interests and, even if we are successful, may result in substantial
costs and distract our management and other employees. We may not be able to prevent, misappropriation of our trade secrets or confidential
information, particularly in countries where the laws may not protect those rights as fully as in the United States.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that
some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public
announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive
these results to be negative, it could have a substantial adverse effect on the price of our common stock.
We may not be able to detect infringement against any patents we may own or in-license in the future. Even if we detect infringement by a
third party of any patents we may own or in-license in the future, we may choose not to
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pursue litigation against or settlement with the third party. If we later sue such third party for patent infringement, the third party may have
certain legal defenses available to it, which otherwise would not be available except for the delay between when the infringement was first
detected and when the suit was brought. Such legal defenses may make it impossible for us to enforce any patents we may own or in-license
against such third party.
We may be subject to claims challenging the inventorship or ownership of any intellectual property, including any patents we may own or
in-license in the future.
We may be subject to claims that former employees, collaborators or other third parties have an interest in any patents we may own or in-
license in the future, trade secrets, or other intellectual property as an inventor or co-inventor. For example, we may have inventorship
disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our product candidates or
other technologies. We generally enter into confidentiality and intellectual property assignment agreements with our employees, consultants,
and contractors. These agreements generally provide that inventions conceived by the party in the course of rendering services to us will be
our exclusive property. However, those agreements may not be honored and may not effectively assign intellectual property rights to us.
Moreover, there may be some circumstances, where we are unable to negotiate for such ownership rights. Disputes regarding ownership or
inventorship of intellectual property can also arise in other contexts, such as collaborations and sponsored research. If we are subject to a
dispute challenging our rights in or to patents or other intellectual property, such a dispute could be expensive and time consuming. Litigation
may be necessary to defend against these and other claims challenging inventorship of any patents we may own or in-license in the future,
trade secrets or other intellectual property. If we were unsuccessful, in addition to paying monetary damages, we could lose valuable rights in
intellectual property that we regard as our own, such as exclusive ownership of, or right to use, intellectual property that is important to our
product candidates and other technologies. Even if we are successful in defending against such claims, litigation could result in substantial
costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our business,
financial condition, results of operations and prospects.
We are party to a services agreement with Ridgeline Therapeutics GmbH, or the Ridgeline Services Agreement, pursuant to which Ridgeline
provides certain drug discovery and development services. Pursuant to the Ridgeline Services Agreement, we own all rights in and to all
patent, copyright and other intellectual property rights generated by Ridgeline in the course of performing the specified services. If it is
unclear whether certain intellectual property generated by Ridgeline is our property, we may be subject to conflicting claims of ownership.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential
information or alleged trade secrets of third parties or competitors or are in breach of non-competition or non-solicitation agreements
with our competitors.
We have received confidential and proprietary information from third parties. In addition, as is common in the biotechnology and
pharmaceutical industries, we employ individuals who were previously employed at universities or other biotechnology or pharmaceutical
companies, including our competitors or potential competitors, in some cases until recently. We may be subject to claims that we or our
employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information or trade secrets
of these third parties or our employees’ former employers or our consultants’ or contractors’ current or former clients or customers. In
addition, we have been and may in the future be subject to claims that we caused an employee to breach the terms of his or her non-
competition or non-solicitation agreement. Litigation or arbitration may be necessary to defend against these claims. If we fail in defending
any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are
successful in defending against such claims, litigation or other legal proceedings relating to intellectual property claims and possible
aftermath could result in substantial cost and be a distraction to our management and employees. Any litigation or the threat thereof may
adversely affect our ability to hire employees. A loss of key personnel or their work product could hamper or prevent our ability to
commercialize product candidates, which could have an adverse effect on our business, results of operations and financial condition. In
addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and, if
securities analysts or investors perceive these results to be negative, it could have a substantial
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adverse effect on the price of our common stock. This type of litigation or proceeding could substantially increase our operating losses and
reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such
litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we
can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation
or other intellectual property related proceedings could adversely affect our ability to compete in the marketplace.
Risks related to our reliance on third parties
We plan to rely on third parties to conduct our preclinical studies and clinical trials. If these third parties do not properly and successfully
carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of or commercialize our
product candidates.
We plan to utilize and depend upon independent investigators and collaborators, such as medical institutions, CROs, contract manufacturing
organizations, or CMOs, and strategic partners to conduct and support our preclinical studies and clinical trials under agreements with us. For
example, we contract with Ridgeline for services related to our drug discovery and preclinical work, but we are continuing to build our
internal chemistry, manufacturing and controls, biology and preclinical development capabilities to assume activities conducted by Ridgeline
on our behalf. We have transitioned from our old service model to a more limited consulting arrangement with Ridgeline. As part of this
transition, we may incur additional costs or experience delays in engaging directly with other third-party CROs and CMOs.
We expect to have to negotiate budgets and contracts with CROs, trial sites and CMOs and we may not be able to do so on favorable terms,
which may result in delays to our development timelines and increased costs. We will rely heavily on these third parties over the course of
our preclinical studies and clinical trials, and we control only certain aspects of their activities. As a result, we will have less direct control
over the conduct, timing and completion of these preclinical studies and clinical trials and the management of data developed through
preclinical studies and clinical trials than would be the case if we were relying entirely upon our own staff. Nevertheless, we are responsible
for ensuring that each of our studies is conducted in accordance with applicable protocol, legal and regulatory requirements and scientific
standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. We and these third parties are required to
comply with GCPs, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product
candidates in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal
investigators and trial sites. If we or any of these third parties fail to comply with applicable GCP regulations, the clinical data generated in
our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional
clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, such regulatory authorities will
determine that any of our clinical trials comply with the GCP regulations. In addition, our clinical trials must be conducted with
pharmaceutical product produced under cGMP regulations and will require a large number of test patients. Our failure or any failure by these
third parties to comply with these regulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would
delay the regulatory approval process. Moreover, our business may be implicated if any of these third parties violates federal or state fraud
and abuse or false claims laws and regulations or healthcare privacy and security laws.
Any third parties conducting our clinical trials are not and will not be our employees and, except for remedies available to us under our
agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our ongoing, clinical and
non-clinical product candidates. These third parties may also have relationships with other commercial entities, including our competitors, for
whom they may also be conducting clinical trials or other drug development activities, which could affect their performance on our behalf. If
these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced
or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory
requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to complete
development of, obtain regulatory approval of or successfully
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commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be
harmed, our costs could increase and our ability to generate revenue could be delayed.
Switching or adding third parties to conduct our preclinical studies and clinical trials involves substantial cost and requires extensive
management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays
occur, which can materially impact our ability to meet our desired clinical development timelines.
We may form or seek collaborations or strategic alliances or enter into additional licensing arrangements in the future, and we may not
realize the benefits of such collaborations, alliances or licensing arrangements.
We may form or seek strategic alliances, create joint ventures or collaborations, or enter into additional licensing arrangements with third
parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates
and any future product candidates that we may develop. Any of these relationships may require us to incur non-recurring and other charges,
increase our near and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business.
In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and
complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our
product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not
view our product candidates as having the requisite potential to demonstrate safety, potency, purity and efficacy and obtain marketing
approval.
Further, collaborations involving our product candidates are subject to numerous risks, which may include the following:
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•
collaborators have significant discretion in determining the efforts and resources that they will apply to a collaboration;
collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew
development or commercialization of our product candidates based on clinical trial results, changes in their strategic focus due to the
acquisition of competitive products, availability of funding or other external factors, such as a business combination that diverts
resources or creates competing priorities;
collaborators may delay clinical trials, provide insufficient funding for a clinical trial, stop a clinical trial, abandon a product candidate,
repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product
candidates;
a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to their marketing and
distribution;
collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary
information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or
proprietary information or expose us to potential liability;
disputes may arise between us and a collaborator that cause the delay or termination of the research, development or commercialization
of our product candidates, or that result in costly litigation or arbitration that diverts management attention and resources;
collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or
commercialization of the applicable product candidates; and
collaborators may own or co-own intellectual property covering our products that results from our collaborating with them, and in such
cases, we would not have the exclusive right to commercialize such intellectual property.
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As a result, if we enter into additional collaboration agreements and strategic partnerships or license our product candidates, we may not be
able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company
culture, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that, following a strategic
transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Any delays in entering into new
collaborations or strategic partnership agreements related to our product candidates could delay the development and commercialization of
our product candidates in certain geographies for certain indications, which would harm our business prospects, financial condition and
results of operations.
We currently rely and expect to rely in the future on the use of manufacturing suites in third-party facilities or third parties to
manufacture our product candidates. Our business could be harmed if we are unable to use third-party manufacturing suites or if the
third party manufacturers fail to provide us with sufficient quantities of our product candidates or fail to do so at acceptable quality levels
or prices.
We do not currently own any facility that may be used as our clinical-scale manufacturing and processing facility and must currently rely on
outside vendors to manufacture our product candidates. We have not yet caused our product candidates to be manufactured on a commercial
scale and may not be able to do so for any of our product candidates.
Our anticipated reliance on a limited number of third-party manufacturers exposes us to a number of risks, including the following:
• we may be unable to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is limited and
the FDA must inspect any manufacturers for current cGMP compliance as part of our marketing application;
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•
a new manufacturer would have to be educated in, or develop substantially equivalent processes for, the production of our product
candidates;
our third-party manufacturers might be unable to timely manufacture our product candidates or produce the quantity and quality required
to meet our clinical and commercial needs, if any;
contract manufacturers may not be able to execute our manufacturing procedures and other logistical support requirements appropriately;
our future contract manufacturers may not perform as agreed, may not devote sufficient resources to our product candidates or may not
remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store, and
distribute our products, if any;
• manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict
compliance with cGMP and other government regulations and corresponding foreign standards and we have no control over third-party
manufacturers’ compliance with these regulations and standards;
• we may not own, or may have to share, the intellectual property rights to any improvements made by our third-party manufacturers in the
manufacturing process for our product candidates;
our third-party manufacturers could breach or terminate their agreements with us;
raw materials and components used in the manufacturing process, particularly those for which we have no other source or supplier, may
not be available or may not be suitable or acceptable for use due to material or component defects;
our contract manufacturers and critical reagent suppliers may be subject to inclement weather, as well as natural or man-made disasters;
and
our contract manufacturers may have unacceptable or inconsistent product quality success rates and yields, and we have no direct control
over our contract manufacturers’ ability to maintain adequate quality control, quality assurance and qualified personnel.
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Each of these risks could delay or prevent the completion of our clinical trials or the approval of any of our product candidates by the FDA,
result in higher costs or adversely impact commercialization of our product candidates. In addition, we will rely on third parties to perform
certain specification tests on our product candidates prior to delivery to patients. If these tests are not appropriately done and test data are not
reliable, patients could be put at risk of serious harm and the FDA could place significant restrictions on our company until deficiencies are
remedied.
Our manufacturing process needs to comply with FDA regulations relating to the quality and reliability of such processes. Any failure to
comply with relevant regulations could result in delays in or termination of our clinical programs and suspension or withdrawal of any
regulatory approvals.
In order to commercially produce our products either at our own facility or at a third party’s facility, we will need to comply with the FDA’s
cGMP regulations and guidelines. We may encounter difficulties in achieving quality control and quality assurance and may experience
shortages in qualified personnel. We are subject to inspections by the FDA and comparable foreign regulatory authorities to confirm
compliance with applicable regulatory requirements. Any failure to follow cGMP or other regulatory requirements or delay, interruption or
other issues that arise in the manufacture, fill-finish, packaging, or storage of our precision medicines as a result of a failure of our facilities
or the facilities or operations of third parties to comply with regulatory requirements or pass any regulatory authority inspection could
significantly impair our ability to develop and commercialize our product candidates, including leading to significant delays in the
availability of our precision medicines for our clinical trials or the termination of or suspension of a clinical trial, or the delay or prevention
of a filing or approval of marketing applications for our product candidates. Significant non-compliance could also result in the imposition of
sanctions, including warning or untitled letters, fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing
approvals for our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products,
operating restrictions and criminal prosecutions, any of which could damage our reputation and our business.
If our third-party manufacturers use hazardous and biological materials in a manner that causes injury or violates applicable law, we
may be liable for damages.
Our research and development activities involve the controlled use of potentially hazardous substances, including chemical and biological
materials, by our third-party manufacturers. Our manufacturers are subject to federal, state and local laws and regulations in the United States
governing the use, manufacture, storage, handling and disposal of medical and hazardous materials. Although we believe that our
manufacturers’ procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we cannot
completely eliminate the risk of contamination or injury resulting from medical or hazardous materials. As a result of any such contamination
or injury, we may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business
operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our
resources. We do not have any insurance for liabilities arising from medical or hazardous materials. Compliance with applicable
environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development and
production efforts, which could harm our business, prospects, financial condition or results of operations.
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Risks related to managing growth and employee matters
Risks related to our employee matters
We are highly dependent on our key personnel and anticipate hiring new key personnel. If we are not successful in attracting and
retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract and retain
highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical personnel,
including our President and Chief Executive Officer, our Chief Financial Officer, Chief Scientific Officer, Chief Medical Officer, Executive
Vice President of Discovery and Translational Sciences, and our Senior Vice President, Non-Clinical Development. Our Senior Vice
President, Non-Clinical Development, Karsten Witt, M.D., is not our employee and provides services under a consulting agreement. We have
transitioned from our old service model with Ridgeline to a more limited consulting arrangement. While we have engaged in an orderly
transition process as we integrate newly appointed officers and managers, we face a variety of risks and uncertainties relating to management
transition, including diversion of management attention from business concerns, failure to retain other key personnel or loss of institutional
knowledge. In addition, the loss of the services of any of our executive officers, other key employees and other scientific and medical
advisors, and an inability to find suitable replacements could result in delays in product development and harm our business.
We conduct our operations at our facilities in Cambridge, MA, New York, NY, Stony Brook, NY, and Toronto, Canada. The Massachusetts
region is headquarters to many other biopharmaceutical companies and many academic and research institutions. Competition for skilled
personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all.
Changes to U.S. immigration and work authorization laws and regulations, including those that restrain the flow of scientific and professional
talent, can be significantly affected by political forces and levels of economic activity. Our business may be materially adversely affected if
legislative or administrative changes to immigration or visa laws and regulations impair our hiring processes and goals or projects involving
personnel who are not U.S. citizens.
To encourage valuable employees to remain at our company, in addition to salary and cash incentives, we have provided stock options that
vest over time. The value to employees of stock options that vest over time may be significantly affected by movements in our stock price
that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts
to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on
short notice. Although we have employment agreements with our key employees, these employment agreements provide for at-will
employment, which means that any of our employees could leave our employment at any time, with or without notice. Our success also
depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level and senior managers as well as junior, mid-
level and senior scientific and medical personnel.
Risks related to our business operations and growth
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
As of December 31, 2020, we had 69 full-time employees. We intend to hire new employees to conduct our research and development
activities in the future. Any delay in hiring such new employees could result in delays in our research and development activities and would
harm our business. As our development and commercialization plans and strategies develop, and as we transition into operating as a public
company, we expect to need additional managerial, operational, sales, marketing, financial and other personnel, as well as additional facilities
to expand our operations. Future growth would impose significant added responsibilities on members of management, including:
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identifying, recruiting, integrating, maintaining and motivating additional employees;
• managing our internal development efforts effectively, including the clinical and FDA review process for our product candidates, while
complying with our contractual obligations to contractors and other third parties; and
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improving our operational, financial and management controls, reporting systems and procedures.
Our future financial performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively
manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day
activities in order to devote a substantial amount of time to managing these growth activities.
We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and
consultants to provide certain services, including substantially all aspects of regulatory approval, clinical trial management and
manufacturing. There can be no assurance that the services of independent organizations, advisors and consultants will continue to be
available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage
our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical
trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval of our product candidates or otherwise
advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside
contractors and consultants on economically reasonable terms, or at all.
If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors,
or we are not able to effectively build out new facilities to accommodate this expansion, we may not be able to successfully implement the
tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development
and commercialization goals.
Our internal computer systems, or those used by our third-party CROs or other contractors or consultants, may fail or suffer security
breaches, which could result in a material disruption of the development programs of our product candidates.
Despite the implementation of security measures, our internal computer systems and those of our current and future CROs and other
contractors and consultants may be vulnerable to damage from computer viruses, unauthorized access, natural disasters, and
telecommunication and electrical failures. While we have not experienced any such material system failure or security breach to date, if such
an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our
business operations. For example, the loss of data from completed or future preclinical studies and clinical trials could result in delays in our
regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we 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 data
or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development
and commercialization of our product candidates could be delayed.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our operations, and those of our CROs, CMOs and other contractors and consultants, could be subject to earthquakes, power shortages,
telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other
natural or man-made disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these
business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely on third-party
manufacturers to produce our product candidates. Our ability to obtain clinical supplies of our product candidates could be disrupted if the
operations of these suppliers are affected by a man-made or natural disaster or other business interruption.
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If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of
our product candidates.
We face an inherent risk of product liability as a result of the planned clinical testing of our product candidates and will face an even greater
risk if we commercialize any products. For example, we may be sued if our product candidates cause or are perceived to cause injury or are
found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include
allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a
breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against
product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even
successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability
claims may result in:
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injury to our reputation;
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initiation of investigations by regulators;
costs to defend the related litigation;
a diversion of management’s time and our resources;
substantial monetary awards to trial participants or patients;
product recalls, withdrawals or labeling, marketing or promotional restrictions;
loss of revenue;
exhaustion of any available insurance and our capital resources;
the inability to commercialize any product candidate; and
a decline in our share price.
Failure to obtain or retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could
prevent or inhibit the commercialization of products we develop, alone or with corporate collaborators. Although we have clinical trial
insurance, our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no
coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are
not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with
any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should
any claim arise.
Risks related to tax
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally
defined as a greater than 50% change (by value) in its equity ownership by 5% stockholders over a three-year period), the corporation’s
ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change taxable income may
be limited. As a result of our most recent private placements and other transactions that have occurred over the past three years, we may have
experienced, and may experience, an “ownership change.” We may also experience ownership changes in the future as a result of subsequent
shifts in our stock ownership. As of December 31, 2020, we had U.S. federal and state net operating loss carryforwards of $96,644 and U.S.
federal research and development tax credit carryforwards of $2,477, each of which will begin to expire at various dates through 2039 and
which could be limited if we experience an “ownership change.”
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Risks related to ownership of our common stock
Risks related to investments in our securities
The price of our stock is volatile, and you could lose all or part of your investment.
Similar to the trading prices of the common stock of other biopharmaceutical companies, the trading price of our common stock is subject to
wide fluctuations in response to various factors, some of which are beyond our control, including limited trading volume. In addition to the
factors discussed in this “Risk Factors” section and elsewhere in this Annual Report, these factors include:
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the results of our ongoing, planned or any future preclinical studies, clinical trials or clinical development programs;
the commencement, enrollment, or results of clinical trials of our product candidates or any future clinical trials we may conduct, or
changes in the development status of our product candidates;
adverse results or delays in preclinical studies and clinical trials;
our decision to initiate a clinical trial, not to initiate a clinical trial, or to terminate an existing clinical trial;
any delay in our regulatory filings or any adverse regulatory decisions, including failure to receive regulatory approval of our product
candidates;
changes in laws or regulations applicable to our products, including but not limited to clinical trial requirements for approvals;
adverse developments concerning our manufacturers or our manufacturing plans;
our inability to obtain adequate product supply for any licensed product or inability to do so at acceptable prices;
our inability to establish collaborations if needed;
our failure to commercialize our product candidates;
additions or departures of key scientific or management personnel;
unanticipated serious safety concerns related to the use of our product candidates;
introduction of new products or services offered by us or our competitors;
announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;
our ability to effectively manage our growth;
the size and growth of our initial cancer target markets;
our ability to successfully treat additional types of cancers or at different stages;
actual or anticipated variations in quarterly operating results;
our cash position;
our failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public;
publication of research reports about us or our industry, or immunotherapy in particular, or positive or negative recommendations or
withdrawal of research coverage by securities analysts;
changes in the market valuations of similar companies;
overall performance of the equity markets;
sales of our common stock by us or our stockholders in the future;
trading volume of our common stock;
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changes in accounting practices;
ineffectiveness of our internal controls;
disputes or other developments relating to intellectual property or proprietary rights, including patents, litigation matters and our ability
to obtain patent protection for our technologies;
significant lawsuits, including intellectual property or stockholder litigation;
general political and economic conditions; and
other events or factors, many of which are beyond our control.
In addition, the stock market in general, and the market for biopharmaceutical companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and
industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. In the past,
securities class action litigation has often been instituted against companies following periods of volatility in the market price of a company’s
securities. This type of litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources,
which would harm our business, financial condition, results of operation and future prospects.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our
technologies or product candidates.
We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and
alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities,
your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a
stockholder. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive
covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights
and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic
partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or
product candidates, or grant licenses on terms unfavorable to us.
We have broad discretion in the use of our existing cash, cash equivalents and marketable securities and may not use them effectively.
Our management will have broad discretion in the application of our existing cash, cash equivalents and marketable securities. Because of the
number and variability of factors that will determine our use of the net proceeds from our IPO, their ultimate use may vary substantially from
their currently intended use. Our management might not apply our net proceeds in ways that ultimately increase or maintain the value of your
investment.
We do not intend to pay dividends on our common stock, so any returns will be limited to the value of our stock.
We currently anticipate that we will retain future earnings for the development, operation, and expansion of our business and do not
anticipate declaring or paying any cash dividends for the foreseeable future. In addition, we may enter into agreements that prohibit us from
paying cash dividends without prior written consent from our contracting parties, or which other terms prohibiting or limiting the amount of
dividends that may be declared or paid on our common stock. Any return to stockholders will therefore be limited to the appreciation of their
stock, which may never occur.
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Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant influence over
matters subject to stockholder approval.
Based upon our common stock outstanding as of December 31, 2020, our executive officers, directors, and their affiliates beneficially owned
over a majority of our outstanding voting stock. These stockholders, acting together, are able to significantly influence all matters requiring
stockholder approval. For example, these stockholders are able to significantly influence elections of directors, amendments of our
organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage
unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.
We are an emerging growth company and a smaller reporting company, and we cannot be certain if the reduced reporting requirements
applicable to emerging growth companies and smaller reporting companies will make our common stock less attractive to investors.
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012. For as
long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are
applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in this Annual Report and our periodic reports and proxy statements, and exemptions from the
requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments
not previously approved. We could be an emerging growth company for up to five years following the year in which we complete our IPO,
although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until the earlier of (1) the last
day of the fiscal year (a) following the fifth anniversary of the closing of our IPO, (b) in which we have total annual gross revenue of at least
$1.07 billion or (c) in which we are deemed to be a large accelerated filer, which requires the market value of our common stock that is held
by non-affiliates to exceed $700 million as of the prior June 30 , and (2) the date on which we have issued more than $1 billion in non-
convertible debt during the prior three-year period.
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Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those
standards apply to private companies. We have elected to not “opt out” of this exemption from complying with new or revised accounting
standards and, therefore, we will adopt new or revised accounting standards at the time private companies adopt the new or revised
accounting standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no
longer qualify as an emerging growth company.
Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow
us to continue to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with
the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive
compensation in this Annual Report and our periodic reports and proxy statements. 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 stock price may be more volatile.
As of June 30, 2020, the market value of our stock held by non-affiliates was greater than $700 million. As of January 1, 2021, we ceased to
be a smaller reporting company.
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We will incur significant 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.
As a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company. We will be
subject to the reporting requirements of the Exchange Act, which will require, among other things, that we file with the SEC, annual,
quarterly, and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules
subsequently adopted by the SEC and The Nasdaq Global Select Market to implement provisions of the Sarbanes-Oxley Act, impose
significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial
controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection
Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the
Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas, such as “say on pay” and proxy access. Recent
legislation permits emerging growth companies to implement many of these requirements over a longer period and up to five years from the
pricing of our IPO. We intend to take advantage of this new legislation but cannot guarantee that we will not be required to implement these
requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political
environment, and the current high level of government intervention and regulatory reform may lead to substantial new regulations and
disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we
cannot currently anticipate.
We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and to
make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from
other business concerns, they could have a material adverse effect on our business, financial condition, and results of operations. The
increased costs will decrease our net income or increase our net loss and may require us to reduce costs in other areas of our business or
increase the prices of our products or services. For example, we expect these rules and regulations to make it more difficult and more
expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or
similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The
impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors,
our board committees, or as executive officers.
Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could cause our stock
price to fall.
Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur could depress
the market price of our common shares, could make it more difficult for you to sell your common stock at a time and price that you deem
appropriate and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that
sales may have on the prevailing market price of our common stock.
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Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.
The global credit and financial markets have experienced extreme volatility and disruptions in the past several years, including severely
diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates
and uncertainty about economic stability. We believe that the state of global economic conditions are particularly volatile and uncertain, not
only in light of the COVID-19 pandemic and the potential global recession resulting therefrom, but also due to recent and expected shifts in
political, legislative and regulatory conditions concerning, among other matters, international trade and taxation, and that an uneven recovery
or a renewed global downturn may negatively impact our ability to conduct clinical trials on the scale and timelines anticipated. There can be
no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general
business strategy may be adversely affected by any such economic downturn, volatile business or political environment or continued
unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, it may make obtaining any necessary debt
or equity financing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on
favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to
delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and
other partners may not survive an economic downturn, which could directly affect our ability to attain our operating goals on schedule and on
budget. To the extent that our profitability and strategies are negatively affected by downturns or volatility in general economic conditions,
our business and results of operations may be materially adversely affected.
If securities or industry analysts publish inaccurate or unfavorable research about our business, our stock price and trading volume
could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us
or our business. If one or more of the analysts who cover us downgrades our stock or publishes inaccurate or unfavorable research about our
business, our stock price may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us
regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
Risks related to our charter and bylaws
Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control, which could limit
the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current
management.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a
change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these
provisions include:
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a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at
one time;
a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a meeting of our
stockholders;
a requirement that special meetings of stockholders be called only by the board of directors acting pursuant to a resolution approved by
the affirmative vote of a majority of the directors then in office;
advance notice requirements for stockholder proposals and nominations for election to our board of directors;
a requirement that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition
to any other vote required by law, upon the approval of not less than two-thirds of all outstanding shares of our voting stock then entitled
to vote in the election of directors;
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a requirement of approval of not less than two-thirds of all outstanding shares of our voting stock to amend any bylaws by stockholder
action or to amend specific provisions of our certificate of incorporation; and
the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval
and which preferred stock may include rights superior to the rights of the holders of common stock.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporate
Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These
antitakeover provisions and other provisions in our amended and restated certificate of incorporation and amended and restated bylaws could
make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by
the then-current board of directors and could also delay or impede a merger, tender offer, or proxy contest involving our company. These
provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing
or cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of
directors could cause the market price of our common stock to decline.
Our bylaws designate a certain court as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by
our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors,
officers, or employees.
Our bylaws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole
and exclusive forum for any state law claims for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a
claim of breach of fiduciary duty owed by any of our directors, officers, and employees to us or our stockholders, (iii) any action asserting a
claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or
our amended and restated bylaws or (iv) any action asserting a claim that is governed by the internal affairs doctrine, in each case subject to
the Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. This exclusive forum
provision will not apply to any causes of action arising under the Securities Act or the Exchange Act. In addition, our amended and restated
bylaws will provide that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have
notice of and consented to the foregoing provisions. We recognize that the forum selection clause in our bylaws may impose additional
litigation costs on stockholders in pursuing any such claims, particularly if the stockholders do not reside in or near the State of Delaware.
Additionally, the forum selection clause in our amended and restated bylaws may limit our stockholders’ ability to bring a claim in a forum
that they find favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our
directors, officers and employees even though an action, if successful, might benefit our stockholders. The Court of Chancery of the State of
Delaware may also reach different judgments or results than would other courts, including courts where a stockholder considering an action
may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.
Risks related to internal control over financial reporting
We have recently remediated material weaknesses in our internal control over financial reporting. If we identify additional material
weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely
report our financial condition or results of operations, which may adversely affect our business.
In preparation of our financial statements to meet the requirements of our initial public offering, we determined that material weaknesses in
our internal control over financial reporting existed during fiscal year 2017 until they were recently remediated in the fourth quarter of 2020.
A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of a company’s annual and interim financial statements will not be detected or prevented on a timely
basis.
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The material weaknesses we identified are related to the design and maintenance of an effective control environment commensurate with our
financial reporting requirements. Specifically, we lacked a sufficient complement of professionals with an appropriate level of accounting
knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately and we did not
design and maintain controls to ensure adequate segregation of duties within our financial reporting function including the preparation and
review of journal entries.
The material weaknesses contributed to the restatement of our previously issued 2017 annual financial statements. Specifically, the material
weaknesses resulted in errors in our accounting for and reporting of derivative liabilities, loss on extinguishment of convertible promissory
notes and expense classification.
We have implemented a variety of controls to remediate the material weaknesses identified which enabled us to broaden the scope and
quality of our internal review of underlying information related to financial reporting and to enhance our internal control procedures. We
believe that these efforts have remediated the material weaknesses, but we cannot assure that there will not be material weaknesses or
significant deficiencies in our internal control over financial reporting in the future. If we are unable to successfully remediate any future
material weaknesses in our internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely
affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports and
applicable Nasdaq Global Select Market listing requirements, investors may lose confidence in our financial reporting, and our share price
may decline as a result. In addition, we could become subject to investigations by Nasdaq, the SEC or other regulatory authorities, which
could require additional financial and management resources.
If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to
operate our business could be harmed.
Adequate internal control over financial reporting are necessary for us to provide reliable financial reports and, together with effective
disclosure controls and procedures, are designed to prevent or detect material misstatements due to fraud or error. 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 conducted by us in connection with Section 404 of the Sarbanes-Oxley Act, or any subsequent testing by
our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to
be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further
attention or improvement. Inadequate 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.
Implementing any appropriate changes to our internal controls may distract our officers and employees, entail substantial costs to modify our
existing processes, and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our
internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis,
could increase our operating costs and harm our business. In addition, investors’ perceptions that our internal controls are inadequate or that
we are unable to produce accurate financial statements on a timely basis may harm our stock price and make it more difficult for us to
effectively market and sell our service to new and existing customers.
General risk factors
Data collection is governed by restrictive regulations governing the use, processing and cross-border transfer of personal information.
In the event we decide to conduct clinical trials or continue to enroll subjects in our ongoing or future clinical trials, we may be subject to
additional privacy restrictions. The collection, use, storage, disclosure, transfer, or other processing of personal data regarding individuals in
the EU, including personal health data, is subject to the EU General Data Protection Regulation, or GDPR, which became effective on
May 25, 2018. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including
requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whom the personal data
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relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and
confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors.
The GDPR also imposes strict rules on the transfer of personal data to countries outside the EU, including the United States, and permits data
protection authorities to impose large penalties for violations of the GDPR, including potential fines of up to €20 million or 4% of annual
global revenues, whichever is greater. The GDPR also confers a private right of action on data subjects and consumer associations to lodge
complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR.
In addition, the GDPR includes restrictions on cross-border data transfers. The GDPR increased our responsibility and liability in relation to
personal data that we process where such processing is subject to the GDPR, and we may be required to put in place additional mechanisms
to ensure compliance with the GDPR, including as implemented by individual countries. Compliance with the GDPR will be a rigorous and
time-intensive process that may increase our cost of doing business or require us to change our business practices, and despite those efforts,
there is a risk that we may be subject to fines and penalties, litigation, and reputational harm in connection with our European activities.
Further, the United Kingdom’s vote in favor of exiting the EU, often referred to as Brexit, has created uncertainty with regard to data
protection regulation in the United Kingdom. In particular, it is unclear how data transfers to and from the United Kingdom will be regulated.
In addition, California recently enacted the California Consumer Privacy Act, or CCPA, which creates new individual privacy rights for
California consumers (as defined in the law) and places increased privacy and security obligations on entities handling personal data of
consumers or households. The CCPA requires covered companies to provide new disclosure to consumers about such companies’ data
collection, use and sharing practices, provide such consumers new ways to opt-out of certain sales or transfers of personal information, and
provide consumers with additional causes of action. The CCPA went into effect on January 1, 2020, and the California Attorney General
commenced enforcement actions for violations beginning July 1, 2020. The CCPA was amended on September 23, 2018, and it remains
unclear what, if any, further modifications will be made to this legislation or how it will be interpreted. As currently written, the CCPA may
impact our business activities and exemplifies the vulnerability of our business to the evolving regulatory environment related to personal
data and protected health information.
Compliance with U.S. and international data protection laws and regulations could require us to take on more onerous obligations in our
contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions. Failure to
comply with U.S. and international data protection laws and regulations could result in government enforcement actions (which could include
civil or criminal penalties), private litigation or adverse publicity and could negatively affect our operating results and business. Moreover,
clinical trial subjects about whom we or our potential collaborators obtain information, as well as the providers who share this information
with us, may contractually limit our ability to use and disclose the information. Claims that we have violated individuals’ privacy rights,
failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and
time consuming to defend and could result in adverse publicity that could harm our business.
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Changes to patent law in the United States and in foreign jurisdictions could diminish the value of patents in general, thereby impairing
our ability to protect our products.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents.
Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity, and is therefore costly,
time-consuming and inherently uncertain. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in
certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our
ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained.
Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in
unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we might obtain in the future. For example,
in the case Assoc. for Molecular Pathology v. Myriad Genetics, Inc., the U.S. Supreme Court held that certain claims to DNA molecules are
not patentable. Any adverse changes in the patent laws of other jurisdictions could have a material adverse effect on our business and
financial condition. Changes in the laws and regulations governing patents in other jurisdictions could similarly have an adverse effect on our
ability to obtain and effectively enforce any rights we may have in our patent applications or any patents we may own or in-license in the
future.
Recent or future patent reform legislation could also increase the uncertainties and costs surrounding the prosecution of our patent
applications and the enforcement or defense of any patents we may own or in-license in the future. The United States has enacted and
implemented wide-ranging patent reform legislation. On September 16, 2011, the Leahy-Smith America Invents Act, or America Invents
Act, was signed into law, which includes a number of significant changes to U.S. patent law. These include provisions that affect the way
patent applications are prosecuted, redefine prior art, may affect patent litigation, establish a new post-grant review system and switch the
U.S. patent system from a “first-to-invent” system to a “first-to-file” system. Under a “first-to-file” system, assuming the other requirements
for patentability are met, the first inventor to file a patent application generally will be entitled to a patent on the invention regardless of
whether another inventor had made the invention earlier. Since patent applications in the United States and most other countries are
confidential for a period of time after filing or until issuance, we cannot be certain that we were the first to either (i) file any patent
application related to our product candidates or other technologies or (ii) invent any of the inventions claimed in our patent applications or
any patents we may own or in-license. These changes also allow third party submission of prior art to the USPTO during patent prosecution
and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter
partes review, and derivation proceedings. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary
standard in United States federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO
proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if
first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims
that would not have been invalidated if first challenged by the third party as a defendant in a district court action. An adverse determination
in any such proceeding could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or
products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without
infringing third-party patent rights. Accordingly, the America Invents Act and its implementation could increase the uncertainties and costs
surrounding the prosecution of our patent applications and the enforcement or defense of any issued patents we may own or in-license in the
future, all of which could have a material adverse effect on our business and financial condition.
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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. Future changes in tax laws could have a material adverse effect on our business, cash flow, financial
condition or results of operations. We urge investors to consult with their legal and tax advisers regarding the implications of potential
changes in tax laws on an investment in our common stock.
We may be unable to adequately protect our information systems from cyberattacks, which could result in the disclosure of confidential or
proprietary information, including personal data, damage our reputation, and subject us to significant financial and legal exposure.
We rely on information technology systems that we or our third-party providers operate to process, transmit and store electronic information
in our day-to-day operations. In connection with our MAP platform and product discovery efforts, we may collect and use a variety of
personal data, such as name, mailing address, email addresses, phone number and clinical trial information. A successful cyberattack could
result in the theft or destruction of intellectual property, data, or other misappropriation of assets, or otherwise compromise our confidential
or proprietary information and disrupt our operations. Cyberattacks are increasing in their frequency, sophistication and intensity, and have
become increasingly difficult to detect. Cyberattacks could include wrongful conduct by hostile foreign governments, industrial espionage,
wire fraud and other forms of cyber fraud, the deployment of harmful malware, denial-of-service, social engineering fraud or other means to
threaten data security, confidentiality, integrity and availability. A successful cyberattack could cause serious negative consequences for us,
including, without limitation, the disruption of operations, the misappropriation of confidential business information, including financial
information, trade secrets, financial loss and the disclosure of corporate strategic plans. Although we devote resources to protect our
information systems, we realize that cyberattacks are a threat, and there can be no assurance that our efforts will prevent information security
breaches that would result in business, legal, financial or reputational harm to us, or would have a material adverse effect on our results of
operations and financial condition. Any failure to prevent or mitigate security breaches or improper access to, use of, or disclosure of our
clinical data or patients’ personal data could result in significant liability under state (e.g., state breach notification laws), federal (e.g.,
HIPAA, as amended by HITECH), and international law (e.g., the GDPR) and may cause a material adverse impact to our reputation, affect
our ability to conduct new studies and potentially disrupt our business.
In addition, the computer systems of various third parties on which we rely, including our CROs and other contractors, consultants and law
and accounting firms, may sustain damage from computer viruses, unauthorized access, data breaches, phishing attacks, cybercriminals,
natural disasters (including hurricanes and earthquakes), terrorism, war and telecommunication and electrical failures. We rely on our third-
party providers to implement effective security measures and identify and correct for any such failures, deficiencies or breaches. If we or our
third-party providers fail to maintain or protect our information technology systems and data integrity effectively or fail to anticipate, plan for
or manage significant disruptions to our information technology systems, we or our third-party providers could have difficulty preventing,
detecting and controlling such cyber-attacks and any such attacks could result in losses described above as well as disputes with physicians,
patients and our partners, regulatory sanctions or penalties, increases in operating expenses, expenses or lost revenues or other adverse
consequences, any of which could have a material adverse effect on our business, results of operations, financial condition, prospects and
cash flows. Any failure by such third parties to prevent or mitigate security breaches or improper access to or disclosure of such information
could have similarly adverse consequences for us. If we are unable to prevent or mitigate the impact of such security or data privacy
breaches, we could be exposed to litigation and governmental investigations, which could lead to a potential disruption to our business.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
We lease a facility containing approximately 25,578 square feet of office space for our principal office, which is located at One Main Street,
Cambridge, MA 02142. The lease expires on August 31, 2028, subject to an option to extend the lease for five additional years. We also lease
a facility containing approximately 2,357 square feet of office space, which is located at 139 Main Street, Cambridge, MA 02142. The lease
expires on April 30, 2022, subject to an option to extend the lease for three additional years.
In December 2020 we entered into an agreement to lease approximately 18,120 square feet of office and laboratory space at 430 East 29th
Street, New York, New York 10016. The lease expires on June 30, 2032, subject to an option to extend the lease for five additional years.
We also lease approximately 1,500 square feet of laboratory space and 500 square feet of office space at 25 Health Sciences Drive, Stony
Brook, NY 11790 and we are in the process of renegotiating our lease for this location. In addition, we also have a license to use the private
and shared laboratory and office facilities at 180 Varick Street, New York, NY 10014. The license expires on December 31, 2021, however,
the Company may terminate the lease with 30-days’ notice.
For our Canadian subsidiary, we have a non-exclusive license to occupy a portion of a building located at 661 University Avenue, Toronto,
Ontario M5G 0B7, for the purposes of conducting laboratory research, business planning and related activities. The license expires on April
1, 2022. We believe that our current facilities are sufficient to meet our current and near term needs.
Item 3. Legal Proceedings
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not currently aware
of any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business,
financial condition or results of operations.
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
Certain Information Regarding the Trading of Our Common Stock
Our common stock trades under the symbol “BDTX” on the Nasdaq Global Select Market and has been publicly traded since January 30,
2020. Prior to this time, there was no public market for our common stock.
Holders of Our Common Stock
As of February 28, 2021, there were approximately 39 holders of record of shares of our common stock. This number does not include
stockholders for whom shares are held in “nominee” or “street” name.
Dividends
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings to fund the
development and expansion of our business, and therefore we do not anticipate paying cash dividends on our common stock in the
foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our results
of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant by our board of directors.
Securities Authorized for Issuance Under Equity Compensation Plans
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.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our registered equity securities during the period covered by this Annual Report.
Item 6. Reserved
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with Part II, Item 6. “Selected Financial Data” and our consolidated
financial statements and related notes included elsewhere in this Annual Report. This discussion and analysis and other parts of this Annual
Report contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and
assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing
of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including
those set forth under Part I, Item 1A “Risk Factors” and elsewhere in this Annual Report. You should carefully read the “Risk Factors”
section of this Annual Report to gain an understanding of the important factors that could cause actual results to differ materially from our
forward-looking statements. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.”
Overview
We are a precision oncology medicine company pioneering the discovery and development of small molecule, MasterKey therapies. We
target undrugged oncogenic driver mutations in patients with genetically defined cancers. The foundation of our company is built upon a
deep understanding of cancer genetics, protein structure and function, and medicinal chemistry. Our proprietary technology platform, which
we refer to as our Mutation-Allostery-Pharmacology, or MAP, platform, is designed to allow us to analyze population-level genetic
sequencing data to discover oncogenic mutations that promote cancer across tumor types. Our goal is to identify families of mutations that
can be inhibited with a single small molecule MasterKey therapy in a tumor-agnostic manner.
We have designed our lead product candidate, BDTX-189, to potently and selectively inhibit a spectrum of oncogenic proteins defined by
mutations which occur outside the adenosine triphosphate, or ATP, site, and which we refer to as non-canonical mutations. Non-canonical
mutations occur across a range of tumor types that affect both the epidermal growth factor receptor, or EGFR, and the tyrosine-protein kinase
ErbB-2, or HER2. We have designed BDTX-189 to bind to the active site of these mutant kinases and inhibit their function. BDTX-189 is
also designed to spare normal, or wild type, EGFR, which we believe will improve upon the toxicity profiles of current ErbB kinase
inhibitors. We are also leveraging our MAP platform to identify other families of non-canonical mutations in validated oncogenes beyond
ErbB, which has the potential to expand the reach of targeted therapies.
Since our inception in 2014, we have devoted substantially all of our efforts and financial resources to organizing and staffing our company,
business planning, raising capital, discovering product candidates and securing related intellectual property rights while conducting research
and development activities for our programs. We do not have any products approved for sale and have not generated any revenue from
product sales. We may never be able to develop or commercialize a marketable product. We have not yet successfully completed any pivotal
clinical trials, obtained any regulatory approvals, manufactured a commercial-scale drug, or conducted sales and marketing activities.
Through December 31, 2020, we had received net proceeds of $200.6 million and $212.1 million from sales of our preferred and common
stock, respectively.
We submitted our IND for BDTX-189 in November 2019, which was allowed by the U.S. Food and Drug Administration (“FDA”) on
December 13, 2019. We have since begun enrollment and dosing of patients in the Phase 1 portion of our MasterKey-01 trial to pursue a
tumor-agnostic development strategy and expect to complete the Phase 1 portion of the trial by the first half of 2021. In July 2020, we were
granted Fast Track designation for BDTX-189 for the treatment of adult patients with solid tumors harboring an allosteric human epidermal
growth factor receptor 2 (HER2) mutation or an epidermal growth factor receptor (EGFR) or HER2 Exon 20 insertion mutation who have
progressed following prior treatment and who have no satisfactory treatment options.
Since inception we have incurred significant operating losses. Our net losses were $67.3 million and $35.3 million for the years ended
December 31, 2020 and 2019, respectively. As of December 31, 2020, we had an accumulated deficit of $118.2 million. Our ability to
generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual
commercialization of one or more of our current or future product candidates.
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We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and
as we:
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continue preclinical studies and initiate or advance clinical trials for BDTX-189, our BDTX-1535 program and other product
candidates;
continue to develop and expand our proprietary MAP platform to identify additional product candidates;
obtain, maintain, expand and protect our intellectual property portfolio;
hire additional clinical, scientific and commercial personnel;
seek marketing approvals for our product candidates that successfully complete clinical trials, if any;
acquire or in-license additional product candidates;
expand our infrastructure and facilities to accommodate our growing employee base; and
add operational, financial and management information systems and personnel, including personnel to support our research and
development programs, any future commercialization efforts and our transition to operating as a public company.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time
as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt
financings or other capital sources, which may include collaborations with other companies or other strategic transactions. We may be unable
to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise
capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and
commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of
increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may
not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to
continue our operations at planned levels and be forced to reduce or terminate our operations.
As of December 31, 2020, we had cash, cash equivalents and investments of $315.1 million, which we believe will fund our operating
expenses and capital expenditure requirements into 2023. We have based this estimate on assumptions that may prove to be wrong, and we
could exhaust our available capital resources sooner than we expect. See “—Liquidity and capital resources.” To finance our operations
beyond that point, we will need to raise additional capital, which cannot be assured. 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.
COVID-19 Considerations
In March 2020, the World Health Organization declared the outbreak of coronavirus disease (“COVID-19”) a pandemic. The COVID-19
pandemic continues to evolve, and to date has led to the implementation of various responses, including government-imposed quarantines,
stay-at-home orders, travel restrictions, mandated business closures and other public health safety measures. Such orders, restrictions and
recommendations, and the perception that additional orders, restrictions or recommendations could occur, have resulted in widespread
closures of businesses not deemed “essential,” work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and
cancellation of events. Although states have quarantines and similar restrictions in place, the regulations vary on a state by state basis and the
effectiveness of these restrictions on slowing the spread of COVID-19 varies.
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We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it has and will continue
to impact our operations and the operations of our suppliers, vendors and business partners, and may take further precautionary and
preemptive actions as may be required by federal, state or local authorities. In addition, we have taken steps to minimize the current
environment’s impact on our business and strategy, including devising contingency plans and securing additional resources from third party
service providers. For the safety of our employees and families, we have introduced enhanced safety measures for scientists to be present in
our labs and increased the use of third party service providers for the conduct of certain experiments and studies for research programs.
Certain of our third party service providers have also experienced shutdowns or other business disruptions. We do not yet know the full
extent of potential delays or impacts on our business, our clinical trials, our research programs, healthcare systems or the global economy and
we cannot presently predict the scope and severity of any potential business shutdowns or disruptions. In particular, our ability to conduct our
MasterKey-01 trial in a timely manner that meets our current projected timelines could be adversely impacted. While the Phase 1 portion of
the trial currently remains on track to complete by the first half of 2021, potential COVID-19-associated risks include delays in patient
recruitment and principal investigator availability, clinical trial site shutdowns or other interruptions and potential limitations on the quality,
completeness and interpretability of data we are able to collect. Additionally, our drug product supply chain, early stage research &
development programs and activities and other aspects of our business operations could be negatively impacted by the pandemic and
COVID-19-related delays or disruptions.
Beyond the impact on our pipeline, the extent to which COVID-19 ultimately impacts our business, results of operations and financial
condition will depend on future developments, which remain highly uncertain and cannot be predicted with confidence, such as the duration
of the outbreak, new information that may emerge concerning the severity of COVID-19 or the effectiveness of actions taken to contain
COVID-19 or treat its impact, including vaccination campaigns, among others. If we or any of the third parties with whom we engage,
however, were to experience any additional shutdowns or other prolonged business disruptions, our ability to conduct our business in the
manner and on the timelines presently planned could be materially or negatively affected, which could have a material adverse impact on our
business, results of operations and financial condition.
Components of our results of operations
Revenue
To date, we have not generated any revenue from any sources, including from product sales, and we do not expect to generate any revenue
from the sale of products in the foreseeable future. If our development efforts for our product candidates are successful and result in
regulatory approval, or license agreements with third parties, we may generate revenue in the future from product sales. However, there can
be no assurance as to when we will generate such revenue, if at all.
Operating expenses
Research and development expenses (inclusive of amounts with a related party)
Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts and
the development of our product candidates. We expense research and development costs as incurred, which include:
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expenses incurred to conduct the necessary preclinical studies and clinical trials required to obtain regulatory approval;
expenses incurred under agreements with contract research organizations, or CROs, that are primarily engaged in the oversight and
conduct of our drug discovery efforts and preclinical studies, clinical trials and contract manufacturing organizations, or CMOs, that
are primarily engaged to provide preclinical and clinical drug substance and product for our research and development programs;
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other costs related to acquiring and manufacturing materials in connection with our drug discovery efforts and preclinical studies and
clinical trial materials, including manufacturing validation batches, as well as investigative sites and consultants that conduct our
clinical trials, preclinical studies and other scientific development services;
payments made in cash or equity securities under third-party licensing, acquisition and option agreements;
employee-related expenses, including salaries and benefits, travel and stock-based compensation expense for employees engaged in
research and development functions;
expenses incurred under our services agreement with Ridgeline Therapeutics GmbH, or Ridgeline;
costs related to compliance with regulatory requirements; and
allocated facilities-related costs, depreciation and other expenses, which include rent and utilities.
We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided
to us by our service providers. This process involves reviewing open contracts and purchase orders, communicating with our personnel to
identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for
the service when we have not yet been invoiced or otherwise notified of actual costs. Any nonrefundable advance payments that we make for
goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts
are expensed as the related goods are delivered or the related services are performed, or until it is no longer expected that the goods will be
delivered or the services rendered.
We do not track our research and development expenses on a program-by-program basis. Our direct external research and development
expenses consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and research laboratories in connection
with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and
development expenses also include fees incurred under license, acquisition and option agreements. We do not allocate employee costs, costs
associated with our discovery efforts, laboratory supplies, and facilities, including depreciation or other indirect costs, to specific programs
because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to
conduct our research and discovery as well as for managing our preclinical development, process development, manufacturing and clinical
development activities. These employees work across multiple programs and, therefore, we do not track their costs by program.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally
have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-
stage clinical trials. As a result, we expect that our research and development expenses will increase substantially over the next several years
as we continue our clinical trials for BDTX-189, as well as conduct other preclinical and clinical development, including submitting
regulatory filings for our other product candidates, including BDTX-1535.
Historically, many of our research and development activities were conducted pursuant to our services agreement with Ridgeline, a related
party, and we have transitioned many of these activities internally as we’ve increased our internal capacity. While the service fee we have
historically paid under our Ridgeline Services Agreement has been reduced significantly as a result of this transition, we expect that we will
incur increased personnel and overhead costs associated with moving those functions in-house, which we expect will offset that reduction in
Ridgeline services fees. In addition, we expect our discovery research efforts and our related personnel costs will increase and, as a result, we
expect our research and development expenses, including costs associated with stock-based compensation, will increase above historical
levels. In addition, we may incur additional expenses related to milestone and royalty payments payable to third parties with whom we may
enter into license, acquisition and option agreements to acquire the rights to future product candidates.
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At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the
preclinical and clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from any of
our product candidates. The successful development and commercialization of our product candidates is highly uncertain. This uncertainty is
due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of the
following:
•
•
•
•
•
•
•
•
•
•
the scope, progress, outcome and costs of our preclinical development activities, clinical trials and other research and development
activities;
establishing an appropriate safety and efficacy profile with IND enabling studies;
successful patient enrollment in and the initiation and completion of clinical trials;
the timing, receipt and terms of any marketing approvals from applicable regulatory authorities including the FDA and non-U.S.
regulators;
the extent of any required post-marketing approval commitments to applicable regulatory authorities;
establishing clinical and commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to
ensure that we or our third-party manufacturers are able to make product successfully;
development and timely delivery of clinical-grade and commercial-grade drug formulations that can be used in our clinical trials and
for commercial launch;
obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
significant and changing government regulation;
launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others; and
• maintaining a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates.
Any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical
development could mean a significant change in the costs and timing associated with the development of these product candidates. For
example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or
other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our planned clinical trials,
we could be required to expend significant additional financial resources and time on the completion of clinical development of that product
candidate.
General and administrative expenses (inclusive of amounts with a related party)
General and administrative expenses consist primarily of salaries and benefits, travel and stock-based compensation expense for personnel in
executive, business development, finance, human resources, legal, information technology, pre-commercial and support personnel functions.
General and administrative expenses also include direct and allocated facility-related costs as well as insurance costs and professional fees
for legal, patent, consulting, investor and public relations, accounting and audit services.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued
research activities and development of our product candidates and prepare for potential commercialization activities. We also anticipate that
we will incur significantly increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as
investor and public relations expenses associated with operating as a public company. Additionally, if and when we believe a regulatory
approval of a product candidate appears likely, we anticipate an increase in payroll and other employee-related expenses as a result of our
preparation for commercial operations, especially as it relates to the sales and marketing of that product candidate.
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Other income (expense)
Other income (expense) consists primarily of interest income earned on our cash equivalents and investment balances, realized and
unrealized foreign currency transaction gains and losses, and changes in fair value of derivative liabilities.
Results of operations
Comparison of the years ended December 31, 2020 and 2019
The following table summarizes our results of operations for the years ended December 31, 2020 and 2019:
Operating expenses:
Research and development (inclusive of $2,364 and $9,966 respectively, with a
related party)
General and administrative (inclusive of $0 and $445, respectively, with a related
party)
Total operating expenses
Loss from operations
Other income (expense):
Interest expense
Interest income
Change in fair value of derivative liabilities
Other income (expense)
Total other income (expense), net
Net loss attributable to common stockholders
Year Ended December 31,
2020
2019
Change
(in thousands)
$
48,209 $
21,753 $
26,456
21,361
69,570
(69,570)
(1)
4,041
—
(1,724)
2,316
(67,254) $
7,579
29,332
(29,332)
—
461
(6,393)
6
(5,926)
(35,258) $
13,782
40,238
(40,238)
(1)
3,580
6,393
(1,730)
8,242
(31,996)
$
Research and development (inclusive of amounts with a related party)
Research and development expenses were $48.2 million for the year ended December 31, 2020, compared to $21.8 million for the year ended
December 31, 2019. The increase of $26.4 million was primarily due to an increase in headcount expenses of $7.1 million and external fees
of $16.3 million related to the continued development of our MAP platform and our product candidates, including BDTX-189. We do not
currently track expenses on a program-by-program basis.
General and administrative (inclusive of amounts with a related party)
General and administrative expenses were $21.4 million for the year ended December 31, 2020, compared to $7.6 million for the year ended
December 31, 2019. The increase of $13.8 million was primarily due to an increase in headcount expenses of $6.0 million and external fees
of $6.6 million related to legal and other professional fees due to operating as a public company.
Other income (expense)
Other income was $2.3 million for the year ended December 31, 2020, compared to other expense of $5.9 million for the year ended
December 31, 2019. The increase was primarily attributable to no derivative liability in 2020 as well as interest income on investments and
accretion of discount on investments in 2020 and none in 2019.
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Liquidity and capital resources
Sources of liquidity
Since our inception, we have not generated any revenue from any product sales or any other sources and have incurred significant operating
losses and negative cash flows from our operations. We have not yet commercialized any of our product candidates and we do not expect to
generate revenue from sales of any product candidates for several years, if at all. We have funded our operations to date primarily with
proceeds from the sale of preferred stock. On February 3, 2020, we completed an IPO of 12,174,263 shares of our common stock, including
the exercise in full by the underwriters of their option to purchase up to 1,587,947 additional shares of common stock, for aggregate gross
proceeds of $231.3 million. We received $212.1 million in net proceeds after deducting underwriting discounts and commissions and other
estimated offering expenses payable by us. Through December 31, 2020, we had received net cash proceeds of $200.6 million from previous
sales of our preferred stock and as of December 31, 2020, we had cash, cash equivalents and investments of $315.1 million.
Cash flows
The following table summarizes our sources and uses of cash for each of the periods presented (in thousands):
Cash used in operating activities
Cash used in investing activities
Cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Operating activities
Year ended December 31,
2020
2019
$
$
(52,146)
$
(24,674)
(281,691)
214,944
(118,893)
$
(21)
127,756
103,061
During the year ended December 31, 2020, we used cash in operating activities of $52.1 million, primarily resulting from our net loss of
$67.3 million, partially offset by the non-cash charge related to stock compensation expense of $7.8 million, an increase in prepaid expenses
and other current assets due to payments for research services and a decrease in deferred offering costs.
During the year ended December 31, 2019, we used cash in operating activities of $24.7 million, primarily resulting from our net loss of
$35.3 million, partially offset by the non-cash charge related to the change in fair value of derivative liabilities of $6.4 million, an increase in
prepaid expenses and other current assets primarily due to payments for research services and a decrease in amounts due to related parties
due to payments made to Ridgeline.
Changes in accounts payable and accrued expenses in all periods were generally due to growth in our business, the advancement of our
product candidates, and the timing of vendor invoicing and payments.
Investing activities
During the year ended December 31, 2020, we had cash used in investing activities of $281.7 million for the purchase of investments.
During the year ended December 31, 2019, we used cash in investing activities of less than $0.1 million, consisting solely of purchases of
equipment.
Financing activities
During the year ended December 31, 2020, we had cash provided by financing activities of $214.9 million, consisting primarily of proceeds
from the IPO.
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During the year ended December 31, 2019, we had cash provided by financing activities of $127.8 million, consisting primarily of proceeds
from the issuance of convertible preferred stock.
Funding requirements
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical
activities and clinical trials of our product candidates. In addition, we expect to incur additional costs associated with operating as a public
company, including significant legal, accounting, investor relations and other expenses. The timing and amount of our operating expenditures
will depend largely on our ability to:
•
•
advance BDTX-189 through clinical trials;
advance preclinical development of our early stage programs, including BDTX-1535 IND-enabling related activities;
• manufacture, or have manufactured on our behalf, our preclinical and clinical drug material and develop processes for late state and
commercial manufacturing;
•
•
•
•
•
seek regulatory approvals for any product candidates that successfully complete clinical trials;
establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any product candidates for which we
may obtain marketing approval and intend to commercialize on our own;
hire additional clinical, quality control and scientific personnel;
expand our operational, financial and management systems and increase personnel, including personnel to support our clinical
development, manufacturing and commercialization efforts and our operations as a public company; and
obtain, maintain, expand and protect our intellectual property portfolio.
As of December 31, 2020, we had cash, cash equivalents and investments of $315.1 million, which we believe will fund our operating
expenses and capital expenditure requirements into 2023. We have based this estimate on assumptions that may prove to be wrong, and we
could utilize our available capital resources sooner than we expect. We anticipate that we will require additional capital as we seek regulatory
approval of our product candidates and if we choose to pursue in-licenses or acquisitions of other product candidates. If we receive regulatory
approval for BDTX-189 or our other product candidates, we expect to incur significant commercialization expenses related to product
manufacturing, sales, marketing and distribution, depending on where we choose to commercialize.
Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are
unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase
significantly as a result of many factors, including:
•
•
•
•
•
•
•
the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and clinical
trials;
the costs, timing and outcome of regulatory review of our product candidates;
the costs, timing and ability to manufacture our product candidates to supply our clinical and preclinical development efforts and our
clinical trials;
the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our
product candidates for which we receive marketing approval;
the costs of manufacturing commercial-grade product and necessary inventory to support commercial launch;
the ability to receive additional non-dilutive funding;
the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;
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•
•
•
the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining, expanding and enforcing our intellectual
property rights and defending intellectual property-related claims;
our ability to establish and maintain collaborations on favorable terms, if at all; and
the extent to which we acquire or in-license other product candidates and technologies.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of public
or private equity offerings, debt financings, collaborations, strategic partnerships and alliances or marketing, distribution or licensing
arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your
ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely
affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include
restrictive covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures
or declaring dividends. In addition, debt financing would result in fixed payment obligations.
If we raise additional funds through collaborations, strategic partnerships and alliances or marketing, distribution or licensing arrangements
with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product
candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt
financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, 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.
Off-balance sheet arrangements
We did not have during the periods presented, and we do not have, any off-balance sheet arrangements, as defined under applicable SEC
rules.
Critical accounting policies and significant judgments and use of estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or
GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, costs and expenses. We base our estimates on historical experience, known trends and events
and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions
on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements, we believe that the
following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
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Accrued research and development expenses (including amounts due to related party)
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development
expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify
services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service
when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for
services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We
make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and
circumstances known to us at that time. We periodically confirm the accuracy of the estimates with the service providers and make
adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to:
•
vendors, including research laboratories, in connection with preclinical development activities;
• CROs and investigative sites in connection with preclinical studies and clinical trials; and
• CMOs in connection with drug substance and drug product formulation of preclinical studies and clinical trial materials.
We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant
to quotes and contracts with multiple research institutions and CROs that supply, conduct and manage preclinical studies and clinical trials on
our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven
payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a
prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the
completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the
level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate,
we adjust the accrual or the prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts
actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services
performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been
any material adjustments to our prior estimates of accrued research and development expenses.
Stock-based compensation
We measure stock options and other stock-based awards granted to employees, non-employees and directors based on their fair value on the
date of the grant and recognize the corresponding compensation expense of those awards over the requisite service period, which is generally
the vesting period of the respective award. We have generally only issued stock options and restricted stock units with service-based vesting
conditions and record the expense for these awards using the straight-line method. For stock options or restricted stock units issued with
performance-based vesting conditions, the related stock compensation expense is recognized based on the grant date fair value when
achievement of the performance condition is deemed probable. The graded-vesting method would apply to all stock-based awards with
performance-based vesting conditions or to awards with both service-based and performance-based vesting conditions.
We have historically granted stock options with exercise prices equivalent to the fair value of our common stock as of the date of grant. For
grants of restricted stock units, we base the fair value on the stock price as of the date of grant.
The Company accounts for stock-based awards granted to employees and non-employees at fair value, which is measured using the Black-
Scholes option-pricing model. The measurement date for the awards is generally the date of grant. Stock-based compensation costs are
recognized as expenses over the requisite service period, which is generally the vesting period, on a straight-line basis for all time-vested
awards.
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We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of our
common stock and assumptions we make for the volatility of our common stock, the expected term of our stock options, the risk-free interest
rate for a period that approximates the expected term of our stock options and our expected dividend yield (see Note 2 to our consolidated
financial statements).
Valuation of derivative liabilities
Tranche rights
Our issuance of Series A and Series B preferred stock (see Note 7 to our consolidated financial statements) provided investors the right to
participate in subsequent offerings of Series A and Series B preferred stock, respectively, in the event specified developmental and regulatory
milestones were or are achieved. We classified the tranche rights as derivative liabilities on our consolidated balance sheets as we determined
that the tranche rights met the definition of a freestanding financial instrument since they are legally detachable. We also determined that
such instruments represent forward sale contracts on redeemable shares and, accordingly, the instrument should be accounted for as a liability
separate from the convertible preferred stock. We remeasured the derivative liabilities associated with tranche rights to fair value at each
reporting date and recognize changes in the fair value of the derivative liabilities in our consolidated statements of operations.
The fair value of the derivative liabilities was determined using a back solve approach based on the price paid for the underlying preferred
stock and the derivative liability. The derivative liabilities were valued as forward contracts which considered inputs including, but not
limited to, the probability of attaining milestones, market-based assumptions for expected term and the risk-free rate. Changes to these
assumptions could have a significant impact on the fair value of the derivative liabilities.
Recently issued accounting pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is
disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report.
Internal control over financial reporting
As disclosed in the annual report on Form 10-K for the year ended December 31, 2019, we previously determined that material weaknesses
in our internal control over financial reporting existed during fiscal 2017. In response to the material weaknesses, we took a number of
actions to improve our internal control over financial reporting and determined that as of December 31, 2020, the controls were designed and
have been operating effectively for a sufficient period of time to conclude that the material weaknesses have been remediated. See Item 9A of
this Annual Report.
Emerging growth company and smaller reporting company status
The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended
transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise
apply to private companies. We have elected to not “opt out” of this provision and, as a result, we will adopt new or revised accounting
standards at the time private companies adopt the new or revised accounting standard and will do so until such time that we either (i)
irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.
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We are also a “smaller reporting company” meaning that the market value of our stock held by non-affiliates is less than $700 million and our
annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting
company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than
$100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million.
If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from
certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may
choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to
emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
As of June 30, 2020, the market value of our stock held by non-affiliates was greater than $700 million. As of January 1, 2021, we ceased to
be a smaller reporting company.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required
under this item.
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Item 8. Consolidated Financial Statements and Supplementary Data
BLACK DIAMOND THERAPEUTICS, INC.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)
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Page No.
131
132
133
134
136
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Black Diamond Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Black Diamond Therapeutics, Inc. and its subsidiaries (the “Company”) as
of December 31, 2020 and 2019, and the related consolidated statements of operations, of convertible preferred stock and stockholders’
equity (deficit) and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts
March 25, 2021
We have served as the Company’s auditor since 2019.
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Black Diamond Therapeutics, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents
Investments
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Restricted cash
Deferred offering costs
Right-of-use asset
Other non-current assets
Total assets
Liabilities, Convertible Preferred Stock and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Total current liabilities
Derivative liabilities
Non-current operating lease liability
Total liabilities
Commitments and contingencies (Note 12)
Convertible preferred stock (series A, B and C); $0.0001 par value; 64,871,795 shares authorized at
December 31, 2019; 64,839,353 shares issued and outstanding at December 31, 2019; aggregate
liquidation preference of $194,727 at December 31, 2019
Stockholders' equity (deficit):
$
$
$
Preferred stock, $0.0001 par value; 10,000,000 shares and no shares authorized at December 31, 2020
and 2019, respectively; no shares issued or outstanding at December 31, 2020 and 2019
Common stock; $0.0001 par value; 500,000,000 shares authorized at December 31, 2020 and
80,000,000 shares authorized at December 31, 2019; 36,078,383 shares issued and outstanding at
December 31, 2020 and 2,236,672 shares issued and outstanding at December 31, 2019
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders' equity (deficit)
Total liabilities, convertible preferred stock and stockholders' equity (deficit)
425,363
614
(118,224)
307,758
329,670 $
$
The accompanying notes are an integral part of these consolidated financial statements.
132
December 31,
2020
2019
34,605 $
280,462
4,487
319,554
385
1,223
—
8,402
154,666
—
1,048
155,714
164
55
2,303
—
106
329,670 $
59
158,295
2,538 $
11,680
14,218
—
7,694
21,912
—
—
—
5
1,964
2,899
4,863
16
—
4,879
—
200,573
—
1
3,812
—
(50,970)
(47,157)
158,295
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Black Diamond Therapeutics, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share data)
Operating expenses:
Research and development (inclusive of $2,364 and $9,966, respectively, with a related party)
General and administrative (inclusive of $0 and $445, respectively, with a related party)
Total operating expenses
Loss from operations
Other income (expense):
Interest expense
Interest income
Change in fair value of derivative liabilities
Other (expense) income
Total other income (expense), net
Net loss attributable to common stockholders
Net loss per share attributable to common stockholders, basic and diluted
Weighted average common shares outstanding, basic and diluted
Comprehensive loss:
Net loss
Other comprehensive income:
Change in unrealized gain on investments, net
Comprehensive loss
Year Ended December 31,
2020
2019
48,209 $
21,361
69,570
(69,570)
(1)
4,041
—
(1,724)
2,316
(67,254) $
(2.05) $
21,753
7,579
29,332
(29,332)
—
461
(6,393)
6
(5,926)
(35,258)
(16.99)
32,907,100
2,075,753
(67,254) $
(35,258)
614
(66,640) $
—
(35,258)
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
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Black Diamond Therapeutics, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net loss
Adjustment to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense
Change in fair value of derivative liabilities
Depreciation expense
Amortization of premium on investments
Noncash rent expense
Gain on sale of investments
Loss on disposal of property and equipment
Changes in current assets and liabilities:
Prepaid expenses and other current assets
Other non-current assets
Accounts payable
Amounts due to related party
Accrued expenses and other current liabilities
Non-current operating lease liability
Net cash used in operating activities
Cash flows from investing activities:
Purchases of equipment
Proceeds from sales and maturities of investments
Purchases of investments
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of convertible preferred stock, net
Proceeds from exercise of common stock options
Proceeds from initial public offering, net of issuance costs of $1,275
Payment of deferred offering costs
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash, cash equivalents and restricted cash, beginning of year
Cash, cash equivalents and restricted cash, end of year
Cash and cash equivalents, end of year
Restricted cash, end of year
Cash, cash equivalents and restricted cash, end of year
134
Year Ended December 31,
2020
2019
$
(67,254) $
(35,258)
7,765
—
52
1,725
548
(24)
—
(3,439)
(47)
1,069
—
8,026
(567)
(52,146)
(142)
90,928
(372,477)
(281,691)
—
1,100
213,844
—
214,944
(118,893)
154,721
35,828 $
34,605 $
1,223
35,828 $
3,643
6,393
47
—
—
—
38
(1,024)
(51)
1,454
(1,707)
1,791
—
(24,674)
(21)
—
—
(21)
129,499
—
—
(1,743)
127,756
103,061
51,660
154,721
154,666
55
154,721
$
$
$
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Supplemental disclosure of non-cash investing and financing activities:
Deferred offering and stock issuance costs included in accounts payable and accrued expenses and
other current liabilities
Conversion of preferred stock into common stock upon closing of initial public offering
Right-of-use assets obtained in exchange for operating lease obligation
Exercise of series B convertible preferred stock tranche right
$
$
$
$
— $
200,573 $
8,474 $
— $
656
—
—
6,393
The accompanying notes are an integral part of these consolidated financial statements.
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Black Diamond Therapeutics, Inc.
Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)
(in thousands, except share data)
Convertible preferred stock
Common stock
Additional
paid-in
capital
Accumulated
other
comprehensive
income
Shares
33,668,075
—
11,751,154
19,420,124
—
—
BALANCE - December 31, 2018
Grant of restricted common stock awards
Issuance of series B convertible preferred
stock, net
Issuance of series C convertible preferred
stock, net
Stock-based compensation
Net loss
BALANCE - December 31, 2019
Conversion of preferred stock to common
stock upon closing of the initial public offering (64,839,353)
Issuance of common stock, net of issuance
costs
Reclassification of warrants to additional paid-
in capital
Exercise of common stock options
Vesting of restricted stock units
Stock-based compensation
Unrealized gains on investments
Net loss
BALANCE - December 31, 2020
—
—
—
—
—
—
—
— $
64,839,353 $
Amount
60,770
—
55,066
84,737
—
—
200,573
Shares
2,173,684
62,988
Par Value
1
—
—
—
—
—
2,236,672 $
—
—
—
—
1 $
169
—
—
—
3,643
—
3,812 $
(200,573)
21,499,770
—
—
—
—
—
—
—
—
12,174,263
—
160,509
6,664
505
—
—
36,078,383 $
3
1
200,570
212,100
—
—
—
—
—
—
5 $
16
1,100
—
7,765
—
—
425,363 $
Total
stockholders’
equity
(deficit)
(15,542)
—
Accumulated
deficit
(15,712)
—
—
—
—
—
—
—
—
—
— $
—
—
(35,258)
(50,970) $
—
—
—
—
—
—
—
—
614
—
614 $ (118,224) $
—
—
—
—
—
(67,254)
—
3,643
(35,258)
(47,157)
200,573
212,101
16
1,100
—
7,765
614
(67,254)
307,758
The accompanying notes are an integral part of these consolidated financial statements.
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Black Diamond Therapeutics, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Black Diamond Therapeutics, Inc. (the “Company”) is a precision oncology medicine company pioneering the discovery and development of
small molecule, tumor-agnostic therapies. The Company was originally organized as a limited liability company in December 2014 under the
name ASET Therapeutics LLC. In September 2016 the Company was converted to a corporation under the laws of the State of Delaware
under the name ASET Therapeutics, Inc. The Company changed its name to Black Diamond Therapeutics, Inc. in January 2018. Since its
inception, the Company has devoted substantially all of its efforts to raising capital, obtaining financing, and incurring research and
development costs related to the development of its mutation, allostery, and pharmacology computational and discovery platform.
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry. There can be no
assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s
technology will be obtained, that any products developed will obtain necessary government regulatory approval or that any products, if
approved, will be commercially viable. The Company operates in an environment of rapid technological innovation and substantial
competition from pharmaceutical and biotechnological companies. In addition, the Company is dependent upon the services of its employees,
consultants and service providers including a related party Ridgeline Therapeutics GmbH (“Ridgeline”). Even if the Company’s product
development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
On January 21, 2020, the Company effected a 1-for-3.01581 reverse stock split of the Company’s common stock. All shares, stock options,
warrants and per share information presented in the consolidated financial statements have been adjusted to reflect the reverse stock split on a
retroactive basis for all periods presented. There was no change in the par value of the Company’s common stock.
On February 3, 2020, the Company completed an initial public offering (the “IPO”) of 12,174,263 shares of its common stock, including the
exercise in full by the underwriters of their option to purchase up to 1,587,947 additional shares of common stock, for aggregate gross
proceeds of $231,311 and its shares started trading on The Nasdaq Global Select Market under the ticker symbol “BDTX.” The Company
received $212,101 in net proceeds after deducting underwriting discounts and commissions and other estimated offering expenses payable by
the Company. Upon closing of the IPO, all of the Company's outstanding shares of convertible preferred stock automatically converted into
21,499,770 shares of common stock.
The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets, and
the satisfaction of liabilities and commitments in the ordinary course of business. Historically, the Company has funded its operations
primarily with proceeds from the sale of convertible preferred stock. The Company expects to continue to generate operating losses for the
foreseeable future.
As of March 25, 2021, the issuance date of the consolidated financial statements, the Company expects that its cash, cash equivalents and
investments will be sufficient to fund its operating expenses and capital requirements into 2023.
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The Company may seek additional funding through private or public equity financings, debt financings, collaborations, strategic alliances
and marketing, distribution or licensing arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and
the Company may not be able to enter into collaborations or other arrangements. The terms of any financing may adversely affect the
holdings or the rights of the Company's stockholders. If the Company is unable to obtain funding, the Company could be forced to delay,
reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which
could adversely affect its business prospects. Although management continues to pursue these plans, there is no assurance that the Company
will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.
The ongoing global outbreak of the novel coronavirus disease (“COVID-19”), which began in December 2019, was reported to have surfaced
in Wuhan, China, and has since spread to other regions and countries worldwide. The COVID-19 pandemic is evolving, and to date has led to
the implementation of various responses, including government-imposed quarantines, stay-at-home orders, travel restrictions, mandated
business closures and other public health safety measures. Such orders, restrictions and recommendations, and the perception that additional
orders, restrictions or recommendations could occur, have resulted in widespread closures of businesses not deemed “essential,” work
stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellation of events.
The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of the Company’s business, including how it has
and will continue to impact the Company’s operations and the operations of its suppliers, vendors and business partners, and may take further
precautionary and preemptive actions as may be required by federal, state or local authorities. In addition, the Company has taken steps to
minimize the current environment’s impact on its business and strategy, including devising contingency plans and securing additional
resources from third party service providers. Furthermore, for the safety of the Company’s employees and families, the Company has
introduced enhanced safety measures for scientists to be present in its labs and increased the use of third party service providers for the
conduct of certain experiments and studies for research programs. Certain of the Company’s third party service providers have also
experienced shutdowns or other business disruptions. The Company does not yet know the full extent of potential delays or impacts on the
Company’s business, clinical trials, research programs, healthcare systems or the global economy and cannot presently predict the scope and
severity of any potential business shutdowns or disruptions.
The extent to which COVID-19 ultimately impacts the Company’s business, results of operations or financial condition will depend on future
developments, which remain highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, new information
that may emerge concerning the severity of COVID-19 or the effectiveness of actions taken to contain the pandemic or treat its impact,
among others. In addition, a recurrence or “additional waves” of COVID-19 cases could cause other widespread or more severe impacts
depending on where infection rates are highest. While states and jurisdictions have rolled back “stay at home” and quarantine orders and
reopened in phases, it is difficult to predict what the lasting impact of the pandemic will be, and any prolonged material disruption to the
Company’s employees or third party service providers could negatively impact the Company’s ability to conduct business in the manner and
on the timelines presently planned, which could have a material adverse impact on the Company’s business, results of operations and
financial condition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") and include the accounts of the Company and its wholly owned subsidiaries, Black Diamond
Therapeutics (Canada), Inc. and Black Diamond Therapeutics Security Corporation, after elimination of all significant intercompany
accounts and transactions.
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Use of estimates
The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the reported amounts of expenses during the reporting periods.
Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual of
research and development expenses, the valuation of common stock before the Company’s initial public offering, the valuation of stock-
based awards and the valuation of derivative liabilities. The Company bases its estimates on historical experience, known trends and other
market-specific or other relevant factors that it believes to be reasonable under the circumstances. Estimates are periodically reviewed in light
of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual
results may differ from those estimates or assumptions.
The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and
financial condition, including expenses, research and development costs and employee-related amounts, will depend on future developments
that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or
treat COVID-19, as well as the economic impact on local, regional, national and international markets. The Company has considered the
impact of COVID-19 on estimates within its financial statements and there may be changes to those estimates in future periods. As of the
date of issuance of these consolidated financial statements, the Company has not experienced material business disruptions or incurred
impairment losses in the carrying value of its assets as a result of the pandemic and is not aware of any specific related event or circumstance
that would require it to update its estimates.
Subsequent events
The Company considers events or transactions that occur after the balance sheet date but before the final financial statements are issued to
provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.
Foreign currency and currency translation
The functional currency for the Company’s wholly owned foreign subsidiary, Black Diamond Therapeutics (Canada), Inc. is the United
States dollar. Adjustments that arise from exchange rate changes on transactions denominated in a currency other than the local currency are
included in other income (expense), net in the consolidated statements of operations, as incurred.
Cash and cash equivalents
The Company classifies deposits in banks, money market funds and cash invested temporarily in various instruments with maturities of three
months or less at the time of purchase as cash and cash equivalents. At December 31, 2020, cash and cash equivalents includes cash on
deposit at commercial banks and a money market fund that invests in U.S. Government securities. At December 31, 2019, cash consisted of
cash on deposit at commercial banks.
Investments
Investments consist of marketable securities with original maturities greater than 90 days. The Company has classified its investments with
maturities beyond one year as short-term, based on their highly liquid nature and because such marketable securities represent the investment
of cash that is available for current operations. The Company considers its investment portfolio of marketable securities to be available-for-
sale. Accordingly, these investments are recorded at fair value, which is based on quoted market prices. Unrealized gains and losses are
reported as the accumulated other comprehensive items in stockholders’ equity. Amortization and accretion of premiums and discounts are
recorded in other income (expense). Realized gains or losses on debt securities are included in interest income or interest expense,
respectively.
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If any adjustment to fair value reflects a decline in 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 on the Company’s statement of operations and
comprehensive income (loss).
Restricted cash
In connection with its operating lease commitments, the Company maintains certain balances for security deposits that are classified as
restricted cash on the consolidated balance sheets. As of December 31, 2020, the Company had $1,223 of restricted cash, which has been
classified as a non-current asset on the consolidated balance sheet. At December 31, 2019 the Company had $55 restricted cash.
Concentrations of credit risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and
marketable securities. The Company maintains accounts for all cash and cash equivalents at accredited financial institutions, in amounts that
exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk
associated with commercial banking relationships.
Property and equipment
Property and equipment are recorded at cost less accumulated depreciation. Depreciation expense is recognized using the straight-line
method over the estimated useful life of each asset as follows:
Laboratory equipment
Furniture and fixtures
Computer and office equipment
Leasehold improvements
Estimated useful life
5 years
5 years
3 years
Shorter of the useful life or
remaining lease term
When assets are retired or otherwise disposed of, the cost of assets disposed of and the related accumulated depreciation is removed from the
accounts and any resulting gain or loss is included in the consolidated statements of operations in the period of disposal. Expenditures for
repairs and maintenance are charged to expense as incurred.
Impairment of long - lived assets
Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or
changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company
considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations,
significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review
is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to
result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized in
loss from operations when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its
carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value,
determined based on discounted cash flows. The Company did not record any impairment losses on long-lived assets during the periods
presented.
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Deferred offering costs
The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process
preferred stock or common stock financings as deferred offering costs until such financings are consummated. After consummation of the
equity financing, these costs are recorded as a reduction to the carrying value of convertible preferred stock or in stockholders’ equity
(deficit) as a reduction of additional paid-in capital generated as a result of the offering. Should a planned equity financing be abandoned, the
deferred offering costs will be expensed immediately as a charge to operating expenses in the consolidated statements of operations. The
Company had no deferred offering costs as of December 31, 2020. As of December 31, 2019, the Company recorded deferred offering costs
of $2,303. After consummation of the IPO, which closed on February 3, 2020, these costs were recorded in stockholders' equity (deficit) as a
reduction of additional paid-in capital generated as a result of the offering.
Fair value measurements
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of
observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and
disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is
considered unobservable:
• Level 1 — Unadjusted quoted prices in active markets that are accessible to the reporting entity at the measurement date for
identical assets and liabilities.
• Level 2 — Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly
or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:
•
•
•
•
quoted prices for similar assets and liabilities in active markets
quoted prices for identical or similar assets or liabilities in markets that are not active
observable inputs other than quoted prices that are used in the valuation of the asset or liabilities (e.g., interest rate and
yield curve quotes at commonly quoted intervals)
inputs that are derived principally from or corroborated by observable market data by correlation or other means
• Level 3 — Unobservable inputs for the assets or liability (i.e., supported by little or no market activity). Level 3 inputs include
management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability
(including assumptions about risk).
The carrying values of the Company’s prepaid expenses and other current assets, and accounts payable and accrued expenses approximate
their fair values due to the short-term nature of these assets and liabilities.
Derivative liabilities
In connection with certain preferred stock financings, the Company has identified certain embedded and freestanding derivatives, which were
recorded as liabilities on the consolidated balance sheets and are remeasured to fair value at each reporting date until the derivative is settled.
Changes in the fair value of the derivative liabilities are recognized in the consolidated statements of operations.
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Classification of convertible preferred stock
The Company’s convertible preferred stock was classified outside of stockholders’ deficit because the holders of such shares have liquidation
rights in the event of a deemed liquidation that, in certain situations, are not solely within the control of the Company.
Segment information
The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating
decisions. The Company’s singular focus is the development of selective medicines for patients with genetically defined cancers driven by
oncogenes activated by allosteric mutations.
Research and development costs
Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred to discover, research
and develop drug candidates, including personnel expenses, stock-based compensation expense, allocated facility-related and depreciation
expenses, third-party license fees and external costs of outside vendors engaged to conduct preclinical development activities. Non-
refundable prepayments for goods or services that will be used or rendered for future research and development activities are recorded as
prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no
longer expected that the goods will be delivered, or the services rendered.
Research contract costs and accruals
The Company has entered into various research and development-related contracts with companies both inside and outside of the United
States. The related costs are recorded as research and development expenses as incurred. The Company records accruals for estimated
ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies, including the
phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the
accrued balances at the end of any reporting period. Actual results could differ materially from the Company’s estimates. The Company’s
historical accrual estimates have not been materially different from the actual costs.
Patent costs
All patent-related costs incurred in connection with filing and prosecuting patent applications to operations are expensed as incurred due to
the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses.
Stock-based compensation
The Company measures all stock-based awards granted to employees, non-employees and directors based on the fair value on the date of
grant and recognizes compensation expense of those awards over the requisite service period, which is generally the vesting period of the
respective award. Generally, the Company issues stock options and restricted stock units with only service-based vesting conditions and
records the expense for these awards using the straight-line method. For stock options or restricted stock units issued with performance-based
vesting conditions, the stock compensation expense related to these awards is recognized based on the grant date fair value when
achievement of the performance condition is deemed probable. The Company would apply the graded-vesting method to all stock-based
awards with performance-based vesting conditions or to awards with both service-based and performance based vesting conditions.
Forfeitures are accounted for as they occur.
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The fair value of each stock option grant is estimated on the date of grant using the Black- Scholes option-pricing model. The Company lacks
sufficient company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the
historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical
data regarding the volatility of its own traded stock price. The Company uses the simplified method prescribed by Securities and Exchange
Commission Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term of options granted to employees, non-
employees and directors. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of
the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the
Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
The Company classifies stock-based compensation expense in its consolidated statements of operations in the same manner in which the
award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
Income taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the
Company’s tax returns. Deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and
tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in
deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax
assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more
likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to
income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and
considering prudent and feasible tax planning strategies.
The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to
determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be
sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax
position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit
that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision
for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the
related net interest and penalties. To date, the Company has not taken any uncertain tax positions or recorded any reserves, interest or
penalties.
Comprehensive loss
Comprehensive loss is composed of net loss and other comprehensive income (loss). Other comprehensive income (loss) consists of
unrealized gains and losses on investments.
Net income (loss) per share
The Company follows the two-class method when computing net income (loss) per share as the Company has issued shares that meet the
definition of participating securities. The two-class method determines net income (loss) per share for each class of common and
participating securities according to dividends declared or accumulated, and participation rights in undistributed earnings. The two-class
method requires income available to common stockholders for the period to be allocated between common and participating securities based
upon their respective rights to receive dividends as if all income for the period had been distributed.
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Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common
stockholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) attributable to common
stockholders is computed by adjusting net income (loss) attributable to common stockholders to reallocate undistributed earnings based on
the potential impact of dilutive securities. Diluted net income (loss) per share attributable to common stockholders is computed by dividing
the diluted net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the
period, including potential dilutive common stock. For purposes of this calculation, outstanding options, unvested restricted common stock
and convertible preferred stock are considered potentially dilutive common stock and are excluded from the computation of net income (loss)
per share when their effect is anti-dilutive.
The Company’s convertible preferred stock contractually entitles the holders of such shares to participate in dividends but does not
contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company
reports a net loss, such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable
to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to
common stockholders, since dilutive common shares are not assumed to be outstanding if their effect is anti-dilutive. The Company reported
a net loss attributable to common stockholders for the years ended December 31, 2020 and 2019.
Leases
Effective January 1, 2020, the Company adopted Accounting Standards Updated (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”
or “ASC 842”), using the modified retrospective method and utilized the effective date as its date of initial application, with prior periods
presented in accordance with previous guidance under ASC 840, Leases (“ASC 840”). At the inception of an arrangement, the Company
determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases
with a term greater than one year are recognized on the balance sheet as right-of-use assets and current and non-current lease liabilities, as
applicable.
Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over
the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The
interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate
to discount lease payments, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease
payments in the same currency, for a similar term, in a similar economic environment. Prospectively, the Company will adjust the right-of-
use assets for straight-line rent expense or any incentives received and remeasure the lease liability at the net present value using the same
incremental borrowing rate that was in effect as of the lease commencement or transition date. The Company has elected not to recognize
leases with an original term of one year or less on the consolidated balance sheet. The Company typically only includes an initial lease term
in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment unless there is reasonable
certainty that the Company will renew.
Assumptions made by the Company at the commencement date are re-evaluated upon occurrence of certain events, including a lease
modification. A lease modification results in a separate contract when the modification grants the lessee an additional right of use not
included in the original lease and when lease payments increase commensurate with the standalone price for the additional right of use. When
a lease modification results in a separate contract, it is accounted for in the same manner as a new lease.
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The Company elected the following practical expedients, which must be elected as a package and applied consistently to all of its leases at
the transition date (including those for which the entity is a lessee or a lessor): i) the Company did not reassess whether any expired or
existing contracts are or contain leases; ii) the Company did not reassess the lease classification for any expired or existing leases (that is, all
existing leases that were classified as operating leases in accordance with ASC 840 are classified as operating leases, and all existing leases
that were classified as capital leases in accordance with ASC 840 are classified as finance leases); and iii) the Company did not reassess
initial direct costs for any existing leases.
For leases that existed prior to the date of initial application of ASC 842 (which were previously classified as operating leases), a lessee may
elect to use either the total lease term measured at lease inception under ASC 840 or the remaining lease term as of the date of initial
application of ASC 842 in determining the period for which to measure its incremental borrowing rate. In transition to ASC 842, the
Company utilized the remaining lease term of its leases in determining the appropriate incremental borrowing rates.
In accordance with ASC 842, components of a lease should be split into three categories: lease components, non-lease components, and non-
components. The fixed and in-substance fixed contract consideration (including any consideration related to non-components) must be
allocated based on the respective relative fair values to the lease components and non-lease components.
Entities may elect not to separate lease and non-lease components. The Company has elected to account for lease and non-lease components
together as a single lease component for all underlying assets and allocate all of the contract consideration to the lease component only.
Recently adopted accounting pronouncements
In April 2019, the FASB issued ASU No. 2019-4, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815,
Derivatives and Hedging, and Topic 825, Financial Instruments. This update provides clarifications for three topics related to financial
instruments accounting. The Company adopted this standard on December 1, 2020 on a prospective basis, and it did not have a material
impact on its financial position and results of operations upon adoption.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the
Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The new standard removes certain disclosures, modifies certain
disclosures and adds additional disclosures related to fair value measurement. The new standard was effective for the Company beginning
January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company's disclosures, financial position or results or
operations upon adoption.
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480),
Derivatives and Hedging (Topic 815) (“ASU 2017-11”). Accounting for Certain Financial Instruments with Down Round Features II.
Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). Part I applies to entities that issue financial
instruments such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II replaces the indefinite
deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities
contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments.
ASU 2017-11 is required to be adopted for annual periods beginning after December 15, 2019. The new standard was effective for the
Company beginning January 1, 2020. The adoption of ASU 2017-11 did not have a material impact on the Company’s financial position or
results of operations upon adoption.
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In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Statements. The new standard, as amended, requires that expected credit losses relating to financial assets measured on an
amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also 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 also requires
the reversal of previously recognized credit losses if fair value increases. The targeted transition relief standard allows filers an option to
irrevocably elect the fair value option of ASC 825-10, Financial Instruments-Overall, applied on an instrument-by-instrument basis for
eligible instruments. The Company adopted this standard on December 1, 2020 on a prospective basis and the adoption did not have a
material impact on its financial position and results of operations.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires an entity to recognize assets and
liabilities arising from a lease for both financing and operating leases on their balance sheet date. ASU 2016-02 is effective for fiscal years
beginning after December 15, 2018. In July 2018, an amendment was made that allows companies the option of using the effective date of
the new standard as the initial application date (at the beginning of the period in which the new standard is adopted, rather than at the
beginning of the earliest comparative period). This update includes a short-term lease exception for leases with a term of 12 months or less,
in which a lessee can make an accounting policy election not to recognize the associated lease assets and lease liabilities on its balance sheet.
Additionally, in March 2019, the FASB issued ASU 2019-01 (“ASU No. 2019-01”). ASU No. 2019-01 clarifies the transition guidance
related to interim disclosures provided in the year of adoption. Lessees will continue to differentiate between finance leases (previously
referred to as capital leases) and operating leases, using classification criteria that are substantially similar to the previous guidance. For
lessees, the recognition, measurement, and presentation of expenses and cash flows arising from a lease did not significantly change from
previous U.S. GAAP. The modified retrospective method includes several optional practical expedients that entities may elect to apply, as
well as transition guidance specific to nonstandard leasing transactions.
The Company adopted Topic 842 on January 1, 2020. In adopting Topic 842, the Company elected to utilize the available package of
practical expedients permitted under the transition guidance within the new standard, which does not require the reassessment of the
following: i) whether existing or expired arrangements are or contain a lease, ii) the lease classification of existing or expired leases, and iii)
whether previous initial direct costs would qualify for capitalization under the new lease standard. Additionally, the Company made an
accounting policy election to not record leases with a term of 12 months or less off.
Adoption of this standard resulted in the recording of material operating lease liabilities and right-of-use assets on the Company’s
consolidated balance sheet (see Note 11). The adoption of the standard did not have a material effect on the Company’s consolidated
statements of operations and comprehensive loss, consolidated statements of cash flows or accumulated deficit.
Recently issued accounting pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes-Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU
2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in
an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the
accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in
the tax basis of goodwill. The standard is effective for annual and interim periods beginning after December 15, 2020. Adoption of the
standard requires certain changes to be made prospectively, with some changes to be made retrospectively. The adoption is not expected to
have a material impact on the Company’s consolidated financial statements.
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3. FAIR VALUE MEASUREMENTS
The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and
indicate the level of the fair value hierarchy used to determine such fair values:
Assets:
Cash equivalents:
Money market funds
Investments:
Commercial paper
Corporate bonds
U.S. Government agencies
Total
Assets:
Money market funds
Total
Liabilities:
Derivative liabilities
Total
Fair value measurements at December 31, 2020 using:
Level 1
Level 2
Level 3
Total
$
$
$
$
$
$
32,501 $
— $
— $
32,501
—
—
—
32,501 $
35,559
192,573
52,330
280,462 $
—
—
—
— $
35,559
192,573
52,330
312,963
Fair value measurements at December 31, 2019 using:
Level 1
Level 2
Level 3
Total
24,157 $
24,157 $
— $
— $
— $
— $
— $
— $
— $
— $
16 $
16 $
24,157
24,157
16
16
When developing fair value estimates, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs.
When available, the Company uses quoted market prices to measure fair value. The valuation technique used to measure fair value for the
Company's Level 1 and Level 2 assets is a market approach, using prices and other relevant information generated by market transactions
involving identical or comparable assets. If market prices are not available, the fair value measurement is based on models that use primarily
market-based parameters including yield curves, volatilities, credit ratings and currency rates. In certain cases where market rate assumptions
are not available, the Company is required to make judgments about assumptions market participants would use to estimate the fair value of a
financial instrument.
There were no transfers in or out of Level 3 categories in the periods presented.
Valuation of derivative liabilities
The fair value of the derivative liabilities related to the warrants to purchase series A convertible preferred stock is based on significant inputs
not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.
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Upon completion of the IPO in February 2020, the warrants to purchase series A convertible preferred stock converted to warrants to
purchase 10,757 shares of common stock and the fair value of the derivative liability was reclassified to additional paid-in capital. As a
result, we will no longer remeasure the fair value of the warrant liability at each reporting date. Derivative liabilities consisted of the
following:
Balance - December 31, 2018
Change in fair value
Exercise of series B preferred stock tranche right
Balance - December 31, 2019
Reclassification to additional paid-in capital in connection with IPO
Balance - December 31, 2020
4. INVESTMENTS
As of December 31, 2020, investments were comprised of the following:
Commercial paper
Corporate bonds
U.S. Government agencies
Total
Amortized Cost Unrealized Gains
$
35,543 $
191,977
52,328
279,848 $
$
21 $
608
22
651 $
Derivative
liabilities
4,023
6,393
(10,400)
16
(16)
—
$
$
Unrealized
Losses
Fair Value
(5) $
(12)
(20)
(37) $
35,559
192,573
52,330
280,462
As of December 31, 2020, all marketable securities held by the Company had remaining contractual maturities of three years or less.
As of December 31, 2020, the marketable securities in a loss position have a maturity of one to three years.
There have been no impairments of the Company’s assets measured and carried at fair value during the year ended December 31, 2020.
As of December 31, 2019, the Company did not hold any investments.
5. PROPERTY AND EQUIPMENT
Property and equipment, net consisted of the following:
Laboratory equipment
Computer and office equipment
Leasehold improvements
Construction in process
Property and equipment
Less: accumulated depreciation
Total Property and Equipment, net
Depreciation expense for the years ended December 31, 2020 and 2019 was $52 and $47, respectively.
148
December 31,
2020
2019
$
$
253 $
83
66
147
549
(164)
385 $
218
58
—
—
276
(112)
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6. ACCRUED EXPENSES
Accrued expenses and other current liabilities consisted of the following:
Contracted research services
Payroll and related expenses
Professional and consulting fees
Legal fees
Current portion of operating lease liability
Total accrued expenses
7. STOCKHOLDERS’ EQUITY
December 31,
2020
2019
$
$
5,102 $
3,729
1,603
199
1,047
11,680 $
434
1,182
984
299
—
2,899
Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common
stockholders are not entitled to receive dividends, unless declared by the board of directors.
As of December 31, 2019, the Company’s convertible preferred stock consisted of the following (in thousands, except for share data):
Series A preferred stock
Series B preferred stock
Series C preferred stock
December 31, 2019
Shares
authorized
Shares
issued and
outstanding
Carrying
value
Liquidation
preference
22,533,945
22,501,503 $
22,357 $
22,917,726
22,917,726
93,479
19,420,124
64,871,795
19,420,124
64,839,353 $
84,737
200,573 $
22,502
87,225
85,000
194,727
Common stock
issuable upon
conversion
7,461,168
7,599,178
6,439,424
21,499,770
Upon closing of the IPO on February 3, 2020, all of the preferred stock converted into an aggregate of 21,499,770 shares of common stock.
On February 3, 2020, in connection with the closing of the IPO, the Company filed an amended and restated certificate of incorporation,
which, among other things, restated the number of shares of all classes of stock that the Company has authority to issue to 510,000,000
shares, of which (i) 500,000,000 shares shall be a class designated as common stock, par value $0.0001 per share, and (ii) 10,000,000 shares
shall be a class designated as undesignated preferred stock, par value $0.0001 per share. As of December 31, 2020, no preferred stock was
outstanding.
8. STOCK-BASED COMPENSATION
2017 Equity Incentive Plan
The Company’s 2017 Employee, Director and Consultant Equity Incentive Plan, as amended (the “2017 Plan”), provided for the Company to
grant qualified incentive options, nonqualified options, stock grants and other stock-based awards to employees and non-employees to
purchase the Company’s common stock. Upon the effectiveness of the 2020 Plan (as defined below), no further issuances were made under
the 2017 Plan.
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2020 Stock Option and Incentive Plan
The 2020 Stock Option and Incentive Plan (the “2020 Plan”) was approved by our board of directors on December 5, 2019, and the
Company’s stockholders on January 14, 2020 and became effective on the date immediately prior to the date on which the registration
statement for the Company’s IPO was declared effective. The 2020 Plan provides for the grant of incentive stock options, non-qualified stock
options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards, cash-based awards and dividend
equivalent rights to the Company’s officers, employees, directors and consultants. The number of shares initially reserved for issuance under
the 2020 Plan is 6,665,891, which shall be cumulatively increased on January 1, 2021 and each January 1 thereafter by 4% of the number of
shares of the Company’s common stock outstanding on the immediately preceding December 31 or such lesser number of shares determined
by the Company’s board of directors or compensation, nomination, and corporate governance committee of the board of directors. As of
December 31, 2020, 5,050,607 shares remained available for issuance under the 2020 Plan. The number of authorized shares reserved for
issuance under the 2020 Plan was increased by 1,443,135 shares effective as of January 1, 2021.
2020 Employee Stock Purchase Plan
The 2020 Employee Stock Purchase Plan (the “2020 ESPP”) was approved by the Company’s board of directors on December 5, 2019, and
our stockholders on January 14, 2020, and became effective on the date immediately prior to the date on which the registration statement for
the Company’s IPO was declared effective. A total of 326,364 shares of common stock were initially reserved for issuance under this plan,
which shall be cumulatively increased on January 1, 2021 and each January 1 thereafter by 1% of the number of shares of the Company’s
common stock outstanding on the immediately preceding December 31 or such lesser number of shares determined by the Company’s board
of directors or compensation, nomination and corporate governance committee of the board of directors. As of December 31, 2020, 326,364
shares remained available for issuance under the 2020 Plan. The number of authorized shares reserved for issuance under the 2020 Plan was
increased by 326,364 shares effective as of January 1, 2021.
Option valuation
The assumptions that the Company used to determine the grant-date fair value of options granted were as follows, presented on a weighted-
average basis:
Risk-free interest rate
Expected term (in years)
Expected volatility
Expected dividend yield
December 31,
2020
2019
0.91 %
6.1
63.8 %
0 %
1.68 %
6.0
62.2 %
0 %
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Options
The following table summarizes the stock option activity under the Company’s equity awards plans:
Outstanding December 31, 2019
Granted
Exercised
Canceled or forfeited
Outstanding December 31, 2020
Options vested or expected to vest at December 31, 2020
Options exercisable at December 31, 2020
Options
2,378,474 $
1,574,543 $
(160,509) $
(39,764) $
3,752,744 $
3,752,744 $
706,696 $
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life
(in Years)
8.03
26.10
6.85
4.11
15.71
15.71
7.67
Intrinsic
Value
(in thousands)
9.7 $
6,722
9.0 $
9.0 $
8.6 $
62,842
62,842
17,226
The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of the
Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock.
The weighted-average grant-date fair value per share of options granted during the years ended December 31, 2020 and 2019 was $15.18 and
$4.82, respectively.
The total fair value of options vested during the years ended December 31, 2020 and 2019 was $4,198 and $319, respectively.
Restricted stock
Under terms of the restricted stock agreements covering the common stock, shares of restricted common stock are subject to a vesting
schedule. The majority of restricted stock vests over a three-year period during which time all unvested stock will immediately be forfeited to
the Company if the relationship between the recipient and the Company ceases. Subject to the continued employment (or other engagement
of the recipient by the Company as described in the restricted stock agreements), all shares of restricted common stock become fully vested
within three years of the vesting commencement date.
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The following table summarizes restricted stock activity since January 1, 2019:
Unvested restricted common stock as of January 1, 2019
Granted
Vested
Unvested restricted common stock as of December 31, 2019
Granted
Vested
Unvested restricted common stock as of December 31, 2020
Number of
shares
132,645 $
62,988 $
(195,633) $
— $
61,000 $
(6,664) $
54,336 $
Weighted
average
grant date
fair value
0.51
5.22
5.94
—
29.65
30.00
29.68
The aggregate fair value of restricted stock that vested during the years ended December 31, 2020 and 2019 was $200 and $420, respectively.
The Company recorded stock-based compensation expense for restricted stock of $404 and $1,973, during the years ended December 31,
2020 and 2019, respectively.
Stock-based compensation expense
The Company recorded stock-based compensation expense related to stock options and restricted stock units in the following expense
categories of its consolidated statements of operations and comprehensive loss:
Research and development
General and administrative
December 31,
2020
2019
$
$
3,607 $
4,158
7,765 $
3,171
472
3,643
In December 2020, the Company adopted a policy whereby non-employee Directors may, at initial appointment and then annually thereafter,
elect to receive their compensation in the form of common stock in lieu of cash. As of December 31, 2020, the Company issued 505 shares of
common stock under this policy. The shares were issued out of the 2020 Stock Option Plan. In connection with this issuance, the Company
recorded $17 of stock‑based compensation expense, equal to the aggregate fair value of this common stock on the date of issuance.
For options granted in June 2019, the board of directors determined that the fair value of the Company’s common stock was $3.20 per share
as of the grant date. However, the fair value of the Company’s common stock at the date of the grant was adjusted to $4.13 per share in
connection with a retrospective fair value assessment solely for accounting purposes. Accordingly, stock-based compensation recorded
during the year ended December 31, 2019 was based on the adjusted fair value for the options granted in June 2019.
As of December 31, 2020, total unrecognized compensation cost related to the unvested stock options was $28,388, which is expected to be
recognized over a weighted average period of 2.8 years.
As of December 31, 2020, total unrecognized compensation cost related to the unvested restricted stock units was $1,405, which is expected
to be recognized over a weighted average period of 1.9 years.
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9. INCOME TAXES
For the years ended December 31, 2020 and 2019, the Company recorded no income tax benefit for the net operating losses incurred each
year, due to its uncertainty of realizing a benefit from those items. A reconciliation of income taxes computed using the U.S. federal statutory
rate to that reflected in operations as of December 31, 2020 and 2019, respectively, is as follows:
U.S. federal statutory income tax rate
State and local taxes, net of federal benefit
Permanent differences
Research and development credits
Change in valuation allowance
Other
Effective income tax rate
December 31,
2020
2019
21.0 %
3.4 %
(0.8)%
2.2 %
(26.5)%
0.7 %
0.0 %
21.0 %
1.6 %
(4.2)%
1.6 %
(19.8)%
(0.2)%
0.0 %
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets were as follows:
Deferred tax assets (liabilities):
Net operating loss carryforwards
Research and development tax credits
Operating lease liabilities
Accruals and other
Stock-based compensation
Total deferred tax assets
Valuation Allowance
Subtotal
Right-of-use assets
Net fixed assets
Net deferred tax assets
Tax year ended December 31,
2020
2019
$
$
24,059 $
2,477
2,147
680
1,434
30,797
(28,709)
2,088
(2,063)
(25)
— $
9,512
1,014
—
280
196
11,002
(10,995)
7
—
(7)
—
As of December 31, 2020, the Company had federal and state net operating loss carryforwards of $96,644 and $59,515, respectively, which
may be used to offset future taxable income, if any. These amounts begin to expire in 2036. The federal net operating losses generated in
2018-2020 can be carried forward indefinitely. The Company also has net operating loss carryforwards in Canada of $498 that are set to
expire beginning in 2038. Additionally, the Company had federal research and development tax credit carryforwards of $2,477 that expire at
various dates through 2040.
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In assessing the realizability of the net deferred tax asset, the Company considers all relevant positive and negative evidence in determining
whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of the gross
deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the net
operating loss carryforwards. Management believes that it is more likely than not that the Company’s deferred income tax assets will not be
realized. As such, there is a full valuation allowance against the net deferred tax assets as of December 31, 2020 and 2019. The valuation
allowance increased by $17,714 during the year ended December 31, 2020 primarily as a result of net losses generated during the period.
Utilization of the net operating loss carryforwards and research and development tax credit carryforwards may be subject to an annual
limitation under Section 382 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to ownership changes that
have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be
utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions
increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period.
The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of
control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of
control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and
development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying
the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject
to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research
and development tax credit carryforwards before utilization. Further, until a study is completed and any limitation is known, no amounts are
being presented as an uncertain tax position.
The Company also has not conducted a study of its research and development credit carryforwards, which may result in an adjustment to
research and development credit carryforwards. A full valuation allowance has been provided against the Company’s research and
development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus,
there would be no impact to the balance sheets or statements of operations if an adjustment were required. Further, until a study is completed
and any limitation is known, no amounts are being presented as an uncertain tax position.
The Company applies the accounting guidance in ASC 740 related to accounting for uncertainty in income taxes. The Company’s reserves
related to taxes are based on a determination of whether, and how much of, a tax benefit taken by the Company in its tax filings or positions
is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit. As of
December 31, 2020 and 2019, the Company had no unrecognized tax benefits.
The Company will recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2020 and
2019, the Company had no accrued interest or penalties related to uncertain tax positions.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the
Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. As
of December 31, 2020 and 2019, the Company’s tax years are still open under statute from 2017 to the present.
The Company’s foreign subsidiary has incurred losses since inception and the Company had no undistributed earnings as of December 31,
2020.
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10. NET LOSS PER SHARE
Net loss per share
The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders of the Company
(in thousands, except share and per share amounts):
Net loss attributable to common stockholders
Weighted average common shares outstanding, basic and diluted
Net loss per share, basic and diluted
December 31,
2020
2019
$
$
(67,254) $
(35,258)
32,907,100
(2.05) $
2,075,753
(16.99)
The Company’s unvested restricted common shares at December 31, 2020 have been excluded from the computation of basic net loss per
share attributable to common stockholders. The Company had no unvested restricted common shares outstanding at December 31, 2019 (see
Note 8).
The Company’s potentially dilutive securities, which include options, unvested restricted stock, convertible preferred stock and warrants to
purchase convertible preferred stock, have been excluded from the computation of diluted net loss per share attributable to common
stockholders as the effect would be to reduce the net loss per share attributable to common stockholders. Therefore, the weighted average
number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the
same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the
computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have
had an anti-dilutive effect:
Options to purchase common stock
Unvested restricted stock
Preferred stock (as converted to common stock)
Warrants to purchase shares of series A preferred stock (as converted to common warrants to purchase
stock)
December 31,
2020
2019
3,752,744
2,378,474
54,336
—
—
21,499,770
10,757
3,817,837
10,757
23,889,001
11. LEASES
The Company has historically entered into lease arrangements for its facilities. As of December 31, 2020, the Company had three operating
leases with required future minimum payments. In applying the transition guidance under ASC 842, the Company determined the
classification of these leases to be operating leases and recorded right-of-use assets and lease liabilities as of the effective dates. The
Company’s leases generally do not include termination or purchase options.
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Operating Leases
In July 2020, the Company entered into a seven-year agreement with an option to extend for five additional years to lease two floors totaling
approximately 25,578 square feet of office space for its principal office, which is located in Cambridge, MA. The lease on the first floor
commenced on August 1, 2020 and the Company currently expects the lease of the second floor to commence in the second quarter 2021
when the landlord delivers the space in accordance with the lease terms. The Company recognizes the respective lease balances on the
consolidated balance sheets when the lease of each floor has commenced. Under the terms of the lease, the Company is required to make up
to $18,751 in total minimum payments during the term, the table below excludes the minimum rental payments of $8,222 for the floor that
has not commenced as of December 31, 2020. The Company was also required to issue a $1,168 letter of credit as security for the lease.
The Company also leases additional office space in Cambridge, MA. The lease commenced in February 2019 for approximately 2,357 square
feet of office space. The lease expires on April 30, 2022, subject to an option to extend the lease for three additional years.
In December 2020, the Company entered into an eleven-year agreement with an option to extend for five additional years to lease
approximately 18,120 square feet of office and laboratory space in New York, NY. The Company currently expects the lease to commence in
the third quarter 2021 when the landlord delivers the space in accordance with the lease terms. The Company recognizes the lease balance on
the consolidated balance sheet when the lease has commenced. Under the terms of the lease, the Company is required to make up to $21,373
in total minimum payments during the term of the lease. The table below excludes the minimum rental payments for the lease that has been
executed but not commenced as of December 31, 2020.
The following table contains a summary of the lease costs recognized under ASC 842 and other information pertaining to the Company’s
operating lease for the year ended December 31, 2020:
Lease Cost
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease cost
Other Operating Lease Information
Cash paid for amounts included in the measurement of lease liability
Weighted-average remaining lease term
Weighted-average discount rate
Year Ended December 31,
2020
$
$
$
767
769
44
1,580
432
7.5
5.4 %
The variable lease costs for the year ended December 31, 2020 include common area maintenance and other operating charges. As the
Company’s leases do not provide an implicit rate, the Company utilized its incremental borrowing rate to discount lease payments, which
reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency,
for a similar term, in a similar economic environment.
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Future minimum lease payments under the Company’s operating leases as of December 31, 2020 were as follows:
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: interest
Total lease liability
$
$
As of December 31, 2019, future minimum lease payments under the Company’s lease obligations under ASC 840 were as follows:
Years Ending December 31,
2021
2022
2023
2024
Total
$
$
1,485
1,343
1,298
1,331
1,364
3,803
10,624
(1,883)
8,741
223
228
77
—
528
Rent expense for the years ended December 31, 2020 and 2019 was $1,545 and $415, respectively.
12. COMMITMENTS AND CONTINGENCIES
We enter into contracts in the normal course of business with contract research organizations ("CROs"), contract manufacturing organizations
("CMOs") and other third parties for preclinical research studies, Clinical Trials and testing and manufacturing services. These contracts do
not contain minimum purchase commitments and are cancelable upon prior written notice. Payments due upon cancellation consist only of
payments for services provided or expenses incurred, including noncancelable obligations of service providers, up to the date of cancellation.
Indemnification agreements
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business
partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from
intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with
members of its board of directors and executive officers that will require the Company, among other things, to indemnify them against certain
liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the
Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not
incurred any material costs as a result of such indemnifications. The Company is not aware of any indemnification arrangements that could
have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such
obligations in its consolidated financial statements as of December 31, 2020 or 2019.
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Legal proceedings
The Company is not currently party to and is not aware of any material legal proceedings. At each reporting date, the Company evaluates
whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the
authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal
proceedings.
13. BENEFIT PLANS
In 2018 the Company established a Simplified Employee Pension (“SEP”) defined-contribution savings plan. This plan covers substantially
all employees who meet minimum age and service requirements. The Company provides contributions of 6% of each participant’s salary.
Employees are immediately and fully vested in the Company’s contribution. During the year ended December 31, 2020 and 2019, the
Company contributed $592 and $200 to the plan, respectively.
14. RELATED-PARTY TRANSACTIONS
The Company was party to a services agreement, which was entered into in March 2017 and amended in November 2017 and March 2020,
with Ridgeline. Ridgeline is an entity owned by one of the Company’s investors, whereby employees of Ridgeline provided the Company
with scientific consulting services. In 2019, the Company paid Ridgeline $950 per month, which was reconciled on a quarterly basis with the
actual expenses incurred by Ridgeline on its behalf. In 2020 the Company transitioned to a more limited consulting arrangement whereby
Ridgeline invoiced the Company for services performed on an ongoing monthly basis. The services agreement expired December 31, 2020.
There was no amount due to Ridgeline at December 31, 2020. Total prepaids with related party were $916 as of December 31, 2019. Total
service fees incurred were $2,364 and $10,411, for the years ended December 31, 2020 and 2019.
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table contains quarterly financial information for 2020 and 2019. The Company believes that the following information
reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results
for any quarter are not necessarily indicative of results for any future period.
Revenue
Total operating expenses
Loss from operations
Net loss attributable to common stockholders
Net loss per share attributable to common
stockholders, basic and diluted
$
$
March 31,
2020
June 30,
2020
2020
September 30,
2020
(in thousands, except per share data)
December 31,
2020
— $
— $
— $
— $
12,879
(12,879)
(12,145)
15,028
(15,028)
(14,571)
18,480
(18,480)
(17,912)
23,183
(23,183)
(22,626)
Total
—
69,570
(69,570)
(67,254)
(0.51) $
(0.41) $
(0.50) $
(0.63) $
(2.05)
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Revenue
Total operating expenses
Loss from operations
Net loss attributable to common stockholders
Net loss per share attributable to common
stockholders, basic and diluted
$
$
March 31,
2019
June 30,
2019
2019
September 30,
2019
(in thousands, except per share data)
December 31,
2019
— $
— $
— $
— $
3,841
(3,841)
(3,828)
6,999
(6,999)
(12,287)
8,148
(8,148)
(9,268)
10,344
(10,344)
(9,875)
Total
—
29,332
(29,332)
(35,258)
(1.87) $
(5.99) $
(4.50) $
(4.63) $
(16.99)
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
* * * * * *
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2020, our
disclosure controls and procedures were effective at a reasonable assurance level. The Company’s disclosure controls and procedures are
designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange
Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (ii) accumulated
and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
discussions regarding required disclosure. We believe that a control system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been detected.
Remediation of Previously Reported Material Weaknesses
Our management previously determined that material weaknesses in our internal control over financial reporting existed related to the design
and maintenance of internal controls commensurate with our financial reporting requirements. Specifically, we lacked a sufficient
complement of professionals with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and
disclose accounting matters timely and accurately and we did not design and maintain controls to ensure adequate segregation of duties
within our financial reporting function including the preparation and review of journal entries. A material weakness is a deficiency or
combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement
of a company’s annual and interim financial statements will not be detected or prevented on a timely basis.
During 2019 and 2020, management implemented remediation initiatives in response to the previously identified material weakness. Specific
remedial actions included:
•
hiring additional personnel in our finance department with experience commensurate with our financial accounting and reporting
requirements;
159
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•
•
•
strengthening our internal policies, processes and reviews, including creation of related documentation thereof;
implementing an enterprise resource planning system to support key financial processes and controls, including the segregation of
duties around the preparation and review of journal entries; and
completing the design and implementation of internal controls to address the relevant risks.
Management believes that these actions have been implemented and have operated effectively for a sufficient period of time. As a result, we
have concluded that our remediation efforts have been successful and that the previously identified material weaknesses were remediated as
of December 31, 2020.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-
15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission in its 2013 Internal Control — Integrated Framework.
Based on this assessment, our management has concluded that our internal control over financial reporting was effective as of December 31,
2020.
Changes in Internal Control Over Financial Reporting
Other than the applicable remediation efforts described in “Remediation of Previously Reported Material Weaknesses” above, there have
been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the
fiscal quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information
None.
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Item 10. Directors, Executive Officers and Corporate Governance
Part III
The information required under this item is incorporated by reference to the information in our Proxy Statement for our 2021 Annual
Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report relates.
Item 11. Executive Compensation
The information required under this item is incorporated by reference to the information in our Proxy Statement for our 2021 Annual
Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report relates.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required under this item is incorporated by reference to the information in our Proxy Statement for our 2021 Annual
Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report relates.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required under this item is incorporated by reference to the information in our Proxy Statement for our 2021 Annual
Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report relates.
Item 14. Principal Accounting Fees and Services
The information required under this item is incorporated by reference to the information in our Proxy Statement for our 2021 Annual
Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report relates.
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Item 15. Exhibits and Financial Statement Schedules
(a) 1. Financial Statements
Part IV
For a list of the financial statements included herein, see Index to the Consolidated Financial Statements on page 130 of this Annual Report,
incorporated into this Item by reference.
2. Financial Statement Schedules
Financial statement schedules have been omitted because they are either not required or not applicable or the information is included in the
consolidated financial statements or the notes thereto.
3. Exhibits
The exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Annual Report are listed in the Exhibit Index below. The exhibits
listed in the Exhibit Index are incorporated by reference herein.
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(b) Exhibit Index
Exhibit
No.
3.1
3.2
4.1
4.2
4.3
10.1#
10.2#
10.3#
10.4#
10.5#
10.6#
10.7#
10.8#
10.9#
10.10#
10.11#*
10.12+
21.1
23.1*
31.1*
31.2*
32.1**
101INS*
Exhibit Index
Fourth Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect (incorporated by reference to Exhibit 3.1
of the Registrant’s Current Report on Form 8-K (File No. 001-39200) filed on February 3, 2020)
Amended and Restated By-laws of the Registrant, as currently in effect (incorporated by reference to Exhibit 3.2 of the Registrant’s Current
Report on Form 8-K (File No. 001-39200) filed on February 3, 2020)
Second Amended and Restated Investors’ Rights Agreement among the Registrant and certain of its stockholders, dated November 25,
2019 (incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-1 (File No. 333-235789) filed on
January 3, 2020)
Warrant to Purchase Stock, dated September 21, 2016, issued by the Registrant to Roche Finance Ltd (incorporated by reference to Exhibit
4.3 of the Registrant’s Registration Statement on Form S-1 (File No. 333-235789) filed on January 3, 2020)
Description of Securities (incorporated by reference to Exhibit 4.4 of the Registrant’s Annual Report on Form 10-K (File No. 001-39200)
filed on March 24, 2020)
2017 Employee, Director and Consultant Equity Incentive Plan, as amended and restated, and forms of award agreements thereunder
(incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-1 (File No. 333-235789) filed on January
3, 2020)
2020 Stock Option and Incentive Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.2 of the
Registrant’s Registration Statement on Form S-1/A (File No. 333-235789) filed on January 21, 2020)
Senior Executive Cash Incentive Bonus Plan (incorporated by reference to Exhibit 10.3 of the Registrant’s Registration Statement on Form
S-1 (File No. 333-235789) filed on January 3, 2020)
2020 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.4 of the Registrant’s Registration Statement on Form S-1/A
(File No. 333-235789) filed on January 21, 2020)
Form of Officer Indemnification Agreement (incorporated by reference to Exhibit 10.5 of the Registrant’s Registration Statement on Form
S-1 (File No. 333-235789) filed on January 3, 2020)
Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.6 of the Registrant’s Registration Statement on Form
S-1 (File No. 333-235789) filed on January 3, 2020)
Employment Agreement between the Registrant and David M. Epstein, Ph.D. (incorporated by reference to Exhibit 10.7 of the Registrant’s
Registration Statement on Form S-1 (File No. 333-235789) filed on January 3, 2020)
Employment Agreement between the Registrant and Brent Hatzis-Schoch (incorporated by reference to Exhibit 10.8 of the Registrant’s
Registration Statement on Form S-1 (File No. 333-235789) filed on January 3, 2020)
Employment Agreement between the Registrant and Thomas Leggett (incorporated by reference to Exhibit 10.9 of the Registrant’s
Registration Statement on Form S-1 (File No. 333-235789) filed on January 3, 2020)
Employment Agreement between the Registrant and Christopher D. Roberts (incorporated by reference to Exhibit 10.10 of the Registrant’s
Registration Statement on Form S-1 (File No. 333-235789) filed on January 3, 2020)
Employment Agreement between the Registrant and Rachel Humphrey
Lease Agreement, dated as of July 24, 2020, by and between RREEF America REIT II Corp. PPP and the Registrant (incorporated by
reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (File No. 001-39200) filed on August 11, 2020)
Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 of the Registrant’s Registration Statement on Form S-1 (File No.
333-235789) filed on January 3, 2020)
Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded
within the Inline XBRL document.
163
Table of Contents
101SCH*
Inline XBRL Taxonomy Extension Schema Document.
101CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101LAB*
Inline XBRL Taxonomy Extension Labels Linkbase Document.
101PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document.
104*
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.)
#
+
*
**
Indicates a management contract or any compensatory plan, contract or arrangement.
Non-material schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to
furnish supplementally copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission.
Filed herewith.
This certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent specifically incorporated by reference into
such filing.
Item 16. Form 10-K Summary
The company has elected not to include summary information.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 25, 2021
By:
/s/ David M. Epstein
Black Diamond Therapeutics, Inc.
David M. Epstein
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose individual signature appears below hereby authorizes and appoints
David M. Epstein and Brent Hatzis-Schoch, and each of them, with full power of substitution and re-substitution and full power to act
without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name
and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this Annual Report on
Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every
act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below
by the following persons on behalf of the registrant and in the capacities indicated on the 25th day of March, 2021.
165
Table of Contents
/s/ David M. Epstein
David M. Epstein
/s/ Thomas Leggett
Thomas Leggett
/s/ Robert A. Ingram
Robert A. Ingram
/s/ Bradley Bolzon
Bradley Bolzon
/s/ Ali Behbahani
Ali Behbahani
/s/ Samarth Kulkarni
Samarth Kulkarni
/s/ Alexander Mayweg
Alexander Mayweg
/s/ Garry E. Menzel
Garry E. Menzel
/s/ Rajeev Shah
Rajeev Shah
/s/ Kapil Dhingra
Kapil Dhingra
Signature
Title
President, Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Chairman and Director
Director
Director
Director
Director
Director
Director
Director
166
Exhibit 10.11
EMPLOYMENT AGREEMENT
This Employment Agreement (“Agreement”) is made between Black Diamond Therapeutics, Inc., a Delaware corporation
(the “Company”), and Rachel Humphrey, M.D. (the “Executive”) and is effective as of September 8, 2020 (the “Effective Date”).
This Agreement supersedes in all respects all prior agreements between the Executive and the Company regarding the subject
matter herein, including without limitation the offer letter between the Executive and the Company dated August 24, 2020 (the
“Prior Agreement”).
WHEREAS, the Company desires to employ the Executive and the Executive desires to be employed by the Company on
the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1.
Employment.
(a)
Term. The Company shall employ the Executive and the Executive shall be employed by the Company
pursuant to this Agreement commencing as of the Effective Date and continuing until such employment is terminated in
accordance with the provisions hereof (the “Term”). The Executive’s employment with the Company will be “at will,” meaning
that the Executive’s employment may be terminated by the Company or the Executive at any time and for any reason subject to
the terms of this Agreement.
(b)
Position and Duties. The Executive shall serve as the Chief Medical Officer of the Company, reporting to
the Chief Executive Officer (the “CEO”), and shall have such powers and duties as may from time to time be prescribed by the
CEO or other duly authorized executive. The Executive shall devote the Executive’s full working time and efforts to the business
and affairs of the Company. Notwithstanding the foregoing, the Executive may serve on other boards of directors, with the
approval of the Board of Directors of the Company (the “Board”), or engage in religious, charitable or other community activities
as long as such services and activities are disclosed to the Board and do not interfere with the Executive’s performance of the
Executive’s duties to the Company. To the extent applicable, the Executive shall be deemed to have resigned from all officer and
board member positions that the Executive holds with the Company or any of its respective subsidiaries and affiliates upon the
termination of the Executive’s employment for any reason. The Executive shall execute any documents in reasonable form as
may be requested to confirm or effectuate any such resignations.
2.
Compensation and Related Matters.
(a)
Base Salary. The Executive’s initial base salary shall be paid at the rate of $460,000 per year. The
Executive’s base salary shall be subject to periodic review by the Board or the Compensation Committee of the Board (the
“Compensation Committee”). The base salary in effect at any given time is referred to herein as “Base Salary.” The Base Salary
shall be
payable in a manner that is consistent with the Company’s usual payroll practices for executive officers.
(b)
Incentive Compensation.
(i)The Executive shall be eligible to receive cash incentive compensation as determined by the Board or the
Compensation Committee from time to time. The Executive’s initial target annual incentive compensation shall be 40
percent of the Executive’s Base Salary; provided that any incentive compensation awarded with respect to calendar year
2020 will be pro-rated for the number of months in 2020 of full-time employment with the Company. The target annual
incentive compensation in effect at any given time is referred to herein as “Target Bonus.” The actual amount of the
Executive’s annual incentive compensation, if any, shall be determined in the sole discretion of the Board or the
Compensation Committee, subject to the terms of any applicable incentive compensation plan that may be in effect from
time to time. Except as otherwise provided herein, to earn incentive compensation, the Executive must be employed by
the Company on the day such incentive compensation is paid.
(ii)The Executive will be eligible to receive a signing bonus in the gross amount of $50,000, less applicable
taxes and withholdings (the “Signing Bonus”), which will be paid in two equal installments in the gross amount of
$25,000 each. The first installment of the Signing Bonus will be paid in the second pay period following the Effective
Date, provided that the Executive remains employed as of the date of payment. The second and final installment of the
Signing Bonus will be paid in the first pay period following the six month anniversary of the Effective Date, provided that
the Executive remains employed as of the date of payment.
(c)
Expenses. The Executive shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive during the Term in performing services hereunder, in accordance with the policies and procedures then
in effect and established by the Company for its executive officers.
(d)
Other Benefits. The Executive shall be eligible to participate in or receive benefits under the Company’s
employee benefit plans in effect from time to time, subject to the terms of such plans.
(e)
Paid Time Off. The Executive shall be entitled to take paid time off in accordance with the Company’s
applicable paid time off policy for executives, as may be in effect from time to time.
(f)
Equity. In connection with the commencement of the Executive’s employment and subject to Board
approval, the Executive will be granted an option to purchase 150,000 shares of the Company’s common stock subject to time-
based vesting, with an exercise price equal to the fair market value of the Company’s common stock as of the date of such grant.
One quarter of such shares shall vest when the Executive completes 12 months of service after the vesting commencement date,
and 1/48th of such shares shall vest each month thereafter,
2
subject to the Executive’s continued service at each vesting date. In addition, the Executive will, subject to Board approval, be
awarded 10,000 restricted stock units subject to time-based vesting, with such vesting to occur in three equal installments over
three years, with the first tranche vesting on the first anniversary of the Executive’s first day of employment and the remaining
tranches vesting respectively on the second and third anniversary of such date, in each case subject to the Executive’s continued
service at each vesting date. The equity awards described in this Section 2(f) shall be governed by the terms and conditions of the
Company’s applicable equity incentive plan(s) and the applicable award agreement(s) governing the terms of such equity awards
(collectively, the “Equity Documents”); provided, however, and notwithstanding anything to the contrary in the Equity
Documents, Section 6(a)(ii) of this Agreement shall apply in the event of a termination by the Company without Cause or by the
Executive for Good Reason in either event within the Change in Control Period (as such terms are defined below).
3.
Termination. The Executive’s employment hereunder may be terminated without any breach of this Agreement
under the following circumstances:
(a)
Death. The Executive’s employment hereunder shall terminate upon death.
(b)
Disability. The Company may terminate the Executive’s employment if the Executive is disabled and
unable to perform the essential functions of the Executive’s then existing position or positions under this Agreement with or
without reasonable accommodation for a period of 180 days (which need not be consecutive) in any 12-month period. If any
question shall arise as to whether during any period the Executive is disabled so as to be unable to perform the essential functions
of the Executive’s then existing position or positions with or without reasonable accommodation, the Executive may, and at the
request of the Company shall, submit to the Company a certification in reasonable detail by a physician selected by the Company
to whom the Executive or the Executive’s guardian has no reasonable objection as to whether the Executive is so disabled or how
long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the
issue. The Executive shall cooperate with any reasonable request of the physician in connection with such certification. If such
question shall arise and the Executive shall fail to submit such certification, the Company’s determination of such issue shall be
binding on the Executive. Nothing in this Section 3(b) shall be construed to waive the Executive’s rights, if any, under existing
law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. §2601 et seq. and the Americans with
Disabilities Act, 42 U.S.C. §12101 et seq.
(c)
Termination by Company for Cause. The Company may terminate the Executive’s employment hereunder
for Cause. For purposes of this Agreement, “Cause” shall mean any of the following:
(i)the willful failure, disregard or refusal by the Executive to perform the Executive’s material duties or
obligations under this Agreement which, to the extent it is curable by the Executive, is not cured within thirty (30) days
after written notice thereof is given to the Executive by the Company;
3
(ii)any willful, intentional or grossly negligent act by the Executive having the effect of materially injuring
(whether financially or otherwise) the business or reputation of the Company or any of its affiliates, including but not
limited to, any senior officer, director or executive of the Company or any of its affiliates;
(iii)willful misconduct by the Executive with respect to any of the material duties or obligations of the
Executive under this Agreement, including, without limitation, willful insubordination with respect to lawful directions
received by the Executive from the Board which, to the extent it is curable by the Executive, is not cured within thirty
(30) days after written notice thereof is given to the Executive by the Company;
(iv)the commission by the Executive of acts satisfying the elements of (A) any felony or (B) a misdemeanor
involving moral turpitude, deceit, dishonesty or fraud;
(v)the determination, after a reasonable and good-faith investigation by the Company, that the Executive
engaged in some form of harassment or discrimination prohibited by law (including, without limitation, age, sex or race
harassment or discrimination);
(vi)the Executive’s material misappropriation or embezzlement of the property of the Company or its affiliates
(whether or not a misdemeanor or felony);
(vii)material breach by the Executive of any of the provisions of this Agreement, of any Company policy,
and/or of the Executive’s Restrictive Covenants Agreement (as defined below); or
(viii)the Executive’s failure to cooperate with a bona fide internal investigation or an investigation by regulatory
or law enforcement authorities, after being instructed by the Company to cooperate, or the willful destruction or failure to
preserve documents or other materials known to be relevant to such investigation or the inducement of others to fail to
cooperate or to produce documents or other materials in connection with such investigation.
(d)
Termination by the Company without Cause. The Company may terminate the Executive’s employment
hereunder at any time without Cause. Any termination by the Company of the Executive’s employment under this Agreement
which does not constitute a termination for Cause under Section 3(c) and does not result from the death or disability of the
Executive under Section 3(a) or (b) shall be deemed a termination without Cause.
(e)
Termination by the Executive. The Executive may terminate employment hereunder at any time for any
reason, including but not limited to, Good Reason. For purposes of this Agreement, “Good Reason” shall mean that the Executive
has completed all steps of the Good Reason Process (hereinafter defined) following the occurrence of any of the following events
without the Executive’s consent (each, a “Good Reason Condition”):
4
(i)a material adverse change in Executive’s duties, authority, responsibilities or reporting chain relative to
Executive’s duties, authority, or responsibilities in effect immediately prior to such change;
(ii)a material diminution in the Executive’s Base Salary except for across-the-board salary reductions based
on the Company’s financial performance similarly affecting all or substantially all senior management employees of the
Company;
(iii)a material change in the geographic location at which the Executive provides services to the Company,
such that there is an increase of at least thirty (30) miles of driving distance to such location from the Executive’s
principal residence as of such change; or
(iv)a material breach of this Agreement by the Company.
The “Good Reason Process” consists of the following steps:
a.
b.
the Executive reasonably determines in good faith that a Good Reason Condition has occurred;
the Executive notifies the Company in writing of the first occurrence of the Good Reason
Condition within 60 days of the first occurrence of such condition;
c.
the Executive cooperates in good faith with the Company’s efforts, for a period of not less than 30
days following such notice (the “Cure Period”), to remedy the Good Reason Condition;
d.
e.
notwithstanding such efforts, the Good Reason Condition continues to exist; and
the Executive terminates employment within 60 days after the end of the Cure Period.
If the Company cures the Good Reason Condition during the Cure Period, Good Reason shall be deemed not to have occurred.
If the Executive’s employment with the Company is terminated for any reason, the Company shall pay or provide to the
Executive (or to the Executive’s authorized representative or estate) (i) any Base Salary earned through the Date of Termination;
(ii) unpaid expense reimbursements (subject to, and in accordance with, Section 2(c) of this Agreement); and (iii) any vested
benefits the Executive may have under any employee benefit plan of the Company through the Date of Termination, which vested
benefits shall be paid and/or provided in accordance with the terms of such employee benefit plans (collectively, the “Accrued
Obligations”).
5
4.
Notice and Date of Termination.
i.Notice of Termination. Except for termination as specified in Section 3(a), any termination of the Executive’s
employment by the Company or any such termination by the Executive shall be communicated by written Notice of Termination
to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon.
ii.Date of Termination. “Date of Termination” shall mean: (i) if the Executive’s employment is terminated by death,
the date of death; (ii) if the Executive’s employment is terminated on account of disability under Section 3(b) or by the Company
for Cause under Section 3(c), the date on which Notice of Termination is given; (iii) if the Executive’s employment is terminated
by the Company without Cause under Section 3(d), the date on which a Notice of Termination is given or the date otherwise
specified by the Company in the Notice of Termination; (iv) if the Executive’s employment is terminated by the Executive under
Section 3(e) other than for Good Reason, 30 days after the date on which a Notice of Termination is given, and (v) if the
Executive’s employment is terminated by the Executive under Section 3(e) for Good Reason, the date on which a Notice of
Termination is given after the end of the Cure Period. Notwithstanding the foregoing, in the event that the Executive gives a
Notice of Termination to the Company, the Company may unilaterally accelerate the Date of Termination and such acceleration
shall not result in a termination by the Company for purposes of this Agreement.
5.
Severance Pay and Benefits Upon Termination by the Company without Cause or by the Executive for Good
Reason Outside the Change in Control Period. If the Executive’s employment is terminated by the Company without Cause as
provided in Section 3(d), or the Executive terminates employment for Good Reason as provided in Section 3(e), each outside of
the Change in Control Period (as defined below), then, in addition to the Accrued Obligations, and subject to (i) the Executive
signing a separation agreement and release in a form and manner satisfactory to the Company, which shall include, without
limitation, a general release of claims against the Company and all related persons and entities, a reaffirmation of all of the
Executive’s Continuing Obligations (as defined below), and, in the Company’s sole discretion, a one-year post-employment
noncompetition agreement, and shall provide that if the Executive breaches any of the Continuing Obligations, all payments of
the Severance Amount shall immediately cease (the “Separation Agreement and Release”), and (ii) the Separation Agreement
and Release becoming irrevocable, all within 60 days after the Date of Termination (or such shorter period as set forth in the
Separation Agreement and Release), which shall include a seven (7) business day revocation period:
iii.the Company shall pay the Executive an amount equal to the sum of (A) 12 months of the Executive’s Base Salary
plus (B) the Executive’s Target Bonus for the then-current year (the “Severance Amount”); provided in the event the Executive is
entitled to any payments pursuant to the Restrictive Covenants Agreement, the Severance Amount received in any calendar year
will be reduced by the amount the Executive is paid in the same such calendar
6
year pursuant to the Restrictive Covenants Agreement (the “Restrictive Covenants Agreement Setoff”); and
iv.subject to the Executive’s copayment of premium amounts at the applicable active employees’ rate and the
Executive’s proper election to receive benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
(“COBRA”), the Company shall pay to the group health plan provider, the COBRA provider or the Executive a monthly payment
equal to the monthly employer contribution that the Company would have made to provide health insurance to the Executive if
the Executive had remained employed by the Company until the earliest of (A) the 12 month anniversary of the Date of
Termination; (B) the Executive’s eligibility for group medical plan benefits under any other employer’s group medical plan; or
(C) the cessation of the Executive’s continuation rights under COBRA; provided, however, if the Company determines that it
cannot pay such amounts to the group health plan provider or the COBRA provider (if applicable) without potentially violating
applicable law (including, without limitation, Section 2716 of the Public Health Service Act), then the Company shall convert
such payments to payroll payments directly to the Executive for the time period specified above. Such payments shall be subject
to tax-related deductions and withholdings and paid on the Company’s regular payroll dates.
The amounts payable under Section 5, to the extent taxable, shall be paid out in substantially equal installments in accordance
with the Company’s payroll practice over 12 months commencing within 60 days after the Date of Termination; provided,
however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the Severance Amount, to the
extent it qualifies as “non-qualified deferred compensation” within the meaning of Section 409A of the Internal Revenue Code of
1986, as amended (the “Code”), shall begin to be paid in the second calendar year by the last day of such 60-day period;
provided, further, that the initial payment shall include a catch-up payment to cover amounts retroactive to the day immediately
following the Date of Termination. Each payment pursuant to this Agreement is intended to constitute a separate payment for
purposes of Treasury Regulation Section 1.409A-2(b)(2).
6.
Severance Pay and Benefits Upon Termination by the Company without Cause or by the Executive for Good
Reason within the Change in Control Period. The provisions of this Section 6 shall apply in lieu of, and expressly supersede, the
provisions of Section 5 if (i) the Executive’s employment is terminated either (a) by the Company without Cause as provided in
Section 3(d), or (b) by the Executive for Good Reason as provided in Section 3(e), and (ii) the Date of Termination is within 12
months after the occurrence of the first event constituting a Change in Control (such period, the “Change in Control Period”).
These provisions shall terminate and be of no further force or effect after a Change in Control Period.
v.If the Executive’s employment is terminated by the Company without Cause as provided in Section 3(d) or the
Executive terminates employment for Good Reason as provided in Section 3(e) and in each case the Date of Termination occurs
during the Change in Control Period, then, in addition to the Accrued Obligations, and subject to the signing of the Separation
Agreement and Release by the Executive and the Separation Agreement and Release becoming
7
fully effective, all within the time frame set forth in the Separation Agreement and Release but in no event more than 60 days
after the Date of Termination:
f.
the Company shall pay the Executive a lump sum in cash in an amount equal to 1.0 times the sum
of (A) the Executive’s then current Base Salary (or the Executive’s Base Salary in effect immediately prior to the Change
in Control, if higher) plus (B) the Executive’s Target Bonus for the then-current year (the “Change in Control Payment”);
provided the Change in Control Payment shall be reduced by the amount of the Restrictive Covenants Agreement Setoff,
if applicable, paid or to be paid in the same calendar year; and
g.
notwithstanding anything to the contrary in any applicable option agreement or other stock-based
award agreement, all stock options and other stock-based awards held by the Executive (the “Equity Awards”) shall
immediately accelerate and become fully exercisable or nonforfeitable as of the later of (i) the Date of Termination or (ii)
the effective date of the Separation Agreement and Release (the “Accelerated Vesting Date”); provided that any
termination or forfeiture of the unvested portion of such Equity Awards that would otherwise occur on the Date of
Termination in the absence of this Agreement will be delayed until the effective date of the Separation Agreement and
Release and will only occur if the vesting pursuant to this subsection does not occur due to the absence of the Separation
Agreement and Release becoming fully effective within the time period set forth therein. Notwithstanding the foregoing,
no additional vesting of the Equity Awards shall occur during the period between the Executive’s Date of Termination and
the Accelerated Vesting Date; and
h.
subject to the Executive’s copayment of premium amounts at the applicable active employees’ rate
and the Executive’s proper election to receive benefits under COBRA, the Company shall pay to the group health plan
provider, the COBRA provider or the Executive a monthly payment equal to the monthly employer contribution that the
Company would have made to provide health insurance to the Executive if the Executive had remained employed by the
Company until the earliest of (A) the 12 month anniversary of the Date of Termination; (B) the Executive’s eligibility for
group medical plan benefits under any other employer’s group medical plan; or (C) the cessation of the Executive’s
continuation rights under COBRA; provided, however, if the Company determines that it cannot pay such amounts to the
group health plan provider or the COBRA provider (if applicable) without potentially violating applicable law (including,
without limitation, Section 2716 of the Public Health Service Act), then the Company shall convert such payments to
payroll payments directly to the Executive for the time period specified above. Such payments shall be subject to tax-
related deductions and withholdings and paid on the Company’s regular payroll dates.
The amounts payable under this Section 6(a), to the extent taxable, shall be paid or commence to be paid within 60 days after the
Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year,
such payments to the extent they qualify as “non-qualified deferred compensation” within the meaning of Section
8
409A of the Code, shall be paid or commence to be paid in the second calendar year by the last day of such 60-day period.
vi.Additional Limitation.
i.
Anything in this Agreement to the contrary notwithstanding, in the event that the amount of any
compensation, payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner consistent with
Section 280G of the Code, and the applicable regulations thereunder (the “Aggregate Payments”), would be subject to the
excise tax imposed by Section 4999 of the Code, then the Aggregate Payments shall be reduced (but not below zero) so
that the sum of all of the Aggregate Payments shall be $1.00 less than the amount at which the Executive becomes subject
to the excise tax imposed by Section 4999 of the Code; provided that such reduction shall only occur if it would result in
the Executive receiving a higher After Tax Amount (as defined below) than the Executive would receive if the Aggregate
Payments were not subject to such reduction. In such event, the Aggregate Payments shall be reduced in the following
order, in each case, in reverse chronological order beginning with the Aggregate Payments that are to be paid the furthest
in time from consummation of the transaction that is subject to Section 280G of the Code: (1) cash payments not subject
to Section 409A of the Code; (2) cash payments subject to Section 409A of the Code; (3) equity-based payments and
acceleration; and (4) non-cash forms of benefits; provided that in the case of all the foregoing Aggregate Payments all
amounts or payments that are not subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c) shall be reduced
before any amounts that are subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c).
j.
For purposes of this Section 6(b), the “After Tax Amount” means the amount of the Aggregate
Payments less all federal, state, and local income, excise and employment taxes imposed on the Executive as a result of
the Executive’s receipt of the Aggregate Payments. For purposes of determining the After Tax Amount, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to
individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest
marginal rates of individual taxation in each applicable state and locality, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local taxes.
k.
The determination as to whether a reduction in the Aggregate Payments shall be made pursuant to
Section 6(b)(i) shall be made by a nationally recognized accounting firm selected by the Company (the “Accounting
Firm”), which shall provide detailed supporting calculations both to the Company and the Executive within 15 business
days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by the Company or the
Executive. Any determination by the Accounting Firm shall be binding upon the Company and the Executive.
9
vii.Definitions. For purposes of this Section 6, a “Change in Control” shall mean a “Sale Event” as defined in the
Black Diamond Therapeutics, Inc. 2020 Stock Option and Incentive Plan, as may be amended from time to time, but only to the
extent such Sale Event is also a “change in control event” within the meaning of Section 409A of the Code and the regulations
promulgated thereunder.
7.
Section 409A.
viii.Anything in this Agreement to the contrary notwithstanding, if at the time of the Executive’s separation from
service within the meaning of Section 409A of the Code, the Company determines that the Executive is a “specified employee”
within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that the Executive
becomes entitled to under this Agreement or otherwise on account of the Executive’s separation from service would be
considered deferred compensation otherwise subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of the
Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit
shall not be provided until the date that is the earlier of (A) six months and one day after the Executive’s separation from service,
or (B) the Executive’s death. If any such delayed cash payment is otherwise payable on an installment basis, the first payment
shall include a catch-up payment covering amounts that would otherwise have been paid during the six-month period but for the
application of this provision, and the balance of the installments shall be payable in accordance with their original schedule.
ix.All in-kind benefits provided and expenses eligible for reimbursement under this Agreement shall be provided by
the Company or incurred by the Executive during the time periods set forth in this Agreement. All reimbursements shall be paid
as soon as administratively practicable, but in no event shall any reimbursement be paid after the last day of the taxable year
following the taxable year in which the expense was incurred. The amount of in-kind benefits provided or reimbursable expenses
incurred in one taxable year shall not affect the in-kind benefits to be provided or the expenses eligible for reimbursement in any
other taxable year (except for any lifetime or other aggregate limitation applicable to medical expenses). Such right to
reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.
x.To the extent that any payment or benefit described in this Agreement constitutes “non-qualified deferred
compensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon the Executive’s
termination of employment, then such payments or benefits shall be payable only upon the Executive’s “separation from service.”
The determination of whether and when a separation from service has occurred shall be made in accordance with the
presumptions set forth in Treasury Regulation Section 1.409A1(h).
xi.The parties intend that this Agreement will be administered in accordance with Section 409A of the Code. To the
extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall
be read in such a manner so that all payments hereunder comply with Section 409A of the Code. Each payment pursuant to this
Agreement or the Restrictive Covenants Agreement is intended to constitute a separate payment for purposes of Treasury
Regulation Section 1.409A2(b)(2). The parties agree that
10
this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section
409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided hereunder without
additional cost to either party.
xii.The Company makes no representation or warranty and shall have no liability to the Executive or any other person
if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code but
do not satisfy an exemption from, or the conditions of, such Section.
8.
Continuing Obligations.
xiii.Restrictive Covenants Agreement. As a condition of employment, the Executive is required to enter into the
Employee Confidentiality, Assignment, Nonsolicitation and Noncompetition Agreement, attached hereto as Exhibit A (the
“Restrictive Covenants Agreement”). The Executive acknowledges that the benefits of this Agreement, as well as the
indemnification agreement to be entered into between the Executive and the Company, to which the Executive was not
previously entitled, are fair and reasonable consideration independent from the continuation of employment sufficient to support
the Restrictive Covenants Agreement. For purposes of this Agreement, the obligations in this Section 8 and those that arise in the
Restrictive Covenants Agreement and any other agreement relating to confidentiality, assignment of inventions, or other
restrictive covenants shall collectively be referred to as the “Continuing Obligations.”
xiv.Third-Party Agreements and Rights. The Executive hereby confirms that the Executive is not bound by the terms
of any agreement with any previous employer or other party which restricts in any way the Executive’s use or disclosure of
information, other than confidentiality restrictions (if any), or the Executive’s engagement in any business. The Executive
represents to the Company that the Executive’s execution of this Agreement, the Executive’s employment with the Company and
the performance of the Executive’s proposed duties for the Company will not violate any obligations the Executive may have to
any such previous employer or other party. In the Executive’s work for the Company, the Executive will not disclose or make use
of any information in violation of any agreements with or rights of any such previous employer or other party, and the Executive
will not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to
or obtained from any such previous employment or other party.
xv.Litigation and Regulatory Cooperation. During and after the Executive’s employment, the Executive shall
cooperate fully with the Company in (i) the defense or prosecution of any claims or actions now in existence or which may be
brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while the
Executive was employed by the Company, and (ii) the investigation, whether internal or external, of any matters about which the
Company believes the Executive may have knowledge or information. The Executive’s full cooperation in connection with such
claims, actions or investigations shall include, but not be limited to, being available to meet with counsel to answer questions or
to prepare for discovery or trial and to act as a witness on behalf of the Company at
11
mutually convenient times. During and after the Executive’s employment, the Executive also shall cooperate fully with the
Company in connection with any investigation or review of any federal, state or local regulatory authority as any such
investigation or review relates to events or occurrences that transpired while the Executive was employed by the Company. The
Company shall reimburse the Executive for any reasonable outofpocket expenses incurred in connection with the Executive’s
performance of obligations pursuant to this Section 8(c).
xvi.Relief. The Executive agrees that it would be difficult to measure any damages caused to the Company which
might result from any breach by the Executive of the Continuing Obligations, and that in any event money damages would be an
inadequate remedy for any such breach. Accordingly, the Executive agrees that if the Executive breaches, or proposes to breach,
any portion of the Continuing Obligations, the Company shall be entitled, in addition to all other remedies that it may have, to an
injunction or other appropriate equitable relief to restrain any such breach without showing or proving any actual damage to the
Company.
xvii.Protected Disclosures and Other Protected Action. Nothing in this Agreement shall be interpreted or applied to
prohibit the Executive from making any good faith report to any governmental agency or other governmental entity (a
“Government Agency”) concerning any act or omission that the Executive reasonably believes constitutes a possible violation of
federal or state law or making other disclosures that are protected under the anti-retaliation or whistleblower provisions of
applicable federal or state law or regulation. In addition, nothing contained in this Agreement limits the Executive’s ability to
communicate with any Government Agency or otherwise participate in any investigation or proceeding that may be conducted by
any Government Agency, including the Executive’s ability to provide documents or other information, without notice to the
Company. In addition, for the avoidance of doubt, pursuant to the federal Defend Trade Secrets Act of 2016, the Executive shall
not be held criminally or civilly liable under any federal or state trade secret law or under this Agreement or the Restrictive
Covenants Agreement for the disclosure of a trade secret that (a) is made (i) in confidence to a federal, state, or local government
official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected
violation of law; or (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made
under seal.
9.
Consent to Jurisdiction. The parties hereby consent to the exclusive jurisdiction of the state and federal courts of
the Commonwealth of Massachusetts. Accordingly, with respect to any such court action, the Executive (a) submits to the
exclusive personal jurisdiction of such courts; (b) consents to service of process; and (c) waives any other requirement (whether
imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of process.
10.
Integration. This Agreement constitutes the entire agreement between the parties with respect to the subject matter
hereof and supersedes all prior agreements between the parties concerning such subject matter, including the Prior Agreement.
11. Withholding; Tax Effect. All payments made by the Company to the Executive under this Agreement shall be net
of any tax or other amounts required to be withheld by the
12
Company under applicable law. Nothing in this Agreement shall be construed to require the Company to make any payments to
compensate the Executive for any adverse tax effect associated with any payments or benefits or for any deduction or
withholding from any payment or benefit.
12.
Assignment. Neither the Executive nor the Company may make any assignment of this Agreement or any interest
in it, by operation of law or otherwise, without the prior written consent of the other; provided, however, that the Company may
assign its rights and obligations under this Agreement (including the Restrictive Covenants Agreement) without the Executive’s
consent to any affiliate or to any person or entity with whom the Company shall hereafter effect a reorganization, consolidate
with, or merge into or to whom it transfers all or substantially all of its properties or assets; provided further that if the Executive
remains employed or becomes employed by the Company, the purchaser or any of their affiliates in connection with any such
transaction, then the Executive shall not be entitled to any payments, benefits or vesting pursuant to Section 5 or pursuant to
Section 6 of this Agreement solely as a result of such transaction. This Agreement shall inure to the benefit of and be binding
upon the Executive and the Company, and each of the Executive’s and the Company’s respective successors, executors,
administrators, heirs and permitted assigns. The Company shall obtain an agreement from any successor to assume and agree to
perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no
succession had taken place, except where such assumption occurs by operation of law.
13.
Enforceability. If any portion or provision of this Agreement (including, without limitation, any portion or
provision of any section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than
those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
14.
Survival. The provisions of this Agreement shall survive the termination of this Agreement and/or the termination
of the Executive’s employment to the extent necessary to effectuate the terms contained herein.
15. Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving
party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party
of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver
of any subsequent breach.
16.
Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be
sufficient if in writing and delivered in person or sent by a nationally recognized overnight courier service or by registered or
certified mail, postage prepaid, return receipt requested, to the Executive at the last address the Executive has filed in writing
with the Company or, in the case of the Company, at its main offices, attention of the Board.
13
17.
Amendment. This Agreement may be amended or modified only by a written instrument signed by the Executive
and by a duly authorized representative of the Company.
18.
Effect on Other Plans and Agreements. An election by the Executive to resign for Good Reason under the
provisions of this Agreement shall not be deemed a voluntary termination of employment by the Executive for the purpose of
interpreting the provisions of any of the Company's benefit plans, programs or policies. Nothing in this Agreement shall be
construed to limit the rights of the Executive under the Company’s benefit plans, programs or policies except as otherwise
provided in Section 8 hereof, and except that the Executive shall have no rights to any severance benefits under any Company
severance pay plan, offer letter or otherwise. Except for the Restrictive Covenants Agreement, in the event that the Executive is
party to an agreement with the Company providing for payments or benefits under such plan or agreement and under this
Agreement, the terms of this Agreement shall govern and the Executive may receive payment under this Agreement only and not
both. Further, Section 5 and Section 6 of this Agreement are mutually exclusive and in no event shall the Executive be entitled to
payments or benefits pursuant to both Section 5 and Section 6 of this Agreement.
19.
Governing Law. This is a Massachusetts contract and shall be construed under and be governed in all respects by
the laws of the Commonwealth of Massachusetts, without giving effect to the conflict of laws principles thereof. With respect to
any disputes concerning federal law, such disputes shall be determined in accordance with the law as it would be interpreted and
applied by the United States Court of Appeals for the First Circuit.
20.
Conditions. Notwithstanding anything to the contrary herein, the effectiveness of this Agreement shall be
conditioned on (i) the Executive’s satisfactory completion of reference and background checks, if so requested by the Company,
and (ii) the Executive’s submission of satisfactory proof of the Executive’s legal authorization to work in the United States.
21.
Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed
and delivered shall be taken to be an original; but such counterparts shall together constitute one and the same document.
14
IN WITNESS WHEREOF, the parties have executed this Agreement effective on the Effective Date.
BLACK DIAMOND THERAPEUTICS, INC.
By:
Its:
/s/ Brent Hatzis-Schoch
Chief Operating Officer & General Counsel
EXECUTIVE
/s/ Rachel Humphrey
Rachel Humphrey, M.D.
15
Exhibit A
Restrictive Covenants Agreement
16
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (File No. 333- 252627) and on Form S-8 (No. 333-236170)
of Black Diamond Therapeutics, Inc. of our report dated March 25, 2021 relating to the financial statements, which appears in this Form 10-K.
Exhibit 23.1
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 25, 2021
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) OR 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, David M. Epstein, certify that:
Exhibit 31.1
1.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2020 of Black Diamond Therapeutics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 25, 2021
By:
/s/ David M. Epstein
David M. Epstein
President, Chief Executive Officer
and Director
(Principal Executive Officer)
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) OR 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Thomas Leggett, certify that:
Exhibit 31.2
1.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2020 of Black Diamond Therapeutics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 25, 2021
By:
/s/ Thomas Leggett
Thomas Leggett
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, David M.
Epstein, the Chief Executive Officer, and Thomas Leggett, the Chief Financial Officer, of Black Diamond Therapeutics, Inc. (the
“Company”), hereby certify, that, to their knowledge:
(1) the Annual Report on Form 10-K for the year ended December 31, 2020 (the “Report”) of the Company fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 25, 2021
By:
/s/ David M. Epstein
David M. Epstein
President, Chief Executive Officer
and Director
(Principal Executive Officer)
Date: March 25, 2021
By:
/s/ Thomas Leggett
Thomas Leggett
Chief Financial Officer
(Principal Financial Officer)