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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 May 31, 2021
or
☐
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-49908
CYTODYN INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
1111 Main Street, Suite 660
Vancouver, Washington
(Address of principal executive offices)
83-1887078
(I.R.S. Employer
Identification No.)
98660
(Zip Code)
Registrant’s Telephone Number, including area code: (360) 980-8524
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
None.
Trading
Symbol(s)
None.
Name of each exchange
on which registered
None.
Securities registered pursuant to Section 12(g) of the Act:
Title of class
Common Stock, par value $0.001 per share
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 checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated
filer,” “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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. Yes ☒ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and ask price of such
common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $1,534,001,633 as of November 30, 2020.
As of July 15, 2021, the registrant had 632,586,877 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document
Portions of the Proxy Statement for the 2021 Annual Meeting of Stockholders
Parts Into Which Incorporated
Part III
Table of Contents
PART I
CYTODYN INC.
FORM 10-K FOR THE YEAR ENDED MAY 31, 2021
Table of Contents
BUSINESS
ITEM 1.
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
ITEM 3.
ITEM 4.
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
PART II
ITEM 5.
ITEM 6.
ITEM 7.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
[RESERVED]
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
ITEM 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM 15.
ITEM 16.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY
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FORWARD-LOOKING STATEMENTS
This annual report contains certain forward-looking statements that involve risks, uncertainties and assumptions that are difficult
to predict. Words and expressions reflecting optimism, satisfaction or disappointment with current prospects, as well as words such as
“believes,” “hopes,” “intends,” “estimates,” “expects,” “projects,” “plans,” “anticipates” and variations thereof, or the use of future tense,
identify forward-looking statements, but their absence does not mean that a statement is not forward-looking. Our forward-looking
statements are not guarantees of performance, and actual results could vary materially from those contained in or expressed by such
statements. In evaluating all such statements, we urge you to specifically consider various risk factors identified in this annual report,
including the matters set forth under the heading “Risk Factors,” any of which could cause actual results to differ materially from those
indicated by our forward-looking statements.
Our forward-looking statements reflect our current views with respect to future events and are based on currently available
financial, economic, scientific, and competitive data and information on current business plans. Forward-looking statements specifically
include statements about leronlimab, its ability to provide health outcomes, the possible results of clinical trials, studies or other programs
or ability to continue those programs, the ability to obtain regulatory approval for commercial sales, the market for actual commercial sales,
and the impact of health epidemics, including the ongoing novel coronavirus disease (“COVID-19”) pandemic, on our business and
operations. You should not place undue reliance on our forward-looking statements, which are subject to risks and uncertainties relating to,
among other things: (i) the regulatory determinations of leronlimab’s efficacy to treat human immunodeficiency virus (“HIV”) patients
with multiple resistance to current standard of care, COVID-19 patients, and metastatic Triple Negative Breast Cancer (“mTNBC”), among
other indications, by the U.S. Food and Drug Administration and various drug regulatory agencies in other countries; (ii) the Company’s
ability to raise additional capital to fund its operations; (iii) the Company’s ability to meet its debt obligations; (iv) the Company’s ability to
enter into partnership or licensing arrangements with third-parties; (v) the Company’s ability to identify patients to enroll in its clinical
trials in a timely fashion; (vi) the Company’s ability to achieve approval of a marketable product; (vii) the design, implementation and
conduct of the Company’s clinical trials; (viii) the results of the Company’s clinical trials, including the possibility of unfavorable clinical
trial results; (ix) the market for, and marketability of, any product that is approved; (x) the existence or development of vaccines, drugs, or
other treatments that are viewed by medical professionals or patients as superior to the Company’s products; (xi) regulatory initiatives,
compliance with governmental regulations and the regulatory approval process; (xii) legal proceedings, investigations or inquiries affecting
the Company or its products; (xiii) general economic and business conditions; (xiv) changes in foreign, political, and social conditions; (xv)
stockholder actions or proposals with regard to the Company, its management, or its board of directors; and (xvi) various other matters,
many of which are beyond the Company’s control. Should one or more of these risks or uncertainties develop, or should underlying
assumptions prove to be incorrect, actual results may vary materially and adversely from those anticipated, believed, estimated, or
otherwise indicated by our forward-looking statements.
We intend that all forward-looking statements made in this annual report on Form 10-K will be subject to the safe harbor
protection of the federal securities laws pursuant to Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), to the
extent applicable. Except as required by law, we do not undertake any responsibility to update these forward-looking statements to take into
account events or circumstances that occur after the date of this annual report. Additionally, we do not undertake any responsibility to
update you on the occurrence of any unanticipated events that may cause actual results to differ from those expressed or implied by these
forward-looking statements.
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Item 1. BUSINESS
Corporate History/Business Overview
PART I
CytoDyn Inc. was originally incorporated under the laws of Colorado on May 2, 2002, under the name RexRay Corporation and,
effective August 27, 2015, was reincorporated under the laws of Delaware. Our principal business office is located at 1111 Main Street,
Suite 660, Vancouver, Washington 98660. Our website can be found at www.cytodyn.com. We will make available on our website, free of
charge, the proxy statements and reports on Forms 8-K, 10-K, and 10-Q that we file with the United States Securities and Exchange
Commission (“SEC”) as soon as reasonably practicable, after such material is electronically filed with or furnished to, the SEC. We do not
intend to incorporate any content from our website into this Form 10-K. Unless the context otherwise requires, references in this annual
report to “CytoDyn,” the “Company,” “we,” “our,” or “us” are to CytoDyn Inc. and its subsidiaries.
The Company is a late-stage biotechnology company focused on the clinical development and potential commercialization of
leronlimab (PRO 140), a CCR5 antagonist to treat human immunodeficiency virus (“HIV”) infection, with the potential for multiple
therapeutic indications. In November 2018, the United States Adopted Names Council adopted “leronlimab” as the official nonproprietary
name for PRO 140. The names leronlimab and PRO 140 will be used interchangeably throughout this Form 10-K. The Company has also
received conditional acceptance by the U.S. Food and Drug Administration (the “FDA”) of the proprietary name Vyrologix (pronounced—
vie-ro-loj-iks) for leronlimab as a combination therapy for highly treatment experienced HIV patients in the United States. In addition, the
Company has also received a notice of allowance from the U.S. Trademark Office for the trademark “Vyrologix”.
The pre-clinical and clinical development of PRO 140 was led by Progenics Pharmaceuticals, Inc. (“Progenics”) through 2011.
The Company acquired the asset from Progenics in October 2012, as described in “PRO 140 Acquisition and Licensing Arrangements”
below. In February 2018, we announced we had met the primary endpoint in our Phase 3 trial for leronlimab as a combination therapy with
HAART for highly treatment-experienced HIV patients and submitted the non-clinical portion of our Biologics License Application
(“BLA”) to the FDA in March 2019. We submitted to the FDA the clinical, along with the Chemistry, Manufacturing, and Controls
(“CMC”), portions of the BLA in April and May of 2020. In July 2020, the Company received a Refusal to File letter from the FDA
regarding its BLA submission requesting additional information. In August and September 2020, the FDA provided written responses to
the Company’s questions and met telephonically with key Company personnel and its clinical research organization concerning its BLA
submission in an effort to clarify and to expedite the resubmission of its BLA for this indication. The deficiencies cited by the FDA in its
July 2020 Refusal to File letter consisted of administrative deficiencies, omissions, corrections to data presentation, and related analyses
and clarifications of manufacturing processes. The Company is working with new consultants to cure the BLA deficiencies and resubmit
the BLA in order to allow the FDA to perform their substantive review. The Company began to resubmit of the BLA in July 2021 and
expected to be completed in October 2021.
To facilitate our clinical research plans and trials, we have engaged various contract research organizations (“CRO”), to provide
comprehensive regulatory and clinical trial management services. We will require a significant amount of additional capital to complete our
clinical trial programs for leronlimab, which are designed to accelerate and maximize the leverage of our multi-pathway approach to
identifying and evaluating multiple opportunities for clinical indications. See “Liquidity and Capital Resources” under the heading
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.
Our current business strategy is to resubmit our BLA to the FDA as soon as possible, to finalize with the FDA our submitted
protocol for a pivotal Phase 3 clinical trial with leronlimab as a monotherapy for HIV patients, to seek emergency use authorization and
approval for leronlimab as a potential therapeutic benefit for COVID-19 patients with mild-to-moderate, severe-to-critical, and long-
haulers indications in the U.S., Brazil, and other countries, to advance our clinical trials with leronlimab for various forms of cancer,
including, among others, our Phase 2 clinical trial for metastatic triple-negative breast cancer and Phase 2 basket trial for 22 solid tumor
cancers, to complete our Phase 2 trial
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for liver fibrosis associated with nonalcoholic steatohepatitis (“NASH”), and to explore other cancer and immunologic indications for
leronlimab. Each of these strategies is described in more detail below.
Leronlimab as a CCR5 Antagonist
We are focused on developing leronlimab, a monoclonal antibody C—C chemokine receptor type 5 (“CCR5”) receptor antagonist,
to be used as a platform drug for various indications. The target of leronlimab is the immunologic receptor CCR5. The CCR5 receptor is a
protein located on the surface of various cells including white blood cells and cancer cells. On white blood cells, it serves as a receptor for
chemical attractants called chemokines. The CCR5 receptor is also the co-receptor needed for certain strains of HIV to infect healthy T-
cells. Recent research has identified the CCR5 receptor as an important target for many disease processes, including cancer metastasis and
certain immunological conditions. Leronlimab is a unique humanized monoclonal antibody. We believe leronlimab prevents certain strains
of HIV from using the CCR5 receptor as an entry gateway for healthy cells. Pre-clinical research has also shown that leronlimab blocks
calcium channel signaling of the CCR5 receptor when present on the cancer cell surface. Calcium channel signaling of the CCR5 receptor
is a crucial component to the spread of metastatic cancer.
Leronlimab binds to the second extracellular loop and N-terminus of the CCR5 receptor, and due to its selectivity and target-
specific mechanism of action, leronlimab does not appear to activate the immune function of the CCR5 receptor through agonist activity.
This apparent target specificity differentiates leronlimab from other CCR5 antagonists. Leronlimab is a competitive rather than allosteric
inhibitor of the CCR5 receptor. Other potential advantages of leronlimab are believed to include longer half-life and less frequent dosing
requirements.
The target of leronlimab is the immunologic receptor CCR5. We believe that the CCR5 receptor is more than the door for HIV to
enter T-cells; it may also be a crucial component in inflammatory responses. This could present the potential for multiple pipeline
opportunities for leronlimab, such as NASH, cancers, and COVID-19, among other indications.
The CCR5 receptor is a protein located on the surface of white blood cells that serves as a receptor for chemical attractants called
chemokines. Chemokines are the key orchestrators of leukocyte trafficking by attracting immune cells to the sites of inflammation. At the
site of an inflammatory reaction, chemokines are released. These chemokines are specific for CCR5 and cause the migration of T-cells to
these sites promoting further inflammation. The mechanism of action of leronlimab has the potential to block the movement of T-cells to
inflammatory sites, which could be instrumental in diminishing or eliminating inflammatory responses. Some disease processes that could
benefit from CCR5 blockade include transplantation rejection, autoimmunity, and chronic inflammation such as rheumatoid arthritis and
psoriasis.
Due to leronlimab’s mechanism of action (“MOA”), we believe leronlimab may have significant advantages in reducing side
effects over other CCR5 antagonists. Prior studies have demonstrated that leronlimab does not cause direct activation of T-cells. The CCR5
receptor has been identified as a target in HIV, GvHD (graft-versus-host disease), NASH, cancer metastasis, transplantation medicine,
multiple sclerosis, traumatic brain injury, stroke recovery, and a variety of inflammatory conditions, including potentially COVID-19.
Leronlimab and Human Immunodeficiency Virus (“HIV”)
We believe the leronlimab antibody shows promise as a powerful antiviral agent with the advantage of fewer side effects, lower
toxicity and less frequent dosing requirements, as compared to daily drug therapies currently in use for the treatment of HIV. The
leronlimab antibody belongs to a class of HIV therapies known as entry inhibitors that block HIV from entering and infecting specific cells.
Leronlimab blocks HIV from entering a cell by binding to a molecule called CCR5, a normal cell surface receptor protein to which certain
strains of HIV, referred to as “R5” strains, attach to as part of HIV’s entry into a cell.
Our clinical trials suggest leronlimab does not appear to affect the normal function of the CCR5 co-receptor for HIV. Instead,
leronlimab binds to a precise site on CCR5 that R5 strains of HIV use to enter the cell and, in doing so, inhibits the ability of these strains
of HIV to infect the cell without appearing to affect the cell’s normal function. The R5
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strains of HIV currently represent approximately 67% of all HIV infections in the United States. As a result, we believe leronlimab
represents a distinct class of CCR5 inhibitors with advantageous virological and immunological properties and may provide a unique tool
to treat HIV-infected patients.
We believe leronlimab is uniquely positioned to address a growing HIV market, as an alternative, or in addition to current
therapies, which are failing primarily due to patient non-compliance, which causes drug resistance. Several factors give rise to patient non-
compliance issues, such as toxicity and side effects, coupled with the need for a strict daily dosing regimen. In nine clinical trials
previously conducted, leronlimab was generally well tolerated, and limited drug-related serious adverse events (“SAEs”), or dose-
proportional adverse events (“AEs”), were reported. In addition, there were no dose-limiting toxicities or patterns of drug-related toxicities
observed during these trials. We believe the results of these trials establish that leronlimab’s antiviral activity is potent, rapid, prolonged,
dose-dependent, and statistically significant following a single dose. Because leronlimab’s mechanism of action (for a monoclonal antibody
use in HIV) is a relatively new therapeutic approach, it provides a potentially advantageous method of suppressing the virus in treatment-
experienced patients who have failed a prior HIV regimen and need new treatment options. We believe leronlimab, as a single agent
therapy, has the potential to replace highly active antiretroviral therapy (“HAART”) altogether for a subpopulation of R5 patients who have
suppressed viral load with HAART, but who are seeking an alternative treatment that affords the patient an improved quality of life, with
the advantages of fewer side effects, lower toxicity and less frequent dosing requirements.
To date, leronlimab has been tested and administered to patients predominantly as a subcutaneous injection. We believe that if
leronlimab is approved by the FDA for use as an injectable for HIV, it may be an attractive and marketable therapeutic option for patients,
particularly in the following scenarios:
•
•
•
•
•
•
Patients desiring a break from existing treatment regimens, whether due to side effects or for any personal reasons;
Patients with difficulty adhering to daily drug regimens;
Patients who poorly tolerate existing therapies;
Patients with compromised organ function, such as hepatitis C (“HCV”) co-infection;
Patients with complex concomitant medical requirements; and
Patients who choose not to start their HAART regimen immediately after being infected with HIV.
Clinical trials for leronlimab have demonstrated potent antiretroviral activity and no drug-related SAEs or dose-proportional AEs.
Consequently, we believe that leronlimab has the potential to be the first long-acting (weekly or every other week), self-administered HIV
therapy. Leronlimab appears to inhibit CCR5-tropic HIV while preserving CCR5’s natural function. As a result, we believe leronlimab
represents a distinct class of CCR5 inhibitors with unique virological and immunological properties and may provide another distinct tool
to treat HIV-infected patients.
Our HIV-related clinical trials and related activities during fiscal 2021, as summarized below, have been designed to demonstrate
the proof of concept that leronlimab as a monotherapy can continue to suppress the viral load in certain HIV-infected, treatment-
experienced patients who had suppressed viral load on HAART, but would like an alternative treatment that provides a higher quality of life
with one dose a week through a self-injection. Once the viral load is undetectable, weekly administration of leronlimab could potentially
help maintain the suppressed viral load in a subpopulation of R5 patients over an extended period, as currently shown in our Phase 2b
extension study to be over approximately seven years.
In 2016, we initiated a pivotal Phase 3 trial for leronlimab as a combination therapy with existing HAART drug regimens for
highly treatment-experienced HIV patients. The trial was completed in February 2018 and achieved its primary endpoint with a p-value of
0.0032. Most of the patients who completed this trial have transitioned to an FDA-cleared rollover study, as requested by the treating
physicians, to enable them to have continued access to leronlimab. An open label arm continued to enroll five more patients after the trial
was concluded. The trial is the basis for our BLA submission with the FDA. We submitted the non-clinical portion of the BLA to the FDA
in March 2019. We submitted to the FDA the clinical and CMC portions of the BLA in April and May of 2020. In July 2020, we received a
Refusal to File letter from the FDA regarding the BLA submission requesting additional information. In August and September 2020, the
FDA provided written responses to the Company’s questions and met telephonically with key Company
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personnel and its clinical research organization concerning the BLA. The Company began to resubmit the BLA in July 2021 and is
expected to be completed in October 2021.
Importantly, and in parallel with the submission of our pivotal trial protocol for monotherapy, we recently announced the
completion of the development of a receptor occupancy assay to measure the expression of CCR5 in HIV and tumor cells that are occupied
by leronlimab. The development of this test could more precisely guide us in the identification of HIV patients at screening for
monotherapy, thereby potentially improving therapeutic success, along with further identifying cancer-patient candidates who have a form
of cancer that CCR5 is over expressed.
Rollover Study for HIV, as Combination Therapy
This study is designed for patients who successfully completed the pivotal Phase 3 combination therapy trial and for whom the
treating physicians request a continuation of leronlimab therapy to maintain suppressed viral load. This extension study will be
discontinued upon any FDA approval of leronlimab. Some of the patients are now reaching four years of treatment in this extension arm.
Phase 2b Extension Study for HIV, as Monotherapy
There are five patients in this ongoing extension study, and each has reached close to seven years of suppressed viral load with
leronlimab as a single agent therapy. This extension study will be discontinued in the event of FDA approval, if any, of leronlimab for this
indication.
Phase 2b/3 Investigative Trial for HIV, as Long-term Monotherapy
Enrollment for this trial closed after reaching over 560 patients. This trial assessed the subcutaneous use of leronlimab as long-
acting single-agent maintenance therapy for 48 weeks in patients with suppressed viral load with CCR5 tropic HIV-1 infection. The
primary endpoint is the proportion of participants with a suppressed viral load to those who experienced virologic failure (virologic failure
defined as two consecutive viral load readings over 200 cp/mL). The secondary endpoint is the length of time to virologic failure. We
completed the evaluation of two higher-dose arms, one with a 525 mg dose (a 50% increase from the original dosage of 350 mg), as well as
a 700 mg dose (a 100% increase from the original dosage of 350 mg). We reported in August 2019 that interim data suggested both the 525
mg and the 700 mg dosages were achieving a responder rate of approximately 90% after the initial 10 weeks of monotherapy (defined as
induction period). This trial has also been used to provide safety data for our BLA submission for leronlimab as a combination therapy.
Given the high responder rate at the increased dosage levels, coupled with the newly developed CCR5 occupancy test, we filed a pivotal
trial protocol with the FDA for leronlimab as monotherapy with 700 mg dose in May 2019. Many patients who completed the Phase 2b/3
trial and requested continued access to leronlimab are continuing in an extension study.
Phase 2b/3 Extension of the Investigative Trial for HIV, as Long-term Monotherapy
Many patients requested to continue on monotherapy with leronlimab upon successful completion of the Phase 2b/3, 48-week
trial. Over 40 patients were given access to this trial and many have continued on this protocol for more than three years.
Leronlimab and Coronavirus Disease 2019
SARS-CoV-2 was identified as the cause of an outbreak of respiratory illness first detected in Wuhan, China. The origin of SARS-
CoV-2 causing the COVID-19 disease is uncertain, and the virus is highly contagious. COVID-19 typically transmits person to person
through respiratory droplets, commonly resulting from close personal contact. Coronaviruses are a large family of viruses, some causing
illness in people and others that circulate among animals. For confirmed COVID-19 infections, symptoms have included fever, cough, and
shortness of breath, amongst many others. The symptoms of COVID-19 may appear in as few as two days or as long as 14 days after
exposure. Clinical manifestations in patients have ranged from non-symptomatic to severe and fatal. At this time, outside of current
experimental vaccines there are minimal effective treatment options for COVID-19.
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Based upon analyses of leronlimab’s potential effect on the immune system and the results from over 60 Emergency Investigation
New Drug (“EIND”) authorizations provided by the FDA, the Company conducted three clinical trials for COVID-19 during fiscal 2021: a
Phase 2 randomized clinical trial for mild-to-moderate COVID-19 population in the U.S., a Phase 3 randomized clinical trial for severe-to-
critically ill COVID-19 population in several hospitals throughout the U.S. and, a Phase 2 investigative trial for long-haulers, as discussed
in more detail below.
Phase 2 Trial to Evaluate the Efficacy and Safety of Leronlimab for Mild-to-Moderate COVID-19 (CD10)
This two-arm, randomized, double-blind, placebo-controlled multicenter study to evaluate the safety and efficacy of leronlimab in
patients with mild-to-moderate symptoms of respiratory illness caused by COVID-19 infection was completed in July 2020. Patients were
randomized to receive weekly doses of 700 mg leronlimab or placebo (two doses of 700 mg of leronlimab or placebo at day 0 and day 7).
Leronlimab and placebo were administered via subcutaneous injection. The study had three phases: screening period, treatment period, and
follow-up period. A total of 86 subjects were randomized 2:1 (active drug to placebo) in this study. The primary outcome measures were a
clinical improvement as assessed by a change in total symptom score (for fever, myalgia, dyspnea, and cough). Secondary outcome
measures included: (1) time to clinical resolution, (2) change from baseline in National Early Warning Score 2 (NEWS2), developed by the
Royal College of Physicians in the U.S., (3) change from baseline in pulse oxygen saturation, (4) change from baseline in the patient’s
health status on a 7 category ordinal scale, (5) incidence of hospitalization, (6) duration (days) of hospitalization, (7) incidence of
mechanical ventilation supply, (8) duration (days) of mechanical ventilation supply, (9) incidence of oxygen use, (10) duration (days) of
oxygen use, (11) mortality rate, and (12) time to return to normal activity. Enrollment was completed in July 2020, and the Company
reported positive tolerability results. The top-line report from the trial, including efficacy and complete safety data, showed that the trial did
not achieve its designated primary or secondary endpoints, but we believe demonstrated clinical improvement at Day 3 compared to Day 0
for leronlimab versus placebo and statistically significant results for the secondary outcome for NEWS2 and was submitted to the FDA in
August 2020.
Phase 3 Trial to Evaluate the Efficacy and Safety of Leronlimab for Patients with Severe-to-Critical COVID-19 (CD12)
This was a two-arm, randomized, double-blind, placebo-controlled, adaptive design multicenter study to evaluate the safety and
efficacy of leronlimab in patients with severe-to-critical symptoms of respiratory illness caused by COVID-19. Patients were randomized to
receive weekly doses of 700 mg leronlimab or placebo (two doses of 700 mg of leronlimab or placebo at day 0 and day 7). Leronlimab and
placebo were administered via subcutaneous injection. The study had three phases: screening period, treatment period, and follow-up
period. The primary outcome measured in this study was all-cause mortality at Day 28. Secondary outcomes measured were: (1) all-cause
mortality at Day 14, (2) change in clinical status of subject at Day 14, (3) change in clinical status of subject at Day 28, and (4) change
from baseline in Sequential Organ Failure Assessment (SOFA) score at Day 14. In August 2020, the Data Safety Monitoring Committee, or
DSMC, reviewed compiled safety data from 149 of the 169 patients enrolled in the Phase 3 trial. The DSMC did not raise any safety
concerns and recommended that the trial continue without modification. In October 2020, the DSMC for the ongoing Phase 3 trial
completed its interim analysis of the data from the first 195 patients, recommended that the trial continue without modification, and
requested another interim analysis when enrollment reached the 75% level to review patient mortality and other clinical outcome data
between the two study arms. The Company completed enrollment in December 2020 with 394 patients and, accordingly, the last patient
enrolled reached 28 days in mid-January 2021. We believe the results for a sub-population of 384 patients (mITT, modified intent to treat)
may provide the basis for regulatory approval in one or more countries. This trial did not meet its designated primary or secondary
endpoints, but the sub-population provided one statistically significant result for secondary endpoint. The FDA has requested an additional
study of a larger population of mechanically ventilated critically ill COVID-19 patients. The Company has also supplied trial results to
health authorities in Canada, the U.K., Philippines, Brazil and India. The Company is seeking an Emergency Use Authorization (“EUA”)
with Health Canada (via a request for Interim Order) and in the U.K., but both require additional trial data. In March 2021, the Philippines
FDA granted a Compassionate Special Permit for leronlimab for the treatment of COVID-19 and the Company has since delivered
leronlimab to a Philippines hospital to be administered to an additional 28 patients under a new CSP.
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FDA Statement on Certain of Our COVID-19 Trials
On May 17, 2021, FDA issued a statement on its website responding to certain of our public communications related to our
ongoing CD10 and CD12 clinical trials to investigate the safety and efficacy of leronlimab for the treatment of COVID-19. In that
statement, FDA stated that the data currently available do not support the clinical benefit of leronlimab for the treatment of COVID-19.
With respect to the CD10 study, FDA stated that there was no observed effect of leronlimab on the trial’s primary endpoint or on
any of the secondary endpoints. The FDA found that the CD10 trial results showed no clinically meaningful differences in average change
in “total clinical symptom score,” the measure used to evaluate the primary endpoint of the CD10 study, from baseline to Day 14 between
study arms (-3.5 in the leronlimab group versus -3.4 in the placebo group). Additionally, FDA stated that none of the secondary endpoints
were met in this study, including mortality, time to symptom resolution, and time to return to normal activity.
The FDA reached the same conclusion for the CD12 study. The FDA stated that the CD12 trial failed to demonstrate any effect
of leronlimab on the trial’s primary endpoint, with no difference seen in mortality (20.5% in the leronlimab treatment group and 21.6% in
the placebo treatment group); or on any of the trial’s secondary endpoints, with no difference on the average length of hospitalization (21.4
days in both the leronlimab and the placebo treatment groups).
In response to our review and reports of analysis of data from subgroups from the CD12 trial, FDA stated that subgroup analyses
have well-established limitations, especially in the context of a clinical trial that has failed to show a benefit in the overall study population.
The agency indicated that data from CD12 illustrated imbalances in mortality among subgroups, some favoring leronlimab and some
favoring placebo. The FDA concluded that none of these analyses met statistical significance when using established and reliable analytical
methods that correct for multiple comparisons.
In closing, FDA stated that subgroup analyses may inform the design of future clinical trials investigating leronlimab for the
treatment of COVID-19. And, that if we plan further trials of leronlimab to determine whether the product candidate can provide clinical
benefit to individuals with COVID-19, FDA will continue to provide advice to us on our development program.
Phase 2 Investigational Trial to Evaluate the Efficacy and Safety of Leronlimab for Patients with Post-acute Sequelae of SARS COV-2
(PASC), also known as COVID-19 Long-Haulers (CD15)
In calendar 2021, the Company initiated a Phase 2 investigative trial for post-acute sequelae of SARS COV-2 (PASC), also known
as COVID-19 Long-Haulers, which was completed in July 2021. This trial evaluated the effect of leronlimab on clinical symptoms and
laboratory biomarkers to further understand the pathophysiology of PASC. This small investigative trial of 56 patients was not designed to
show statistically significant differences due to the small sample size of the patients, but we believe potentially clinically meaningful
improvements in leronlimab over placebo were observed for several symptoms. Preliminary results from the trial suggested leronlimab
improved a majority of clinical symptoms with a Top-line Report expected to be issued after this filing. It is currently estimated that
between 10-30% of those infected with COVID-19 develop long-term sequelae. Common symptoms include fatigue, cognitive impairment,
sleep disorders, and shortness of breath. If this trial is successful, the Company plans to pursue additional clinical trials to evaluate
leronlimab’s effect on immunological dysregulation in other post-viral syndromes, including myalgic encephalomyelitis/chronic fatigue
syndrome (ME/CFS).
Leronlimab and Cancer
Research indicates that the CCR5 receptor is the “GPS” system of a cancer cell that promotes metastatic disease. Pre-clinical
studies have shown that leronlimab blocks the calcium channel signaling of the CCR5 receptor and has the potential to disable the GPS
system. CCR5 inhibition may disrupt signaling and ultimately the spread of CCR5+ Circulating Tumor Cells (“CTCs”). Current therapies
are directed to the primary tumor, rather than the movement or
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spread of cancer in the bloodstream. Metastatic disease, not the primary tumor, is the cause of death in most of cancer patients.
Research has shown that most sampled patients in certain studies had increased CCR5 expression in their breast cancer. Increased
CCR5 expression is an indicator of disease status in several cancers. Research has shown three key properties of the CCR5’s mechanism of
action (“MOA”) in cancer. The first is that the CCR5 receptor on cancer cells was responsible for the migration and invasion of cells into
the bloodstream, which leads to metastasis of breast, prostate, and colon cancer. The second is that blocking the CCR5 receptor also turns
on anti-tumor fighting properties restoring immune function. The third key finding was that blockage of the CCR5/CCL5 interaction had a
synergistic effect with chemotherapeutic therapy and controlled cancer progression. Chemotherapy traditionally increased expression of
CCR5, so blocking it is expected to reduce the levels of invasion and metastasis.
In late November 2018, we received FDA approval of our Investigational New Drug application (“IND”) submission and
subsequently initiated a Phase 1b/2 clinical trial for metastatic Triple-Negative Breast Cancer (“mTNBC”) patients. We have reported that
our pre-clinical research with leronlimab reduced by more than 98% the incidence of human breast cancer metastasis in a mouse xenograft
model for cancer through six weeks with leronlimab. The temporal equivalency of the murine 6 weeks study may be up to 6 years in
humans. In May 2019, the FDA granted Fast Track designation for leronlimab for use in combination with carboplatin to treat patients with
CCR5-positive mTNBC.
We conducted three clinical trials for cancer indications during fiscal 2021, as follows:
Phase 2 Trial for Triple-Negative Breast Cancer.
This trial evaluates the feasibility of leronlimab in combination with carboplatin in patients with CCR5+ mTNBC. This trial has
advanced from a Phase 1b/2 to Phase 2. The Phase 2 trial is a single arm study with 30 patients to test the hypothesis that the combination
of carboplatin intravenously and maximum tolerated dose of leronlimab subcutaneously will increase progression free survival. The change
in circulating tumor cells (“CTCs”) was evaluated every 21 days during treatment and will be used as an initial prognostic marker for
efficacy. The first patient was treated in September 2019, and the Company reported encouraging initial results from the first patient in
November 2019. In January 2020, the Company filed for Breakthrough Therapy designation (“BTD”) with the FDA to use leronlimab as
adjuvant therapy for the treatment of mTNBC. The FDA requested the Company to file for a pre-BTD meeting due to the small number of
patients.
Compassionate Use Study of Leronlimab in Breast Cancer
This is a single-arm, compassionate use study with 30 patients for leronlimab combined with a treatment of Physician’s Choice
(TPC) in patients with CCR5+ mTNBC. Leronlimab will be administered subcutaneously as a weekly dose of 350 mg until disease
progression or intolerable toxicity. Based on our success in the Phase 1b/2 mTNBC trial with 350 mg dose, we were able to transition the
compassionate use patients to 525 mg dose. TPC is defined as one of the following single-agent chemotherapy drugs administrated
according to local practice: eribulin, gemcitabine, capecitabine, paclitaxel, nab-paclitaxel, vinorelbine, ixabepilone, or carboplatin. In this
study, patients will be evaluated for tumor response approximately every three months or according to the institution’s standard practice by
CT, PET/CT or MRI with contrast (per treating investigator’s discretion) using the same method as at baseline.
Basket Trial for 22 Solid Tumor Cancers
This is a Phase 2 trial to test the safety and efficacy of leronlimab on 22 different solid tumor cancers, including brain-
glioblastoma, melanoma, lung, breast, ovarian, pancreas, bladder, throat, stomach, colon, testicular, uterine, among other indications. The
first patient was treated in April 2020. Nine patients either reached one year or surpassed one year of treatment with leronlimab. The trial
will conclude in 2021. A planned trial relating to colorectal cancer was combined into this trial.
Emergency IND Use Study of Leronlimab in Breast Cancer
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One patient was administered leronlimab with stage 4 HER2 + breast cancer with metastasis to liver, lung, and brain. The patient
received her first dose in November 2019 and still is still receiving 700 mg of leronlimab every week.
Leronlimab and Immunological Applications
The target of leronlimab is the immunologic receptor CCR5. We believe that the CCR5 receptor is more than the door for HIV to
enter T-cells; it is also a crucial component in inflammatory responses, which could present a potential for multiple pipeline opportunities
for leronlimab.
The CCR5 receptor is a protein located on the surface of white blood cells that serves as a receptor for chemical attractants called
chemokines. Chemokines are the key orchestrators of leukocyte trafficking by attracting immune cells to the sites of inflammation. At the
site of an inflammatory reaction, chemokines are released. These chemokines are specific for CCR5 and cause the migration of T-cells to
these sites promoting further inflammation. The mechanism of action of leronlimab has the potential to block the movement of T-cells to
inflammatory sites, which could be instrumental in diminishing or eliminating inflammatory responses. Some disease processes that could
benefit from CCR5 blockade include transplantation rejection, autoimmunity, and chronic inflammation, such as rheumatoid arthritis and
psoriasis.
Due to leronlimab’s MOA, we believe leronlimab may have significant advantages in terms of reduced side effects over other
CCR5 antagonists. Prior studies have demonstrated that leronlimab does not cause direct activation of T-cells.
We are also conducting a Phase 2 trial with leronlimab to prevent the progression of Non-Alcoholic Fatty Liver Disease
(“NAFLD”) into Non-Alcoholic Steatohepatitis (“NASH”). NAFLD is an inflammatory disease caused by the build-up of fat in
hepatocytes (steatosis). In severe cases, NAFLD progresses into NASH. It is estimated that 30% to 40% of adults in the United States
have NAFLD, while 3% to 12% of adults in the United States have NASH. If left untreated, NASH may progress to hepatocellular
carcinoma and is expected to become the leading cause of liver transplantation.
In October 2019, the FDA granted clearance to CytoDyn to proceed with a Phase 2 study to test whether leronlimab may control
the effects of liver fibrosis associated with NASH. This trial is designed to be a 60 patient, multi-center, randomized, double-blind,
placebo-controlled Phase 2 clinical study of the safety and efficacy of leronlimab in adult patients with NASH. The first patient was
enrolled in December 2020 and enrollment is ongoing.
PRO 140 Acquisition and Licensing Arrangements
We originally acquired leronlimab, as well as certain other related assets, including the existing inventory of PRO 140 bulk drug
substance, intellectual property, and FDA regulatory filings, pursuant to an Asset Purchase Agreement, dated as of July 25, 2012, and
effective October 16, 2012 (the “Progenics Purchase Agreement”), between CytoDyn and Progenics. Pursuant to the Progenics Purchase
Agreement, we are required to pay Progenics a remaining milestone payment and royalties as follows: (i) $5,000,000 at the time of the first
U.S. new drug application approval by the FDA or other non-U.S. approval for the sale of leronlimab; and (ii) royalty payments of up to
5% on net sales during the period beginning on the date of the first commercial sale of leronlimab until the later of (a) the expiration of the
last to expire patent included in the acquired assets, and (b) 10 years, in each case determined on a country-by-country basis. To the extent
that such remaining milestone payment and royalties are not timely made, under the terms of the Progenics Purchase Agreement, Progenics
has certain repurchase rights relating to the assets sold to us thereunder.
Payments to Progenics are in addition to payments due under a Development and License Agreement, dated April 30, 1999 (the
“PDL License”), between Protein Design Labs (now AbbVie Inc.) and Progenics, which was assigned to us in the Progenics Purchase
Agreement, pursuant to which we have an exclusive worldwide license to develop, make, have made, import, use, sell, offer to sell or have
sold products that incorporate the humanized form of the leronlimab antibody developed under the agreement. Pursuant to the PDL
License, we are required to pay AbbVie Inc. remaining milestone payments and royalties as follows: (i) $500,000 upon filing a Biologic
License Application with the FDA or non-U.S. equivalent regulatory body; (ii) $500,000 upon FDA approval or approval by
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another non-U.S. equivalent regulatory body; and (iii) royalties of up to 3.5% of net sales for the longer of 10 years and the date of
expiration of the last to expire licensed patent. Additionally, the PDL License provides for an annual maintenance fee of $150,000 until
royalties paid exceed that amount. To the extent that such remaining milestone payments and royalties are not timely made, under the terms
of the PDL License, AbbVie Inc. has certain termination rights relating to our license of leronlimab thereunder.
Effective July 29, 2015, we entered into a License Agreement (the “Lonza Agreement”) with Lonza Sales AG (“Lonza”) covering
Lonza’s “system know-how” technology with respect to our use of proprietary cell lines to manufacture new leronlimab material. The
Lonza Agreement provides for an annual license fee and future royalty payments, both of which varies based on whether Lonza, or we or
our strategic partner manufactures leronlimab. We currently use two independent parties as contract manufacturers for leronlimab.
Therefore, if this arrangement continues, an annual license fee of £0.6 million (approximately $0.8 million given current exchange rate)
would continue to apply, as well as a royalty, up to 2% of the net selling price upon commercialization of leronlimab, excluding value
added taxes and similar amounts.
Patents, Proprietary Technology and Data Exclusivity
Protection of the Company’s intellectual property rights is important to our business. We may file patent applications in the U.S.,
Canada, China, and Japan, European countries that are party to the European Patent Convention and other countries on a selective basis in
order to protect inventions we consider to be important to the development of our business.
Generally, patents issued in the U.S. are effective for either (i) 20 years from the earliest asserted filing date, if the application was
filed on or after June 8, 1995, or (ii) the longer of 17 years from the date of issue or 20 years from the earliest asserted filing date, if the
application was filed prior to that date. A U.S. patent, to be selected by us upon receipt of FDA regulatory approval, may be subject to up to
a five-year patent term extension in certain instances. While the duration of foreign patents varies in accordance with the provisions of
applicable local law, most countries provide for a patent term of 20 years measured from the application filing date and some may also
allow for patent term extension to compensate for regulatory approval delay. We pursue opportunities for seeking new meaningful patent
protection on an ongoing basis. We currently anticipate, absent patent term extension, patent protection relating to the leronlimab antibody
itself will start to expire in 2023, certain methods of using leronlimab for treatment of HIV-1 will start to expire in 2026, certain methods of
using small-molecule CCR5 antagonists for treatment of cancer metastasis will start to expire in 2032, and certain methods of using
leronlimab (PRO 140) for treatment of COVID-19 will start to expire in 2040.
Patents do not enable us to preclude competitors from commercializing drugs in direct competition with our products that are not
covered by granted and enforceable patent claims. Consequently, patents may not provide us with any meaningful competitive advantage.
See related risk factors under the heading “Risk Factors” below. We may also rely on data exclusivity, trade secrets and proprietary know-
how to develop and attempt to achieve a competitive position with our product candidates. We require our employees, consultants and
partners who have access to our proprietary information to sign confidentiality agreements in an effort to protect our intellectual property.
Separate from and in addition to the patent rights noted above, we expect that leronlimab will be subject to at least a 12-year
market and data exclusivity period measured from the first date of FDA licensure, during which period no other applications referencing
leronlimab will be approved by FDA. Further, no other applications referencing leronlimab will be accepted by FDA for a 4-year period
measured from the first date of FDA licensure. Accordingly, this period of regulatory exclusivity is expected to provide at least a 12-year
term of protection against competing products shown to be biosimilar or interchangeable with leronlimab. Similar data exclusivity or data
protection periods of up to about five years or more are provided in at least Australia, Canada, Europe, Japan, and New Zealand.
We note that data exclusivity is not an extension of patent rights, and it does not prevent the introduction of generic versions of the
innovative drug during the data exclusivity period, as long as the marketing approval of the generic version does not use or rely upon the
innovator’s test data. Patents and data exclusivity are different concepts, protect different subject matter, arise from different efforts, and
have different legal effects over different time periods.
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Information with respect to our current patent portfolio as of June 30, 2021, is set forth below.
Leronlimab (PRO 140) product candidate(2)
Methods of treatment by indication (e.g., HIV-1; COVID-
19; GvHD) (2)
Methods of treatment – Cancer involving leronlimab (PRO
140 and/or anti-CCR5 small molecules) (2)
Mouse Model(2)
4
6
2
-
Number of Patents
U.S.
International
Number of Patent
Applications
Expiration Dates(1)
2023-2032
U.S. International
3
1
37
12
2022-2041
11
13
-
2032-2033
-
4
1
21
9
1
(1) Patent term extensions and pending patent applications may extend periods of patent protection.
(2) Leronlimab (PRO 140) patents and applications relate to the antibody, formulations, and HIV-1, COVID-19, immunomodulation and
GvHD treatments. Additional patents and applications relate to methods of treating cancer and include filings directed towards
leronlimab (PRO 140) and/or anti-CCR5 small molecules.
Research, development and commercialization of a biopharmaceutical product often require choosing between alternative
development and optimization routes at various stages in the development process. Preferred routes depend upon current—and may be
affected by subsequent—discoveries and test results, availability of financial resources, and other factors, and cannot be identified with
certainty. There are numerous third-party patents in fields in which we work, and we may need to obtain licenses under patents of others in
order to pursue a preferred development route of one or more of our product candidates. The need to obtain a license would decrease the
ultimate value and profitability of an affected product. If we cannot negotiate such a license, we might have to pursue a less desirable
development route or terminate the program altogether. See “Risk Factors” below.
Government Regulation
The research, development, testing, manufacture, quality control, packaging, labeling, storage, record-keeping, distribution,
import, export, promotion, advertising, marketing, sale, pricing and reimbursement of pharmaceutical products are extensively regulated by
governmental authorities in the United States and other countries. The processes for obtaining regulatory approvals in the United States and
in foreign countries and jurisdictions, along with compliance with applicable statutes and regulations and other regulatory requirements,
both pre-approval and post-approval, require the expenditure of substantial time and financial resources. The regulatory requirements
applicable to product development, approval and marketing are subject to change, and regulations and administrative guidance often are
revised or reinterpreted by the agencies in ways that may have a significant impact on our business.
Licensure and Regulation of Biological Products in the United States
In the United States, the FDA regulates human drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and in the
case of biological products, also under the Public Health Service Act, or the PHSA, and their implementing regulations. We believe that our
products will be regulated as biological products, or biologics. The failure to comply with the applicable U.S. requirements may result in
FDA refusal to approve pending BLAs or delays in development and may subject an applicant to administrative or judicial sanctions, such
as issuance of warning letters, or the imposition of fines, civil penalties, product recalls, product seizures, total or partial suspension of
production or distribution, injunctions and/or civil or criminal prosecution brought by the FDA and the U.S. Department of Justice or other
governmental entities.
The FDA must approve our product candidates for therapeutic indications before they may be marketed in the United States. For
biologic products, the FDA must approve a BLA. An applicant seeking approval to market and distribute a new biologic in the United
States generally must satisfactorily complete each of the following steps:
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•
•
•
•
•
•
•
•
•
completion of pre-clinical laboratory tests, animal studies and formulation studies according to good laboratory practices, or GLP,
regulations or other applicable regulations;
submission to the FDA of an IND, which must become effective before human clinical trials may begin and must be updated
when certain changes are made;
approval by an independent institutional review board, or IRB, or ethics committee representing each clinical trial site before each
clinical trial may be initiated;
performance of adequate and well-controlled human clinical trials in accordance with applicable IND regulations, good clinical
practices, or GCPs, and other clinical-trial related regulations to evaluate the safety and efficacy of the investigational product for
each proposed indication;
preparation and submission to the FDA of a BLA requesting marketing approval for one or more proposed indications, including
payment of application user fees;
review of the BLA by an FDA advisory committee, where applicable;
satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the biologic is
produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to
preserve the product’s identity, strength, quality and purity;
satisfactory completion of any FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical
data submitted in support of the BLA; and
FDA review and approval of the BLA, which may be subject to additional post- approval requirements, including the potential
requirement to implement a REMS, and any post- approval studies required by the FDA.
Pre-clinical Studies
Before an applicant begins testing a product candidate with potential therapeutic value in humans, the product candidate enters the
pre-clinical testing stage. Pre-clinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as other
studies to evaluate, among other things, the toxicity of the product candidate. The conduct of the pre-clinical tests and formulation of the
compounds for testing must comply with federal regulations and requirements, including GLP regulations and standards. The results of the
pre-clinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND. Some long-
term pre-clinical testing, such as animal tests of reproductive adverse events and carcinogenicity, and long-term toxicity studies, may
continue after the IND is submitted.
The IND and IRB Processes
An IND is an exemption from the FDCA that allows an unapproved product candidate to be shipped in interstate commerce for
use in an investigational clinical trial and a request for FDA authorization to administer such investigational product to humans. Such
authorization must be secured prior to interstate shipment and administration of any product candidate that is not the subject of an approved
NDA. In support of a request for an IND, applicants must submit a protocol for each clinical trial and any subsequent protocol amendments
must be submitted to the FDA as part of the IND. The FDA requires a 30-day waiting period after the filing of each IND before clinical
trials may begin. This waiting period is designed to allow the FDA to review the IND to determine whether human research subjects will be
exposed to unreasonable health risks. At any time during this 30-day period, or thereafter, the FDA may raise concerns or questions about
the conduct of the trials as outlined in the IND and impose a clinical hold or partial clinical hold. In this case, the IND sponsor and the FDA
must resolve any outstanding concerns before clinical trials can begin.
Following commencement of a clinical trial under an IND, the FDA may also place a clinical hold or partial clinical hold on that
trial. A clinical hold is an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing
investigation. A partial clinical hold is a delay or suspension of only part of the clinical work requested under the IND. For example, a
partial clinical hold might state that a specific protocol or part of a protocol may not proceed, while other parts of a protocol or other
protocols may do so. No more than 30 days after the imposition of a clinical hold or partial clinical hold, the FDA will provide the sponsor
a written explanation of the basis for the hold. Following the issuance of a clinical hold or partial clinical hold, a clinical investigation may
only resume once the FDA has notified the sponsor that the investigation may proceed. The FDA will base that determination on
information provided by the sponsor correcting the deficiencies previously cited or otherwise satisfying the FDA that the investigation can
proceed or recommence.
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A sponsor may choose, but is not required, to conduct a foreign clinical study under an IND. When a foreign clinical study is
conducted under an IND, all IND requirements must be met unless waived by the FDA. When a foreign clinical study is not conducted
under an IND, the sponsor must ensure that the study complies with certain regulatory requirements of the FDA in order to use the study as
support for an IND or application for marketing approval. Specifically, the studies must be conducted in accordance with GCP, including
undergoing review and receiving approval by an independent ethics committee, or IEC, and seeking and receiving informed consent from
subjects. The GCP requirements in the final rule encompass both ethical and data integrity standards for clinical studies. The FDA’s
regulations are intended to help ensure the protection of human subjects enrolled in non-IND foreign clinical studies, as well as the quality
and integrity of the resulting data.
In addition to the foregoing IND requirements, an IRB representing each institution participating in the clinical trial must review
and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and
reapprove the study at least annually. The IRB, which must operate in compliance with FDA regulations, must review and approve, among
other things, the study protocol and informed consent information to be provided to study subjects. An IRB can suspend or terminate
approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the
IRB’s requirements or if the product candidate has been associated with unexpected serious harm to patients.
Additionally, some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data
safety monitoring board, or DSMB. This group provides authorization as to whether or not a trial may move forward at designated
checkpoints based on review of available data from the study, to which only the DSMB maintains access. Suspension or termination of
development during any phase of a clinical trial can occur if the DSMB determines that the participants or patients are being exposed to an
unacceptable health risk. Other reasons for suspension or termination may be made by us based on evolving business objectives and/or
competitive climate.
Information about clinical trials must be submitted within specific timeframes to the National Institutes of Health, or NIH, for
public dissemination on its ClinicalTrials.gov website.
Emergency Use INDs
In some cases, the need for an investigational drug or biologic may arise in an emergency situation that does not allow time for
submission of an IND. In such a case, FDA may authorize shipment of the test article in advance of the IND submission. Requests for such
authorization may be made by telephone or other rapid communication means. Specifically, the FDA defines emergency use as the use of
an investigational drug or biological product with a human subject in a life-threatening situation in which no standard acceptable treatment
is available and in which there is not sufficient time to obtain IRB approval. The emergency use provision in the FDA regulations is an
exemption from prior review and approval by the IRB. The exemption, which may not be used unless all of the conditions described in
FDA’s regulations exist, allows for one emergency use of a test article without prospective IRB review. The FDA regulations generally
require that any subsequent use of the investigational product at the institution have prospective IRB review and approval.
For the purposes of this exemption, FDA has defined life-threatening to include diseases or conditions where the likelihood of
death is high unless the course of the disease is interrupted and diseases or conditions with potentially fatal outcomes, where the end point
of clinical trial analysis is survival. The criteria for life-threatening do not require the condition to be immediately life-threatening or to
immediately result in death. Rather, the subjects must be in a life-threatening situation requiring intervention before review at a convened
meeting of the IRB is feasible. Institutional procedures may require that the IRB be notified prior to such use, however, this notification
should not be construed as an IRB approval.
Even for an emergency use, the investigator is required to obtain informed consent of the subject or the subject's legally authorized
representative unless both the investigator and a physician who is not otherwise participating in the clinical investigation certify in writing
all of the following: (a) the subject is confronted by a life-threatening situation necessitating the use of the test article; (b) informed consent
cannot be obtained because of an inability to communicate with, or obtain legally effective consent from, the subject; (c) time is not
sufficient to obtain consent from the subject's
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legal representative; and (d) no alternative method of approved or generally recognized therapy is available that provides an equal or
greater likelihood of saving the subject's life. If, in the investigator's opinion, immediate use of the test article is required to preserve the
subject's life, and if time is not sufficient to obtain an independent physician's determination that the four conditions above apply, the
clinical investigator should make the determination and, within 5 working days after the use of the article, have the determination reviewed
and evaluated in writing by a physician who is not participating in the clinical investigation. The investigator must notify the IRB within 5
working days after the use of the test article.
Expanded Access
Expanded access, sometimes called “compassionate use,” is the use of investigational new drug products outside of clinical trials
to treat patients with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory alternative
treatment options. The rules and regulations related to expanded access are intended to improve access to investigational drugs for patients
who may benefit from investigational therapies. FDA regulations allow access to investigational drugs under an IND by the company or the
treating physician for treatment purposes on a case-by-case basis for: individual patients (single-patient IND applications for treatment in
emergency settings and non-emergency settings); intermediate-size patient populations; and larger populations for use of the drug under a
treatment protocol or Treatment IND Application.
When considering an IND application for expanded access to an investigational product with the purpose of treating a patient or a
group of patients, the sponsor and treating physicians or investigators will determine suitability when all of the following criteria apply:
patient(s) have a serious or immediately life-threatening disease or condition, and there is no comparable or satisfactory alternative therapy
to diagnose, monitor, or treat the disease or condition; the potential patient benefit justifies the potential risks of the treatment and the
potential risks are not unreasonable in the context or condition to be treated; and the expanded use of the investigational drug for the
requested treatment will not interfere with the initiation, conduct or completion of clinical investigations that could support marketing
approval of the product or otherwise compromise the potential development of the product.
There is no obligation for a sponsor to make its drug products available for expanded access; however, as required by the 21st
Century Cures Act, or Cures Act, passed in 2016, if a sponsor has a policy regarding how it responds to expanded access requests, it must
make that policy publicly available. Sponsors are required to make such policies publicly available upon the earlier of initiation of a Phase
2 or Phase 3 study; or 15 days after the investigational drug or biologic receives designation as a breakthrough therapy, fast track product,
or regenerative medicine advanced therapy.
In addition, 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 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 manufacturer to make
its 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.
Human Clinical Trials in Support of an NDA
Clinical trials involve the administration of the investigational product candidate to human subjects under the supervision of a
qualified investigator in accordance with GCP requirements which include, among other things, the requirement that all research subjects
provide their informed consent in writing before they participate in any clinical trial. Clinical trials are conducted under written clinical trial
protocols detailing, among other things, the objectives of the study, inclusion and exclusion criteria, the parameters to be used in
monitoring safety and the effectiveness criteria to be evaluated.
Human clinical trials are typically conducted in three sequential phases, but the phases may overlap or be combined. Additional
studies may also be required after approval.
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Phase 1 clinical trials are initially conducted in a limited population to test the product candidate for safety, including adverse
effects, dose tolerance, absorption, metabolism, distribution, excretion and pharmacodynamics in healthy humans or in patients. During
Phase 1 clinical trials, information about the product candidate’s pharmacokinetics and pharmacological effects may be obtained to permit
the design of well-controlled and scientifically valid Phase 2 clinical trials.
Phase 2 clinical trials are generally conducted in a limited patient population to identify possible adverse effects and safety risks,
evaluate the efficacy of the product candidate for specific targeted indications and determine dose tolerance and optimal dosage. Multiple
Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more costly Phase 3 clinical
trials. Phase 2 clinical trials are well-controlled and closely monitored.
Phase 3 clinical trials proceed if the Phase 2 clinical trials demonstrate that a dose range of the product candidate is potentially
effective and has an acceptable safety profile. Phase 3 clinical trials are undertaken within an expanded patient population to further
evaluate dosage, provide substantial evidence of clinical efficacy and further test for safety in an expanded and diverse patient population at
multiple geographically dispersed clinical trial sites. A well-controlled, statistically robust Phase 3 clinical trial may be designed to deliver
the data that regulatory authorities will use to decide whether or not to approve, and, if approved, how to appropriately label a product.
Such Phase 3 clinical trials are referred to as “pivotal” trials.
In some cases, the FDA may approve an NDA for a product candidate but require the sponsor to conduct additional clinical trials
to further assess the product candidate’s safety and effectiveness after approval. Such post-approval trials are typically referred to as Phase
4 clinical trials. These trials are used to gain additional experience from the treatment of a larger number of patients in the intended
treatment group and to further document a clinical benefit in the case of products approved under accelerated approval regulations. Failure
to exhibit due diligence with regard to conducting Phase 4 clinical trials could result in withdrawal of FDA approval for products.
Progress reports detailing the results of clinical trials must be submitted at least annually to the FDA and more frequently if
serious adverse events occur. In addition, IND safety reports must be submitted to the FDA for any of the following: serious and
unexpected suspected adverse reactions; findings from other studies or animal or in vitro testing that suggest a significant risk in humans
exposed to the product; and any clinically important increase in the occurrence of a serious suspected adverse reaction over that listed in the
protocol or investigator brochure. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified
period, or at all. The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical
data submitted.
Pediatric Studies
Under the Pediatric Research Equity Act of 2003, an application or supplement thereto must contain data that are adequate to
assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing
and administration for each pediatric subpopulation for which the product is safe and effective. Sponsors must also submit pediatric study
plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to
conduct, including study objectives and design, any deferral or waiver requests and other information required by regulation. The applicant,
the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other and agree upon a
final plan. The FDA or the applicant may request an amendment to the plan at any time.
For investigational products intended to treat a serious or life-threatening disease or condition, the FDA must, upon the request of
an applicant, meet to discuss preparation of the initial pediatric study plan or to discuss deferral or waiver of pediatric assessments. In
addition, the FDA will meet early in the development process to discuss pediatric study plans with sponsors, and the FDA must meet with
sponsors by no later than the end-of-phase 1 meeting for serious or life-threatening diseases and by no later than ninety days after the
FDA’s receipt of the study plan.
The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data
until after approval of the product for use in adults, or full or partial waivers from the pediatric data
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requirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in
the Food and Drug Administration Safety and Innovation Act, or FDASIA. The FDA maintains a list of diseases that are exempt from
PREA requirements due to low prevalence of disease in the pediatric population. In 2017, with passage of the FDA Reauthorization Act of
2017, or FDARA, Congress further modified these provisions. Previously, investigational products that had been granted orphan drug
designation were exempt from the requirements of the Pediatric Research Equity Act.
Expedited Review Programs
The FDA is authorized to expedite the review of BLAs in several ways. Under the Fast Track program, the sponsor of a product
candidate may request the FDA to designate the product for a specific indication as a Fast Track product concurrent with or after the filing
of the IND. Candidate products are eligible for Fast Track designation if they are intended to treat a serious or life-threatening condition
and demonstrate the potential to address unmet medical needs for the condition. Fast Track designation applies to the combination of the
product candidate and the specific indication for which it is being studied. In addition to other benefits, such as the ability to have greater
interactions with the FDA, the FDA may initiate review of sections of a Fast Track application before the application is complete, a process
known as rolling review.
Any product candidate submitted to the FDA for marketing, including under a Fast Track program, may be eligible for other types
of FDA programs intended to expedite development and review, such as breakthrough therapy designation, priority review and accelerated
approval.
•
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•
•
Breakthrough therapy designation. To qualify for the breakthrough therapy program, product candidates must be intended to treat
a serious or life-threatening disease or condition and preliminary clinical evidence must indicate that such product candidates may
demonstrate substantial improvement on one or more clinically significant endpoints over existing therapies. The FDA will seek
to ensure the sponsor of a breakthrough therapy product candidate receives intensive guidance on an efficient development
program, intensive involvement of senior managers and experienced staff on a proactive, collaborative and cross-disciplinary
review and rolling review.
Priority review. A product candidate is eligible for priority review if it treats a serious condition and, if approved, it would be a
significant improvement in the safety or effectiveness of the treatment, diagnosis or prevention compared to marketed products.
FDA aims to complete its review of priority review applications within six months as opposed to 10 months for standard review.
Accelerated approval. Drug or biologic products studied for their safety and effectiveness in treating serious or life-threatening
illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval. Accelerated
approval means that a product candidate may be approved on the basis of adequate and well controlled clinical trials establishing
that the product candidate has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the
basis of an effect on a clinical endpoint other than survival or irreversible morbidity or mortality or other clinical benefit, taking
into account the severity, rarity and prevalence of the condition and the availability or lack of alternative treatments. As a
condition of approval, the FDA may require that a sponsor of a drug or biologic product candidate receiving accelerated approval
perform adequate and well controlled post-marketing clinical trials. In addition, the FDA currently requires as a condition for
accelerated approval pre-approval of promotional materials.
Regenerative advanced therapy. With passage of the 21st Century Cures Act, or the Cures Act, in December 2016, Congress
authorized the FDA to accelerate review and approval of products designated as regenerative advanced therapies. A product is
eligible for this designation if it is a regenerative medicine therapy that is intended to treat, modify, reverse or cure a serious or
life-threatening disease or condition and preliminary clinical evidence indicates that the product candidate has the potential to
address unmet medical needs for such disease or condition. The benefits of a regenerative advanced therapy designation include
early interactions with the FDA to expedite development and review, benefits available to breakthrough therapies, potential
eligibility for priority review and accelerated approval based on surrogate or intermediate endpoints.
None of these expedited programs change the standards for approval but they may help expedite the development or approval
process of product candidates.
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Emergency Use Authorizations
In the event of a public health emergency declared by the Secretary of the HHS, the FDA has the authority to allow unapproved
medical products or unapproved uses of cleared or approved medical products to be used in an emergency to diagnose, treat or prevent
serious or life-threatening diseases or conditions caused by chemical, biological, radiological or nuclear warfare threat agents when there
are no adequate, approved, and available alternatives.
The FDA may issue an Emergency Use Authorization, or EUA, for an unapproved product if the following four statutory criteria
have been met: (1) a serious or life-threatening condition exists; (2) evidence that the product may be effective in diagnosing or treating
such condition; (3) a risk-benefit analysis shows that the benefits of the product outweigh the risks; and (4) no adequate, approved and
available alternatives exist for diagnosing, preventing or treating the disease or condition. Evidence of effectiveness includes products that
“may be effective” to prevent, diagnose, or treat the disease or condition identified in a declaration of emergency issued by the Secretary of
HHS. The “may be effective” standard for EUAs requires a lower level of evidence than the traditional standard of approval governing
biologic products. The statute directs FDA to assess the potential effectiveness of a possible EUA product on a case-by-case basis using a
risk-benefit analysis. In determining whether the known and potential benefits of the product outweigh the known and potential risks, the
FDA examines the totality of the scientific evidence to make an overall risk-benefit determination. Such evidence, which could arise from a
variety of sources, may include (but is not limited to) results of domestic and foreign clinical trials, in vivo efficacy data from animal
models and in vitro data.
Once granted, an EUA will generally remain in effect until the earlier of (1) a determination by the Secretary of HHS that the
public health emergency has ceased or (2) a change in the approval status of the product such that the authorized use(s) of the product are
no longer unapproved. After the EUA is no longer valid, the product is no longer considered to be legally marketed, and FDA’s non-
emergency approval pathway would be necessary to resume or continue distribution of the product. The FDA also may revise or revoke an
EUA if the circumstances justifying its issuance no longer exist, the criteria for its issuance are no longer met, or other circumstances make
a revision or revocation appropriate to protect the public health or safety.
On January 31, 2020, the Secretary of HHS issued a declaration of a public health emergency related to COVID-19. On February
4, 2020, HHS determined that COVID-19 represents a public health emergency that has a significant potential to affect national security or
the health and security of U.S. citizens living abroad and, subsequently, declared on March 24, 2020, that circumstances exist to justify the
authorization of emergency use of certain medical products, during the COVID-19 pandemic, subject to the terms of any authorization as
issued by the FDA. The HHS Secretary’s declaration has been further updated and the FDA has issued numerous guidance to sponsors
seeking to obtain EUAs to diagnose and treat COVID-19.
Review and Approval of BLAs
Assuming successful completion of the required clinical testing, the results of the pre-clinical studies and clinical trials, along with
information relating to the product’s chemistry, manufacturing, controls and proposed labeling, are submitted to the FDA as part of a BLA
requesting approval to market the product for one or more indications. 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, potency and purity of the
investigational product to the satisfaction of the FDA. The fee required for the submission of an NDA or BLA under the Prescription Drug
User Fee Act, or PDUFA, is substantial (for example, for FY2021 this application fee is approximately $2.9 million), and the sponsor of an
approved BLA is also subject to an annual program fee, currently more than $300,000 per program. These fees are typically adjusted
annually, but exemptions and waivers may be available under certain circumstances.
The FDA conducts a preliminary review of all BLAs within 60 days of receipt and informs the sponsor by the 74th day after the
FDA’s receipt of the submission whether an application is sufficiently complete to permit substantive review. In pertinent part, FDA’s
regulations for BLAs state that an application “shall not be considered as filed until all pertinent information and data have been received”
by the FDA. In the event that FDA determines that a BLA does not
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satisfy this standard, it will issue a Refuse to File, or RTF, determination to the applicant. Typically, an RTF for a BLA will be based on
administrative incompleteness, such as clear omission of information or sections of required information; scientific incompleteness, such as
omission of critical data, information or analyses needed to evaluate safety, purity and potency or provide adequate directions for use; or
inadequate content, presentation, or organization of information such that substantive and meaningful review is precluded. The FDA may
request additional information rather than accept a BLA for filing. In this event, the application must be resubmitted with the additional
information. The resubmitted application is also subject to review before the FDA accepts it for filing.
After the submission is accepted for filing, the FDA begins an in-depth substantive review of the application. Under the goals and
policies agreed to by the FDA under PDUFA, the FDA has ten months from the filing date in which to complete its initial review of a
standard application and respond to the applicant and six months from the filing date for an application with “priority review.” The review
process may be extended by the FDA for three additional months to consider new information or in the case of a clarification provided by
the applicant to address an outstanding deficiency identified by the FDA following the original submission. Despite these review goals, it is
not uncommon for FDA review of a BLA to extend beyond the PDUFA goal date.
Before approving a BLA, the FDA will typically conduct a pre-approval inspection of the manufacturing facilities for the new
product to determine whether the manufacturing processes and facilities comply with GMPs. The FDA will not approve the product unless
it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent
production of the product within required specifications. The FDA also may inspect the sponsor and one or more clinical trial sites to
assure compliance with GCP requirements and the integrity of the clinical data submitted to the FDA.
Additionally, the FDA may refer a BLA, including applications for novel product candidates which present difficult questions of
safety or efficacy, to an advisory committee for review, evaluation and recommendation as to whether the application should be approved
and under what conditions. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific
experts. The FDA is not bound by the recommendation of an advisory committee, but it considers such recommendations when making
final decisions on approval. The FDA also may require submission of a risk evaluation and mitigation strategy, or REMS, if it determines
that a REMS is necessary to ensure that the benefits of the product outweigh its risks and to assure the safe use of the biological product. If
the FDA concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS and the FDA will not approve the BLA
without a REMS.
The FDA reviews a BLA to determine, among other things whether the product is safe, pure and potent and whether the facility in
which it is manufactured, processed, packed or held meets standards designed to assure the product’s continued safety, purity and potency.
The approval process is lengthy and often difficult, and the FDA may refuse to approve a BLA if the applicable regulatory criteria are not
satisfied or may require additional clinical or other data and information. After evaluating the application and all related information,
including the advisory committee recommendations, if any, and inspection reports of manufacturing facilities and clinical trial sites, the
FDA may issue either an approval letter or a Complete Response Letter, or CRL.
An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications.
A CRL indicates that the review cycle of the application is complete and the application will not be approved in its present form. A CRL
generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to
reconsider the application. The CRL may require additional clinical or other data, additional pivotal Phase 3 clinical trial(s) and/or other
significant and time- consuming requirements related to clinical trials, pre-clinical studies or manufacturing. If a CRL is issued, the
applicant may either resubmit the BLA addressing all of the deficiencies identified in the letter or withdraw the application. If and when
those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the BLA, the FDA will issue an approval letter. The
FDA has committed to reviewing such resubmissions in response to an issued CRL in either two or six months depending on the type of
information included. Even with the submission of this additional information, however, the FDA ultimately may decide that the
application does not satisfy the regulatory criteria for approval.
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If a product receives regulatory approval from the FDA, the approval is limited to the conditions of use (e.g., patient population,
indication) described in the FDA-approved labeling. Further, depending on the specific risk(s) to be addressed, the FDA may require that
contraindications, warnings or precautions be included in the product labeling, require that post-approval trials, including Phase 4 clinical
trials, be conducted to further assess a product’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 trials 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.
Reference Product Exclusivity for Biological Products
When a biological product is licensed for marketing by FDA with approval of a BLA, the product may be entitled to certain types
of market and data exclusivity barring FDA from approving competing products for certain periods of time. For example, in March 2010,
the Patient Protection and Affordable Care Act was enacted in the United States and included the Biologics Price Competition and
Innovation Act of 2009, or the BPCIA. The BPCIA amended the PHSA to create an abbreviated approval pathway for biological products
that are biosimilar to or interchangeable with an FDA-licensed reference biological product. To date, the FDA has approved a number of
biosimilars. No interchangeable biosimilars, however, have been approved. The FDA has also issued several guidance documents outlining
its approach to reviewing and approving biosimilars and interchangeable biosimilars.
Under the BPCIA, a manufacturer may submit an application that is “biosimilar to” or “interchangeable with” a previously
approved biological product or “reference product.” In order for the FDA to approve a biosimilar product, it must find that there are no
clinically meaningful differences between the reference product and proposed biosimilar product in terms of safety, purity and potency. For
the FDA to approve a biosimilar product as interchangeable with a reference product, the agency must find that the biosimilar product can
be expected to produce the same clinical results as the reference product and (for products administered multiple times) that the biologic
and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of
diminished efficacy relative to exclusive use of the reference biologic. Upon licensure by the FDA, an interchangeable biosimilar may be
substituted for the reference product without the intervention of the health care provider who prescribed the reference product, although to
date no such products have been approved for marketing in the United States.
The biosimilar applicant must demonstrate that the product is biosimilar based on data from analytical studies showing that the
biosimilar product is highly similar to the reference product, data from animal studies (including toxicity) and data from one or more
clinical studies to demonstrate safety, purity and potency in one or more appropriate conditions of use for which the reference product is
approved. In addition, the applicant must show that the biosimilar and reference products have the same mechanism of action for the
conditions of use on the label, route of administration, dosage and strength, and the production facility must meet standards designed to
assure product safety, purity and potency.
A reference biological product is granted 12 years of exclusivity from the time of first licensure of the product, and the first
approved interchangeable biologic product will be granted an exclusivity period of up to one year after it is first commercially marketed.
The FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four
years after the date of first licensure of the reference product.
The BPCIA is complex and only beginning to be interpreted and implemented by the FDA. In addition, recent government
proposals have sought to reduce the 12-year reference product exclusivity period. Other aspects of the BPCIA, some of which may impact
the BPCIA exclusivity provisions, have also been the subject of recent litigation. As a result, the ultimate impact, implementation and
meaning of the BPCIA is subject to significant uncertainty.
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Orphan Drug Designation and Exclusivity
Orphan drug designation in the United States is designed to encourage sponsors to develop products intended for treatment of rare
diseases or conditions. In the United States, a rare disease or condition is statutorily defined as a condition that affects fewer than 200,000
individuals in the United States or that affects more than 200,000 individuals in the United States and for which there is no reasonable
expectation that the cost of developing and making available the biologic for the disease or condition will be recovered from sales of the
product in the United States.
Orphan drug designation qualifies a company for tax credits and market exclusivity for seven years following the date of the
product’s marketing approval if granted by the FDA. An application for designation as an orphan product can be made any time prior to the
filing of an application for approval to market the product. A product becomes an orphan when it receives orphan drug designation from
the Office of Orphan Products Development at the FDA based on acceptable confidential requests made under the regulatory provisions.
The product must then go through the review and approval process like any other product.
A sponsor may request orphan drug designation of a previously unapproved product or new orphan indication for an already
marketed product. In addition, a sponsor of a product that is otherwise the same product as an already approved orphan drug may seek and
obtain orphan drug designation for the subsequent product for the same rare disease or condition if it can present a plausible hypothesis that
its product may be clinically superior to the first drug. More than one sponsor may receive orphan drug designation for the same product
for the same rare disease or condition, but each sponsor seeking orphan drug designation must file a complete request for designation.
If a product with orphan designation receives the first FDA approval for the disease or condition for which it has such designation
or for a select indication or use within the rare disease or condition for which it was designated, the product generally will receive orphan
drug exclusivity. Orphan drug exclusivity means that the FDA may not approve another sponsor’s marketing application for the same
product for the same indication for seven years, except in certain limited circumstances. If a product designated as an orphan drug
ultimately receives marketing approval for an indication broader than what was designated in its orphan drug application, it may not be
entitled to exclusivity.
The period of exclusivity begins on the date that the marketing application is approved by the FDA and applies only to the
indication for which the product has been designated. Orphan drug exclusivity will not bar approval of another product under certain
circumstances, including if the company with orphan drug exclusivity is not able to meet market demand or the subsequent product with
the same drug for the same condition is shown to be clinically superior to the approved product on the basis of greater efficacy or safety, or
providing a major contribution to patient care. This is the case despite an earlier court opinion holding that the Orphan Drug Act
unambiguously required the FDA to recognize orphan drug exclusivity regardless of a showing of clinical superiority. Under Omnibus
legislation signed by President Trump on December 27, 2020, the requirement for a product to show clinical superiority applies to drugs
and biologics that received orphan drug designation before enactment of FDARA in 2017, but have not yet been approved or licensed by
FDA.
Pediatric Exclusivity
Pediatric exclusivity is a type of non patent marketing exclusivity in the United States and, if granted, provides for the attachment
of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non patent and orphan
exclusivity. This six month exclusivity may be granted if a BLA sponsor submits pediatric data that fairly respond to a written request from
the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical
trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are
submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity that cover the
product are extended by six months.
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Patent Term Restoration and Extension
In the United States, a patent claiming a new biologic product, its method of use or its method of manufacture may be eligible for
a limited patent term extension under the Hatch Waxman Act, which permits a patent extension of up to five years for patent term lost
during product development and FDA regulatory review. Assuming grant of the patent for which the extension is sought, the restoration
period for a patent covering a product is typically one half the time between the effective date of the IND involving human beings and the
submission date of the BLA, plus the time between the submission date of the BLA and the ultimate approval date. Patent term restoration
cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date in the United States. Only
one patent applicable to an approved product is eligible for the extension, and the application for the extension must be submitted prior to
the expiration of the patent for which extension is sought. A patent that covers multiple products for which approval is sought can only be
extended in connection with one of the approvals. The USPTO reviews and approves the application for any patent term extension in
consultation with the FDA.
Post-approval Requirements
Following approval of a new product, the manufacturer and the approved product are subject to pervasive and continuing
regulation by the FDA, governing, among other things, monitoring and recordkeeping activities, reporting of adverse experiences with the
product and product problems to the FDA, product sampling and distribution, manufacturing and promotion and advertising. Although
physicians may prescribe legally available products for unapproved uses or patient populations (i.e., “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.
Specifically, if a company is found to have promoted off-label uses, it may become subject to adverse public relations and
administrative and judicial enforcement by the FDA, the Department of Justice, or the Office of the Inspector General of the Department of
Health and Human Services, as well as state authorities. This could subject a company to a range of penalties that could have a significant
commercial impact, including civil and criminal fines and agreements that materially restrict the manner in which a company promotes or
distributes drug products. The federal government has levied large civil and criminal fines against companies for alleged improper
promotion, and has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional
conduct is changed or curtailed.
Further, if there are any modifications to the product, including changes in indications, labeling or manufacturing processes or
facilities, the applicant may be required to submit and obtain FDA approval of a new BLA or a BLA supplement, which may require the
applicant to develop additional data or conduct additional pre-clinical studies and clinical trials. The FDA may also place other conditions
on approvals including the requirement for a REMS to assure the safe use of the product, which may require substantial commitment of
resources post-approval to ensure compliance. A REMS 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. Any of these limitations on
approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may
be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing.
In addition, FDA regulations require that biological products be manufactured in specific approved facilities and in accordance
with cGMPs. The cGMP regulations include requirements relating to organization of personnel, buildings and facilities, equipment, control
of components and drug product containers and closures, production and process controls, packaging and labeling controls, holding and
distribution, laboratory controls, records and reports and returned or salvaged products. The manufacturing facilities for our product
candidates must meet cGMP requirements and satisfy the FDA or comparable foreign regulatory authorities’ satisfaction before any
product is approved and our commercial products can be manufactured.
We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products in
accordance with cGMP regulations. These manufacturers must comply with cGMP regulations,
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including requirements for quality control and quality assurance, the maintenance of records and documentation and the obligation to
investigate and correct any deviations from cGMP. Manufacturers and other entities involved in the manufacture and distribution of
approved drugs or biologics 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 cGMP and other laws. Accordingly, manufacturers
must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. Future
inspections by the FDA and other regulatory agencies may identify compliance issues at the facilities of our CMOs that may disrupt
production or distribution or require substantial resources to correct. In addition, the discovery of conditions that violate these rules,
including failure to conform to cGMPs, could result in enforcement actions, and the discovery of problems with a product after approval
may result in restrictions on a product, manufacturer or holder of an approved BLA, including voluntary recall and regulatory sanctions as
described below.
The FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems
occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of
unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in
mandatory revisions to the approved labeling to add new safety information, imposition of post-market clinical trials requirement to assess
new safety risks or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among
other things:
•
•
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 a product
• mandated modification of promotional materials and labeling and issuance of corrective information
•
•
fines, warning letters, untitled letters or other enforcement-related letters or clinical holds on post-approval clinical trials;
refusal of the FDA to approve pending NDAs/BLAs or supplements to approved NDAs/BLAs, 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
consent decrees, corporate integrity agreements, debarment, or exclusion from federal health care programs; or mandated
modification of promotional materials and labeling and the issuance of corrective information.
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•
In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA,
which regulates the distribution of samples at the federal level and sets minimum standards for the registration and regulation of drug
distributors by the states. Additionally, the Drug Supply Chain Security Act, or DSCSA, imposes requirements related to identifying and
tracing certain prescription products distributed in the United States, including most biological products.
Other U.S. Health Care Laws and Regulations
In the United States, biopharmaceutical manufacturers and their products are subject to extensive regulation at the federal and
state level, such as laws intended to prevent fraud and abuse in the healthcare industry. These laws, some of which will apply only if and
when we have an approved product, include:
•
•
federal false claims, false statements and civil monetary penalties laws prohibiting, among other things, any person from
knowingly presenting, or causing to be presented, a false claim for payment of government funds or knowingly making, or
causing to be made, a false statement to get a false claim paid;
federal healthcare program anti-kickback law, which prohibits, among other things, persons from offering, soliciting, receiving or
providing remuneration, directly or indirectly, to induce either the referral of an individual for, or the purchasing or ordering of, a
good or service for which payment may be made under federal healthcare programs such as Medicare and Medicaid;
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•
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•
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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which, in addition to privacy protections
applicable to healthcare providers and other entities, prohibits executing a scheme to defraud any healthcare benefit program or
making false statements relating to healthcare matters;
FDCA, which among other things, strictly regulates marketing, prohibits manufacturers from marketing such products prior to
approval or for off-label use and regulates the distribution of samples;
federal laws that require pharmaceutical manufacturers to report certain calculated product prices to the government or provide
certain discounts or rebates to government authorities or private entities, often as a condition of reimbursement under government
healthcare programs;
federal Open Payments (or federal “sunshine” law), which requires pharmaceutical and medical device companies to monitor and
report certain financial interactions with certain healthcare providers to the Center for Medicare & Medicaid Services within the
U.S. Department of Health and Human Services for re-disclosure to the public, as well as ownership and investment interests held
by physicians and their immediate family members;
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that
potentially harm consumers;
analogous state laws and regulations, including: state anti-kickback and false claims laws; state laws requiring pharmaceutical
companies to comply with specific compliance standards, restrict financial interactions between pharmaceutical companies and
healthcare providers or require pharmaceutical companies to report information related to payments to health care providers or
marketing expenditures; and state laws governing privacy, security and breaches of health information in certain circumstances,
many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance
efforts; and
laws and regulations prohibiting bribery and corruption such as the FCPA, which, among other things, prohibits U.S. companies
and their employees and agents from authorizing, promising, offering, or providing, directly or indirectly, corrupt or improper
payments or anything else of value to foreign government officials, employees of public international organizations or foreign
government-owned or affiliated entities, candidates for foreign public office, and foreign political parties or officials thereof.
Violations of these laws are punishable by criminal and/or civil sanctions, including, in some instances, exclusion from
participation in federal and state health care programs, such as Medicare and Medicaid. Ensuring compliance is time consuming and
costly.
Similar healthcare laws and regulations exist in the EU and other jurisdictions, including reporting requirements detailing
interactions with and payments to healthcare providers and laws governing the privacy and security of personal information
U.S. Privacy Law
There are numerous U.S. federal and state laws and regulations related to the privacy and security of personal information,
including laws requiring the safeguarding of personal information and laws requiring notification to governmental authorities and data
subjects as well as remediation in the event of a data breach.
There have been several developments in recent years with respect to U.S. state data privacy laws. In 2018, California passed into
law the California Consumer Privacy Act, or the CCPA, which took effect on January 1, 2020 and imposed many requirements on
businesses that process the personal information of California residents. Many of the CCPA’s requirements are similar to those found in the
GDPR, including requiring businesses to provide notice to data subjects regarding the information collected about them and how such
information is used and shared, and providing data subjects the right to request access to such personal information and, in certain cases,
request the erasure of such personal information. The CCPA also affords California residents the right to opt-out of “sales” of their personal
information. The CCPA contains significant penalties for companies that violate its requirements. It also provides California residents a
private right of action, including the ability to seek statutory damages, in the event of a breach involving their personal information.
Compliance with the CCPA is a rigorous and time-intensive process that may increase the cost of doing business or require companies to
change their business practices to ensure full compliance. On November 3, 2020, California voters passed a ballot initiative for the
California Privacy Rights Act, or the CPRA, which will significantly expand the CCPA to incorporate additional GDPR-like provisions
including requiring that the use,
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retention and sharing of personal information of California residents be reasonably necessary and proportionate to the purposes of
collection or processing, granting additional protections for sensitive personal information, and requiring greater disclosures related to
notice to residents regarding retention of information. The CPRA will also expand personal information rights of California residents,
including creating a right to opt out of sharing of personal information with third parties for advertising, expanding the lookback period for
the right to know about personal information held by businesses, and expanding the right to erasure for information held by third parties.
Most CPRA provisions will take effect on January 1, 2023, though the obligations will apply to any personal information collected after
January 1, 2022. Similar laws have been proposed or passed at the U.S. federal and state level, including the Virginia Consumer Data
Protection Act (CDPA), which will take effect on January 1, 2023.
Coverage, Pricing and Reimbursement
Sales of any biopharmaceutical products, if and when approved by the FDA or analogous authorities outside the United States,
will depend in significant part on the availability of third-party coverage and adequate reimbursement for the products.
In the United States, third-party payors include government healthcare programs such as Medicare and Medicaid, private health
insurers, managed care plans and other organizations. These third-party payors are increasingly challenging the price and examining the
cost-effectiveness of medical products and services, including biopharmaceutical products. Significant uncertainty exists regarding
coverage and reimbursement for newly approved healthcare products. Coverage does not ensure adequate reimbursement. It is time
consuming and expensive to seek coverage and reimbursement from third-party payors. We may need to conduct expensive
pharmacoeconomic studies to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to
obtain FDA regulatory approvals. Third-party payors may limit coverage to specific products on an approved list, or formulary, which
might not include all of the approved products for a particular indication, or utilize other mechanisms to manage utilization (such as
requiring prior authorization for coverage for a product for use in a particular patient). Limits on coverage may impact demand for our
products. Even if coverage is obtained, third-party reimbursement may not be adequate to allow us to sell our products on a competitive
and profitable basis. As result, we may not be sufficient to maintain price levels high enough to realize an appropriate return on
investment in product development.
In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The
requirements governing drug pricing vary widely from country to country. Some countries provide that drug 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 our product candidate to currently available therapies (so called health technology assessment, or HTA) in order to obtain
reimbursement or pricing approval. For example, subject to the requirements set out in Directive 89/105/EEC relating to the transparency
of measures regulating the pricing of medicinal products for human use and their inclusion in the scope of national health insurance
systems, EU Member States have the legal competence to set national measures of an economic nature on the marketing of medicinal
products in order to control public health expenditure on such products. Accordingly, EU Member States can restrict the range of medicinal
products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for
human use. An EU Member State may approve a specific price for the medicinal product or it may instead adopt a system of direct or
indirect controls on the profitability of the company placing the medicinal product on the market. Other EU Member States allow
companies to fix their own prices for drug products but monitor and control prescription volumes and issue guidance to physicians to limit
prescriptions. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products
will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the EU do not
follow price structures of the United States and generally tend to by significantly lower.
The downward pressure on health care costs in general, particularly prescription products, has become intense. As a result,
increasingly high barriers are being erected to the entry of new products. In addition, there can be considerable pressure by governments
and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and
regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been
obtained. Reference pricing used by
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various EU Member States and parallel import or distribution (arbitrage between low-priced and high-priced member states) can further
reduce prices. Any country that has price controls or reimbursement limitations for products may not allow favorable reimbursement and
pricing arrangements.
Health Care Reform
Health care reform has been a significant trend in the U.S. health care industry and elsewhere. In particular, government
authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for
particular medical products and services. Under the Trump administration, there were efforts to repeal or modify prior health care reform
legislation and regulation and also to implement new health care reform measures, including measures related to payment for products
under government health care programs. The nature and scope of health care reform in the wake of the transition from the Trump
administration to the Biden administration remains uncertain but early actions include additional health care reform as well as challenges to
actions taken under the Trump administration are likely.
There has been heightened governmental scrutiny in recent years over the manner in which manufacturers set prices for their
marketed products, which has resulted in proposed and enacted federal and state legislation designed to, among other things, bring more
transparency to product pricing and reform government program reimbursement methodologies for pharmaceutical and biologic products.
At the state level, individual states are increasingly 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. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative
or executive action, either in the United States or abroad. We expect that additional federal and state health care reform measures will be
adopted in the future, any of which could limit the amounts that federal and state governments will pay for health care products and
services.
Approval and Regulation of Medical Products in the European Union
In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and
commercial sales and distribution of our products outside of the United States. Whether or not we obtain FDA approval for a product
candidate, we must obtain approval by the comparable regulatory authorities of foreign countries or economic areas, such as the 27-
member EU, before we may commence clinical trials or market products in those countries or areas. In the EU, our product candidates also
may be subject to extensive regulatory requirements. As in the United States, medicinal products can be marketed only if a marketing
authorization from the competent regulatory agencies has been obtained. Similar to the United States, the various phases of pre-clinical and
clinical research in the EU are subject to significant regulatory controls.
With the exception of the EU/EEA applying the harmonized regulatory rules for medicinal products, the approval process and
requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly between countries and
jurisdictions and can involve additional testing and additional administrative review periods. The time required to obtain approval in other
countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country
or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or
jurisdiction may negatively impact the regulatory process in others.
Clinical Trials
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 EU. Under this system, an applicant must
obtain prior approval from the competent national authority of the EU Member
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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 IMPD (the Common Technical Document) with supporting information prescribed by Directive 2001/20/EC, Directive 2005/28/EC, and
where relevant the implementing national provisions of the individual EU Member States and further detailed in applicable guidance
documents. All suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical trial have to be
reported to the competent national authority and the Ethics Committee of the Member State where they occurred.
In April 2014, the new Clinical Trials Regulation, (EU) No 536/2014, or the Clinical Trials Regulation, was adopted and it is
anticipated to come into application in late 2021 but could be delayed, subject to the full functionality of the Clinical Trials Information
System (CTIS) through an independent audit. The Clinical Trials Regulation will come into application in all the EU Member States,
repealing the current Clinical Trials Directive 2001/20/EC. Conduct of all clinical trials performed in the EU will continue to be bound by
currently applicable provisions until the new Clinical Trials Regulation becomes applicable, which is scheduled for December 2021.
The extent to which ongoing clinical trials will be governed by the Clinical Trials Regulation will depend on when the Clinical
Trials Regulation will come into application and on the duration of the individual clinical trial. According to the transitional provisions, 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 Clinical Trials Regulation aims to simplify and streamline the approval of clinical trials in the EU. 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.
Marketing authorization applications, or MAA, can be filed either under the so-called centralized or national authorization
procedures, albeit through the Mutual Recognition or Decentralized procedure for a product to be authorized in more than one EU member
state.
Centralized Approval Procedure
The centralized procedure provides for the grant of a single marketing authorization following a favorable opinion by the
European Medicines Agency, or EMA, that is valid in all EU Member States, as well as Iceland, Liechtenstein and Norway, which are part
of the EEA. The centralized procedure is compulsory for medicines produced by specified biotechnological processes, products designated
as orphan medicinal products, advanced-therapy medicines (such as gene-therapy, somatic cell-therapy or tissue-engineered medicines) and
products with a new active substance indicated for the treatment of specified diseases, such as HIV/ AIDS, cancer, diabetes,
neurodegenerative disorders or autoimmune diseases and other immune dysfunctions and viral diseases. The centralized procedure is
optional for products that represent a significant therapeutic, scientific or technical innovation, or whose authorization would be in the
interest of public health. 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
Committee for Medicinal Products for Human Use, or 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 of 150 days, excluding stop-clocks.
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National Authorization Procedures
There are also two other possible routes to authorize medicinal products in several EU countries, which are available for
investigational medicinal 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. The applicant may choose a member state as the reference member State to lead
the scientific evaluation of the application.
• Mutual recognition procedure. In the mutual recognition procedure, a medicine is first authorized in one EU Member State (which
acts as the reference member state), in accordance with the national procedures of that country. Following this, further marketing
authorizations can be progressively sought from other EU countries in a procedure whereby the countries concerned agree to
recognize the validity of the original, national marketing authorization produced by the reference member state.
Under the above described procedures, before granting the marketing authorization, the EMA or the competent authorities of the
Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its
quality, safety and efficacy.
Conditional Approval
In specific circumstances, E.U. legislation (Article 14–a Regulation (EC) No 726/2004 (as amended by Regulation (EU) 2019/5
and Regulation (EC) No 507/2006 on Conditional Marketing Authorizations for Medicinal Products for Human Use) enables applicants to
obtain a conditional marketing authorization prior to obtaining the comprehensive clinical data required for an application for a full
marketing authorization. Such conditional approvals may be granted for product candidates (including medicines designated as orphan
medicinal products) if (1) the product candidate is intended for the treatment, prevention or medical diagnosis of seriously debilitating or
life-threatening diseases; (2) the drug candidate is intended to meet unmet medical needs of patients; (3) a marketing authorization may be
granted prior to submission of comprehensive clinical data provided that the benefit of the immediate availability on the market of the
medicinal product concerned outweighs the risk inherent in the fact that additional data are still required; (4) the risk-benefit balance of the
product candidate is positive, and (5) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial
data. A conditional marketing authorization may contain specific obligations to be fulfilled by the marketing authorization holder, including
obligations with respect to the completion of ongoing or new studies and with respect to the collection of pharmacovigilance data.
Conditional marketing authorizations are valid for one year, and may be renewed annually, if the risk-benefit balance remains positive, and
after an assessment of the need for additional or modified conditions or specific obligations. The timelines for the centralized procedure
described above also apply with respect to the review by the CHMP of applications for a conditional marketing authorization.
Pediatric Studies
Prior to obtaining a marketing authorization in the EU, applicants have to demonstrate compliance with all measures included in
an EMA-approved Pediatric Investigation Plan, or PIP, covering all subsets of the pediatric population, unless the EMA has granted a
product-specific waiver, a class waiver or a deferral for one or more of the measures included in the PIP. The respective requirements for all
marketing authorization procedures are set forth in Regulation (EC) No 1901/2006, which is referred to as the Pediatric Regulation. This
requirement also applies when a company wants to add a new indication, pharmaceutical form or route of administration for a medicine
that is already authorized. The Pediatric Committee of the EMA, or PDCO, may grant deferrals for some medicines, allowing a company to
delay development of the medicine in children until there is enough information to demonstrate its effectiveness and safety in adults. The
PDCO may also grant waivers when development of a medicine in children is not needed or is not appropriate because (a) the product is
likely to be ineffective or unsafe in part or all of the pediatric population; (b) the disease or condition occurs only in adult population; or (c)
the product does not represent a significant therapeutic benefit over existing treatments for pediatric population.
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Before a marketing authorization application can be filed, or an existing marketing authorization can be amended, the EMA
determines that companies actually comply with the agreed studies and measures listed in each relevant PIP.
PRIME Designation
The EMA grants access to the Priority Medicines, or PRIME, program to investigational medicines for which it determines there
to be preliminary data available showing the potential to address an unmet medical need and bring a major therapeutic advantage to
patients. As part of the program, EMA provides early and enhanced dialogue and support to optimize the development of eligible
medicines and speed up their evaluation, aiming to bring promising treatments to patients sooner.
Regulatory Exclusivity
In the EU, new products 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 prevents generic or biosimilar
applicants from relying on the pre-clinical and clinical trial data contained in the dossier of the reference product when applying for a
generic or biosimilar marketing authorization in the EU during a period of eight years from the date on which the reference product was
first authorized in the EU. The market exclusivity period prevents a successful generic or biosimilar applicant from commercializing its
product in the EU until ten years have elapsed from the initial authorization of the reference product in the EU. 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.
Orphan Drug Designation and Exclusivity
The criteria for designating an orphan medicinal product in the EU are similar in principle to those in the United States. Under
Article 3 of Regulation (EC) 141/2000, a medicinal product may be designated as orphan if (1) it is intended for the diagnosis, prevention
or treatment of a life- threatening or chronically debilitating condition, (2) either (a) such condition affects no more than five in 10,000
persons in the EU when the application is made, or (b) the product, without the benefits derived from orphan status, would not generate
sufficient return in the EU to justify investment and (3) there exists no satisfactory method of diagnosis, prevention or treatment of such
condition authorized for marketing in the EU, or if such a method exists, the product will be of significant benefit to those affected by the
condition. The term ‘significant benefit’ is defined in Regulation (EC) 847/2000 to mean a clinically relevant advantage or a major
contribution to patient care.
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 market
exclusivity period, the EMA or the competent authorities of the Member States of the EEA, cannot accept an application for a marketing
authorization for a similar medicinal product for the same indication. A similar medicinal product is defined as a medicinal product
containing a similar active substance or substances as contained in an authorized orphan medicinal product, and which is intended for the
same therapeutic indication. The application for orphan designation must be submitted before the application for marketing authorization.
The applicant will receive a fee reduction for the marketing authorization application if the orphan designation has been granted, but not if
the designation is still pending at the time the marketing authorization is submitted. Orphan designation does not convey any advantage in,
or shorten the duration of, the regulatory review and approval process.
The ten-year market exclusivity in the EU 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
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profitable not to justify maintenance of market exclusivity. Additionally, marketing authorization may be granted to a similar product for
the same indication at any time if:
•
•
•
the second applicant can establish that its product, although similar, is safer, more effective or otherwise clinically superior;
the applicant consents to a second orphan medicinal product application; or
the applicant cannot supply enough orphan medicinal product.
Pediatric Exclusivity
If an applicant obtains a marketing authorization in all EU Member States, or a marketing authorization granted in the centralized
procedure by the European Commission, and the study results for the pediatric population are included in the product information, even
when negative, the medicine is then eligible for an additional six-month period of qualifying patent protection through extension of the
term of the Supplementary Protection Certificate, or SPC.
Periods of Authorization and Renewals
A marketing authorization is valid for five years in principle and the marketing authorization may be renewed after five years on
the basis of a re-evaluation of the risk-benefit balance by the EMA or by the competent authority of the authorizing member state. To this
end, the marketing authorization holder must provide the EMA or the competent authority with a consolidated version of the file in respect
of quality, safety and efficacy, including all variations introduced since the marketing authorization was granted, at least nine months before
the marketing authorization ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless the
European Commission or the competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one
additional five-year renewal. Any authorization which is not followed by the actual placing of the drug on the EU market (in case of
centralized procedure) or on the market of the authorizing member state within three years after authorization ceases to be valid (the so-
called sunset clause).
General data protection regulation
Many countries outside of the United States maintain rigorous laws governing the privacy and security of personal information.
The collection, use, disclosure, transfer, or other processing of personal data, including personal health data, regarding individuals who are
located in the EEA, and the processing of personal data that takes place in the EEA, is subject to the 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, and it
imposes heightened requirements on companies that process health and other sensitive data, such as requiring in many situations that a
company obtain the consent of the individuals to whom the sensitive personal data relate before processing such data. Examples of
obligations imposed by the GDPR on companies processing personal data that fall within the scope of the GDPR include providing
information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of
personal data, appointing a data protection officer, 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 EEA, 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. Compliance with the GDPR is a rigorous and time-intensive process that may increase the cost of doing business
or require companies to change their business practices to ensure full compliance. In July 2020, the Court of Justice of the European Union,
or the CJEU, invalidated the EU-U.S. Privacy Shield framework, one of the mechanisms used to legitimize the transfer of personal data
from the EEA to the United States. The CJEU decision also drew into question the long-term viability of an alternative means of data
transfer, the standard contractual clauses, for transfers of personal data from the EEA to the United States. Following the withdrawal of the
U.K. from the EU, the U.K. Data Protection Act 2018 applies to the processing of personal data that takes place in the U.K. and includes
parallel obligations to those set forth by GDPR.
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Brexit and the Regulatory Framework in the United Kingdom
The United Kingdom’s withdrawal from the EU took place on January 31, 2020. The EU and the U.K. reached an agreement on
their new partnership in the Trade and Cooperation Agreement, or the Agreement, to be applied from January1, 2021. The Agreement
focuses primarily on free trade by ensuring no tariffs or quotas on trade in goods, including healthcare products such as medicinal products.
Thereafter, the EU and the U.K. will form two separate markets governed by two distinct regulatory and legal regimes. As such, the
Agreement seeks to minimize barriers to trade in goods while accepting that border checks will become inevitable as a consequence that
the U.K. is no longer part of the single market. As of January 1, 2021, the Medicines and Healthcare products Regulatory Agency, or the
MHRA, becomes responsible for supervising medicines and medical devices in Great Britain, comprising England, Scotland and Wales
under domestic law whereas Northern Ireland will continue to be subject to EU rules under the Northern Ireland Protocol. The MHRA will
rely on the Human Medicines Regulations 2012 (SI 2012/1916) (as amended), or the HMR, as the basis for regulating medicines. The
HMR has incorporated into the domestic law the body of EU law instruments governing medicinal products that pre-existed prior to the
U.K.’s withdrawal from the EU.
Furthermore, while the Data Protection Act of 2018 in the United Kingdom that “implements” and complements the European
Union General Data Protection Regulation, or GDPR, has achieved Royal Assent on May 23, 2018 and is now effective in the United
Kingdom, it is still unclear whether transfer of data from the EEA to the United Kingdom will remain lawful under GDPR. The Trade and
Cooperation Agreement provides for a transitional period during which the United Kingdom will be treated like a European Union member
state in relation to processing and transfers of personal data for four months from January 1, 2021. This may be extended by two further
months. After such period, the United Kingdom will be a “third country” under the GDPR unless the European Commission adopts an
adequacy decision in respect of transfers of personal data to the United Kingdom. The United Kingdom has already determined that it
considers all EU 27 and EEA member states to be adequate for the purposes of data protection, ensuring that data flows from the United
Kingdom to the EU/EEA remain unaffected. We may, however, incur liabilities, expenses, costs, and other operational losses under GDPR
and applicable European Union Member States and the United Kingdom privacy laws in connection with any measures we take to comply
with them.
Rest of the World Regulation
For other countries outside of the EU and the United States, such as countries in Eastern Europe, Latin America or Asia, the requirements
governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from jurisdiction to jurisdiction. Additionally,
the clinical trials must be conducted in accordance with cGCP requirements and the applicable regulatory requirements and the ethical
principles that have their origin in the Declaration of Helsinki. If we fail to comply with applicable foreign regulatory requirements, we
may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products,
operating restrictions and criminal prosecution.
Registrational Clinical Trials Process
Described below is the traditional registrational drug development track.
Phase 1
Phase 1 includes the initial introduction of an investigational new drug or biologic into humans. These studies are closely
monitored and may be conducted in patients but are usually conducted in a small number of healthy volunteer patients. These studies are
designed to determine the metabolic and pharmacologic actions of the investigational product in humans, the side effects associated with
increasing doses, and, if possible, to gain early evidence on effectiveness. During Phase 1, sufficient information about the investigational
product’s pharmacokinetics and pharmacological effects are obtained to permit the design of well-controlled, scientifically valid, Phase 2
studies. Phase 1 studies of PRO 140 were conducted and completed by or on behalf of Progenics by certain principal investigators prior to
our acquisition of PRO 140.
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Phase 2
Phase 2 includes the early controlled clinical studies conducted to obtain some preliminary data on the effectiveness of the drug
for a particular indication or indications in patients with the disease or condition. This phase of testing also helps determine the common
short-term side effects and risks associated with the drug. Phase 2 studies are typically well-controlled, closely monitored, and conducted in
a relatively small number of patients, often involving several hundred people. In some cases, depending upon the need for a new drug, a
particular drug candidate may be licensed for sale in interstate commerce after a “pivotal” Phase 2 trial.
Phase 2 is often broken into Phase 2a, which can be used to refer to “pilot trials,” or more limited trials evaluating exposure
response in patients, and Phase 2b trials that are designed to evaluate dosing efficacy and ranges.
Phase 3
Phase 3 studies are expanded controlled clinical studies. They are performed after preliminary evidence suggesting effectiveness
of the drug has been obtained in Phase 2 and are intended to gather the additional information about effectiveness and safety that is needed
to evaluate the overall benefit/risk relationship of the drug. Phase 3 studies also provide an adequate basis for extrapolating the results to
the general population and transmitting that information in the physician labeling. Phase 3 studies usually involve significantly larger
groups of patients, and considerable additional expense. We were required to pay significant fees to third parties upon the first patient
dosing in a Phase 3 trial of leronlimab, and we may be required to make additional fee payments to third parties upon the completion of
additional milestones. See the discussion under the subheading “PRO 140 Acquisition and Licensing Arrangements” above.
Competition
The pharmaceutical, biotechnology and diagnostic industries are characterized by rapidly evolving technology and intense
competition. Our development efforts may compete with more established biotechnology companies that have significantly greater
financial and managerial resources than we do.
Advancing leronlimab to commercialization is our highest priority. Leronlimab blocks a cell receptor called CCR5, which is the
entry point for most strains of HIV virus. Pfizer’s Maraviroc (Selzentry®) is believed to be the only currently approved CCR5 blocking
agent. Maraviroc, like all other HIV approved drugs, must be taken daily and is believed to have side effects and toxicity. For these reasons,
we believe that our lead product candidate, leronlimab, a monoclonal antibody, may prove to be useful in patients that cannot tolerate
existing HIV therapies or desire a respite from those therapies. Nonetheless, manufacturers of current therapies, such as Pfizer, Gilead
Sciences, Merck, Bristol-Myers Squibb and ViiV Healthcare, are very large, multi-national corporations with significant resources. We
expect that these companies will compete fiercely to defend and expand their market share.
To construct a HAART regimen, three drugs from two classes of drugs are typically needed. Currently there are only five different
classes of drugs from which four are primarily used to construct a HAART regimen. Each of these four classes of drugs has many drugs
available in its respective class, except the entry inhibitor (“EI”) class, which has only two drugs available. We believe the only two drugs
in the EI class approved by the FDA are Maraviroc, a small molecule drug (which is taken orally once or twice a day) and Ibalizumab
(which is an IV infusion administered once every two weeks). If approved, we believe that leronlimab will be only the third approved drug
outside of the main four classes of drugs approved for HIV since 2007.
Our potential competitors include entities that develop and produce therapeutic agents. These include numerous public and private
academic and research organizations and pharmaceutical and biotechnology companies pursuing production of, among other things,
biologics from cell cultures, genetically engineered drugs and natural and chemically synthesized drugs. Our competitors may succeed in
developing potential drugs or processes that are more effective or less costly than any that may be developed by us or that gain regulatory
approval prior to our potential drug candidates. Worldwide, there are many antiviral drugs for treating HIV. In seeking to manufacture,
distribute and market the potential drugs we hope to have approved; we face competition from established global pharmaceutical
companies.
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Many of these potential competitors have substantially greater capital resources, management expertise, research and development
capabilities, manufacturing and marketing resources and experience than we do.
We also expect that the number of our competitors and potential competitors will increase as more potential drugs receive
commercial marketing approvals from the FDA or equivalent foreign regulatory agencies. Any of these competitors may be more
successful than us in manufacturing, marketing and distributing HIV treatments, as well as for new therapies for cancer and immunological
disorders.
We remain encouraged from the clinical outcomes from over 60 Emergency Investigation New Drug (EIND) authorizations
granted by the FDA and the preliminary results from our recently completed COVID-19 trials, which, however, did not achieve their
designated primary endpoints. We are continuing to advance the evaluation of leronlimab for COVID through re-designed protocols for two
large Phase 3 trials in Brazil. In addition, we are continuing to evaluate the results of our COVID-19 long-haulers study. There are hundreds
of companies concurrently exploring therapies for COVID-19 and conducting clinical trials. Many of these potential competitors have
substantially greater capital resources, management expertise, research and development capabilities, manufacturing and marketing
resources and experience than we do.
As we advance our evaluation of leronlimab for potential indications in cancer and immunology, we will face competition from
formidable global research-based pharmaceutical companies. Potential competitors such as Roche, Celgene, Bristol-Myers Squibb, Merck,
AbbVie and many others have vast financial, managerial, technical, commercialization and marketing resources than we do than we do.
Manufacturing
We do not own or operate manufacturing facilities for the production of leronlimab. As such, we must depend on third-party
manufacturing organizations and suppliers for all of our clinical trial quantities of leronlimab, in addition to previously manufactured
supplies of commercial grade leronlimab. We continue to explore alternative manufacturing sources, in order to ensure that we have access
to sufficient manufacturing capacity in order to meet potential demand for leronlimab in a cost-efficient manner.
We have engaged Samsung Biologics and AGC Biologics, two global contract manufacturing organizations (“CMOs”), to initiate
the scale-up to commercial batch quantities of product and develop the necessary controls and specifications to manufacture product on a
consistent and reproducible manner. We have also contracted with suitable CMOs to fill, finish, label, and package product into the final
commercial package for commercial use. In order to commercialize product, this scaled-up material will need to be validated under best
practices and demonstrated to meet approved specifications on an ongoing basis. GMP material will be produced as needed to support
clinical trials for all therapeutic indications and until commercial product is approved by the FDA. We will rely on CMOs for all of our
developmental and commercial needs.
Research and Development Costs
The Company’s research and development expenses totaled approximately $58.4 million, $52.6 million and $42.5 million for the
fiscal years ended May 31, 2021, May 31, 2020 and May 31, 2019, respectively. We expect our research and development expenses to
continue to increase in future periods as the activity within the Company’s clinical trials expands and the Company’s biologics
manufacturing processes and related regulatory compliance activities increase.
Employees and Human Capital Resources
We currently have 24 full-time employees, as well as several independent consultants assisting us with the Company’s BLA
preparation, manufacturing activities, regulatory matters and management of our clinical trials. Approximately half of our employees work
out of our corporate offices in Vancouver, WA and the rest of our employees work remotely in various locations throughout the United
States and are members of our research and development
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team. CytoDyn is committed to pay equity regardless of gender or race/ethnicity. There can be no assurances, however, that we will be able
to identify or hire and retain additional employees or consultants on acceptable terms in the future.
We invest in our workforce by offering competitive salaries, wages, and benefits. We endeavor to foster a strong sense of
ownership by offering all employees stock options under our stock incentive program. We also offer comprehensive and locally relevant
benefits for all eligible employees. We recognize and support the growth and development of our employees.
We have implemented COVID-19 policies at our corporate office designed to ensure the safety and well-being of all employees
and the people associated with them. As a result of the COVID-19 pandemic, to reduce risk, our corporate employees have been
encouraged to be vaccinated, have been asked to avoid all non-essential travel, and engage in physical distancing.
None of our employees are subject to a collective bargaining agreement. We consider our relationship with our employees to be
good.
Item 1A. RISK FACTORS
You should carefully consider the risks described below in addition to the other information set forth in this Annual Report on Form
10-K, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations section and the consolidated
financial statements and related notes. These risks, some of which have occurred and any of which may occur in the future, can have a
material adverse effect on our business, financial condition, results of operations or the price of our publicly traded securities. The risks
described below are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to
be immaterial, may occur or become material in the future and adversely affect our business, reputation, financial condition, results of
operations or the price of our publicly traded securities. Therefore, historical operating results, financial and business performance, events
and trends are often not a reliable indicator of future operating results, financial and business performance, events or trends. If any of the
following risks occurs, our business, financial condition, and results of operations and future growth prospects could be materially and
adversely affected.
Summary of Risk Factors
Our business is subject to numerous risks and uncertainties, including those highlighted in this section, that represent challenges we face in
our efforts to successfully implement our strategy. The occurrence of one or more of the events or circumstances described in more detail
below, alone or in combination with other events or circumstances, may have an adverse effect on our business, cash flows, financial
condition and results of operations. Many of the risks facing us are summarized briefly below and, along with additional risk factors set
forth in this Item 1A, are described in more detail in the discussion following this summary. For a more complete understanding of the risks
and uncertainties we face, Item 1A should be read in its entirety, together with the other information presented in this Form 10-K.
Risks Related to Our Financial Position and Need for Additional Capital
•
Our auditors have issued a going concern opinion, and we will not be able to achieve our objectives and will have to cease
operations if we cannot find adequate financing.
• We are a clinical stage biotechnology company with a history of significant operating losses; we expect to continue to incur
operating losses, and we may never achieve, let alone maintain, profitability.
• We will need substantial additional funding to continue to pursue our BLA submission for leronlimab as a combination therapy
with HAART for HIV patients, to complete our current and planned clinical trials, to fund development of leronlimab for
additional indications, and to operate our business, and such funding may not be available or, if it is available, such financing is
likely to substantially dilute our existing stockholders.
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•
Certain agreements and related license agreements require us to make significant milestone, royalty, and other payments, which
will require additional financing and, in the event we do commercialize leronlimab, decrease the revenues we may ultimately
receive on sales. To the extent that such milestone, royalty and other payments are not timely made, the counterparties to such
agreements in certain cases have repurchase and termination rights thereunder with respect to leronlimab.
• We have capitalized pre-launch inventories prior to receiving FDA marketing approval. If either FDA approval or market
acceptance post-approval does not occur on a timely basis prior to shelf-life expiration, we will be required to write off pre-launch
inventories, which would materially and adversely affect our business, financial condition and stock price.
Risks Related to Development and Commercialization of Our Drug Candidates
• We are substantially dependent on the success of leronlimab. If we are unable to complete the clinical development of, obtain and
maintain marketing approval for or successfully commercialize leronlimab, either alone or with collaborators, or if we experience
significant delays in doing so, our business could be substantially harmed.
Obtaining and maintaining regulatory approval of leronlimab or any future product candidates in one jurisdiction does not mean
that we will be successful in obtaining regulatory approval of those product candidates in other jurisdictions.
Our competitors may develop drugs that are more effective, safer and less expensive than ours.
•
• We may not be able to identify, negotiate and maintain the strategic alliances necessary to develop and commercialize our
•
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products and technologies, and we will be dependent on our corporate partners if we do.
Our information technology systems could fail to perform adequately or experience data corruption, cyber-based attacks, or
network security breaches.
Risks Related to Legal Proceedings
• We are involved in a number of legal proceedings and, while we cannot predict the outcomes of such proceedings and other
contingencies with certainty, some of these outcomes could adversely affect our business and financial condition.
• We are subject to the oversight of the SEC and other regulatory agencies. Investigations by those agencies could divert
management’s focus and have a material adverse effect on our reputation and financial condition.
Risks Related to Our Dependence on Third Parties
• We depend on the Vyera License Agreement for the commercialization of leronlimab for the treatment of HIV in humans in the
U.S. Vyera’s failure to successfully commercialize leronlimab for the treatment of HIV in the U.S., if approved by the FDA, could
have a material adverse effect on our business, financial condition and results of operations.
• We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of product
candidates, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.
• We rely on third parties, such as CROs, to conduct clinical trials for our product candidate, leronlimab, and if they do not properly
and successfully perform their obligations to us, we may not be able to obtain regulatory approvals for our product candidate.
Risks Related to Our Intellectual Property Rights
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Our success depends substantially upon our ability to obtain and maintain intellectual property protection relating to our product
candidate.
Known third-party patent rights could delay or otherwise adversely affect our planned development and sale of leronlimab. We
have identified but not exhaustively analyzed other patents that could relate to our proposed products.
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Risks Related to Obtaining Required Regulatory Approvals and Licensure
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If we are not able to obtain all required regulatory approvals for leronlimab, we will not be able to commercialize our primary
product candidate, which would materially and adversely affect our business, financial condition and stock price.
Risks Related to Healthcare Laws and Other Legal Compliance Matters
• We are subject to a complex regulatory scheme that requires significant resources to ensure compliance. Failure to comply with
applicable laws could subject us to government scrutiny or government enforcement, potentially resulting in costly investigations
and/or fines or sanctions, or impacting our relationships with key regulatory agencies such as the FDA, the U.S. Securities and
Exchange Commission, or the SEC, or the EMA.
Risks Related to Ownership of Our Common Stock
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Our common stock is classified as “penny stock” and trading of our shares may be restricted by the SEC’s penny stock
regulations.
The trading price of our common stock has been and could remain volatile, and the market price of our common stock may
decrease.
Our debt service obligations and our need for additional funding to finance operations may cause additional dilution to our
existing stockholders.
If we are unable to effectively maintain a system of internal control over financial reporting, we may not be able to accurately or
timely report our financial results and our stock price could be adversely affected.
Risks Related to Our Financial Position and Need for Additional Capital
Our auditors have issued a going concern opinion, and we will not be able to achieve our objectives and will have to cease operations if
we cannot find adequate financing.
Our auditors issued an opinion, which includes a going concern exception, in connection with the audit of our annual financial
statements for the fiscal year ended May 31, 2021. A going concern exception to an audit opinion means that there is substantial doubt that
we can continue as an ongoing business for the next 12 months. If we are unable to continue as a going concern, we might have to liquidate
our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our
financial statements. In addition, the inclusion of an explanatory paragraph regarding substantial doubt about our ability to continue as a
going concern and our lack of cash resources may materially adversely affect our share price and our ability to raise new capital or to enter
into critical contractual relations with third parties. There is no assurance that we will be able to adequately fund our operations in the
future.
We are a clinical stage biotechnology company with a history of significant operating losses; we expect to continue to incur operating
losses, and we may never achieve, let alone maintain, profitability.
We have not generated significant revenue from product sales, licensing, or other potential sales to date. Since our inception, we have
incurred operating losses in each year due to costs incurred for research and development activities and general and administrative
expenses related to our operations. Our current drug candidate, leronlimab, is in various stages of clinical trials for multiple indications. We
expect to incur losses for the foreseeable future, with no or only minimal revenues as we continue development of, and seek regulatory
approvals for, leronlimab. If leronlimab fails to gain regulatory approval, or if it or other drug or biologic candidates we may acquire or
license in the future do not achieve approval or market acceptance, we will not be able to generate significant revenue, or explore other
opportunities to enhance stockholder value, such as through a sale. If we fail to generate revenue and eventually become and remain
profitable, or if we are unable to fund our continuing operations, our stockholders could lose all or a portion of their investments.
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Since our inception, we have been insolvent and have required debt and equity financing to maintain operations.
Since our inception, we have not achieved cash flows from revenues sufficient to cover basic operating costs. As a result, we have
relied heavily on debt and equity financing. Equity financing, including securities convertible into equity, in particular has created a dilutive
effect on our common stock, which has hampered our ability to attract reasonable financing terms. Issuances of additional equity or
convertible debt securities will continue to reduce the percentage ownership of our then-existing stockholders. We may also be required to
grant potential investors new securities rights, preferences or privileges senior to those possessed by our then-existing stockholders in order
to induce them to invest in our company. The issuance of these senior securities may adversely affect the holders of our common stock by
restricting our ability to declare dividends on the common stock, diluting the voting power of the common stock and subordinating the
liquidation rights of the common stock. As a result of these and other factors, the issuance of additional equity or convertible debt securities
may have an adverse impact on the market price of our common stock. For the foreseeable future, we will be required to continue to rely on
debt and equity financing to maintain our operations.
We will need substantial additional funding to continue to pursue our BLA submission for leronlimab as a combination therapy with
HAART for HIV patients, to complete our current and planned clinical trials, to fund development of leronlimab for additional
indications, and to operate our business, and such funding may not be available or, if it is available, such financing is likely to
substantially dilute our existing stockholders.
The discovery, development, and commercialization of new treatments, such as our leronlimab product candidate, entail significant
costs. In addition, to the extent we pursue further development and clinical trials of leronlimab for indications in addition to HIV, including
COVID-19, cancer, and immunological disorders, we will need to raise substantial additional capital, or enter into strategic partnerships, to
enable us to:
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fund clinical trials and seek regulatory approvals
access manufacturing and commercialization capabilities;
pay required license fees, milestone payments, and maintenance fees to Progenics, Lonza and AbbVie Inc.;
develop, test, and, if approved, market leronlimab;
acquire or license additional internal systems and other infrastructure;
hire and support additional management and scientific personnel; and
explore additional indications for leronlimab.
Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never achieve, we
expect to finance our cash needs primarily through public or private equity offerings, debt financings, or strategic alliances. We cannot be
certain that additional funding will be available on acceptable terms or at all. If we are not able to secure additional funding when needed,
we may have to delay, reduce the scope of, or eliminate one or more of our clinical trials, collaborative development programs, or future
commercialization initiatives. In addition, any additional funding that we do obtain will dilute the ownership held by our existing security
holders.
The amount of this dilution may be substantially increased if we issue new securities at a lower sale price or conversion or exercise
price per share than prior financings. For example, the terms of certain of our convertible notes provide for full-ratchet anti-dilution
protection, pursuant to which the conversion price of the convertible note will be automatically reduced to equal the effective price per
share in any new offering by the Company of equity securities that have registration rights or have been or become registered under the
Securities Act of 1933, as amended the, or the 1933 Act. Regardless, the economic dilution to stockholders will be significant if our stock
price does not increase significantly, or if the effective price of any sale is below the price paid by a particular stockholder. Any debt
financing could involve substantial restrictions on our activities or ability to obtain additional financing, and creditors could seek additional
pledges of some or all of our assets. We do not have commitments from any third parties to provide any future financing. If we fail to
obtain additional funding as needed, we may be forced to cease or scale back operations, such that our financial condition and stock price
would be adversely affected.
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The amount of financing we require will depend on a number of factors, many of which are beyond our control. Our results of
operations, financial condition and stock price are likely to be adversely affected if we are unable to obtain additional funding on
similar or improved terms compared to previous financings.
Our future funding requirements will depend on many factors, including, but not limited to:
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the costs of our ongoing clinical trial programs and pre-clinical studies, as well as other development activities conducted by us
directly, and our ability to successfully conclude the studies and achieve favorable results;
our ability to attract strategic partners to pay for or share costs related to our product development efforts;
the costs and timing of seeking and obtaining regulatory approvals and making related milestone payments due to Progenics,
Lonza, and AbbVie;
the costs of filing, prosecuting, maintaining, and enforcing patents and other intellectual property rights and defending against
potential claims of infringement;
decisions to hire additional scientific or administrative personnel or consultants;
our ability to manage administrative and other costs of our operations; and
the presence or absence of adverse developments in our clinical trial and commercialization readiness programs.
If any of these factors cause our funding needs to be greater than expected, our ability to continue operations, financial condition, and
stock price may be adversely affected.
Our future cash requirements may differ significantly from our current estimates.
Our cash requirements may differ significantly from our estimates from time to time, depending on a number of factors, including:
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the time and costs involved in obtaining regulatory approvals;
the costs and results of our clinical trial programs and pre-clinical studies we are undertaking or may in the future pursue with
leronlimab;
the time and costs involved in our CMC activities;
whether our outstanding convertible notes are converted into equity;
whether we receive additional cash upon the exercise for common stock of our outstanding warrants and options;
whether we are able to obtain funding under future licensing agreements, strategic partnerships, or other collaborative
relationships, if any;
the costs of compliance with laws, regulations, or judicial decisions applicable to us; and
the costs of general and administrative infrastructure required to manage our business and protect corporate assets and stockholder
interests.
If we underestimate our cash requirements, we may need to raise additional funds, which funding may not be available on acceptable
terms or at all. If we fail to raise additional funds on a timely basis, we may need to scale back our business plans, which may require us to
delay, reduce the scope of, or eliminate one or more of our clinical trials, collaborative development programs, or future commercialization
initiatives, which would adversely affect our business, financial condition, and stock price. If we deplete our cash reserves, we may even be
forced to discontinue our operations and liquidate our assets.
Certain agreements and related license agreements require us to make significant milestone, royalty, and other payments, which will
require additional financing and, in the event we do commercialize leronlimab, decrease the revenues we may ultimately receive on
sales. To the extent that such milestone, royalty and other payments are not timely made, the counterparties to such agreements in
certain cases have repurchase and termination rights thereunder with respect to leronlimab.
Under the Progenics Purchase Agreement, the PDL License and the Lonza Agreement, we must pay to Progenics, AbbVie and Lonza
significant milestone payments, license fees for “system know-how” technology, and royalties. In
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order to make the various milestone and license payments that are required, we will need to raise additional funds. In addition, our royalty
obligations will reduce the economic benefits to us of any future sales if we do receive regulatory approval and seek to commercialize
leronlimab. To the extent that such milestone payments and royalties are not timely made, under their respective agreements, Progenics has
certain repurchase rights relating to the assets sold to us, and AbbVie has certain termination rights relating to our license of leronlimab
under the PDL License. For more information, see “Business—PRO 140 Acquisition and Licenses,” as well as the Progenics Purchase
Agreement, the PDL License and the Lonza Agreement, each of which is incorporated by reference to Exhibits 2.1, 10.3, and 10.4,
respectively, to this Form 10-K.
We have capitalized pre-launch inventories prior to receiving FDA marketing approval. If either FDA approval or market acceptance
post-approval does not occur on a timely basis prior to shelf-life expiration, we will be required to write off pre-launch inventories,
which would materially and adversely affect our business, financial condition and stock price.
Pre-launch inventories consist of costs of raw materials and work-in-progress related to our product candidate leronlimab. These
costs have been capitalized prior to the date that we anticipate that such product will receive FDA final marketing approval. The BLA
resubmission will require updating the previously provided analyses, which could result in significant delay in obtaining approval. If FDA
approval is significantly delayed, the shelf-life of our pre-launch inventory may be limited, and the salability of our product may be
affected. In addition, market acceptance of our product could fall short of our expectations, as a result of the introduction of a competing
product, as a result of physicians being unwilling or unable to prescribe leronlimab to their patients, or if our target patient population is
reluctant to try leronlimab as a new therapy. If any of these risks were to materialize with respect to our product, or if the launch of such
product is significantly postponed, the salability of our pre-launch inventories would be adversely affected and may require write-off of the
carrying value of our pre-launch inventories in amounts that could have a material adverse effect on our results of operations and financial
condition.
We are a development stage company, which may make it difficult for you to evaluate the success of our business to date and to assess
our future viability.
Leronlimab in each indication is still in the development stage. We have not yet demonstrated our ability to obtain marketing
approvals, manufacture a commercial scale medicine, or arrange for a third party to do so on our behalf, or conduct sales and marketing
activities necessary for successful commercialization. Typically, it takes about 10 to 15 years to develop one new medicine from the time it
is discovered to when it is available for treating patients. Pre-clinical studies and clinical trials may involve highly uncertain results and a
high risk of failure. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if
we had more experience developing and commercializing our product candidate. In addition, as a development stage business, we may
encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. To be profitable, we will need to
transition from a company with a research and development focus to a company capable of supporting commercial activities. We may not
be successful in such a transition.
Risks Related to Development and Commercialization of Our Drug Candidate
We are substantially dependent on the success of leronlimab. If we are unable to complete the clinical development of, obtain and
maintain marketing approval for or successfully commercialize leronlimab, either alone or with collaborators, or if we experience
significant delays in doing so, our business could be substantially harmed.
We currently have no products approved for sale and are investing a significant portion of our efforts and financial resources in the
development of leronlimab for marketing approval in the United States and potentially other countries. Our prospects are substantially
dependent on our ability to develop, obtain marketing approval for and successfully commercialize leronlimab in the United States in one
or more disease indications.
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The success of leronlimab will depend on a number of factors, including the following:
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our ability to secure the substantial additional capital required to complete clinical trials of leronlimab, and to fund the activities
necessary to successfully commercially launch leronlimab if it receives regulatory approval for marketing in the United States;
successful design, enrollment and completion of clinical trials;
a safety, tolerability and efficacy profile that is satisfactory to the FDA, EMA, Health Canada or any other comparable foreign
regulatory authority for marketing approval;
timely receipt of marketing approvals from applicable regulatory authorities such as the FDA;
the performance of the contract research organizations, or CROs, we have hired to manage our clinical studies, as well as that of
our collaborators and other third-party contractors;
the extent of any required post-marketing approval commitments to applicable regulatory authorities;
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• maintenance of existing or establishment of new supply arrangements with third-party raw materials suppliers and manufacturers;
obtaining and maintaining patent, trade secret protection and regulatory exclusivity, both in the United States and internationally,
•
including our ability to maintain our license agreement with Abbvie, as successor to Progenics Pharmaceuticals, Inc.;
protection of our rights in our intellectual property portfolio, including our ability to maintain our license agreement with AbbVie;
successful launch of commercial sales of leronlimab for the treatment of HIV in humans by our collaborator Vyera following any
marketing approval;
a continued acceptable safety profile following any marketing approval;
commercial acceptance by patients, the medical community and third-party payors; and
our ability to compete with other therapies.
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Many of these factors are beyond our control. If we are unable to develop, receive marketing approval for and successfully
commercialize leronlimab on our own or with our collaborators, or experience delays as a result of any of these factors or otherwise, our
business could be substantially harmed.
The results of previous clinical trials may not be predictive of future results, and the results of our current and planned clinical trials
may not satisfy the requirements of the FDA, EMA, Health Canada or other foreign regulatory authorities.
The process of obtaining approval of a drug product for use in humans is extremely lengthy and time-consuming, and numerous
factors may prevent our successful development of leronlimab, including negative results in ongoing and future clinical trials, and inability
to obtain sufficient additional funding to continue to pursue development. Our clinical trials may be unsuccessful, which would materially
harm our business.
Further, the results from prior clinical trials of leronlimab may not be predictive of the results of future clinical trials or pre-clinical
studies. Clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product
candidates performed satisfactorily in prior clinical trials nonetheless have failed to obtain FDA approval. For example, in February 2018,
we announced that we had met the primary endpoint in our Phase 3 trial for leronlimab as a combination therapy with HAART for highly
treatment-experienced HIV patients and submitted the non-clinical portion of our biologics license application, or BLA to the FDA in
March 2019. We submitted to the FDA the clinical, along with the chemistry, manufacturing, and controls, or CMC, portions of the BLA in
April and May of 2020. In July 2020, we received a Refusal to File letter from the FDA regarding our BLA submission requesting
additional information. The development timeline and regulatory approval and commercialization prospects for leronlimab, including our
business and financial prospects, could be adversely affected by unforeseen risks and events.
In addition, a regulatory authority may change its requirements for the approval of a product candidate even after reviewing and
providing comments or advice on a protocol for a clinical trial that, if successful, would potentially form the basis for an application for
approval by the FDA or another regulatory authority. The FDA may require us to procure the development of a companion diagnostic test
to help identify patients who may be more likely to respond to leronlimab for certain uses. Furthermore, any of these regulatory authorities
may also approve leronlimab for fewer or
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more limited indications than we request or may grant approval contingent on the performance of costly post-marketing clinical trials.
The FDA, EMA, Health Canada, ANVISA and other foreign regulatory authorities retain broad discretion in evaluating the results of
our clinical trials and in determining whether the results demonstrate that leronlimab is safe and effective. If prior to approval, we are
required to conduct additional pre-clinical studies, clinical trials or other types of testing of leronlimab, including after the completion of
our current and planned later phase clinical trials, we will need substantial additional funds, and there is no assurance that the results of any
such additional clinical trials will be sufficient for approval.
Pre-clinical studies and clinical trials of leronlimab or any future product candidate may not be successful. If we are unable to
commercialize leronlimab or any future product candidate or experience significant delays in doing so, our business will be materially
harmed.
We and any collaborators, including our partners and sublicensees, are not permitted to commercialize, market, promote or sell any
product candidate in the United States without obtaining marketing approval from the FDA. Foreign regulatory authorities, such as the
EMA, Health Canada, and ANVISA impose similar requirements. We and our collaborators must complete extensive pre-clinical
development and clinical trials that demonstrate the safety and efficacy of our product candidate in humans before we can obtain these
approvals.
Pre-clinical and clinical testing is expensive, is difficult to design and implement, can take many years to complete and is inherently
uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all,
particularly given that many of our clinical trial sites are research hospitals that have imposed restrictions on entry and other activity as a
result of the COVID-19 pandemic. The pre-clinical and clinical development of leronlimab or any future product candidate is susceptible to
the risk of failure inherent at any stage of product development. Moreover, we, or any collaborators, may experience any of a number of
possible unforeseen adverse events in connection with clinical trials, many of which are beyond our control, including:
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we, or our collaborators, may fail to demonstrate efficacy in a clinical trial or across a broad population of patients;
it is possible that even if leronlimab or any future product candidate (x) has a beneficial effect, that effect will not be detected
during pre-clinical or clinical evaluation or (y) may indicate an apparent positive effect of our product candidate that is greater
than the actual positive effect as a result of one or more of a variety of factors, including the size, duration, design, measurements,
conduct or analysis of our clinical trials;
we may fail to detect toxicity or intolerability of leronlimab or any future product candidate, or mistakenly believe that leronlimab
or any future product candidate is toxic or not well tolerated when that is not in fact the case;
adverse events or undesirable side effects caused by, or other unexpected properties of, leronlimab or any future drug candidates
that we may develop could cause us, any collaborators, an institutional review board or regulatory authorities to interrupt, delay or
halt clinical trials of leronlimab or such future product candidate and could result in a more restrictive label or the delay or denial
of marketing approval by the FDA or comparable foreign regulatory authorities;
if leronlimab or any future product candidate is associated with adverse events or undesirable side effects or has properties that
are unexpected, we, or any collaborators, may need to abandon development or limit development of leronlimab or such product
candidate to certain 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;
regulators or institutional review boards may not authorize us, any collaborators or our or their investigators to commence a
clinical trial or conduct a clinical trial at a prospective trial site;
we, or any collaborators, may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical
trial protocols with prospective trial sites;
clinical trials of leronlimab or any future product candidate may produce unfavorable or inconclusive results, including with
respect to the safety, tolerability or efficacy profile of leronlimab or such future product candidate;
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we, or any collaborators, may decide, or regulators may require us or them, to conduct additional clinical trials or abandon drug
development programs;
the number of patients required for clinical trials of leronlimab or any future product candidate in a particular indication may be
larger than we, or any collaborators, anticipate, patient enrollment in these clinical trials may be slower than we, or any
collaborators, anticipate or participants may drop out of these clinical trials at a higher rate than we, or any collaborators,
anticipate;
our estimates of the patient populations available for study may be higher than actual patient numbers and result in our inability to
sufficiently enroll our trials;
the cost of planned clinical trials of leronlimab or any future product candidate may be greater than we anticipate;
our third-party contractors or those of any collaborators, including those manufacturing leronlimab or any future product
candidate or components or ingredients thereof or conducting clinical trials on our behalf or on behalf of any collaborators, may
fail to comply with regulatory requirements or meet their contractual obligations to us or any collaborators in a timely manner or
at all;
patients that enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial
protocol, resulting in the need to increase the needed enrollment size for the clinical trial, extend the clinical trial’s duration, or
drop the patients from the final efficacy analysis for the clinical trial, which can negatively affect the statistical power of the
results;
our decision, or a decision by regulators or institutional review boards, that may require us to suspend or terminate clinical
research for various reasons, including noncompliance with regulatory requirements or their standards of conduct, a finding that
the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the
product candidate or findings of undesirable effects caused by a chemically or mechanistically similar product or product
candidate;
the FDA or comparable foreign regulatory authorities may disagree with our, or any collaborators’, clinical trial designs or our or
their interpretation of data from pre-clinical studies and clinical trials;
the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing
processes or facilities of third-party manufacturers with which we, or any collaborators, enter into agreements for clinical and
commercial supplies;
the supply or quality of raw materials or other materials necessary to conduct clinical trials of leronlimab or any future product
candidate may be insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply;
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner
rendering our clinical data insufficient to obtain marketing approval; and
constraints on our, or any collaborators’, ability to conduct or complete clinical trials for leronlimab or any future product
candidate due to the COVID-19 pandemic, including slowdowns in patient enrollment, restrictions on patient monitoring at
hospital clinical trial sites, closures of third party facilities, and other disruptions to clinical trial activities.
Product development costs for us and our collaborators will increase if we experience delays in testing or pursuing marketing
approvals, and we may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization. We do
not know whether any trials will begin as planned, will need to be restructured, or will be completed on schedule or at all. Significant
clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidate or
allow our competitors to bring products to market before we do could impair our ability to successfully commercialize our product
candidate and may harm our business and results of operations. In addition, many of the factors that lead to clinical trial delays may
ultimately lead to the denial of marketing approval of our product candidate.
Interim top-line and preliminary data from our clinical trials that we announce or publish from time to time may change as more
patient data become available and are subject to audit and verification procedures that could result in material changes in the final
data. From time to time, we may publish interim top-line or preliminary data from our clinical trials.
Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially
change as patient enrollment continues and more patient data become available. Preliminary or
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topline results also remain subject to audit and verification procedures that may result in the final data being materially different from the
preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are
available. Adverse differences between preliminary or interim data and final data could significantly harm our reputation and business
prospects.
We may find it difficult to enroll patients in our clinical trials, which could delay or prevent clinical trials of our product candidates.
Identifying and qualifying patients to participate in clinical trials of leronlimab or any future product candidate is critical to our
success. The timing of our clinical trials depends on the rate at which we can recruit patients to participate in testing our product candidate.
If patients are unwilling to participate in our trials because of concerns about participating in clinical trials during the COVID-19 pandemic
or other public health emergency, negative publicity from adverse events in the biotechnology industries, public perception of vaccine
safety issues, or for other reasons, including competitive clinical trials for similar patient populations, the timeline for recruiting patients,
conducting studies and obtaining regulatory approval of potential products may be delayed. These delays could result in increased costs,
delays in advancing our product development, delays in testing the effectiveness of our technology, or termination of the clinical trials
altogether.
We may not be able to identify, recruit and enroll a sufficient number of patients, or those with the required enrollment criteria, to
complete our clinical trials in a timely manner. Patient enrollment is affected by several factors, including:
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severity of the disease under investigation;
design of the trial protocol;
size of the patient population;
eligibility criteria for the trial in question;
perceived risks and benefits of the product candidate being tested;
proximity and availability of clinical trial sites for prospective patients;
availability of competing vaccines and/or therapies and related clinical trials;
efforts to facilitate timely enrollment in clinical trials;
patient referral practices of physicians; and
ability to monitor patients adequately during and after treatment.
We may not be able to initiate or continue clinical trials if we cannot enroll a sufficient number of eligible patients to participate in the
clinical trials required by regulatory agencies.
Even if we enroll a sufficient number of eligible patients to initiate our clinical trials, we may be unable to maintain participation of
these patients throughout the course of the clinical trial as required by the clinical trial protocol, in which event we may be unable to use the
research results from those patients. If we have difficulty enrolling and maintaining the enrollment of a sufficient number of patients to
conduct our clinical trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials, any of which would have
an adverse effect on our business.
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We are conducting, and intend in the future to conduct, clinical trials for our product candidates at sites outside the United States. The
FDA may not accept data from trials conducted in such locations and the conduct of trials outside the United States could subject us to
additional delays and expense.
We are conducting, and intend in the future to conduct, one or more of our clinical trials with one or more trial sites that are located
outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of these
data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted and
performed by qualified investigators in accordance with good clinical practice. The FDA must be able to validate the data from the trial
through an onsite inspection if necessary. The trial population must also have a similar profile to the U.S. population, and the data must be
applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful, except to the extent the
disease being studied does not typically occur in the United States. In addition, while these clinical trials are subject to the applicable local
laws, FDA acceptance of the data will be dependent upon its determination that the trials also complied with all applicable U.S. laws and
regulations. There can be no assurance that the FDA will accept data from trials conducted outside of the United States. If the FDA does
not accept the data from any trial that we conduct outside the United States, it would likely result in the need for additional trials, which
would be costly and time-consuming and delay or permanently halt our development of our product candidate.
In addition, the conduct of clinical trials outside the United States could have a significant adverse impact on us. Risks inherent in
conducting international clinical trials include:
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clinical practice patterns and standards of care that vary widely among countries;
non-U.S. regulatory authority requirements that could restrict or limit our ability to conduct our clinical trials;
administrative burdens of conducting clinical trials under multiple non-U.S. regulatory authority schema;
foreign exchange rate fluctuations; and
diminished protection of intellectual property in some countries.
We may not obtain marketing approvals for leronlimab.
We may not obtain marketing approval for leronlimab in the United States or other foreign jurisdictions. It is possible that the FDA
or comparable foreign regulatory agencies may refuse to accept for substantive review any future application that we or a collaborator may
submit to market and sell our product candidates, or that any such agency may conclude after review of our or our collaborator’s data that
such application is insufficient to obtain marketing approval of our product candidate.
For example, in February 2018, we announced that we had met the primary endpoint in our Phase 3 trial for leronlimab as a
combination therapy with HAART for highly treatment-experienced HIV patients and submitted the non-clinical portion of our BLA to the
FDA in March 2019. We submitted to the FDA the clinical, along with the CMC portions of the BLA in April and May of 2020. In
July 2020, we received a Refusal to File letter from the FDA regarding our BLA submission requesting additional information. In
August and September 2020, the FDA provided written responses to our questions and met telephonically with certain of our key personnel
and our CRO concerning our BLA submission in an effort to clarify and to expedite the resubmission of our BLA for this indication. The
Company began to resubmit the BLA in July 2021 and is expected to be completed in October 2021.
If the FDA or other comparable foreign regulatory agency does not accept or approve our BLA for leronlimab or any application to
market and sell leronlimab, such regulators may require that we conduct additional clinical trials, pre-clinical studies or manufacturing
validation studies and submit that data before they will reconsider our application. Depending on the extent of these or any other required
trials or studies, approval of any application that we submit may be delayed by several years, or may require us or our collaborator to
expend more resources than we or they have available. It is also possible that additional trials or studies, if performed and completed, may
not be considered sufficient by the FDA or other foreign regulatory agency to approve our applications for marketing and
commercialization.
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Any delay in obtaining, or an inability to obtain, marketing approvals would prevent us or our collaborators from commercializing
our product candidate and generating revenues. If any of these outcomes occur, we would not be eligible for certain milestone and royalty
revenue under our partnership agreements, our collaborators could terminate our partnership agreements, and we may be forced to abandon
our development efforts for our product candidates, any of which could significantly harm our business.
Even if leronlimab or a future product candidate receives marketing approval, we or others may later discover that the product is less
effective than previously believed or causes undesirable side effects that were not previously identified, which could compromise our
ability, or that of any collaborators, to market the product, and could cause regulatory authorities to take certain regulatory actions.
It is possible that our clinical trials may indicate an apparent positive effect of leronlimab or a future a product candidate that is
greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. If, following approval of leronlimab or
such future product candidate, we, or others, discover that the product is less effective than previously believed or causes undesirable side
effects that were not previously identified, any of the following adverse events could occur:
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regulatory authorities may withdraw their approval of the product or seize the product;
we, or any of our collaborators, may be required to recall the product, change the way the product is administered or conduct
additional clinical trials;
additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular product;
we, or any of our collaborators, may be subject to fines, injunctions or the imposition of civil or criminal penalties;
regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;
we, or any of our collaborators, may be required to create a Medication Guide outlining the risks of the previously unidentified
side effects for distribution to patients;
we could be sued and held liable for harm caused to patients;
physicians and patients may stop using our product; and
our reputation may suffer.
Any of these events could harm our business and operations and could negatively impact our stock price.
Changes in methods of product candidate manufacturing or formulation may result in additional costs or delay.
As product candidates proceed through pre-clinical studies to late-stage clinical trials towards potential approval and
commercialization, it is common that various aspects of the development activities, such as manufacturing methods and formulation, are
altered along the way in an effort to optimize processes and results. Any of these changes could cause leronlimab or any future product
candidates to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the materials
manufactured using altered processes. Such changes may also require additional testing, including comparability testing to bridge earlier
clinical data obtained from leronlimab produced under earlier manufacturing methods or formulations, and regulatory authorities may
disagree on the interpretation of results from this testing. This could delay completion of clinical trials, require the conduct of bridging
clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of leronlimab or any future product
candidate and jeopardize our ability to commence sales and generate revenue.
Obtaining and maintaining regulatory approval of leronlimab or any future product candidates in one jurisdiction does not mean that
we will be successful in obtaining regulatory approval of those product candidates in other jurisdictions.
Obtaining and maintaining regulatory approval of leronlimab and any future 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
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process in others. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different
from, and greater than, those in Canada, the EU or the United States including additional pre-clinical 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 including Canada and certain jurisdictions in the EU, 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 plan to submit marketing applications initially in Canada and the EU. 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
and such regulatory requirements can vary widely from country to country. Obtaining other regulatory approvals and compliance with other
regulatory requirements could result in significant delays, difficulties and costs for us and could require additional pre-clinical studies or
clinical trials, which could be costly and time-consuming and could delay or prevent the introduction of our products in certain countries.
The foreign regulatory approval process involves all of the risks associated with FDA approval. We do not have any product candidates
approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in
either domestic or international markets. If we fail to comply with the regulatory requirements in international markets and/or obtain and
maintain applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of leronlimab
or any future product candidates will be harmed.
Any of our current and future product candidates for which we, or any future collaborators, obtain regulatory approval in the future
will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. If approved,
leronlimab and any future product candidates could be subject to post-marketing restrictions or withdrawal from the market and we, or
any future collaborators, may be subject to substantial penalties if we, or they, fail to comply with regulatory requirements or if we, or
they, experience unanticipated problems with our products following approval.
Leronlimab or any future product candidates for which we, or any future collaborators, obtain regulatory approval, as well as the
manufacturing processes, post-approval studies, labeling, advertising and promotional activities for such product, among other things, will
be subject to ongoing requirements of and review by the FDA, EMA and other applicable regulatory authorities. These requirements
include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating
to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the
distribution of samples to physicians and recordkeeping. We and our contract manufacturers will also be subject to user fees and periodic
inspection by regulatory authorities to monitor compliance with these requirements and the terms of any product approval we may obtain.
Even if regulatory approval of a product candidate is granted, the approval may be subject to limitations on the indications or uses for
which the product may be marketed or to the conditions of approval, including the requirement in the United States to implement a Risk
Evaluation and Mitigation Strategy, or REMS.
The FDA, EMA and other regulatory authorities may also impose requirements for costly post-marketing studies or clinical trials and
surveillance to monitor the safety or efficacy of a product. For example, the FDA and other agencies, including the Department of Justice,
closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are manufactured, marketed and
distributed only for the approved indications and in accordance with the provisions of the approved labeling. Regulatory authorities impose
stringent restrictions on manufacturers’ communications regarding off-label use. However, companies generally may share truthful and not
misleading information that is otherwise consistent with a product’s approved labeling. If we, or any future collaborators, do not market
leronlimab or any of our future product candidates for which we, or they, receive regulatory approval for only their approved indications,
we, or they, may be subject to warnings or enforcement action for off-label marketing if it is alleged that we are doing so. Violation of laws
and regulations relating to the promotion and advertising of prescription drugs may lead to investigations or allegations of violations of
federal and state health care fraud and abuse laws and state consumer protection laws, including the False Claims Act and any comparable
foreign laws. In the EU, the direct-to-consumer advertising of prescription-only medicinal products is prohibited. Violations of the rules
governing the promotion of medicinal products in the EU could be penalized by administrative measures, fines and imprisonment. These
laws may further limit or restrict the advertising and promotion of our products to the general public, and may also impose limitations on
our promotional activities with health care professionals.
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In addition, later discovery of previously unknown adverse events or other problems with our products or their manufacturers or
manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:
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restrictions on the manufacturing of such products;
restrictions on the labeling or marketing of such products;
restrictions on product distribution or use;
requirements to conduct post-marketing studies or clinical trials;
warning letters or untitled letters;
withdrawal of the products from the market;
refusal to approve pending applications or supplements to approved applications that we submit;
recall of products;
restrictions on coverage by third-party payors;
fines, restitution or disgorgement of profits or revenues;
exclusion from federal health care programs such as Medicare and Medicaid;
suspension or withdrawal of regulatory approvals;
refusal to permit the import or export of products;
product seizure; or
injunctions or the imposition of civil or criminal penalties.
Even if leronlimab receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-
party payors and others in the medical community necessary for commercial success and the market opportunity for the product
candidate may be smaller than our estimates.
Regulatory approval of leronlimab, if any, is no guarantee of commercial success. The sale and marketing of drug products is a
complicated and multifaceted process, and many approved drugs are not commercially successful. If approved for marketing, the
commercial success of leronlimab will depend upon its acceptance by customers and other stakeholders, including physicians, patients and
health care payors. The degree of market acceptance of leronlimab will depend on a number of factors, including:
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demonstration of clinical safety and efficacy;
relative convenience and ease of administration;
the prevalence and severity of any adverse effects;
the willingness of physicians to prescribe leronlimab and of the target patient population to try new therapies;
safety, tolerability and efficacy of leronlimab compared to competing products;
the introduction of any new products that may in the future become available to treat indications for which leronlimab may be
approved;
new procedures or methods of treatment that may reduce the incidences of the indications in which leronlimab may show utility;
pricing and cost-effectiveness;
the inclusion or omission of leronlimab in applicable treatment guidelines;
the effectiveness of our or any future collaborators’ sales and marketing strategies;
limitations or warnings contained in FDA approved labeling;
our ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs,
including Medicare and Medicaid, private health insurers and other third-party payors; and
the willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement.
If leronlimab or any future drug candidates are approved, but do not achieve an adequate level of acceptance by physicians, health
care payors and patients, we may not generate sufficient revenue and we may not be able to achieve or sustain profitability. Our efforts to
educate the medical community and third-party payors on the benefits of our drug candidate may require significant resources and may
never be successful.
In addition, even if we obtain regulatory approvals, the timing or scope of any approvals may prohibit or reduce our ability to
commercialize our drug candidate successfully. For example, if the approval process takes too long, we
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may miss market opportunities and give other companies the ability to develop competing products or establish market dominance.
Our competitors may develop drugs that are more effective, safer and less expensive than ours.
The biopharmaceutical industry is intensely competitive, and our future success depends on our ability to demonstrate and maintain a
competitive advantage with respect to the design, development and commercialization of product candidates. For example, there are current
treatments that are quite effective at controlling the effects of HIV, and we expect that new developments by other companies and academic
institutions in the areas of HIV treatment will continue. If approved for marketing by the FDA, depending on the approved clinical
indication, leronlimab may be competing with existing and future antiviral treatments for HIV.
Our competitors may:
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develop drug candidates and market drugs that increase the levels of safety or efficacy that our product candidate will need to
show in order to obtain regulatory approval;
develop drug candidates and market drugs that are less expensive or more effective than ours;
commercialize competing drugs before we or our partners can launch any products we are working to develop;
hold or obtain proprietary rights that could prevent us from commercializing our products; and
introduce therapies or market drugs that render our product candidate obsolete.
We expect to compete against large pharmaceutical and biotechnology companies and smaller companies that are collaborating with
larger pharmaceutical companies, new companies, academic institutions, government agencies, and other public and private research
organizations. See “Part I, Item 1. Business—Competition.” These competitors, in nearly all cases, operate research and development
programs that have substantially greater financial resources than we do. Our competitors also have significantly greater experience in:
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developing drug and other product candidates;
undertaking pre-clinical testing and clinical trials;
building relationships with key customers and opinion-leading physicians;
obtaining and maintaining FDA and other regulatory approvals;
formulating and manufacturing drugs;
launching, marketing and selling drugs; and
providing management oversight for all of the above-listed operational functions.
If we fail to achieve superiority over other existing or newly developed treatments, we may be unable to obtain regulatory approval. If
our competitors market drugs that are less expensive, safer, or more effective than our product candidate, or that gain or maintain greater
market acceptance, we may not be able to compete effectively.
For a description of the key competitors for leronlimab in HIV, COVID-19, cancer, and immunological disorders and the products
that are considered competitive with leronlimab, see “Part I, Item 1. Business – Competition”.
Third-party coverage and reimbursement and health care cost containment initiatives and treatment guidelines may constrain our
future revenues.
Our ability to successfully market our product candidate will depend in part on the level of reimbursement that government health
administration authorities, private health coverage insurers and other organizations provide for the cost of our product and related
treatments. Countries in which our product candidate is expected to be sold through reimbursement schemes under national health
insurance programs frequently require that manufacturers and sellers of pharmaceutical products obtain governmental approval of initial
prices and any subsequent price increases. In certain countries, including the United States, government-funded and private medical care
plans can exert significant indirect pressure on prices. We may not be able to sell our drug candidate profitably if adequate prices are not
approved or coverage and reimbursement is unavailable or limited in scope. Increasingly, third-party payors attempt to contain health care
costs in ways that are likely to impact our development of products including:
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failing to approve or challenging the prices charged for health care products;
introducing reimportation schemes from lower priced jurisdictions;
limiting both coverage and the amount of reimbursement for new therapeutic products;
denying or limiting coverage for products that are approved by the regulatory agencies but are considered to be experimental or
investigational by third-party payors; and
refusing to provide coverage when an approved product is used in a way that has not received regulatory marketing approval.
If approved, leronlimab or any of our future product candidates that are regulated as biologics may face competition from biosimilars
approved through an abbreviated regulatory pathway.
The Biologics Price Competition and Innovation Act of 2009, or BPCIA, was enacted as part of the Patient Protection and Affordable
Care Act, or the ACA, to establish an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The
regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation
of a biosimilar as “interchangeable” based on its similarity to an approved biologic. Under the BPCIA, reference biological product is
granted 12 years of data exclusivity from the time of first licensure of the product, and the FDA will not accept an application for a
biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the
reference product. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on
which the reference product was first licensed. During this 12-year period of exclusivity, another company may still develop and receive
approval of a competing biologic, so long as their BLA does not reply on the reference product, sponsor’s data or submit the application as
a biosimilar application. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact,
implementation, and meaning are subject to uncertainty, and any new policies or processes adopted by the FDA could have a material
adverse effect on the future commercial prospects for our biological products.
We believe that leronlimab or any future product candidate we develop that is approved in the United States as a biological product
under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to
congressional action or otherwise, or that the FDA will not consider the subject product candidates to be reference products for competing
products, potentially creating the opportunity for biosimilar competition sooner than anticipated. Moreover, the extent to which a
biosimilar, once approved, will be substituted for any one of the reference products in a way that is similar to traditional generic
substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still
developing. The approval of a biosimilar of leronlimab or any future product candidates could have a material adverse impact on our
business due to increased competition and pricing pressure.
We may not be able to identify, negotiate and maintain the strategic alliances necessary to develop and commercialize our products and
technologies, and we will be dependent on our corporate partners if we do.
We may seek to enter into a strategic alliance with a pharmaceutical company for the further development and approval of our
product candidate, in one or more indications. Strategic alliances potentially provide us with additional funds, expertise, access, and other
resources in exchange for exclusive or non-exclusive licenses or other rights to the technologies and products that we are currently
developing or may explore in the future. We cannot give any assurance we will be able to enter into strategic relationships with a
pharmaceutical company or other strategic partner in the near future or at all, or maintain our current relationships. In addition, we cannot
assure that any agreements we do reach will achieve our goals or be on terms that prove to be economically beneficial to us. When we do
enter into strategic or contractual relationships, we become dependent on the successful performance of our partners or counterparties. If
they fail to perform as expected, such failure could adversely affect our financial condition, lead to increases in our capital needs, or hinder
or delay our development efforts.
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Our information technology systems could fail to perform adequately or experience data corruption, cyber-based attacks, or network
security breaches.
We rely on information technology networks and systems, including the internet, to process, transmit, and store electronic
information. In particular, we depend on our information technology infrastructure to effectively manage our business data, accounting, and
other business processes and electronic communications between our personnel and corporate partners. If we do not allocate and effectively
manage the resources necessary to build and sustain an appropriate technology infrastructure, our business and financial condition could be
materially adversely affected. In addition, security breaches or system failures of this infrastructure may result in system disruptions,
shutdowns, or unauthorized disclosure of confidential information. If we are unable to prevent such breaches or failures, our operations
could be disrupted, and we may suffer financial damage or loss because of lost or misappropriated information.
The ongoing COVID-19 pandemic prevents a significant risk to our information technology systems to the extent that employees,
contractors, and other corporate partners work remotely. As a result, we have been forced to rely on information technology systems that
are outside our direct control. These systems are potentially vulnerable to cyber-based attacks and security breaches. In addition, cyber
criminals are increasing their attacks on individual employees, including scams designed to trick victims into transferring sensitive data or
funds or stealing credentials that compromise information systems. If one of our employees falls victim to these attacks, or our information
technology systems or those of our partners are compromised, our operations could be disrupted, or we may suffer financial loss, loss or
misappropriation of intellectual property or other critical assets, reputational loss, and regulatory fines and intervention.
Risks Related to Legal Proceedings
Class-action litigation filed against us could harm our business, and insurance coverage may not be sufficient to cover all related costs
and damages.
The market price of our common stock has historically experienced and may continue to experience significant volatility. On March
17, 2021, following a period of volatility in the market price for our common stock, a putative class action was filed in the U.S. District
Court for the Western District of Washington, Tacoma against us and certain officers. In the complaint, Plaintiff cites the volatility in our
common stock and alleges the defendants made or are responsible for false and misleading statements regarding leronlimab’s potential as a
treatment for COVID-19. Plaintiff seeks a ruling that this case may proceed as a class action, and seeks unspecified damages, and
attorneys’ fees and costs. A similar class-action lawsuit was filed by a second stockholder on April 9, 2021. The Company and the
individual defendants deny any allegations of wrongdoing and intend to vigorously defend the lawsuits. However, litigation, whether or not
successful, may result in diversion of our management’s attention and resources, and may require us to incur substantial costs, some of
which may not be covered in full by insurance, which could harm our business and financial condition. During the course of litigation,
there may be negative public announcements of the results of hearings, motions or other interim proceedings or developments, which could
have a further negative effect on the market price of our common stock. See discussion of Legal Proceedings in Part I, Item 3 of this Form
10-K.
We are involved in a number of legal proceedings and, while we cannot predict the outcomes of such proceedings and other
contingencies with certainty, some of these outcomes could adversely affect our business and financial condition.
We are, or may become, involved in legal proceedings, government and agency investigations, and derivative litigation (see
discussion of Legal Proceedings in Part I, Item 3 of this Report). We have faced and continue to face allegations by securities litigation law
firms claiming our disclosures are misleading, incomplete, or that we or our officers and directors have violated securities laws. We cannot
predict with certainty the outcomes of these legal proceedings. The outcome of some of these legal proceedings could require us to take, or
refrain from taking, actions which could negatively affect our operations or could require us to pay substantial amounts of money,
adversely affecting our financial condition and results of operations. Additionally, defending against lawsuits and legal proceedings may
involve significant expense and diversion of management’s attention and resources. Negative publicity surrounding such legal proceedings
may also harm our reputation and adversely impact our business and financial condition.
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We are subject to the oversight of the SEC and other regulatory agencies. Investigations by those agencies could divert management’s
focus and have a material adverse effect on our reputation and financial condition.
We are subject to the regulation and oversight of the SEC and state regulatory agencies, in addition to the FDA and other federal
regulatory agencies. As a result, we may face legal or administrative proceedings by these agencies. We are unable to predict the effect of
any governmental investigations on our business, financial condition or reputation. In addition, publicity surrounding any investigation,
even if ultimately resolved in our favor, could have a material adverse effect on our business. See discussion of Legal Proceedings in Part I,
Item 3 of this Form 10-K.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization
of our product candidate.
We face a risk of product liability as a result of the clinical testing of leronlimab and will face an even greater risk if we
commercialize leronlimab. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities
or be required to limit commercialization of leronlimab. Even successful defense could require significant financial and management
resources. Regardless of the merits or eventual outcome, product liability claims may result in:
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decreased demand for leronlimab;
withdrawal of clinical trial participants;
delay or termination of our clinical trial;
significant costs to defend the related litigation;
substantial monetary awards to trial participants or patients;
product recalls, withdrawals or labeling, marketing or promotional restrictions;
loss of revenue;
the inability to commercialize our product candidate;
injury to our reputation and negative media attention; and
a decline in our stock price.
Although we maintain general liability insurance and clinical trial liability insurance, this insurance may not fully cover potential
liabilities that we may incur. The cost of any product liability litigation or other proceeding, even if resolved in our favor, could be
substantial. We will need to increase our insurance coverage if we commercialize leronlimab, if approved. In addition, insurance coverage
is becoming increasingly expensive. If we are unable to maintain sufficient insurance coverage at an acceptable cost or to otherwise protect
against potential product liability claims, it could prevent or inhibit the development and commercial production and sale of leronlimab,
which could harm our business, financial condition, results of operations and prospects.
Risks Related to Our Dependence on Third Parties
We depend on the Vyera License Agreement for the commercialization of leronlimab for the treatment of HIV in humans in the U.S.
Vyera’s failure to successfully commercialize leronlimab for the treatment of HIV in the U.S., if approved by the FDA, could have a
material adverse effect on our business, financial condition and results of operations.
On December 17, 2019, we entered into the Vyera License Agreement under which we granted Vyera an exclusive royalty-bearing
license to commercialize pharmaceutical preparations containing leronlimab for treatment of HIV in humans in the U.S. following its
approval, if any, by the FDA. Pursuant to the terms of the Vyera License Agreement, Vyera is obligated to use commercially reasonable
efforts (as defined in the Vyera License Agreement) to commercialize leronlimab for the treatment of HIV in humans in the U.S.
Under the terms of the Vyera License Agreement, Vyera will make payments to us of up to $87.0 million based upon the achievement
of certain sales and regulatory milestones. In addition, Vyera will pay a royalty to us equal to 50% of Vyera’s gross profit margin from
leronlimab sales (defined in the Vyera License Agreement as “Net Sales”) in the
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U.S. The right to potential future payments under the Vyera License Agreement represents a significant portion of the value of the Vyera
License Agreement. We cannot be certain we will receive any future payments under the Vyera License Agreement, which may adversely
affect the trading price of our common stock and have a material adverse effect on our business, financial condition and results of
operations.
Vyera’s ability to successfully commercialize and generate revenues from leronlimab depends on a number of factors, including
Vyera’s ability to:
develop and execute its sales and marketing strategies for leronlimab;
achieve, maintain and grow market acceptance of, and demand for, leronlimab;
obtain and maintain adequate coverage, reimbursement and pricing from managed care, government and other third party payers;
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• maintain and manage the necessary sales, marketing, manufacturing, managed markets, and other capabilities and infrastructure
that are required to successfully integrate and commercialize leronlimab; and
comply with applicable legal and regulatory requirements.
•
Additional factors that may affect the success of our commercialization arrangement with Vyera include the following:
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we may not succeed in obtaining regulatory approval for the sale of leronlimab or approval with commercially competitive
labeling;
Vyera may prioritize the commercialization of its other products over leronlimab;
Vyera may pursue higher-priority programs, or change the focus of its marketing programs;
Vyera may acquire or develop alternative products;
changes in laws and regulations applicable to, and scrutiny of, the pharmaceutical industry may occur;
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• market acceptance of leronlimab may fail to materialize;
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Vyera may experience financial difficulties; and
Vyera may fail to comply with its obligations under our Vyera License Agreement and related agreements.
Any of the above factors could affect Vyera’s commitment to, and ability to perform, its obligations under the Vyera License
Agreement which, in turn, could adversely affect the commercial success of leronlimab for the treatment of HIV in humans in the U.S. Any
such failure by Vyera to successfully commercialize leronlimab could have a material adverse effect on our business, financial condition
and results of operations.
If Vyera is not successful in commercializing leronlimab for the treatment of HIV in humans in the U.S., our revenues and our
business will suffer.
The commercial success of leronlimab for the treatment of HIV in humans in the U.S. will depend almost entirely on Vyera’s
commercialization efforts. Pursuant to the Vyera License Agreement, Vyera is responsible for marketing, pricing, promoting, selling and
distributing leronlimab for the treatment of HIV in humans in the U.S. If the Vyera License Agreement is terminated in accordance with its
terms, including due to a party’s failure to perform its obligations or responsibilities under the Vyera License Agreement, we would need to
commercialize leronlimab ourselves, for which we currently have no infrastructure, or enter into a new agreement with another
commercialization partner, of which no assurance can be given. If we are unable to build the necessary infrastructure to commercialize
leronlimab ourselves, which would substantially increase our expenses and capital requirements, which we are currently unable to fund, or
are unable to find a suitable replacement commercialization partner, we would be unable to generate any revenue from leronlimab for the
treatment of HIV in humans in the U.S. Even if we are successful at replacing the commercialization capabilities of Vyera, potential
revenues and/or royalties from leronlimab could be adversely affected.
Vyera may market other products, causing leronlimab to vie for Vyera’s promotional, marketing, and selling resources. If Vyera fails
to commit sufficient promotional, marketing and selling resources to leronlimab, our potential royalties and receipt of milestone payments
could be adversely impacted. Additionally, there can be no assurance that Vyera will commit the resources required for the successful
commercialization of leronlimab.
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If Vyera prices leronlimab inappropriately, fails to position and sell leronlimab properly, targets inappropriate physician specialties, or
otherwise does not provide sufficient promotional support, potential product revenue and our potential royalties and milestone payments
could be materially adversely affected.
We will depend on Vyera and any other future licensees and royalty-agreement counterparties for the determination of royalty and
milestone payments. While we typically have primary or back-up rights to audit our licensees and royalty-agreement counterparties, the
independent auditors may have difficulty determining the correct royalty calculation, we may not be able to detect errors, and payment
calculations may entail retroactive adjustments. We may have to exercise legal remedies, if available, to resolve any disputes resulting
from such audits.
The royalty and milestone payments we may receive pursuant to the Vyera License Agreement and any future license or
commercialization agreements are dependent on reports by our licensees regarding their achievement of regulatory milestones and product
sales. Each licensee’s calculation of the royalty payments is subject to and dependent upon the adequacy and accuracy of its sales and
accounting functions, and errors may occur from time to time in the calculations made by a licensee, or a licensee may fail to report the
achievement of royalties or milestones in whole or in part. Our license and royalty agreements typically provide us the primary or back-up
right to audit the calculations and sales data for the associated royalty payments; however, such audits may occur many months following
our recognition of the royalty revenue, may require us to adjust our royalty revenues in later periods and may entail expense on the part of
the Company. Further, our licensees and royalty-agreement counterparties may be uncooperative or have insufficient records, which may
complicate and delay the audit process.
Although we intend to regularly exercise our royalty audit rights as necessary and to the extent available, we will be relying in the
first instance on our licensees and royalty-agreement counterparties to accurately report the achievement of milestones and royalty sales
and calculate and pay applicable milestones and royalties and, upon exercise of such royalty and other audit rights, we will rely on
licensees’ and royalty-agreement counterparties’ cooperation in performing such audits. In the absence of such cooperation, we may be
forced to exercise legal remedies, if available, to enforce our agreements.
We have a very limited number of internal research and development personnel, making us dependent on consulting relationships and
strategic alliances with industry partners.
We currently have five employees dedicated to CMC activities and quality control. We rely and intend to continue to rely on third
parties to supplement many of these functions. We contract with Ama third party full service CROs, to manage our clinical trials. As a
result, we are dependent on consultants and strategic partners in our development and commercialization activities, and it may be
administratively challenging to monitor and coordinate these relationships. If we do not appropriately manage our relationships with third
parties, we may not be able to successfully manage development, testing, and preparation of regulatory filings for our product or
commercialize any approved product, which would have a material and adverse effect on our business, financial condition and stock price.
We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of product
candidate, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.
We are dependent on third parties for important aspects of our product development strategy. We do not have the required financial
and human resources to carry out independently the pre-clinical and clinical development for our product candidate, and do not have the
capability or resources to manufacture, market or sell our current product candidate. As a result, we contract with and rely on third parties
for important functions, including testing, storing, and manufacturing our products and managing and conducting clinical trials from which
we may obtain a benefit. We have recently entered into several agreements with third parties for such services. If problems develop in our
relationships with third parties, or if such parties fail to perform as expected, it could lead to delays or lack of progress, significant cost
increases, changes in our strategies, and even failure of our product initiatives.
Any manufacturing problem or the loss of a contract manufacturer could be disruptive to our operations and result in lost sales. Any
reliance on suppliers involves risks, including a potential inability to obtain critical materials and
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reduced control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption to a future contract
manufacturer caused by problems at suppliers could delay shipment of our products, increase our cost of goods sold, and result in lost sales.
We rely on third parties, such as CROs, to conduct clinical trials for our product candidate, leronlimab, and if they do not properly and
successfully perform their obligations to us, we may not be able to obtain regulatory approvals for our product candidate.
We, in consultation with our collaborators, where applicable, design the clinical trials for our product candidate, leronlimab, but we
rely on CROs and other third parties to perform many of the functions in managing, monitoring and otherwise carrying out many of these
trials. We compete with larger companies for the resources of these third parties. In addition, these third parties may be adversely affected
by the COVID-19 pandemic.
Although we plan to continue to rely on these third parties to conduct our ongoing and any future clinical trials, we are responsible
for ensuring that each of our clinical trials is conducted in accordance with its general investigational plan and protocol. Moreover, the
FDA and foreign regulatory agencies require us to comply with regulations and standards, including good clinical practices, for designing,
conducting, monitoring, recording, analyzing, and reporting the results of clinical trials to assure that the data and results are credible and
accurate and that the rights, integrity and confidentiality of trial participants are protected. Our reliance on third parties that we do not
control does not relieve us of these responsibilities and requirements. The third parties on whom we rely generally may terminate their
engagements with us at any time. If we are required to enter into alternative arrangements because of any such termination, the introduction
of our product candidate to market could be delayed.
If these third parties do not successfully carry out their duties under their agreements with us, if the quality or accuracy of the data
they obtain, process and analyze is compromised for any reason or if they otherwise fail to comply with clinical trial protocols or meet
expected deadlines, our clinical trials may experience delays or may fail to meet regulatory requirements. If our clinical trials do not meet
regulatory requirements or if these third parties need to be replaced, our pre-clinical development activities or clinical trials may be
extended, delayed, suspended or terminated. If any of these events occur, we may not be able to obtain regulatory approval of our product
candidate and our reputation could be harmed.
We rely on third-party manufacturers to produce our pre-clinical and clinical product candidate supplies, and we intend to rely on third
parties to produce commercial supplies of our product candidate, if approved. Any failure by a third-party manufacturer to produce
supplies for us may delay or impair our ability to complete our clinical trials or commercialize our product candidate.
We do not possess all of the capabilities to fully commercialize our product candidate, leronlimab, on our own. We have relied upon
third-party manufacturers for the manufacture of our product candidate for pre-clinical and clinical testing purposes and intend to continue
to do so in the future. If we are unable to arrange for third-party manufacturing sources, or to do so on commercially reasonable terms, we
may not be able to complete development of such product candidate or to market them.
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Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured our product candidate
ourselves, including reliance on the third party for regulatory compliance and quality assurance, the possibility of breach of the
manufacturing agreement by the third party because of factors beyond our control, failure of the third party to accept orders for supply raw
materials and the possibility of termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time
that is costly or damaging to us. In addition, the FDA and other regulatory authorities require that our product candidate be manufactured
according to current good manufacturing practices, or current good manufacturing practices, or cGMPs, and similar foreign standards. Any
failure by our third-party manufacturers to comply with cGMP or failure to scale-up manufacturing processes as needed, including any
failure to deliver sufficient quantities of product candidate in a timely manner, could lead to a delay in, or failure to obtain, regulatory
approval of our product candidate. In addition, such failure could be the basis for action by the FDA to withdraw approvals for any product
candidate previously granted to us and for other regulatory action, including recall or seizure, fines, imposition of operating restrictions,
total or partial suspension of production or injunctions.
We rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidate for our
clinical studies and potential commercial manufacturing. There are a limited number of suppliers of raw and starting materials that we use
to manufacture our product candidate. Such suppliers may not sell these materials to our manufacturers at the times we need them or on
commercially reasonable terms. We do not have any control over the process or timing of the acquisition of these materials by our
manufacturers.
Any significant delay in the supply of a product candidate or the raw material components thereof for an ongoing clinical trial or
potential commercial launch due to the need to replace a third-party manufacturer could considerably delay completion of our clinical
trials, product testing and potential regulatory approval of our product candidate. If our supply chain is disrupted due to any of these factors
after regulatory approval has been obtained for our product candidate, there could be a shortage in supply, which would impair our ability
to generate revenues from the sale of our product candidate. It may also cause us to breach our obligations under the Vyera Supply
Agreement, pursuant to which we have agreed to supply leronlimab to Vyera for commercialization.
We do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidate
and we currently have no plans to build our own clinical or commercial scale manufacturing capabilities. To meet our projected needs for
commercial manufacturing in the event that our product candidate gains marketing approval, third parties with whom we currently work
may need to increase their scale of production or we may need to secure alternate suppliers.
Any failure of any of our upstream suppliers to deliver necessary quantities of leronlimab could result in delays in our
commercialization schedule and adversely affect our ability to meet our supply obligations to Vyera. In addition, we may still be
obligated to satisfy obligations to our upstream suppliers and/or licensors even if Vyera’s commercialization achievements are
insufficient to enable us to fully satisfy such obligations.
We will be dependent on our upstream supply agreements with various partners to satisfy our obligations under the Vyera Supply
Agreement, also entered into in December 2019, to supply leronlimab to Vyera for commercialization. A failure in our upstream supply
chain could adversely impact our ability to meet our supply obligations under the Vyera Supply Agreement and could impact Vyera’s
ability to successfully commercialize leronlimab. We have obligations to our upstream suppliers and licensors that are independent of
Vyera’s obligations to us. Therefore, if Vyera is not able to successfully commercialize leronlimab, we may still be obligated to meet certain
of our obligations to our upstream suppliers. There can be no assurances that Vyera’s commercialization of leronlimab will be sufficient to
enable us to meet the obligations to our upstream suppliers and/or licensors.
We anticipate being able to provide to Vyera, in satisfaction of our supply obligations thereto, certain inventory of product that we
have on hand in connection with the launch and initial commercialization period of leronlimab. If we are unable to do so due to dating
restrictions at the time of regulatory approval of leronlimab, if any, the launch of leronlimab may be delayed and we will likely incur
additional costs in order to provide Vyera with sufficient product for the launch and the initial commercialization period of leronlimab.
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Risks Related to Our Intellectual Property Rights
Our success depends substantially upon our ability to obtain and maintain intellectual property protection relating to our product
candidate.
Due to evolving legal standards relating to the patentability, validity and enforceability of patents covering pharmaceutical inventions
and the claim scope of patents, our ability to enforce our existing patents and to obtain and enforce patents that may issue from any pending
or future patent applications is uncertain and involves complex legal, scientific and factual questions. To date, no consistent policy has
emerged regarding the breadth of claims allowed in biotechnology and pharmaceutical patents. We have pending patents for certain
indications for our core product candidate, and continue to seek patent coverage for various potential therapeutic applications for
leronlimab. However, we cannot be sure that any patents will issue from any pending or future patent applications owned by or licensed to
us. Even if patents do issue, we cannot be sure that the claims of these patents will be held valid or enforceable by a court of law, will
provide us with any significant protection against competing products, or will afford us a commercial advantage over competitive products.
If one or more products resulting from our product candidate is approved for sale by the FDA and we do not have adequate intellectual
property protection for those products, competitors could duplicate them for approval and sale in the United States without repeating the
extensive testing required of us or our partners to obtain FDA approval.
Known third-party patent rights could delay or otherwise adversely affect our planned development and sale of leronlimab. We have
identified but not exhaustively analyzed other patents that could relate to our proposed products.
We are aware of patent rights held by a third party that may cover certain compositions within our leronlimab candidate. The patent
holder has the right to prevent others from making, using, or selling a drug that incorporates the patented compositions, while the patent
remains in force. While we believe that the third party’s patent rights will not affect our planned development, regulatory clearance, and
eventual commercial production, marketing, and sale of leronlimab, there can be no assurance that this will be the case. We believe the
relevant patent expires before we expect to commercially introduce leronlimab. In addition, the Hatch-Waxman exemption to U.S. patent
law permits all uses of compounds in clinical trials and for other purposes reasonably related to obtaining FDA clearance of drugs that will
be sold only after patent expiration, so our use of leronlimab in those FDA-related activities does not infringe the patent holder’s rights.
However, were the patent holder to assert its rights against us before expiration of the patent for activities unrelated to FDA clearance, the
development and ultimate sale of a leronlimab product could be significantly delayed, and we could incur the expense of defending a patent
infringement suit and potential liability for damages for periods prior to the patent’s expiration.
In connection with our acquisition of rights to leronlimab, our patent counsel conducted a freedom-to-operate search that identified
other patents that could relate to our proposed leronlimab candidate. Based upon research and analysis to date, we believe leronlimab likely
does not infringe those patent rights. If any of the holders of the identified patents were to assert patent rights against us, the development
and sale of leronlimab could be delayed, we could be required to spend time and money defending patent litigation, and we could incur
liability for infringement or be enjoined from producing our products if the patent holders prevailed in an infringement suit.
If we are sued for infringing on third-party intellectual property rights, it will be costly and time-consuming, and an unfavorable
outcome would have a significant adverse effect on our business.
Our ability to commercialize our product candidate depends on our ability to use, manufacture and sell that product without infringing
the patents or other proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications owned by
third parties exist in the monoclonal antibody therapeutic area in which we are developing our product candidate and seeking new potential
product candidates. There may be existing patents, unknown to us, on which our activities with our product candidate could infringe.
If a third party claims our actions or products or technologies infringe on its patents or other proprietary rights, we could face a
number of issues that could seriously harm our competitive position, including, but not limited to:
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infringement and other intellectual property claims that, even if meritless, can be costly and time-consuming, delay the regulatory
approval process and divert management’s attention from our core business operations;
substantial damages for infringement, if a court determines that our products or technologies infringe a third party’s patent or
other proprietary rights;
a court prohibiting us from selling or licensing our products or technologies unless the holder licenses the patent or other
proprietary rights to us, which it is not required to do; and
even if a license is available from a holder, we may have to pay substantial royalties or grant cross-licenses to our patents or other
proprietary rights.
If any of these events occur, it could significantly harm our operations and financial condition and negatively affect our stock price.
Although no third party has asserted a claim of infringement against us, others may hold proprietary rights that could prevent our
product candidate from being marketed. Any patent-related legal action against us claiming damages and seeking to enjoin commercial
activities relating to our product candidate or our processes could subject us to potential liability for damages and require us to obtain a
license to continue to manufacture or market leronlimab or any other product candidates. We cannot predict whether we would prevail in
any such actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at
all. In addition, we cannot be sure that we could redesign leronlimab or any other product candidates or processes to avoid infringement, if
necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses,
could prevent us from developing and commercializing leronlimab or another product candidate, which could harm our business, financial
condition and operating results.
We may undertake infringement or other legal proceedings against third parties, causing us to spend substantial resources on litigation
and exposing our own intellectual property portfolio to challenge.
We may come to believe that third parties are infringing on our patents or other proprietary rights. To prevent infringement or
unauthorized use, we may need to file infringement and/or misappropriation suits, which are very expensive and time-consuming and
would distract management’s attention. Also, in an infringement or misappropriation proceeding a court may decide that one or more of our
patents is invalid, unenforceable, or both, in which case third parties may be able to use our technology without paying license fees or
royalties. Even if the validity of our patents is upheld, a court may refuse to stop the other party from using the technology at issue on the
ground that the other party’s activities are not covered by our patents.
We may become involved in disputes with our present or future contract partners over intellectual property ownership or other matters,
which would have a significant effect on our business.
Inventions discovered in the course of performance of contracts with third parties may become jointly owned by our strategic partners
and us, in some cases, and the exclusive property of one of us, in other cases. Under some circumstances, it may be difficult to determine
who owns a particular invention or whether it is jointly owned, and disputes could arise regarding ownership or use of those inventions.
Other disputes may also arise relating to the performance or alleged breach of our agreements with third parties. Any disputes could be
costly and time-consuming, and an unfavorable outcome could have a significant adverse effect on our business.
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Risks Related to Obtaining Required Regulatory Approvals and Licensure
If we are not able to obtain all required regulatory approvals for leronlimab, we will not be able to commercialize our primary product
candidate, which would materially and adversely affect our business, financial condition and stock price.
Clinical testing is expensive, is difficult to design and implement, can take many years to complete and is uncertain as to outcome.
Success in early phases of pre-clinical and clinical trials does not ensure that later clinical trials will be successful, and interim results of a
clinical trial do not necessarily predict final results. A failure of one or more of our clinical trials may occur at any stage of testing. We may
experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent our ability to receive
regulatory approval or commercialize leronlimab, or any future drug candidates. The research, testing, manufacturing, labeling, packaging,
storage, approval, sale, marketing, advertising and promotion, pricing, export, import and distribution of drug products are subject to
extensive regulation by the FDA and other regulatory authorities in the United States and other countries, which regulations differ from
country to country. We are not permitted to market a drug candidate as prescription pharmaceutical products in the United States until we
receive approval of BLA from the FDA, or in foreign markets until we receive the requisite approval from comparable regulatory
authorities in such countries. In the United States, the FDA generally requires the completion of clinical trials of each drug to establish its
safety and efficacy and extensive pharmaceutical development to ensure its quality before BLA is approved. Regulatory authorities in other
jurisdictions impose similar requirements. Of the large number of drugs in development, only a small percentage result in the submission of
BLA to the FDA and even fewer are eventually approved for commercialization.
Receipt of necessary regulatory approval for the use of leronlimab for one or more indications is subject to a number of risks,
including the following:
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the FDA or comparable foreign regulatory authorities or IRBs may disagree with the design or implementation of our clinical
trials;
we may not be able to provide acceptable evidence of the safety and efficacy of our drug candidate;
the results of our clinical trials may not be satisfactory or may not meet the level of statistical or clinical significance required by
the FDA, the European Medicines Agency (“EMA”), or other comparable foreign regulatory authorities for marketing approval;
the dosing of our drug candidate in a particular clinical trial may not be at an optimal level;
patients in our clinical trials may suffer adverse effects for reasons that may or may not be related to our drug candidate;
the data collected from clinical trials 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.
Failure to obtain regulatory approval for leronlimab for the foregoing or any other reasons will prevent us from commercializing such
product candidate as a prescription product, and our ability to generate revenue will be materially impaired. We cannot guarantee regulators
will agree with our assessment of the results of our clinical trials or that such trials will be considered by regulators to have shown safety or
efficacy of our product candidate. The FDA, EMA and other regulators have substantial discretion in the approval process and may refuse
to accept any application or may decide that our data is insufficient for approval and require additional clinical trials, or pre-clinical or other
studies. In addition, varying interpretations of the data obtained from pre-clinical and clinical testing could delay, limit or prevent
regulatory approval of a product candidate.
For example, in February 2018, we announced that we had met the primary endpoint in our Phase 3 trial for leronlimab as a
combination therapy with HAART for highly treatment experienced HIV patients and submitted the non-clinical portion of our BLA with
the FDA in March 2019. We completed our submission in May 2020. In July 2020, we received a Refusal to File letter from the FDA
regarding the BLA submission. We have retained a leading global
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healthcare diagnostics company, along with an expanded team of subject matter expert consultants, to assist us in the resubmission of our
BLA, which commenced in July 2021 and is expected to be completed in October 2021. However, even upon resubmission, there can be no
assurance as to if or when the FDA will declare the filing complete.
In addition, we have only limited experience in filing the applications necessary to gain regulatory approvals and expect to continue
to rely on consultants and third-party contract research organizations, or CROs, with expertise in this area to assist us in this process.
Securing FDA approval requires the submission of pre-clinical, clinical and/or pharmacokinetic data, information about product
manufacturing processes and inspection of facilities and supporting information to the FDA for each therapeutic indication to establish a
product candidate’s safety and efficacy for each indication. Our drug candidate may prove to have undesirable or unintended side effects,
toxicities, or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use with respect to
one or all intended indications.
Finally, disruptions at the FDA and other agencies may prolong the time necessary for new drugs to be reviewed and/or approved by
necessary government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government
has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical employees and stop critical
activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our
regulatory submissions, which could have a material adverse effect on our business. If we experience any delays in obtaining approval or if
we fail to obtain approval of our product candidate, the commercial prospects for our product candidate may be harmed, and our ability to
generate revenues will be materially impaired.
We may not be able to receive Emergency Use Authorization (EUA) for leronlimab as a treatment for COVID-19, or such authorization
may be delayed, which would materially affect our business, financial condition and stock price.
On February 4, 2020, the Secretary of Health and Human Services determined that COVID-19 represents a public health emergency
that has a significant potential to affect national security or the health and security of U.S. citizens living abroad and, subsequently, declared
on March 24, 2020, that circumstances exist to justify the authorization of emergency use of certain medical products, during the COVID-
19 pandemic, subject to the terms of any authorization as issued by the FDA.
With this declaration of a public health emergency, the FDA may issue an Emergency Use Authorization, or EUA, for an unapproved
product if the following four statutory criteria have been met: (1) a serious or life-threatening condition exists; (2) evidence that the product
may be effective in diagnosing or treating such condition; (3) a risk-benefit analysis shows that the benefits of the product outweigh the
risks; and (4) no adequate, approved and available alternatives exist for diagnosing, preventing or treating the disease or condition. The
statute directs FDA to assess the potential effectiveness of a possible EUA product on a case-by-case basis using a risk-benefit analysis. In
determining whether the known and potential benefits of the product outweigh the known and potential risks, the FDA examines the
totality of the scientific evidence to make an overall risk-benefit determination. Such evidence, which could arise from a variety of sources,
may include (but is not limited to) results of domestic and foreign clinical trials, in vivo efficacy data from animal models and in vitro data.
Once granted, an EUA will generally remain in effect until the earlier of (1) a determination by the Secretary of HHS that the public
health emergency has ceased or (2) a change in the approval status of the product such that the authorized use(s) of the product are no
longer unapproved. After the EUA is no longer valid, the product is no longer considered to be legally marketed, and FDA’s non-
emergency approval pathway would be necessary to resume or continue distribution of the product. The FDA also may revise or revoke an
EUA if the circumstances justifying its issuance no longer exist, the criteria for its issuance are no longer met, or other circumstances make
a revision or revocation appropriate to protect the public health or safety.
We recently completed a Phase 3 clinical trial to evaluate the safety and efficacy of leronlimab as a treatment for patients with severe-
to-critical COVID-19, which did not meet its primary endpoint. Since the COVID-19 pandemic began, we have expended significant time
and financial resources to evaluate leronlimab as a therapeutic treatment for COVID-19. Obtaining and maintaining such an authorization
is dependent upon a number of factors, which are not
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under our control. If we are unable to receive an EUA from the FDA or other countries for treating COVID-19 patients, we will not be able
to market leronlimab for COVID-19 in the U.S. or abroad for this condition and our ability to generate revenues will be adversely affected.
Moreover, even if we are successful in receiving an EUA or approval from the FDA or elsewhere for the treatment of COVID-19 patients,
the availability of vaccines against COVID-19 may significantly reduce the demand for leronlimab as a treatment for COVID-19 patients,
which could materially affect our business.
We and our contract manufacturers are subject to significant regulation. The manufacturing facilities on which we rely may not
continue to meet regulatory requirements, which could materially harm our business.
All entities involved in the preparation of product candidates for clinical trials or commercial sale, including any contract
manufacturers, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in
late-stage clinical trials must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and
procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of
investigational products and products approved for sale. Poor control of production processes can lead to the introduction of adventitious
agents or other contaminants or to inadvertent changes in the properties or stability of our product candidate that may not be detectable in
final product testing.
We or our contract manufacturers must supply all necessary documentation in support of a BLA on a timely basis and must adhere to
the FDA’s current Good Laboratory Practice and cGMP regulations enforced through its facilities inspection program. Our facilities and
quality systems and the facilities and quality systems of some or all of our third-party manufacturers must pass a pre-approval inspection
for compliance with the applicable regulations as a condition of regulatory approval of any product candidate. In addition, the regulatory
authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidate or the
associated quality systems for compliance with the regulations applicable to the activities being conducted. If these facilities do not pass a
pre-approval plant inspection, FDA approval of the products will not be granted.
The regulatory authorities also may, at any time following approval of a product for sale, audit our manufacturing facilities or those of
our third-party manufacturers. If any such inspection or audit identifies failure to comply with applicable regulations or if a violation of our
product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority
may require remedial measures that may be costly and/or time-consuming for us or a third party to implement and that may include the
temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility, which may
lead to temporary or permanent supply shortages. Any such remedial measures imposed upon us or third parties with whom we contract
could materially harm our business.
If we or our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including,
among other things, refusal to approve a pending application for a new product, or revocation of a pre-existing approval. Any such
consequence would severely harm our business, financial condition and results of operations.
We may seek Fast Track designation, Breakthrough Therapy designation, or PRIME designation for our product candidate, but we
might not receive any such designation, and even if we do, such designation may not actually lead to a faster development or regulatory
review or approval process.
If a drug is intended for the treatment of a serious or life-threatening condition, and non-clinical or clinical data demonstrate the
potential to address an unmet medical need for this condition, the product candidate may qualify for FDA Fast Track designation, for which
sponsors must apply. Sponsors of fast track products may have more frequent interactions with the FDA, and, in some circumstances, the
FDA may initiate review of sections of a fast track product’s application before the application is complete. We have previously received
Fast Track designation for HIV and mTNBC. We may submit an application for Fast Track designation for our product candidate for other
indications. The FDA has broad discretion whether to grant this designation, and we may not receive it. Moreover, even if we receive Fast
Track designation, Fast Track designation does not ensure that we will receive marketing approval or that approval will be granted within
any particular time frame. We may not experience a faster development or regulatory review or
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approval process with Fast Track designation compared to conventional FDA procedures. 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. Fast Track
designation alone does not guarantee qualification for the FDA’s priority review procedures.
When appropriate we may seek a Breakthrough Therapy designation for our product candidate for various indications if future results
support such designation. A Breakthrough Therapy is defined as a drug (including biologic) that is intended, alone or in combination with
one or more other drugs, to treat a serious 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. Sponsors of products that have been designated as breakthrough therapies are eligible to receive more intensive FDA
guidance on establishing an efficient drug development program, an organization commitment involving senior managers, and may be
eligible for rolling review. Drugs designated as breakthrough therapies by the FDA may also be eligible for other expedited review
programs, including accelerated approval and priority review, if supported by clinical data at the time the BLA or NDA is submitted to the
FDA.
Designation as a Breakthrough Therapy is within the discretion of the FDA. Accordingly, even if we believe that our product
candidate meets the criteria for designation as a Breakthrough Therapy, the FDA may disagree and instead determine not to make such
designation. Even if we receive Breakthrough Therapy designation, the receipt of such designation may not result in a faster development
or regulatory review or approval process compared to drugs considered for approval under conventional FDA procedures and does not
assure ultimate approval by the FDA. In addition, even if our product candidate qualifies as a Breakthrough Therapy, the FDA may later
decide that it no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be
shortened.
In the EU, we may seek PRIME designation for our product candidate in the future. PRIME is a voluntary program aimed at
enhancing the EMA’s role to reinforce scientific and regulatory support in order to optimize development and enable accelerated
assessment of new medicines that are of major public health interest with the potential to address unmet medical needs. The program
focuses on medicines that target conditions for which there exists no satisfactory method of treatment in the EU or even if such a method
exists, it may offer a major therapeutic advantage over existing treatments. PRIME is limited to medicines under development and not
authorized in the EU and the applicant intends to apply for an initial marketing authorization application through the centralized procedure.
To be accepted for PRIME, a product candidate must meet the eligibility criteria in respect of its major public health interest and
therapeutic innovation based on information that is capable of substantiating the claims. The benefits of a PRIME designation include the
appointment of a CHMP rapporteur to provide continued support and help to build knowledge ahead of a marketing authorization
application, early dialogue and scientific advice at key development milestones, and the potential to qualify products for accelerated
review, meaning reduction in the review time for an opinion on approvability to be issued earlier in the application process. PRIME enables
an applicant to request parallel EMA scientific advice and health technology assessment advice to facilitate timely market access. Even if
we receive PRIME designation for our product candidate, the designation may not result in a materially faster development process, review
or approval compared to conventional EMA procedures. Further, obtaining PRIME designation does not assure or increase the likelihood
of EMA’s grant of a marketing authorization.
Even if we obtain regulatory approval for our product candidate, we will still face extensive and ongoing regulatory requirements and
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 the product candidate.
Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval pre-clinical
and clinical testing, labeling, packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, and advertising and
promotional activities for such product, among other things, will be subject to extensive and ongoing requirements of the FDA and other
regulatory authorities. These requirements include submissions of safety and other post- marketing information and reports, establishment
registration and drug listing requirements, continued compliance with current Good Manufacturing Practice, or cGMP, requirements
regarding the
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distribution of samples to physicians and recordkeeping and Good Laboratory Practice, or GLP, and GCP requirements for non-clinical
studies and any clinical trials that we conduct post-approval.
The FDA may also require costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a
product. Additionally, the FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only
for the approved indications and in a manner that is consistent with the provisions of the approved labeling. If we market our products for
uses beyond their approved indications or otherwise inconsistent with the FDA-approved labeling, we may be subject to enforcement
action for off-label marketing by the FDA and other federal and state enforcement agencies, including the Department of Justice. Violation
of the Federal Food, Drug, and Cosmetic Act, or FDCA, and other statutes, including the False Claims Act, and equivalent legislation in
other countries relating to the promotion and advertising of prescription products may also lead to investigations or allegations of violations
of federal and state and other countries’ health care fraud and abuse laws and state consumer protection laws. Even if it is later determined
we were not in violation of these laws, we may be faced with negative publicity, incur significant expenses defending our actions and have
to divert significant management resources from other matters.
In addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers, or
manufacturing processes or failure to comply with regulatory requirements, may yield various results, including, but not limited to:
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restrictions on manufacturing such products;
restrictions in the labeling or on the marketing of products;
restrictions on product distribution or use;
requirements to conduct post-marketing studies or clinical trials;
issuance of warning letters or untitled letters;
refusal to approve pending applications or supplements to approved applications that we submit, or delays in such approvals;
recalls or market withdrawals of products;
fines, restitution, or disgorgement of profits or revenues;
suspension or termination of ongoing clinical trials’
suspension or withdrawal of marketing approvals;
refusal to permit the import or export of our products;
product seizure; and
injunctions, consent decrees, or the imposition of civil or criminal penalties.
If we obtain FDA approval for our product candidate, safety risks not identified in our prior clinical trials may first appear after we
obtain approval and commercialize the product candidate. Any new post-marketing adverse events may significantly impact our ability to
market the drugs and may require that we recall and discontinue commercialization of the products. Furthermore, if any confirmatory post-
marketing trial fails to confirm the clinical profile or clinical benefits of our product candidate, the FDA may withdraw its approval, which
would materially harm our business.
We also cannot predict the likelihood, nature, or extent of government regulation that may arise from future legislation or
administrative or executive action, either in the United States or abroad. Further, the FDA’s, EMA’s and other comparable regulatory
authorities’ policies may change, and additional government regulations may be enacted that could prevent, limit, or delay regulatory
approval of a product candidate or increase the costs and regulatory burden of commercialization. We cannot predict the likelihood, nature
or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or
abroad. 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, which would adversely affect our business, prospects, financial condition, and results of operations. Furthermore, non-
compliance by us or any collaborator with regulatory requirements, including safety monitoring or pharmacovigilance, may also result in
significant financial penalties, which would adversely affect our business.
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Failure to obtain marketing approval in foreign jurisdictions would prevent our product candidate from being marketed in other
countries. Any marketing approval we are granted in the United States would not assure marketing approval in foreign jurisdictions.
In order to market and sell products in the European Union and other foreign jurisdictions, we must obtain separate marketing
approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can
involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The
marketing approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In
addition, in many countries outside the United States, a product must be approved for reimbursement before the product can be approved
for sale in that country. We may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all.
Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory
authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We
may file for marketing approvals but not receive necessary approvals to commercialize any products in any market. Obtaining non-U.S.
regulatory approvals and compliance with non-U.S. regulatory requirements could result in significant delays, difficulties and costs for us
and could delay or prevent the introduction of our product candidate in any country. In addition, if we fail to obtain the non-U.S. approvals
required to market products outside the United States or if we fail to comply with applicable non-U.S. regulatory requirements, our target
markets will be reduced and our ability to realize the full market potential of our product candidate will be harmed and our business,
financial condition, results of operations and prospects may be adversely affected.
Additionally, we could face heightened risks with respect to seeking marketing approval in the United Kingdom as a result of the
recent withdrawal of the United Kingdom from the European Union, commonly referred to as Brexit. The United Kingdom and European
Union entered into a Trade and Cooperation Agreement in connection with Brexit that sets out certain procedures for approval and
recognition of medical products in each jurisdiction. Since the regulatory framework for pharmaceutical products in the United Kingdom
covering the quality, safety, and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales, and
distribution of pharmaceutical products is derived from European Union directives and regulations, Brexit could materially impact the
future regulatory regime that applies to products and the approval of product candidate in the United Kingdom. Any delay in obtaining, or
an inability to obtain, any marketing approvals, as a result of the Trade and Cooperation Agreement would prevent us from
commercializing our product candidate in the United Kingdom and/or the European Union and restrict our ability to generate revenue and
achieve and sustain profitability. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in
the United Kingdom and/or European Union for any product candidate, which could significantly and materially harm our business.
We expect that we will be subject to additional risks in commercializing our product candidate that receive marketing approval
outside the United States, including tariffs, trade barriers and regulatory requirements; economic weakness, including inflation, or political
instability in particular foreign economies and markets; compliance with tax, employment, immigration and labor laws for employees
living or traveling abroad; foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other
obligations incident to doing business in another country; and workforce uncertainty in countries where labor unrest is more common than
in the United States.
Risks Related to Healthcare Laws and Other Legal Compliance Matters
We are subject to a complex regulatory scheme that requires significant resources to ensure compliance. Failure to comply with
applicable laws could subject us to government scrutiny or government enforcement, potentially resulting in costly investigations and/or
fines or sanctions, or impacting our relationships with key regulatory agencies such as the FDA, the U.S. Securities and Exchange
Commission, or the SEC, or the EMA.
A variety of laws apply to us or may otherwise restrict our activities, including the following:
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laws and regulations governing the conduct of pre-clinical and clinical studies in the United States and other countries in which
we are conducting such studies;
laws and regulations in the United States and in countries in which we are interacting with healthcare providers, patients, patient
organizations and other constituencies that prohibit promoting a drug prior to approval and/or reimbursement;
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laws and regulations of countries outside the United States that prohibit pharmaceutical companies from promoting prescription
drugs to the general public;
laws, regulations and industry codes that vary from country to country and govern our relationships with healthcare providers,
patients, patient organizations, and other constituencies, prohibit certain types of gifts and entertainment, establish codes of
conduct and, in some instances, require disclosure to, or approval by, regulatory authorities for us to engage in arrangements with
such constituencies;
anti-corruption and anti-bribery laws, including the FCPA, the UK Bribery Act and various other anti-corruption laws in countries
outside of the United States;
data privacy laws existing in the United States, the EU and other countries in which we operate, including the U.S. Health
Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for
Economic and Clinical Health Act, or HITECH, the GDPR, and state privacy and data protection laws, such as the California
Consumer Privacy Act, or CCPA, as well as state consumer protection laws;
federal and state laws requiring the submission of accurate product prices and notifications of price increases;
federal and state securities laws; and
international trade laws, which are laws that regulate the sale, purchase, import, export, re-export, transfer and shipment of goods,
products, materials, services and technology.
Compliance with these and other applicable laws and regulations requires us to expend significant resources. Failure to comply with
these laws and regulations may subject us to government investigations, enforcement actions by regulatory authorities, penalties, damages,
fines, the restructuring of our operations, or the imposition of a clinical hold, any of which could materially adversely affect our business
and would result in increased costs and diversion of management attention and could negatively impact the development, regulatory
approval and commercialization of our product candidate, any of which could have a material adverse effect on our business.
We will incur significant liability if it is determined that we are promoting any “off-label” use of our product candidate or any other
product we may develop, acquire or in-license.
Physicians are permitted to prescribe drug products for uses that differ from those approved by the FDA or other applicable
regulatory agencies. Although the FDA and other regulatory agencies do not regulate a physician’s choice of treatments, the FDA and other
regulatory agencies do restrict manufacturer communications regarding unapproved uses of an approved drug. Companies are not permitted
to promote drugs for unapproved uses or in a manner that is inconsistent with the FDA-approved labeling. There are also restrictions about
making comparative or superiority claims based on safety or efficacy that are not supported by substantial evidence. Accordingly, we may
not promote our product candidate in the United States for use in any indications other than the indication for which the product is
approved.
Promoting a drug off-label is a violation of the Food, Drug and Cosmetic Act (“FDCA”) and can give rise to liability under the
federal False Claims Act, as well as under additional federal and state laws and insurance statutes. The FDA, the Department of Justice and
other regulatory and enforcement authorities enforce laws and regulations prohibiting promotion of off-label uses and the promotion of
products for which marketing approval has not been obtained, as well as the false advertising or misleading promotion of drugs. In
addition, laws and regulations govern the distribution and tracing of prescription drugs and prescription drug samples, including the
Prescription Drug Marketing Act of 1976 and the Drug Supply Chain Security Act, which regulate the distribution and tracing of
prescription drugs and prescription drug samples at the United States federal level and set minimum standards for the regulation of drug
distributors by the states. A company that is found to have improperly promoted off-label uses or to have otherwise engaged in false or
misleading promotion or improper distribution of drugs will be subject to significant liability, potentially including civil and administrative
remedies as well as criminal sanctions. It may also be subject to exclusion and debarment from federal healthcare reimbursement programs.
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Risks Related to Employee Matters and Managing Potential Growth
We may not be able to attract or retain a majority of independent directors.
The Company’s Board of Directors, or the Board, may not be composed of a majority of independent directors in the future.
Currently, our Board consists of six members; four of whom are independent and two of whom are members of management. It is difficult
to retain and recruit independent directors. If the Board is not composed of a majority of independent directors, there may be a lower level
of oversight on executive management, and the Board may be influenced by the concerns, issues or objectives of management, including
compensation and governance issues, to a greater extent than would occur with a majority of independent directors. As a result, the
composition of the Board may afford less protection to our stockholders than if the Board were composed of a majority of independent
directors.
A lack of independent directors may also make it difficult to create appropriately sized board committees meeting the requirements of
the charters of the Board Committees and the listing standards of The Nasdaq Stock Market, pursuant to which we evaluate director
independence. Historically, we have strived to have each of our Board Committees comprised solely of independent directors. Currently,
our Audit Committee has only three members, tow of which are audit committee financial experts and our Nominating & Corporate
Governance Committee also consists of two independent directors. Due to the fact that we currently have only four independent directors, it
is difficult to establish appropriately sized and effective operating board committees composed of independent members to oversee
committee functions without overburdening our existing directors.
As we attempt to identify new board members, we may find that highly-qualified individuals are not available or willing to serve as
directors or on a committee. There can be no assurance that we will be able to identify, recruit and ultimately secure the services of such
individuals in a timely manner or at all. If we are unable to attract and retain qualified individuals who possess the necessary technical,
scientific and financial expertise and management and operational experience, our ability to successfully develop, test and commercialize
our product candidate and generate revenues may be negatively affected.
The recruitment and retention of skilled directors, executives, employees and consultants may be difficult and expensive, may result in
dilution to our stockholders, and any failure to attract and retain such individuals may adversely affect our drug development and
commercialization activities.
Our business depends on the skills, performance, and dedication of our directors, executive officers and key scientific and technical
advisors. All of our current scientific advisors are independent contractors and are either self-employed or employed by other
organizations. As a result, they may have conflicts of interest or other commitments, such as consulting or advisory contracts with other
organizations that may affect their ability to provide services to us in a timely manner. We may need to recruit additional directors,
executive management employees, and advisors, particularly scientific and technical personnel, which will require additional financial
resources. In addition, there is currently intense competition for skilled directors, executives and employees with relevant scientific and
technical expertise, and this competition is likely to continue. We compete for these qualified personnel against companies with greater
financial resources than ours. In order to successfully recruit and retain qualified employees, we will likely need to offer a combination of
base salary, cash incentives, and equity compensation. Future issuances of our equity securities for compensatory purposes will dilute
existing stockholders’ ownership interests. If we are unable to attract and retain persons with sufficient scientific, technical and managerial
experience, we may be forced to limit or delay our product development activities or may experience difficulties in successfully conducting
our business, which would adversely affect our operations and financial condition.
The loss or transition of any member of our senior management team or any key employee could adversely affect our business.
Our success depends significantly on the continued individual and collective contributions of our senior management team and key
employees. The individual and collective efforts of these employees will be important as we continue to develop our tests and services, and
as we expand our commercial activities. The loss of the services of any
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member of our senior management team or the inability to hire and retain experienced management personnel could harm our operating
results.
We have experienced significant turnover among our senior executives over the past three years. The complexity inherent in
integrating a new key member of the senior management team with existing senior management may limit the effectiveness of any such
successor or otherwise adversely affect our business. Leadership transitions are inherently difficult to manage and may cause uncertainty or
a disruption to our business or increase the likelihood of turnover of other key officers and employees. Further, we may incur significant
expenses related to any executive transition costs that may impact our operating results. Finding suitable replacements for senior
management and other key employees can be difficult, and there can be no assurance we will continue to be successful in attracting or
retaining qualified personnel in the future.
Risks Related to Ownership of Our Common Stock
Our common stock is classified as “penny stock” and trading of our shares may be restricted by the SEC’s penny stock regulations.
Rules 15g 1 through 15g 9 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”) impose sales practice and
disclosure requirements on certain brokers-dealers who engage in transactions involving a “penny stock.” The SEC has adopted regulations
which generally define “penny stock” to be any equity security that has a market price of less than $5.00 per share or an exercise price of
less than $5.00 per share, subject to certain exceptions. Our common stock is covered by the penny stock rules, which impose additional
sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors.” The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in
the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each
penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock that is not
otherwise exempt, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing
the level of trading activity in the secondary market for stock that is subject to these penny stock rules. Consequently, these penny stock
rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules may discourage investor interest
in and limit the marketability of our common stock.
Although we have filed an application to list our securities on Nasdaq, there can be no assurance that our securities will be so listed or,
if listed, that we will be able to comply with the continued listing standards.
On July 15, 2020, we announced that we had filed a comprehensive listing application package with The Nasdaq Stock Market, or
Nasdaq, to request an uplisting of the Company’s common stock. Although we believe we satisfy the initial listing requirements for The
Nasdaq Capital Market, Nasdaq has not approved our application, and there can be no assurance that Nasdaq will agree, approve us for
listing on The Nasdaq Capital Market and, even if our securities are listed, we cannot assure you that we will be able to maintain such
listing. In addition, if after listing, Nasdaq delists our securities from trading on its exchange for failure to meet the continued listing
standards, we and our shareholders could face significant material adverse consequences including a limited availability of market
quotations for our common stock, confirmation that our stock is “penny stock” and subject to increased regulations, and a decreased ability
to issue additional securities or obtain additional financing in the future.
The trading price of our common stock has been and could remain volatile, and the market price of our common stock may decrease.
The market price of our common stock has historically experienced and may continue to experience significant volatility. From June
1, 2020 through May 31, 2021, the market price of our common stock has fluctuated from a high of $10.01 per share to a low of $1.63 per
share, and our stock price reached a 52-week high of $10.01 on June 30, 2020.
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The volatile nature of our common share price may cause investment losses for our stockholders. In addition, the market price of stock in
small capitalization biotech companies is often driven by investor sentiment, expectation and perception, all of which may be independent
of fundamental, objective and intrinsic valuation metrics or traditional financial performance metrics, thereby exacerbating volatility. In
addition, our common stock is quoted on the OTCQB of the OTC Markets marketplace, which may increase price quotation volatility and
could limit liquidity, all of which may adversely affect the market price of our shares.
We and our collaborators may not achieve development and commercialization goals in the estimated time frames that we publicly
announce, which could have an adverse impact on our business and could cause our stock price to decline.
We set goals, and make public statements regarding our expected timing for certain accomplishments, such as statements we have
made about the initiation and completion of clinical trials, filing and approval of regulatory applications and other developments and
milestones under our research and development programs and those of our partners and collaborators for leronlimab. The actual timing of
these events can vary significantly due to a number of factors, including those discussed “Part I, Item 1A. Risk Factors.” As a result, there
can be no assurance that our pre-clinical studies and clinical trials will advance or be completed in the time frames we expect or announce,
that we will make regulatory submissions or receive regulatory approvals as planned or that we will be able to adhere to our currently
anticipated schedule for the achievement of key milestones under any of our programs. If we fail to achieve one or more of the events
described above as planned, our business could be materially adversely affected and the price of our common stock could decline.
We are subject to risks associated with proxy contests and other actions of activist shareholders.
In connection with the 2021 Annual Meeting of Shareholders, or the 2021 Meeting, a group of investors, The Rosenbaum Group, or
the Activist Shareholders, has submitted notice of nominations of five candidates for election to our Board at the 2021 Meeting and
pursuing a proxy contest. As of May 31, 2021, we had not incurred any costs in connection with the potential proxy contest. The Activist
Shareholders filed preliminary proxy materials with the SEC in respect of the 2021 Meeting on July 20, 2021. As of the date of this Form
10-K the Company has not filed preliminary proxy materials for the 2021 Meeting. A proxy contest or related activities on the part of the
Activist Shareholders or another shareholder could adversely affect our business for a number of reasons, including, without limitation, the
following:
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responding to proxy contests and other actions by activist stockholders may be costly and time-consuming, and may disrupt our
operations and divert the attention of management and our employees;
perceived uncertainties as to the potential outcome of any proxy contest may result in our inability to consummate potential
acquisitions, collaborations or in-licensing opportunities and may make it more difficult to attract and retain qualified personnel
and business partners; and
if individuals that have a specific agenda different from that of our management or other members of our Board are elected to our
Board as a result of any proxy contest, such an election may adversely affect our ability to effectively and timely implement our
strategic plan and create additional value for our stockholders.
Proxy contests may cause our stock price to experience periods of volatility. Further, if a proxy contest results in a change in control
of our Board, such an event could subject us to risks relating to certain third parties’ rights under our existing contractual obligations, which
could adversely affect our business.
Our debt service obligations and our need for additional funding to finance operations may cause additional dilution to our existing
stockholders.
Since our inception, we have not achieved cash flows from revenues to cover basic operating costs. As a result, we have relied
heavily on debt and equity financing. The terms of our recent convertible note financings require us to make debt repayments of $7.5
million per month to retire earlier incurred debt. As a result, we will be required to use a significant portion of our available cash to make
these debt repayments, which will reduce the amount of capital available to finance our operations and other business activities. We have to
date, and may continue to, negotiate with our noteholders to exchange all or part of our outstanding debt for shares of common stock. If the
Company enters into
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any future exchange offers they will likely be negotiated at a discount to the market price of our common stock and will cause additional
dilution to our existing stockholders. If the convertible noteholders sell the common stock they receive in exchange for outstanding debt,
this could result in a decline in our stock price. In addition, the exercise of our existing outstanding warrants and stock options, which are
exercisable for or convertible into shares of our common stock, and which we have encouraged through private warrant exchange offers,
would dilute our existing common stockholders. As a result of these or other factors, the issuance of additional equity or convertible debt
securities could have an adverse effect on the market price of our common stock. For the foreseeable future, we will need to continue to
rely upon debt and equity financing to maintain our operations.
The significant number of shares of common stock issuable upon the exercise of outstanding common stock options and warrants could
adversely affect the trading price of our common stock.
If our existing stockholders sell, or indicate an intent to sell, substantial amounts of our common stock in the public market, the
trading price of our common stock could decline significantly. In addition, as of July 15, 2021, we have 15.3 million shares subject to
exercise of outstanding options, 5.1 million shares of unvested and performance based restricted stock units and 18.7 million shares
reserved for grants future awards under our equity compensation plan; 40.2 million shares issuable upon the exercise of outstanding
warrants. If our existing stockholders sell substantial amounts of our common stock in the public market, or if the public perceives that
such sales could occur, the market price of our common stock could be adversely affected.
The significant number of shares of common stock issuable upon the exercise of outstanding common stock options and warrants could
adversely affect the trading price of our common stock.
We have currently outstanding shares of Series B, Series C and Series D Preferred Stock, as well as convertible secured promissory
notes, that are convertible into common stock at variable conversion prices and adjustments. As a result, future conversion of debt and
convertible preferred shares or issuance of new convertible debt may result in significant dilution to our stockholders. As of July 15, 2021,
we have reserved 51.6 million shares of common stock for further issuance upon conversion of our outstanding shares of preferred stock
and convertible notes.
If we implement a reverse stock split, there can be no assurance that the price per share of our common stock will increase
proportionately with the reverse stock split, or at all.
Reducing the number of outstanding shares of our common stock through a reverse stock split is intended, absent other factors, to
increase the per share market price of our common stock, including in preparation for a potential uplisting to a national securities exchange.
However, other factors, such as our financial results, market conditions and the market perception of our business, may adversely affect the
market price of our common stock. As a result, there can be no assurance that a reverse stock split, if completed, will result in making our
common stock more attractive to a broader range of institutional and other investors, that the per share market price of our common stock
will increase following a reverse stock split or that the per share market price of our common stock will not decrease in the future.
Additionally, we cannot assure shareholders that the per share market price per share of our common stock after a reverse stock split, if
completed, will increase in proportion to the reduction in the number of shares of our common stock outstanding before the reverse stock
split. Accordingly, the total market capitalization of our common stock after a reverse stock split may be lower than the total market
capitalization before the reverse stock split.
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If the beneficial ownership of our stock becomes highly concentrated, it may prevent our stockholders from influencing significant
corporate decisions.
Our significant stockholders, if any, may exercise substantial influence over the outcome of corporate actions requiring
stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets, or any
other significant corporate transaction. These stockholders may also vote against a change of control, even if such a change of control
would benefit our other stockholders.
Future sales of our securities could adversely affect the market price of our common stock and our future capital-raising activities
could involve the issuance of equity securities, which would dilute your investment and could result in a decline in the trading price of
our common stock.
We may sell securities in the public or private equity markets if and when conditions are favorable, or at prices per share below the
current market price of our common stock, even if we do not have an immediate need for additional capital at that time. Sales of substantial
amounts of our common stock, or the perception that such sales could occur, could adversely affect the prevailing market price of our
shares and our ability to raise capital. We may issue additional shares of common stock in future financing transactions or as incentive
compensation for our executive management and other key personnel, consultants and advisors. Issuing any equity securities would be
dilutive to the equity interests represented by our then-outstanding shares of common stock. Moreover, sales of substantial amounts of
shares in the public market, or the perception that such sales could occur, may adversely affect the prevailing market price of our common
stock and make it more difficult for us to raise additional capital.
Our certificate of incorporation allows for our Board to create new series of preferred stock without further approval by our
stockholders, which could adversely affect the rights of the holders of our common stock.
Our Board has the authority to fix and determine the relative rights and preferences of preferred stock. Currently, our Board has the
authority to designate and issue up to 7.58 million additional shares of our preferred stock without further stockholder approval. As a result,
our Board of Directors could authorize the issuance of another series of preferred stock that would grant to holders the preferred right to
our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the
right to the redemption of the shares, together with a premium, prior to the redemption of our common stock. In addition, our Board could
authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into our
common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing stockholders.
Anti-takeover provisions of our certificate of incorporation, our bylaws and Delaware law could make an acquisition of us, which may
be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove the current
members of our Board and management.
Certain provisions of our amended and restated certificate of incorporation and bylaws could discourage, delay or prevent a merger,
acquisition or other change of control that stockholders may consider favorable, including transactions in which stockholders might
otherwise receive a premium for shares of common stock. Furthermore, these provisions could prevent or frustrate attempts by our
stockholders to replace or remove members of our Board. These provisions also could limit the price that investors might be willing to pay
in the future for our common stock, thereby depressing the market price of our common stock. Stockholders who wish to participate in
these transactions may not have the opportunity to do so. Among other things, these provisions:
•
•
allow us to designate and issue shares of preferred stock, without stockholder approval, that could adversely affect the rights,
preferences and privileges of the holders of our common stock and could make it more difficult or less economically beneficial to
acquire or seek to acquire us.
provide that special meetings of stockholders may be called only by the Board acting pursuant to a resolution approved by the
affirmative majority of the entire Board.
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•
•
provide that stockholders may, at a special stockholders meeting called for the purpose of removing directors, remove the entire
Board or any lesser number, but only with cause, by a majority vote of the shares entitled to vote at an election of directors.
do not include a provision for cumulative voting in the election of directors. Under cumulative voting, a minority stockholder
holding a sufficient number of shares may be able to ensure the election of one or more directors. The absence of cumulative
voting may have the effect of limiting the ability of minority stockholders to effect changes in the composition of our Board.
In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may, unless certain
criteria are met, prohibit large stockholders, in particular those owning 15% or more of the voting rights on our common stock, from
merging or combining with us for a prescribed period of time.
If we are unable to effectively maintain a system of internal control over financial reporting, we may not be able to accurately or timely
report our financial results and our stock price could be adversely affected.
Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations require us to evaluate the effectiveness of our internal control
over financial reporting as of the end of each fiscal year, and to include a management report assessing the effectiveness of our internal
control over financial reporting in our Annual Report on Form 10-K for that fiscal year. Management determined that as of the fiscal year
ended May 31, 2021, our disclosure controls and procedures and internal control over financial reporting were effective. Prior to the fiscal
year ended May 31, 2017, our disclosure controls and procedures and internal control over financial reporting were not effective, due to
material weaknesses in our internal control over financial reporting related to inadequate segregation of duties over authorization, review
and recording of transactions, as well as the financial reporting of such transactions. Any failure to maintain our controls or operation of
these controls, could harm our operations, decrease the reliability of our financial reporting, and cause us to fail to meet our financial
reporting obligations, which could adversely affect our business and reduce our stock price.
We do not expect any cash dividends to be paid on our common shares in the foreseeable future.
We have never declared or paid a cash dividend on our common shares and we do not anticipate declaring or paying dividends on our
common shares for the foreseeable future. We expect to use future financing proceeds and earnings, if any, to fund operating expenses.
Consequently, common stockholders’ only opportunity to achieve a return on their investment is if the price of our stock appreciates and
they sell their shares at a profit. We cannot assure common stockholders of a positive return on their investment when they sell their shares
or that stockholders will not lose the entire amount of their investment.
Risks Related to the COVID-19 Pandemic
Our business and operations continue to be affected by the ongoing COVID-19 pandemic.
Our operational and financial performance continues to be affected by the COVID-19 pandemic. We expect our clinical trial activity
to continue to face challenges and delays in patient enrollment as a result of concerns regarding infection spread and the Delta variant of
COVID-19, governmental orders regarding travel and other measures to reduce disease spread, study site closures, and prioritization of
hospital resources toward the pandemic. The COVID-19 pandemic has also affected the operations of governmental entities, such as the
FDA, as well as contract research organizations, consultants, third-party manufacturers, third-party laboratories and manufacturers, and
other third-parties upon whom we rely. The effects of work-from-home policies may negatively impact productivity, resulting in delays in
our clinical programs and timelines. We have experienced, and expect to continue to experience, delays in our operations and in the
operations of our third-party service providers as a result of disruptions COVID-19 has had on normal business operations. We may also be
affected by a downturn in the U.S. economy, which could have an adverse effect on our ability to raise capital and obtain financing, which
could in the future negatively affect our liquidity and ability to continue as a going concern. The extent to which COVID-19 continues to
affect our business, financial condition, and results of operations will depend on future developments, which continue to evolve rapidly, and
which are highly
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uncertain and subject to change. These effects may continue to have a material adverse impact on our operations and financial condition.
The spread of COVID-19 has also led to disruption and volatility in the global capital markets, which increases the cost of, and
adversely impacts access to, capital and increases economic uncertainty. To the extent the COVID-19 pandemic adversely affects our
business, financial results and value of our common stock, it may also have an adverse effect on our ability to access capital and obtain
financing, which could negatively affect our liquidity and ability to continue as a going concern.
We may be at increased risk of becoming the target of cyber-attacks due to our research involving leronlimab for treatment of COVID-
19.
Cybersecurity authorities in the United States are currently investigating a number of incidents in which hackers are targeting
pharmaceutical companies, medical research organizations, and universities in order to steal sensitive research data and intellectual
property related to efforts to contain and treat coronavirus. In July 2020, the U.S. Department of Justice accused several groups of hackers
of targeting companies conducting COVID-19 vaccine development research on behalf of foreign intelligence services. Because of
leronlimab’s potential effect on the immune system, it has been administered to COVID patients under single patient Emergency
Investigation New Drug (EIND) authorizations, and the Company has initiated several clinical trials for COVID-19 in the U.S. and other
countries. As a result of our ongoing clinical trials for leronlimab to treat COVID-19, our information technology systems, employees,
contractors and corporate partners may be at greater risk for cyber-based attacks.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
Our principal office location is 1111 Main Street, Suite 660, Vancouver, Washington 98660. The space is subject to a lease
effective through April 30, 2026.
Item 3. LEGAL PROCEEDINGS
For a description of any pending material legal proceedings, please see Note 10. Commitments and Contingencies of the Notes to
Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Part II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is presently quoted on the OTCQB of the OTC Markets marketplace under the trading symbol CYDY. Over-
the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions. Historically, trading in our stock has been very limited and the trades that have occurred cannot be
characterized as amounting to an established public trading market. As a result, the trading prices of our common stock may not reflect the
price that would result if our stock was actively traded.
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Holders
The number of record holders of our common stock on July 15, 2021 was approximately 864.
Dividends
Holders of our common stock are entitled to receive dividends as may be declared from time to time by our Board. While we have
no contractual restrictions or restrictions in our governing documents on our ability to pay dividends, other than the preferential rights
provided to the holders of our outstanding preferred stock, as described below, we have not paid any cash dividends since inception on our
common stock and do not anticipate paying any in the foreseeable future. Our current policy is to retain earnings, if any, for use in our
operations.
Also, under Section 170 of the Delaware General Corporation Law (the “DGCL”), we are permitted to pay dividends only out of
capital surplus or, if none, out of net profits for the fiscal year in which the dividend is declared or net profits from the preceding fiscal year.
As of May 31, 2021, the Company had an accumulated deficit of approximately $511.3 million and has had a net loss in each of the last
three fiscal years. As a result of the accumulated deficit, the Company is also currently prohibited from paying any dividends in the form of
capital stock.
Brief summaries of the terms of our outstanding preferred stock are set forth below.
Holders of 8,452 shares of Series D Convertible Preferred Stock (“Series D Preferred Stock”) outstanding at May 31, 2021, are
entitled to receive, when and as declared by the Board and out of any assets at the time legally available therefor, cumulative dividends at
the rate of ten percent (10%) per share per annum of the stated value of the Series D Preferred Stock, which is $1,000 per share. Any
dividends paid by us will first be paid to the holders of Series D Preferred Stock prior and in preference to any payment or distribution to
holders of our common stock. Dividends on the Series D Preferred Stock are cumulative and will accrue and be compounded annually,
whether or not declared and whether or not there are any profits, surplus or other funds or assets of the Company legally available therefor.
There are no sinking fund provisions applicable to the Series D Preferred Stock. The Series D Preferred Stock does not have redemption
rights. Dividends, if declared by the Board, are payable to holders in arrears on December 31 of each year. Subject to the provisions of
DGCL Section 170, the holder may elect to be paid in cash or in restricted shares of common stock at the rate of $0.50 per share. If all
holders were to elect to receive a dividend (if declared) in the form of common stock at December 31, 2020, approximately 3.2 million
shares of common stock would be issued. If such dividends were to be paid in cash, such dividends would total approximately $1.6 million
at December 31, 2020.
Holders of 8,203 shares of Series C Convertible Preferred Stock (“Series C Preferred Stock”) outstanding at May 31, 2021, are
entitled to receive, when and as declared by the Board and out of any assets the time legally available therefor, cumulative dividends at the
rate of ten percent (10%) per share per annum of the stated value of the Series C Preferred Stock, which is $1,000 per share. Any dividends
paid by us will first be paid to the holders of Series C Preferred Stock prior and in preference to any payment or distribution to holders of
our common stock. Dividends on the Series C Preferred Stock are cumulative, and will accrue and be compounded annually, whether or not
declared and whether or not there are any profits, surplus or other funds or assets of the Company legally available therefor. There are no
sinking fund provisions applicable to the Series C Preferred Stock. The Series C Preferred Stock does not have redemption rights.
Dividends, if declared by the Board, are payable to holders in arrears on December 31 of each year. Subject to the provisions of DGCL
Section 170, the holder may elect to be paid in cash or in restricted shares of common stock at the rate of $0.50 per share. If all holders
were to elect to receive a dividend (if declared) in the form of common stock at December 31, 2020, approximately 4.0 million shares of
common stock would be issued. If such dividends were to be paid in cash, such dividends would total approximately $2.0 million at
December 31, 2020.
Holders of 79,000 shares of Series B Convertible Preferred Stock (“Series B Preferred Stock”) outstanding at May 31, 2021, are
entitled to receive, in preference to the common stock, annual cumulative dividends equal to $0.25 per share per annum from the date of
issuance, which shall accrue, whether or not declared. At the time shares of Series B Preferred Stock are converted into common shares,
accrued and unpaid dividends will be paid, at the election of the Company, in cash or with common shares. In the event we elect to pay
dividends with common shares, the shares issued will be valued at $0.50 per share. On July 30, 2020, the Board declared a dividend and
elected to pay such
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dividend in the form of cash in the aggregate amount of approximately $243,000 to all Series B Preferred stockholders. At May 31, 2021,
accrued dividends on the Series B Preferred stock totaled $17,800.
Unregistered Sales of Equity Securities
From June 11, 2021 to July 27, 2021, in satisfaction of the June and July 2021 Debt Redemption Amounts, the Company and the
November 2020 Note holder entered into exchange agreements, pursuant to which the November 2020 Note was partitioned into new notes
(the “Partitioned Notes”) with an aggregate principal amount of $10.0 million. The outstanding balance of the November 2020 Note was
reduced by the Partitioned Notes. The Company and the investor exchanged the Partitioned Notes for approximately 7.4 million shares.
The Company and the holder of the November 2020 Note agreed to defer the remaining June 2021 Debt Redemption Amount of $1.5
million and the June 2021 Debt Redemption Amount of $3.5 million. Following these payments, the outstanding balance on the November
2020 Note, including accrued interest, was approximately $4.5 million. We relied on the exemption from registration afforded by
Section 4(a)(2) of the Securities Act of 1933 in connection with the issuance and sale of the convertible promissory note and underlying
shares of Common Stock.
Item 6. [Reserved]
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the other
sections of this Annual Report, including our Consolidated Financial Statements and related notes set forth in Item 8. This discussion and
analysis contains forward-looking statements, including information about possible or assumed results of our financial condition,
operations, plans, objectives and performance that involve risks, uncertainties and assumptions. The actual results may differ materially
from those anticipated and set forth in such forward-looking statements. See “Forward-Looking Statements” preceding Part I and Item 1A.
Risk Factors in Part I of this Form 10-K.
Overview of Our Business
The Company is a late-stage biotechnology company focused on the clinical development and potential commercialization of
leronlimab (PRO 140), a CCR5 antagonist to treat HIV infection, as well as multiple other potential therapeutic indications. Our current
business strategy is to resubmit our Biologics License Application (“BLA”) for leronlimab as a combination therapy for highly treatment
experienced HIV patients as soon as possible, as well as to seek approval for other HIV-related indications, to seek approval for leronlimab
as a potential therapeutic benefit for COVID-19 patients with mild-to-moderate, severe-to-critical, and long-haulers indications in the U.S.
and Brazil, to advance our clinical trials with leronlimab for various forms of cancer, and to concurrently explore other cancer and
immunologic indications for leronlimab.
The target of leronlimab is the immunologic receptor CCR5. The CCR5 receptor is a protein located on the surface of white blood
cells that serves as a receptor for chemical attractants called chemokines. Chemokines are the key orchestrators of leukocyte trafficking by
attracting immune cells to the sites of inflammation. At the site of an inflammatory reaction, chemokines are released. These chemokines
are specific for CCR5 and cause the migration of T-cells to these sites promoting further inflammation. The mechanism of action of
leronlimab has the potential to block the movement of T-cells to inflammatory sites, which could be instrumental in diminishing or
eliminating inflammatory responses. Some disease processes that could benefit from CCR5 blockade include transplantation rejection,
autoimmunity, and chronic inflammation such as rheumatoid arthritis and psoriasis.
Due to leronlimab’s mechanism of action (“MOA”), we believe leronlimab may have significant advantages in reducing side
effects over other CCR5 antagonists. Prior studies have demonstrated that leronlimab does not cause direct activation of T-cells.
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We continue to evaluate strategic licensing opportunities and supply and distribution partnerships, as well as conducting
exploratory discussions with third parties with respect to other potential strategies to monetize our assets. As recently completed license
and supply and distribution agreements demonstrate, such agreements are country or region specific and generally are limited to a specific
clinical indication for leronlimab.
Business Highlights in Fiscal 2021
During the fiscal year ended May 31, 2021, we commenced several initiatives to advance our lead product candidate, leronlimab. The
following is a brief summary of key accomplishments during the most recent fiscal year:
• We raised approximately $140 million in gross proceeds through offerings of convertible debt securities, combined with
proceeds from the exercise of warrants and stock options;
• We entered into additional supply and distribution agreements for the distribution and sale of leronlimab in the Philippines,
Brazil and India subject to regulatory approvals;
• We successfully manufactured 11 batches of commercial grade leronlimab pre-launch inventories;
•
Our drug candidate, leronlimab, received over 60 Emergency Investigational New Drug (EIND) authorizations from the FDA
to treat COVID-19 patients;
• We initiated and completed two double-blinded, placebo-controlled clinical trials for COVID-19, a Phase 2 trial for patients
with mild-to-moderate symptoms and a Phase 3 trial for patients with severe-to-critical symptoms;
• We initiated a Phase 2 investigative trial for COVID-19 long-haulers, which was completed shortly after fiscal year end;
• We advanced our clinical trials to evaluate the safety and efficacy of leronlimab for several cancer indications by treating the
first patients in metastatic triple-negative breast cancer and, metastatic breast cancer, as well as a basket trial for 22 solid
tumor cancers:
•
An animal study was published in Nature Communications regarding the use of leronlimab for HIV PrEP; and
• We initiated a Phase 2 clinical trial with leronlimab for the treatment of non-alcoholic steatohepatitis (NASH).
For additional information regarding our business, our clinical trials and our progress toward the resubmission of our BLA, see Item 1.
Business in this Form 10-K. We will require a significant amount of additional capital to complete the resubmission of our BLA to the
FDA, as well as completing or advancing additional clinical trials in the COVID-19, oncology and immunology spaces. See “Liquidity and
Capital Resources” below.
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Results of operations for the fiscal years ended May 31, 2021, 2020 and 2019
For the fiscal years ended May 31, 2021, 2020 and 2019, we had no activities that produced revenues from operations. The following
schedule sets forth the results of operations for the fiscal years ended May 31, 2021, 2020 and 2019 (in thousands except per share
amounts):
Years ended May 31,
2020
2021
2019
2021/2020 Change
$
%
2020/2019 Change
%
$
Operating expenses:
General and administrative
Research and development
Amortization and depreciation
Intangible asset impairment charge
Total operating expenses
Operating loss
Other income (expense):
Other income
Interest income
Change in fair value of derivative liabilities
Loss on extinguishment of convertible notes
Legal settlements
Interest expense:
Finance charges
Amortization of discount on convertible notes
Amortization of debt issuance costs
Inducement interest expense
Inducement interest related to warrant tender offer
Interest on convertible notes payable
Total interest expense
Loss before income taxes
Income tax benefit
Net loss
Basic and diluted loss per share
Basic and diluted weighted average common shares outstanding
Net loss
$
34,320 $
58,430
1,797
10,049
104,596
(104,596)
—
2
—
(19,896)
(10,628)
(147)
(3,591)
(65)
(11,366)
—
(4,387)
(19,556)
(154,674)
—
19,973
52,640
2,034
—
74,647
(74,647)
500
5
(9,542)
—
(22,500)
(936)
(1,645)
(404)
(7,904)
—
(7,330)
(18,219)
(124,403)
—
$ (154,674) $ (124,403)
(0.30)
$
421,078
(0.27)
587,590
$
$
12,117 $
42,490
1,245
—
55,852
(55,852)
—
4
1,666
(1,520)
—
14,347
5,790
(237)
10,049
29,949
(29,949)
(500)
(3)
9,542
(19,896)
11,872
72 % $
11
(12)
100
40
40
(100)
(60)
(100)
100
(53)
7,856
10,150
789
—
18,795
(18,795)
500
1
(11,208)
1,520
(22,500)
—
(1,707)
(459)
—
(196)
(950)
(3,312)
(59,014)
2,827
789
(1,946)
339
(3,462)
—
2,943
(1,337)
(30,271)
—
$ (56,187) $ (30,271)
$
$
(0.21)
272,041
0.03
166,512
(84)
118
(84)
44
—
(40)
7
24
—
24
(9)
40 %
(936)
62
55
(7,904)
196
(6,380)
(14,907)
(65,389)
(2,827)
$ (68,216)
(0.09)
$
149,037
65 %
24
63
-
34
(34)
100
25
(673)
(100)
100
100
(4)
(12)
100
(100)
672
450
111
(100)
121
43
55 %
Net loss incurred during the fiscal years ended May 31, 2021 and 2020 was approximately $154.7 million and $124.4 million,
respectively. The increase in net loss of approximately $30.3 million, or 24%, was primarily attributable to increased general and
administrative (“G&A”) expenses, an intangible asset impairment charge, increased research and development (“R&D”) expenses, and
increased loss from extinguishment of convertible notes, partially offset by decreased change in fair value of derivative liabilities and
decreased legal settlement charges.
Loss per share
Net loss per share for the fiscal year ended May 31, 2021 was $0.27 compared to the net loss per share of $0.30 in the prior fiscal year.
The decrease in loss per share of $0.03, or 9%, compared to the prior year was due to the significant increase in the number of weighted
average common shares outstanding over the comparable period in 2020, partially offset by the increase in net loss. The increase in
common stock was due to common stock issuances associated with the exercise of warrants and stock options, negotiated exchange
settlements of certain convertible note obligations with common stock, and a private placement of equity.
Operating expenses
Operating expenses totaled approximately $104.6 million and $74.6 million during the fiscal years ended May 31, 2021 and May 31,
2020, respectively. The increase in operating expenses of approximately $29.9 million, or 40%, over the prior fiscal year was primarily
attributable to an increased G&A expenses, increased R&D expenses, and an intangible asset impairment charge.
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General and administrative expenses
General and administrative expenses for the fiscal years ended May 31, 2021, 2020 and 2019 consisted of the following (in thousands):
General and administrative:
Salaries and other compensation
Stock-based compensation
Other
Total general and administrative
Years ended May 31,
2020
2019
2021
2021/2020 Change
%
$
2020/2019 Change
%
$
$ 13,161
10,429
10,730
$ 34,320
$
5,488
6,548
7,937
$ 19,973
$
3,781
3,388
4,948
$ 12,117
$
7,673
3,881
2,793
$ 14,347
140 % $ 1,707
3,160
59
2,989
35
72 % $ 7,856
45 %
93
60
65 %
G&A expenses totaled approximately $34.3 million and $20.0 million during the fiscal years ended May 31, 2021 and May 31, 2020
respectively, representing an increase of approximately $14.3 million, or 72% over the previous fiscal year. G&A expenses consisted of
salaries and benefits, non-cash stock-based compensation expense, professional fees, insurance and various other expenses. The increase in
G&A expenses over the 2020 fiscal year was primarily due to employee compensation and related expenses, increased non-cash stock-
based compensation, and along with higher professional services fees.
Research and development expenses
R&D expenses were recorded where directly identifiable, consisting of the following during the fiscal years ended May 31, 2021,
2020, and 2019 (in thousands):
Research and development:
Clinical
Non-Clinical
CMC
License and patent fees
Total research and development
Years ended May 31,
2021/2020 Change
2020/2019 Change
2021
2020
2019
$
%
$
%
$ 36,728
2,201
18,564
937
$ 58,430
$ 29,553
2,999
19,392
696
$ 52,640
$ 25,264
155
16,353
718
$ 42,490
$ 7,175
(798)
(828)
241
$ 5,790
4,289
24 % $
2,844
(27)
3,039
(4)
35
(22)
11 % $ 10,150
17 %
1,835
19
(3)
24 %
R&D expenses totaled approximately $58.4 million during the fiscal year ended May 31, 2021, an increase of approximately
$5.8 million, or 11%, over the fiscal year ended May 31, 2020. R&D expenses consisted of clinical trials, non-clinical, Chemistry,
Manufacturing and Controls (“CMC”), and license and patent fees. The 2021 increase over 2020 was primarily attributable to higher
clinical trial expenses, partially offset by decreases in non-clinical and CMC expenses. The increase in clinical trial costs were attributable
to COVID-19 clinical trial costs and clinical trial costs related to oncology and immunology indications. The future trend of R&D expenses
will be dependent on the timing of resubmission of and FDA approval, if any, of our BLA, the timing of FDA clearance, if any, of our
pivotal trial protocol for leronlimab as a monotherapy for HIV patients, the clinical progression of our COVID-19, metastatic triple-
negative breast cancer and NASH trials, and the outcome of pre-clinical studies for several other cancer indications.
Amortization and depreciation expenses
Amortization and depreciation expense totaled approximately $1.8 million for the fiscal year ended May 31, 2021, a decrease of
approximately $0.2 million, or 12% from the prior year. The decrease was attributable to the intangible write-off of a proprietary algorithm
intangible asset, resulting in decreased amortization of intangibles.
Intangible asset impairment
For the fiscal year ended May 31, 2021, the Company recorded an intangible asset impairment charge of approximately $10.0 million,
which represents an increase of 100% over the same period in 2020. This charge was
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attributable to the full impairment of the net carrying value of the proprietary algorithm intangible asset the Company acquired in
connection with the acquisition of the assets of ProstaGene, LLC in November 2018.
Other income
For the fiscal year ended May 31, 2021, other income decreased approximately $0.5 million, or 100%, compared to the prior year.
Other income for the fiscal year ended May 31, 2020, of $0.5 million resulted from the execution of an agreement in which the Company
granted an exclusive royalty-bearing license to a third-party to commercialize, use, and sell leronlimab for HIV in the U.S. upon BLA
approval.
Change in fair value of derivative liabilities
For the fiscal year ended May 31, 2021, we did not realize a change in fair value of derivative liabilities as compared to the prior year
change of approximately $9.5 million, as the originating instruments were all exercised and settled during the 2020 fiscal year. The
originating underlying instruments were certain warrants that originated in September 2016 and two convertible note instruments originated
in June 2018 and January 2019 containing contingent cash settlement provisions, which gave rise to a derivative liability. For each
reporting period, the Company determined the fair value of the derivative liability and recorded a corresponding non-cash benefit or non-
cash charge, due to a decrease or increase, respectively, in the calculated derivative liability.
Loss on extinguishment of convertible notes
For the fiscal year ended May 31, 2021, we recognized non-cash losses on the extinguishment of convertible notes of approximately
$19.9 million. We did not recognize any losses on the extinguishment of debt during the prior year. The losses resulted from separately and
independently negotiated exchange agreements to satisfy certain note payment obligations in which certain debt was agreed to be settled in
exchange for shares issued at a price less than the closing price for the effective date of the respective transactions. The original underlying
convertible notes were entered into on March 31, 2020, July 29, 2020, and November 10, 2020.
Legal settlements
Legal settlements for the fiscal year ended May 31, 2021 of $10.6 million were related to cash damages awarded to plaintiffs in legal
proceedings against the Company. Legal settlements (non-cash) for the fiscal year ended May 31, 2020 of $22.5 million were related to the
issuance of shares of common stock in settlement of a claim filed by the holder of the January 2019 Note alleging that the note holder was
owed additional shares upon conversion of the note.
Interest expense
Interest expense totaled approximately $19.6 million for the fiscal year ended May 31, 2021, an increase of approximately
$1.3 million, or 7%, from the fiscal year ended May 31, 2020. This increase was due primarily to increased amortization of discount on
convertible notes resulting from increased repayment of our convertible notes payable, increase in inducement interest expense offset by
decrease in interest on convertible notes payable.
The future trends of all expenses will be driven, in large part, by future outcomes of current and new clinical trials and the
corresponding effect on research and development expenses, timing of the anticipated BLA approval, as well as G&A expenses and
outcomes of any current or future legal proceedings, in addition to the manufacturing of new commercial leronlimab upon any regulatory
approval, and other (income) expense, including interest expense, related to debt and equity transactions. We require a significant amount
of additional capital, and our ability to continue to fund operations will continue to depend on our ability to raise such capital. See in
particular, “Liquidity and Capital Resources” below and Item 1A “Risk Factors” above.
Please refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual
Report on Form 10-K for the fiscal year ended May 31, 2020, filed on August 14, 2020, for additional information comparing our results of
operations for the fiscal years ended May 31, 2020 and May 31, 2019.
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Fluctuations in Operating Results
The Company’s operating results may fluctuate due to a number of factors, such as the timing of product manufacturing activities,
patient enrollment or completion rates in various trials, coupled with potential amendments to clinical trial protocols. As a non-revenue
generating company, we are regularly conducting offerings to raise capital, which can create various forms of non-cash interest expense or
amortization of issuance costs. Further, we regularly negotiate the settlement of debt payment obligations in exchange for equity securities
of the Company, which can create a non-cash loss or gain on extinguishment of debt. In addition, in prior years a portion of the
aforementioned derivative liabilities is tied to certain securities that included a contingent cash settlement provision, which can vary
substantially from year to year, thereby creating a non-cash charge or benefit.
Liquidity and Capital Resources
As of May 31, 2021, we had a total of approximately $33.9 million in cash and approximately $152.5 million in short-term liabilities
consisting primarily of approximately $62.7 million representing the current portion of long-term convertible notes payable and
approximately $85.0 million in accounts payable and accrued liabilities and compensation. We will continue to incur operating losses and
the Company will require a significant amount of additional capital in the future in anticipation of a fully commercialized leronlimab
product. Despite the Company’s negative working capital position, vendor relations remain accommodative and we do not currently
anticipate delays in our business initiatives schedule due to liquidity constraints.
We cannot be certain, however, that future funding will be available to us when needed on terms that are acceptable to us, or at all. We
sell securities and incur debt when the terms of such agreements are deemed favorable to both parties under then current circumstances and
as necessary to fund our current and projected cash needs. In addition, as of May 31, 2021 we had approximately 40.9 million authorized
shares of common stock available for future issuance in addition to those already issued or reserved for issuance.
Cash
The Company’s cash position of approximately $33.9 million at May 31, 2021 increased approximately $19.6 million compared to the
balance of approximately $14.3 million at May 31, 2020. During the fiscal year ended May 31, 2021, we provided funds for our operations
by obtaining a total of approximately $139.3 million of net cash proceeds primarily through convertible debt issuances, private warrant
exchange transactions, warrant and stock option exercises, and a private equity offering.
Inventories
Inventories as of May 31, 2021 and May 31, 2020 are presented below (in thousands):
Raw materials
Work-in-progress
Total
May 31,
2021
2020
$
$
28,085
65,394
93,479
$
$
19,147
—
19,147
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The Company’s pre-launch inventories position of approximately $93.5 million at May 31, 2021 increased approximately $74.3 million as
compared to a balance of approximately $19.1 million at May 31, 2020 as the Company increased inventory in preparation for
commercialization. This inventory increase is related to raw materials purchased for commercial production and work-in-progress
inventory related to the substantially completed commercial production of pre-launch inventories of leronlimab, in anticipation of
regulatory approval of the product as a combination therapy for HIV patients by the FDA in the United States. During the quarter ended
February 28, 2021, the Company was notified by a third-party contract manufacturing partner that due to an operational error committed by
the contract manufacturer, one of the batches of a multiple-batch manufacturing campaign failed to meet quality standards, and thus would
not be saleable upon regulatory approval. In accordance with the agreement, the contract manufacturer assumed liability for the failure, all
costs to manufacture the batch, and committed to remanufacture the batch at a future date. As a result, the Company reduced work-in-
progress inventory and the related amounts due to the contract manufacturer by $6.1 million. No other inventory was affected by this
manufacturing issue, and all other inventory has successfully passed quality standards. As of May 31, 2021, the raw materials balance was
$28.1 million and the total work-in-progress was $65.4 million. Work-in-progress consists of bulk drug substance, which is the
manufactured drug stored in bulk storage, and drug product, which is the manufactured drug in unlabeled vials. Bulk drug substance and
drug product comprised approximately $35.8 million and $29.6 million, respectively, of work-in-progress inventory. See “Capital
Requirements—Contract Manufacturing” below for a further discussion of commitments with third-party contract manufacturing partners.
See also “Critical Accounting Policies and Estimates” below.
Cash Flows
For the year ended May 31, 2021, the net change in cash was an increase of approximately $19.7 million, which was attributable
to increased net cash provided by financing activities of approximately $57.7 million, offset in part by increased net cash used in operating
activities of approximately $48.8 million, and increased cash used in investing activities of approximately $0.1 million.
(in thousands)
Net cash (used in) provided by:
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Cash used in operating activities
2021
Years ended May 31,
2020
2019
2021/2020 Change
$
2020/2019 Change
$
$ (117,573) $ (68,804) $ (50,466) $
(45) $
$
$
$
$ 52,747
$ 79,670
(122) $
137,346
(41) $
(48,769) $
(81) $
$
57,676
(18,338)
4
26,923
Net cash used in operating activities totaled approximately $117.6 million during the fiscal year ended May 31, 2021, which reflects an
increase of approximately $48.8 million over the approximately $68.8 million in fiscal 2020. The increase in net cash used in operating
activities was due to increased pre-launch inventories, and net loss, offset in part by the intangible asset impairment charge, increased
accounts payables and accrued liabilities, and increased non-cash loss on extinguishment of debt, when compared to the changes in the
prior year.
Cash used in investing activities
Net cash used in investing activities was approximately $0.1 million during the fiscal year ended May 31, 2021, which reflects an
insignificant increase over a year ago attributable to the purchase of office equipment and furniture.
Cash provided by financing activities
Net cash provided by financing activities totaled approximately $137.3 million during the fiscal year ended May 31, 2021
representing an approximate $57.7 million increase in net cash provided by financing activities when compared to the previous fiscal year.
The increase in net cash provided from financing activities was primarily attributable to an increase in proceeds from convertible debt
issuances and an increase in proceeds from private warrant
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exchange transactions, offset by a decrease in ordinary warrant and stock option exercise proceeds, and the absence of proceeds from the
sale of preferred stock, when compared to the same period in the prior year.
Convertible debt
The following schedule sets forth the outstanding balance of convertible notes as of May 31, 2021 and May 31, 2020. A detailed
discussion of our various convertible debt arrangements is included in Note 5 to the Consolidated Financial Statements included in Item 8
of this Form 10-K (in thousands):
Outstanding balance May 31, 2020
Consideration received
Amortization of issuance discount and costs
Accrued interest
Cash repayments
Conversions
Fair market value of shares exchanged for repayment
Debt extinguishment loss
Outstanding balance May 31, 2021
April 23, 2021 Note
March 2020 Note
$
15,467 $
July 2020 Note
November 2020
Note
April 2, 2021
Note
April 23, 2021
Note
- $
25,000
1,097
1,901
-
-
(37,298)
9,300
- $
25,000
740
1,258
-
-
(19,870)
6,427
13,554 $
- $
25,000
268
447
-
-
-
-
25,715 $
-
25,000
182
302
-
-
-
-
25,485
-
1,369
480
(950)
(9,538)
(10,997)
4,169
$
- $
- $
On April 23, 2021, we issued a convertible note with a principal amount of $28.5 million resulting in net cash proceeds of $25.0
million, after $3.4 million of debt discount and $0.1 million of offering costs. The note accrues interest daily at a rate of 10% per annum,
contains a stated conversion price of $10.00 per share, and matures in April 2023. After six months past the issuance date, the noteholder
can request monthly redemptions of up to $7.0 million. The outstanding balance of the April 23, 2021 Note, including accrued interest, was
approximately $25.5 million as of May 31, 2021.
April 2, 2021 Note
On April 2, 2021, we issued a convertible note with a principal amount of $28.5 million resulting in net cash proceeds of $25.0
million, after $3.4 million of debt discount and $0.1 million of offering costs. The note accrues interest daily at a rate of 10% per annum,
contains a stated conversion price of $10.00 per share, and matures in April 2023. The April 2, 2021 Note requires monthly debt reduction
payments of $7.5 million for the six months beginning in May 2021 which can also be satisfied by payments on the November 2020, and/or
April 23, 2021 Note. After six months past the issuance date, the noteholder can request monthly redemptions of up to $3.5 million. The
outstanding balance of the April 23, 2021 Note, including accrued interest, was approximately $25.7 million as of May 31, 2021.
November 2020 Note
During November 2020, we issued a convertible note with a principal amount of $28.5 million resulting in net cash proceeds of $25.0
million, after $3.4 million of debt discount and $0.1 million of offering costs. The note accrues interest daily at a rate of 10% per annum,
contains a stated conversion price of $10.00 per share, and matures in November 2022. The November 2020 Note requires monthly debt
reduction payments of $7.5 million for the six months beginning in November 2020 which can also be satisfied by payments on the July
2020 Note and/or March 2020 Note, both of which have been paid in full, as discussed below. After six months past the issuance date, the
noteholder can request monthly redemptions of up to $3.5 million. The outstanding balance of the November 2020 Note, including accrued
interest, was approximately $13.6 million as of May 31, 2021.
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July 2020 Note
During July 2020, we issued a convertible note with a principal amount of $28.5 million resulting in net cash proceeds of $25.0
million, after $3.4 million of debt discount and $0.1 million of offering costs. The note accrued interest daily at a rate of 10% per annum,
contains a stated conversion price of $10.00 per share and matures in July 2022. Beginning six months after the issuance date, the
noteholder could request monthly redemptions up to $3.5 million. During the quarter ended May 31, 2021, this note was fully retired as a
result of the noteholder exercising the monthly redemption provision and the Company satisfying the monthly Debt Reduction Amount
required under the November 2020 Note by making payments on the July 2020 Note. There was no balance outstanding under this note as
of May 31, 2021.
March 2020 Note
During the quarter ended November 30, 2020, this note was fully retired as a result of the noteholder exercising the monthly
redemption provision and the Company satisfying the monthly Debt Reduction Amount required under the November 2020 Note by
making payments on the March 2020 Note. There was no balance outstanding under this note as of May 31, 2021.
Common stock
We have 800.0 million authorized shares of common stock. As of May 31, 2021, we had approximately 625.7 million shares of
common stock outstanding, approximately 42.9 million shares of common stock issuable upon the exercise of warrants, approximately 33.0
million shares of common stock issuable upon conversion of convertible preferred stock and undeclared dividends, approximately 24.1
million shares of common stock issuable upon the exercise of outstanding stock options or the vesting of outstanding restricted stock,
approximately 15.3 million shares of common stock reserved for future issuance under our equity compensation plans, and approximately
18.0 million shares of common stock reserved and issuable upon conversion of outstanding convertible notes. As a result, as of May 31,
2021, we had approximately 40.9 million authorized shares of common stock available for issuance.
Commitments and Contingencies
Contract Manufacturing with Samsung Biologics Co., Ltd (“Samsung”)
In April 2019, the Company entered into an agreement with Samsung, pursuant to which Samsung will perform technology transfer,
process validation, manufacturing and supply services for the commercial supply of leronlimab effective through calendar year 2027. In
2020, the Company entered into an additional agreement, pursuant to which Samsung will perform technology transfer, process validation,
vial filling and storage services for clinical, pre-approval inspection, and commercial supply of leronlimab. Samsung is obligated to procure
necessary raw materials for the Company and manufacture a specified minimum number of batches, and the Company is required to
provide a rolling three-year forecast of future estimated manufacturing requirements to Samsung that are binding. The future commitments
pursuant to these agreements are estimated as follows (in thousands):
Fiscal Year
2022
2023
2024
2025
Total
$
$
Amount
46,961
96,126
58,528
7,200
208,815
Management maintains relationships with two contract manufacturers that it believes best serve our strategic objectives for the
anticipated resubmission of our BLA filing and, if approved, the long-term commercial manufacturing capabilities for leronlimab.
Management will continue to assess manufacturing capacity requirements as new market information becomes available regarding
anticipated demand, subject to FDA approval.
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Commitments with Contract Research Organization (“CRO”)
The Company has entered into project work orders for each of our clinical trials with our CRO and related laboratory vendors. Under
the terms of these agreements, the Company has prepaid certain execution fees for direct services costs. In connection with our clinical
trials, the Company has entered into separate project work orders for each trial with our CRO. In the event that the Company terminates
any trial, certain financial penalties may be incurred which would become payable to the CRO. Based on the form of termination of any
one trial, the financial penalties may range up to approximately $2.0 million. In the remote circumstance that all clinical trials are
terminated, the collective financial penalties may range from a low of approximately $2.1 million to a high of approximately $3.3 million.
Operating Leases
We lease our principal office location in Vancouver, Washington and a office location in Fort Lauderdale, Florida. Under the terms of each
lease, the Vancouver and Fort Lauderdale leases expire April 30, 2026 and March 31, 2022, respectively. The Fort Lauderdale office is
currently being sublet to a tenant. Consistent with the guidance in ASC 842, we have recorded these leases in our consolidated balance
sheet as operating leases. For the purpose of determining the right-of-use asset and associated lease liability, we determined that the
renewal of the Vancouver lease was reasonably probable. The leases of both our Vancouver and Fort Lauderdale offices do not include any
restrictions or covenants requiring special treatment under ASC 842. During the fiscal years ended May 31, 2021 and 2020, we recognized
$0.3 million and $0.2 million of operating lease costs.
The following table summarizes the presentation of the operating leases in our consolidated balance sheet at May 31, 2021 and 2020 (in
thousands):
Assets
Right of use asset
Liabilities
Current operating lease liability
Non-current operating lease liability
Total operating lease liability
May 31,
2021
2020
$
$
$
712
175
552
727
$
$
$
176
115
63
178
The minimum (base rental) lease payments reconciled to the carrying value of the operating lease liabilities as of May 31, 2021 are
expected to be as follows (in thousands):
Fiscal Year
2022
2023
2024
2025
2026
Total operating lease payments
Less imputed interest
Present value of operating lease liabilities
Amount
202
225
175
180
183
965
(238)
727
$
$
Legal Proceedings
The Company is a party to various legal proceedings. As of the year ended May 31, 2021, we were not party to any material pending
legal proceedings, except those described in Note 10 to the Consolidated Financial Statements included in Item 8. of this Form 10-K. The
Company recognizes accruals for such proceedings to the extent a loss is determined to be both probable and reasonably estimable. The
best estimate of a loss within a possible range is accrued; however, if
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no estimate in the range is more probable than another, then the minimum amount in the range is accrued. If it is determined that a material
loss is not probable but reasonably possible and the loss or range of loss can be estimated, the possible loss is disclosed. It is not possible to
determine the outcome of these proceedings, including the defense and other litigation-related costs and expenses that may be incurred by
the Company, as the outcomes of legal proceedings are inherently uncertain, and the outcomes could differ significantly from recognized
accruals. Therefore, it is possible that the ultimate outcome of any proceeding, if in excess of a recognized accrual, or if an accrual had not
been made, could be material to the Company’s consolidated financial statements. As of May 31, 2021 the Company recorded legal
accruals of approximately $10.6 million related to the outcomes of the matters described in Note 10. “Legal Proceedings”. The Company
did not record any material accruals as of May 31, 2020. See Note 10 to the Consolidated Financial Statements for further discussion of
legal proceedings.
Distribution
In December 2019, the Company entered into a supply agreement with Vyera Pharmaceuticals, LLC (“Vyera”) for the sale of
leronlimab for HIV in the United States in conjunction with a commercialization and license agreement entered into with Vyera. See
”Licensing” below for further discussion of the agreement. On July 2, 2020, the Company entered into an exclusive distribution and supply
agreement with American Regent Inc. with respect to the distribution of leronlimab for the treatment of COVID-19 in the United States.
The parties mutually agreed to terminate the agreement effective June 9, 2021. On April 6, 2021, the Company entered into an exclusive
supply and distribution agreement with Biomm S.A., a Brazilian pharmaceutical company, granting the exclusive right to distribute and sell
leronlimab in Brazil upon Brazilian regulatory approval. On April 15, 2021, the Company entered into an exclusive supply and distribution
agreement with Chiral Pharma Corporation, a Philippine pharmaceutical company, granting the exclusive right to distribute and sell up to
200,000 vials of leronlimab during the 12 months ending April 15, 2022, to treat critically ill COVID-19 patients in the Philippines under
Compassionate Special Permit (“CSP”) or Emergency Use Authorization (“EUA”) from the Food and Drug Administration of the
Philippines. On May 11, 2021, the Company entered into an exclusive supply and distribution agreement with Macleods Pharmaceuticals
Ltd., an Indian pharmaceutical company, granting the exclusive right to distribute and sell up to 200,000 vials of leronlimab in calendar
year 2021 in India to treat COVID-19 patients under a CSP or EUA from the India Central Drugs Standard Control Organization.
Licensing
Under the Progenics Purchase Agreement, we are required to pay Progenics the following ongoing milestone payments and royalties:
(i) $5.0 million at the time of the first U.S. new drug application approval by the FDA or other non-U.S. approval for the sale of leronlimab
(PRO 140); and (ii) royalty payments of up to five percent (5%) on net sales during the period beginning on the date of the first commercial
sale of leronlimab (PRO 140) until the later of (a) the expiration of the last to expire patent included in the acquired assets, and (b) 10 years,
in each case determined on a country-by country basis. In addition, under a Development and License Agreement, dated April 30, 1999
(the “PDL License”), between Protein Design Labs (now AbbVie Inc.) and Progenics, which was previously assigned to us, we are required
to pay AbbVie Inc. additional milestone payments and royalties as follows: (i) $0.5 million upon filing a BLA with the FDA or non-U.S.
equivalent regulatory body; (ii) $0.5 million upon FDA approval or approval by another non-U.S. equivalent regulatory body; and (iii)
royalties of up to 3.5% of net sales for the longer of 10 years and the date of expiration of the last to expire licensed patent. Additionally,
the PDL License provides for an annual maintenance fee of $150,000 until royalties paid exceed that amount. As discussed elsewhere in
this Form 10-K, the Company received a Refusal to File letter from the FDA in July 2020 with respect to its BLA as a combination therapy
with HAART for highly treatment experienced HIV patients. In response to this letter, the Company commenced the resubmission of its
BLA in July 2021 and is expected to be completed in October 2021. As such, until the BLA is accepted by the FDA, it is management’s
conclusion that the probability of achieving the subsequent future clinical development and regulatory milestones is not reasonably
determinable, such that the future milestone payments payable to Progenics and its sub-licensors have been deemed contingent
consideration and, therefore, not currently accruable.
In December 2019, the Company entered into a Commercialization and License Agreement and a Supply Agreement with Vyera
Pharmaceuticals, LLC (the “License Agreement”). Pursuant to the License Agreement, the Company granted Vyera an exclusive royalty-
bearing license to commercialize pharmaceutical preparations containing leronlimab for treatment of HIV in humans in the United States.
Pursuant to the terms of the License Agreement, and
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subject to the conditions set forth therein, Vyera will incur the cost of, and be responsible for, among other things, commercializing the
product in the territory and will use commercially reasonable efforts to commercialize the product in the field in the territory. Under the
terms of the License Agreement, CytoDyn is permitted to license the product outside of the territory for uses in the field or outside the field
or for uses inside the territory outside of the field. In consideration of the license and other rights granted by the Company, Vyera agreed to
pay the Company, within three business days of the effective date of the License Agreement, a $0.5 million license issue fee, with
additional payments totaling up to approximately $87.0 million to be made upon the achievement of certain sales and regulatory
milestones. Certain milestones are subject to reduction if not achieved within an agreed-upon timeframe. Vyera may also pay the Company
additional potential milestone payments upon the regulatory approval of leronlimab for certain subsequent indications in the field. Whether
a particular subsequent indication qualifies for an additional milestone payment will be determined in good faith by the parties. In addition,
during the Royalty Term, as defined in the License Agreement, but, in any event, a period of not less than 10 years following the first
commercial sale under the License Agreement, Vyera is obligated to pay the Company a royalty equal to 50% of Vyera’s gross profit
margin from product sales (defined in the License Agreement as “Net Sales”) in the territory. The royalty is subject to reduction during the
Royalty Term after patent expiry and expiry of regulatory exclusivity. Following expiration of the Royalty Term, Vyera will continue to
maintain non-exclusive rights to commercialize the product.
Regulatory Matters
In July 2020, the Company received a Refusal to File letter from the FDA regarding its BLA submission for leronlimab as a
combination therapy with HAART for highly treatment experienced HIV patients. The FDA informed the Company its BLA did not
contain certain information needed to complete a substantive review and therefore, the FDA would not file the BLA. In particular, the FDA
informed the Company that the receptor occupancy analysis performed by its third-party laboratory was not properly performed, and would
be required to be resubmitted, and the Company would need to correct certain administrative submission deficiencies. The FDA’s request
does not require any additional clinical trials to be conducted. Subsequent to the Refusal to File letter, the Company received further
clarification on the BLA’s deficiencies. The Company has engaged a leading global healthcare diagnostic company, along with an expanded
team of subject matter expert consultants, to conduct the receptor occupancy analysis necessary in order to resubmit the BLA. The
Company began to resubmit the BLA in July 2021 and is expected to be completed in October 2021.
Going Concern
As reported in the accompanying financial statements, during the fiscal years ended May 31, 2021, May 31, 2020 and May 31, 2019,
the Company incurred net losses of approximately $154.7 million, $124.4 million and $56.2 million, respectively. The Company has no
activities that produced revenue in the periods presented and has sustained operating losses since inception.
We currently require and will continue to require a significant amount of additional capital to fund operations and pay our accounts
payables, and our ability to continue as a going concern is dependent on our ability to raise such additional capital, commercialize our
product and achieve profitability. If the Company is not able to raise such additional capital on a timely basis or on favorable terms, it may
need to scale back operations or slow CMC-related activities, which could materially delay commercialization initiatives and its ability to
achieve profitability. The Company’s failure to raise additional capital could also affect its relationships with key vendors, disrupting its
ability to timely execute its business plan. In extreme cases, the Company could be forced to file for bankruptcy protection, discontinue
operations or liquidate assets.
Since inception, the Company has financed its activities principally from the sale of public and private equity securities and proceeds
from convertible notes payable and related party notes payable. The Company intends to finance its future operating activities and its
working capital needs largely from the sale of equity and debt securities, combined with additional potential funding from other traditional
and non-traditional financing sources. As of the date of this filing, the Company has approximately 35.0 million shares of common stock
authorized and available for issuance under its certificate of incorporation, as amended.
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The sale of equity and convertible debt securities to raise additional capital may result in dilution to stockholders and those securities
may have rights senior to those of common shares. If the Company raises funds through the issuance of additional preferred stock,
convertible debt securities or other debt financing the related transaction documents could contain covenants restricting its operations. On
November 10, 2020, April 2, 2021, and April 23, 2021, the Company entered into long-term convertible notes that are secured by all of our
assets, except for our intellectual property, and also include certain restrictive provisions, including limitations on incurring additional
indebtedness and future dilutive issuances of securities, any of which could impair our ability to raise additional capital on acceptable terms
and conditions. Any other third-party funding arrangements could require the Company to relinquish valuable rights. The Company expects
to require additional capital beyond currently anticipated needs. Additional capital, if available, may not be available on reasonable or non-
dilutive terms. See Part I, Item 1A. Risk Factors above for additional information.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses for all periods presented and
has a substantial accumulated deficit. As of May 31, 2021, these factors, among several others, may raise substantial doubt about our ability
to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and
liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going
concern is dependent upon its ability to obtain a significant amount of additional operating capital, to continue its research into multiple
indications for and development of its product candidate, to obtain FDA approval of its product candidate for use in treating one or more
indications, to outsource manufacturing of its product, and ultimately to attain profitability. We intend to seek additional funding through
equity or debt offerings, licensing agreements, supply and distribution agreements, and strategic alliances to implement our business plan.
There are no assurances, however, that we will be successful in these endeavors.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources
that is material to investors.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to
make estimates and judgments that affect the reported amounts of assets, liabilities, and expense and related disclosures. On an ongoing
basis, management bases and evaluates estimates on historical experience and on various other market specific and other relevant
assumptions believed to be 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. Actual results may differ significantly from those
estimates.
We believe the following critical policies reflect the more significant judgments and estimates used in preparation of the Consolidated
Financial Statements.
Derivative Liabilities
We follow the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815
Derivatives and Hedging, ASC 480 Distinguishing Liabilities from Equity, and ASC 470 Debt. We have historically issued instruments that
meet the criteria of derivative liabilities. Derivative financial instruments consist of financial instruments that contain a notional amount
and one or more underlying variable (e.g., contingent cash settlement provision), require no initial net investment and permit net settlement.
Derivative financial instruments may be free-standing or embedded in other financial instruments. We have induced conversion of certain
instruments with bifurcated conversion options. To record certain conversion and the extinguishment of derivative liabilities, we have
followed the general extinguishment model. As described in Notes 2 and 5, to the Consolidated Financial Statements included in Item 8 of
this Form 10-K, we utilized a Binomial Lattice Model to value the conversion
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options, which utilizes assumptions that market participants would likely consider in negotiating the transfer of the conversion options,
including early conversions. These assumptions used in the model are based on unobservable market inputs and are subject to variability.
Inventories
We capitalize inventories procured or produced in preparation for product launches sufficient to support estimated initial market
demand. Typically, capitalization of such inventory begins when the results of clinical trials have reached a status sufficient to support
regulatory approval, uncertainties regarding ultimate regulatory approval have been significantly reduced and we have determined that it is
probable that these capitalized costs will provide some future economic benefit in excess of capitalized costs. The material factors
considered by the Company in evaluating these uncertainties include the receipt and analysis of positive Phase 3 clinical trial results for the
underlying product candidate, results from meetings with the relevant regulatory authorities prior to the filing of regulatory applications,
and the compilation of the regulatory application. We closely monitor the status of the product within the regulatory review and approval
process, including all relevant communication with regulatory authorities. If we are aware of any specific material risks or contingencies
other than the normal regulatory review and approval process or if there are any specific issues identified relating to safety, efficacy,
manufacturing, marketing or labeling, the related inventory may no longer qualify for capitalization.
We value inventory at the lower of cost or net realizable value using the average cost method. Inventories currently consist of raw
materials, bulk drug substance, and drug product in unlabeled vials to be used for commercialization of the Company’s biologic,
leronlimab, which is in the regulatory approval process. Inventory purchased in preparation for product launches is evaluated for
recoverability by considering the likelihood that revenue will be obtained from the future sale of the related inventory, in light of the status
of the product within the regulatory approval process. The Company evaluates its inventory levels on a quarterly basis and writes down
inventory that has become obsolete, or has a cost in excess of its expected net realizable value, and inventory quantities in excess of
expected requirements. In assessing the lower of cost or net realizable value to pre-launch inventory, the Company relies on independent
analysis provided by third parties knowledgeable of the range of likely commercial prices comparable to current comparable commercial
product.
For inventories capitalized prior to FDA marketing approval in preparation of product launch, anticipated future sales, shelf-lives, and
expected approval date are considered when evaluating realizability of pre-launch inventories. The shelf-life of a product is determined as
part of the regulatory approval process; however, in assessing whether to capitalize pre-launch inventory the Company considers the
stability data of all inventories. As inventories approach their shelf-life expiration, the Company may perform additional stability testing to
determine if the inventory is still viable, which can result in an extension of its shelf-life. Further, in addition to performing additional
stability testing, certain raw materials inventory may be sold in its then current condition prior to reaching expiration. We also consider
potential delays associated with regulatory approval in determining whether pre-approval inventory remains salable. See Note 4 –
Inventories in the Notes to Consolidated Financial Statements in Item 8. of this Form 10-K for information regarding the remaining shelf-
lives of our pre-launch inventory, by each category of inventory. Although we believe our product will receive market acceptance, the
introduction of a competing product could negatively impact the demand for our product and affect the realizability of our inventories. In
addition, if physicians are unwilling or unable to prescribe leronlimab to their patients, or the target patient population is reluctant to try
leronlimab as a new therapy, the salability of our pre-launch inventory would be adversely affected.
Stock-based compensation
We use the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant utilizing certain
assumptions that require judgments and estimates. These assumptions include estimates for stock price volatility, expected term and risk-
free interest rates in determining the fair value of the stock-based awards. The risk-free interest rate assumption is based on observed
interest rates appropriate for the expected term of the stock-based award. The expected volatility is based on the historical volatility of the
Company’s common stock at monthly intervals. The computation of the expected option term is based on the “simplified method,” as the
options issued by the Company are considered “plain vanilla” options. We estimate forfeitures at the time of grant and revise, if necessary,
in subsequent
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periods, if actual forfeitures differ from those estimates. Based on limited historical experience of forfeitures, we estimated future unvested
forfeitures at 0% for all periods presented. Quarterly expense is reduced during the period when grants are forfeited, such that the full
expense is recorded at the time of grant and only reduced when the grant is truly forfeited.
We periodically issue restricted common stock or restricted stock units to executives or third parties as compensation for services
rendered. Such awards are valued at fair market value on the effective date of the Company’s obligation. We also issue stock options and
warrants to consultants as compensation for various services from time to time. Costs for these transactions are measured at the fair value
of the consideration received or the fair value of the equity instruments issued, whichever is more readily measurable.
Contingent liabilities
As discussed in Notes 8 and 9 to the Consolidated Financial Statements included in Item 8. of this Form 10-K, we have significant
license and contingent milestone and royalty liabilities. We must estimate the likelihood of paying these contingent liabilities periodically
based on the progress of our clinical trials, BLA approval status, and status of commercialization.
We are party to various legal proceedings as described in Note 10 to the Consolidated Financial Statements included in Item 8. of
this Form 10-K. The Company recognizes accruals for such proceedings to the extent a loss is determined to be both probable and
reasonably estimable. The best estimate of a loss within a possible range is accrued; however, if no estimate in the range is more probable
than another, then the minimum amount in the range is accrued. If it is determined that a material loss is not probable but reasonably
possible it is disclosed and if the loss or range of loss can be estimated, the possible loss is also disclosed. It is not possible to determine the
ultimate outcome of these proceedings, including the defense and other litigation-related costs and expenses that may be incurred by the
Company, as the outcomes of legal proceedings are inherently uncertain, and the outcomes could differ significantly from recognized
accruals. Therefore, it is possible that the ultimate outcome of any proceeding, if in excess of a recognized accrual, or if an accrual had not
been made, could be material to the Company’s consolidated financial statements. We periodically reassess these matters when additional
information becomes available and adjust our estimates and assumptions when facts and circumstances indicate the need for any changes.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company we are not required to provide the information required by this Item.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CYTODYN INC.
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED BALANCE SHEETS AS OF MAY 31, 2021 AND MAY 31, 2020
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED MAY 31, 2021, 2020 AND 2019
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY FOR THE YEARS
ENDED MAY 31, 2021, 2020 AND 2019
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MAY 31, 2021, 2020 AND 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
89
92
93
94
96
97
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
CytoDyn Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of CytoDyn Inc. (the Company) as of May 31, 2021 and 2020 and the
related consolidated statements of operations, changes in stockholders’ (deficit) equity, and cash flows for each of the years in the three-
year period ended May 31, 2021, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2021 and
2020, and the results of its operations and its cash flows for each of the years in the three-year period ended May 31, 2021, in conformity
with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company’s internal control over financial reporting as of May 31, 2021, based on criteria established in Internal Control—Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated July
30, 2021 expressed an unqualified opinion.
Substantial Doubt as to the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements, the Company incurred a net loss of approximately $154,674,000 for the year
ended May 31, 2021 and has an accumulated deficit of approximately $511,294,000 through May 31, 2021, which raises substantial doubt
about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud. Our audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical
audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
I.
Evaluation of the Carrying Value of Identifiable Intangible Assets
Description of Matter and Relevant Accounts and Disclosures - As explained in Note 2 to the consolidated financial statements, the
Company has various intangibles which include patents, proprietary algorithms and non-compete
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agreements with the acquisition of ProstaGene, Inc. The Company evaluates on a quarterly basis whether any conditions exist, or events
have occurred or are likely to occur that would impair the carrying value of the intangible assets.
Auditing the Company’s impairment assessment was challenging because the accrual involved a higher degree of management judgment
with regards to the analysis of the undiscounted expected cash flows to the carrying value for the identifiable intangible assets.
How We Addressed the Matter in Our Audit - To evaluate the carrying value of identifiable intangible assets, our audit procedures
included, among others:
•
•
•
Obtained an understanding, evaluated the design and tested the operating effectiveness of certain internal controls related to the
valuation and potential impairment charge. This included a control related to the comparison of the undiscounted expected future
cash flows to the carrying value.
Evaluation of triggering events that may indicate the carrying amount of the assets may not be recoverable.
Evaluation of the assumptions used by management in the calculation of the undiscounted expected future cash flows, including
inquiries of management and specialists involved in the drug development process.
II.
Evaluation of the Capitalization and Carrying Value of Pre-Launch Inventory
Description of Matter and Relevant Accounts and Disclosures - As explained in Note 2 to the consolidated financial statements, the
Company capitalizes pre-launch inventories procured or produced for product launches sufficient to support estimated initial demand.
Typically, capitalization of such pre-launch inventory begins when the results of the clinical trial have reached a status sufficient for
regulatory approval and the Company has determined that the capitalized costs will provide future economic benefits. Anticipated future
sales, shelf lives, and expected approval dates are all factors when evaluating the realizability of capitalized inventory.
Auditing the Company’s pre-launch inventory was challenging because it involved a higher degree of management judgment to evaluate
the probable future benefit to determine if the pre-launch inventory should be capitalized before regulatory approval.
How We Addressed the Matter in Our Audit - To evaluate the carrying value of pre-launch inventory our audit procedures included,
among others:
•
•
•
•
•
Obtained an understanding, evaluated the design and tested the operating effectiveness of certain internal controls related to the
existence and valuation of inventory. This included controls related to the approval for the purchase of inventory, physical
inventory count observations, shelf life and review of valuation of inventory.
External confirmation of inventories held by others.
Review of manufacturing contracts and inquiries of management who oversee research and development efforts.
Testing the accuracy and completeness of the underlying data used in the estimate.
Evaluating the factors used by management to determine if the pre-launch inventory should be capitalized before regulatory
approval.
/s/ Warren Averett, LLC
We have served as the Company’s auditor since 2007.
Birmingham, Alabama
July 30, 2021
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
CytoDyn Inc.
Opinion on Internal Control over Financial Reporting
We have audited CytoDyn Inc.’s (the Company’s) internal control over financial reporting as of May 31, 2021, based on criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31,
2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
balance sheets and the related consolidated statements of operations, changes in stockholders’ (deficit) equity, and cash flows of the
Company, and our report dated July 30, 2021, expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Warren Averett, LLC
Birmingham, Alabama
July 30, 2021
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Assets
Current assets:
Cash
Restricted cash
Inventories, net
Prepaid expenses
Prepaid service fees
Total current assets
Operating leases right-of-use asset
Property and equipment, net
Intangibles, net
Total assets
Liabilities and Stockholders’ (Deficit) Equity
Current liabilities:
Accounts payable
Accrued liabilities and compensation
Accrued interest on convertible notes
Accrued dividends on convertible preferred stock
Operating leases liabilities
Convertible notes payable, net
Warrant exercise proceeds held in trust
Total current liabilities
Long-term liabilities:
Convertible notes payable, net
Operating leases liabilities
Total long-term liabilities
Total liabilities
Commitments and Contingencies (Note 10)
Stockholders’ (deficit) equity:
Preferred Stock, $0.001 par value; 5,000 shares authorized
CytoDyn Inc.
Consolidated Balance Sheets
(In thousands, except par value)
May 31,
2021
2020
$
$
$
$
$
$
$
33,943
—
93,479
616
1,543
129,581
712
134
1,653
132,080
65,897
19,073
2,007
2,647
175
62,747
—
152,546
—
552
552
153,098
—
—
—
626
489,650
(511,294)
—
(21,018)
132,080
$
14,282
10
19,147
498
2,890
36,827
176
55
13,456
50,514
29,479
6,879
292
981
115
6,745
10
44,501
8,431
63
8,494
52,995
—
—
—
519
351,711
(354,711)
—
(2,481)
50,514
Series D convertible preferred stock, $0.001 par value; 12 authorized; 9 issued and outstanding at
May 31, 2021 and May 31, 2020, respectively
Series C convertible preferred stock, $0.001 par value; 8 authorized; 8 issued and outstanding at
May 31, 2021 and May 31, 2020, respectively
Series B convertible preferred stock, $0.001 par value; 400 shares authorized, 79 and 92 shares issued
and outstanding at May 31, 2021 and May 31, 2020, respectively
Common stock, $0.001 par value; 800,000 shares authorized, 626,123 and 519,262 issued and 625,680
and 518,976 outstanding at May 31, 2021 and May 31, 2020, respectively
Additional paid-in capital
Accumulated (deficit)
Treasury stock, $0.001 par value; 443 and 286 shares at May 31, 2021 and May 31, 2020, respectively
Total stockholders’ (deficit) equity
Total liabilities and stockholders' (deficit) equity
See accompanying notes to Consolidated Financial Statements.
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Table of Contents
CytoDyn Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
Operating expenses:
General and administrative
Research and development
Amortization and depreciation
Intangible asset impairment charge
Total operating expenses
Operating loss
Other income (expense):
Other income
Interest income
Change in fair value of derivative liabilities
Loss on extinguishment of convertible notes
Legal settlements
Interest expense:
Finance charges
Amortization of discount on convertible notes
Amortization of debt issuance costs
Inducement interest expense
Interest on convertible notes payable
Total interest expense
Loss before income taxes
Income tax benefit
Net loss
Basic and diluted loss per share
Basic and diluted weighted average common shares outstanding
2021
Years ended May 31,
2020
2019
$
$
$
$
34,320
58,430
1,797
10,049
104,596
(104,596)
—
2
—
(19,896)
(10,628)
(147)
(3,591)
(65)
(11,366)
(4,387)
(19,556)
(154,674)
—
(154,674)
(0.27)
587,590
$
$
$
19,973
52,640
2,034
—
74,647
(74,647)
500
5
(9,542)
—
(22,500)
(936)
(1,645)
(404)
(7,904)
(7,330)
(18,219)
(124,403)
—
(124,403)
(0.30)
421,078
$
$
12,117
42,490
1,245
—
55,852
(55,852)
—
4
1,666
(1,520)
—
—
(1,707)
(459)
(196)
(950)
(3,312)
(59,014)
2,827
(56,187)
(0.21)
272,041
See accompanying notes to Consolidated Financial Statements.
93
Balance May 31, 2018
Acquisition of ProstaGene LLC
Issuance of stock payment shares
Issuance of stock for note payable redemption
Registered direct offerings ($0.50/share)
Offering costs related to registered direct offering
Private equity offerings ($0.50/share)
Offering costs related to private equity offering
Issuance costs related to debt offering
Debt discount costs related to debt offering
Beneficial conversion feature on note payable and relative fair
value associated with warrants
Private warrant exchanges
Offering costs related to private warrant exchange
Inducement interest expense on private warrant exchange
Proceeds from preferred stock offering
Dividends accrued on preferred stock
Legal fees in connection with equity offerings
Stock-based compensation
Net loss for May 31, 2019
Balance May 31, 2019
Issuance of stock for note payable repayment
Note conversion and extension fees
Registered direct offering
Offering costs related to registered direct offering
Warrant exercises
Relative fair market value associated with warrants exercised
Public warrant tender offers
Offering costs related to public warrant tender offers
Inducement interest expense—tender offers and debt
conversions
Private warrant exchanges
Offering costs related to private warrant exchanges
Inducement interest expense—private warrant exchanges
Preferred stock offerings
Offering costs related to preferred stock offering
Exercise of option to repurchase common stock
Dividends accrued on preferred stock
Legal fees in connection with equity offerings
Stock issued for services
Stock issued for bonuses and tendered for income tax
Stock option exercises
Stock-based compensation
CytoDyn Inc.
Consolidated Statements of Stockholders’ (Deficit) Equity
(In thousands)
Preferred stock
Common stock
Treasury stock Additional
Accumulated Total stockholders'
deficit
(deficit) equity
$
$ — 216,882
18,658
8,342
3,756
23,630
Shares Amount Shares Amount Shares Amount paid-in capital
159,765
217
11,539
19
(8)
8
1,451
4
11,791
24
(1,130)
— —
23,441
47
(2,697)
— —
261
— —
3,059
— —
159
$ — $
— —
— —
— —
— —
— —
— —
— —
— —
— —
92
— —
— —
— —
— —
— —
— —
— —
— —
— —
46,975
$
(173,139)
$
—
—
—
—
—
—
—
—
—
— —
— —
— —
— —
3
—
— —
— —
— —
11,312
— —
11
— —
— —
— —
— —
— —
— —
— 329,555
95
— 22,967
—
— —
8,232
— — 38,856
— —
— — 42,024
— —
— — 45,376
— —
330
23
8
39
— —
42
— —
45
— —
— —
— — 20,529
— —
— —
14
—
— —
— —
— —
— —
— —
— —
— —
— —
— —
20
— —
— —
— —
— —
— —
— —
— —
3
—
9
— —
2,620
380
8,723
— —
— —
— —
— —
— —
— —
— —
— —
—
—
159
—
— —
— —
— —
— —
— —
— —
— —
— —
— —
— —
— —
— —
— —
— —
— —
— —
— —
127
—
— —
— —
3,535
2,955
(267)
196
3,084
—
(243)
3,388
—
220,120
10,799
3,891
12,627
(378)
20,458
11,949
11,855
(1,059)
2,713
6,001
(197)
5,191
13,409
(437)
(8)
—
(16)
(3)
154
5,594
6,548
—
—
—
—
—
(37)
—
—
(56,187)
(229,363)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(945)
—
—
—
—
—
See accompanying notes to Consolidated Financial Statements.
94
(13,158)
11,558
—
1,455
11,815
(1,130)
23,488
(2,697)
261
3,059
3,535
2,966
(267)
196
3,084
(37)
(243)
3,388
(56,187)
(8,913)
10,822
3,899
12,666
(378)
20,500
11,949
11,900
(1,059)
2,713
6,021
(197)
5,191
13,409
(437)
(8)
(945)
(16)
—
154
5,603
6,548
Table of Contents
Legal settlement
Net Loss for May 31, 2020
Balance May 31, 2020
Issuance of stock for convertible note repayment
Issuance of legal settlement shares
Stock option exercises
Stock issued for incentive compensation and tendered for
income tax
Stock issued for private offering ($1.50 per share)
Conversion of Series B convertible preferred stock to common
stock
Private warrant exchanges
Offering costs related to private warrant exchanges
Warrant exercises
Inducement interest expense related to private warrant
exchanges
Dividends accrued and paid on preferred stock
Stock-based compensation
Net Loss for May 31, 2021
Balance May 31, 2021
Preferred stock
Common stock
Treasury stock Additional
Accumulated Total stockholders'
Shares Amount Shares Amount Shares Amount paid-in capital
22,500
—
— —
— —
109
—
—
—
— —
— —
519
24
4
3
— 519,262
— 24,154
4,000
—
2,591
—
— —
— —
286
—
—
—
—
—
—
—
deficit
(deficit) equity
—
(124,403)
(354,711)
—
—
—
—
—
—
—
—
—
—
(1,909)
—
(154,674)
(511,294)
$
$
22,500
(124,403)
(2,481)
77,703
—
1,838
828
1,000
—
17,556
(495)
19,428
11,366
(1,909)
8,822
(154,674)
(21,018)
351,711
77,679
(4)
1,835
828
999
—
17,519
(495)
19,390
11,366
—
8,822
—
489,650
—
—
(13)
—
—
—
—
—
—
—
96
—
—
323
667
—
131
— 37,054
—
—
— 37,941
—
—
—
—
—
—
—
—
$ — 626,123
$
—
1
—
37
—
38
—
—
—
—
626
157
—
—
—
—
—
—
—
—
—
443
—
—
—
—
—
—
—
—
—
—
$ — $
See accompanying notes to Consolidated Financial Statements.
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Table of Contents
CytoDyn Inc.
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization and depreciation
Amortization of debt issuance costs
Amortization of discount on convertible notes
Legal settlement
Inducement interest expense
Interest expense associated with accretion of convertible notes payable
Change in fair value of derivative liabilities
Stock-based compensation
Loss on extinguishment of convertible notes
Intangible asset impairment charge
Deferred income tax benefit
Changes in operating assets and liabilities:
(Increase) in inventories, net
Decrease (increase) in miscellaneous receivables
Decrease (increase) in prepaid expenses
Increase in accounts payable and accrued expenses
Net cash used in operating activities
Cash flows from investing activities:
Intangibles
Furniture and equipment purchases
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from warrant transactions, net of offering costs
Proceeds from sale of common stock and warrants
Proceeds from warrant exercises
Proceeds from sale of preferred stock, net of offering costs
Payment on convertible notes
Exercise of option to repurchase shares held in escrow
Release of funds held in trust for warrant tender offer
Proceeds from stock option exercises
Payment of payroll withholdings related to tender of common stock for income tax withholding
Proceeds from convertible notes payable, net
Payment of conversion offering costs
Dividend declared and paid on Series B preferred stock
Net cash provided by financing activities
Net change in cash
Cash and restricted cash, beginning of period
Cash and restricted cash, end of period
Cash and restricted cash consisted of the following:
Cash
Restricted cash
Total cash and restricted cash
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
Non-cash investing and financing transactions:
Issuance of common stock for principal and interest of convertible notes
Accrued dividends on convertible preferred stock
Cashless exercise of warrants
Issuance of stock for legal settlement
Derivative liability associated with warrants
Common stock issued for accrued bonus compensation
Common stock issued for services
Common stock issued for acquisition of ProstaGene, LLC
Beneficial conversion feature and fair value of warrant issued with note payable
Debt discount and issuance costs associated with convertible note payable
Derivative liability associated with a convertible note payable
Issuance costs associated with placement agent warrants
2021
Years ended May 31,
2020
2019
$
(154,674)
$
(124,403)
$
(56,187)
1,797
65
3,591
—
11,366
—
—
10,429
19,896
10,049
—
(74,332)
—
1,228
53,012
(117,573)
—
(122)
(122)
17,060
1,000
19,428
—
(950)
—
(10)
1,839
(778)
100,000
—
(243)
137,346
19,651
14,292
33,943
33,943
—
33,943
147
77,703
1,666
11
4
—
—
—
—
—
—
—
—
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,034
404
1,645
22,500
7,904
6,615
9,542
6,548
—
—
—
(19,147)
91
(1,577)
19,040
(68,804)
—
(41)
(41)
—
12,666
38,422
13,409
(2,185)
(8)
(844)
5,602
(89)
15,000
(2,303)
—
79,670
10,825
3,467
14,292
14,282
10
14,292
243
15,092
944
—
—
11,949
155
3
—
—
—
—
—
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,245
459
1,707
—
196
513
(1,666)
3,388
1,520
—
(2,827)
—
(91)
(464)
1,741
(50,466)
(19)
(26)
(45)
—
38,269
—
3,084
—
—
854
—
—
14,877
(4,337)
—
52,747
2,236
1,231
3,467
2,613
854
3,467
—
1,680
37
—
—
—
—
8
11,558
3,535
3,059
2,750
261
See accompanying notes to Consolidated Financial Statements.
96
Table of Contents
Note 1. Organization
CYTODYN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MAY 31, 2021
CytoDyn Inc. (the “Company”) was originally incorporated under the laws of Colorado on May 2, 2002 under the name RexRay
Corporation and, effective August 27, 2015, reincorporated under the laws of Delaware. The Company is a late-stage biotechnology
company developing innovative treatments for multiple therapeutic indications based on leronlimab, a novel humanized monoclonal
antibody targeting the CCR5 receptor. Leronlimab is in a class of therapeutic monoclonal antibodies designed to address unmet medical
needs for which the Company is focused on developing treatments in the areas of human immunodeficiency virus (“HIV”), cancer,
immunology, and novel coronavirus disease (“COVID-19”).
Leronlimab belongs to a class of HIV therapies known as entry inhibitors which block HIV from entering and infecting specific cells. For
cancer and immunology, the CCR5 receptor also appears to be implicated in human metastasis and in immune-mediated illnesses such as
triple-negative breast cancer, other metastatic solid tumor cancers, and non-alcoholic steatohepatitis (“NASH”). For COVID-19 the
Company believes leronlimab may be shown to provide therapeutic benefit by enhancing the immune response and also mitigating the
“cytokine storm” that leads to morbidity and mortality in patients experiencing this syndrome.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiary, CytoDyn Operations Inc.
All intercompany transactions and balances are eliminated in consolidation.
Reclassifications
Certain prior year amounts shown in the accompanying Consolidated Financial Statements have been reclassified to conform to the current
period presentation. These reclassifications did not have any effect on the Company’s financial position, results of operations, stockholders’
(deficit) equity, or net cash provided by financing activities as previously reported.
Going Concern
The consolidated accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying Consolidated Financial Statements,
the Company had losses for all periods presented. The Company incurred a net loss of $154.7 million, $124.4 million, and $56.2 million
for the years ended May 31, 2021, May 31, 2020, and May 31, 2019, respectively, and has an accumulated deficit of $511.3 million as of
May 31, 2021. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
The Consolidated Financial Statements do not include any adjustments relating to the recoverability of assets and classification of liabilities
that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is
dependent upon its ability to obtain additional operating capital, complete development of its product candidate, leronlimab, obtain
approval to commercialize leronlimab from regulatory agencies, continue to outsource manufacturing of leronlimab, and ultimately achieve
initial revenues and attain profitability. The Company continues to engage in significant research and development activities related to
leronlimab for multiple indications and expects to incur significant research and development expenses in the future primarily related to its
clinical trials. These research and development activities are subject to significant risks and uncertainties. The Company intends to finance
its future development activities and its working capital needs largely from the sale of
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equity and debt securities, combined with additional funding from other traditional sources. There can be no assurance, however, that the
Company will be successful in these endeavors.
Use of Estimates
The preparation of the Consolidated Financial Statements in accordance with U.S. GAAP requires management to make estimates and
judgments that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of
Consolidated Financial Statements and the reported amounts of expenses during the reporting period. Estimates are assessed each period
and updated to reflect current information, such as the economic considerations related to the impact that the recent coronavirus disease
could have on our significant accounting estimates and assumptions. The Company’s estimates are based on historical experience and on
various market and other relevant, appropriate assumptions. Actual results could differ from these estimates.
Cash
Cash is maintained at federally insured financial institutions and, at times, balances may exceed federally insured limits. The Company has
never experienced any losses related to these balances. Balances in excess of federally insured limits at May 31, 2021 and May 31, 2020
approximated $33.7 million and $14.0 million, respectively.
Identified Intangible Assets
The Company follows the provisions of ASC 350, Intangibles-Goodwill and Other, which establishes accounting standards for the
impairment of long-lived assets such as intangible assets subject to amortization. The Company reviews long-lived assets to be held and
used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If
the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset group is less than its carrying
value, the asset is considered impaired. Impairment losses are measured as the amount by which the carrying amount of the asset group
exceeds the fair value of the asset. The Company recognized an impairment charge of approximately $10.0 million for the year ended
May 31, 2021, and none for the years ended May 31, 2020, and May 31, 2019. The value of the Company’s patents would be significantly
impaired by any adverse developments as they relate to the clinical trials pursuant to the patents acquired as discussed in Note 8.
Research and Development
Research and development costs are expensed as incurred. Clinical trial costs incurred through third-parties are expensed as the contracted
work is performed. Contingent milestone payments that are due to third parties under research and development collaboration arrangements
or other contractual agreements are expensed when the milestone conditions are probable and the amount of payment is reasonably
estimable. See Notes 9 and 10.
Inventories
The Company values inventory at the lower of cost or net realizable value using the average cost method. Inventories consist of raw
materials, bulk drug substance, and drug product in unlabeled vials to be used for commercialization of the Company’s biologic,
leronlimab, which is in the regulatory approval process. The consumption of raw materials during production is classified as work-in-
progress until saleable. Once it is determined to be in saleable condition, following regulatory approval, inventory is classified as finished
goods. Inventory is evaluated for recoverability by considering the likelihood that revenue will be obtained from the future sale of the
related inventory, in light of the status of the product within the regulatory approval process.
The Company evaluates its inventory levels on a quarterly basis and writes down inventory that has become obsolete, or has a cost in
excess of its expected net realizable value, and inventory quantities in excess of expected requirements. In assessing the lower of cost or net
realizable value for pre-launch inventory, the Company relies on independent analyses provided by third-parties knowledgeable of the
range of likely commercial prices comparable to current comparable commercial product.
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The Company capitalizes inventories procured or produced in preparation for product launches sufficient to support estimated initial
market demand. Typically, capitalization of such inventory begins when the results of clinical trials have reached a status sufficient to
support regulatory approval, uncertainties regarding ultimate regulatory approval have been significantly reduced and the Company has
determined it is probable that these capitalized costs will provide future economic benefit in excess of capitalized costs. The material
factors considered by the Company in evaluating these uncertainties include the receipt and analysis of positive Phase 3 clinical trial results
for the underlying product candidate, results from meetings with the relevant regulatory authorities prior to the filing of regulatory
applications, and status of the Company’s regulatory applications. The Company closely monitors the status of the product within the
regulatory review and approval process, including all relevant communications with regulatory authorities. If the Company is aware of any
specific material risks or contingencies other than the normal regulatory review and approval process or if there are any specific issues
identified relating to safety, efficacy, manufacturing, marketing or labeling, the related inventory may no longer qualify for capitalization.
Anticipated future sales, shelf lives, and expected approval date are considered when evaluating realizability of capitalized inventory. The
shelf-life of a product is determined as part of the regulatory approval process; however, in assessing whether to capitalize pre-launch
inventory, the Company considers the product stability data of all of the pre-approval inventory procured or produced to date to determine
whether there is adequate shelf life. As inventories approach their shelf-life expiration, the Company may perform additional stability
testing to determine if the inventory is still viable, which can result in an extension of its shelf-life. Further, in addition to performing
additional stability testing, certain raw materials inventory may be sold in its then current condition prior to reaching expiration.
Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash, accounts receivable, right-of-use assets, accounts payable, accrued
liabilities, short-term and long-term lease liabilities, and short-term and long-term debt. As of May 31, 2021, the carrying value of the
Company’s cash, accounts payable, and accrued liabilities approximate their fair value due to the short-term maturity of the instruments.
Short-term and long-term debt are reported at amortized cost in the Consolidated Balance Sheets which approximate fair value. The
remaining financial instruments are reported in the Consolidated Balance Sheets at amounts that approximate current fair values.
During the fiscal year ended May 31, 2021 the Company carried derivative financial instruments at fair value as required by U.S. GAAP.
Derivative financial instruments consist of financial instruments that contain a notional amount and one or more underlying variables (e.g.,
interest rate, security price, variable conversion rate or other variables), require no initial net investment and permit net settlement.
Derivative financial instruments may be free-standing or embedded in other financial instruments. The Company follows the provisions of
ASC 815, Derivatives and Hedging, as their instruments are recorded as a derivative liability, at fair value, and ASC 480, Distinguishing
Liabilities from Equity, as it relates to warrant liability, with changes in fair value reflected in the Consolidated Statement of Operations.
The fair value hierarchy specifies three levels of inputs that may be used to measure fair value as follows:
•
•
•
Level 1. Quoted prices in active markets for identical assets or liabilities.
Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in
markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all
significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially
the full term of the assets or liabilities. Level 2 inputs also include non-binding market consensus prices that can be corroborated
with observable market data, as well as quoted prices that were adjusted for security-specific restrictions.
Level 3. Unobservable inputs to the valuation methodology which are significant to the measurement of the fair value of assets or
liabilities. These Level 3 inputs also include non-binding market consensus prices or non-binding broker quotes that cannot be
corroborated with observable market data.
The Company did not have any assets or liabilities measured at fair value using Level 1 or 2 of the fair value hierarchy as of May 31, 2021
and May 31, 2020. As of May 31, 2020, there were no assets or liabilities measured at fair value
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using Level 3 inputs; previous outstanding derivative warrants and related convertible debt valued at fair value using level 3 inputs were
converted prior to May 31, 2020 according to the terms of the agreements.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value
measurements. These instruments are not quoted on an active market. During the 2020 fiscal year, the Company used a Binomial Lattice
Model to estimate the value of the warrant derivative liability and a Monte Carlo Simulation to value the derivative liability of the
redemption provision within a convertible promissory note. These valuation models were used because management believes they reflect
all the assumptions that market participants would likely consider in negotiating the transfer of the instruments. The Company’s derivative
liabilities were classified within Level 3 of the fair value hierarchy because certain unobservable inputs were used in the valuation models.
The following is a reconciliation of the beginning and ending balances for liabilities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) from inception to the year ended May 31, 2020 (in thousands):
Investor warrants issued with registered direct equity offering
Placement agent warrants issued with registered direct equity offering
Fair value adjustments
Balance at May 31, 2018
Inception date value of redemption provisions
Fair value adjustments—convertible notes
Fair value adjustments—warrants
Balance at May 31, 2019
Fair value adjustments—convertible notes
Fair value adjustments—warrants
Exercise of derivative warrants
Balance at May 31, 2020
$
$
4,360
819
(3,855)
1,324
2,750
(745)
(922)
2,407
(2,005)
11,547
(11,949)
—
Operating Leases
Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of operating leases payable and operating
leases liabilities in the Consolidated Balance Sheets.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments
over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its incremental
borrowing rate based on the information available at commencement date in determining the present value of future payments. The
operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The
Company’s lease terms do not include options to extend or terminate the lease as it is not reasonably certain that it would exercise these
options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company has lease
agreements with lease and non-lease components, which are generally accounted for separately.
Stock-Based Compensation
U.S. GAAP requires companies to measure the cost of employee services received in exchange for the award of equity instruments based
on the fair value of the award at the date of grant. The related expense is recognized over the period during which an employee is required
to provide services in exchange for the award (requisite service period), when designated milestones have been achieved or when pre-
defined performance conditions are met.
The Company accounts for stock-based awards established by the fair market value of the instrument using the Black-Scholes option
pricing model utilizing certain weighted average assumptions including stock price volatility, expected term and risk-free interest rates, as
of the grant date. For stock-based awards with defined vesting, the Company recognizes compensation expense over the requisite service
period, when designated milestones have been achieved or when pre-defined performance conditions are met. The Company estimates
forfeitures at the time of grant and revised, if
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necessary, in subsequent periods, if actual forfeitures differ from those estimates. Based on limited historical experience of forfeitures, the
Company estimated future unvested forfeitures at 0% for all periods presented. Periodically, the Company will issue restricted common
stock to executives or third parties as compensation for services rendered. Such stock awards are valued at fair market value on the
effective date of the Company’s obligation.
The Company periodically issues stock options or warrants to consultants and advisors for various services. The Black-Scholes option
pricing model, as described more fully above, is used to measure the fair value of the equity instruments on the date of issuance. The
Company recognizes the compensation expense associated with the equity instruments over the requisite service or vesting period.
Debt
The Company has historically issued promissory notes at a discount and has incurred direct debt issuance costs. Debt discount and issuance
costs are netted against the debt and amortized over the life of the convertible promissory note in accordance with ASC 470-35, Debt
Subsequent Measurement.
Offering Costs
The Company periodically incurs direct incremental costs associated with the sale of equity securities as fully described in Note 12. The
costs are recorded as a component of equity upon receipt of the proceeds.
Loss per Common Share
Basic loss per share is computed by dividing the net loss adjusted for preferred stock dividends by the weighted average number of
common shares outstanding during the period. Diluted loss per share would include the weighted average common shares outstanding and
potentially dilutive common stock equivalents. Because of the net losses for all periods presented, the basic and diluted weighted average
shares outstanding are the same since including the additional shares would have an anti-dilutive effect on the loss per share.
The table below shows the numbers of shares of common stock issuable upon the exercise, vesting, or conversion of outstanding options,
warrants, unvested restricted stock including those subject to performance conditions, convertible preferred stock (including undeclared
dividends), and convertible notes that were not included in the computation of basic and diluted weighted average number of shares of
common stock outstanding for the years ended May 31, 2021, May 31, 2020 and May 31, 2019 (in thousands):
Stock options, warrants & unvested restricted stock
Convertible notes payable
Convertible preferred stock
Income Taxes
2021
82,386
18,000
33,008
Years ended May 31,
2020
131,361
3,864
30,130
2019
178,592
11,346
7,974
Deferred taxes are provided on the asset and liability method, whereby deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Future tax benefits for
net operating loss carryforwards are recognized to the extent that realization of these benefits is considered more likely than not. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the
deferred tax assets will not be realized.
The Company follows the provisions of ASC 740-10, Uncertainty in Income Taxes. A reconciliation of the beginning and ending amount of
unrecognized tax benefits has not been provided since there are no unrecognized benefits for all periods presented. The Company has not
recognized interest expense or penalties from the implementation of ASC
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740-10. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefit in
interest expense and penalties in operating expenses.
In accordance with Section 15 of the Internal Revenue Code, the Company utilized a federal statutory rate of 21% for our fiscal 2021 and
2020 tax years. The net tax expense for the years ended May 31, 2021 and May 31, 2020 was zero. The Company recorded a tax benefit of
$2.8 million for the year ended May 31, 2019. The Company has a full valuation allowance as of May 31, 2021 and May 31, 2020, as
management does not consider it more than likely than not that the benefits from the net deferred taxes will be realized.
Recent Accounting Pronouncements
Recent accounting pronouncements, other than below, issued by the FASB (including its EITF), the AICPA and the SEC did not or are not
believed by management to have a material effect on the Company’s present or future Consolidated Financial Statements.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The objective of the
standard is to improve areas of U.S. GAAP by removing certain exceptions permitted by ASC 740 and clarifying existing guidance to
facilitate consistent application. The standard is effective for the Company beginning on June 1, 2021. The Company does not expect the
new standard to have a material impact on its financial condition, results of operations, cash flows, and financial statement disclosures.
In August 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) which simplifies the accounting for convertible instruments. The guidance
removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments.
Either a modified retrospective method of transition or a fully retrospective method of transition is permissible for the adoption of this
standard. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those
fiscal years. Early adoption is permitted no earlier than the fiscal year beginning after December 15, 2020. The Company is currently
evaluating the potential impact, if any, of adoption on its Consolidated Financial Statements.
Note 3. Inventories
The Company’s pre-launch inventories consist of raw materials purchased for commercial production and work-in-progress inventory
related to the substantially completed commercial production of pre-launch inventories of leronlimab to support the Company’s expected
approval of the product as a combination therapy for HIV patients in the United States. Work-in-progress consists of bulk drug substance,
which is the manufactured drug stored in bulk storage, and drug product, which is the manufactured drug in unlabeled vials.
Inventories as of May 31, 2021 and May 31, 2020 are presented below (in thousands):
Raw materials
Work-in-progress
Total
May 31,
2021
2020
$
$
28,085
65,394
93,479
$
$
19,147
—
19,147
During the quarter ended February 28, 2021, the Company was notified by a third-party contract manufacturing partner that, due to an
operational error committed by the contract manufacturer, one of the batches of a multiple-batch manufacturing campaign failed to meet
quality standards, and thus would not be saleable upon regulatory approval. In accordance with the agreement, the contract manufacturer
assumed liability for the failure and all costs to manufacture the batch, and committed to remanufacture the batch at a future date. As a
result, the Company reduced work-in-progress inventory and the related amounts due to the contract manufacturer by $6.1 million. No
other inventory was affected by this failure, and all other inventory has successfully passed quality standards.
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The Company believes that material uncertainties related to the ultimate regulatory approval of leronlimab for commercial sale have been
significantly reduced based on positive data from its Phase 3 clinical trial for leronlimab as a combination therapy with HAART for highly
treatment-experienced HIV patients, as well as information gathered from meetings with the FDA related to its Biologics License
Application (“BLA”) for this indication. The Company submitted the last two portions of the BLA (clinical and manufacturing) with the
FDA in April 2020 and May 2020. In July 2020, the Company received a Refusal to File letter from the FDA regarding its BLA submittal
requesting additional information. In August and September 2020, the FDA provided written responses to the Company’s questions and
met telephonically with key Company personnel and its clinical research organization concerning its BLA to expedite the resubmission of
its BLA.
The deficiencies cited by the FDA in its July 2020 Refusal to File letter consisted of administrative deficiencies, omissions, corrections to
data presentation, and related analyses and clarifications of manufacturing processes. The Company commenced its resubmission of the
BLA in July 2021 and expected to be completed in October 2021.
The Company is working with new consultants to cure the BLA deficiencies and resubmit the BLA in order to allow the FDA to perform
their substantive review. The Company anticipates that when the FDA completes their review, leronlimab will be approved, and we will
achieve market acceptance of leronlimab as a treatment for HIV, realizing the amount of pre-launch inventory on-hand prior to shelf-life
expiration. Accordingly, management believes the Company will realize future economic benefit in excess of the carrying value of its pre-
launch inventory.
The expiration of remaining shelf-life of the Company’s inventories consists of the following as of May 31, 2021 (in thousands):
Expiration period ending May 31,
2022
2023
2024
2025
2026
Thereafter
Total inventories
Inventories reserved
Total inventories, net
Remaining shelf-life
0 to 12 months
12 or 24 months
24 to 36 months
36 to 48 months
48 to 60 months
60 or more months
Raw materials
Work-in-progress
bulk drug product
Work-in-progress finished
drug product in vials
$
$
2,684 $
19,750
682
1,792
732
3,140
28,780
(695)
28,085 $
-
-
-
-
-
35,761
35,761
-
35,761
$
$
- $
-
-
29,633
-
-
29,633
-
29,633 $
Total
inventories
2,684
19,750
682
31,425
732
38,901
94,174
(695)
93,479
When the remaining shelf-life of drug product inventory is less than 12 months, it is likely that it will not be accepted by potential
customers. However, as inventories approach their shelf-life expiration, the Company may perform additional stability testing to determine
if the inventory is still viable, which can result in an extension of its shelf-life. Further, in addition to performing additional stability testing,
certain raw materials inventory may be sold in its then current condition prior to reaching expiration; however, at May 31, 2021 and 2020
there was no drug product inventory that may be sold. If the Company determines it is not likely shelf-life will be able to be extended or the
inventory cannot be sold prior to expiration, the Company will write-down the inventory to its net realizable value. For the fiscal year
ended May 31, 2021 the Company recognized expense related to the write-down of obsolete inventory of $0.7 million and recognized zero
expense during the years ended May 31, 2020, and May 31, 2019.
Note 4. Accounts Payable and Accrued Liabilities
As of May 31, 2021 and May 31, 2020, the accounts payable balance was approximately $65.9 million and $29.5 million, respectively. The
Company had two vendors that accounted for approximately 72% and 14%, and 49% and 20%, of the total balance of accounts payable as
of May 31, 2021 and May 31, 2020, respectively.
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The components of accrued liabilities were as follows as of May 31, 2021 and 2020 (in thousands):
Accrued compensation and related expense
Accrued legal settlement and fees
Accrued other liabilities
Total accrued liabilities
$
$
4,005 $
11,008
4,060
19,073 $
1,723
400
4,756
6,879
May 31,
2021
2020
Note 5. Convertible Instruments
Convertible Preferred Stock
Series D Convertible Preferred Stock
As of May 31, 2021, the Company had authorized 11,737 shares of Series D Convertible Preferred Stock, $0.001 par value per share
(“Series D Preferred Stock”), of which 8,452 shares were outstanding. The Series D Certificate of Designation provides, among other
things, that holders of Series D Preferred Stock shall be entitled to receive, when and as declared by the Company’s Board of Directors (the
“Board”) and out of any assets at the time legally available therefor, cumulative dividends at the rate of ten percent (10%) per share per
annum of the stated value of the Series D Preferred Stock, which is $1,000 per share (the “Series D Stated Value”). Any dividends paid by
the Company will first be paid to the holders of Series D Preferred Stock prior and in preference to any payment or distribution to holders
of common stock. Dividends on the Series D Preferred Stock are cumulative, and will accrue and be compounded annually, whether or not
declared and whether or not there are any profits, surplus or other funds or assets of the Company legally available therefor. There are no
sinking fund provisions applicable to the Series D Preferred Stock. The Series D Preferred Stock does not have redemption rights.
Dividends, if declared by the Board, are payable to holders in arrears on December 31 of each year. Subject to the provisions of applicable
Delaware law, the holder may elect to be paid in cash or in restricted shares of common stock at the rate of $0.50 per share. As of May 31,
2021, and May 31, 2020, the accrued dividends were approximately $1.1 million, or approximately 2.2 million shares of common stock,
and approximately $0.3 million, or approximately 0.5 million shares of common stock, respectively.
In the event of any liquidation, dissolution or winding up of the Company, the holders of Series D Preferred Stock will be entitled to
receive, on a pari passu basis with the holders of the Series C Convertible Preferred Stock, $0.001 par value per share (“Series C Preferred
Stock”), and in preference to any payment or distribution to any holders of the Series B Convertible Preferred Stock, $0.001 par value per
share (“Series B Preferred Stock”), or common stock, an amount per share equal to the Series D Stated Value plus the amount of any
accrued and unpaid dividends. If, at any time while the Series D Preferred Stock is outstanding, the Company effects any reorganization,
merger or consolidation of the Company, sale of substantially all of its assets, or other specified transaction (each, as defined in the Series
D Certificate of Designation, a “Fundamental Transaction”), a holder of the Series D Preferred Stock will have the right to receive any
shares of the acquiring corporation or other consideration it would have been entitled to receive if it had been a holder of the number of
shares of common stock then issuable upon conversion in full of the Series D Preferred Stock immediately prior to the Fundamental
Transaction. Each share of Series D Preferred Stock is convertible at any time at the holder’s option into that number of fully paid and
nonassessable shares of common stock determined by dividing the Series D Stated Value by the conversion price of $0.50 (subject to
adjustment as set forth in the Series D Certificate of Designation). No fractional shares will be issued upon the conversion of the Series D
Preferred Stock. Except as otherwise provided in the Series D Certificate of Designation or as otherwise required by law, the Series D
Preferred Stock has no voting rights.
Series C Convertible Preferred Stock
As of May 31, 2021, the Company had authorized 8,203 shares of Series C Convertible Preferred Stock, $0.001 par value per share
(“Series C Preferred Stock”), of which 8,203 shares were outstanding. The Series C Certificate of Designation provides, among other
things, that holders of Series C Preferred Stock shall be entitled to receive, when and
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as declared by the Board and out of any assets at the time legally available therefor, cumulative dividends at the rate of ten percent (10%)
per share per annum of the stated value of the Series C Preferred Stock, which is $1,000 per share (the “Series C Stated Value”). Any
dividends paid by the Company will be paid to the holders of Series C Preferred Stock prior and in preference to any payment or
distribution to holders of common stock. Dividends on the Series C Preferred Stock are cumulative, and will accrue and be compounded
annually, whether or not declared and whether or not there are any profits, surplus or other funds or assets of the Company legally available
therefor. There are no sinking fund provisions applicable to the Series C Preferred Stock. The Series C Preferred Stock does not have
redemption rights. Dividends, if declared by the Board, are payable to holders in arrears on December 31 of each year. Subject to the
provisions of applicable Delaware law, the holder may elect to be paid in cash or in restricted shares of common stock at the rate of $0.50
per share. As of May 31, 2021 and May 31, 2020, the accrued dividends were approximately $1.5 million or, approximately 3.0 million
shares of common stock, and approximately $0.7 million or approximately 1.4 million shares of common stock, respectively.
In the event of any liquidation, dissolution or winding up of the Company, the holders of Series C Preferred Stock will be entitled to
receive, on a pari passu basis with the holders of the Series D Preferred Stock and in preference to any payment or distribution to any
holders of the Series B Preferred Stock or common stock, an amount per share equal to the Series C Stated Value plus the amount of any
accrued and unpaid dividends. If, at any time while the Series C Preferred Stock is outstanding, the Company effects a reorganization,
merger or consolidation of the Company, sale of substantially all of its assets, or other specified transaction (each, as defined in the Series C
Certificate of Designation, a “Fundamental Transaction”), a holder of the Series C Preferred Stock will have the right to receive any shares
of the acquiring corporation or other consideration it would have been entitled to receive if it had been a holder of the number of shares of
common stock then issuable upon conversion in full of the Series C Preferred Stock immediately prior to the Fundamental Transaction.
Each share of Series C Preferred Stock is convertible at any time at the holder’s option into that number of fully paid and nonassessable
shares of common stock determined by dividing the Series C Stated Value by the conversion price of $0.50 (subject to adjustment as set
forth in the Series C Certificate of Designation). No fractional shares will be issued upon the conversion of the Series C Preferred Stock.
Except as otherwise provided in the Series C Certificate of Designation or as otherwise required by law, the Series C Preferred Stock has no
voting rights.
Series B Convertible Preferred Stock
As of May 31, 2021, the Company had authorized 400,000 shares of Series B Preferred Stock, of which 79,000 shares remain outstanding.
Each share of the Series B Preferred Stock is convertible into ten (10) shares of the Company’s common stock. Dividends are payable to
the Series B Preferred stockholders when and as declared by the Board at the rate of $0.25 per share per annum. Such dividends are
cumulative and accrue whether or not declared and whether or not there are any profits, surplus or other funds or assets of the Company
legally available therefor. At the option of the Company, dividends on the Series B Preferred Stock may be paid in cash or shares of the
Company’s common stock, valued at $0.50 per share. The holders of the Series B Preferred Stock can only convert their shares to shares of
common stock if the Company has sufficient authorized shares of common stock at the time of conversion. The Series B Preferred Stock
has liquidation preferences over the common shares at $5.00 per share, plus any accrued and unpaid dividends. Except as provided by law,
the Series B holders have no voting rights. On July 30, 2020, the Board declared a dividend and elected to pay such dividend in the form of
cash in the aggregate amount of approximately $0.2 million to all Series B Preferred stockholders. As of May 31, 2021, and May 31, 2020,
the undeclared dividends were approximately $17,800 or 35,500 shares of common stock, and approximately $0.2 million, or 0.5 million
shares of common stock, respectively.
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Convertible Notes
The following schedule sets forth the outstanding balance of convertible notes as of May 31, 2021 and May 31, 2020 (in thousands).
Outstanding balance May 31, 2020
Consideration received
Amortization of issuance discount and costs
Accrued interest
Cash repayments
Conversions
Fair market value of shares exchanged for repayment
Debt extinguishment loss
Outstanding balance May 31, 2021
2019 Short-term Convertible Notes
March 2020 Note
$
15,467 $
July 2020 Note
November 2020
Note
April 2, 2021
Note
April 23, 2021
Note
- $
25,000
1,097
1,901
-
-
(37,298)
9,300
- $
25,000
740
1,258
-
-
(19,870)
6,427
13,554 $
- $
25,000
268
447
-
-
-
-
25,715 $
-
25,000
182
302
-
-
-
-
25,485
-
1,369
480
(950)
(9,538)
(10,997)
4,169
$
- $
- $
During the year ended May 31, 2019, the Company issued approximately $5.5 million of nine-month unsecured Convertible Notes (the
“2019 Short-term Convertible Notes”) and related warrants to investors for cash. The principal amount of the 2019 Short-term Convertible
Notes, including any accrued but unpaid interest thereon, was convertible at the election of the holder at any time into shares of common
stock at any time prior to maturity at a conversion price of $0.50 per share. The 2019 Short-term Convertible Notes accrued simple interest
at the annual rate of 10%. Principal and accrued interest, to the extent not previously paid or converted, was due and payable on the
maturity date. At the commitment dates, the Company determined that the conversion feature related to these 2019 Short-term Convertible
Notes was beneficial to the investors. As a result, the Company determined the intrinsic value of the beneficial conversion feature utilizing
the fair value of the underlying common stock on the commitment dates and the effective conversion price after discounting the 2019
Short-term Convertible Notes for the fair value of the related warrants. In connection with the sale of the 2019 Short-term Convertible
Notes, detachable common stock warrants to purchase a total of 5.46 million common shares, with an exercise price of $0.30 per share and
a five-year term, were issued to the investors. The Company determined the fair value of the warrants at issuance using the Black-Scholes
option pricing model utilizing certain weighted average assumptions, such as expected stock price volatility, expected term of the warrants,
risk-free interest rates, and expected dividend yield at the grant date.
Expected dividend yield
Stock price volatility
Expected term
Risk-free interest rate
Grant-date fair value
2018 - 2019
0
%
55.8 - 55.88 %
5 year
2.48 - 2.56 %
$ 0.30 - $0.38
The fair value of the warrants, coupled with the beneficial conversion features, was recorded as a debt discount to the 2019 Short-term
Convertible Notes and a corresponding increase to additional paid-in capital and will be amortized over the life of the 2019 Short-term
Convertible Notes. In connection with the 2019 Short-term Convertible Notes, the placement agent earned a “tail fee” comprising warrants
covering approximately 0.97 million shares of common stock and a cash fee of approximately $0.6 million. The placement agent warrants
were exercisable at a price of $0.50 per share, expire five years from the date of issuance and include a cashless exercise provision. During
the year ended May 31, 2019, in connection with the 2019 Short-term Convertible Notes, the Company incurred debt discount of
approximately $3.1 million, related to the beneficial conversion feature and detachable warrants issued with the 2019 Short-term
Convertible Notes and approximately $0.8 million in issuance costs. The debt discount and issuance costs will be amortized over the term
of the 2019 Short-term Convertible Notes. Accordingly, the Company recognized
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approximately $1.7 million and $0.5 million of debt discount and issuance costs, respectively, during the year ended May 31, 2019. See
Note 17.
Beginning on September 30, 2019 and through November 14, 2019, principal and interest totaling approximately $5.9 million became due.
Holders of notes totaling approximately $1.1 million in principal and accrued interest agreed to extend their notes for another three months,
and holders of notes totaling approximately $4.1 million in principal and accrued interest agreed to extend their notes for another
six months. One noteholder with principal and accrued interest totaling approximately $0.2 million converted to shares of common stock.
During the quarter ended November 30, 2019, a total of approximately $0.7 million of principal and accrued interest was repaid in cash. In
addition, detachable stock warrants to purchase a total of 4.75 million warrants with a five-year term and an exercise price of $0.30 per
share were issued to investors who extended their notes. One investor received 0.2 million warrants with a five-year term and an exercise
price of $0.45 per share for converting the entire principal and accrued interest on its note. In connection with the 2019 Short-term
Convertible Note extensions and conversion, the Company recorded a non-cash inducement interest expense of approximately $0.3 million
during the quarter ended November 30, 2019. The new principal amount of the 2019 Short-term Convertible Notes, including any accrued
but unpaid interest thereon, was convertible at the election of the holders at any time into shares of common stock at any time prior to
maturity at a conversion price of $0.50 per share. At the new commitment dates, the Company determined that there was a decrease in the
fair value of the embedded conversion option resulting from the modification, the value of which is not required to be recognized under
U.S. GAAP.
During the fiscal year ended May 31, 2020, holders of the 2019 Short-term Convertible Notes in the aggregate principal amount of $5.2
million, including accrued but unpaid interest, tendered notices of conversion at the stated conversion rate of $0.50 per share. The
Company issued approximately 10.4 million shares of common stock in satisfaction of the conversion notices. Following the redemptions,
the 2019 Short-term Convertible Notes have been fully satisfied and there is no outstanding balance at May 31, 2021.
Activity related to the 2019 Short-term Convertible Notes was as follows (in thousands):
Face value of Short-term Convertible Notes
Unamortized discount
Unamortized issuance costs
Accrued interest converted into principal
Note repayment
Note conversions into common stock
Carrying value of Short-term Convertible Notes
Years ended May 31,
2020
2019
$
$
5,460
$
—
—
154
(460)
(5,154)
— $
5,460
(1,470)
(404)
—
—
—
3,586
The Company recognized approximately $0.4 million and $0.2 million of interest expense for the fiscal years ended May 31, 2020 and May
31, 2019, respectively.
Long-term Convertible Note - June 2018 Note
On June 26, 2018, the Company entered into a securities purchase agreement, pursuant to which the Company issued a convertible
promissory note (the “June 2018 Note”) with a two-year term to an institutional accredited investor in the initial principal amount of
$5.7 million. The investor paid consideration of $5.0 million to the Company. The June 2018 Note accrued interest at an annual rate of 10%
and was convertible into common stock, at a conversion rate of $0.55 per share. The June 2018 Note provided for conversion in whole, or
in part, of the outstanding balance, into common stock at any time beginning six months following the issue date upon five trading days’
notice, subject to certain adjustments and ownership limitations specified in the June 2018 Note, and allowed for redemption, at any time
beginning six months following the issue date upon five trading days’ notice, subject to a maximum monthly redemption amount of $0.35
million. The securities purchase agreement required the Company to reserve shares for future conversions or redemptions by dividing the
outstanding principal balance plus accrued interest by the conversion price of $0.55 per
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share times 1.5. As a result of the entry into the January 2019 Note (as defined below), the Company’s obligations under the June 2018
Note were secured by all of the assets of the Company, excluding the Company’s intellectual property.
Effective November 15, 2018, the June 2018 Note was amended to allow the investor to redeem the monthly redemption amount of $0.35
million in cash or stock, at the lesser of (i) $0.55, or (ii) the lowest closing bid price of the Company’s common stock during the 20 days
prior to the conversion, multiplied by a conversion factor of 85%. The variable rate redemption provision meets the definition of a
derivative instrument and subsequent to the amendment, it no longer meets the criteria to be considered indexed to the Company’s common
stock. As of November 15, 2018, the redemption provision required bifurcation as a derivative liability at fair value under the guidance in
ASC 815, Derivatives and Hedging.
The amendment of the June 2018 Note was also evaluated under ASC 470-50-40, Debt Modifications and Extinguishments. Based on the
guidance, the instruments were determined to be substantially different, and debt extinguishment accounting was applied. The Company
recorded approximately $1.5 million as an extinguishment loss, which was the difference in the net carrying value of the June 2018
Note prior to the amendment of approximately $5.4 million, and the fair value of the June 2018 Note and embedded derivatives after the
amendment of approximately $6.9 million. The extinguishment loss included a write-off of unamortized debt issuance costs and the debt
discount associated with the original June 2018 Note.
The Company recognized approximately $0.4 million of interest expense related to the June 2018 Note during each of the fiscal years
ended May 31, 2020 and May 31, 2019. During the year ended May 31, 2019, the Company received redemption notices from the holder of
the Company’s June 2018 Note, requesting an aggregate redemption of approximately $1.5 million of the outstanding balance thereof. In
satisfaction of the redemption notices, the Company issued a total of approximately 3.8 million shares of common stock to the June 2018
Note holder in accordance with the terms of the June 2018 Note. During the year ended May 31, 2020, the Company received redemption
notices requesting an aggregate redemption of approximately $4.5 million settling the remaining outstanding balance in full, including
accrued but unpaid interest. In satisfaction of the redemption notice, the Company issued approximately 8.5 million shares of common
stock and paid cash totaling approximately $0.5 million to the June 2018 Note holder in accordance with the terms of the June 2018 Note.
Following the redemptions, the June 2018 Note was fully satisfied and there was no outstanding balance at May 31, 2020.
Long-term Convertible Note - January 2019 Note
On January 30, 2019, the Company entered into a securities purchase agreement, pursuant to which the Company issued a convertible
promissory note with a two-year term to the holder of the June 2018 Note in the initial principal amount of $5.7 million (the “January 2019
Note”). In connection with the issuance of the January 2019 Note, the Company granted a lien against all the assets of the Company,
excluding the Company’s intellectual property, to secure all obligations owed to the investor by the Company (including those under both
the January 2019 Note and the June 2018 Note). The investor paid consideration of $5.0 million to the Company, reflecting original issue
discount of $0.6 million and issuance costs of $0.1 million. The January 2019 Note accrued interest at an annual rate of 10% and was
convertible into common stock, at a conversion rate of $0.50 per share. The January 2019 Note provided for conversion in whole, or in
part, of the outstanding balance, at any time beginning six months following the issue date upon five trading days’ notice, subject to certain
adjustments and ownership limitations specified in the January 2019 Note. The Company analyzed the conversion option for derivative
accounting treatment under ASC 815, Derivatives and Hedging, and determined that the embedded conversion option did not qualify for
derivative accounting.
The January 2019 Note provided the investor with the right to redeem any portion of the January 2019 Note, at any time beginning six
months following the issue date upon five trading days’ notice, subject to a maximum monthly redemption amount of $0.35 million.
The monthly redemption amount may be paid in cash or common stock, at the Company’s election, at the lesser of (i) $0.50, or (ii) the
lowest closing bid price of the Company’s common stock during the 20 days prior to the conversion, multiplied by a conversion factor of
85%. The redemption provision met the definition of a derivative instrument and did not meet the criteria to be considered indexed to the
Company’s common stock. Therefore, the redemption provision required bifurcation as a derivative liability at fair value under the
guidance in ASC 815,
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Derivatives and Hedging. The securities purchase agreement required the Company to reserve 20 million shares of common stock for
future conversions or redemptions.
In conjunction with the January 2019 Note, the investor received a warrant to purchase 5.0 million shares of common stock with an
exercise price of $0.30 which is exercisable until the 5-year anniversary of the date of issuance. All the warrants were exercised during the
fiscal year ended May 31, 2020. The warrant achieved equity classification at inception. The net proceeds of $5.0 million were allocated
first to the redemption provision at its fair value, then to the warrants at their relative fair value and the beneficial conversion feature at its
intrinsic value as follows (in thousands):
Fair value of redemption provision
Relative fair value of equity classified warrants
Beneficial conversion feature
Net proceeds of January 2019 Note
January 30, 2019
1,465
858
2,677
5,000
$
$
Under the guidance of ASC 815, Derivatives and Hedging, after allocation of proceeds to the redemption provision, relative fair value of
equity classified warrants and the beneficial conversion feature, there were no proceeds remaining to allocate to the convertible note
payable. Therefore, principal, accrued interest, debt discount and offering costs will be recognized as interest expense, which represents the
accretion of the convertible note payable and related debt discount and issuance costs. During the fiscal years ended May 31, 2020 and
May 31, 2019, the Company recognized approximately $6.1 million and approximately $0.1 million, respectively, of interest expense
related to the January 2019 Note. Interest expense recorded during the year ended May 31, 2020 included approximately $5.8 million
representing accretion of the remaining unamortized discount on the January 2019 Note that was recognized immediately upon conversion
of the debt in accordance with ASC 470-20-40-1. During the year ended May 31, 2020, the Company received a redemption notice from
the holder of the January 2019 Note, requesting an aggregate redemption of approximately $6.3 million settling the remaining outstanding
balance in full, including accrued interest. In satisfaction of the redemption notice, the Company issued approximately 10.8 million shares
of common stock and paid cash totaling $0.85 million to the January 2019 Note holder in accordance with the terms of the January 2019
Note. Following the redemption, the January 2019 Note has been fully satisfied and there is no outstanding balance at May 31, 2020.
Activity related to the June 2018 Note and the January 2019 Note is as follows (in thousands):
June 2018 Note
Monthly redemption provision
Note amendment, net
Redemptions
Interest accretion - June 2018 and January 2019 Notes
Carrying value of Notes at May 31, 2019
Redemptions
Interest accretion - June 2018
Extinguishment of note
Carrying value of Notes at May 31, 2020
Long-term Convertible Note - March 2020 Note
Current
Non-current
Total
$
$
2,100
2,100
$
—
—
—
4,200
(10,689)
6,489
—
— $
$
3,600
(2,100)
112
(1,455)
298
455
(57)
39
(437)
— $
5,700
—
112
(1,455)
298
4,655
(10,746)
6,528
(437)
—
On March 31, 2020, the Company entered into a securities purchase agreement pursuant to which the Company issued a secured
convertible promissory note with a two-year term to an institutional accredited investor in the initial principal amount of $17.1 million (the
“March 2020 Note”). The Company received consideration of $15.0 million, reflecting an original issue discount of $2.1 million. The
March 2020 Note is secured by all the assets of the Company, excluding the Company’s intellectual property. The March 2020 Note
accrued interest at an annual rate of 10% and was convertible into common stock at $4.50 per share. The March 2020 Note provided for
conversion in total, or in part, of the outstanding balance, at any time beginning six months following the issue date upon five trading days’
notice, subject to certain adjustments and volume and ownership limitations specified in the note. The Company analyzed the conversion
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option for derivative accounting treatment under ASC 815, Derivatives and Hedging, and determined that the embedded conversion option
did not qualify for derivative accounting. Certain default put provisions were considered not to be clearly and closely related to the host
instrument, but the Company concluded that the value of these default put provisions was de minimis.
The March 2020 Note provided the investor with the right to redeem any portion of the March 2020 Note, at any time beginning six months
following the issue date, upon three trading days’ notice, subject to a Maximum Monthly Redemption Amount of $0.95 million. During the
quarter ended November 30, 2020, the Company issued an additional secured convertible promissory note to an affiliate of the holder of
the March 2020 Note (the “November 2020 Note,” as described below), which obligates the Company to reduce the aggregate outstanding
note balances held by the investor by $7.5 million per month (the “Debt Reduction Amount,” as described under Long-term Convertible
Note – November 2020 Note below), beginning in the month of November 2020.
The original issue discount of $2.1 million related to the March 2020 Note was recorded as a discount on the March 2020 Note and the
discount has been amortized over the term of the March 2020 Note. Amortization of the March 2020 debt discount during the fiscal years
ended May 31, 2021 and May 31, 2020 amounted to $1.9 million and $0.2 million, respectively, and is recorded as interest expense in the
accompanying consolidated statements of operations. Interest expense for the year ended May 31, 2021 amounted to approximately $0.5
million. From June 26, 2020 to July 27, 2020, the investor converted an aggregate of approximately $9.5 million of combined principal and
accrued interest into approximately 2.1 million shares of common stock at the $4.50 per share conversion price. During the quarter ended
November 30, 2020, the Company received a redemption notice from the holder of the March 2020 Note, requesting a redemption of
$0.95 million. In satisfaction of the redemption notice, the Company paid cash of $0.95 million to the March 2020 Note holder.
Additionally, the Company elected to satisfy the Debt Reduction Amount for November 2020 by making repayments on the March 2020
Note, resulting in the note being fully satisfied during the quarter ended November 30, 2020. To settle this Debt Reduction Amount, the
Company and the investor entered into three separately negotiated exchange agreements, pursuant to which the remaining balance of the
March 2020 Note was partitioned into three new notes (the “Partitioned Notes”). The Company and the investor exchanged the Partitioned
Notes for approximately 4.3 million shares of common stock. As a result of these exchanges, there was no outstanding balance on the
March 2020 Note at May 31, 2021.
In connection with extinguishment of the March 2020 Note, the Company analyzed the restructured note for potential requirement of debt
extinguishment accounting under ASC 470, Debt Modifications and Extinguishments. The Company concluded debt extinguishment
accounting treatment to be necessary and accordingly recorded aggregate debt extinguishment loss of approximately $4.2 million during
the fiscal year ended May 31, 2021, as the difference between the fair market value of the shares issued and the carrying value of the debt
retired, which included the amortization of the relative debt discount and issuance costs.
Long-term Convertible Note—July 2020 Note
On July 29, 2020, the Company entered into a securities purchase agreement pursuant to which the Company issued a secured convertible
promissory note with a two-year term to an institutional accredited investor in the initial principal amount of $28.5 million (the “July 2020
Note”). The Company received consideration of $25.0 million, reflecting an original issue discount of $3.4 million and issuance costs of
$0.1 million. The July 2020 Note was secured by all the assets of the Company, excluding the Company’s intellectual property. The July
2020 Note accrued interest at an annual rate of 10% and was convertible into shares of common stock at a conversion rate of $10.00 per
share. The July 2020 Note provided for conversion in whole, or in part, of the outstanding balance, at any time beginning six months
following the issue date upon five trading days’ notice, subject to certain adjustments and volume and ownership limitations specified in
the note. The Company analyzed the conversion option for derivative accounting treatment under ASC 815, Derivatives and Hedging, and
determined that the embedded conversion option did not qualify for derivative accounting. Certain default put provisions were not
considered to be clearly and closely related to the host instrument, but the Company concluded that the value of these default put provisions
was de minimis.
The investor had the right to redeem any portion of the July 2020 Note, at any time beginning six months following the issue date, upon
three trading days’ notice, subject to a Maximum Monthly Redemption Amount of $1.6 million. As
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noted above, during the quarter ended November 30, 2020, the Company issued the November 2020 Note to an affiliate of the holder of the
March 2020 and July 2020 Notes, which obligates the Company to reduce the aggregate outstanding note balances held by the investor by
the Debt Reduction Amount beginning in the month of November 2020.
The Company agreed to use commercially reasonable efforts to file a Registration Statement on Form S-3 with the SEC by September 15,
2020, to register approximately 2.9 million shares of common stock, the number of shares estimated to be required to convert the entire
principal and interest balance of the July 2020 Note. The Form S-3 (Registration No. 333-248823) was declared effective on September 25,
2020.
The original issue discount of $3.4 million related to the July 2020 Note was recorded as a discount on the July 2020 Note and the discount
has been amortized over the term of the July 2020 Note. Amortization of debt discounts and issuance costs during the fiscal year ended
May 31, 2021 amounted to approximately $3.5 million, recorded as interest expense and loss on extinguishment in the accompanying
consolidated statement of operations. Interest expense for the year ended May 31, 2021 approximately $1.9 million. From January 29, 2021
to April 30, 2021 the Company applied the monthly Debt Reduction Amounts of $7.5 million for each month and approximately $7.9
million for the April Debt Reduction Amount toward the July 2020 Note for an aggregate redemption amount of $30.4 million of principal
and accrued interest. In satisfaction of the monthly Debt Reduction Amounts, the Company and the investor entered into separately
negotiated exchange agreements, pursuant to which the July 2020 Note was partitioned into new notes (the “July 2020 Note Partitioned
Notes”). The outstanding balance of the July 2020 Note was reduced by the July 2020 Partitioned Notes, and the Company and the investor
exchanged the Partitioned Note for approximately 11.3 million shares of common stock. Following these exchanges, there is no outstanding
balance on the July 2020 Note at May 31, 2021.
The embedded conversion feature in the July 2020 Note was analyzed under ASC 815, Derivatives and Hedging, to determine if it
achieved equity classification or required bifurcation as a derivative instrument. The embedded conversion feature was considered indexed
to the Company’s common stock and met the conditions for equity classification. Accordingly, the embedded conversion feature did not
require bifurcation from the host instrument. The Company determined there was no beneficial conversion feature since the effective
conversion rate was greater than the market value of the Company’s common stock upon issuance. Certain default put provisions were not
considered to be clearly and closely related to the host instrument, but the Company concluded that the value of these default put provisions
was de minimis. The Company reconsidered the value of the default put provisions each reporting period to determine if the value was
material to the financial statements.
In connection with the extinguishment of the July 2020 Note, the Company analyzed the restructured note for potential requirement of debt
extinguishment accounting under ASC 470, Debt Modifications and Extinguishments. The Company concluded debt extinguishment
accounting treatment to be necessary and accordingly recorded aggregate debt extinguishment loss of approximately $9.3 million during
the fiscal year ended May 31, 2021 as the difference between the fair market value of the shares issued and the carrying value of the debt
retired, which included the amortization of the relative debt discount and issuance costs.
Long-term Convertible Note—November 2020 Note
On November 10, 2020, the Company entered into a securities purchase agreement pursuant to which the Company issued a secured
convertible promissory note with a two-year term to an institutional accredited investor affiliated with the holder of the March 2020 and
July 2020 Notes in the initial principal amount of $28.5 million (the “November 2020 Note”). The Company received consideration
of $25.0 million, reflecting an original issue discount of $3.4 million and issuance costs of $0.1 million. The November 2020 Note is
secured by all the assets of the Company, excluding the Company’s intellectual property.
Interest accrues on the outstanding balance of the November 2020 Note at an annual rate of 10%. Upon the occurrence of an event of
default, interest will accrue at the lesser of 22% per annum or the maximum rate permitted by applicable law. In addition, upon any event
of default, the investor may accelerate the outstanding balance payable under the November 2020 Note; upon such acceleration, the
outstanding balance will increase automatically by 15%, 10% or 5%,
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depending on the nature of the event of default. The events of default are listed in Section 4 of the November 2020 Note, which can be
accessed through the Exhibit Index in this Form 10-K.
The investor may convert all or any part the outstanding balance of the November 2020 Note into shares of common stock at an initial
conversion price of $10.00 per share upon five trading days’ notice, subject to certain adjustments and volume and ownership limitations
specified in the November 2020 Note. In addition to standard anti-dilution adjustments, the conversion price of the November 2020 Note is
subject to full-ratchet anti-dilution protection, pursuant to which the conversion price will be automatically reduced to equal the effective
price per share in any new offering by the Company of equity securities that have registration rights, are registered or become registered
under the Securities Act of 1933, as amended. The November 2020 Note provides for liquidated damages upon failure to deliver common
stock within specified timeframes and requires the Company to maintain a share reservation of 6.0 million shares of common stock.
The investor may redeem any portion of the November 2020 Note, at any time beginning six months after the issue date, upon three
trading days’ notice, subject to a maximum monthly redemption amount of $3.5 million. The November 2020 Note requires the Company
to satisfy its redemption obligations in cash within three trading days of the Company’s receipt of such notice. The Company may prepay
the outstanding balance of the November 2020 Note, in part or in full, plus a 15% premium, at any time upon 15 trading days’ notice. In
addition, beginning in the month of November 2020 and for each of the following five months, the Company was obligated to reduce the
outstanding balance of the November 2020 Note by $7.5 million per month (the “Debt Reduction Amount”). Payments the Company made
under the March 2020 and July 2020 Notes were applied toward the payment of each monthly Debt Reduction Amount. These payments
were not subject to the 15% prepayment premium, which would otherwise be triggered if the Company were to make payments against
such notes exceeding the allowed maximum monthly redemption amount. Consistent with ASC 470-50-40-10, Debt Modifications and
Extinguishments, the Company assessed the restructuring of the outstanding agreements with the investor as either a debt modification or
debt extinguishment through performance of the 10% cash flow test. The Company noted the change in present value of future cash flows
to be less than 10% for all modifications, and therefore, accounted for the restructuring as a debt modification.
Pursuant to the terms of the securities purchase agreement and the November 2020 Note, the Company must obtain the investor’s consent
before assuming additional debt with aggregate net proceeds to the Company of less than $25.0 million. In the event of any such approval,
the outstanding principal balance of the November 2020 Note will increase automatically by 5% upon the issuance of such additional debt.
The Company filed a Registration Statement on Form S-3 (Registration No. 333-252154) with the SEC on January 15, 2021, which was
declared effective on January 22, 2021, registering a number of shares of common stock sufficient to convert the entire principal balance of
the November 2020 Note.
The embedded conversion feature in the November 2020 Note was analyzed under ASC 815, Derivatives and Hedging, to determine if it
achieved equity classification or required bifurcation as a derivative instrument. The embedded conversion feature was considered indexed
to the Company’s own stock and met the conditions for equity classification. Accordingly, the embedded conversion feature does not
require bifurcation from the host instrument. The Company determined there was no beneficial conversion feature since the effective
conversion rate was greater than the market value of the Company’s common stock upon issuance. Certain default put provisions were not
considered to be clearly and closely related to the host instrument, but the Company concluded that the value of these default put provisions
was de minimis. The Company reconsiders the value of the default put provisions each reporting period to determine if the value becomes
material to the financial statements.
During the fiscal year ended May 31, 2021, in satisfaction of the December 2020 Debt Reduction Amount, the Company and the investor
entered into a separately negotiated exchange agreement, pursuant to which the November 2020 Note was partitioned into a new note (the
“December 2020 Partitioned Note”) with a principal balance equal to $7.5 million. The outstanding balance of the November 2020 Note
was reduced by the December 2020 Partitioned Note, and the Company and the investor exchanged the December 2020 Partitioned
Note for approximately 2.2 million shares of the Company’s common stock. In satisfaction of the May 2021 Debt Reduction Amount, the
Company and the investor entered into two separately negotiated exchange agreements, pursuant to which the November 2020 Note was
partitioned
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into two new notes (the “May 2021 Partitioned Notes”) with a principal balance equal to an aggregate of $7.5 million. The outstanding
balance of the November 2020 Note was reduced by the May 2021 Partitioned Notes, and the Company and the investor exchanged the
May 2021 Partitioned Notes for approximately 4.2 million shares of the Company’s common stock.
In connection with the December 2020 Partitioned Note and the May 2021 Partitioned Notes, the Company analyzed the restructured note
for potential requirement of debt extinguishment accounting under ASC 470, Debt Modifications and Extinguishments. The Company
concluded debt extinguishment accounting treatment to be necessary and accordingly recorded aggregate debt extinguishment loss of
approximately $6.4 million during the fiscal year ended May 31, 2021 as the difference between the fair market value of the shares issued
and the carrying value of the debt retired, which included the amortization of the relative debt discount and issuance costs.
Amortization of debt discounts and issuance costs associated with the November 2020 Note during the fiscal year ended May 31, 2021
amounted to approximately $2.3 million recorded as interest expense and loss on extinguishment in the consolidated statement of
operations. The unamortized discount and issuance costs balance for the November 2020 Note is approximately $1.2 million as of May 31,
2021. The accrued interest balance for the November 2020 Note is approximately $1.3 million as of May 31, 2021 resulting from
approximately $1.3 million of interest expense for the fiscal year ended May 31, 2021. The outstanding balance on the November 2020
Note, including accrued interest, was approximately $13.6 million as of May 31, 2021.
On June 11, 2021, June 21, 2021 and June 30, 2021, in satisfaction of the June 2021 Debt Redemption Amount, the Company and the
investor entered into separately negotiated exchange agreements, pursuant to which the November 2020 Note was partitioned into new
notes (the “June 2021 Partitioned Notes”) with a principal balance equal to $6.0 million. The Company and the holder of the November
2020 Note agreed to defer the remaining $1.5 million June 2021 Debt Redemption Amount. The outstanding balance of the November
2020 Note was reduced by the June 2021 Partitioned Notes, and the Company and the investor exchanged the June 2021 Partitioned Notes
for approximately 4.2 million shares of the Company’s common stock. Following these payments, the outstanding balance on the
November 2020 Note, including accrued interest, was approximately $7.9 million.
On July 14, 2021 and July 27, 2021, in satisfaction of the July 2021 Debt Reduction Amount, the Company and the November 2020 Note
holder entered into exchange agreements, pursuant to which the November 2020 Note was partitioned into new notes (the “July 2021
Partitioned Notes”) with a principal amount equal to $4.0 million. The Company and the holder of the November 2020 Note agreed to defer
the remaining $3.5 million July 2021 Debt Redemption Amount. The outstanding balance of the November 2020 Note was reduced by the
July 2021 Partitioned Notes. The Company and the investor exchanged the July 2021 Partitioned Notes for approximately 3.3 million
shares of common stock. Following the June and July 2021 payments, the outstanding balance of the November 2020 Note, including
accrued interest, was approximately $4.5 million.
Long-term Convertible Note—April 2, 2021 Note
On April 2, 2021, the Company entered into a securities purchase agreement pursuant to which the Company issued a secured convertible
promissory note with a two-year term to an institutional accredited investor affiliated with the holder of the November 2020 Note in the
initial principal amount of $28.5 million (the “April 2, 2021 Note”). The Company received consideration of $25.0 million, reflecting an
original issue discount of $3.4 million and issuance costs of $0.1 million. The April 2, 2021 Note is secured by all the assets of the
Company, excluding the Company’s intellectual property.
Interest accrues on the outstanding balance of the April 2, 2021 Note at an annual rate of 10%. Upon the occurrence of an event of default,
interest will accrue at the lesser of 22% per annum or the maximum rate permitted by applicable law. In addition, upon any event of
default, the investor may accelerate the outstanding balance payable under the April 2, 2021 Note; upon such acceleration, the outstanding
balance will increase automatically by 15%, 10% or 5%, depending on the nature of the event of default. The events of default are listed in
Section 4 of the April 2, 2021 Note, which can be accessed through the Exhibit Index in this Form 10-K.
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The investor may convert all or any part the outstanding balance of the April 2, 2021 Note into shares of common stock at an initial
conversion price of $10.00 per share upon five trading days’ notice, subject to certain adjustments and volume and ownership limitations
specified in the April 2, 2021 Note. In addition to standard anti-dilution adjustments, the conversion price of the April 2, 2021 Note is
subject to full-ratchet anti-dilution protection, pursuant to which the conversion price will be automatically reduced to equal the effective
price per share in any new offering by the Company of equity securities that have registration rights, are registered or become registered
under the Securities Act of 1933, as amended. The April 2, 2021 Note provides for liquidated damages upon failure to deliver common
stock within specified timeframes and requires the Company to maintain a share reservation of 6.0 million shares of common stock.
The investor may redeem any portion of the April 2, 2021 Note, at any time beginning six months after the issue date, upon three
trading days’ notice, subject to a maximum monthly redemption amount of $3.5 million. The April 2, 2021 Note requires the Company to
satisfy its redemption obligations in cash within three trading days of the Company’s receipt of such notice. The Company may prepay the
outstanding balance of the April 2, 2021 Note, in part or in full, plus a 15% premium, at any time upon 15 trading days’ notice. In addition,
beginning in the month of May 2021 and for each of the following five months, the Company is obligated to reduce the outstanding balance
of the April 2, 2021 Note by $7.5 million per month (the “Debt Reduction Amount”). Payments the Company makes under the
November 2020 and April 23, 2021 Notes may be applied toward the payment of each Debt Reduction Amount. These payments were not
subject to the 15% prepayment premium, which would otherwise be triggered if the Company were to make payments against such notes
exceeding the allowed maximum monthly redemption amount. Consistent with ASC 470-50-40-10, Debt Modifications and
Extinguishments, the Company will assess the restructuring of the outstanding agreements with the investor as either a debt modification or
debt extinguishment through performance of the 10% cash flow test. The Company will assess if the change in present value of future cash
flows is less than 10% for all modifications, and therefore, accounted for the restructuring as a debt modification.
Pursuant to the terms of the securities purchase agreement and the April 2, 2021 Note, the Company must obtain the investor’s consent
before assuming additional debt with aggregate net proceeds to the Company of less than $50.0 million. In the event of any such approval,
the outstanding principal balance of the April 2, 2021 Note will increase automatically by 5% upon the issuance of such additional debt.
The Company is required to file a Registration Statement on Form S-3 with the SEC within 120 days of the April 2, 2021 Note’s issuance,
registering a number of shares of common stock sufficient to convert the entire principal balance of the April 2, 2021 Note. Subsequent to
May 31, 2021, the Company obtained a 30 day extension.
The embedded conversion feature in the April 2, 2021 Note was analyzed under ASC 815, Derivatives and Hedging, to determine if it
achieved equity classification or required bifurcation as a derivative instrument. The embedded conversion feature was considered indexed
to the Company’s own stock and met the conditions for equity classification. Accordingly, the embedded conversion feature does not
require bifurcation from the host instrument. The Company determined there was no beneficial conversion feature since the effective
conversion rate was greater than the market value of the Company’s common stock upon issuance. Certain default put provisions were not
considered to be clearly and closely related to the host instrument, but the Company concluded that the value of these default put provisions
was de minimis. The Company reconsiders the value of the default put provisions each reporting period to determine if the value becomes
material to the financial statements.
Amortization of debt discounts and issuance costs associated with the April 2, 2021 Note during the fiscal year ended May 31, 2021
amounted to approximately $0.3 million. The unamortized discount and issuance costs balance for the April 2, 2021 Note is approximately
$3.2 million as of May 31, 2021. The accrued interest balance for the April 2, 2021 Note is approximately $0.4 million as of May 31, 2021
resulting from approximately $0.4 million of interest expense for the fiscal year ended May 31, 2021. The outstanding balance on the April
2, 2021 Note, including accrued interest, was approximately $25.7 million as of May 31, 2021.
Long-term Convertible Note—April 23, 2021 Note
On April 23, 2021, the Company entered into a securities purchase agreement pursuant to which the Company issued a secured convertible
promissory note with a two-year term to an institutional accredited investor affiliated with the holder
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of the April 2, 2021 Note in the initial principal amount of $28.5 million (the “April 23, 2021 Note”). The Company received consideration
of $25.0 million, reflecting an original issue discount of $3.4 million and issuance costs of $0.1 million. The April 23, 2021 Note is secured
by all the assets of the Company, excluding the Company’s intellectual property.
Interest accrues on the outstanding balance of the April 23, 2021 Note at an annual rate of 10%. Upon the occurrence of an event of default,
interest will accrue at the lesser of 22% per annum or the maximum rate permitted by applicable law. In addition, upon any event of
default, the investor may accelerate the outstanding balance payable under the April 23, 2021 Note; upon such acceleration, the outstanding
balance will increase automatically by 15%, 10% or 5%, depending on the nature of the event of default. The events of default are listed in
Section 4 of the April 23, 2021 Note, which can be accessed through the Exhibit Index in this Form 10-K.
The investor may convert all or any part the outstanding balance of the April 23, 2021 Note into shares of common stock at an initial
conversion price of $10.00 per share upon five trading days’ notice, subject to certain adjustments and volume and ownership limitations
specified in the April 23, 2021 Note. In addition to standard anti-dilution adjustments, the conversion price of the April 23, 2021 Note is
subject to full-ratchet anti-dilution protection, pursuant to which the conversion price will be automatically reduced to equal the effective
price per share in any new offering by the Company of equity securities that have registration rights, are registered or become registered
under the Securities Act of 1933, as amended. The April 23, 2021 Note provides for liquidated damages upon failure to deliver common
stock within specified timeframes and requires the Company to maintain a share reservation of 6.0 million shares of common stock.
The investor may redeem any portion of the April 23, 2021 Note, at any time beginning six months after the issue date, upon three
trading days’ notice, subject to a maximum monthly redemption amount of $7.0 million. The April 23, 2021 Note requires the Company to
satisfy its redemption obligations in cash within three trading days of the Company’s receipt of such notice. The Company may prepay the
outstanding balance of the April 23, 2021 Note, in part or in full, plus a 15% premium, at any time upon 15 trading days’ notice.
Pursuant to the terms of the securities purchase agreement and the April 23, 2021 Note, the Company must obtain the investor’s consent
before assuming additional debt with aggregate net proceeds to the Company of less than $75.0 million. In the event of any such approval,
the outstanding principal balance of the April 23, 2021 Note will increase automatically by 5% upon the issuance of such additional debt.
The Company is required to file a Registration Statement on Form S-3 with the SEC withing 120 days of the Notes’ issuance, registering a
number of shares of common stock sufficient to convert the entire principal balance of the April 23, 2021 Note.
The embedded conversion feature in the April 23, 2021 Note was analyzed under ASC 815, Derivatives and Hedging, to determine if it
achieved equity classification or required bifurcation as a derivative instrument. The embedded conversion feature was considered indexed
to the Company’s own stock and met the conditions for equity classification. Accordingly, the embedded conversion feature does not
require bifurcation from the host instrument. The Company determined there was no beneficial conversion feature since the effective
conversion rate was greater than the market value of the Company’s common stock upon issuance. Certain default put provisions were not
considered to be clearly and closely related to the host instrument, but the Company concluded that the value of these default put provisions
was de minimis. The Company reconsiders the value of the default put provisions each reporting period to determine if the value becomes
material to the financial statements.
Amortization of debt discounts and issuance costs associated with the April 23, 2021 Note during the fiscal year ended May 31, 2021
amounted to approximately $0.2 million. The unamortized discount and issuance costs balance for the April 23, 2021 Note is
approximately $3.3 million as of May 31, 2021. The accrued interest balance for the April 23, 2021 Note is approximately $0.3 million as
of May 31, 2021 resulting from approximately $0.3 million of interest expense for the fiscal year ended May 31, 2021. The outstanding
balance on the April 23, 2021 Note, including accrued interest, was approximately $25.5 million as of May 31, 2021.
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Note 6. Derivative Liabilities
The investor and placement agent warrants issued in connection with a registered direct offering in September 2016 contained a provision
for net cash settlement if there is a fundamental transaction (contractually defined as a merger, sale of substantially all assets, tender offer
or share exchange, whereby a person or group acquires more than 50% of the outstanding common stock). If a fundamental transaction
occurs in which the consideration issued consists principally of cash or stock in a successor entity, then the warrant holder has the option to
receive cash equal to the fair value of the remaining unexercised portion of the warrant. Due to this contingent cash settlement provision,
the investor and placement agent warrants require liability classification as derivatives in accordance with ASC 480, Distinguishing
Liabilities from Equity, and ASC 815, Derivatives and Hedging, and are recorded at fair value. All of the investors and placement agent
warrants were exercised during the fiscal year ended May 31, 2020.
The following table summarizes the fair value of the warrant derivative liability and related common shares as of inception date
(September 15, 2016), May 31, 2019 and May 31, 2020 (in thousands):
Inception date September 15, 2016
Change in fair value of derivative liability
Balance May 31, 2019
Change in fair value of derivative liability
Fair value of warrants exercised
Balance May 31, 2020
Shares
indexed
Derivative
liability
$
7,733
—
7,733
—
7,733
— $
5,179
(4,777)
402
11,547
(11,949)
—
Changes in the fair value of the derivative liability are reported as “Change in fair value of derivative liabilities” in the Consolidated
Statements of Operations. During the fiscal years ended May 31, 2020 and May 31, 2019 the Company recognized a non-cash (loss) gain
of approximately ($11.5) million and $0.9 million, respectively, due to the changes in the fair value of the liability associated with such
classified warrants.
ASC 820, Fair Value Measurement, provides requirements for disclosure of liabilities that are measured at fair value on a recurring basis in
periods after the initial recognition. Fair values for the warrants were determined using a Binomial Lattice valuation model.
The Company estimated the fair value of the warrant derivative liability as of inception date (September 15, 2016), and May 31, 2019 using
the following assumptions:
Fair value of underlying stock
Risk free rate
Expected term (in years)
Stock price volatility
Expected dividend yield
Probability of fundamental transaction
Probability of holder requesting cash payment
$
September 15, 2016
May 31, 2019
0.78
$
1.20 %
5
106 %
—
50 %
50 %
0.39
1.94 %
2.29
61 %
—
50 %
50 %
Due to the fundamental transaction provision contained in the warrants, which could provide for early redemption of the warrants, the
model also considered subjective assumptions related to the fundamental transaction provision. The fair value of the warrants will be
significantly influenced by the fair value of the Company’s stock price, stock price volatility, changes in interest rates and management’s
assumptions related to the fundamental transaction provisions.
As described in Note 5 above, the redemption provision embedded in the June 2018 and January 2019 Notes required bifurcation and
measurement at fair value as a derivative. The fair value of the note redemption provision derivative liabilities was calculated using a
Monte Carlo Simulation which uses randomly generated stock-price paths obtained
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through a Geometric Brownian Motion stock price simulation. The fair value of the redemption provision will be significantly influenced
by the fair value of the Company’s stock price, stock price volatility, changes in interest rates, and management’s assumptions related to the
redemption factor. The Company estimated the fair value of the redemptive provision using the following assumptions on the closing dates
of November 15, 2018, and January 30, 2019, and on May 31, 2019:
Fair value of underlying stock
Risk free rate
Expected term (in years)
Stock price volatility
Expected dividend yield
Discount factor
November 15,
January 30,
2018
2019
June 2018
Note
January 2019
Note
May 31, 2019
$
0.57
$
2.78 %
1.61
58.8 %
—
85 %
0.49
$
2.52 %
2
61 %
—
85 %
0.39
$
2.21 %
1.07
62.2 %
—
85 %
0.39
1.95 %
1.67
62.2 %
—
85 %
As discussed above, the June 2018 and January 2019 Notes were fully satisfied and there is no outstanding balance as of May 31, 2021 or
May 31, 2020.
The following table summarizes the fair value of the convertible note redemption provision derivative liability as of inception dates
November 15, 2018 and January 30, 2019, and May 31, 2019 (in thousands):
Derivative liability
Inception date June 2018 Note, November 15, 2018
Inception date January 2019 Note, January 30, 2019
Total
$
Net proceeds
5,000
5,000
$
Inception date
1,285
1,465
$
May 31, 2019
847
1,158
2,005
$
The Company recognized approximately $2.0 million and $0.4 million of non-cash gain, due to the changes in the fair value of the liability
associated with such classified redemption provision for the fiscal year ended May 31, 2020 and May 31, 2019, respectively. There was no
gain or loss for the fiscal year ended May 31, 2021, as the notes were fully satisfied during the fiscal year ended May 31, 2020.
Note 7. Equity Awards and Warrants
The Company has one active stock-based equity plan at May 31, 2021, the CytoDyn Inc. Amended and Restated 2012 Equity Incentive
Plan (the “2012 Plan”) and one stock-based equity plan that is no longer active, but under which certain prior awards remain outstanding,
the CytoDyn Inc. 2004 Stock Incentive Plan (the “2004 Plan” and, together with the 2012 Plan, the “Incentive Plans”). In September 2020,
the stockholders approved the CytoDyn Inc. Amended and Restated 2012 Equity Incentive Plan to increase the number of shares available
for issuance from 25 million to 50 million shares, among other amendments. The total number of shares available to be issued will increase
on the first day of each fiscal year in an amount equal to 1% of the total outstanding shares on the last day of the prior fiscal year, and the
term of the Plan was extended for an additional 10 years to September 30, 2030. As of May 31, 2021, the Company had 15.3 million shares
available for future stock-based grants under the 2012 Plan.
Stock Options and Other Equity Awards
During the fiscal year ended May 31, 2021, the Company granted stock options, covering a total of approximately 2.3 million shares of
common stock to non-executive employees and consultants, with exercise prices ranging between $2.02 and $6.15 per share. These stock
option awards vest annually over three years, with a ten-year term and grant date fair values ranging between $1.53 and $4.46 per share.
During the fiscal year ended May 31, 2021, the Company issued approximately 2.6 million shares of common stock in connection with the
exercise of stock options. The stated exercise prices ranged from $0.30 to $1.40 per share which
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resulted in aggregate gross proceeds of approximately $1.8 million to the Company. As of May 31, 2021 and May 31, 2020 approximately
12.8 million and 12.9 million vested stock options and approximately 5.8 million and 2.7 million unvested stock options were outstanding,
respectively.
Upon stockholder approval of the amended 2012 Plan in September 2020, the Company issued to executives of the Company non-qualified
stock options covering 3.35 million shares of common stock, time-vested restricted stock units (“RSUs”) covering 1.12 million shares of
common stock, and performance-based RSUs (“PSUs”) covering 4.35 million shares of common stock (the “September 2020 Performance
Shares”). The stock options have a per share exercise price of $3.12, grant date fair value of $2.12 per share, and vest in three equal
installments beginning on the first anniversary of the grant date. The RSUs similarly vest over three years and have a grant date fair value
of $3.12 per share. The issuance of common stock underlying the PSUs granted for performance in fiscal year ending May 31, 2021 are
subject to the Compensation Committee’s determination if, and to what extent, certain performance conditions set forth in the awards are
met. On June 25, 2020, the Board approved the grant of stock options to three non-employee directors covering a total of 675,000 shares of
common stock as the equity portion of the annual director compensation program, of which 506,250 options were subject to stockholder
approval of the amended 2012 Plan. The options were issued with a per share exercise price of $6.15 and grant date fair value of $4.20 per
share, and vested in four equal quarterly installments beginning on August 31, 2020.
Warrants
During the fiscal year ended May 31, 2021, the Company issued compensatory warrants covering a total of approximately 0.1 million
shares of common stock to consultants. The warrants have a five-year term and an exercise price of $3.07. The grant date fair value of these
warrants was $2.11 per share.
During the fiscal year ended May 31, 2021, the Company issued approximately 27.3 million shares of common stock in connection with
the exercise of an equal number of warrants. The stated exercise prices ranged from $0.30 to $1.35 per share, which resulted in aggregate
gross proceeds of approximately $19.4 million. Additionally, during the fiscal year ended May 31, 2021, the Company issued
approximately 10.6 million shares of common stock in connection with the cashless exercise of approximately 11.7 million warrants with
stated exercise prices ranging from $0.40 to $1.35. In connection with various private warrant exchange agreements during the fiscal year
ended May 31, 2021, the Company issued approximately 37.1 million shares of common stock in connection with the exercise of
approximately 34.1 million warrants. See Note 11.
Compensation expense related to stock options and warrants for the fiscal years ended May 31, 2021, May 31, 2020 and May 31, 2019 was
approximately $8.8 million, $6.5 million and $3.4 million, respectively. The grant date fair value of options and warrants vested during the
fiscal years ended May 31, 2021, May 31, 2020, and May 31, 2019 was approximately $4.7 million, $3.3 million, and $2.1 million,
respectively. As of May 31, 2021, there was approximately $8.2 million of unrecognized compensation expense related to share-based
payments for unvested options, which is expected to be recognized over a weighted-average period of approximately 1.46 years.
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The following table represents stock option and warrant activity for the years ended May 31, 2020 and May 31, 2021:
Options and warrants outstanding May 31, 2019
Granted
Exercised
Forfeited, expired, and cancelled
Options and warrants outstanding May 31, 2020
Granted
Exercised
Forfeited, expired, and cancelled
Options and warrants outstanding May 31, 2021
Outstanding exercisable May 31, 2021
Note 8. Acquisition of Patents and Intangibles
Weighted
average
exercise price
Weighted
average
remaining
contractual
life in years
3.66
Aggregate
intrinsic
value
896
—
—
—
$ 302,961
—
—
—
68,756
67,151
$
—
—
—
5.79
—
—
—
$
$
4.40
3.98
0.71
0.47
0.56
0.74
0.65
3.82
0.59
1.66
0.95
0.78
Number of
shares
178,592
$
$
57,720
(101,853) $
(3,099) $
131,360
$
$
7,036
(75,735) $
(1,088) $
$
61,573
55,713
$
The following presents intangible assets activity, inclusive of patents (in thousands):
Leronlimab (PRO 140) patent
ProstaGene, LLC intangible asset acquisition, net of impairment
Website development costs
Gross carrying value
Accumulated amortization, net of impairment
Total amortizable intangible assets, net
May 31,
2021
2020
$
$
3,500
2,926
20
6,446
(4,793)
1,653
$
$
3,500
15,126
20
18,646
(5,190)
13,456
Amortization expense related to all intangible assets for the fiscal year ended May 31, 2021, May 31, 2020, and May 31, 2019 was
approximately $1.8 million, $2.0 million and $1.2 million, respectively. The following table summarizes the estimated aggregate future
amortization expense related to the Company’s intangible assets with finite lives as of May 31, 2021 (in thousands):
Fiscal Year
2022
2023
2024
2025
Thereafter
Total
$
$
Amount
669
384
85
85
430
1,653
The Company consummated an asset purchase on October 16, 2012, and paid $3.5 million for certain assets, including intellectual property,
certain related licenses and sublicenses, FDA filings and various forms of the leronlimab (PRO 140) drug substance. The Company
followed the guidance in ASC 805, Business Combinations, to determine if the Company acquired a business. Based on the prescribed
accounting, the Company acquired assets and not a business. As of May 31, 2021 and May 31, 2020, the Company has recorded and is
amortizing $3.5 million of intangible assets related to the patent rights acquired. The Company estimates the acquired patent has an
estimated life of ten years. Subsequent to the acquisition date, the Company has continued to expand, amend and file new patents central to
its current clinical trial strategies, which, in turn, have extended the protection period for certain methods of using leronlimab and
formulations comprising leronlimab through at least 2031 and 2038, respectively, in various countries.
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On November 16, 2018, the Company completed the acquisition of substantially all the assets of ProstaGene, LLC (“ProstaGene”), a
biotechnology start-up company, which included patents related to clinical research, a proprietary CCR5 algorithm technology for early
cancer diagnosis, and a noncompetition agreement with ProstaGene’s founder and Chief Executive Officer, Richard G. Pestell. The
Company accounted for the ProstaGene acquisition as an asset acquisition under ASC 805-10-55, Business Combinations, because the
assets acquired from ProstaGene did not include an assembled workforce, and the gross value of the assets acquired met the screen test in
ASC 805-10-55-5A related to substantially all of the fair value being concentrated in a single asset or group of assets (i.e., the proprietary
technology and patents) and, thus, is not considered a business. Thus, management concluded that the acquisition did not include both an
input and substantive processes that together significantly contribute to the ability to create outputs. The acquisition of ProstaGene’s assets
expanded the Company’s clinical development of leronlimab into cancer indications and potential commercialization of certain cancer
diagnostic tests. The aggregate purchase price of the ProstaGene acquisition was approximately $11.6 million based on the issuance of
approximately 20.3 million shares of the Company’s common stock at $0.57 per share, including approximately 1.6 million shares issued to
an investment bank for advisory services.
A summary of the net purchase price and allocation to the acquired assets is as follows (in thousands):
CytoDyn Inc. equity
Acquisition expenses
Release of deferred tax asset
Total cost of acquisition
Intangible assets
Other
Allocation of acquisition costs
ProstaGene, LLC
11,558
741
2,827
15,126
15,126
—
15,126
$
$
$
$
Assets acquired from ProstaGene included (1) patents issued in the United States and Australia related to “Prostate Cancer Cell Lines,
Gene Signatures and Uses Thereof” and “Use of Modulators of CCR5 in the Treatment of Cancer and Cancer Metastasis,” (2) an algorithm
used to identify a 14-gene signature to predict the likelihood and severity of cancer diagnoses, and (3) a noncompetition agreement in
connection with an employment agreement with Dr. Pestell as Chief Medical Officer of the Company. The fair value of the assets acquired
approximated the consideration paid. The Company did not assume any liabilities.
The fair value of the technology acquired was identified using the Income Approach. The fair value of the patents acquired is identified
using the Cost to Reproduce Method. The fair value of the noncompetition agreement acquired was identified using the Residual Value
Method. Goodwill was not recorded as the transaction represented an asset acquisition in accordance with ASU 2017-01. Acquisition costs
for asset acquisitions are capitalized and included in the total cost of the transaction. In addition, pursuant to ASC 805, the net tax effect of
the deferred tax liability arising from the book to tax basis differences was recorded as a cost of the acquisition.
The Company concluded a five-day arbitration hearing on March 19, 2021 concerning a claim by ProstaGene for approximately 3.1 million
shares of common stock that the Company withheld for damages incurred by the Company in connection with the acquisition of the
proprietary algorithm intangible asset from ProstaGene in November 2018. Expert testimony and report during the arbitration hearing
revealed the stage of development was low, among other issues, and projected the technology would require a sizable amount of
incremental capital and development time to advance towards a possible monetization. Based on this expert testimony and report, it was
management’s conclusion the net carrying value of the proprietary algorithm is fully impaired. As such, the Company recorded an
intangible asset impairment charge of approximately $10.0 million during the quarter ended February 28, 2021 resulting from the write-off
of the allocated purchase price of $12.2 million and $2.2 million of associated accumulated amortization.
In connection with the ProstaGene purchase transaction, the Company entered into a Stock Restriction Agreement with Dr. Pestell, (the
“Stock Restriction Agreement”), restricting the transfer of approximately 8.3 million shares of common stock (the “Restricted Shares”)
issued to Dr. Pestell. The Stock Restriction Agreement provided that, in the event Dr. Pestell’s employment with the Company were
terminated by Dr. Pestell other than for Good Reason or by the
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Company for Cause, as defined in Dr. Pestell’s employment agreement with the Company, the Company would have an option to
repurchase the Restricted Shares from Dr. Pestell at a purchase price of $0.001 per share. The Restricted Shares were to vest and be
released from the Stock Restriction Agreement in three equal annual installments commencing on November 16, 2019. On July 25, 2019,
the Board terminated the employment of Dr. Pestell prior to the vesting of any of the Restricted Shares. The Restricted Shares are subject to
litigation between the Company and Dr. Pestell. See Note 10.
As of May 31, 2021 and May 31, 2020, the Company has recorded and is amortizing $4.6 million of intangible assets in the form of patents
attributable to the leronlimab acquisition and the ProstaGene transaction. The Company estimates the acquired patents have an estimated
life of ten years. Subsequent to the acquisition dates, the Company has continued to expand, amend and file new patents central to its
current clinical trial strategies, which, in turn, have extended the protection period for certain methods of using leronlimab and formulations
comprising PRO 140 through at least 2031 and 2038, respectively, in various countries.
Note 9. License Agreements
The Company has two license agreements with a third-party licensor covering the licensor’s “system know-how” technology with respect
to the Company’s use of proprietary cell lines to manufacture new leronlimab material. The Company accrues annual license fees of £0.6
million (approximately $0.8 million based on current exchange rates), which fees are payable annually in December. Future annual license
fees and royalty rate will vary depending on whether the Company manufactures leronlimab, utilizes the third-party licensor as a contract
manufacturer, or utilizes an independent party as a contract manufacturer. The licensor does not charge an annual license fee when it serves
as the manufacturer. In addition, the Company will incur royalties of up to 0.75% to 2.0% of net sales, depending on who serves as the
manufacturer, when the Company commences its first commercial sale, which will continue as long as the license agreement is maintained.
For the fiscal years ended May 31, 2021 and May 31, 2020 the Company recorded a prepaid asset of approximately $0.1 million related to
this arrangement.
Note 10. Commitments and Contingencies
Commitments with Samsung BioLogics Co., Ltd. (“Samsung”)
In April 2019, the Company entered into an agreement with Samsung, pursuant to which Samsung will perform technology transfer,
process validation, manufacturing and supply services for the commercial supply of leronlimab effective through calendar year 2027. In
2020, the Company entered into an additional agreement, pursuant to which Samsung will perform technology transfer, process validation,
vial filling and storage services for clinical, pre-approval inspection, and commercial supply of leronlimab. Samsung is obligated to procure
necessary raw materials for the Company and manufacture a specified minimum number of batches, and the Company is required to
provide a rolling three-year forecast of future estimated manufacturing requirements to Samsung that are binding. The future commitments
pursuant to these agreements are estimated as follows (in thousands):
Fiscal Year
2022
2023
2024
2025
Total
$
$
Amount
46,961
96,126
58,528
7,200
208,815
Commitments with Contract Research Organization (“CRO”)
The Company has entered into project work orders, as amended, for each of our clinical trials with our CRO and related laboratory
vendors. Under the terms of these agreements, the Company incurs execution fees for direct services costs, which are recorded as a current
asset. In the event the Company were to terminate any trial, it may incur certain financial penalties that would become payable to the CRO.
Conditioned upon the form of termination of any one trial, the financial penalties may range up to approximately $3.4 million. In the
remote circumstance that the Company would
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terminate all clinical trials, the collective financial penalties may range from a low of approximately $2.0 million to an approximate high of
approximately $3.7 million.
Operating Leases
We lease our principal office location in Vancouver, Washington and office in Fort Lauderdale, Florida. The Vancouver and Fort
Lauderdale leases expire on April 30, 2026 and on March 31, 2022, respectively. The Fort Lauderdale office is currently being sublet to a
tenant. Consistent with the guidance in ASC 842, we have recorded the leases in our consolidated balance sheet as operating leases. For the
purpose of determining the ROU asset and associated lease liability, we determined that the renewal of the Vancouver lease was reasonably
probable. The leases of our Vancouver and Fort Lauderdale offices do not include any restrictions or covenants requiring special treatment
under ASC 842. During the fiscal years ended May 31, 2021 and 2020, we recognized $0.3 million and $0.2 million of operating lease
costs.
The following table summarizes the presentation of the operating leases in our consolidated balance sheet at May 31, 2021 and 2020 (in
thousands):
Assets
Right of use asset
Liabilities
Current operating lease liability
Non-current operating lease liability
Total operating lease liability
May 31,
2021
2020
$
$
$
712
175
552
727
$
$
$
176
115
63
178
The minimum (base rental) lease payments reconciled to the carrying value of the operating lease liabilities as of May 31, 2021 are
expected to be as follows (in thousands):
Fiscal Year
2022
2023
2024
2025
2026
Total operating lease payments
Less imputed interest
Present value of operating lease liabilities
Amount
202
225
175
180
183
965
(238)
727
$
$
Legal Proceedings
The Company is a party to various legal proceedings. The Company recognizes accruals for such proceedings to the extent a loss is
determined to be both probable and reasonably estimable. The best estimate of a loss within a possible range is accrued; however, if no
estimate in the range is more probable than another, then the minimum amount in the range is accrued. If it is determined that a material
loss is not probable but reasonably possible and the loss or range of loss can be estimated, the possible loss is disclosed. It is not possible to
determine the outcome of proceedings that have not been concluded, including the defense and other litigation-related costs and expenses
that may be incurred by the Company, as the outcomes of legal proceedings are inherently uncertain, and the outcomes could differ
significantly from recognized accruals. Therefore, it is possible that the ultimate outcome of any proceeding, if in excess of a recognized
accrual, or if an accrual had not been made, could be material to the Company’s consolidated financial statements.
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As of May 31, 2021, the Company recorded legal accruals of approximately $10.6 million related to the outcomes of the matters described
below. The Company did not record any accruals as of May 31, 2020.
Delaware Shareholder Derivative Lawsuit
On April 24, 2020, certain stockholders of the Company (the “Plaintiffs”) filed a derivative action in the Delaware Court of Chancery (the
“Delaware Court”), alleging claims for breach of fiduciary duty and unjust enrichment against the Company’s CEO, former CFOs, CMO,
and certain current and former members of the Board (the “Defendants”), in connection with certain equity awards to these individuals
granted in December 2019 and January 2020 (the “December 2019 Awards”). The Company was named a nominal defendant in the
lawsuit. The Plaintiffs demanded the rescission of the December 19 Awards, a finding that the named directors breached their fiduciary
duty to the Company, and an unspecified amount of damages. The Company appointed a Special Litigation Committee (the “SLC”),
consisting solely of independent directors not named in the complaint, to investigate the allegations in the complaint.
On December 15, 2020, the Defendants reached an agreement in principle with the SLC (collectively, “Parties”) to resolve the lawsuit. On
December 18, 2020, the Parties executed a memorandum of understanding outlining the key terms of their agreement. On January 27,
2021, the Parties entered into a proposed Stipulation and Agreement of Compromise, Settlement, and Release (the “Stipulation”) to settle
the derivative action. Pursuant to the Stipulation, the current directors agreed to implement a series of corporate governance reforms related
to director and executive officer compensation and certain Defendants agreed to forfeit a substantial portion of the December 2019 Awards
following approval of the settlement by the Delaware Court, in exchange for a release of claims and the dismissal of the derivative action
with prejudice.
The corporate governance reforms to be implemented pursuant to the Stipulation comprised:
•
•
•
exploring the addition of a new director who meets NASDAQ standards for independence;
reconstitution of the Compensation Committee to consist of at least three independent directors; and
adoption of a five-year executive officer and director compensation policy requiring the Compensation Committee to:
•
•
•
•
•
develop and approve compensation,
retain and receive written recommendations of an independent compensation advisor to assist the Compensation
Committee with the determination of the types and levels of compensation;
perform at a minimum an annual assessment of compensation levels and structure of its peer group based on discussions
with its independent compensation advisor with regard to relevance, in particular, companies in the same industry and of
similar market capitalization;
only determine compensation on an annual basis with the exception of new additions, promotions, or exceptional
circumstances as determined by the Compensation Committee; and
adopt a prohibition on bonuses for nonemployee directors based on Company performance.
The Board appointed a new director, expanded the membership of the Compensation Committee, and approved the executive officer and
director compensation policy as described above effective prior to the deadline set forth in the Stipulation.
The December 2019 Awards were forfeited effective June 4, 2021 as follows: 100% of the December 19 Awards to Michael A. Klump,
Jordan G. Naydenov, and David F. Welch, Ph.D., covering 2.25 million shares, 60% of the December 2019 Award to Scott A. Kelly, M.D.,
covering 0.75 million shares; and 100% of the warrant to acquire 2.0 million shares issued to Nader Z. Pourhassan, Ph.D. In addition, Dr.
Pourhassan forfeited vested options to purchase approximately 0.4 million shares from the December 2019 Awards. The Delaware Court
held hearings on April 19 and June 4, 2021, and approved the Stipulation at the hearing on June 4, 2021.
On March 19, 2021, the Plaintiffs filed a brief agreeing to the proposed settlement and seeking an award of approximately $4.1 million for
bringing the lawsuit. Plaintiff’s demand was based on the claimed value or benefit to the Company and its stockholders from the value of
the forfeited equity awards, in addition to the time incurred by the Plaintiffs’ attorneys with regard to this action. On April 8, 2021, the SLC
filed a brief opposing the Plaintiffs’ motion
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contending that the amount of the award demanded was not legally supported. Following a hearing on June 4, 2021, the Delaware Court
issued a ruling granting the Plaintiffs’ fee application in the amount of $3.0 million, inclusive of expenses, for which the Company fully
accrued as of May 31, 2021.
September 2020 Washington Shareholder Derivative Lawsuit
On September 10, 2020, the same Plaintiffs as in the Delaware Shareholder Derivative Lawsuit filed another derivative action against CEO
Nader Z. Pourhassan, Ph.D. claiming that he had violated Section 16(b) of the Securities Exchange Act of 1934 with respect to certain
personal stock transactions in the Company’s stock. The parties filed cross-motions to dismiss. On March 12, 2021, the U.S. District Court
for the Western District of Washington (the “U.S. District Court”) granted Dr. Pourhassan’s motion to dismiss with prejudice. On April 9,
2021, the Plaintiffs filed a Notice of Appeal to the Ninth Circuit Court of Appeals appealing the decision of the U.S. District Court. The
Plaintiffs filed their opening brief with the Ninth Circuit on July 8, 2021.
Placement Agent Arbitration Claim
On April 29, 2020, Torreya Capital LLC (“Torreya”) filed an arbitration claim against the Company demanding payment of a transaction
fee in the amount of $0.6 million plus attorney fees, for the Company’s alleged failure to pay a transaction fee to Torreya under the terms of
its engagement letter with the Company, and amended its claim on September 17, 2020 to add an additional transaction fee claim,
increasing its demand to approximately $1.8 million. The Company denied Torreya’s contractual right to any fee under the terms of the
engagement letter. The parties filed dispositive motions in August 2020 and September 2020, which the arbitrator denied on October 5,
2020. On February 18, 2021, a one-day arbitration hearing was held to determine Torreya’s right to approximately $1.8 million in
transaction fees plus attorney fees. Closing briefs were filed on April 1, 2021. On April 22, 2021, the arbitrator ruled in favor of the
Company, denied Torreya’s claim for any fees or legal costs and awarded the Company legal fees and costs of approximately $0.1 million.
Pestell Employment Dispute
On July 25, 2019, the Company’s Board terminated the employment of Dr. Pestell, the Company’s former Chief Medical Officer, for cause
pursuant to the terms of Dr. Pestell’s employment agreement. On August 22, 2019, Dr. Pestell filed a lawsuit in the U.S. District Court for
the District of Delaware (Pestell v. CytoDyn Inc., et al.), against the Company, its Chief Executive Officer and the Chairman of the Board,
alleging breach of the employment agreement, a failure to pay wages and defamation, among other claims, and seeking damages related to
severance entitlements for a non-cause termination under the employment agreement and a stock restriction agreement, among other relief.
The treatment of those entitlements, including severance and approximately 0.4 million unvested stock options and 8.3 shares of unvested
restricted common stock, in each case granted or issued on November 16, 2018 and which vest ratably over three years or upon a non-cause
termination, are expected to be determined by the outcome of this litigation. It is possible that if a court ruled in favor of Dr. Pestell on the
equity entitlements, it would award damages based on a decline in the value of the shares. On November 2, 2020, the Court dismissed Dr.
Pestell’s wage claims with prejudice and the Company’s Chief Executive Officer and the Chairman of the Board were dismissed from the
proceeding. The Company filed its answer and counterclaims thereafter. A bench trial is currently set for April 2022. The Company
disputes all of Dr. Pestell’s claims and intends to vigorously defend the action. The Company cannot predict the ultimate outcome and
cannot reasonably estimate the potential loss or range of loss that the Company may incur.
ProstaGene Arbitration
On March 19, 2021, the Company concluded a five-day arbitration hearing concerning a claim by ProstaGene and counterclaims by the
Company for approximately 3.1 million shares of the Company’s common stock held in escrow as holdback stock pursuant to the
transaction agreement for the acquisition of certain intangible assets from ProstaGene in November 2018. The Company recognized a full
impairment charge against the net carrying value of a certain acquired intangible asset in the quarter ended February 28, 2021. See Note 8
of the Notes to Consolidated Financial Statements included herein above. Notwithstanding the foregoing, ProstaGene also sought monetary
damages, in an amount to be determined by the arbitration panel, including any lost value in stock price and its attorney fees and costs.
Post-hearing
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briefing concluded mid-May 2021. The Company disputed ProstaGene’s claim and has vigorously defended against that claim, and the
Company believes its counterclaims are meritorious and had vigorously prosecuted its counterclaims. Nonetheless, on July 2, 2021, an
arbitration panel determined that ProstaGene is entitled to release of the Shares, as well as a cash monetary award in the amount of
approximately $6.2 million, plus interest, fees and costs estimated to total approximately $1.4 million. The Company satisfied the
arbitration award obligations in July 2021.
Securities Class Action Lawsuits
On March 17, 2021, a stockholder filed a putative class-action lawsuit in the U.S. District Court against the Company and certain current
and former officers. The complaint generally alleges that the defendants made false and misleading statements regarding the viability of
leronlimab as a potential treatment for COVID-19. The plaintiff seeks a ruling that this case may proceed as a class action, and seeks
unspecified damages and attorneys’ fees and costs. On April 9, 2021, a second stockholder filed a similar putative class-action lawsuit in
the same court, which the plaintiff voluntarily dismissed without prejudice on July 23, 2021. Motions to appoint a lead plaintiff for the
lawsuit are pending. The Company and the individual defendants deny any allegations of wrongdoing in the complaint and intend to
vigorously defend the matter. In light of the fact that this case is in its early stage, the number of plaintiffs are not known, and the claims do
not specify an amount of damages, the Company cannot predict the ultimate outcome of the lawsuit and cannot reasonably estimate the
potential loss or range of loss that the Company may incur.
June 2021 Washington Shareholder Derivative Lawsuits
On June 4, 2021, a purported shareholder derivative lawsuit was filed against certain of the Company’s current and former officers, certain
board members, and the Company as a nominal defendant, in the U.S. District Court (“First Derivative Suit”). The complaint generally
alleges that the director defendants breached fiduciary duties owed to the Company by allowing the Company to make false and misleading
statements regarding the viability of leronlimab as a potential treatment for COVID-19 and by failing to maintain an adequate system of
oversight and internal controls. The complaint asserts claims against one or more individual defendants for breach of fiduciary duty, waste
of corporate assets, and unjust enrichment, and seeks to recover on behalf of the Company for any liability the Company incurs as a result
of the individual defendants’ alleged misconduct. The complaint also seeks contribution on behalf of the Company from certain individual
defendants for their alleged violations of federal securities laws. The complaint seeks declaratory and equitable relief, an unspecified
amount of damages, and attorneys’ fees and costs. On June 25, 2021, a second shareholder derivative lawsuit was filed against the same
defendants in the same court (“Second Derivative Suit”, and together with the First Derivative Suit, “Derivative Suits”), which includes
allegations and claims similar to those made in the First Derivative Suit, adds claims against certain individual defendants based on
allegedly false and misleading proxy statement disclosures and for breach of fiduciary duty arising from alleged insider trading, and seeks
similar relief as the First Derivative Suit. The Company and the individual defendants deny any allegations of wrongdoing in the
complaints and intend to vigorously defend the litigation. In light of the fact that these cases are in their early stages and the claims do not
specify an amount of damages, the Company cannot predict the ultimate outcome of the Derivative Suits and cannot reasonably estimate
the potential loss or range of loss that the Company may incur.
Securities and Exchange Commission and Department of Justice Investigations
The Company has received subpoenas from the United States Securities and Exchange Commission requesting documents and information
concerning, among other matters, leronlimab, the Company’s public statements regarding the use of leronlimab as a potential treatment for
COVID-19 and related communications with the FDA, investors, and others, and trading in the securities of CytoDyn. The SEC has
informed the Company that this inquiry should not be construed as an indication that any violations of law have occurred or that the SEC
has any negative opinion of any person, entity or securities trading activity.
In addition, the Company and certain of its executives have received subpoenas in connection with an investigation being conducted by the
United States Department of Justice. The subpoenas seek testimony and/or records concerning, among other matters, leronlimab, the
Company’s public statements regarding the use of leronlimab as a potential treatment for COVID-19 and related communications with the
FDA, investors, and others, and trading in the securities of CytoDyn.
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The Company is cooperating fully with these non-public, fact-finding investigations, and as of the date of this filing, the Company is
unable to predict the ultimate outcome and cannot reasonably estimate the potential possible loss or range of loss, if any.
Note 11. Public Warrant Tender Offers
During June 1, 2019 to July 31, 2019, the Company conducted two public warrant tender offers, in which accredited investors purchased
common stock at either $0.30 or $0.40 per share. Pursuant to the offers, the Company sold a total of approximately 45.4 million shares of
common stock, $0.001 par value, for aggregate gross proceeds of approximately $11.9 million. The Company paid placement agent fees of
approximately $1.1 million for services in connection with the tender offers. The Company also recorded a non-cash inducement interest
expense of approximately $2.4 million in connection with the tender offers.
Note 12. Private Equity Securities Offerings
On March 20, 2019, the Company issued in private placements to accredited investors an aggregate of 3,246 shares of its Series C
Preferred Stock, together with warrants to purchase an aggregate of up to approximately 3.9 million shares of its common stock, with an
initial exercise price of $0.50 per share, for aggregate gross proceeds to the Company of approximately $3.2 million. In connection with the
private placement, the Company issued and sold to certain lead investors additional warrants to purchase an aggregate of up to 1.0 million
shares of Common Stock, on identical terms to the other warrants issued to investors.
On August 29, 2019 the Company issued the remaining 1,754 shares of Series C Preferred Stock at $1,000.00 per share for cash proceeds
totaling approximately $1.5 million, net of placement agent fees and legal fees totaling approximately $0.2 million.
During the three months ended August 31, 2019, in connection with a Series C convertible preferred offering, as fully described in Note 4,
the Company issued common stock warrants covering a total of approximately 2.6 million shares of common stock to investors. The
investor warrants have a five-year term and an exercise price of $0.50 per share.
On October 11, 2019, the Company amended its certificate of designation to authorized an increase in authorized Series C Preferred Stock
from 5,000 shares to 20,000 shares. Between October 21, 2019 and November 8, 2019, the Company issued an additional 2,788 shares of
Series C Convertible Preferred Stock, and on December 6, 2020 the Company issued 415 shares of Series C Convertible Preferred Stock.
On January 28, 2020, the Company further amended its Series C Certificate of Designation to reduce the number of authorized shares of
Series C Preferred Stock from 20,000 shares to 8,203 shares, all of which remain outstanding as of May 31, 2020.
During the year ended May 31, 2019, the Company conducted private equity offerings (the “2019 Equity Offerings”), in which accredited
investors purchased unregistered shares of common stock at $0.50 per share with warrant coverage of 50% based on the number of shares
purchased. Pursuant to the 2019 Equity Offerings, the Company sold a total of approximately 47.0 million shares for aggregate gross
proceeds of approximately $23.5 million and issued five-year warrants covering approximately 23.5 million shares, with an exercise price
of $0.75 per share. In conjunction with the 2019 Equity Offerings, the Company paid an aggregate cash fee of approximately $2.7 million
to the placement agent and issued warrants covering an aggregate of approximately 4.4 million shares to the placement agent as additional
compensation.
On July 31, 2019, the Company concluded a private warrant exchange in which accredited investors purchased unregistered shares of
common stock at the lower of the stated exercise price on their warrant or $0.40 per share. The Company sold a total of approximately 7.5
million shares, as well as approximately 3.8 million additional shares as an inducement to exercise their warrants, for a total of
approximately 11.3 million shares. Aggregate gross proceeds from the private warrant exchange were approximately $3.0 million. In
conjunction with the private warrant exchange, the Company incurred a non-cash inducement interest expense of approximately $0.2
million and paid an aggregate cash fee of approximately $0.3 million to the placement agent. See Note 17.
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On December 20, 2019, the Company entered into a private warrant exchange in which certain accredited investors purchased unregistered
shares of common stock at a range of $0.22 to $0.25 per share as compared to the stated exercise prices ranging from $0.45 to $0.75 per
share. The Company sold approximately 3.4 million shares, as well as approximately 1.3 million additional shares as an inducement to
exercise their warrants, for a total of approximately 4.7 million shares. Aggregate gross proceeds from the private warrant exchange were
approximately $0.8 million.
On December 30, 2019, the Company entered into a private warrant exchange in which certain accredited investors purchased unregistered
shares of common stock at a reduced exercise price per share of $0.50 for any warrant with a stated exercise price greater than $0.50 per
share and no discount for warrants with a stated exercise price equal to or less than $0.50 per share. The Company sold 2.2 million shares,
as well as 0.5 million additional shares as an inducement to exercise their warrants, for a total of approximately 2.7 million shares.
Aggregate gross proceeds from the private warrant exchange were approximately $1.1 million.
On January 31, 2020, the Company issued 7,570 shares of Series D Convertible Preferred Stock, $0.001 par value per share (“Series D
Preferred Stock”), at $1,000.00 per share for cash proceeds totaling approximately $7.6 million, net of offering costs of $4,645.
On March 13, 2020, the Company entered into subscription agreements with certain investors for the sale of 882 shares of Series D
convertible preferred stock at a purchase price of $1,000.00 per share (“March 13, 2020 offering”). The investors in the March 13, 2020
offering also received warrants to purchase approximately 0.3 million shares of common stock with an exercise price of $1.00 per share
and a five-year term. The Company received net proceeds from the March 13, 2020 offering of approximately $0.9 million.
During January 2020, the Company entered into a private warrant exchange in which certain accredited investors purchased unregistered
shares of common stock at a reduced exercise price per share of $0.50 for any warrant with a stated exercise price greater than $0.50 per
share and no discount for warrants with a stated exercise price equal to or less than $0.50 per share. The Company issued approximately 4.0
million shares, as well as approximately 0.4 million additional shares as an inducement to exercise their warrants, for a total of
approximately 4.4 million shares. Aggregate gross proceeds from the private warrant exchange were approximately $1.9 million.
On February 28, 2020, the Company entered into a private warrant exchange in which certain accredited investors purchased unregistered
shares of common stock at a range of $0.18 to $0.45 per share as compared to the stated exercise prices on their warrants, which ranged
from $0.30 to $0.75 per share. The Company issued approximately 7.8 million shares, as well as approximately 0.8 million additional
shares as an inducement to exercise their warrants, for a total of approximately 8.6 million shares. Aggregate gross proceeds from the
private warrant exchange were approximately $2.2 million.
On March 4, 2020, the Completed a private warrant exchange in which an accredited investor purchased shares of common stock at a price
of $0.45 per share as compared to the stated exercise price of $0.75. The Company issued 80,000 shares, as well as 8,000 additional shares
as an inducement to the investor to exercise the warrants, for a total of 88,000 shares, resulting in gross proceeds of approximately $36,000.
For the fiscal year-ended May 31, 2020 the Company recorded non-cash inducement interest expense totaling approximately $5.5 million
in connection with the private warrant exchange offerings.
On June 17, 2020, the Company entered into privately negotiated warrant exchange agreements with certain accredited investors, pursuant
to which the investors purchased shares of common stock at a range of $0.21 to $0.70 per share in exchange for warrants with exercise
prices ranging from $0.35 to $1.35 per share. The Company issued approximately 16.5 million shares in exchange for approximately 16.5
million warrants to purchase common stock, which resulted in net aggregate proceeds of approximately $7.4 million after offering costs of
approximately $0.4 million. In connection with this transaction, the Company recognized approximately $3.3 million in non-cash
inducement interest expense.
On October 14, 2020, the Company entered into privately negotiated warrant exchange agreements with certain accredited investors,
pursuant to which the investors purchased common stock at a range of $0.24 to $0.80 per share in
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exchange for warrants with exercise prices ranging from $0.30 to $1.00 per share. The Company issued approximately 7.0 million shares of
common stock, $0.001 par value, in exchange for approximately 6.4 million warrants to purchase common stock, which resulted in net
aggregate proceeds of approximately $2.7 million. In connection with this transaction, the Company recognized approximately $2.2 million
of non-cash inducement interest expense.
On October 26, 2020, the Company entered into privately negotiated warrant exchange agreements with certain accredited investors,
pursuant to which the investors purchased shares of common stock at a range of $0.24 to $0.60 per share in exchange for warrants with an
exercise prices ranging from $0.30 to $0.75 per share. The Company issued approximately 5.0 million shares in exchange for
approximately 4.5 million warrants to purchase common stock, which resulted in net aggregate proceeds of approximately $1.6 million. In
connection with this transaction, the Company recognized approximately $1.4 million of non-cash inducement interest expense.
On November 30, 2020, the Company entered into privately negotiated warrant exchange agreements with certain accredited investors,
pursuant to which the investors purchased shares of common stock at $0.60 per share in exchange for warrants with an exercise price of
$0.75 per share. The Company issued approximately 0.5 million shares in exchange for 0.5 million warrants to purchase common stock,
which resulted in net aggregate proceeds of approximately $0.3 million. In connection with this transaction, the Company recognized
approximately $0.2 million of non-cash inducement interest expense.
On November 17, 2020, the Company sold approximately 0.67 million unregistered shares of common stock at a purchase price of $1.50
per share to Christopher P. Recknor, M.D., Chief Operating Officer, who was a non-executive at the time of the transaction, for aggregate
proceeds to the Company of $1.0 million. The transaction was approved by the Board. See Note 17.
On December 4, 2020, the Company entered into a privately negotiated warrant exchange agreement with an accredited investor, pursuant
to which the investor purchased shares of common stock at $0.36 per share in exchange for warrants with an exercise price of $0.45 per
share of common stock. The Company issued approximately 0.3 million shares of common stock, $0.001 par value, in exchange for
approximately 0.3 million warrants to purchase common stock, which resulted in net aggregate proceeds of approximately $0.1 million. In
connection with this transaction, the Company recognized approximately $0.1 million of non-cash inducement interest expense.
On December 8, 2020, the Company entered into a privately negotiated warrant exchange agreement with an accredited investor, pursuant
to which the investor purchased shares of common stock at $0.24 per share in exchange for warrants with an exercise price of $0.30 per
share. The Company issued approximately 2.0 million shares in exchange for approximately 1.9 million warrants to purchase common
stock, which resulted in net aggregate proceeds of approximately $0.4 million. In connection with this transaction, the Company recognized
approximately $0.7 million of non-cash inducement interest expense.
On January 28, 2021, the Company entered into privately negotiated warrant exchange agreements with certain accredited investors,
pursuant to which the investors purchased unregistered shares of common stock at a range of $0.45 to $0.75 per share in exchange for
warrants with exercise prices ranging from $0.90 to $1.50 per share. The Company issued approximately 3.6 million shares in exchange for
approximately 2.5 million warrants to purchase common stock, which resulted in net aggregate proceeds of approximately $2.9 million. In
connection with this transaction, the Company recognized approximately $3.4 million of non-cash inducement interest expense and
approximately $0.1 million in offering costs.
On March 18, 2021, the Company entered into a private warrant exchange in which an accredited investor purchased unregistered shares of
common stock at a range of $0.60 to $0.90 per share in exchange for warrants with exercise prices ranging from $0.30 to $0.45 per share.
The Company issued approximately 0.1 million shares of common stock, as well as approximately 0.1 million additional shares as an
inducement to the investor to exercise the warrants, for a total of approximately 0.2 million shares. Aggregate gross proceeds from the
private warrant exchange were approximately $0.1 million. In connection with this transaction, the Company recognized approximately
$32,000 of non-cash inducement interest expense.
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On April 2, 2021, the Company entered into a private warrant exchange in which an accredited investor purchased unregistered shares of
common stock at $0.90 per share in exchange for warrants with an exercise price of $0.45 per share. The Company issued approximately
0.8 million shares of common stock, as well as approximately 0.3 million additional shares as an inducement to the investor to exercise the
warrants, for a total of approximately 1.1 million shares. Aggregate gross proceeds from the private warrant exchange were approximately
$0.7 million. In connection with this transaction, the Company recognized approximately $0.1 million of non-cash inducement interest
expense.
As described in Note 5, a total of approximately 19.9 million shares of common stock were issued in exchange for the retirement of the
March 2020 Note, the July 2020 Note, and partial repayment of a portion of the November 2020 Note during the fiscal year ended May 31,
2021.
For the year-ended May 31, 2021 the Company recorded non-cash inducement interest expense of approximately $11.4 million in
connection with the private warrant exchange offerings.
Note 13. Registered Direct Equity Offerings
From June 1, 2019 to November 30, 2019, the Company entered into subscription agreements with certain investors for the sale of
approximately 19.1 million shares of common stock at purchase prices ranging between $0.30 and $0.40 per share in registered direct
offerings, pursuant to a registration statement on Form S-3. The investors in these offerings also received warrants to purchase
approximately 12.0 million shares of common stock with an exercise price of $0.45 per share and a five-year term. The Company received
net proceeds from the offerings of approximately $6.3 million. In addition, the placement agent received warrants covering approximately
0.7 million shares of common stock (or 1.3% of total shares sold to investors) with per share exercise prices ranging between $0.40 and
$0.44, a five-year term and a cashless exercise provision.
On December 9, 2019, the Company entered into subscription agreements with certain investors for the sale of approximately 2.6 million
shares of common stock at a purchase price of $0.30 per share in a registered direct offering, pursuant to a registration statement on
Form S-3. The investors in this offering also received warrants to purchase 1.9 million shares of common stock with an exercise price of
$0.45 per share and a five-year term. The Company received net proceeds from the offering of approximately $0.75 million.
On December 13, 2019, the Company entered into subscription agreements with certain investors for the sale of approximately 2.4 million
shares of common stock at a purchase price of $0.30 per share in a registered direct offering, pursuant to a registration statement on
Form S-3. The investors in this offering also received warrants to purchase approximately 1.8 million shares of common stock with an
exercise price of $0.45 per share and a five-year term. The Company received net proceeds from the offering of approximately
$0.73 million.
On December 23, 2019, the Company entered into subscription agreements for the sale of approximately 14.8 million shares of common
stock and warrants to purchase up to an aggregate of approximately 7.4 million shares of common stock for a combined purchase price of
$0.305 per share in a registered direct offering, pursuant to a registration statement on Form S-3. Each share of common stock was sold
together with one-half of one warrant to purchase one share of common stock for a combined purchase price of $0.305 per share. As partial
consideration for execution of a License Agreement and Supply Agreement, Vyera’s parent company, Phoenixus AG (“Phoenixus”), made
a $4.0 million equity investment pursuant to the registered direct offering. The offering also included $0.5 million of shares and related
warrants sold to an entity associated with David F. Welch Ph.D., a then member of the Board, on terms identical to those applicable to
Phoenixus. The Company received net proceeds from this offering of approximately $4.5 million.
Note 14. Stock Grants to Employees
On December 24, 2019, the Company issued a total of approximately 0.4 million shares of registered common stock to two executives in
connection with the stock portion of their incentive compensation earned for the fiscal year ended May 31, 2018. The two executives
simultaneously tendered back to the Company a total of approximately 0.1 million shares of the registered common stock to cover the
income tax withholding requirements.
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On January 28, 2020, the Company awarded approximately 11.7 million performance shares to certain of its directors and executive
officers outside of the 2012 Plan (“January 2020 Performance Shares”), which awards would vest and be settled in shares of common stock
of the Company if the Company achieved FDA Breakthrough Therapy designation for cancer within six months of the award date and if,
and to what extent, certain other requirements have been met. The awards were forfeited on July 28, 2020 when the performance conditions
were not met.
On July 31, 2020, the Company awarded approximately 0.3 million shares of common stock to Nader Z. Pourhassan, Ph.D., Chief
Executive Officer, of which approximately 0.2 million were tendered back to the Company to cover income tax withholding requirements.
As a result, the Company incurred approximately $1.6 million in stock compensation expense.
As described in Note 7 of these Notes to Consolidated Financial Statements, upon the September 30, 2020 stockholder approval of the
Amended and Restated 2012 Stock Incentive Plan, the Company issued to executives of the Company non-qualified stock options covering
3.35 million shares of common stock, time-vesting restricted stock units (“RSUs”) covering 1.12 million shares of common stock and
performance based RSUs (“PSUs”) covering 4.35 million shares of common stock. The RSUs vest equally over three years, and the PSUs
will vest over the fiscal year ending May 31, 2021 only if certain performance conditions set forth in the awards are met. The options vest
equally over three years. The issuance of common stock underlying the PSUs granted for performance in fiscal year ending May 31, 2021
are subject to the Compensation Committee’s determination if certain performance conditions set forth in the awards are met.
On October 16, 2020, in connection with the hiring of it’s previous Chief Science Officer, the Company granted 0.2 million RSUs vesting
equally over three years. The RSUs were forfeited prior to vesting upon termination of his employment.
Note 15. Employee Benefit Plan
The Company has an employee savings plan (the “401(k) Plan”) pursuant to Section 401(k) of the Internal Revenue Code (the “Code”),
covering all employees. The Company makes a qualified non-elective contribution of 3%, which vests immediately. In addition,
participants in the 401(k) Plan may contribute a percentage of their compensation, but not greater than the maximum allowed under the
Code. During the year ended May 31, 2021, May 31, 2020 and May 31, 2019, the Company incurred an expense of approximately $0.7
million, $0.1 million, and $0.1, million respectively, for qualified non-elective contributions.
Note 16. Income Taxes
Deferred taxes are recorded for all existing temporary differences in the Company’s assets and liabilities for income tax and financial
reporting purposes. Other than approximately a $2.8 million benefit from a basis difference in the acquired assets of ProstaGene, due to the
valuation allowance for deferred tax assets, as noted below, there was no other net deferred tax benefit or expense for the periods ended
May 31, 2021, May 31, 2020 and May 31, 2019.
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Reconciliation of the federal statutory income tax rate of 21% for the years ended May 31, 2021, May 31, 2020 and May 31, 2019, to the
effective income tax rate is as follows for all periods presented:
2021
Years ended May 31,
2020
2019
Income tax provision at statutory rate:
State income taxes net
Rate change
Loss on debt extinguishment
Derivative gain (loss)
Valuation allowance release from asset acquisition
Non-deductible debt issuance costs
Non-deductible interest on convertible notes
Inducement interest expense
Other
Credit carry forward generated (released)
Non-deductible loss on extinguishment of debt
Non-deductible debt discount amortization
IRC section 162(m) limitation
Stock compensation in excess of ASC 718
Non-deductible legal settlement expense
Valuation allowance
Effective income tax rate
21.0 %
—
—
—
—
—
—
(0.6)
(1.5)
—
(0.1)
(2.6)
(0.6)
(1.1)
1.7
(1.2)
(15.0)
0.0 %
21.0 %
—
—
—
(1.6)
—
(0.1)
(1.2)
(1.3)
(0.3)
(0.1)
—
(0.3)
(2.4)
3.2
(3.8)
(13.1)
0.0 %
Net deferred tax assets and liabilities are comprised of the following as of May 31, 2021 and 2020:
May 31,
2021
2020
Deferred tax asset (liability) non-current:
Net operating loss
Credits
ASC 718 expense on NQO’s
Charitable contribution—carry forward
Accrued vacation & payroll
ASC 842 lease accounting
Inventory reserve
Accrued expenses
Fixed assets
Amortization
Debt discount
Basis difference in acquired assets
Valuation allowance
Deferred tax asset (liability) non-current
Noncurrent asset (liabilities)
Valuation allowance
Deferred tax asset (liability) non-current
$
$
$
$
74,258
2,063
5,510
14
87
(3)
146
874
(0)
396
—
(91)
(83,254)
— $
83,254
(83,254)
— $
21.0 %
—
—
(0.5)
0.6
4.8
—
(0.3)
(0.1)
—
(3.8)
—
—
—
—
—
(16.9)
4.8 %
55,624
2,063
4,069
—
112
—
349
(1)
373
—
(2,483)
(60,106)
—
60,106
(60,106)
—
The income tax benefit for the period presented is offset by a valuation allowance established against deferred tax assets arising from
operating losses and other temporary differences, the realization of which could not be considered more likely than not. In future periods,
tax benefits and related tax deferred assets will be recognized when management considers realization of such amounts to be more likely
than not.
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As of May 31, 2021, May 31, 2020 and May 31, 2019 the Company had available net operating loss carry forwards of approximately
$353.6 million, $264.9 million and $190.5 million, respectively, which expire beginning in 2023.
The Company’s income tax returns remain subject to examination by all tax jurisdictions for tax years ended May 31, 2018 through 2020.
Note 17. Related Party Transactions
The Board’s Audit Committee, composed of independent directors, or the full Board, reviews and approves all related party transactions.
The terms and amounts described below are not necessarily indicative of the terms and amounts described below that would have been
incurred had comparable transactions been entered into with independent parties.
On July 12, 2018, the Company announced certain leadership changes in connection with the strategic expansion and entry into certain
cancer and immunologic indications. In connection with such leadership changes and effective July 11, 2018, Denis R. Burger, Ph.D. and
A. Bruce Montgomery, M.D., resigned as members the Board. Dr. Burger also resigned as Chief Science Officer of the Company, which
was not an executive officer position. On July 10, 2018, in connection with the resignations of Dr. Burger and Dr. Montgomery, the Board
determined to accelerate the vesting of all outstanding and unvested stock options held by Dr. Burger and Dr. Montgomery. Upon the
effectiveness of their resignations, stock options covering 0.5 million shares and 0.1 million shares, held by Dr. Burger and
Dr. Montgomery, respectively, became fully vested. The stock options retained their exercise period through their respective expiration
dates and the terms of the stock options remained otherwise unchanged.
On November 16, 2018, the Company closed its acquisition of ProstaGene assets. In connection with the closing of the acquisition, the
Company hired Richard Pestell, M.D., as its Chief Medical Officer. Prior to the acquisition Dr. Pestell was the holder of approximately
77.2% of the outstanding equity interests in ProstaGene and consequently held an indirect interest in (i) approximately 8.6 million of
approximately 13.3 million shares of the Company’s common stock and (ii) approximately 4.2 million of 5.4 million shares of common
stock, in each case held in escrow for the benefit of ProstaGene and its members, which were subject to being released ratably every
six months over the eighteen-month period following the closing date and forfeiture to satisfy certain indemnity obligations of ProstaGene.
In addition, as specified in a Stock Restriction Agreement between Dr. Pestell and the Company, approximately 8.3 million restricted
shares of common stock previously distributed to Dr. Pestell in the ProstaGene acquisition are currently the subject of litigation. See Note 8
and 10.
As specified in a Confidential Information, Inventions and Noncompetition Agreement between the Company and Dr. Pestell, which was
entered into on the closing date of the ProstaGene acquisition, the Company obtained the right to participate in the development and license
of certain intellectual property created by Dr. Pestell, in connection with Dr. Pestell’s then ongoing research obligations to outside academic
institutions. The Company also obtained the right to work with Dr. Pestell to manage any potential conflict between the Company’s clinical
development activities and such ongoing research obligations.
On December 10, 2018, Anthony D. Caracciolo resigned as the Chairman of the Board of Directors, but remained a director and Scott A.
Kelly, M.D., was appointed Chairman of the Board. On December 19, 2018, the Compensation Committee of the Board approved an
amendment to certain compensation arrangements for Mr. Caracciolo, pursuant to which his employment with the Company was extended
through April 16, 2019, at a salary reduced from $16,667 to $5,000 per month, with continuing benefits. In addition, the Compensation
Committee approved an extension to a total of 10 years of the term of certain previously awarded stock options covering an aggregate of
0.15 million shares of the Company’s common stock, provided that such stock options were out-of-the-money on the date of such
extension. These arrangements were conditioned upon Mr. Caracciolo’s agreement to resign from the Board upon identification by the
Company of an appropriately qualified candidate to fill the vacancy. Mr. Caracciolo’s resignation was effective January 10, 2019. These
arrangements were not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or
practices.
On January 8, 2019, Argonne Trading LLC (“Argonne”), participated in the private placement of convertible promissory notes. See Note 5.
Michael A. Klump, the manager of Argonne, was a director of the Company at the time of investment.
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Argonne purchased a convertible promissory note, in the aggregate principal amount of $0.5 million bearing interest at an annual rate of
10% and received a warrant covering 0.5 million shares of common stock at an exercise price of $0.30 per share. The terms and conditions
of the Argonne investment were identical to those offered to all other investors in the offering and the investment was approved by the
Board’s Audit Committee.
On May 8, 2019, Dr. David F. Welch entered into exercise agreements for warrants beneficially owned by him, covering an aggregate of
approximately 1.7 million shares of common stock and approximately 0.8 million additional shares. Additionally, Michael A. Klump
entered into exercise agreements for warrants beneficially owned by him, covering an aggregate of approximately 3.6 million shares of
common stock and approximately 1.8 million additional shares. Dr. Welch and Mr. Klump were members of the Board at the time of
exercise and participated on terms identical to those applicable to other investors. See Note 12.
On July 15, 2019, the Company entered into consulting agreements with two of its directors, Scott A. Kelly, M.D. in the capacity of non-
executive Chief Science Officer, and David F. Welch, Ph.D., in the capacity of non-executive interim Strategy Advisor. Dr. Kelly’s
agreement terminated on April 9, 2020 when he became the Company’s Chief Medical Officer as a full-time employee. On September 12,
2019, the Company and Dr. Welch agreed to amend his consulting agreement to eliminate any cash compensation (including previously
earned entitlements) thereunder and in October 2019, the consulting agreement between Dr. Welch and the Company was terminated. The
Company has issued stock options as compensation pursuant to the agreements, as follows: to Dr. Kelly for 0.75 million shares at an
exercise price of $0.385 per share on September 12, 2019, and 0.2 million shares at an exercise price of $0.39 per share on October 7,
2019; and options to Dr. Welch for 0.25 million shares at an exercise price of $0.385 per share on September 12, 2019, and 0.2 million
shares at an exercise price of $0.39 per share on October 7, 2019. The options granted on September 12, 2019 vested immediately upon
issuance and have a 10-year term. The options issued on October 7, 2019 vested in four equal quarterly installments beginning on the grant
date and have a 10-year term.
On June 12, 2019, the Company concluded a warrant tender offer (the “June 2019 Warrant Tender Offer”) for certain outstanding series of
eligible warrants, offering the holders of such warrants the opportunity to amend and exercise their warrants at a reduced exercise price
equal to the lower of (i) their respective existing exercise price or (ii) $0.40 per share. As an inducement to holders to participate in the
June 2019 Warrant Tender Offer, the Company offered to issue to participating holders shares of common stock equal to an additional 50%
of the number of shares issuable upon exercise of the eligible warrants (collectively, the “Additional Shares”). Dr. Kelly validly tendered
warrants beneficially owned by him, covering an aggregate of 50,000 shares, and received 25,000 Additional Shares. Dr. Kelly participated
on terms identical to those applicable to other holders in the June 2019 Warrant Tender Offer.
On July 31, 2019, the Company concluded an additional warrant tender offer on terms identical to the June 2019 Warrant Tender Offer (the
“July 2019 Warrant Tender Offer”). See Note 12. Dr. Welch tendered warrants beneficially owned by him, covering an aggregate of 1.0
million shares, and received 0.5 million Additional Shares. Dr. Welch participated on terms identical to those applicable to other holders in
the July 2019 Warrant Tender Offer. See Note 12.
On September 30, 2019, an entity controlled by Dr. Welch exchanged a 2019 Short-term Convertible Note in the principal amount of
$1.0 million and accrued but unpaid interest of $75,343, for an exchange note in the principal amount of $1.1 million and a warrant to
purchase 1.0 million shares of common stock. The entity controlled by Dr. Welch participated on similar terms to the other holders in the
exchange. See Note 5.
On October 8, 2019, an entity controlled by then director, Michael Klump, exchanged a 2019 Short-term Convertible Note in the principal
amount of $0.5 million and accrued but unpaid interest of $37,397, for an exchange note in the principal amount of approximately $0.5
million and a warrant to purchase 0.5 million shares of common stock. The entity controlled by Mr. Klump participated on similar terms to
the other holders in the exchange. See Note 5.
On December 13, 2019, Jordan Naydenov, a director of the Company, participated in a registered direct equity offering. Mr. Naydenov
purchased approximately 0.8 million shares of common stock and received warrants covering approximately 0.6 million shares. The terms
and conditions of Mr. Naydenov’s $0.25 million investment were identical to those offered to other investors in this offering. See Note 12.
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On December 23, 2019, an entity controlled by Dr. Welch participated in a registered direct equity offering. The entity controlled by
Dr. Welch purchased approximately 1.6 million shares of common stock and received warrants covering approximately 0.8 million shares.
The terms and conditions of the $0.5 million investment made by the entity controlled by Dr. Welch were identical to those offered to other
investors in the offering. See Note 12.
On January 31, 2020, an entity controlled by Dr. Welch participated in the January 31, 2020 offering of Series D Preferred Stock. The entity
controlled by Dr. Welch purchased 1,000 shares and received warrants covering 0.5 million shares of common stock. The terms and
conditions of the $1.0 million investment made by the entity controlled by Dr. Welch were identical to those offered to other investors in
this offering. See Note 12.
On February 26, 2020, an entity controlled by Dr. Welch entered into a private warrant exchange in which the entity purchased shares of
common stock for $0.18 per share as compared to the stated exercise price of the warrants of $0.30 per share. The entity purchased
approximately 1.8 million shares of common stock, and received 0.2 million additional shares as an inducement to exercise its warrants, for
a total of approximately 2.0 million shares. The terms and conditions of the approximate $0.33 million investment made by the entity were
identical to those offered to other investors in this offering. See Note 12.
On November 17, 2020, the Company conducted a private equity offering, in which Christopher Recknor, M.D., who was a non-executive
at the time of the offering, purchased unregistered shares of common stock for $1.50 per share. Pursuant to the offering, the Company sold
approximately 0.7 million shares to Dr. Recknor for aggregate proceeds of $1.0 million. The transaction was approved by the Board. See
Note 12.
On March 11, 2021, the Company appointed Christopher Recknor, its former Vice President, Clinical Operations, as its Chief
Operating Officer (“COO”). The Center for Advanced Research & Education, LLC (“CARE”), owned by Dr. Christopher Recknor’s
spouse, Julie Recknor, Ph.D., (and owned by Dr. Christopher Recknor until March 11, 2021) is one of several clinical locations for the
Company’s ongoing NASH and COVID-19 long-hauler clinical trials, and was a clinical location for the Company’s completed Phase 2b/3
mild-to-moderate and severe-to-critical COVID-19 clinical trials. Dr. Julie Recknor serves as the Site Director of CARE and manages its
day-to-day operations. The Company entered into a Clinical Trial Agreement (“CTA”) with CARE for each of the foregoing clinical trials.
Each CTA was negotiated in the ordinary course of business by Amarex, the Company’s clinical research organization, prior to Dr.
Christopher Recknor’s appointment as COO, and the operational and financial terms of the CTAs with CARE are comparable to the terms
available to unrelated clinical locations. Dr. Christopher Recknor was not involved in the Company’s decision to choose CARE as a clinical
location for its ongoing trials, and he is not involved in patient treatment at the CARE site. During the fiscal year ended May 31, 2020, the
Company made no payments to CARE, as it had not yet received any services under the CTA in effect prior to that date. As of May 31,
2021, the Company had approximately $0.9 million in accounts payable due to CARE and made payments of approximately $0.9 million to
CARE during the fiscal year ended May 31, 2021. In July 2021, the Company entered into an amendment to the previously approved CTA
with CARE, wherein such amendment provided for the additional recording of patient information giving rise to an approximate increase
of less than $0.1 million.
Note 18. Subsequent Events
On June 15, 2021, The Company issued 0.4 million shares of common stock to executives in connection with the vesting of RSUs granted
on June 15, 2020 and subsequently issued following stockholder approval of the Amended and Restated 2012 Equity Incentive Plan on
September 30, 2020.
From June 1, 2021 to July 23, 2021, the Company issued approximately 0.6 million shares of common stock in connection with the
exercise of outstanding warrants and stock options covering approximately 0.6 million shares. The stated exercise prices ranged from $0.45
to $1.35 per share, which resulted in aggregate gross proceeds to the Company of approximately $0.5 million.
On June 11, 2021, June 21, 2021, and June 30, 2021, in satisfaction of the June 2021 Debt Redemption Amount, the Company and the
November 2020 Note holder entered into exchange agreements, pursuant to which the November 2020 Note was partitioned into new notes
(the “June 2021 Partitioned Notes”) with a principal amount equal to the June 2021
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Debt Reduction Amount of $6.0 million. The outstanding balance of the November 2020 Note was reduced by the June 2021 Partitioned
Notes. The Company and the investor exchanged the June 2021 Partitioned Notes for approximately 4.2 million shares. The Company and
the holder of the November 2020 Note agreed to defer the remaining June 2021 Debt Redemption Amount of $1.5 million. Following these
payments, the outstanding balance on the November 2020 Note, including accrued interest, was approximately $7.9 million.
On July 14, 2021 and July 27, 2021, in satisfaction of the July 2021 Debt Reduction Amount, the Company and the November 2020 Note
holder entered into exchange agreements, pursuant to which the November 2020 Note was partitioned into new notes (the “July 2021
Partitioned Notes”) with a principal amount equal to the July 2021 Debt Reduction Amount of $4.0 million. The outstanding balance of the
November 2020 Note was reduced by the July 2021 Partitioned Notes. The Company and the investor exchanged the July 2021 Partitioned
Notes for approximately 3.3 million shares of common stock. The Company and the holder of the November 2020 Note agreed to defer the
remaining July 2021 Debt Redemption Amount of $3.5 million. Following the June and July 2021 payments, the outstanding balance of the
November 2020 Note, including accrued interest, was approximately $4.5 million.
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
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports
that we file or submit under the Securities Exchange Act of 1934, is (1) recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures as of May 31, 2021 (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our
management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Our principal executive officer and principal financial officer have concluded, based upon the evaluation
described above that, as of May 31, 2021, our disclosure controls and procedures were effective at the reasonable-assurance level.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal
control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as the process designed by, or under
the supervision of, our Chief Executive Officer and our Chief Financial Officer, and effected by the Company’s board of directors,
management, and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of
our financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”), and includes those
policies and procedures that:
(i)
(ii)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the acquisitions and
dispositions of assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that our receipts and expenditures of the Company’s assets are being
made only in accordance with authorizations of management and directors as required; and
135
Table of Contents
(iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of assets that could have a material effect on the financial statements.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework provided in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of
May 31, 2021.
Changes in Internal Control Over Financial Reporting
During the quarter ended May 31, 2021, there have been no changes in our internal control over financial reporting, as such term
is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Exchange Act, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Item 9B. Other Information
None
Item 10. Directors, Executive Officers and Corporate Governance.
Part III
The information required by Item 10 will be contained in, and is incorporated herein by reference to, our definitive proxy
statement for our 2021 Annual Meeting of Stockholders under the captions “Proposal 1: Election of Directors,” “Information about our
Executive Officers,” “Delinquent Section 16(a) Reports” and “Corporate Governance,” to be filed with the SEC within 120 days of the end
of the Company’s fiscal year May 31, 2021 (the 2021 Proxy Statement”).
We have adopted a code of ethics and business conduct that applies to all of our directors, officers and employees, including our
principal executive officer (who is our Chief Executive Officer), principal financial officer and principal accounting officer (who is our
Chief Financial Officer), and senior financial officers, or persons performing similar functions. We make our code of ethics and business
conduct available free of charge on our website at www.cytodyn.com.
Item 11. Executive Compensation.
The information required by Item 11 relating to executive compensation will be contained in, and is incorporated herein by
reference to, our 2021 Proxy Statement under the captions “Executive Compensation” and “Director Compensation”.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by Item 12 relating to security ownership of certain beneficial owners and management and related
stockholders’ matters will be contained in, and is incorporated herein by reference to, our 2021 Proxy Statement under the captions “Stock
Ownership by Principal Stockholders, Directors and Executive Officers” and “Equity Compensation Plan Information.”
Item 13. Certain Relationships and Related Transactions and Director Independence.
The information required by Item 13 relating to certain relationships and related transactions and director independence will be
contained in, and is incorporated herein by reference, to our 2021 Proxy Statement under the
136
Table of Contents
captions “Related Person Transactions,” and “Meetings and Committees of the Board of Directors—Director Independence.”
Item 14. Principal Accountant Fees and Services.
The information required by Item 14 relating to principal accountant fees and services will be contained in, and is incorporated
herein by reference to, our 2021 Proxy Statement under the caption “Matters Relating to the Company’s Independent Registered Public
Accounting Firm.”
Item 15. Exhibits and Financial Statement Schedules.
PART IV
(a) The following documents are filed as part of this Annual Report on Form 10-K:
(1) Consolidated Financial Statements
The Consolidated Financial Statements for the years ended May 31, 2021 and 2020 are included under Item 8 of this
report.
(2) Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required information is shown in the financial
statements or notes thereto.
(3) Exhibits
Exhibit
No
Description
Incorporated by Reference
Filed
Herewith
Form
Exhibit No.
Filing Date
2.1
2.2
3.1
3.2
4.1
4.2
4.3
4.4
4.5
Asset Purchase Agreement, dated as of July 25, 2012, between
CytoDyn Inc. and Progenics Pharmaceuticals, Inc.
8-K
10.1
7/30/2012
Transaction Agreement by and among CytoDyn Inc., Point NewCo,
Inc., Point Merger Sub, Inc., ProstaGene, LLC, and Dr. Richard Pestell,
dated August 27, 2018
Amended and Restated Certificate of Incorporation
Amended and Restated Bylaws of CytoDyn Inc.
Description of the Registrant’s Capital Stock
X
Form of Common Stock Certificate
Form of Consultant Warrant
Form of Placement Agent Warrant
8-K
10-Q
8-K12G3
8-K12G3
8-K
8-K
2.1
3.1
3.2
4.1
4.4
4.3
8/28/2018
10/9/2020
11/19/2018
9/1/2015
6/22/2017
6/22/2017
Form of Placement Agent Warrant (Private Offerings, as Amended)
10-K
4.11
7/27/2018
137
Form of Placement Agent Warrant (Registered Offerings, as Amended)
10-K
4.12
7/27/2018
Table of Contents
4.6
4.7
4.8
4.9
4.10
4.11
4.12
Form of Warrant Agreement (Private Offerings)
Form of Warrant Agreement (Registered Offerings)
Form of Warrant Agreement (Series C Convertible Preferred Stock
Offering)
Form of Warrant Agreement (Series C Convertible Preferred Stock
Offering)
Form of Warrant Agreement (Series D Convertible Preferred Stock
Offering)
Form of Warrant to Purchase Common Stock (December 2018
Convertible Note Offering)
4.13
Form of Warrant to Purchase Common Stock
4.14
Form of Common Stock Purchase Warrant
4.15
Form of Common Stock Purchase Warrant
4.16 Warrant to Purchase Common Stock by and between CytoDyn Inc. and
Iliad Research and Trading, L.P.
4.17
Form of Convertible Promissory Note
4.18
4.19
4.20
4.21
4.22
4.23
10.1
Form of Convertible Promissory Note (December 2018 Convertible
Note Offering)
Secured Convertible Promissory Note by and between CytoDyn Inc.
and Iliad Research and Trading, L.P.
Secured Convertible Promissory Note, as amended, by and between
CytoDyn Inc. and Iliad Research and Trading, L.P.
Secured Convertible Promissory Note between CytoDyn Inc. and
Streeterville Capital, LLC, dated November 10, 2020
Secured Convertible Promissory Note between CytoDyn Inc. and
Streeterville Capital, LLC, dated April 2, 2021
Secured Convertible Promissory Note between CytoDyn Inc. and
Uptown Capital, LLC, dated April 23, 2021
Development and License Agreement between Protein Design Labs,
Inc. (to which AbbVie Biotherapeutics Inc. is successor in interest) and
Progenics Pharmaceuticals, Inc. (to which CytoDyn Inc. is successor in
interest) effective as of April 30, 1999, as amended by letter agreement
dated November 24, 2003
138
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
4.1
4.1
4.1
4.1
4.1
4.2
4.1
4.1
4.1
4.2
4.1
4.1
4.1
4.1
4.1
4.1
4.1
9/4/2018
4/5/2019
4/20/2019
10/22/2019
2/3/2020
1/3/2019
1/31/2019
8/29/2019
12/27/2019
1/31/2019
6/27/2018
1/3/2019
1/30/2019
4/6/2020
11/16/2020
4/8/2021
4/29/2021
10-K
10.21
8/29/2013
10.3#
10.4#
10.5#
10.6#
10.7#
10.8#
10.9#
Table of Contents
10.2
License Agreement between CytoDyn Inc. and Lonza Sales AG dated
July 29, 2015
8-K/A
10.1
8/19/2015
Commercialization and License Agreement between CytoDyn Inc. and
Vyera Pharmaceuticals, LLC, dated December 17, 2019
10-Q
10.5
1/9/2020
Product Specific Agreement between CytoDyn Inc. and Samsung
BioLogics Co., Ltd, dated April 1, 2019
10-K
10.12
8/14/2019
Supply Agreement between CytoDyn Inc. and Vyera Pharmaceuticals,
LLC, dated December 17, 2019
10-Q
10.6
1/9/2020
Distribution and Supply Agreement between CytoDyn Inc. and
American Regent, Inc.
10-K
10.16
8/14/2020
Exclusive Supply and Distribution Agreement between CytoDyn Inc.
and Biomm S.A., dated April 6, 2021
Exclusive Supply and Distribution Agreement between CytoDyn Inc.
and Chiral Pharma Corporation
Exclusive Supply and Distribution Agreement between CytoDyn Inc.
and Chiral Pharma Corporation, as amended by Amendment No. 1,
dated April 19, 2021
10.10#
Exclusive Supply and Distribution Agreement between CytoDyn Inc.
and Macleods Pharmaceuticals Ltd., dated May 11, 2021
10.11
Development and Manufacturing Services Agreement, dated as of
November 9, 2016, by and between CytoDyn Inc. and CMC ICOS
Biologics, Inc.
10.12 Work Statement No. 01, dated as of November 9, 2016, by and
between CytoDyn Inc. and CMC ICOS Biologics, Inc.
10.13# Master Services Agreement between CytoDyn Inc. and Samsung
BioLogics Co., Ltd, dated April 1, 2019
X
X
X
X
10-Q
10.4
4/13/2017
10-Q
10.5
4/13/2017
10-K
10.11
8/14/2019
10.14
Placement Agent Agreement (August 2019 Offering)
8-K
10.3
8/29/2019
10.15
10.16
Escrow Agreement, dated as of November 16, 2018, by and among
ProstaGene, LLC, CytoDyn Inc., and Computershare Trust Company,
N.A.
Confidential Information, Inventions and Noncompetition Agreement,
dated as of November 16, 2018, by and among CytoDyn Inc., CytoDyn
Operations Inc. and Dr. Richard G. Pestell
8-K12G3
10.2
11/19/2018
8-K12G3
10.4
11/19/2018
10.17
Form of Indemnification Agreement
10-Q
10.2
10/9/2018
139
Table of Contents
10.18
Stock Restriction Agreement, dated as of November 16, 2018, by and
among CytoDyn Inc., ProstaGene, LLC and Dr. Richard G. Pestell
8-K12G3
10.3
11/19/2018
10.19
Form of Securities Purchase Agreement (December 2016 Offering)
10.20
Form of Securities Purchase Agreement (September 2017 Offering)
10.21
10.22
10.23
10.24
10.25
10.26
10.27
Securities Purchase Agreement between CytoDyn Inc. and Streeterville
Capital, LLC, dated November 10, 2020
Security Agreement between CytoDyn Inc. and Streeterville Capital,
LLC, dated November 10, 2020
Securities Purchase Agreement between CytoDyn Inc. and Streeterville
Capital, LLC, dated April 2, 2021
Security Agreement between CytoDyn Inc. and Streeterville Capital,
LLC, dated April 2, 2021
Securities Purchase Agreement between CytoDyn Inc. and Uptown
Capital, LLC, dated April 23, 2021
Security Agreement between CytoDyn Inc. and Uptown Capital, LLC,
dated April 23, 2021
Exchange Agreement between CytoDyn Inc. and Streeterville Capital,
LLC, dated December 18, 2020
10.28
Form of Waiver and Subscription Agreement (Make-Whole Offering)
10.29
Form of Subscription Agreement (Registered Direct Offering)
10.30
Form of Subscription Agreement (Series C Convertible Preferred Stock
Offering)
10.31
Form of Subscription Agreement (August 2019 Offering)
10.32
10.33
10.34
Form of Subscription Agreement (August 2019 Series C Convertible
Preferred Stock Offering)
Form of Subscription Agreement (September 2019 Registered Direct
Offering)
Form of Subscription Agreement (October 2019 Registered Direct
Offering)
10.35
Form of Series C Subscription Agreement
140
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
S-3
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
10.1
10.2
12/12/2016
9/8/2017
10.1
11/16/2020
10.2
11/16/2020
10.1
4/8/2021
10.2
4/8/2021
10.1
4/29/2021
10.2
4/29/2021
10.3
12/18/2020
10.2
10.1
12/6/2017
1/31/2019
10.1
3/20/2019
10.1
8/29/2019
10.2
8/29/2019
10.1
9/19/2019
10.1
10/3/2019
10.1
10/22/2019
Table of Contents
10.36
10.37
10.38
Form of Subscription Agreement (November 2019 Registered Direct
Offering)
Form of Subscription Agreement (December 2019 Registered Direct
Offering)
Form of Subscription Agreement (January 2020 Series D Convertible
Preferred Stock Offering)
10.39
Form of Exercise Agreement
10.40
Form of Warrant Exercise Agreement
10.41*
Form of Warrant Exercise Inducement Agreement
10.42* CytoDyn Inc. 401(k) Profit Sharing Plan
10.43* CytoDyn Inc. 2004 Stock Incentive Plan (the “2004 Plan”)
10.44* CytoDyn Inc. Amended and Restated 2012 Equity Incentive Plan (the
“2012 Plan”)
10.45*
Form of Stock Option Award for Employees under the 2004 Plan
10.46*
Form of Stock Option Award for Non-Employee Directors under the
2004 Plan
8-K
8-K
8-K
8-K
8-K
8-K
10-K
10-K
10-K
10-K
10.1
11/7/2019
10.1
12/27/2019
10.1
10.1
10.2
10.1
10.11
10.10
2/3/2020
5/9/2019
12/27/2019
1/29/2021
8/5/2011
8/5/2011
10.5
8/29/2013
10.6
8/29/2013
10.47*
Form of Stock Option Award Agreement for Executive Employees
under the 2012 Plan
10-K
10.43
8/14/2020
10.48*
Form of Stock Option Award Agreement for Non-Employee Directors
under the 2012 Plan
10-K
10.9
8/29/2013
10.49*
Form of Stock Option Award Agreement for Employees under the 2012
Plan
10.50*
Form of Restricted Stock Unit Agreement under the 2012 Plan
10.51*
Form of Performance-Based Restricted Stock Unit Agreement under
the 2012 Plan
8-K
8-K
8-K
10.3
6/19/2020
10.1
6/19/2020
10.2
6/19/2020
10.52*
Form of Stock Option Award Agreement for Employees granted under
an arrangement not approved by the Registrant’s shareholders
10-K
10.10
8/29/2013
10.53*
Form of Stock Option Award Agreement for Non-Employee Directors
granted under an arrangement not approved by the Registrant’s
shareholders
10-K
10.11
8/29/2013
10.54*
Form of Performance Share Award Agreement
10-Q
10.9
4/9/2020
141
Table of Contents
10.55*
Second Amended and Restated Employment Agreement by and
between CytoDyn Inc. and Nader Pourhassan dated June 15, 2020
10.56* Amended and Restated Employment Agreement by and between
CytoDyn Inc. and Michael D. Mulholland dated June 15, 2020
10.57* Amended and Restated Employment Agreement by and between
CytoDyn Inc. and Nitya G. Ray, Ph.D., dated June 15, 2020
10.58*
Employment Agreement, dated as of November 16, 2018, by and
among CytoDyn, Inc., CytoDyn Operations Inc. and Dr. Richard G.
Pestell
8-K
8-K
10.5
6/19/2020
10.6
6/19/2020
10-K
10.58
8/14/2020
8-K12G3
10.5
11/19/2018
10.59*
Employment Agreement by and between CytoDyn Inc. and Craig S.
Eastwood, dated December 6, 2019
10-Q
10.7
1/9/2020
10.60*
Employment Agreement by and between CytoDyn Inc. and Arian
Colachis, dated March 16, 2020
10-K
10.63
8/14/2020
10.61*
Employment Agreement by and between CytoDyn Inc. and Scott A.
Kelly, M.D., dated April 10, 2020
10-K
10.64
8/14/2020
10.62*
Employment Agreement by and between CytoDyn Inc. and
Christopher P. Recknor, M.D., dated March 11, 2021
10.63* Consulting Agreement, dated July 15, 2019, between CytoDyn Inc. and
Scott A. Kelly, M.D.
10.64* Consulting Agreement, dated July 15, 2019, between CytoDyn Inc. and
David F. Welch, Ph.D.
10-K
10.4
4/14/2021
8-K
8-K
10.1
7/19/2019
10.2
7/19/2019
10.65*
Separation Agreement and Release of Claims between CytoDyn Inc.
and Craig S. Eastwood, dated April 24, 2020
10-K
10.62
8/14/2020
10.66*
Separation Agreement and Release of Claims between CytoDyn Inc.
and Mahboob U. Rahman, M.D., Ph.D., dated June 1, 2021
21
23
24
Subsidiaries of the Registrant
Consent of Warren Averett, LLC
Power of Attorney of executive officers and directors
31.1
Certification of Chief Executive Officer under Rule 13a-14(a)
31.2
Certification of Chief Financial Officer under Rule 13a-14(a)
32
Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350
X
X
X
X
X
X
X
142
Table of Contents
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and
contained in Exhibit 101)
X
X
X
X
X
X
X
# Certain confidential portions of this Exhibit were omitted by means of marking such portions with asterisks because the identified
confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.
* Management contract, compensatory plan or arrangement.
Item 16. Form 10-K Summary.
None.
143
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: July 30, 2021
CYTODYN INC.
(Registrant)
By:
/s/ Nader Z. Pourhassan
Nader Z. Pourhassan, Ph.D.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on July 30, 2021.
Principal Executive Officer and Director:
/s/ Nader Z. Pourhassan
Nader Z. Pourhassan, Ph.D.
President and Chief Executive Officer, Director
Principal Financial and Accounting Officer:
/s/ Antonio Migliarese
Antonio Migliarese
Chief Financial Officer
Remaining Directors:
*
Scott A. Kelly, M.D., Chairman
Gordon A. Gardiner
Jordan G. Naydenov
Samir R. Patel, M.D.
*
*
*
*
Alan P. Timmins
*By:
/s/ Antonio Migliarese
Antonio Migliarese
Attorney-In-Fact
Date: July 30, 2021
144
Table of Contents
145
Exhibit 4.1
DESCRIPTION OF THE REGISTRANT’S CAPITAL STOCK
General
CytoDyn, Inc. (the “Company” or “we”) is authorized to issue up to 805 million shares of capital stock, including 800 million shares
of common stock, par value $0.001 per share, and 5 million shares of preferred stock, par value $0.001 per share. As of May 31, 2021,
we had 625.7 million shares of common stock, 79,000 shares of Series B Preferred Stock (as defined below), 8,203 shares of Series C
Preferred Stock (as defined below) and 8,452 shares of Series D Preferred Stock (as defined below) issued and outstanding.
The additional shares of our authorized stock available for issuance may be issued at times and under circumstances so as to have a
dilutive effect on earnings per share and on the equity ownership of the holders of our common stock. The ability of our Board of
Directors to issue additional shares of stock could enhance the Board’s ability to negotiate on behalf of the stockholders in a takeover
situation but could also be used by the Board to make a change-in-control more difficult, thereby denying stockholders the potential to
sell their shares at a premium and entrenching current management. The following description is a summary of the material provisions
of our capital stock, and is qualified by reference to our certificate of incorporation, as amended, and bylaws, both of which are on file
with the SEC as exhibits to previous Securities and Exchange Commission (“SEC”) filings, for additional information. The summary
below is qualified by provisions of applicable law.
Common Stock
Each outstanding share of common stock entitles the holder to one vote, either in person or by proxy, on all matters submitted to a vote
of stockholders, including the election of directors. There is no cumulative voting in the election of directors. All actions required or
permitted to be taken by stockholders at an annual or special meeting of the stockholders must be effected at a duly called meeting,
with a quorum present of a majority in voting power of the shares entitled to vote thereon. Special meetings of the stockholders may
only be called by our Board of Directors acting pursuant to a resolution approved by the affirmative majority of the entire Board of
Directors. Stockholders may not take action by written consent. As more fully described in our Certificate of Incorporation, holders of
our common stock are not entitled to vote on certain amendments to the Certificate of Incorporation related solely to our preferred
stock.
Subject to preferences which may be applicable to any outstanding shares of preferred stock from time to time, holders of our common
stock have equal ratable rights to such dividends as may be declared from time to time by our Board of Directors out of funds legally
available therefor. In the event of any liquidation, dissolution or winding-up of our affairs, holders of common stock will be entitled to
share ratably in our remaining assets after provision for payment of amounts owed to creditors and preferences applicable to any
outstanding shares of preferred stock. All outstanding shares of common stock are fully paid and nonassessable. Holders of common
stock do not have preemptive rights.
The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of any outstanding shares of
preferred stock.
Our common stock is presently quoted on the OTCQB of the OTC Markets marketplace under the trading symbol CYDY. Our transfer
agent and registrar is Computershare- Shareholder Services.
Preferred Stock
Our Board of Directors is authorized to issue up to 5 million shares of preferred stock, par value $0.001 per share, in one or more
series, approximately 4.6 million of which shares are undesignated. Our Board of Directors has the authority, within the limitations
and restrictions prescribed by law and without stockholder approval, to provide by
resolution for the issuance of shares of preferred stock, and to fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of redemption, liquidation preference and the number of shares constituting any
series of the designation of such series, by delivering an appropriate certificate of amendment to our certificate of incorporation to the
Delaware Secretary of State pursuant to the Delaware General Corporation Law (the “DGCL”). The issuance of preferred stock could
have the effect of decreasing the market price of the common stock, impeding or delaying a possible takeover and adversely affecting
the voting and other rights of the holders of our common stock.
If we offer a specific series of preferred stock under this prospectus, we will describe the terms of the preferred stock in the prospectus
supplement for such offering and will file a copy of the certificate establishing the terms of the preferred stock with the SEC. To the
extent required, this description will include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the title and stated value;
the number of shares offered, the liquidation preference per share and the purchase price;
the dividend rate(s), period(s) and/or payment date(s), or method(s) of calculation for such dividends;
whether dividends will be cumulative or non-cumulative and, if cumulative, the date from which dividends will accumulate;
the procedures for any auction and remarketing, if any;
the provisions for a sinking fund, if any;
the provisions for redemption, if applicable;
any listing of the preferred stock on any securities exchange or market;
whether the preferred stock will be convertible into our common stock, and, if applicable, the conversion price (or how it will be
calculated) and conversion period;
whether the preferred stock will be exchangeable into debt securities, and, if applicable, the exchange price (or how it will be
calculated) and exchange period;
voting rights, if any, of the preferred stock;
a discussion of any material and/or special U.S. federal income tax considerations applicable to the preferred stock;
the relative ranking and preferences of the preferred stock as to dividend rights and rights upon liquidation, dissolution or
winding up of the affairs of the Company; and
any material limitations on issuance of any class or series of preferred stock ranking senior to or on a parity with the series of
preferred stock as to dividend rights and rights upon liquidation, dissolution or winding up of the Company.
Series B Convertible Preferred Stock
As of May 31, 2021, the Company has authorized Series B Convertible Preferred Stock (“Series B Preferred Stock”), of which 79,000
shares were outstanding. Each share of the Series B Preferred Stock is convertible to ten (10) shares of the Company’s common stock.
Dividends are payable to the Series B Preferred stockholders when and as declared by the Board of Directors at the rate of $0.25 per
share per annum. Such dividends are cumulative and accrue whether or not declared and whether or not there are any profits, surplus
or other funds or assets of the Company legally available therefor. At the option of the Company, dividends on the Series B Preferred
Stock may be paid in cash or shares of common stock valued at $0.50 per share. The holders of the Series B Preferred Stock can only
convert their shares to shares of common stock if the Company has sufficient shares of common stock authorized and available for
issuance at the time of conversion. The Series B Preferred Stock has liquidation
preferences over the common shares at $5.00 per share, plus any accrued and unpaid dividends. Except as otherwise provided by law,
the Series B holders have no voting rights.
Series C Convertible Preferred Stock
As of May 31, 2021, the Company has authorized 8,203 shares of Series C Convertible Preferred Stock, $0.001 par value per share
(“Series C Preferred Stock”), of which 8,203 shares were outstanding. The Series C Certificate of Designation provides, among other
things, that holders of Series C Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors and out of
any assets at the time legally available therefor, cumulative dividends at the rate of ten percent (10%) per share per annum of the stated
value of the Series C Preferred Stock, which is $1,000 per share (the “Series C Stated Value”). Any dividends paid by the Company
will be paid to the holders of Series C Preferred Stock, prior and in preference to any payment or distribution to holders of common
stock. Dividends on the Series C Preferred Stock are cumulative, and will accrue and be compounded annually, whether or not
declared and whether or not there are any profits, surplus or other funds or assets of the Company legally available therefor. There are
no sinking fund provisions applicable to the Series C Preferred Stock. The Series C Preferred Stock does not have redemption rights.
Dividends, if declared by the Board of Directors, are payable to holders in arrears on December 31 of each year. Subject to the
provisions of applicable Delaware law, the holder may elect to be paid in cash or in restricted shares of common stock at the rate of
$0.50 per share.
In the event of any liquidation, dissolution or winding up of the Company, the holders of Series C Preferred Stock will be entitled to
receive, on a pari passu basis with the holders of the Series D Preferred Stock and in preference to any payment or distribution to any
holders of the Series B Preferred Stock or common stock, an amount per share equal to the Series C Stated Value plus the amount of
any accrued and unpaid dividends. If, at any time while the Series C Preferred Stock is outstanding, the Company effects a
reorganization, merger or consolidation of the Company, sale of substantially all of its assets, or other specified transaction (each, as
defined in the Series C Certificate of Designation, a “Fundamental Transaction”), a holder of the Series C Preferred Stock will have
the right to receive any shares of the acquiring corporation or other consideration it would have been entitled to receive if it had been a
holder of the number of shares of common stock then issuable upon conversion in full of the Series C Preferred Stock immediately
prior to the Fundamental Transaction. Each share of Series C Preferred Stock is convertible at any time at the holder’s option into that
number of fully paid and nonassessable shares of common stock determined by dividing the Series C Stated Value by the conversion
price of $0.50 (subject to adjustment as set forth in the Series C Certificate of Designation). No fractional shares will be issued upon
the conversion of the Series C Preferred Stock. Except as otherwise provided in the Series C Certificate of Designation or as otherwise
required by law, the Series C Preferred Stock has no voting rights.
Series D Convertible Preferred Stock
As of May 31, 2021, the Company had authorized 11,737 shares of Series D Convertible Preferred Stock, $0.001 par value per share
(“Series D Preferred Stock”), of which 8,452 shares remain outstanding. The Series D Certificate of Designation provides, among
other things, that holders of Series D Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors and
out of any assets at the time legally available therefor, cumulative dividends at the rate of ten percent (10%) per share per annum of
the stated value of the Series D Preferred Stock, which is $1,000 per share (the “Series D Stated Value”). Any dividends paid by the
Company will be paid to the holders of Series D Preferred Stock, prior and in preference to any payment or distribution to holders of
common stock. Dividends on the Series D Preferred Stock are cumulative, and will accrue and be compounded annually, whether or
not declared and whether or not there are any profits, surplus or other funds or assets of the Company legally available therefor. There
are no sinking fund provisions applicable to the Series D Preferred Stock. The Series D Preferred Stock does not have redemption
rights. Dividends, if declared by the Board, are payable to holders in arrears on December 31 of each year. Subject to the provisions of
applicable Delaware law, the holder may elect to be paid in cash or in restricted shares of common stock at the rate of $0.50 per share.
In the event of any liquidation, dissolution or winding up of the Company, the holders of Series D Preferred Stock will be entitled to
receive, on a pari passu basis with the holders of the Series C Preferred Stock, and in preference to any payment or distribution to any
holders of the Series B Preferred Stock or common stock, an amount per share equal to the Series D Stated Value plus the amount of
any accrued and unpaid dividends. If, at any time while the
Series D Preferred Stock is outstanding, the Company effects a reorganization, merger or consolidation of the Company, sale of
substantially all of its assets, or other specified transaction (each, as defined in the Series D Certificate of Designation, a “Fundamental
Transaction”), a holder of the Series D Preferred Stock will have the right to receive any shares of the acquiring corporation or other
consideration it would have been entitled to receive if it had been a holder of the number of shares of common stock then issuable
upon conversion in full of the Series D Preferred Stock immediately prior to the Fundamental Transaction. Each share of Series D
Preferred Stock is convertible at any time at the holder’s option into that number of fully paid and nonassessable shares of common
stock determined by dividing the Series D Stated Value by the conversion price of $0.50 (subject to adjustment as set forth in the
Series D Certificate of Designation). No fractional shares will be issued upon the conversion of the Series D Preferred Stock. Except
as otherwise provided in the Series D Certificate of Designation or as otherwise required by law, the Series D Preferred Stock has no
voting rights.
Anti-takeover Effects of Delaware Law and our Certificate of Incorporation, as amended
As described above, our Board of Directors is authorized to designate and issue shares of preferred stock in series and define all rights,
preferences and privileges applicable to such series. This authority may be used to make it more difficult or less economically
beneficial to acquire or seek to acquire us.
Special meetings of the stockholders may only be called by our Board of Directors acting pursuant to a resolution approved by the
affirmative majority of the entire Board of Directors. Stockholders may not take action by written consent.
The stockholders may, at a special stockholders meeting called for the purpose of removing directors, remove the entire Board of
Directors or any lesser number, but only with cause, by a majority vote of the shares entitled to vote at an election of directors.
Additional Warrants
As of May 31, 2021, we had issued and outstanding warrants to purchase up to approximately 42.9 million shares of common stock,
exercisable at prices ranging from $0.30 per share to $3.73 per share.
Stock Options
As of May 31, 2021, we had issued and outstanding options to purchase up to approximately 14.9 million shares of common stock,
exercisable at prices ranging from $0.39 per share to $6.15 per share.
CERTAIN IDENTIFIED INFORMATION MARKED BY [*] HAS BEEN EXCLUDED FROM THIS
EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) WOULD LIKELY CAUSE
COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED
Exhibit 10.7
EXCLUSIVE SUPPLY AND DISTRIBUTION AGREEMENT
Entered into by and between
BIOMM S.A.
And
CYTODYN INC.
_________________________
April 6, 2021
________________________
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EXCLUSIVE SUPPLY AND DISTRIBUTION AGREEMENT
THIS EXCLUSIVE SUPPLY AND DISTRIBUTION AGREEMENT (the “Agreement”) is made as of 6th of April, 2021
(“Effective Date”), by and between
CYTODYN INC. (“CytoDyn”), a corporation incorporated and legally existing under the laws of USA, with its
principal office and place of business at 1111 Main Street, Suite 660, Vancouver, Washington 98660, hereby
duly represented in accordance with its By-Laws, and
BIOMM S.A. (“Biomm”), a corporation incorporated and legally existing under the laws of Brazil, with
headquarters at Regent Avenue, 705, Alphaville – Lagoa dos Ingleses, city of Nova Lima, State of Minas
Gerais, enrolled with the CNPJ/MF under # 04.752.991/0001-10, hereby duly represented in accordance with its
By-Laws,
CytoDyn and Biomm, individually, hereinafter referred to as “Party”, and jointly, “Parties”.
RECITALS
WHEREAS, CytoDyn is an American company that develops pharmaceutical products and intends to establish a
distribution system in Brazil by qualified and specially trained partner that meets the established requirements;
WHEREAS, Biomm is a Brazilian pharmaceutical company engaged in the business of manufacturing and/or
distributing pharmaceutical products in the Territory (as such term is defined below);
WHEREAS, CytoDyn has developed a drug substance and drug product, manufacturing process and the
Intellectual Property Rights (as defined hereinafter) for the Product which, among other indications, is intended
for COVID-19´s treatment (as defined hereinafter);
WHEREAS, CytoDyn has recently requested the Authorization For Emergency Use of Vyrologix before US FDA
and other regulatory agencies;
WHEREAS, Brazilian National Health Surveillance Agency has recently allowed the Authorization For
Emergency Use of products intended for COVID-19´s treatment, in order to immediately make
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available certain pharmaceutical drugs that are able to control the current public health emergency arising from
the pandemic;
WHEREAS, Biomm intends to supply the Product to private and/or public healthcare providers that use the
Product solely to treat patients, including but not limited to the MOH (“Entities”) as of now on an emergency
basis, upon submission and approval of the Authorization For Emergency Use for the Product before ANVISA
and, subsequently, on an ordinary basis;
WHEREAS, Biomm holds all necessary licenses and authorizations, at all government levels, to take the position
of the Marketing Authorization Holder of the Product in the Territory;
WHEREAS, Biomm and CytoDyn have decided to join efforts to act immediately before ANVISA with the
primary purpose of supplying the Product on an emergency basis to save as many lives as possible;
WHEREAS, Biomm and CytoDyn now desire to enter into this Agreement to provide the terms and conditions
upon which CytoDyn supplies the Product on an exclusive basis for distribution and sale of Vyrologix in the
Territory to private and/or public institutions.
AGREEMENT
NOW THEREFORE, in consideration for the covenants set forth below, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as set forth
below.
1.
CERTAIN DEFINITIONS.
1.1
“Affiliate” means, with respect to any Party, another entity or person which directly or
indirectly, is controlled by, or controls, or is under common control with such Party, where, for purposes of this
definition, the term “control” means ownership, directly or indirectly, of more than 50% of the shares of stock
entitled to vote for the election of directors, in the case of a corporation, or more than 50% of the equity
interests in the case of any other type of legal entity, status as a general partner in any partnership, or any other
arrangement whereby a Party controls or has the right to control the Board of Directors or equivalent
governing body of a corporation or other entity, or if such level of ownership or control is prohibited in any
country, any entity owning or controlling at the maximum control or ownership right permitted in the country
where such entity exists.
1.2
Vigilância Sanitária.
“ANVISA” means the Brazilian National Health Surveillance Agency or Agência Nacional de
1.3
“Approvals” has the meaning given to that term in Section 2.10.
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1.4
“CMED” means Câmara de Regulação de Mercado de Medicamentos, the Brazilian
interministerial chamber that approves prices of drug products in Brazil.
1.5
“Confidential Information” means any confidential or proprietary information of a Party
disclosed to the other Party or generated in the course of this Agreement, including inventions, know-how,
works of authorship, software, data, software tools, designs, schematics, plans or other information relating to
any work in process, future development, engineering, manufacturing, marketing or business plan, or financial
or personnel matters relating to either Party, its present or future products, sales, suppliers, customers,
employees, investors or business.
1.6
“Current Good Manufacturing Practice” or “cGMP” means the methods to be used in, and
the facilities or controls to be used for, the manufacture, processing, packing, or holding of a drug to assure
that such drug meets the regulatory requirements of the United States Food and Drug Administration and as
further defined in 21 C.F.R. Parts 210 and 211 and the guidance of the Center for Drug Evaluation and
Research (“CDER”) and the Center for Biologics Evaluation and Research (“CBER”), and the European
Commission Directive 2003/94/EC of October 8, 2003.
1.7
“Definitive Product Registration” means ANVISA’s formal approval (i.e., that is not on an
emergency use basis) of the Product for treating any indications in humans, together with CMED´s price
approval. for the Product.
1.8
“Authorization For Emergency Use” or “Authorization” means the authorization granted by
ANVISA for emergency use of the Product intended for COVID-19 treatment, in order to immediately make
available certain pharmaceutical drugs that are able to control de current public health emergency arising from
the pandemic.
1.9
“Distribution Price” [*]
1.10 “FDA” means the United States Food and Drug Administration.
1.11 “Intellectual Property Rights” means any and all rights in and to discoveries, concepts, ideas,
technical information, developments, specifications, methods, drawings, designs, flow charts, diagrams,
models, formulae, procedures, processes, schematics, specifications, algorithms, apparatus, inventions, ideas,
know-how, materials, techniques, methodologies, modifications, improvements, works of authorship and data
(whether or not protectable under patent, copyright, trade secrecy or similar laws), including patents, utility
models, and registered and unregistered designs, including mask works, copyrights, trade secrets, design
history, manufacturing documentation, and any other form of protection afforded by law to inventions, models,
designs, works of authorship, databases or technical information and applications and registrations with
respect thereto.
1.12 “Marketing Authorization” means all necessary approvals issued by ANVISA for Territory
required to develop, market, sell or have sold the Product in the Territory but excluding any CMED’s pricing
approval.
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1.13
“Marketing Authorization Holder” or “MAH” means Biomm that holds the regulatory
Approval to place the Product on the market in the Territory and is responsible for the medicinal product by
obtaining the Marketing Authorization granted by the responsible regulatory authorities in the Territory.
1.14 “Non-Conforming Shipment” has the meaning set forth in Section 4.3(a).
1.15 “Packaging Specifications” means lay-out, including design and text, material specifications
and other instructions of carton, label and insert defined by Biomm according to ANVISA´s regulations.
1.16 “Pharmacovigilance Agreement” means a separate agreement, executed in accordance with
Section 6.5(b) of this Agreement, between the Parties that shall be incorporated herein by reference, and
following its execution shall be attached hereto and made a part hereof, and which sets forth, among other
things, the process and procedure for sharing adverse event information.
1.17 “Purchase Price” means [*]
1.18 “Product” means a subcutaneous injectable biopharmaceutical drug product that contains
CytoDyn´s proprietary leronlimab product (a humanized monoclonal antibody targeting against the CCR5
receptor) as the only active pharmaceutical ingredient for treating COVID-19, Vyrologix, as further described
in the applicable product specification.
1.19 “Purchase Order” means a purchase order that is issued by Biomm for the purpose of
obtaining the Product under this Agreement.
1.20 “Quality/Technical Agreement” means a separate agreement, executed in accordance with
Section 6.5(a) of this Agreement, between the Parties that shall be incorporated herein by reference, and
following its execution shall be attached hereto and made a part hereof, and which sets forth, among other
things, the quality control and quality assurance terms for the Product. In case of a discrepancy between this
Agreement and the Quality /Technical Agreement, as to quality and technical matters the terms of the
Quality/Technical Agreement shall govern.
1.21 “Subdistributor” has the meaning set forth in Section 2.8.
1.22 “Territory” means the country of Brazil.
2.
PERFORMANCE OBLIGATIONS
2.1 Manufacture and Supply. CytoDyn shall manufacture and supply the Product in accordance
with the Quality Agreement and all applicable laws and regulations. CytoDyn shall
5
perform its activities in accordance with professional standards and practices including, but not limited to
cGMP.
2.2
Biomm shall provide CytoDyn, upon request and only for use in accordance with the terms of
this Agreement, with any information that CytoDyn reasonably requires to perform its obligations under this
Agreement.
2.3 CytoDyn shall pack the Products in accordance with the Packaging Specifications to be provided
by Biomm according to Anvisa´s instructions.
2.4 Distribution
(a)
Appointment. Subject to the terms and conditions of this Agreement, CytoDyn appoints
Biomm as CytoDyn’s exclusive distributor of the Product in the Territory during the Term. Biomm hereby
accepts such appointment and agrees to diligently promote, market, distribute and sell the Product in the
Territory during the Term.
(b)
Exclusivity. During the Term, CytoDyn shall not supply the Product or the rights to
import, distribute, resell or market the Product in the Territory, directly or indirectly, to any public or private
entity in Brazil without Biomm´s consent and participation, and Biomm shall purchase all of its requirements of
the Product from CytoDyn and not from any other third party without CytoDyn’s prior written consent.
(c)
Intent. The Parties’ intention of this Agreement is to obtain Authorization(s) of the
Product before ANVISA, with Biomm being the Marketing Authorization Holder in the Territory.
(d)
Conditions Precedent. The Parties’ respective rights, licenses and [*]
2.5
Application for Authorization. Biomm shall arrange a pre-submission [*]
2.6 Definitive Product Registration. For the Definitive Product Registration, the Parties undertakes
to amend this Agreement to describe the specific regulatory and commercial terms, being right that Biomm
will be the Marketing Authorization Holder of the Product in the Territory.
2.7
Restrictions. Biomm shall not directly or indirectly advertise, market, promote, sell,
deliver, tender, solicit or fill orders for Product outside the Territory. Biomm shall not itself, or permit others
to, modify, adapt, alter, reverse engineer or disassemble Product or create derivative works from the Product.
Biomm shall not remove, alter, or obscure in any way any proprietary rights notices of CytoDyn (including
patent markings, copyrights, trademarks or other attributions to CytoDyn) or any batch, lot or registration
numbers on or within any Product, sample or documentation provided by CytoDyn to Biomm. Biomm shall
not directly or indirectly sell Products to anyone except directly to the Entities. Biomm shall not make any
representations, warranties, guarantees or statements to third parties regarding the specifications, features or
efficacies of the Products that are additional to or inconsistent with any statements,
6
representations, warranties or guaranties regarding the Products without express authorization in writing by
CytoDyn.
2.8
Subdistributors. Biomm shall not appoint pharmaceutical distributors to distribute the
Product without CytoDyn’s prior written consent.
2.9
Inspection.
(i)
Biomm shall permit representatives of CytoDyn, after reasonable notice
and during Biomm’s normal business hours, to inspect Biomm’s facilities and inventory of Product to confirm
that Biomm is complying with all of its obligations under this Agreement, including that Biomm is meeting
applicable quality control standards and is otherwise complying with the Quality/Technical Agreement,
Approvals, and all laws, rules and regulations applicable to Biomm’s storage, handling, promotion, marketing,
sale and delivery of Product in the Territory.
(ii)
CytoDyn shall permit representatives of Biomm, after reasonable notice
and during CytoDyn’s normal business hours, to inspect CytoDyn’s production facility and that of its active
pharmaceutical ingredient (API) supplier to prepare for ANVISA’s inspection or other Biomm´s inspection as
needed. CytoDyn shall also allow Biomm to access the dossier for the Product a reasonable period of time in
advance of submitting it to ANVISA for registration.
2.10 Regulatory Filings. Biomm shall, at its own cost, with the assistance of CytoDyn, prepare the
transfer, translation and interpretation of the relevant data and materials submitted to the FDA to the extent
necessary to complete the relevant filings with the ANVISA and all applicable local regulatory agencies, and
shall translate the proposed label and summaries of the clinical information for filing with the local healthcare
regulatory authorities and all other applicable regulatory authorities in each country in the Territory, and shall
take such other actions, at its own cost, as are necessary to obtain and maintain throughout the Term all
governmental approvals, authorizations, licenses, permits, registrations and consents that are, or may in the
future be, required for the Parties to perform under this Agreement (“Approvals”), including any government
registration, reimbursement and marketing approvals, import and export registrations or licenses, customs
clearances, currency authorizations and any certificates, authorizations or permits necessary to store, handle,
transport, promote, market, distribute and sell Product in each country in the Territory. CytoDyn, at its own
cost, shall delegate no less than two of its senior specialists in relation to the Product to assist Biomm with
meetings, demonstrating the Product’s relevant data and materials, and filings with all applicable local
regulatory agencies. The development of any additional data and information of the Product necessary for
Approvals in the Territory shall be CytoDyn’s responsibility and cost. For clarity, the Approvals shall be held
in Biomm’s name, to the extent required by ANVISA.
2.11 Cooperation. Biomm shall cooperate with CytoDyn and provide CytoDyn with all necessary
information, data and reasonable assistance in order for CytoDyn to efficiently and effectively achieve
commercially reasonable regulatory results for the Products throughout the world. The Parties together with
applicable third parties who are distributors, sellers or
7
manufacturers of the Products shall enter into a Pharmacovigilance Agreement to help facilitate the collection,
sharing and reporting to applicable regulatory authorities of all safety and adverse event information relating
to the Products. CytoDyn shall have the sole right to create and maintain, and shall be the sole owner of, a
master drug safety database that shall cross-reference any adverse event relating to Product occurring
anywhere in the world. Biomm shall maintain records of all Product-related complaints of any nature and
reports of all adverse events that it receives with respect to Product in the Territory and shall submit to
CytoDyn all data collected by it with respect to adverse events and all copies of complaints relating to the
Product (with electronic copies of source documents) within the time period set forth in the Pharmacovigilance
Agreement, but in no case later than 5 (five) business days after Biomm’s receipt of the same. If requested by
CytoDyn, Biomm shall cooperate with CytoDyn in a timely manner in any investigation or resolution of
complaints involving the Product.
2.12 Regulatory Compliance. In performing its obligations hereunder each Party shall comply with
all applicable federal, state, municipal, or local laws, rules, regulations, orders, decisions or permits of any
relevant jurisdiction relating to matters including, but not limited to foreign corrupt practices, employment,
safety, health, environmental standards and requirements, non-discrimination, equal employment opportunity,
import/export and privacy protection. For greater certainty, in performing its obligations hereunder, Biomm
shall not make any payments to a government official. Without limiting the foregoing, at all times during the
Term Biomm shall comply with all requirements of the Approvals. Biomm shall keep CytoDyn informed of
the regulatory requirements in the Territory and shall promptly notify CytoDyn in writing, and provide a copy
to CytoDyn, of any correspondence, reports or other communication with respect to Product submitted to or
received from any regulatory authority in the Territory. Biomm shall immediately notify CytoDyn in writing if
Biomm suffers the loss or impairment of any Approval required for Biomm to import the Product into the
Territory or to distribute, market, promote or sell the Product in the Territory or to otherwise perform its
obligations under this Agreement. Likewise, CytoDyn shall immediately notify Biomm, as early as possible, in
writing, if CytoDyn suffers or potentially suffers the loss or impairment of any license, permit or other
authorization required for CytoDyn to manufacture and supply the Product.
2.13 Use of Trademarks. Subject to the terms of this Agreement, CytoDyn hereby grants to Biomm
a non-exclusive, nontransferable, and nonassignable authorization to use the name and trademark, Vyrologix,
and other trademarks, service marks, trade dress, and/or logos which are owned by, or licensed or assigned to,
CytoDyn (“CytoDyn Marks”) as agreed upon in advance by CytoDyn, solely to promote Product in a manner
consistent with this Agreement. Except as set forth in the preceding sentence, Biomm shall not have, assert or
acquire any right, title or interest in or to any CytoDyn Marks or any goodwill related thereto. Biomm shall
provide CytoDyn with a sample of each proposed use of CytoDyn Marks and shall obtain CytoDyn’s approval
of such sample prior its use. Biomm shall use the CytoDyn Marks in the form provided and in conformance
with any trademark usage policies provided, from time to time, by CytoDyn to Biomm. Biomm shall not
adopt, use, or attempt to register any trademarks or trade names that are confusingly similar to the CytoDyn
Marks.
2.14 Ownership of Intellectual Property Rights. The rights granted to Biomm under this
Agreement do not constitute and shall not be construed as a grant or a license to Biomm of or under any of
CytoDyn’s Intellectual Property Rights. Biomm acknowledges and agrees that
8
CytoDyn has sole and exclusive right, title and interest in and to all Intellectual Property Rights covering,
claiming or associated with the Product, including any improvements and modifications thereto, and in and to
all goodwill associated therewith. CytoDyn shall exclusively own any and all data, information, results and
analyses related to the Product and generated by either Party’s performance under this Agreement and
CytoDyn shall have the unrestricted right to use any and all such data, information, results and analyses for
any purpose whatsoever.
3.
PURCHASE ORDERS
3.1 Purchase Orders (“PO”). Biomm shall notify CytoDyn as soon as the [*]
3.2
[*]
3.3 All orders shall be evidenced by specific and separate Purchase Orders issued by Biomm to
CytoDyn pursuant to this section. Purchase Orders for Product may be submitted by Biomm to CytoDyn in
writing, or electronically pursuant to a mutually agreed upon process. All Purchase Orders shall only contain:
(a) the quantities ordered; (b) the Purchase Price for Product as agreed between the Parties; (c) mutually
agreed-to delivery dates; and (d) shipping instructions. Each Purchase Order shall be deemed to be a
transaction issued under the terms of this Agreement between the Parties.
3.4 Purchase Price. Subject to the other provisions of this Agreement, CytoDyn shall [*]
3.5
Production and Delivery Capacity.
(a)
[*]
(b)
Notwithstanding anything to the contrary herein, if CytoDyn, at such time it knows or
becomes aware that it is unable to secure the manufacturing capacity necessary to provide to Biomm the
quantity of Product specified above, then CytoDyn shall promptly inform Biomm in writing and shall use
commercially reasonable efforts to increase production capacity to meet Biomm’s estimated quantity and
delivery requirements.
4.
DELIVERY AND ACCEPTANCE; RECALL
4.1 Time and Place of Delivery. CytoDyn shall deliver the Product FCA (Incoterms 2020) [*] to
arrive within the timeframe specified, as set forth in the Purchase Orders as accepted by CytoDyn in
accordance with Section 3.3.
(a)
If CytoDyn fails to meet an accepted Purchase Order delivery date, it will pay a penalty
established in the agreement signed between Biomm and Entities.
(b)
CytoDyn shall deliver the Product in accordance with the shipment instructions specified
in the Quality/Technical Agreement for long distance international transportation, including with temperature
recorders. The Parties shall collaborate on cold chain validation between their respective premises, sharing the
costs of such validation.
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4.2
Shelf Life. As part of its obligation to deliver the Product to Biomm in accordance with
the specifications, CytoDyn shall deliver to Biomm Products with not less than [*] such shelf life being
determined based solely on CytoDyn’s internal stability test data.
4.3
Inspection and Rejection.
(a)
Biomm shall inspect each shipment of the Product upon its release of the goods (customs
and ANVISA) and shall notify CytoDyn in writing of any claims for shortages or alleged failure of the Product
to conform to the warranty set forth in Section 6.2 (“Non-Conforming Shipment”) within 20 (twenty) days
after receipt of such shipment, except if any special request is done by regulatory authorities; provided that, in
the case of any latent or other defect which was not, and could not reasonably be expected to have been found
by exercise of ordinary care in inspection (“Latent Defect”), Biomm shall notify CytoDyn of such Non-
Conforming Shipment within 20 (twenty) days after Biomm discovers the Latent Defect. Biomm shall submit
all such claims to CytoDyn in writing, setting forth in full the details, basis and amount of such claim, shall
request a return goods authorization number and shall, if requested by CytoDyn and as soon as the regulatory
authority allows Biomm to do so, return a sample of such Non-Conforming Shipment to CytoDyn freight
collect and properly insured.
(b)
If CytoDyn disputes Biomm’s claim made as provided above, such dispute shall be
resolved by an independent testing organization or consultant of recognized repute as mutually agreed upon by
the Parties, which agreement shall not be unreasonably withheld or delayed by either Party. The determination
of such organization or consultant shall be final and binding upon the Parties and the costs therefor shall be paid
by the Party against whom the determination is made. If CytoDyn agrees with Biomm’s claim or if the testing
organization or consultant determines that any shipment of Product is a Non-Conforming Shipment and that the
warranty has not been voided for any of the reasons set forth in Section 6.2, then the remedy for breach of
warranty shall apply.
(c)
In the event of a Non-Conforming Shipment notified to CytoDyn within the agreed time
period, and if such Products are unusable and remain unusable by Biomm, the Parties shall negotiate in good
faith whether CytoDyn will destroy such Products or replace such Products free of charge or credit to Biomm
the net amount actually paid for any such Product, including, without limitation, all logistic expenses, taxes and
duties. In the event the Parties decide to destroy Products, the costs for such destruction shall be borne by
CytoDyn.
(d)
Upon receiving a written claim from Biomm of any Non-Conforming Shipment and
provided that CytoDyn agrees with Biomm’s claim or if a testing organization or consultant determines that any
shipment of Product is a Non-Conforming Shipment and provided that the warranty has not been voided,
CytoDyn shall at CytoDyn’s sole expense promptly (and in no event longer than 90 days) correct, at no cost to
Biomm, any such non-conformity by replacement of the Product that did not conform to such warranty and
shall provide technical assistance to Biomm to address the Product non-conformity issues. Any replacement
shall be considered a new Product for purposes of this Section. Except for Biomm’s right to indemnification as
set forth in Section 7.a, the foregoing shall be CytoDyn’s sole and exclusive liability, and Biomm’s sole and
exclusive remedy, for any failure of the Product to conform to the warranty above.
10
4.4 Documents. Each shipment of the Product shall be accompanied by accurate and complete
documents including, but not limited to relevant certificates of analysis, certificates of compliance and packing
list and a copy of the invoice duly hand signed.
4.5 Recall. Each Party shall promptly inform the other Party of any circumstances giving rise to a
possible or actual recall or withdrawal of Product in the Territory (collectively referred to as a “Recall”) or if
any Recall is desirable or required by law or regulatory authority in the Territory. Thereafter, the Parties shall
promptly discuss reasonably and in good faith whether to carry out a Recall in the Territory and, if so, the
manner in which to carry out such Recall. Biomm shall initiate no communications regarding any Recall with
the news media, customers, regulatory authorities or other third parties without the prior written approval of
CytoDyn, except if and to the extent required by applicable law. CytoDyn shall have sole authority to
implement a Recall, provided that Biomm shall be responsible for physically recovering the recalled Products
in the Territory. Biomm shall carry out the Recall in coordination and consultation with CytoDyn, in the
manner agreed by the Parties, and in a manner which enables CytoDyn to meet its regulatory requirements as
expeditiously as possible and in such a way as to cause the least disruption of sales of the Product in the
Territory and to preserve the goodwill and reputation of the Parties and the Product. All costs and expenses
associated with a Recall shall be borne by: (a) CytoDyn, if the Recall results from acts or omissions of
CytoDyn or any contract manufacturer retained by CytoDyn; or (b) Biomm, if the Recall results from acts or
omissions of Biomm or any of its subdistributors.
4.6
Serialization. The Parties acknowledge and agree that all Products delivered to Biomm under
this Agreement are not required to be and will not be serialized.
5.
INVOICES: METHOD OF PAYMENT
5.1
Invoices. At the time of each shipment, CytoDyn shall send an invoice to Biomm specifying the
total amount due under the invoice, calculated as the Purchase Price times the quantity of Product contained in
the shipment.
5.2 Payment. [*] Biomm shall pay to CytoDyn the amount owed to CytoDyn under Section 3.3.
5.3 Payment Method. All payments under this Agreement shall be made by bank wire transfer in
immediately available funds to a U.S. account designated in writing by CytoDyn or by other mutually
acceptable means.
5.3.1 Credit Protection. Thirty (30) days before each shipment, Biomm shall open, at an
internationally well-known bank reasonably acceptable to CytoDyn, an international bank letter of credit
“LoC” that: (i) designates CytoDyn as the beneficiary; (ii) allows CytoDyn to draw on the LoC after presenting
this Agreement, an invoice that has become due pursuant to Section 5.2 and the corresponding airway bill, each
containing the required information as the Parties agreed and specified in the LoC; (iii) whose authorized
amount is at least equal to the amount payable by Biomm to CytoDyn under each individual Invoice Order; (iv)
and otherwise complies with the Uniform Customs and Practice for Documentary Credits latest version and
Supplement to the Uniform Customs and Practice for Documentary Credits for Electronic
11
Presentation (eUCP). To the extent that amounts drawn by CytoDyn in accordance with this Section 5.3.1 is
less than the amounts actually owed by Biomm to CytoDyn under Section 3.3, the amounts drawn shall be set
off against, but shall not be in lieu of, the amounts actually owed Biomm to CytoDyn under Section 3.3.
5.4
Interest. In the event that any payment due under this Agreement is not made when due, the
payment shall accrue interest from the date due at a rate per annum equal to 1% above the U.S. Prime Rate (as
set forth in the Wall Street Journal, Eastern U.S. Edition) for the date on which payment was due, calculated
daily on the basis of a 365-day year, or similar reputable data source, limited to 5% of the amount due;
provided that, in no event shall such rate exceed the maximum legal annual interest rate.
5.5 Taxes. Unless otherwise provided on the Purchase Order, in addition to the price stated on the
face of the invoice, Biomm shall pay costs for all sales, use, value-added or excise taxes, assessments or other
charges, including customs duties, fees and inland Brazil freight and insurance or other shipping and handling
charges, regulatory costs, marketing and medical costs attributable to the sale, use, shipment, transportation, or
delivery of the Product, according the FCA (Incoterms 2020) [*]
5.6 Audit. Biomm shall keep and retain complete and accurate records pertaining to the disposition
of the Product and amounts payable under this Agreement for each calendar year or part thereof during the
Term in sufficient detail to permit CytoDyn to confirm the accuracy of all payments made or due hereunder for
a period of two (2) years following the applicable calendar year or part thereof. CytoDyn shall have the right
to appoint an independent internationally recognized audit firm, reasonably acceptable to Biomm, to audit the
books of account of Biomm in order to determine whether Biomm has properly reported and accounted for
any fees or payments due to CytoDyn pursuant to this Agreement. The appointed audit firm may perform
audits during regular business hours, not more than once in any calendar year during the Term and upon
reasonable prior notice to Biomm. CytoDyn shall bear the audit fees, unless such third party auditor
determines that the amount actually due CytoDyn, in the aggregate, exceeds the amounts paid or deemed paid
by Biomm hereunder by one hundred thousand U.S. Dollars ($100,000), in which case Biomm shall bear the
audit fees. The results of the audit shall be final and binding upon the Parties.
6.
REPRESENTATIONS AND WARRANTIES; COVENANTS
6.1 By CytoDyn represents and warrants that (i) as soon as possible it will submit the request of
product registration of Vyrologix before U.S. FDA, (ii) it has the rights to the distribution and sale of the
Product is not currently being negotiated with a third party, and (iii) the technology it has developed to
produce the Products does not infringe third party’s intellectual property rights.
6.2 CytoDyn represents and warrants that the manufacturing facilities and processes utilized for the
manufacture, fill/finish and labeling of the Products comply with applicable government regulations, such as
regulatory authorities’ GMP certificate, among others.
12
6.3 CytoDyn represents and warrants that the Product provided hereunder shall be manufactured in
compliance with cGMP, and, at the time of delivery, shall be free from defect, encumbrance or lien, and shall
be delivered according to the terms of the relevant Purchase Order accepted by CytoDyn. The foregoing
warranty is contingent upon normal and proper use of the Products in their intended applications. The
foregoing warranty shall be void, and CytoDyn shall have no obligations or liability hereunder, with respect to
any Products that are abused, damaged, altered, tampered with, modified or adulterated after delivery or are
used, stored or handled after delivery in any manner other than as designed or intended under normal use, or if
any breach of the foregoing warranty is due in whole or in part to any act or omission of Biomm or any
subdistributor or other contractor, representative or agent of Biomm (including any mishandling of Product or
any translations of Product labels, packaging, documentation or promotional material by Biomm).
6.4 By Biomm. Biomm represents, expressly warrants and covenants that it does not and shall not
during the Term employ, contract with, or retain any person directly or indirectly to perform Biomm’s
obligations under this Agreement if such person is (i) debarred by either the U.S. Food and Drug
Administration under 21 U.S.C. Section 335(a) or any equivalent law or regulation in the Territory, or
(ii) disqualified as described in 21 C.F.R. Section 812.119, or any equivalent law or regulation in the Territory.
If Biomm becomes aware of the debarment or disqualification of any person or entity performing, directly or
indirectly, any of Biomm’s obligations under this Agreement, Biomm agrees to notify CytoDyn immediately.
6.5 Covenants.
(a)
Quality/Technical Agreement. As soon as practicable after the Effective Date, the
Parties hereby agree to negotiate in good faith the execution of a Quality/Technical Agreement. Such
Quality/Technical Agreement shall be mutually agreed to in writing prior to placement of any Purchase Order
for the Product.
(b)
Pharmacovigilance Agreement. The Parties hereby agree to negotiate in good faith the
execution of a Pharmacovigilance Agreement. Such Pharmacovigilance Agreement shall be mutually agreed in
writing prior to placement of any Purchase Order for the Product. Subject to applicable laws and regulations in
the Territory. Biomm as the holder of the MAH ensures that will be ultimately responsible towards the
regulatory authorities for all pharmacovigilance obligations.
(c)
Competitive Products. CytoDyn acknowledges that Biomm will be free to sell other
products intended for COVID-19´s treatment and for the other potential indications for the Product and that it is
not considered a direct competitor to the Product.
(d)
Compliance with Certain United States Laws. Biomm acknowledges that the Product
and other materials made available to Biomm by CytoDyn hereunder may be subject to the export
administration regulations of the United States Department of Commerce and other United States governmental
regulations related to the export of technical data and equipment and products. Biomm agrees to comply with
all such applicable regulations in connection with the distribution of the Product and performance of this
Agreement. Biomm also agrees that it will comply with the requirements of the U.S. Foreign Corrupt Practices
Act, as amended from time to
13
time, and will refrain from making any payments to third parties that would cause Biomm or CytoDyn to violate
such laws. Biomm hereby agrees to indemnify and hold CytoDyn harmless from any breach by Biomm of this
section.
7.
Indemnification And Liability
7.a Mutual Indemnification. Each Party (the “Indemnifying Party”) shall indemnify and hold
harmless the other Party and its Affiliates, and their respective directors, employees, consultants and
agents (the “Indemnified Parties”) from and against any and all liabilities, losses, damages, costs, and
other expenses (including attorneys’ and expert witnesses’ costs and fees) (“Losses”) incurred by the
Indemnified Parties (or any of them) as a result of any claim, demand, action or proceeding by any
third party (a “Claim”) to the extent arising from or relating to any material breach of any
representation, warranty, covenant, or obligation of the Indemnifying Party under this Agreement or
any intentional misconduct or negligence by the Indemnifying Party or any of its employees, agents, or
subcontractors (including, with respect to Biomm, any subdistributor), except to the extent such Losses
result from the intentional misconduct or negligence of, any of the Indemnified Parties. Under any
circumstances, CytoDyn shall be responsible for losses, damages, adverse effects, accidents or product
liability of any kind whatsoever, whenever the same can be proved to have occurred because the
undertaking by CytoDyn, as defective quality of the Product supplied by CytoDyn, and/or its
components, package, leaflet, drug leaflet (printed directions for the use of the Product), etc,
information to final consumers or other motive attributed by CytoDyn. Under any circumstances,
Biomm shall be responsible for losses, damages, adverse effects, accidents or product liability of any
kind whatsoever, whenever the same can be proved to have occurred because the undertaking by
Biomm regarding the marketing, sale or distribution of the Product or other reasons attributed to
Biomm.
7.1
Indemnification Procedures. In the event of any Claim for which any Indemnified Party is or
may be entitled to indemnification hereunder, the Indemnified Party may, at its option, require the
Indemnifying Party to defend such Claim at the Indemnifying Party’s sole expense; provided, however, that
the obligations of Section 7.a shall not apply to amounts paid in settlement of any claim, demand, action or
other proceeding if such settlement is effected without the consent of the other Party, which consent shall not
be withheld or delayed unreasonably.
7.2 Failure to Defend or Settle. If the Indemnifying Party fails or wrongfully refuses to defend or
settle any Claims, then the Indemnified Party shall, upon written notice to the Indemnifying Party, have the
right to defend or settle (and control the defense of) such Claims. In such case, the Indemnifying Party shall
cooperate, at its own expense, with the Indemnified Party and its counsel in the defense and settlement of such
Claims, and shall pay, as they become due, all costs, damages, and reasonable legal fees incurred therefore.
7.3 Liability. EXCEPT FOR A PARTY’S INDEMNIFICATION OBLIGATIONS, INCLUDING,
WITHOUT LIMITATION, CYTODYN´S INDEMINIFICATION OBLIGATIONS ARISING FROM THIRD-
PARTY CLAIMS FOR ADVERSE REACTIONS, OR
ITS BREACH OF SECTION 11
(CONFIDENTIALITY), WHICH ARE NOT LIMITED BY ANY LIABILITY CAP: (I) IN NO EVENT
WILL EITHER OF THE PARTIES BE LIABLE
14
TO THE OTHER FOR ANY INDIRECT OR CONSEQUENTIAL LOSS OR DAMAGES OR LOSS OF
PROFITS IN RELATION TO, OR ARISING OUT OF THE OPERATION OR TERMINATION OF THIS
AGREEMENT, EVEN IF SUCH LOSS, DAMAGE, OR LOSS OF PROFITS WAS OR SHOULD HAVE
BEEN REASONABLY FORESEEABLE; AND (II) EACH PARTY’S TOTAL CUMULATIVE LIABILITY
IN CONNECTION WITH THIS AGREEMENT, WHETHER IN CONTRACT OR TORT OR OTHERWISE,
WILL NOT EXCEED THE AMOUNT PAID OR OWED BY BIOMM TO CYTODYN UNDER THIS
AGREEMENT DURING THE TWELVE (12) MONTH PERIOD IMMEDIATELY PRECEDING THE
INCIDENT GIVING RISE TO THE CLAIM.
8.
INSURANCE PROTECTION. Each Party shall obtain and maintain during the Term liability, comprehensive,
and workers’ compensation insurance with a reputable insurance company to help protect against those
insurable risks that such Party may incur in connection with the performance of its obligations under this
Agreement. Each Party shall provide, upon request, to the other Party any such policies of such insurance, and
the premium receipt(s) and insurance certificate(s) therefore.
9.
TRADEMARK AND PATENT LITIGATION. Any litigation or administrative proceedings concerning
trademarks, patent and/or patent applications in the name of CytoDyn or an Affiliate filed and protected in
Brazil related to sale of the Product in the Territory shall be conducted and controlled by CytoDyn or its
Affiliate. All costs and expenses related to such proceedings shall be borne by CytoDyn.
10.
TERM; TERMINATION
10.1 Term. Unless terminated sooner as provided in Section 10.2, this Agreement shall enter into
effect on the Effective Date and will remain in force until the Definitive Product Registration is granted. (the
“Term”).
10.2 Termination Events
(a)
For Cause. Either Party shall have the right to terminate this Agreement if at any time
the other Party has materially breached any of its obligations hereunder (and has not cured such breach after
being given the reasonable opportunity to do so).
(b)
Force Majeure. A Party shall have a right to terminate this Agreement in accordance
with Section 12.12.
(c)
Business Circumstances. A Party shall have the right to terminate this Agreement in the
event of the other Party’s liquidation, bankruptcy or state of insolvency.
(d)
Regulatory Decisions. Without prejudice to Section 10.1 above, a Party may terminate
this Agreement upon written notice to the other Party in the event that ANVISA makes a final, non-appealable
decision to not approve the Authorization or withdraws approval of the Authorization.
(e)
Biomm and CytoDyn Disqualification. Either of the Parties may terminate this
Agreement effective immediately upon delivery of written notice to the other (i) if
15
a Party fails to secure or renew any license, permit, authorization, or other Approval for the conduct of its
business or if any such license, permit, authorization, or Approval is revoked or suspended, or (ii) if a Party
becomes legally disqualified for any reason from importing, exporting, distributing, promoting or selling the
Product in the Territory or otherwise from performing its obligations under this Agreement.
10.3 Change of Control or Sale of Product´s rights. The Parties expressly acknowledge that this
Agreement shall continue in force and all sections herein will remain applicable to the Parties and/or their
successors in case of a change of control of any of the Parties and/or sale of the Product´s rights. In the event
that a Party experiences a change of control, such Party shall give prior written notice to the other Party any
time before the change of control or sale of Product´s rights. For the avoidance of any doubt, internal
reorganizations change in board or senior management within CytoDyn or Biomm shall not be considered as a
change of control.
10.4 Effects of Termination. Upon expiration of the Term or earlier termination of this Agreement,
Biomm shall provide, in a prompt and timely manner, all cooperation and assistance to CytoDyn, and shall
undertake all actions as are required or reasonably requested by CytoDyn, to facilitate the smooth transition of
Biomm’s obligations hereunder to CytoDyn or to CytoDyn’s Affiliate, distributor or other designee and to
enable CytoDyn or its designee to assume, with as little disruption as possible, the promotion, marketing,
import, sale and distribution of Products in the Territory. Thereafter Biomm shall:
(a)
cease all further activities related to the Products, including all promotion, marketing,
distribution and sales of the Products in the Territory;
(b)
cease all further use of, and promptly collect and return or, at CytoDyn’s request, destroy
all documents containing CytoDyn Marks or Confidential Information of CytoDyn, all promotional material,
and other Product-related sales or sales training materials;
(c)
(d)
transfer all Approvals to CytoDyn;
pay any and all amounts due and payable to CytoDyn under this Agreement.
10.5 Survival. Section 2.14, Article 6, Article 7, Section 10.4 and Article 11 shall survive the
expiration or termination of this Agreement.
11.
CONFIDENTIALITY
11.1 Confidentiality Obligations. Each Party shall at all times, and notwithstanding any termination
or expiration of this Agreement, hold in confidence and not disclose to any third party Confidential
Information of the other Party, except as approved in writing by the other Party to this Agreement, and shall
use the Confidential Information for no purpose other than the purposes expressly permitted by this
Agreement. Each Party shall only permit access to Confidential Information of the other Party to those of its
employees, consultants, agents, and attorneys having a need to know and who are bound by confidentiality
obligations at least as restrictive as those contained herein. The obligations in this Section 11.1 shall terminate
ten years from the date of expiration or termination of this Agreement.
16
11.2 Exceptions to Confidentiality Obligations. A Party’s obligations under this Agreement with
respect to any portion of the other Party’s Confidential Information shall terminate when the Party that is
subject to such obligations can document in writing that such information:
(a)
(b)
entered the public domain through no fault of such Party;
was in such Party’s possession free of any obligation of confidence at the time it was
communicated to such Party by the other Party;
(c)
was rightfully communicated to such Party free of any obligation of confidence
subsequent to the time it was communicated to such Party by the other Party; or
(d)
was developed by employees or agents of such Party independently of and without
reference to any information communicated to such Party by the other Party.
11.3 Authorized Disclosure. Notwithstanding anything to the contrary, a Party shall not be in
violation of Section 11.1 with regard to a disclosure of the other Party’s Confidential Information that is in
response to a valid order by a court or other governmental body or necessary to comply with applicable law or
governmental regulations, provided that if such Party is required to make any such disclosure of the other
Party’s Confidential Information it shall to the extent practicable give reasonable advance notice to the other
Party of such disclosure requirement in order to permit the other Party to seek confidential treatment of or to
limit the Confidential Information required to be disclosed.
11.4 Separate Confidential Disclosure Agreements. Any prior confidential disclosure agreements
between the Parties are incorporated by reference to this Agreement. In case of a discrepancy between the
terms of this Agreement and such prior agreements, the terms of the separate Agreement shall prevail.
Notwithstanding the foregoing, the Parties from time to time may execute additional confidential disclosure
agreements, as required by their respective SOPs, for the limited and specific purpose of conducting audits.
12. MISCELLANEOUS
12.1 Assignment. Except as expressly provided hereunder, neither this Agreement nor any rights or
obligations hereunder may be assigned or otherwise transferred by either Party without the prior written
consent of the other Party (which consent shall not be unreasonably withheld); provided, however, that either
Party may assign this Agreement and its rights and obligations hereunder without the other Party’s consent, to
any Affiliate, and CytoDyn may, without the consent of Biomm, assign this Agreement and its rights and
obligations hereunder in connection with the transfer or sale of all or substantially all of its assets or its line of
business to which this Agreement relates or to the successor entity or acquirer in the event of CytoDyn’s
merger, consolidation, sale of stock or other change of control. Notwithstanding the foregoing, any
assignment to an Affiliate shall not relieve the assigning Party of its responsibilities for performance of its
obligations under this Agreement. The rights and obligations of the Parties under this Agreement shall be
binding upon and inure to the benefit of the successors and permitted assigns of the Parties. Any assignment
not in accordance with this Agreement shall be void.
17
12.2 Relationship of the Parties. It is expressly agreed that CytoDyn and Biomm shall be
independent contractors and that the relationship between the Parties shall not constitute a partnership, joint
venture or agency of any kind. Neither Party shall have the authority to make any statements, representations
or commitments of any kind, or to take any action, which shall be binding on the other Party, without the prior
written consent of the other Party.
12.3 Amendment. Unless otherwise provided herein, this Agreement may not be changed, waived,
discharged, or terminated orally, but instead only by a written document that is signed by the duly authorized
officers of both Parties.
12.4 Waiver. No failure or delay by either Party in exercising any right, power, or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial waiver thereof include any other or
further exercise thereof or the exercise of any other right, power, or privilege.
12.5 Severability. Whenever possible, each provision of the Agreement shall be interpreted in such
manner as to be effective and valid under applicable law, but if any term or provision of this Agreement is held
to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of the Agreement and this Agreement shall
be interpreted and construed as if such provision had never been contained herein.
12.6 Notices. All notices and statements to be given (which shall be in writing) and all payments to be
made hereunder (other than payments required to be wired) shall be given or made at the respective addresses
of the Parties as set forth above, unless notification of a change of address is given. All notices, payments
(other than wired payments) and statements to be made hereunder shall be mailed by certified or registered
mail, return receipt requested, or sent by overnight courier, or by facsimile or other electronic means. Any
notice given pursuant to this Agreement by mail shall be considered effective three business days after
mailing. Any notice sent by overnight courier shall be considered effective one day after mailing. The date of
transmission of any notice sent by electronic means shall be deemed to be the date the notice or statement is
transmitted.
12.7 Construction. The section headings of this Agreement are inserted for ease of reference only,
and shall not be used to interpret, define, construe, or describe the scope or extent of any aspect of this
Agreement. Unless otherwise expressly stated, when used in this Agreement the word “including” means
“including but not limited to.” Each Party represents that it has had the opportunity to participate in the
preparation of this Agreement and hence the Parties agree that the rule of construction that ambiguities be
resolved against the drafting Party shall not apply to this Agreement.
12.8 No third party Beneficiaries. Unless expressly provided, no provisions of this Agreement are
intended or shall be construed to confer upon or give to any person other than Biomm and CytoDyn any rights,
remedies, or other benefits under or by reason of this Agreement.
18
12.9 Dispute Resolution. If a dispute arises under this Agreement, the Parties shall use reasonable
efforts to attempt to resolve such dispute, including escalation of discussions to the appropriate level of
management, prior to exercising any remedies that may exist before commencing an action against the other
Party. Notwithstanding the foregoing, either Party may at any time seek equitable relief without first
attempting to resolve a dispute under this Section 12.9 provided, however, that such Party notifies the other
Party promptly after it files any such action.
12.10 Equitable Relief. Each Party acknowledges and agrees that any breaches or violations of
Section 11 may cause the non-breaching Party irreparable damage for which the award of monetary damages
would be inadequate. Consequently, the non-breaching Party may seek to enjoin the breaching Party from any
and all acts in violation of any such provisions, which remedy shall be cumulative and not exclusive, and a
Party may seek the entry of an injunction enjoining any breach or threatened breach of such provisions, in
addition to any other relief to which the non-breaching Party may be entitled at law or in equity.
12.11 Governing Law. The Parties agree that they shall in good faith work towards implementation of
this Contract and any dispute arising out of or in relation to this Contract shall be first attempted to be resolved
amicably by mutual negotiations. This Agreement shall be governed by and interpreted under the laws of
Delaware without regard to its conflict or choice of law provisions. The United Nations Convention on
Contracts for the International Sale of Goods shall not apply to this Agreement. All dispute, controversy or
claim arising out of or relation to this Agreement shall be finally settled by arbitration, to be conducted in
accordance with the rules of the International Chamber of Commerce of USA or any re-enactment thereof.
The arbitration proceedings and all documents under this Agreement shall be conduct in English. The decision
of the arbitration court shall be final and binding and shall enforceable by any court having jurisdiction.
12.12 Force Majeure. Except for a Party’s payment obligations, neither Party shall be liable to the
other for any failure or delay in the performance of any of its obligations under this Agreement arising out of
any event or circumstance beyond its reasonable control, including war, rebellion, pandemic, terrorism, civil
commotion, strikes, lock-outs or industrial disputes; fire, explosion, earthquake, acts of God, flood, drought, or
bad weather; or requisitioning or other act or order by any government, council, or constituted body. If such
failure or delay occurs, then the affected Party shall give the other Party notice of the circumstances causing
such failure or delay, and such Party shall be excused from the performance of such of its obligations that it is
thereby disabled from performing for so long as it is disabled and for 60 days thereafter; provided, however,
that such affected Party commences and continues to take reasonable and diligent actions to cure such failure
or delay. Notwithstanding the foregoing, if a Party is disabled from the performance of any material obligation
under this Agreement for a period of 120 days or more, then the other Party shall have the right to terminate
this Agreement upon written notice to the other Party.
12.13 Attorneys’ Fees. If any claim, action, or dispute arises between the Parties with respect to any
matter covered by this Agreement that leads to a proceeding before a court of competent jurisdiction to resolve
such claim, the Prevailing Party in such proceeding shall be entitled to receive from the other Party its
reasonable attorneys’ fees, expert witness fees, court
19
costs and other out-of-pocket costs incurred in connection with such proceeding, in addition to any other relief
that it may be awarded. For purposes of this Section 12.13, the term “Prevailing Party” means that Party in
whose favor any monetary or equitable award is made or in whose favor any dispute is resolved, regardless of
any settlement offers.
12.14 Publicity. Neither Party shall disclose the fact that they are conducting business together or the
existence of, or the provisions of, this Agreement to any other third party unless such disclosure is in response
to a valid order by a court or other governmental body or necessary to comply with applicable governmental
law or regulations provided. Notwithstanding the foregoing, each Party shall have the right to issue from time
to time press releases that disclose the relationship of the Parties under this Agreement upon the prior
agreement of the Parties, which agreement shall not be unreasonably withheld, delayed, or conditioned. Any
press releases that are to be issued by either Party shall be in a form and substance as may be mutually agreed
upon by the Parties, and shall reflect the requirements of the regulatory agencies for public companies.
12.15 Entire Agreement. This Agreement includes all schedules attached hereto and any Packaging
Specifications that are executed by authorized representatives of the Parties, and constitutes the entire
Agreement by and between the Parties as to the subject matter hereof. Except for the Confidentiality
Agreement, which shall remain in effect, this Agreement supersedes and replaces in its entirety all prior
agreements, understandings, letters of intent, and memoranda of understanding by and between the Parties
hereto, in either written or oral form. No amendment or modification of this Agreement shall be valid unless
set forth in writing referencing this Agreement and executed by authorized representatives of both Parties.
12.16 English Language. This Agreement has been prepared in the English language and the English
language shall control its interpretation. In addition, all notices required or permitted to be given hereunder,
and all written, electronic, oral or other communications between the Parties regarding this Agreement, or
delivered pursuant to the terms of this Agreement, shall be in the English language. Any proceedings related to
dispute resolution including, but not limited to legal, equitable, or alternative dispute resolution, shall be
conducted in the English language.
[Signature page follows]
20
IN WITNESS WHEREOF, the Parties hereto have this day caused this Agreement to be executed by their duly
authorized officers.
CytoDyn Inc.
Biomm S.A.
By: /s/ Nader Pourhassan____________
By: _/s/ Heraldo Carvalho Marchezini ____
Name: Nader Pourhassan, Ph.D.
Name: Heraldo Carvalho Marchezini
Title: President & CEO
Title: CEO
By: _/s/ Luciano Vilela _________________
Name: Luciano Vilela
Title: CTO
Witnesses:
1. /s/ Arian Colachis
Name Arian Colachis
ID: General Counsel and Corporate Secretary
2. /s/ Kelly Silveira Gomes Figueiroa
Name: Kelly Silveira Gomes Figueiroa
ID: OAB/MG 71710
21
SCHEDULE B
PHARMACOVIGILANCE AGREEMENT
[TO BE INSERTED UPON EXECUTION]
22
SCHEDULE C
QUALITY AGREEMENT
[TO BE INSERTED UPON EXECUTION]
23
CERTAIN IDENTIFIED INFORMATION MARKED BY [*] HAS BEEN EXCLUDED FROM THIS
EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) WOULD LIKELY CAUSE
COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED
Exhibit 10.8
EXCLUSIVE SUPPLY AND DISTRIBUTION AGREEMENT
KNOW ALL PERSONS BY THESE PRESENTS:
This Exclusive Supply and Distribution Agreement (“Agreement”), made and entered into this 15th day of April,
2021 (“Effective Date”), by and between:
CHIRAL PHARMA CORPORATION with business address at P. Antonio St., cor F. Legaspi St., Ugong, Pasig, Metro
Manila, a Philippines corporation
(“CPC”);
&
CytoDyn Inc. a Delaware corporation, with business address at 1111 Main Street, Suite 660, Vancouver, WA
98660 (“CytoDyn”).
Collectively known as the “Parties”
WITNESSETH;
WHEREAS, CytoDyn is the owner of product Leronlimab (“Product”).
WHEREAS, CPC has obtained and is continuing to obtain Compassionate Special Permit (“CSP”) applications or
Emergency Use Authorization (“EUA”) from the Food and Drug Administration of the Philippines (“Philippines FDA”)
to use Leronlimab to treat confirmed coronavirus disease 2019 (“COVID-19”) patients in the Philippines.
NOW THEREFORE, the Parties hereto have agreed as follows:
APPOINTMENT
1.
1.1 Appointment. Subject to and conditioned on CPC complying with all of its obligations under this Agreement,
CytoDyn hereby appoints CPC as the exclusive distributor of the Product in the Territory during the period beginning
on the Effective Date and ending on the first (1st) anniversary thereafter (“Exclusivity Period”). CPC hereby accepts
such appointment and shall purchase all of its required quantities of Product from CytoDyn at the Purchase Price and
distribute Product solely in the Territory and in accordance with the applicable CSP.
1.2 “Product” means Vyrologix TM (350 mg), a subcutaneous injectable biopharmaceutical drug product that contains
CytoDyn’s Leronlimab (a humanized monoclonal antibody (also known as PRO 140)
targeting against the CCR5 receptor) as the only active pharmaceutical ingredient, as further described in the
applicable product specification provided by CytoDyn (“Specifications”). “Territory” means the Republic of
Philippines. “Purchase Price” means [*] U.S. Dollars ([*]) per vial of Product, CIF (Incoterms® 2020) Manila Ninoy
Aquino International Airport in Manila, Philippines.
1.3 Supply Obligation. Subject to and conditioned on CPC complying with all of its obligations under this Agreement,
CytoDyn will sell to CPC up to two hundred thousand (200,000) vials of Product at [*] per vial. During the
Exclusivity Period, CytoDyn shall not supply the Product to any third party for sale, distribution or use in the
Territory.
1.4 No Sub-distributors. Without CytoDyn’s prior written approval, CPC shall not sell or distribute Product to any third
party for further resale or distribution or subcontract any of CPC’s obligations hereunder except to CPC’s logistic
partner Metro Drug Inc. Any such approval is conditioned on such third party complying with the obligations of CPC
in this Agreement. Any such approval shall not relieve CPC of its obligations under this Agreement, and CPC shall
be and remain fully responsible for the activities of all of sub-distributors or its subcontractors. Unless agreed
otherwise in writing, CPC shall not exploit the Product outside the Territory in any way.
1.5 Restrictions. CPC shall use the Products (and shall ensure the Products be used) solely in accordance with the
treatment protocols approved under the applicable CSPs or EUA. CPC shall not distribute, resell, reverse engineer,
administer, or otherwise use or make available the Products to anyone in any way or for any purpose. CPC shall store
and handle the Products in accordance with the handling and storage instructions as specified in labeling or as
provided by CytoDyn from time to time.
1.6 Quality Agreement. The Parties shall negotiate in good faith and use commercially reasonable efforts to enter into the
Quality Agreement promptly after the Effective Date. The Quality Agreement will set out the policies, procedures
and standards by which the Parties will coordinate and implement the operation and quality assurance activities and
regulatory compliance objectives contemplated under this Agreement with respect to Product. To the extent there are
any inconsistencies or conflicts between this Agreement and the Quality Agreement, the terms and conditions of this
Agreement shall control unless the Parties specifically agreed otherwise in writing.
1.7 Cooperation. Without limiting the foregoing, each of CytoDyn and CPC shall provide to each other in a timely
manner all information which the other Party reasonably requests regarding the Product in order to enable the other
Party to comply with all laws applicable to the Product in the Territory. Each of CytoDyn and CPC shall provide to
the other or if applicable, directly to the applicable regulatory authorities, any assistance and all documents reasonably
necessary to enable the other to carry out its obligations under this Agreement. In general, requests for cooperation
should be responded to by the other Party within three (3) days and both should make responsible efforts to ensure
cooperation is maintained to ensure completion of the given project.
2.
SUPPLY OF PRODUCT
2.1 Purchase Orders. CPC shall place orders for a Product in writing (each a “Purchase Order”). Each Purchase Order
shall be in the form acceptable to CytoDyn and shall specify (a) the quantities of Product ordered (which shall be at
least [*] vials in each Purchase Order) and (b) the requested delivery date (provided that the delivery date is at least
five (5) days after the date of CytoDyn’s receipt of the first Purchase Order and within twenty (20) days after the date
of CytoDyn’s receipt of the succeeding Purchase Order. Purchase Orders shall not be made in any other form of
document other than that prescribed by this Agreement unless the Parties mutually agree otherwise in writing. Any
term or condition of a Purchase Order that is different from or contrary to the terms and conditions of this Agreement
shall be void.
2.2 Purchase Order Acceptance. CytoDyn shall, within two (2) days of receipt of a Purchase Order, confirm in writing
whether a given Purchase Order has been accepted. CytoDyn shall use commercially
reasonable efforts to accept all Purchase Orders received in accordance with this Agreement. Unless agreed otherwise
in writing by both Parties, all Purchase Orders accepted by CytoDyn shall each be a “Firm Order” and non-
cancelable by either Party, andCPC shall be obligated to pay for the Product supplied to CPC pursuant to an accepted
Purchase Order.
2.3 Delivery. CytoDyn shall deliver each shipment of Product CIF (Incoterms® 2020) Manila Ninoy Aquino
International Airport in Manila, Philippines. Delivery on each Firm Order will take place on or before the later of (i)
the delivery date specified in the corresponding Purchase Order and (ii) at least 5 days after the date of CytoDyn’s
receipt of the first Purchase Order and within twenty (20) days after the date of CytoDyn’s receipt of the succeeding
Purchase Order. Notwithstanding anything to the contrary contained herein, CytoDyn shall have satisfied its
obligations with respect to a Firm Order if (a) the actual delivery date is within plus or minus five (+/-5) days of the
specified delivery date specified in the corresponding Purchase Order except for the first purchase order, and (b) if the
actual quantity of Product delivered is within plus or minus five percent (+/-5%) of the accepted Purchase Order
quantity specified in the accepted Purchase Order.
2.4 Acceptance; Rejection.
2.4.1. CytoDyn shall be responsible for Product test procedures for quality assurance, including Product storage and
shipping requirements, before Product is released to CPC. With each delivery, CytoDyn shall provide a
certificate of analysis and other documents (collectively, the “COA”) as specified in the Quality Agreement
and Philippine Regulatory Authorities and Bureau of Customs requirements.
2.4.2. CPC shall inspect each shipment of Product promptly upon receipt. CPC may reject any Product which does
not conform to the Specifications, or the shipping and storage requirements for the Product, at the time of
receipt at CPC’s location. CPC shall make any such rejection in writing, within ten (10) days of the later of
the receipt of the COA or the Product at the facility designated by CPC in the applicable Firm Order (the
“Stipulated Rejection Period”), to CytoDyn, and shall specify the reasons for such rejection (the “Rejection
Notice”).
2.4.3.
If CPC has not delivered a Rejection Notice within the Stipulated Rejection Period, CPC shall be deemed to
have accepted that shipment of Product. Once CPC has accepted or has been deemed to have accepted a
shipment of Product, and CPC may not exercise any rights to subsequently reject such shipment.
2.5 Rejection Procedures.
2.5.1. After CytoDyn receives the Rejection Notice, it will evaluate process issues and the reasons given by CPC for
the rejection. CytoDyn shall use commercially reasonable efforts to promptly notify CPC whether it agrees
with the basis for CPC’s rejection. If CytoDyn agrees with the basis for CPC’s rejection, CytoDyn shall use
commercially reasonable efforts to promptly replace, at no cost to CPC, such rejected Product.
2.5.2.
If CytoDyn disagrees with the basis for CPC’s rejection specified in the Rejection Notice: (i) CytoDyn shall
use commercially reasonable efforts to promptly replace such rejected Product; and (ii) the Parties shall
submit samples of the rejected Product to a mutually acceptable third party laboratory, which shall determine
whether such Product meets the Specifications. The determination of the third-party laboratory shall be final
and determinative. If the third-party laboratory determines that the rejected shipment meets the
Specifications, the rejection by CPC is unjustified, and CPC shall promptly pay CytoDyn for any replacement
Product and, if the Product can no longer be distributed, Purchase Price on the unjustifiably rejected Product.
If the third-party laboratory determines that the rejected shipment does not meet the Specifications, CytoDyn
shall not invoice CPC for the replacement Product. The Party against whom the third-party laboratory rules
shall also bear the fees in connection with resolution of the disagreement.
2.5.3. Notwithstanding any of the other provisions in this Agreement and without limiting any other provision
herein, CPC agrees that the remedies set forth in this Section 2.5 are CPC’s sole and exclusive remedies with
respect to the rejection of Product.
2.6 No serialization. The Parties acknowledge and agree that all Products delivered to CPC under this Agreement are
not required to be and will not be serialized.
3.
PAYMENT
3.1 Invoices. At the time of each shipment, CytoDyn shall send an invoice to CPC specifying the total amount due under
the invoice, calculated as the Purchase Price times the quantity of Product contained in the shipment.
3.2 Payment. All payments due to Cytodyn shall be payable in US Dollars. CPC shall open an irrevocable import letter of
credit to be issued by a local bank acceptable to CytoDyn and confirmed by a reputable international bank. The terms
of payment shall be within [*] days credit from the date of delivery. Letter of credit should be received before the
product shipment to CPC.
3.3 In the event that the Product obtains commercial approval in another market, it is understood by the Parties that the
purchase price to CPC shall remain at par or less than other purchase contracts made by CytoDyn during the Term of
this Agreement.
3.4 Any price increase after the Exclusivity Period should be fair and reasonable, following the prevailing market
conditions and in accordance with all regulatory approvals.
4.
INTELLECTUAL PROPERTY
CytoDyn shall retain all of its rights, title and interest in and to all industrial and intellectual property rights embodied in
or which covers the Product, in each case which is owned, held, or licensed by it as of the Effective Date or thereafter or
developed, created or discovered by it or on its behalf. Except as otherwise expressly provided in this Agreement, CPC
has and shall have no right, title or interest in any intellectual property right relating to the Product.
5.
REPRESENTATION & WARRANTY
5.1 By Each Party. Each Party represents and warrants that (i) it has the corporate authority to enter into this
Agreement and to perform the respective obligations hereunder; (ii) this Agreement is a legal, valid and binding
agreement enforceable in accordance with its terms; (iii) executing this Agreement and performing its respective
obligations hereunder do not conflict with or violate any requirement of applicable laws, regulations or orders of
governmental bodies; and do not conflict with, or constitute a default under, any contractual obligation of such
Party; and (iv) its affiliates and its and their respective officers, directors and employees (a) have not been
debarred and are not subject to a pending debarment, under applicable laws or by any government healthcare
programs or procurement programs, (b) are not disqualified by any government or regulatory authorities from
distributing pharmaceutical products, (c) are not subject to a pending disqualification proceeding, and (d) have not
been convicted of a criminal offense related to the provision of healthcare products or services and are not subject
to any such pending action.
5.2 By CytoDyn. CytoDyn represents and warrants that at the time of delivery the Products shall conform to the
Specifications. CytoDyn further warrants that the Products are manufactured in compliance with the applicable
current good manufacturing practices (“cGMP”) standards, are fit for human use pursuant to the CSP, and are free
from manufacturing defects, as well as guarantees
a minimum shelf-life of [*] months upon receipt of Products, such shelf life being determined based solely on
CytoDyn’s internal stability test data.
5.3 By CPC. CPC hereby represents and warrants that it has not and will not take any action that will render CytoDyn
liable for any violation of US or foreign laws, including without limitation the FCPA, which prohibits the offering,
giving or promising to offer or give, directly or indirectly, money or anything of value to any official of a government,
political party or instrumentality thereof in order to assist CytoDyn in obtaining or retaining business. If CPC makes
any payment or takes any action that CytoDyn reasonably believes would violate any such US or foreign laws,
CytoDyn may terminate this Agreement immediately.
5.4 No Additional Warranties. CPC shall not make any representation or give any warranty in respect of the Products
other than those authorized in writing by CytoDyn from time to time.
5.5 Insurance. In addition, each Party agrees to obtain commercially reasonable and customary insurance sufficient to
cover its respective potential liabilities hereunder and provide each other a copy thereof.
6.
LIABILITY AND CROSS-INDEMNIFICATIONS
6.1 Each Party shall indemnify and hold the other Party, its affiliates, and their respective officers, directors,
employees and representatives, harmless from and against any third-party claims and liability, including liability
for death or personal injury and reasonable attorney's fees, which results solely from breach of its obligations
under this Agreement, its negligence or willful misconduct, or its violation of applicable laws.
6.2 The Party seeking indemnification for third party claims under Sections 6.1 shall promptly notify the other Party
in writing of all matters which may give rise to the right to indemnification hereunder; failure to promptly give
such written notice, to the extent prejudicial to the indemnifying Party’s defense of such claims, shall relieve the
indemnifying Party’s obligation to the other Party under this Section 6.
7.
ADVERSE REACTIONS, COMPLAINTS AND RECALLS
7.1 CPC and CytoDyn shall notify each other within twenty-four (24) hours by confirmed facsimile or email of any
information concerning any serious or unexpected side effect, injury, toxicity, or sensitivity reaction, any
unexpected incidents, or any adverse drug experience reports and the severity thereof associated with the
Products, the use and sale thereof (collectively “Adverse Events”). To enable CytoDyn to comply with its
regulatory reporting responsibilities, CPC shall use commercially reasonable efforts to deliver to CytoDyn all
Adverse Event information received by CPC and all other information as required by CytoDyn by notice in
writing to CPC.
7.2 CytoDyn and CPC shall each comply with Philippines FDA pharmacovigilance policy (i.e., Adverse drug
experience reports).
7.3 Complaints with regard to the Products received by CPC will be promptly sent by facsimile or email to CytoDyn
at: jflisak@cytodyn.com and CYDY_Team@cytodyn.com.
7.4 If, for any reason, it shall become necessary to trace back or recall any particular batch of the Products, or to
identify the customer or customers to whom Products from such batch will have been delivered, CPC shall
cooperate fully with CytoDyn in doing so in accordance with the procedure established for the said purpose. If
the recall is due to manufacturing defects of the Products, all costs and expenses related to said recall shall be
borne by Cytodyn.
7.5 The obligation relating to Section 7.2 and to the Pharmacovigilance Policy and its subsequent amendments shall
survive for one (1) year after the expiry date of the last batch of Products marketed by CPC in the Territory.
7.6 The obligation relating to Products complaints under Section 7.3 shall survive until the expiry date of the last
batch of Products marketed by CPC in the Territory.
7.7 The obligation relating to Products recall under Section 7.4 shall survive until the expiry date of the last batch of
Products marketed by CPC in the Territory.
8.
CONFIDENTIALITY
8.1 “Confidential Information” means all confidential or proprietary information relating to the business and affairs
of CytoDyn or its affiliates that are disclosed by or on behalf of CytoDyn to CPC and all information derived
therefrom, including without limitation financial information, business opportunities, information relating to
pharmaceutical products of any nature in any form. CPC shall not make available Confidential Information to any
third party; except that it shall be entitled to disclose to government authorities to the extent necessary for
obtaining CSP, in accordance with accepted practices in the pharmaceutical industry.
8.2 CPC shall take all necessary steps to ensure that its employees who gain access to Confidential Information are
bound in writing by terms similar to the terms of this Agreement, not to divulge Confidential Information, except
that they may divulge it to the extent that CPC may do so in accordance with the provisions hereof.
8.3 CPC agrees that all Confidential Information that it receives from CytoDyn and/or its affiliates in connection with
the Products are the sole property of CytoDyn and shall be used by it only in accordance with the terms and
provisions of this Agreement.
8.4 CPC shall have no obligation to keep confidential and secret any part of the Confidential Information that is
already known to it from any source other than by disclosure by, or which emanated originally from CytoDyn
and/or its affiliates, as shown by written records, or which now or in future becomes known to the public or which
is made known to CPC by a third party as a matter of right or when ordered by a competent court.
8.5 CPC’s obligations under Section 8 shall survive for five (5) years after termination of this Agreement and
indefinitely as to any trade secret.
9.
TERMINATION
9.1 Term. This Agreement shall commence on the Effective Date and shall be valid for one (1) year thereafter, unless
terminated earlier pursuant to Section 9.
9.2 Termination for Breach. A Party may terminate this Agreement upon prior written notice to the other Party for
material breach of this Agreement by the other Party (which includes any failure by CPC to pay amounts when
due to CytoDyn in accordance with the terms of this Agreement). Any notice of material breach shall specify the
breach in reasonable detail. Unless otherwise provided in this Agreement, the termination shall be effective thirty
(30) days after receipt of the written notice, unless the breaching Party cures the breach within that thirty (30) day
notice period.
9.3 Termination for Convenience. Each Party may terminate this Agreement for convenience upon sixty (60) days’
notice to the other Party.
9.4 Effects of Termination. Upon termination:
9.4.1. CPC shall (i) promptly return to CytoDyn, or, at CytoDyn’s request, destroy (and certify such destruction
in writing) all of CytoDyn’s Confidential Information, and (ii) cease using Confidential Information in
any way for any purpose.
9.4.2. CytoDyn shall within thirty (30) days from effective date of termination of this Agreement, repurchase all
inventory of Products of marketable quality and having a remaining shelf life of at least fifty percent
(50%) based on CytoDyn’s Invoice date held by CPC. In the event that CytoDyn transfers the right to
distribute to another distributor, then said distributor shall purchase all stocks of the products held by
CPC, in good and marketable condition. In both cases, CytoDyn shall pay CPC for a price equivalent to
the Products’ landed cost plus 15%.
9.4.3.
In the event Cytodyn decides not to repurchase, CPC may, where permitted by applicable laws, sell
Product then in its inventory for a period of six (6) months thereafter (“Selloff Period”), all in accordance
with the terms of this Agreement. Promptly after the expiration of the Selloff Period, CPC shall, at its
cost, destroy any unsold Product remaining in its inventory and will provide appropriate evidence of such
destruction to CytoDyn.
10.
INDEPENDENT PARTY
This Agreement does not constitute either Party as agent or legal representative of the other Party for any purpose
whatsoever. A Party is not granted any right or authority to assume or to create any obligation or responsibility,
express or implied, on behalf of or in the name of the other Party, with regard to any manner or thing whatsoever,
unless otherwise specifically agreed upon in writing.
11.
ASSIGNMENT
CPC shall not assign, delegate or transfer its rights and obligations under this Agreement in whole or in part
without prior written authorization from CytoDyn; any purported assignment, delegation or transfer in
violation of the foregoing is void. CytoDyn may assign, delegate or transfer its rights and obligations under
this Agreement in whole or in part.
12.
FORCE MAJEURE
Each of the Parties hereto shall be excused from the performance of its obligations hereunder, other than the payment
of money, in the event that such performance is prevented by force majeure, provided that each of the Parties shall use
its best efforts to complete such performance by other means. For the purpose of this Agreement force majeure is
defined as causes beyond the control of CPC or CytoDyn, including but not limited to, acts of God, acts, regulations
or laws of any government, war, civil
commotion, destruction of production facilities or materials by fire, earthquake or storm, labor disturbances, epidemic
and failure of public utilities or common carriers.
13.
SEVERABILITY
Should any part or provision of this Agreement be held unenforceable or in conflict with the applicable laws or
regulations of any applicable jurisdiction, the invalid or unenforceable part or provision shall, provided that it does not
affect the essence of this Agreement, be replaced with a revision which accomplishes, to the extent possible, the
original commercial purpose of such part or provision in a valid and enforceable manner, and the balance of this
Agreement shall remain in full force and effect and binding upon the Parties hereto.
14.
ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the Parties with respect to its subject matter and supersedes
all prior agreements, arrangements, dealings or writings between the Parties. This Agreement may not be varied
except in writing signed by the Parties' authorized representatives.
15. WAIVER
No waiver of any right, breach or default hereunder shall be considered valid unless in writing and signed by the Party
giving such waiver, and no such waiver shall be deemed a waiver of any subsequent right, breach or default of the
same or similar nature.
16.
GOVERNING LAW
This Agreement shall be governed, interpreted and construed in accordance with the
laws of the Republic of Singapore, without reference to the principles of conflicts of
law. Any dispute, controversy or claim initiated by either Party arising out of, resulting
from or relating to this Agreement (other than good-faith third party actions or
proceedings filed or instituted in an action or proceeding by a third party against a
Party) shall be finally resolved by binding arbitration conducted in the English
language, in the Republic of Singapore, under the Arbitration Rules of the Singapore
International Arbitration Centre ("SIAC Rules"), by a panel of one arbitrator appointed
in accordance with the SIAC Rules. Notwithstanding the foregoing, either Party may,
without waiving any right or remedy available to such Party, seek and obtain from any
court of competent jurisdiction any interim or provisional relief that is necessary or
desirable to protect the rights or property of such Party, pending the selection of the
arbitrator hereunder or pending the arbitrator’s determination of any dispute,
controversy or claim hereunder. The Parties undertake to use all reasonable best efforts
in order to solve in an amicable manner any controversy arising in connection with this
Agreement.
17.
NOTICE
Unless otherwise stated in this Agreement, all requests and notices required or permitted to be given to the Parties
hereto shall be given in writing, shall expressly reference the section(s) of this Agreement to which they pertain, and
shall be delivered to the other Party, effective on receipt, at the appropriate address as set forth below or to such other
addresses as may be designated in writing by the Parties from time to time during the term of this Agreement.
If to CPC:
Chiral Pharma Corporation, P. Antonio St., cor F. Legaspi St., Ugong, Pasig,
Metro Manila
Attention: Francis Wade Z. Gomez
Email: fzgomez@nmpc.com.ph
If to CytoDyn:
CytoDyn Inc., 1111 Main Street, Suite 660, Vancouver, WA 98660, USA
Attention: Chief Executive Officer
Email: npourhassan@cytodyn.com and CYDY_Team@cytodyn.com
Product complaints and quality issues: jflisak@cytodyn.com
18.
COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be deemed to be an original and together shall be
deemed to be one and the same agreement.
IN WITNESS WHEREOF, the Parties hereto have each caused this Agreement to be executed by their duly-
authorized representatives as of the Effective Date.
CytoDyn Inc.
Chiral Pharma Corporation
/s/ Nader Pourhassan
Nader Pourhassan
Chief Executive Officer
/s/ Francis Wade Z. Gomez, IV
Francis Wade Z. Gomez, IV
President
Exhibit 10.9
CERTAIN IDENTIFIED INFORMATION MARKED BY [*] HAS BEEN EXCLUDED FROM THIS
EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) WOULD LIKELY CAUSE
COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED
Amendment No.1 to Exclusive Supply and Distribution Agreement
This amendment (this “Amendment”), dated as of April 19, 2021, is entered by and between CytoDyn Inc., a Delaware
corporation (“CytoDyn”) having a place of business at 1111 Main Street, Vancouver, Washington 98660, and Chiral
Pharma Corporation, a Philippines corporation (“CPC”) having a place of business at P. Antonio St., cor F. Legaspi St.,
Ugong, Pasig, Metro Manila, with respect to the following facts:
The parties entered into a certain Exclusive Supply and Distribution Agreement dated as of April 15, 2021
("Agreement"). Capitalized terms not defined herein have their respective meanings in the Agreement. The parties now
desire to amend the Agreement in certain respects on the terms and conditions set forth below. In consideration of the
foregoing premises and the mutual covenants set forth below, the parties hereby amend the Agreement and otherwise agree
as follows:
1.
(a)
Amendments.
A new Section 2.5.3 is added as follows:
Notwithstanding any of the other provisions in this Agreement and without limiting any other provision
herein, CPC agrees that the remedies set forth in this Section 2.5 are CPC’s sole and exclusive remedies
with respect to the rejection of Product.
(b)
The reference to section “3.2” is added and the section is amended as follows:
3.2 Payment. All payments due to CytoDyn shall be payable in US Dollars. With respect to each
Purchase Order, CPC shall open an irrevocable import letter of credit (“LoC”) and deliver such LoC to
CytoDyn within five (5) working days (i.e., excluding Saturdays, Sundays or national holidays) in the
Philippines after CytoDyn submits the Payment Invoice. Such LoC shall allow CytoDyn to draw on the
LoC [*] days after delivering the shipment corresponding to the Payment Invoice and shall be (i) in the
amount equal to the amount payable by CPC to CytoDyn under the corresponding Payment Invoice and
(ii) issued by a well-known bank acceptable to CytoDyn and confirmed by a reputable international
bank.
(c)
A new Section 6.3 is added as follows:
EXCEPT FOR ITS INDEMNIFICATION OBLIGATIONS (INCLUDING PRODUCT
6.3
LIABILITY), BREACH OF SECTION 8, OR ITS GROSS NEGLIGENCE OR INTENTIONAL
MISCONDUCT: (i) CYTODYN OR ITS AFFILIATES WILL NOT BE LIABLE TO CPC FOR ANY
INDIRECT, INCIDENTAL, PUNITIVE OR SPECIAL DAMAGES, INCLUDING LOSS OF
PROFITS, GOODWILL OR REVENUE, DATA OR USE, HOWEVER CAUSED AND ON ANY
THEORY OF LIABILITY, ARISING OUT OF THIS AGREEMENT; and (ii) CYTODYN’S
MAXIMUM LIABILITY UNDER THIS AGREEMENT SHALL NOT EXCEED THE
AMOUNT PAID BY CPC TO CYTODYN WITHIN NINETY (90) DAYS BEFORE THE EVENT
GIVING RISE TO SUCH LIABILITY OCCURRED.
(d)
Section 9.4.2 is amended to add “CytoDyn may decide to repurchase Products from CPC; in
such event,” to the beginning of this section.
(e)
A new Section 9.4.4 is added as follows:
In the event of adverse regulatory ruling regarding use of leronlimab for Covid-19, CytoDyn shall
within thirty (30) days from effective date of termination of this Agreement, repurchase all inventory of
Products and CytoDyn shall pay CPC for a price equivalent to the Product’s Purchase Price.
2.
Limited Effect. Except as expressly provided in this Amendment, all of the terms and provisions of the
Agreement are and will remain in full force and effect and are hereby ratified and confirmed by the parties. Without
limitation, the amendments contained herein will not be construed as an amendment to or waiver of any other provision or
exhibit of the Agreement or as a waiver of or consent to any further or future action on the part of either party that would
require the waiver or consent of the other party. On and after the Amendment Effective Date, each reference in the
Agreement to “this Agreement,” “the Agreement,” “hereunder,” “hereof,” “herein,” or similar words, and each reference
to the Agreement in any other agreements, documents, or instruments executed and delivered pursuant to, or in connection
with, the Agreement will mean and be a reference to the Agreement, as amended by this Amendment.
This Amendment will be governed by and construed under the same laws that govern the Agreement. This
Amendment may be executed in two or more counterparts, including counterparts delivered electronically, each
of which will be deemed an original, but all of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed and delivered this Amendment as of the
Amendment Date.
CYTODYN INC.
CHIRAL PHARMA CORPORATION
/s/ Nader Pourhassan
By
Name Nader Pourhassan, Ph.D.
/s/ Francis Wade Z. Gomez, IV
By
Name Francis Wade Z. Gomez, IV
Title
President and Chief Executive Officer
Title
President
CERTAIN IDENTIFIED INFORMATION MARKED BY [*] HAS BEEN EXCLUDED FROM THIS
EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) WOULD LIKELY CAUSE
COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED
Exhibit 10.10
EXCLUSIVE SUPPLY AND DISTRIBUTION AGREEMENT
KNOW ALL PERSONS BY THESE PRESENTS:
This Exclusive Supply and Distribution Agreement (“Agreement”), made and entered into this 11th day of
May, 2021 (“Effective Date”), by and between:
Macleods Phamaceuticals Ltd with registered office at 304, Atlanta Arcade, Marol Church Road,
Opp. Hotel Leela, Andheri (East) Mumbai 400 059, an India corporation
(“MACLEODS”);
&
CytoDyn Inc. a Delaware corporation, with business address at 1111 Main Street, Suite 660,
Vancouver, WA 98660 (“CYTODYN”).
Collectively known as the “Parties”
WITNESSETH;
WHEREAS, CYTODYN is the owner of product Leronlimab.
WHEREAS, CYTODYN has represented that it is in the process to commercialise the product Leronlimab and
is keen to partner with entities to distribute the same.
WHEREAS, MACLEODS has obtained and is continuing to obtain Compassionate Special Permit (“CSP”) or
Emergency Use Authorization (“EUA”) from the India Central Drugs Standard Control Organization
(“CDSCO”) to treat confirmed coronavirus disease 2019 (“COVID-19”) patients in India.
NOW THEREFORE, the Parties hereto have agreed as follows:
1. APPOINTMENT
1.1 Appointment. Subject to and conditioned on MACLEODS complying with all of its obligations under this
Agreement, CYTODYN hereby appoints MACLEODS as the exclusive distributor of the Product in the
Field in the Territory during the period beginning on the Effective Date and [*] anniversary thereafter
(“Exclusivity Period”). MACLEODS hereby accepts such appointment and shall purchase all of its
required quantities of Product from CYTODYN at the Purchase Price and distribute Product solely in the
Territory for use in the Field, in each case in accordance with the applicable EUA.
1.2 “Product” means Vyrologix TM (350 mg), a subcutaneous injectable biopharmaceutical drug product that
contains CYTODYN’s Leronlimab (a humanized monoclonal antibody (also known as PRO 140) targeting
against the CCR5 receptor) as the only active
152436514.4
pharmaceutical ingredient, as further described in the applicable product specification provided by
CYTODYN (“Specifications”). “Field” means treating confirmed COVID-19 patients. “Territory” means
India. “Purchase Price” means [*]
1.3 Supply Obligation. Subject to and conditioned on MACLEODS complying with all of its obligations under
this Agreement, [*]. During the Exclusivity Period, CYTODYN shall not supply the Product to any third
party for sale, distribution or use in the Field in the Territory.
1.4 Intentionally Omitted. Any such approval is conditioned on such third party complying with the obligations
of MACLEODS in this Agreement. Any such approval shall not relieve MACLEODS of its obligations
under this Agreement, and MACLEODS shall be and remain fully responsible for the activities of all of sub-
distributors or its subcontractors. Unless agreed otherwise in writing, MACLEODS shall not exploit (i) the
Product outside the Territory or the Field in any way.
1.5 Restrictions. MACLEODS shall use the Products (and shall ensure the Products be used) solely in
accordance with the treatment protocols approved under the applicable CSP (as defined below) or EUA.
MACLEODS shall not distribute, resell, reverse engineer, administer, or otherwise use or make available
the Products to anyone in any way or for any purpose. MACLEODS shall store and handle the Products in
accordance with the handling and storage instructions as specified in labeling or as provided by CYTODYN
from time to time.
1.6 Quality Agreement. The Parties shall negotiate in good faith and use commercially reasonable efforts to
enter into the Quality Agreement promptly after the Effective Date. The Quality Agreement will set out the
policies, procedures and standards by which the Parties will coordinate and implement the operation and
quality assurance activities and regulatory compliance objectives contemplated under this Agreement with
respect to Product. To the extent there are any inconsistencies or conflicts between this Agreement and the
Quality Agreement, the terms and conditions of this Agreement shall control unless the Parties specifically
agreed otherwise in writing.
1.7 Cooperation. Without limiting the foregoing, each of CYTODYN and MACLEODS shall provide to each
other in a timely manner all information which the other Party reasonably requests regarding the Product in
order to enable the other Party to comply with all laws applicable to the Product in the Territory. Each of
CYTODYN and MACLEODS shall provide to the other or if applicable, directly to the applicable
regulatory authorities, any assistance and all documents reasonably necessary to enable the other to carry out
its obligations under this Agreement. In general, requests for cooperation should be responded to by the
other Party within three (3) days and both should make responsible efforts to ensure cooperation is
maintained to ensure completion of the given project.
1.8 Regulatory Approval. MACLEODS will be responsible for applying and obtaining CSP or EUA for the
treatment of patients with COVID-19 within the Territory. CYTODYN shall provide all the necessary
documents, data, information, samples, presentation and help MACLEODS with necessary technical,
scientific, expert advice, information and presentation at no cost to obtain regulatory approval for to import,
market, promote, sell or distribution of product in the territory. MACLEODS will advise CYTODYN in
advance about the requisite actions necessary and taken to comply with any such new application or
renewal. Costs and expenses of renewal shall be borne by MACLEODS.
2. SUPPLY OF PRODUCT
2.1 Purchase Orders. MACLEODS shall place orders for a Product in writing (each a “Purchase Order”).
Each Purchase Order shall be in the form acceptable to CYTODYN and shall specify (a) the quantities of
Product ordered (which shall be at least [*] vials in each Purchase Order) and (b) the requested delivery date
(provided that the delivery date is at least twenty
(20) days after the date of CYTODYN’s receipt of the Purchase Order). Purchase Orders shall not be made
in any other form of document other than that prescribed by this Agreement unless the Parties mutually
agree otherwise in writing. Any term or condition of a Purchase Order that is different from or contrary to
the terms and conditions of this Agreement shall be void.
2.2 Purchase Order Acceptance. CYTODYN shall, within five (5) days of receipt of a Purchase Order, confirm
in writing whether a given Purchase Order has been accepted. CYTODYN shall use commercially
reasonable efforts to accept all Purchase Orders received in accordance with this Agreement. Unless agreed
otherwise in writing by both Parties, all Purchase Orders accepted by CYTODYN shall each be a “Firm
Order” and non-cancelable by either Party, and MACLEODS shall be obligated to pay for the Product
supplied to MACLEODS pursuant to an accepted Purchase Order.
2.3 Delivery. CYTODYN shall deliver each shipment of Product FCA at Chhatrapati Shivaji Maharaj
International Airport in Mumbai, India; provided, however, that:
2.3.1.
If the quantity of Product contained in any Purchase Order is less than [*] vials, then
MACLEODS shall reimburse CYTODYN for [*] percent [*] of CYTODYN’s out-of-pocket
shipping and insurance expenses related to such deliveries.
2.3.2. Delivery on each Firm Order will take place on or before twenty (20) days after CYTODYN’s
receipt of the Purchase Order.
2.3.3. CYTODYN shall have satisfied its obligations with respect to a Firm Order if (a) the actual
delivery date is within plus or minus five (+/-5) days of the specified delivery date specified in
the corresponding Purchase Order, and (b) if the actual quantity of Product delivered is within
plus or minus five percent (+/-5%) of the accepted Purchase Order quantity specified in the
accepted Purchase Order.
2.4 Acceptance; Rejection.
2.4.1. CYTODYN shall be responsible for Product test procedures for quality assurance, including Product
storage and shipping requirements, before Product is released to MACLEODS. With each delivery,
CYTODYN shall provide a certificate of analysis and other documents (collectively, the “COA”) as
specified in the Quality Agreement.
2.4.2. CYTODYN shall notify in advance to MACLEODS of any variation or change that affects the
formulation, design, packaging, specifications, or any notable change in the Products, change in the
plant or production lines, to the extent the same may affect the process of importing and marketing
of the Products.
2.4.3. MACLEODS shall inspect each shipment of Product promptly upon receipt. MACLEODS may
reject any Product which does not conform to the Specifications, or the shipping and storage
requirements for the Product, at the time of receipt at MACLEODS’s location. MACLEODS shall
make any such rejection in writing, within seven (7) days of the later of the receipt of the COA and
the Product at the facility designated by MACLEODS in the applicable Firm Order (the “Stipulated
Rejection Period”), to CYTODYN, and shall specify the reasons for such rejection (the “Rejection
Notice”).
2.4.4.
If MACLEODS has not delivered a Rejection Notice within the Stipulated Rejection Period,
MACLEODS shall be deemed to have accepted that shipment of Product. Once MACLEODS has
accepted or has been deemed to have accepted a shipment of Product, and MACLEODS may not
exercise any rights to subsequently reject such shipment.
2.5 Rejection Procedures.
2.5.1. After CYTODYN receives the Rejection Notice, it will evaluate process issues and
2.5.2.
the reasons given by MACLEODS for the rejection. CYTODYN shall use commercially reasonable
efforts to promptly notify MACLEODS whether it agrees with the basis for MACLEODS’ rejection.
If CYTODYN agrees with the basis for MACLEODS’ rejection, CYTODYN shall use
commercially reasonable efforts to promptly replace, at no cost to MACLEODS, such rejected
Product.
If CYTODYN disagrees with the basis for MACLEODS’ rejection specified in the Rejection Notice:
(i) CYTODYN shall use commercially reasonable efforts to promptly replace such rejected Product;
and (ii) the Parties shall submit samples of the rejected Product to a mutually acceptable third party
laboratory, which shall determine whether such Product meets the Specifications. The determination
of the third-party laboratory shall be final and determinative. If the third-party laboratory determines
that the rejected shipment meets the Specifications, the rejection by MACLEODS is unjustified, and
MACLEODS shall promptly pay CYTODYN for any replacement Product and, if the Product can no
longer be distributed, Purchase Price on the unjustifiably rejected Product. If the third-party
laboratory determines that the rejected shipment does not meet the Specifications, CYTODYN shall
not invoice MACLEODS for the replacement Product. The Party against whom the third-party
laboratory rules shall also bear the fees in connection with resolution of the disagreement.
2.5.3. Notwithstanding any of the other provisions in this Agreement and without limiting any other
provision herein, MACLEODS agrees that the remedies set forth in this Section 2.5 are
MACLEODS’s sole and exclusive remedies with respect to the rejection of Product.
2.6 No serialization. The Parties acknowledge and agree that all Products delivered to MACLEODS under this
Agreement are not required to be and will not be serialized.
3. PAYMENT
3.1 Invoices. At the time of each shipment, CYTODYN shall send an invoice to MACLEODS specifying the
total amount due under the invoice, calculated as the Purchase Price times the quantity of Product contained
in the shipment.
3.2 Payment. Within [*] days after receiving each invoice, MACLEODS shall pay to CYTODYN the amount
owed to CYTODYN under the invoice.
3.3 Shipping charge re-imbursement. All re-imbursement of shipping charges under Section 2.3.1 shall be made
by bank wire transfer in immediately available funds to a U.S. account designated in writing by CYTODYN
or by other mutually acceptable means.
3.4 Letter of Credit. At least 20 (20) days before the delivery date in each Firm Order, MACLEODS shall open,
at an internationally known bank reasonably acceptable to CYTODYN, an international bank letter of credit
“LoC” that: (i) designates CYTODYN as the beneficiary; (ii) allows CYTODYN to draw on the LoC after
presenting this Agreement, an invoice that has become due pursuant to Section 3.2 and the corresponding
airway bill, each containing the required information as the Parties agreed and specified in the LoC; (iii)
whose authorized amount is equal to the amount payable by MACLEODS to CYTODYN under the invoice
for the corresponding Firm Order; (iv) and otherwise complies with the Uniform Customs and Practice for
Documentary Credits latest version and Supplement to the Uniform Customs and Practice for Documentary
Credits for Electronic Presentation (eUCP). To the extent that amounts drawn by CYTODYN in accordance
with this Section 3 is less than the amounts actually owed by MACLEODS to CYTODYN under Section
3.2, the amounts drawn shall be set off against, but shall not be in lieu of, the amounts actually owed
MACLEODS to CYTODYN under Section 3.2.
4. INSPECTIONS AND COMMUNICATIONS
With respect to the Product Manufactured by CYTODYN, each Party shall promptly notify the other Party of
any Regulatory Authorities’ notices of violation or deficiency letters received and
promptly deliver to the other Party all related reports, data information and correspondence received from such
Regulatory Authorities with respect to API(s)/API in the Product, any GMP issues relating thereto and any
written response, information, data or correspondence delivered by such Party to the Regulatory Authority with
respect to the API(s)/ Product and shall cooperate to the extent reasonably requested by the other Party in its
response to the Regulatory Authorities.
5. INTELLECTUAL PROPERTY
CYTODYN shall retain all of its rights, title and interest in and to all industrial and intellectual property rights
embodied in or which covers the Product, in each case which is owned, held, or licensed by it as of the Effective
Date or thereafter or developed, created or discovered by it or on its behalf. Except as otherwise expressly
provided in this Agreement, MACLEODS has and shall have no right, title or interest in any intellectual
property right relating to the Product.
6. REPRESENTATION & WARRANTY
6.1 By Each Party. Each Party represents and warrants that (i) it has the corporate authority to enter into this
Agreement and to perform the respective obligations hereunder; (ii) this Agreement is a legal, valid and
binding agreement enforceable in accordance with its terms; (iii) executing this Agreement and performing
its respective obligations hereunder do not conflict with or violate any requirement of applicable laws,
regulations or orders of governmental bodies; and do not conflict with, or constitute a default under, any
contractual obligation of such Party; and (iv) its affiliates and its and their respective officers, directors and
employees (a) have not been debarred and are not subject to a pending debarment, under applicable laws or
by any government healthcare programs or procurement programs, (b) are not disqualified by any
government or regulatory authorities from distributing pharmaceutical products, (c) are not subject to a
pending disqualification proceeding, and (d) have not been convicted of a criminal offense related to the
provision of healthcare products or services and are not subject to any such pending action. In addition to the
preceding The Parties represents and warrants each other that it has not and will not take any action which
shall render the other party liable for any violation of any statute or guideline including but not limited to
USFCPA, UKBA and Indian Prevention of Corruption Act, which prohibits offering, giving or promising to
offer or give, directly or indirectly, money or anything of value to any official of a government, political
party or instrumentality thereof in order to assist the other party in obtaining or retaining business. If any
party makes any payment or takes any action that the other party reasonably believes would violate any such
US or foreign laws, the other party may terminate this Agreement immediately.
6.2 By CYTODYN. CYTODYN represents and warrants that at the time of delivery the Products shall conform
to the Specifications. CYTODYN further warrants that the Products are manufactured in compliance with
the applicable current good manufacturing practices (“cGMP”) standards, are fit for human use pursuant to
the [equivalent CSP] and EUA, and are free from manufacturing defects, as well as guarantees a minimum
shelf-life of [*] upon receipt of Products, such shelf life being determined based solely on CYTODYN’s
internal stability test data. CYTODYN represents and warrants and hold harmless MALEODS for any
infringement of patent or trademark or any other third party rights infringement claims on MACLEODS
arising from importing and/ or marketing and/or selling of the Products in the Territory by MACLEODS /
MACLEODS affiliates.
6.3 No Additional Warranties. MACLEODS shall not make any representation or give any warranty in respect
of the Products other than those authorized in writing by CYTODYN from time to time.
6.4 Insurance. In addition, each Party agrees to obtain commercially reasonable and customary insurance
sufficient to cover its respective potential liabilities hereunder and provide each other a copy thereof.
7. LIABILITY AND CROSS-INDEMNIFICATIONS
7.1 Each Party shall indemnify and hold the other Party, its affiliates, and their respective officers, directors,
employees and representatives, harmless from and against any third-party claims and liability, including
liability for death or personal injury and reasonable attorney's fees, which results solely from breach of its
obligations under this Agreement, its negligence or willful misconduct, or its violation of applicable laws.
7.2 The Party seeking indemnification for third party claims under Sections 6.1 shall promptly notify the other
Party in writing of all matters which may give rise to the right to indemnification hereunder; failure to
promptly give such written notice, to the extent prejudicial to the indemnifying Party’s defense of such
claims, shall relieve the indemnifying Party’s obligation to the other Party under this Section 6.
7.3 EXCEPT FOR ITS INDEMNIFICATION OBLIGATIONS, BREACH OF SECTION 8, OR ITS GROSS
NEGLIGENCE OR INTENTIONAL MISCONDUCT: (i) NEITHER PARTY WILL NOT BE LIABLE TO
THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, PUNITIVE OR SPECIAL DAMAGES,
INCLUDING LOSS OF PROFITS, GOODWILL OR REVENUE, DATA OR USE, HOWEVER CAUSED
AND ON ANY THEORY OF LIABILITY, ARISING IN ANY WAY OUT OF THIS AGREEMENT; and
(ii) EACH PARTY MAXIMUM LIABILITY UNDER THIS AGREEMENT SHALL NOT EXCEED THE
AMOUNT PAID BY MACLEODS TO CYTODYN WITHIN THIRTY (30) DAYS BEFORE THE EVENT
GIVING RISE TO SUCH LIABILITY OCCURRED.
8. ADVERSE REACTIONS, COMPLAINTS AND RECALLS
8.1 MACLEODS and CYTODYN shall notify each other within twenty-four (24) hours by confirmed facsimile
or email of any information concerning any serious or unexpected side effect, injury, toxicity, or sensitivity
reaction, any unexpected incidents, or any adverse drug experience reports and the severity thereof
associated with the Products, the use and sale thereof (collectively “Adverse Events”). To enable
CYTODYN to comply with its regulatory reporting responsibilities, MACLEODS shall use commercially
reasonable efforts to deliver to CYTODYN all Adverse Event information received by MACLEODS and all
other information as required by CYTODYN by notice in writing to MACLEODS.
8.2 CYTODYN and MACLEODS shall each comply with CDSCO pharmacovigilance policy (i.e., Adverse
drug experience reports).
8.3 Complaints with regard to the Products received by MACLEODS will be promptly sent by facsimile or
email to CYTODYN at: jflisak@CYTODYN.com and CYDY_Team@CYTODYN.com.
9. CONFIDENTIALITY
9.1 “Confidential Information” means all confidential or proprietary information relating to the business and
affairs of CYTODYN or its affiliates that are disclosed by or on behalf of CYTODYN to MACLEODS and
all information derived therefrom, including without limitation financial information, business opportunities,
information relating to pharmaceutical products of any nature in any form. MACLEODS shall not make
available Confidential Information to any third party; except that it shall be entitled to disclose to
government authorities to the extent necessary for obtaining [equivalent CSP] and EUA, in accordance with
accepted practices in the pharmaceutical industry.
9.2 MACLEODS shall take all necessary steps to ensure that its employees who gain access to Confidential
Information are bound in writing by terms similar to the terms of this
Agreement, not to divulge Confidential Information, except that they may divulge it to the extent that
MACLEODS may do so in accordance with the provisions hereof.
9.3 MACLEODS agrees that all Confidential Information that it receives from CYTODYN and/or its affiliates
in connection with the Products are the sole property of CYTODYN and shall be used by it only in
accordance with the terms and provisions of this Agreement.
9.4 MACLEODS shall have no obligation to keep confidential and secret any part of the Confidential
Information that is already known to it from any source other than by disclosure by, or which emanated
originally from CYTODYN and/or its affiliates, as shown by written records, or which now or in future
becomes known to the public or which is made known to MACLEODS by a third party as a matter of right
or when ordered by a competent court.
9.5 MACLEODS’s obligations under Section 9 shall survive for five (5) years after termination of this
Agreement and indefinitely as to any trade secret.
10. TERMINATION
10.1 Term. This Agreement shall commence on the Effective Date and shall be valid for [*] years thereafter, unless
terminated earlier pursuant to Section 9. The Parties may mutually agree in signed writing to extend the term
of this Agreement or amend the scope of this Agreement.
10.2 Termination for Breach. A Party may terminate this Agreement upon prior written notice to the other Party
for material breach of this Agreement by the other Party. Any notice of material breach shall specify the
breach in reasonable detail. Unless otherwise provided in this Agreement, the termination shall be effective
thirty (30) days after receipt of the written notice, unless the breaching Party cures the breach within that
thirty (30) day notice period.
10.3 Termination for Convenience. Each Party may terminate this Agreement for convenience upon sixty (60)
days’ notice to the other Party.
10.4 Effects of Termination. Upon termination:
10.4.1. MACLEODS shall (i) promptly return to CYTODYN, or, at CYTODYN’s request, destroy (and
certify such destruction in writing) all of CYTODYN’s Confidential Information, and (ii)
cease using Confidential Information in any way for any purpose.
10.4.2. MACLEODS may, where permitted by applicable laws, sell Product then in its inventory until
the expiry of the Product (“Selloff Period”), all in accordance with the terms of this Agreement.
Promptly after the expiration of the Selloff Period, MACLEODS shall, at its cost, destroy any
unsold Product remaining in its inventory and will provide appropriate evidence of such
destruction to CYTODYN. Furthermore, CYTODYN may cancel any Firm Order accepted by
CYTODYN before termination and requires delivery of Product after the date of termination.
11. INDEPENDENT PARTY
This Agreement does not constitute either Party as agent or legal representative of the other Party for any
purpose whatsoever. A Party is not granted any right or authority to assume or to create any obligation or
responsibility, express or implied, on behalf of or in the name of the other Party, with regard to any manner
or thing whatsoever, unless otherwise specifically agreed upon in writing.
12. ASSIGNMENT
MACLEODS shall not assign, delegate or transfer its rights and obligations under this Agreement in whole
or in part without prior written authorization from CYTODYN; any purported assignment, delegation or
transfer in violation of the foregoing is void. CYTODYN may assign, delegate or transfer its rights and
obligations under this Agreement in whole or in part.
13. FORCE MAJEURE
Each of the Parties hereto shall be excused from the performance of its obligations hereunder, other than the
payment of money, in the event that such performance is prevented by force majeure, provided that each of
the Parties shall use its best efforts to complete such performance by other means. For the purpose of this
Agreement force majeure is defined as causes beyond the control of MACLEODS or CYTODYN, including
but not limited to, acts of God, acts, regulations or laws of any government, war, civil commotion,
destruction of production facilities or materials by fire, earthquake or storm, labor disturbances, epidemic
and failure of public utilities or common carriers.
14. SEVERABILITY
Should any part or provision of this Agreement be held unenforceable or in conflict with the applicable laws
or regulations of any applicable jurisdiction, the invalid or unenforceable part or provision shall, provided
that it does not affect the essence of this Agreement, be replaced with a revision which accomplishes, to the
extent possible, the original commercial purpose of such part or provision in a valid and enforceable manner,
and the balance of this Agreement shall remain in full force and effect and binding upon the Parties hereto.
15. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the Parties with respect to its subject matter and
supersedes all prior agreements, arrangements, dealings or writings between the Parties. This Agreement
may not be varied except in writing signed by the Parties' authorized representatives.
16. WAIVER
No waiver of any right, breach or default hereunder shall be considered valid unless in writing and signed by
the Party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent right, breach
or default of the same or similar nature.
17. GOVERNING LAW
This Agreement shall be governed, interpreted and construed in accordance with the laws of the State of
New Jersey, without to the principles of conflicts of law. Any dispute, controversy or claim initiated by
either Party arising out of, resulting from or relating to this Agreement (other than good-faith third party
actions or proceedings filed or instituted in an action or proceeding by a third party against a Party) shall be
finally resolved by binding arbitration conducted in the English language, in Singapore, under the
Arbitration Rules of Singapore International Arbitration Centre ("SIAC Rules") , by a panel of one arbitrator
appointed in accordance with the SIAC Rules. Notwithstanding the foregoing, either Party may, without
waiving any right or remedy available to such Party, seek and obtain from any court of competent
jurisdiction any interim or provisional relief that is necessary or desirable to protect the rights or property of
such Party, pending the selection of the arbitrator hereunder or pending the arbitrator’s determination of any
dispute, controversy or claim hereunder. The Parties undertake to use all reasonable best efforts in order to
solve in an
amicable manner any controversy arising in connection with this Agreement. The award of the arbitrator
shall be final and binding.
18. NOTICE
Unless otherwise stated in this Agreement, all requests and notices required or permitted to be given to the
Parties hereto shall be given in writing, shall expressly reference the section(s) of this Agreement to which
they pertain, and shall be delivered to the other Party, effective on receipt, at the appropriate address as set
forth below or to such other addresses as may be designated in writing by the Parties from time to time
during the term of this Agreement.
If to MACLEODS:
Macleods Phrmaceuticals Ltd
304, Atlanta Arcade, Maroi Church Road, Opp. Hotel Leela, Andheri (East) Mumbai 400 059
Attention: Vijay Agarwal
Email: vijay@macleodspharma.com
If to CYTODYN:
CYTODYN Inc., 1111 Main Street, Suite 660, Vancouver, WA 98660, USA
Attention: Chief Executive Officer
Email: npourhassan@CYTODYN.com and CYDY_Team@CYTODYN.com
Product complaints and quality issues: jflisak@CYTODYN.com
19. COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be deemed to be an original and together
shall be deemed to be one and the same agreement.
IN WITNESS WHEREOF, the Parties hereto have each caused this Agreement to be executed by their
duly-authorized representatives as of the Effective Date.
CYTODYN Inc.
/s/ Nader Pourhassan
Nader Pourhassan
Chief Executive Officer
MACLEODS
LTD.
PHARMACEUTICAL
/s/ Vijay Agarwal
Vijay Agarwal
Business Development Director
SIDE LETTER TO EXCLUSIVE SUPPLY AND DISTRIBUTION AGREEMENT
[Dated and Effective as of May 11, 2021]
This side letter agreement (“Side Letter”) is entered into by and among Macleods Pharmaceuticals Ltd,
an India corporation (the “Macleods”) and CytoDyn Inc., a Delaware corporation (“CytoDyn”) with reference to
the Exclusive Supply and Distribution Agreement, dated and effective as of May 11, 2021 by and between
Macleods and CytoDyn (the “Agreement”). Macleods and CytoDyn are referred to herein collectively as the
“Parties”
1.
Shortly after execution of the Agreement, the Parties noticed an error in Section 1.4 of
the Agreement, which the Parties intended to intentionally omit from the Agreement, but which was not
deleted in error.
2.
By their signatures below, the Parties wish to confirm that Section 1.4 of the Agreement
should read as follows:
1.4 Intentionally Omitted.
3.
All other terms and conditions of the Agreement remain unchanged.
IN WITNESS WHEREOF, the parties have executed this Side Letter as of the date first written above.
CYTODYN INC.
MACLEODS
PHARMACEUTICALS LTD.
_/s/ Nader Pourhassan_________________
Nader Pourhassan
Chief Executive Officer
__/s/ Vijay Agarwal_________________
Vijay Agarwal
Business Development Director
Exhibit 10.66
SEPARATION AGREEMENT AND RELEASE OF CLAIMS
This Separation Agreement and Release of Claims (the “Agreement”) is made and entered into by and
between Mahboob U. Rahman, M.D. Ph.D. (“Employee”) and CytoDyn Inc. (“Employer”). It is intended to clearly set
forth the terms and conditions of Employee’s separation from employment with Employer, and to facilitate a smooth and
amicable transition from employment.
NOW, THEREFORE, in consideration of the mutual terms, conditions, promises, and covenants set forth
below, it is agreed as follows:
1. Separation of Employment. Employee’s last day of employment was April 5, 2021 (the “Separation
Date”). Employee has received his final paycheck for wages earned through the Separation Date and any accrued, but
unused PTO, less applicable taxes and withholdings, on the next regular payroll date occurring after the Separation Date.
2. Consideration. In consideration of Employee’s acceptance of this Agreement without revocation as
provided in Section 11 below, Employer will provide Employee with the following:
a. Severance. Employer agrees to pay Employee a severance equal to nine (9) months of Employee’s
regular salary as of the Separation Date, less taxes and withholdings ("Severance Payment"). The Severance Payment
will be paid in equal bi-weekly installments over a nine (9) month period through the Employer's normal payroll
processing commencing on the next regular payroll date after this Agreement has become effective as set forth in
Section 11.
b. Extended Health Insurance Benefits. Employee's group health coverage (if any) will continue until
July 31, 2021 at Employer’s expense, provided Employee elects continuation coverage and completes the required
continuation documentation. Additional coverage is not available under the Employer’s plan beyond this time period.
3. Return of Employer’s Property. Employee warrants and represents that he has not removed and will not
remove any Employer property from its premises, servers, databases, or equipment, except and to the extent authorized
by Employer in writing. Employee further warrants that he has returned all property in any form whatsoever, unaltered
and undamaged, to Employer.
4. Release of Claims.
a. By Employee. With the exception of the obligations arising under this Agreement, Employee
knowingly and voluntarily, unconditionally and forever, waives and releases any and all claims, damages, causes of
action and rights, whether known or unknown, contingent or noncontingent, contractual or otherwise against Employer
or any of its directors, officers, agents, representatives and employees, past and present, and each of their successors and
assigns (collectively “Releasees”). Employee makes this commitment even though he understands that he may not, as of
this date, know all of the claims he may lawfully have against the Releasees and that he is relinquishing the right to
pursue any claims which he could have pursued before courts without having the opportunity to pursue those claims to a
trial and have the damages, if any, set by a judge and/or jury, including without limitation any claims under the Civil
Rights Acts of 1964 and 1991 as amended (“Title VII”), the Washington State Law Against Discrimination (“WLAD”),
the Americans with Disabilities Act (“ADA”), the Rehabilitation Act of 1973, the Fair Labor Standards Act (“FLSA”),
the Employee Retirement Income Security Act (“ERISA”), the National Labor Relations Act (“NLRA”) and its
Washington equivalent, the
Occupational Safety and Health Act, as amended (“OSHA”) and its Washington counterpart (“WISHA”), as amended,
state and federal medical leave acts, Executive Order 11246, as amended, any and all federal civil rights statutes or
ordinances, including Sections 1983 and 1981, as well as under any other federal, state, or local statute, regulation
otherwise governing the employment relationship, as well as any claims arising under common law, including contract
and tort claims.
This release includes a release of claims of discrimination or retaliation on the basis of workers’
compensation status under Washington law, but does not include workers’ compensation claims for injuries sustained
during employment, rights to unemployment, or any other claims which by law cannot be waived in a private agreement
between the parties. Employee is also not releasing any claim for indemnity he may have under any contract of
insurance, corporate by-law or policy of indemnity with Employer.
b. By Employer. Employer likewise waives and releases any and all claims, damages, causes of action
and rights, whether known or unknown, contingent or noncontingent, contractual or otherwise that it may have or be
entitled to assert against Employee that arises out of or relates to Employee’s employment with Employer as of the
Separation Date. This release does not include (a) claims asserted against Employer by third parties to the extent they are
covered by available insurance, (b) any breach by Employee of the obligations set forth in this Agreement, including the
continuing obligation of confidentiality, (c) claims arising out of the NDA, or (d) any claims for fraud, embezzlement or
theft.
5. No Additional Compensation or Benefits. By signing below, Employee expressly affirms that he has
been paid and/or has received all leave or required paid time off (paid or unpaid), compensation, wages (including
overtime), bonuses, commissions, and/or benefits to which he may be entitled and that no other compensation, wages,
bonuses, commissions, and/or benefits are due to him as a result of his employment with Employer, except as expressly
provided in this Agreement.
6. Promise Not to Sue. Employee represents that he has not filed any claim that was released in this
Agreement against any of the Releasees with any court or government agency, and that in the future, Employee will not,
unless allowed by applicable law, bring a lawsuit against any Releasee based on a claim that was released in this
Agreement. However, this section shall not limit Employee from filing a claim to enforce the terms of the Agreement,
shall not apply to claims alleging discrimination if doing so would violate applicable law, and shall not apply to any
other claim that cannot be waived by law. If any government agency brings any claim or conducts any investigation
against Employer, nothing in this Agreement forbids Employee from cooperating in such proceedings, but by this
Agreement, Employee waives and agrees to relinquish any damages or other individual relief that may be awarded as a
result of any such proceedings.
7. Continuing Confidentiality. Employee acknowledges and reaffirms his post-employment commitments
to confidentiality as reflected in the Inventions Assignment and Non-Disclosure Agreement signed by him during
employment (the “NDA”), the Nondisclosure Agreement signed by him before employment commenced and effective
August 18, 2020 (the “Pre-Employment NDA”), Employer’s confidentiality policies and directives communicated to
him during employment, and applicable law.
8. Mutual Non-Disparagement. Employee agrees not to make to any other party any statement (whether
oral, written, electronic, anonymous, on the Internet, or otherwise) that directly or indirectly impugns the quality or
integrity of Employer’s or any other Releasee’s business practices, products, or operations, or any other disparaging or
derogatory remarks about Employer or any Releasee. Likewise, Employer agrees not to authorize any communication
that directly or indirectly impugns Employee’s professional reputation, and to direct its officers, directors, and
executives of this obligation. Notwithstanding the foregoing, this section does not prohibit either party from testifying
truthfully in any proceeding, if subject to court order or subpoena.
9. Employee’s Protected Rights. Nothing in this Agreement, including Section 8 above, is intended to or
shall interfere with Employee’s rights under applicable federal or state laws to: (a) file a good faith charge or complaint
with the Equal Employment Opportunity Commission, the Occupational Safety and Health Administration, or any other
federal, state, or local governmental agency or commission (“Government Agencies”); (b) communicate with any
Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any
Government Agency in good faith, including providing documents or other information, without notice to Employer; or
(c) receive an award for information provided to any Government Agencies. On the other hand, by signing this
Agreement, Employee waives and releases any right to any claims for money damages and equitable relief pursuant to
the filing or prosecution of any administrative charge against Employer or any resulting civil proceeding or lawsuit that
may be commenced on his behalf for the recovery of such relief, and which arises out of the matters that are and may be
released in this Agreement.
10. Non-admission of Liability. This Agreement is to be entered into on a non-precedential basis and shall
not be construed in any way as an admission by Employer of any liability whatsoever against Employee or any other
persons. Employer specifically disclaims any liability to, or any acts of wrongdoing against Employee or any other
persons.
11. Review and Revocation Period. This Agreement was previously presented to Employee, and revised
following negotiations through the parties’ respective counsel. By signing below Employee acknowledges that he is
knowingly and voluntarily waiving and releasing any rights that he may have under the Age Discrimination in
Employment Act (“ADEA”). Employee further acknowledges that he has been advised by this writing, as required by
the ADEA and the Older Workers Benefit Protection Act (“OWBPA”), that (a) this Agreement does not apply to any
rights or claims that may arise after the execution date of this Agreement; (b) Employee has been advise to consult
counsel and has in fact been represented by counsel and been advised by an attorney of his choosing in the negotiations
and execution of this Agreement; (c) Employee has twenty-one (21) days to consider this Agreement following his
receipt of this agreement on June 1, 2021, so until 11:59 pm on June 21, 2021, or the offer of severance and other
benefits contained herein is automatically revoked (although Employee may choose to voluntarily execute this
Agreement at any time before June 21, 2021 and by doing so thereby waives such period of consideration);
(d) Employee has seven (7) days following the execution of this Agreement to revoke the Agreement by written notice
to Employer by email delivery to its General Counsel Arian Colachis by email at acolachis@cytodyn.com; and (e) this
Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth
(8th) day after this Agreement is executed by Employee, provided that he does not revoke the Agreement by delivering
notice of his intent to revoke acceptance by the same message specified in (d) above prior to the expiration of the
revocation period (“Effective Date”). Nothing in this Agreement prevents or
precludes Employee from challenging or seeking a determination in good faith of the validity of this waiver under the
ADEA, nor does it impose any condition precedent, penalties or costs for doing so, unless specifically authorized by
federal law.
12. No Representations. Employee acknowledges that, except as expressly set forth herein, no
representations of any kind or character have been made to him by Employer or by any of Employer’s agents,
representatives, or attorneys to induce the execution of this Agreement.
13. Ownership of Claims. Employee represents that he has not assigned or transferred, or purported to assign
or transfer, to any person or entity, any claim or any portion thereof or interest therein related in any way to Employer,
its officers, employees, or agents. Employee further agrees to indemnify, defend, and hold harmless each and all of the
Releasees against any and all claims based on, arising out of, or in connection with any such transfer or assignment, or
purported transfer or assignment, of any claims or any portion thereof or interest therein.
14. Enforceability and Applicable Law. Employee and Employer agree this, and the NDA, represent the
entire agreement between them and supersedes any and all prior agreements or understandings with regard to the matters
covered herein and can only be modified in writing, signed by both parties. Its separate provisions are binding and
enforceable. This Agreement shall be governed by and construed in accordance with the laws of the State of
Washington.
15. Knowing and Voluntary Waiver. Employee acknowledges that any questions he may have about this
Agreement have been answered to Employee’s satisfaction, that he has been represented by counsel in connection with
the negotiation and acceptance of this Agreement, that his waiver and release of any rights or claims he may have
against Employer is knowing and voluntary, and that he has signed this Agreement freely, without coercion or duress.
16. Counterparts and Electronic Signatures. This Agreement may be executed in counterparts and each shall
be deemed an original, but all of which together shall constitute a single instrument. The parties agree further that the
exchange of copies of this Agreement and of signature pages by facsimile or electronic mail in “portable document
format” (“.pdf”) form, or by any other electronic means intended to preserve the original graphic and pictorial
appearance of a document, shall constitute effective execution and delivery of this Agreement as to the parties and may
be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted by electronic means as
described herein shall be deemed to be their original signatures for all purposes.
PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES A RELEASE OF CERTAIN KNOWN
OR UNKNOWN CLAIMS.
EMPLOYEE:
EMPLOYER:
CytoDyn Inc.
/s/ Mahboob U. Rahman________
Mahboob U. Rahman, M.D., Ph.D.
_/s/ Nader Pourhassan______
By: Nader Pourhassan, Ph.D.
Date: 6/1/2021
Date: _6/1/2021___________
SUBSIDIARIES
Exhibit 21
Name
CytoDyn Operations Inc.
Jurisdiction of Incorporation or Organization
Delaware
Advanced Genetic Technologies, Inc.
Florida
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-206813, 333-223884, 333-
237490 and 333-206813) and Registration Statements on Form S-3 (Nos. 333-228991, 333-233526, 333-236198, 333-248823, 333-
251522, 333-252154 and 333-253843) of our report dated July 30, 2021, with respect to the consolidated financial statements of
CytoDyn Inc. and the effectiveness of internal control over financial reporting of CytoDyn Inc., included in this Annual Report on
Form 10-K for the year ended May 31, 2021. Our report on the consolidated financial statements contains an explanatory paragraph
regarding substantial doubt as to CytoDyn Inc.’s ability to continue as a going concern.
/s/ Warren Averett, LLC
Birmingham, Alabama
July 30, 2021
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Nader
Z. Pourhassan and Antonio Migliarese, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, to sign the registrant’s Annual Report on Form 10 K for the fiscal year ended May 31, 2021, including any and all
amendments and supplements thereto, 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 requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby 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 hereof.
Signatures
Title
Date
/s/ Nader Z. Pourhassan
Director, President and Chief Executive Officer
July 29, 2021
Nader Z. Pourhassan, Ph.D.
(Principal Executive Officer)
/s/ Antonio Migliarese
Antonio Migliarese
/s/ Scott A. Kelly
Scott A. Kelly, M.D.
/s/ Gordon A. Gardiner
Gordon A. Gardiner
/s/ Jordan G. Naydenov
Jordan G. Naydenov
/s/ Samir R. Patel
Samir R. Patel, M.D.
/s/ Alan P. Timmins
Alan P. Timmins
Chief Financial Officer and Treasurer
July 30, 2021
(Principal Financial Officer and Principal Accounting
Officer)
Director, Chairman
Director
Director
Director
Director
July 29, 2021
July 29, 2021
July 29, 2021
July 29, 2021
July 29, 2021
I, Nader Z. Pourhassan, certify that:
1. I have reviewed this Annual Report on Form 10-K of CytoDyn Inc.;
Certification of Chief Executive Officer
Exhibit 31.1
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 quarterly 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 quarterly 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: July 30, 2021
/s/ Nader Z. Pourhassan
Nader Z. Pourhassan, Ph.D.
President and Chief Executive Officer
I, Antonio Migliarese, certify that:
1. I have reviewed this Annual Report on Form 10-K of CytoDyn Inc.;
Certification of Chief Financial Officer
Exhibit 31.2
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 quarterly 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 quarterly 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: July 30, 2021
/s/ Antonio Migliarese
Antonio Migliarese
Chief Financial Officer and Treasurer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
Exhibit 32
In connection with the Annual Report of CytoDyn Inc. (the “Company”) on Form 10-K for the fiscal year ended May 31, 2021, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), the undersigned certify, pursuant to 18 U.S.C. § Section 1350, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ Nader Z. Pourhassan
Nader Z. Pourhassan, Ph.D.
President and Chief Executive Officer
Date: July 30, 2021
/s/ Antonio Migliarese
Antonio Migliarese
Chief Financial Officer
Date: July 30, 2021
A signed original of this written statement required by Section 906 has been provided to CytoDyn Inc. and will be retained by CytoDyn Inc. and furnished
to the Securities and Exchange Commission or its staff upon request.