UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-37587
CytomX Therapeutics, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
151 Oyster Point Boulevard, Suite 400
South San Francisco, California
(Address of principal executive offices)
27-3521219
(I.R.S. Employer
Identification No.)
94080
(Zip Code)
(650) 515-3185
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.00001 par value
Trading Symbol(s)
CTMX
Name of each exchange on which registered
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the
registrant was approximately $501.8 million, based on the closing price of the registrant’s common stock on the Nasdaq Global Select Market on June 28, 2019 of $11.22 per share. Shares of the
registrant’s common stock held by each officer and director and each person known to the registrant to own 10% or more of the outstanding common stock of the registrant have been excluded in
that such persons may be deemed affiliates. This determination of affiliate status is not a determination for other purposes.
As of January 31, 2020, 45,566,551 shares of the registrant’s common stock, $0.00001 par value per share, were outstanding.
Portions of the registrant’s definitive proxy statement to be filed for its 2020 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. Such proxy statement will be filed
with the Securities and Exchange Commission within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
CYTOMX THERAPEUTICS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
ITEM 1.
Business
ITEM 1A.
Risk Factors
ITEM 1B.
Unresolved Staff Comments
ITEM 2.
Properties
ITEM 3.
Legal Proceedings
ITEM 4.
Mine Safety Disclosures
PART II
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
ITEM 6.
Selected Financial Data
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk
ITEM 8.
Financial Statements and Supplementary Data
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 9A.
Controls and Procedures
ITEM 9B.
Other Information
PART III
ITEM 10.
Directors, Executive Officers of the Registrant and Corporate Governance Matters
ITEM 11.
Executive Compensation
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
ITEM 14.
Principal Accounting Fees and Services
PART IV
ITEM 15.
Exhibits and Financial Statement Schedules
ITEM 16.
Form 10-K Summary
Signatures
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Forward-Looking Statements
This Annual Report on Form 10-K contains certain forward-looking statements that involve risks and uncertainties. These forward-looking statements reflect
our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through
the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,”
“estimate,” “intend,” “plan,” “projection,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases
of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and
projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain
and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to
risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking
statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking
statements.
A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including those
factors identified in “Risk Factors” or “Management’s Discussion and Analysis of Financial Condition and Results of Operations” or the following:
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our expectations regarding the potential benefits, activity, effectiveness and safety of our product candidates and therapeutics developed
utilizing our Probody® platform technology;
the initiation, timing, progress and results of our ongoing clinical trials, research and development programs, preclinical studies, and regulatory
submissions, including Investigational New Drug (“IND”) applications, Clinical Trial Applications, New Drug Applications (“NDA”) and,
Biologics License Applications (“BLA”);
the timing of the completion of our ongoing clinical trials and the timing and availability of clinical data from such clinical trials;
our ability to identify and develop additional product candidates;
our dependence on collaborators for developing, obtaining regulatory approval for and commercializing product candidates in the collaboration;
our or a collaborator’s ability to obtain and maintain regulatory approval of any of our product candidates;
our receipt and timing of any milestone payments or royalties under any research collaboration and license agreements or arrangements;
our expectations and beliefs regarding the evolution of the market for cancer therapies and development of the immuno-oncology industry;
the rate and degree of market acceptance of any approved product candidates;
the commercialization of any approved product candidates;
our ability to establish and maintain collaborations and retain commercial rights for our product candidates in such collaborations;
the implementation of our business model and strategic plans for our business, technologies and product candidates;
our estimates of our expenses, ongoing losses, future revenue and capital requirements;
our ability to obtain additional funds for our operations;
our or any collaborator’s ability to obtain and maintain intellectual property protection for our technologies and product candidates and our
ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of others;
our reliance on third parties to conduct our preclinical studies or any future clinical trials;
our reliance on third-party supply and manufacturing partners to supply the materials and components for, and manufacture, our research and
development, preclinical and clinical trial product supplies;
our ability to attract and retain qualified key management and technical personnel;
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our ability to secure and maintain licenses of intellectual property to protect our technologies and product candidates;
our financial performance; and
developments relating to our competitors or our industry.
Any forward-looking statements in this Annual Report on Form 10-K reflect our current views with respect to future events or to our future financial
performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause
actual results to differ materially from current expectations include, among other things, those listed under Part I, Item 1A. Risk Factors and discussed
elsewhere in this Annual Report on Form 10-K. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except
as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available
in the future.
This Annual Report on Form 10-K also contains estimates, projections and other information concerning our industry, our business and the markets for
certain drugs and therapeutic biologics, including data regarding the estimated size of those markets, their projected growth rates and the incidence of certain
medical conditions. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties and actual
events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained
these industry, business, market and other data from reports, research surveys, studies and similar data prepared by third parties, industry, medical and general
publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which these data are derived.
Except where the context otherwise requires, in this Annual Report on Form 10-K, “we,” “us,” “our” and the “Company” refer to CytomX Therapeutics, Inc.
Trademarks
This Annual Report on Form 10-K includes trademarks, service marks and trade names owned by us or other companies. All trademarks, service marks and
trade names included in this Annual Report on Form 10-K are the property of their respective owners.
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Item 1.
Business
Overview
PART I
We are a clinical-stage, oncology-focused biopharmaceutical company with a vision of transforming lives with safer, more effective therapies. We are
developing a novel class of investigational antibody therapeutics, based on our Probody® technology platform, for the treatment of cancer. Our innovative
technology is designed to turn previously undruggable targets into druggable targets and to enable more effective combination therapies. Together with our
partners, we have advanced five novel drug-candidates into clinical trials, three of which are in Phase 2 studies and two of which are in Phase 1 studies. We
have strong industry partnerships with leading biotech and pharmaceutical companies. Our Probody therapeutic approach is designed to enable “conditional
activation” of antibody-based drugs within cancer tissue to more specifically target the tumor microenvironment and minimize drug activity in healthy tissue
and in circulation. We achieve conditional activation of antibodies by modifying them with a mask which blocks binding of the antibody to its target until the
mask is removed. Mask removal occurs in cancer tissue when proteases, enzymes that are highly active in cancer but not normal tissue, selectively cleave the
mask from the antibody, resulting in unmasked antibody activity in the tumor but not normal tissue. We believe this approach has the potential to develop
clinically meaningful therapeutics and improve patient outcomes in three ways to improve patient outcomes: 1) by enhancing the “therapeutic window” for
drug candidates, that is, the balance between their tolerability and activity; 2) by pursuing tumor targets that were previously considered “undruggable” due to
their ubiquitous expression on normal tissues; and 3) by pursuing novel combination therapies that are poorly tolerated without using our Probody platform.
We are developing a robust pipeline by leveraging our Probody platform to develop a product pipeline, shown below, of potential best-in-class
immunotherapies against clinically validated targets and potential first-in-class therapeutics against novel, difficult to drug targets.
CytomX Pipeline of Probody Therapeutics
Our broad Probody therapeutic technology platform and lead product candidates are supported by more than a decade of thorough scientific research and
strong intellectual property. We have established a broad worldwide patent estate of more than 135 issued, owned and co-owned patents and more than 325
pending, owned and co-owned patent applications. We also have an exclusive license from University of California, Santa Barbara (“UCSB”) to three patent
families covering screening tools to identify masks and substrates. We continue to conduct extensive research to create future generations of product
candidates based on our Probody technology.
Cancer is the second leading cause of mortality in the United States and accounts for nearly one in every five deaths. Over the last twenty years, a new
paradigm of cancer treatment has emerged that is focused on more targeted therapies, including monoclonal antibody modalities, and combination therapies
aimed at multiple targets. In 2018, half of the top 10 best-selling drugs on the market were monoclonal antibodies with new classes of monoclonal antibody-
based therapeutics having also recently reached the market. These new classes include antibody-based immunotherapies, Antibody Drug Conjugates
(“ADCs”), T-cell engaging bispecific antibodies, and Chimeric Antigen Receptor (“CAR”) based cellular therapies. We have demonstrated that our Probody
therapeutic technology can be applied to many antibody modalities, including antibodies against immuno-oncology targets, ADCs, and T-cell engaging
bispecific antibodies, and therefore we believe that significant opportunities exist for CytomX to develop and capture market
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share with safer and more effective anti-cancer treatments. We believe there may be a significant opportunity to utilize our Probody platform to localize
antibody therapeutics to the tumor microenvironment, creating new classes of anti-cancer therapeutics.
Wholly Owned Clinical Candidate Advancements
Our lead wholly owned product candidate is CX-072, a Probody therapeutic targeting programmed cell death ligand 1 (“PD-L1”), a clinically and
commercially validated immuno-oncology target. Our vision for CX-072 is for this agent to become a novel and differentiated centerpiece for safer and more
effective combination cancer therapies. In normal physiology, PD-L1 plays a role in suppressing the immune system in healthy tissue. Tumors can co-opt this
inhibitory function by upregulating PD-L1 expression and evading anti-cancer immune surveillance. Inhibitors of the PD-L1 pathway have been designed
and developed to restore anti-cancer immune surveillance resulting in anti-cancer activity and regulatory approval has been granted for several PD-L1
inhibitors. The related target, programmed cell death 1 (“PD-1”), functions in a similar manner to PD-L1 and several approved cancer therapies act on this
target. Inhibitors of the PD-L1/PD-1 pathway have been approved for the treatment of many cancers including advanced melanoma, renal cell cancer, non-
small cell lung cancer, bladder cancer and liver cancer. Additionally, PD-L1 and PD-1 inhibitors have become the centerpiece of many oncology combination
therapies and continue to be studied in a wide range of new combination strategies. The combined commercial market for inhibitors of the PD-L1 and PD-1
pathways is predicted to exceed $45 billion by 2023.
While PD-L1 and PD-1 inhibitors have been shown to augment the anti-cancer immune response to elicit deep and durable tumor responses, these agents can
also cause undesirable and widespread activation of the immune system in healthy tissues, resulting in the emergence of immune-related toxicities, often
necessitating steroid-based interventions and discontinuation of treatment, sometimes permanently. These toxicities can be more serious or severe when PD-
L1 or PD-1 inhibitors are combined with other anti-cancer immune-based agents. Our PD-L1 Probody therapeutic, CX-072, is designed to uncouple the anti-
cancer activity associated with PD-L1 inhibition from its associated autoimmune toxicities by selectively inhibiting PD-L1 in the tumor microenvironment,
thereby minimizing engagement of the immune system in healthy tissue. At the 2019 annual meeting of the American Society of Clinical Oncology
(“ASCO”) we presented clinical data showing the activity and tolerability of CX-072 monotherapy in a range of cancer types that supported the hypothesis
that this agent could become a safer, more effective centerpiece of combination therapies. The reported activity of CX-072 was consistent with that expected
from other PD inhibitors, including the observation of confirmed tumor responses, supporting our hypothesis that the antibody is selectively unmasked in the
tumor microenvironment and has limited T-cell engagement in peripheral tissues. The safety findings of CX-072 were also favorable relative to other PD
inhibitors with regard to immune-related adverse events.
With preliminary data from our ongoing studies indicating clinical proof of concept for CX-072 and the Probody platform, we have recently elected to focus
our further development of CX-072 on combination strategies. To date, we have conducted two Phase 1 clinical trials evaluating CX-072 in combination
therapy. The first is CX-072 in combination with the anti-CTLA-4 antibody ipilimumab. Our Phase 1 data for the CX-072 plus ipilimumab combination was
most recently updated in October 2019 and based on these data, in October 2019, we announced the initiation of the Phase 2 clinical study, PROCLAIM CX-
072-002, evaluating the safety and anti-cancer activity of CX-072 plus ipilimumab in patients with relapsed or refractory melanoma. The second Phase 1
combination study initiated with CX-072 evaluated the combination of CX-072 with the BRAF inhibitor vemurafenib. We are no longer pursuing this
combination. We are planning to initiate a new Phase 1 clinical trial in 2020 of CX-072 in combination with our second wholly owned product candidate,
CX-2009.
Our second wholly owned product candidate, CX-2009, is a Probody Drug Conjugate (“PDC”) directed against CD166, a novel drug target. PDCs are
CytomX-designed Probody therapeutic versions of a class of drugs called ADCs, which are antibodies that have been conjugated to a small molecule
cytotoxic agent via a chemical linker to maximize their potency. After decades of research and development by many companies, the ADC field has made
significant progress in recent years and at least seven ADCs have been now approved for the treatment of cancer in the United States and elsewhere, including
Kadcyla®, which targets HER2-positive metastatic breast cancer, Adcetris®, which targets CD30 in Classical Hodgkin Lymphoma and Mylotarg®, which
targets CD33 for the treatment of Acute Myeloid Leukemia. However, to avoid target-related toxicity, traditional ADCs have historically been limited to
targeting proteins that are expressed highly in tumors, but that are also absent or minimally expressed in healthy tissues. Very few cancer-associated proteins
have this desired profile. Because our Probody therapeutics are designed to remain masked in circulation, and thereby minimize binding to normal tissues, we
believe we can address a new class of targets with high tumor expression that have previously been considered undruggable because of high expression on
normal tissues and predicted severe side effects. Our PDC approach has the potential to expand the utility of ADCs for the treatment of cancer to many targets
in this novel class and CD166 is an example of this type of target. CX-2009 is our Probody therapeutic directed to CD166 and conjugated to the cytotoxic
agent DM4. In April 2019, we presented updated clinical data from our Phase 1 clinical trial of CX-2009 monotherapy, showing single agent anti-cancer
activity for CX-2009 and that it was generally well-tolerated. Based on our Phase 1 clinical data, in December 2019, we announced that we were initiating a
Phase 2 expansion study of CX-2009 in patients with hormone receptor (ER, PR) positive, HER2-negative breast cancer.
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Collaborative Partner Advancements
In addition to our wholly owned programs, we have entered into several strategic collaborations with leading oncology-focused pharmaceutical companies,
such as AbbVie Inc., through its subsidiary AbbVie Ireland Unlimited Company (“AbbVie”), Amgen, Inc. (“Amgen”) and Bristol-Myers Squibb Company
(“Bristol-Myers Squibb”). These collaborations are intended to advance additional product candidates into clinical development and potentially to the
commercial market based on our Probody technology platform.
The most advanced product candidate from our partnerships is BMS-986249, an investigational CTLA-4 Probody therapeutic, which Bristol-Myers Squibb
recently advanced into a randomized Phase 2 cohort expansion in patients with metastatic melanoma in combination with the PD-1 inhibitor nivolumab
triggering, in February 2020, a $10.0 million milestone payment to us. In September 2019, Bristol-Myers Squibb initiated the dose escalation phase of a
Phase 1/2a clinical trial of a second anti-CTLA-4 Probody, BMS-986288, based on a modified version of ipilimumab, administered as monotherapy and in
combination with nivolumab in patients with selected advanced solid tumors. These collaborative programs with Bristol-Myers Squibb are designed to
optimize the risk-benefit profile of CTLA-4-directed therapy.
Throughout 2019, in partnership with AbbVie, we also continued to enroll and treat patients in PROCLAIM-CX-2029, a Phase 1/2 clinical study of CX-2029,
a PDC targeting the highly expressed target, CD71. The CX-2029 program is intended to open a therapeutic window for CD71 which is widely considered to
be a high potential but previously undruggable target. In July 2019, AbbVie also selected a second research target under our 2016 discovery collaboration and
licensing agreement (the “Discovery Agreement”) to develop PDCs and we received a $10.0 million payment in connection with such selection.
In December 2019, we in-licensed exclusive worldwide development and commercial rights from ImmunoGen, Inc. (“ImmunoGen”) to a PDC targeting
epithelial cell adhesion molecule (“EpCAM”). This program was originally developed by ImmunoGen utilizing our Probody technology and ImmunoGen’s
next-generation linker chemistry and novel maytansinoid payload, DM-21, and arose from our 2014 strategic collaboration with ImmunoGen. EpCAM is a
target that is highly expressed on a wide variety of tumor types but is considered difficult to drug due to its wide expression on normal tissues. Pre-clinical
data presented by ImmunoGen at the 2018 European Antibody Congress and the 2019 Annual Meeting of American Association for Cancer Research
(“AACR”) indicate that PDCs against EpCAM elicit potent tumor regression in multiple tumor models while minimizing anticipated on-target toxicities
outside the tumor microenvironment. We anticipate moving this program into IND-enabling studies during 2020.
We have also extended our Probody platform to the new and promising modality of T-cell engaging bispecific antibodies (“TCBs”). TCBs are a highly potent
therapeutic modality, designed to direct the activity of cytotoxic T-cells to tumors. TCBs such as Blincyto®, a CD19-directed TCB commercialized by
Amgen, have shown clinical activity in hematologic malignancies, but development of TCBs for solid tumor indications is challenging. Due to their high
potency, TCBs can target normal tissues with low antigen expression, resulting in significant on-target, off-tumor toxicity that can limit dosing to low levels.
As a result, it has been difficult to reach the level of drug exposure required for efficacy without excessive toxicity. We believe that the Probody platform is
potentially capable of localizing the activity of TCBs to the tumor microenvironment and avoiding on-target, off-tumor toxicity.
Our most advanced program in the TCB modality is an Epidermal Growth Factor Receptor-CD3 (“EGFR-CD3”) T-cell bispecific which is partnered with
Amgen. We anticipate advancing a lead candidate for this program during 2020.
The successful development of our product candidates involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and
trials may not be predictive of future trial results. This is due to the numerous risks and uncertainties associated with the development of product candidates.
If our Probody therapeutic technology and product candidates generally prove to be ineffective, unsafe or commercially unviable, it would have a material
and adverse effect on our business, financial condition, results of operations and prospects. See “Risk Factors” for a discussion of the risks and uncertainties
associated with our product candidates and our research and development projects.
Our Corporate Strategy
We are utilizing our proprietary and differentiated Probody platform to develop a leading pipeline of novel, innovative anti-cancer therapies to improve the
lives of people with cancer and to build a long-term, multi-product, commercial stage biotechnology company. We aim to achieve this goal by:
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Applying our Probody platform to develop novel and improved combination therapies based on validated immuno-oncology targets and
pathways that we believe have the potential to improve outcomes for cancer patients. For example, we are studying CX-072, our PD-L1
Probody therapeutic candidate, in combination with the CTLA-4 inhibitor, ipilimumab, in an ongoing Phase 2 clinical trial.
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Applying the Probody platform to discover and develop potentially first-in-class therapies against novel targets that have not yet been drugged
because of broad expression in healthy tissue. Our wholly owned CD-166 Probody Drug Conjugate (CX-2009) and partnered CD-71 Probody
Drug Conjugate (CX-2029) are our most advanced programs in this class of targets.
Applying our Probody platform to enable new potent therapeutic antibody formats, thereby positioning ourselves at the cutting edge of anti-
cancer therapeutic research and development. For example, we are collaborating on a Probody therapeutic version of an EGFR-CD3 T-cell
engaging Probody bispecific with Amgen.
Partnering with leading biopharmaceutical companies to access capital, additional resources and expertise, as well as increase the number of
Probody therapeutic candidates being advanced into clinical trials. To date, we have formed several strategic collaborations, including with
AbbVie, Amgen, Bristol-Myers Squibb, and others.
Accessing technologies or programs that can complement our Probody platform and our pipeline through licenses or acquisitions. For example,
in early 2019 we acquired certain linker-toxin and bispecific technologies from an affiliate of Astellas Pharma, Inc. to complement our Probody
platform and in December 2019 we in-licensed ImmunoGen’s ongoing EPCAM PDC program.
Fostering a unique, patient-focused culture of execution, alignment and accountability centered around our vision, mission and values.
Our Probody Platform
Localization of therapeutic antibody activity within disease tissue is of increasing interest in the biopharmaceutical industry due to the desire to maximize the
activity of antibody-based drugs while reducing their toxicities. At CytomX, we call our approach to therapeutic antibody localization our Probody platform.
A Probody therapeutic consists of three components: an active anti-cancer antibody, a mask for the antibody, and a protease-cleavable linker which connects
the mask to the antibody. The mask is a peptide designed to disguise the active binding site of the antibody to prevent the therapeutic from binding to the
target present on healthy tissue. Probody therapeutics are produced as a single protein by standard antibody production methodology. The following graphic
depicts the three components of a Probody therapeutic:
Depiction of the structure of a Probody therapeutic and a protease interacting with the Probody to cleave the linker and activate the molecule
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When a Probody therapeutic enters a tumor, it encounters proteases, which are enzymes that cleave proteins and have increased activity in the tumor
microenvironment. The proteases in the tumor cleave the linker, releasing the mask and allowing the antibody to bind to the target on the tumor. The
following graphic depicts the activation of a Probody therapeutic by proteases:
Depiction of how a Probody therapeutic is designed to enter the tumor microenvironment (left), be activated by protease cleavage to remove the mask (middle), thereby
enabling the released antibody to bind to the tumor target (right)
Proteases play an essential role in many aspects of normal physiology, such as digestion of food in the gastrointestinal tract, wound healing and metabolic
function. However, uncontrolled protease activity can lead to destruction of essential proteins and tissues. Therefore, proteases are normally very tightly
regulated by multiple mechanisms, with only small amounts of extracellular protease activity being detectable in healthy tissues. In contrast, it has been well
documented that proteases are not only present, but also activated, in virtually all types of tumors, playing a key role in tumor growth, invasion and
metastasis. Probody therapeutics are designed to be activated in this protease-rich tumor microenvironment, but not in healthy tissue where proteases are
under tight control.
Probody therapeutics are designed to limit toxicity that can arise from the binding of an antibody to a target in healthy tissues while preserving biological
activity in the tumor where it is desired. We and our partners have demonstrated the potential applicability of our Probody platform across multiple
monoclonal antibody modalities, including cancer immunotherapy, ADCs, and T-cell-recruiting bispecifics.
Key Advantages of Our Probody Platform
We believe that our Probody platform provides the following key advantages:
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A novel therapeutic antibody class enabled by our proprietary platform. We believe we have a differentiated technology platform that gives us
a substantial competitive advantage supported by more than a decade of research and a strong intellectual property portfolio.
Potential to improve the therapeutic window of antibody-based therapeutics. By engineering our therapeutics to selectively activate in the
tumor microenvironment, our Probody product candidates have the potential to improve safety and tolerability.
Ability to combine more effectively with other therapies. We believe the therapeutic window and tumor specificity of our candidates have
potential to reduce the dose-limiting toxicities observed in combination therapies and thus enable new combinations with other cancer therapies
that are difficult or impossible to use.
Applicability across many molecular targets. We believe that our technology addresses many different molecular targets expressed by many
different kinds of tumors—including targets that are difficult to address because they are also expressed on healthy tissue—because Probody
therapeutics are designed to have limited interaction with non-cancerous tissues.
Versatility across antibody modalities. We believe that our technology can be applied to most antibody-based therapies, including novel potent
modalities like ADCs and T-cell-recruiting bispecific antibodies.
Our Lead Product Candidates
We are leveraging our Probody platform to build a leading pipeline of innovative and differentiated anti-cancer therapies. We currently retain worldwide
development and commercialization rights to two of our most advanced Probody therapeutics in the clinic, CX-072 and CX-2009. In addition, we have
multiple partnered development programs, including BMS-986249 and BMS-986288, both anti-CTLA-4 Probody programs with Bristol-Myers Squibb, and
CX-2029, an anti-CD71 PDC program in collaboration with AbbVie.
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CX-072 (PD-L1 Probody therapeutic) Program
Overview and Limitations of Existing Therapies
Our most advanced product candidate is CX-072, a wholly owned Probody therapeutic targeting PD-L1, a clinically and commercially validated cancer
target. The PD pathway consists principally of two targets: PD-1, which is typically expressed on T-cells, and PD-L1, which is typically expressed on the
tumor cells as well as on healthy tissue. In healthy tissue, PD-1 and PD-L1 work together to negatively regulate immune response and maintain tolerance
between the immune system and healthy tissue. Tumors, however, upregulate PD-L1 to evade immune surveillance by the host’s immune system. Therefore,
development of antibodies against PD-1 and PD-L1 have become a key focal point in cancer drug development, with three PD-1 antibodies nivolumab
(Opdivo®), pembrolizumab (Keytruda®), and cemiplimab (Libtayo®) and three PD-L1 antibodies atezolizumab (Tecentriq®), durvalumab (Imfinzi®), and
avelumab (Bavencio®) approved as of January 2020, with many other PD pathway inhibitors in clinical development. In addition to assessment as single
agents, PD-1 and PD-L1 antibodies have been studied extensively as the centerpiece of oncology combination therapies. According to the Cancer Research
Institute, as of November 2019, there were in excess of 2,000 combination studies ongoing with a PD-1 or PD-L1 therapeutic.
While inhibitors of the PD-L1 and/or PD-1 pathway offer the potential for clinical benefit in patients with a wide-variety of cancer types, there are a number
of risks imposed by administration of these agents. According to U.S. labels for Opdivo, Keytruda, Tecentriq, Bavencio, and Imfinzi, the most common side
effects (defined as either >15% or >20%, depending upon the agent) that were observed with commercially available anti-PD-L1 and anti-PD-1 agents
include: fatigue, decreased appetite, nausea, vomiting, diarrhea, dyspnea, constipation, cough, musculoskeletal pain, back pain, abdominal pain, arthralgia,
urinary tract infection, upper respiratory tract infection, peripheral edema, infusion-related reaction, rash, asthenia, pruritus, headache, and pyrexia.
Combining a PD pathway inhibitor with another anti-cancer agent often results in significantly greater toxicity than monotherapy alone. One example is the
combination of nivolumab (a PD-1 inhibitor marketed by Bristol-Myers Squibb as Opdivo®) and ipilimumab. According to data reported in 2015 in The New
England Journal of Medicine, the combination of nivolumab at 1 mg/kg and ipilimumab at 3mg/kg resulted in Grade 3/4 treatment related adverse events
(TRAEs) in 55% of the patients treated and drug discontinuations in 36% of the patients treated.
We believe that a locally activated Probody therapeutic targeting PD-L1 has the potential to maintain the anti-tumor activity of the PD pathway blockade
while reducing the autoimmunity that results from blocking such pathway systemically. As such, we believe that CX-072 has the potential to enable
combination therapies that cannot be appropriately dosed because of synergistic toxicity, and ultimately that CX-072 may have the potential to play an
important role in combination therapy. CX-072 may also ultimately prove to be a safer monotherapy than existing PD inhibitors which could have specific
applications in certain clinical settings.
PROCLAIM-CX-072 Clinical Program
PROCLAIM-CX-072-001 was designed to assess the tolerability and preliminary antitumor activity of multiple doses of CX-072 as a monotherapy or as a
combination therapy with ipilimumab (Bristol-Myers Squibb’s Yervoy®) or vemurafenib (Roche’s Zelboraf®) in patients with advanced, unresectable solid
tumors or lymphoma.
Part A and A2- Monotherapy Dose Escalation
Clinical data from PROCLAIM-CX-072 were first presented in 2018 at meetings of ASCO, the European Society of Medical Oncology (“ESMO”) and the
Society for Immunotherapy of Cancer (“SITC”) and, in 2019 at the Research and Development Day we hosted in February 2019 (the “CytomX 2019 R&D
Day”) and the ASCO Annual Meeting. Part A enrolled patients who were PD agent naïve and were either ineligible to receive or did not have access to PD-1
or PD-L1 agents for their disease. We did not pre-select patients based on their PD-L1 status in this arm. As such, we enrolled a broad range of tumor types
in Part A, including patients with tumors that were not necessarily expected to respond to PD-L1 therapy. Part A2 of the clinical trial also enrolled patients
with a broad range of cancer types, with enrollment restricted to those patients whose tumors are PD-L1 positive based on the commercially available DAKO
assay. As with Part A, the tumor types enrolled into Part A2 were not necessarily expected to respond to CX-072. Part A2 also required mandatory collection
of tumor biopsies from patients which were analyzed as part of our translational program.
Data from the monotherapy dose escalation arms of the trial, presented at ESMO 2018 and developed with an August 2018 data cut, showed that among 38
evaluable patients who received CX-072, objective responses by Response Evaluation Criteria in Solid Tumors (“RECIST”) version 1.1 were observed in
three (8%) patients, all treated at doses greater than or equal to 3 mg/kg: PD-L1 negative triple negative breast cancer (confirmed partial response (cPR); 10
mg/kg), thymic cancer (unconfirmed partial response (“uPR”); 3 mg/kg), and cervical cancer (uPR; 10 mg/kg). Stable disease was observed in 15 (39%)
patients for an overall disease control rate of 47%. For the 18 patients who received CX-072 doses greater than or equal to 3 mg/kg, objective responses were
observed in 3 of 18 (17%) patients and the disease control rate was 61%. Decreased target lesions were observed in 14 of 37 (38%) patients of all evaluable
patients with measurable disease at baseline and in 10 of 17 (59%) patients of the subset of patients who received doses greater than or equal to 3 mg/kg of
CX-072.
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We presented translational data at SITC in November 2018 that demonstrates that CX-072 appears to function as designed in cancer patients. We reported that
protease activity was detected in the majority of patient tumors, and that CX-072 was unmasked and activated in tumor biopsies taken from treated
patients. Further, CX-072 remained predominantly intact in circulation. Intratumoral concentrations of activated CX-072 are sufficient for >90% target
occupancy and were similar to those associated with efficacy in a preclinical model. At the CytomX 2019 R&D Day, we additionally reported that CX-072
localized to tumors in cancer patients, suggesting unmasking and target engagement, as determined by 89Zr-labeled CX-072 whole body Immuno-PET
imaging. Finally, CX-072 treatment was associated with expansion of intratumoral CD8+ T cells, indicating that CX-072 produced a biological effect in
tumors consistent with blockade of the PD-1/PD-L1 pathway. Taken together, these translational data provide mechanistic support for the Probody platform.
At the CytomX 2019 R&D Day, we presented follow-up data from this trial, focusing on doses greater than or equal to 3 mg/kg in the dose escalation study as
of a February 6, 2019 data cut. Of 24 efficacy evaluable patients treated with doses greater than or equal to 3mg/kg of CX-072, 4/24 (17%) objective
responses were observed, including 1 confirmed partial response, 2 unconfirmed partial responses in patients who are no longer on study and 1 unconfirmed
partial response in a patient whose confirmation scan was pending at the time. Additionally, 12 (50%) patients demonstrated tumor shrinkage or stable
disease. From these results, we concluded that CX-072 showed anti-cancer activity. Enrollment is complete with patient follow up continuing.
Following thorough analysis of data from Parts A and A2, we selected 10 mg/kg as the dose for initial Part D cohort expansion studies, which we initiated in
2018. This dose was chosen because:
•
•
•
•
We observed anti-cancer activity at and below 10 mg/kg in our dose escalation studies
The 10 mg/kg dose of CX-072 produced favorable safety results (described below)
Translational data suggested that, at this dose, more than 98% of PD-L1 receptor in the tumor was occupied by CX-072
All patients treated at the 10 mg/kg dose achieved and maintained targeted drug exposure. Moreover, satisfactory drug exposure was achieved
regardless of whether patients showed evidence of anti-drug antibodies
Part D Monotherapy Expansion Cohort
In 2018, we initiated Part D of the PROCLAIM-CX-072-01 program, a monotherapy cohort expansion study to assess CX-072 in eight specific cancer types:
undifferentiated pleiomorphic sarcoma (UPS), thymic epithelial cancer (TEC), triple negative breast cancer (TNBC), anal squamous cell cancer (aSCC),
cutaneous squamous cell cancer (cSCC), Merkel cell carcinoma (MCC), small bowel carcinoma (SBC) and cancers with high tumor mutational burden
(hTMB). Part D was designed to assess the safety and efficacy of CX-072 at 10 mg/kg administered every two weeks. At the CytomX 2019 R&D Day, we
presented initial clinical data in four of the eight tumor types: cSCC, TNBC, SCC and UPS. Preliminary data from 34 efficacy evaluable patients showed a
pattern of anti-cancer activity generally consistent with historical data for other PD inhibitors. Of 50 patients evaluable for safety in the four cancers tested as
of the data cutoff date for Part D, CX-072 as monotherapy was generally well tolerated, with 21 (42.0%) patients experiencing a Grade 3/4 TEAE, 2 (4%)
patients experiencing a Grade 3/4 TRAEs, 2 (4%) patients experiencing a Grade 3/4 immune-related adverse events (irAE) and no discontinuation for
treatment-related toxicity. These data compare favorably to historical controls where the rate of Grade 3/4 TRAEs in patients receiving PD-pathway inhibitors
and TRAEs leading to discontinuation are 15% and 8%, respectively.
At ASCO in June 2019, we presented additional data from Part D in multiple selected tumor types. Data was reported in patients with TNBC, aSCC, cSCC,
UPS and SBA. As of an April 2019 data cutoff, 72 patients had been enrolled and treated across the five reported cohorts. Among the 65 patients evaluable
for efficacy, confirmed partial responses were observed in two patients with TNBC, one in a patient with cSCC and one in a patient with UPS. A partial
response, unconfirmed at the time of data cutoff, was subsequently confirmed in an aSCC patient. These data showed disease control rates of 53% (8/15) in
TNBC, 58% (7/12) in aSCC, 67% (4/6) in cSCC, 25% (5/20) in UPS, and 17% (2/12) in SBA. Decreases in target lesion size were observed in the first 8 to
16 weeks of treatment. Responding patients remained on CX-072 for up to 72 weeks. Patients enrolled were generally heavily pretreated with a median
number of three prior regimens before receiving CX-072. As of the data cutoff, CX-072 monotherapy was generally well tolerated. Of the 72 patients
evaluable for safety, 6% of patients experienced a grade ≥3 TRAE, and 3% experienced grade ≥3 immune related adverse event (irAEs) with no (0%) TRAEs
leading to treatment discontinuation. Enrollment in Part D is complete with evaluation of the activity and tolerability of CX-072 monotherapy continuing with
ongoing treatment in select cohorts. We expect to provide additional follow up data in 2020. At this time, we are not pursuing additional monotherapy
clinical trials, however, we may elect to do so in the future.
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Part B CX-072 in Combination with Ipilimumab
Combining a PD pathway inhibitor with another anti-cancer agent often results in significantly greater toxicity than monotherapy alone. One example is the
combination of nivolumab (a PD-1 inhibitor marketed by Bristol-Myers Squibb as Opdivo®) and ipilimumab. Ipilimumab, marketed by Bristol-Myers
Squibb as Yervoy®, is an anti-CTLA4 therapeutic antibody that has been approved for the treatment of various cancers including advanced melanoma.
CTLA-4 is an immune checkpoint protein involved in regulating T-cell activation. According to data reported in 2015 in the New England Journal of
Medicine, the combination of nivolumab at 1 mg/kg and ipilimumab at 3mg/kg resulted in Grade 3/4 TRAEs in 55% of the patients treated and drug
discontinuations in 36% of the patients treated. We are investigating whether CX-072 has the potential to more safely combine with ipilimumab, resulting in
improved outcomes for patients. More specifically, we are investigating whether CX-072 can enable the use of the full labelled dose of ipilimumab of 3
mg/kg in combination studies. It is well established that higher doses of ipilimumab can be more effective in the treatment of cancer. However, higher doses
are also more toxic to patients, particularly in combination with PD pathway inhibitors. If we are able to treat patients safely with CX-072 in combination
with full dose ipilimumab, this has the potential to deliver improved outcomes for patients in the form of deeper and more durable anti-cancer responses.
Part B of PROCLAIM-CX-072 was designed to assess the combination of CX-072 with ipilimumab dosed at its full labeled dose (3 mg/kg every three weeks
for four cycles). In Part B, we tested doses of CX-072 from 0.3 mg/kg to 10 mg/kg with a combination of ipilimumab at 3 mg/kg. The maximum tolerated
dose (MTD) was defined as the combination of 3 mg/kg of ipilimumab and 10 mg/kg of CX-072.
In October 2019, we presented interim data showing that among 27 evaluable patients who received ipilimumab (3, 6 or 10 mg/kg) combined with CX-072
(0.3, 1, 3 or 10 mg/kg), the disease control rate (stable disease or better) was 37%. Five patients achieved confirmed objective responses by RECIST v1.1,
including one complete response, for an ORR of 19% in these heavily pretreated patients. The median duration of response was 14.6 months (1.9 - 21.2
months) with four of the five responders still on treatment as of October 2019. We also announced that the recommended combination dose for further
investigation was 3 mg/kg of ipilimumab and 10 mg/kg of CX-072 (dose equivalent of 800 mg). This combination was generally well tolerated with no new
safety signals observed. Of the 27 patients treated across all doses, Grade 3/4 TRAEs were reported in nine (33%) patients and Grade 3/4 irAEs were reported
in six (22%) patients. Of the 20 patients treated with ipilimumab at 3 mg/kg at varying doses of CX-072, Grade 3/4 TRAEs were reported in five (25%)
patients and Grade 3/4 irAEs were reported in three (15%) patients. Enrollment in Part B is complete with evaluation of the activity and tolerability
continuing with ongoing treatment. As a result of the data in Part B, in October 2019, we elected to conduct a Phase 2 clinical trial studying CX-072 in
combination with ipilimumab. We plan to initiate a clinical study of CX-072 in combination with CX-2009 during 2020.
Phase 2 - PROCLAIM-CX-072-002 Combination with Ipilimumab
PROCLAIM-CX-072-002 was initiated in October 2019 and is an open-label, multi-center Phase 2 clinical trial evaluating CX-072 in combination with
ipilimumab in patients with unresectable or metastatic melanoma whose disease has progressed or relapsed following treatment with a PD-1/PD-L1 immune
checkpoint inhibitor. This study will assess the efficacy and tolerability of a fixed dose of 800 mg of CX-072 every three weeks in combination with
ipilimumab at the full labelled dose and schedule of 3 mg/kg every three weeks for four cycles. CX-072 therapy will be continued once every two weeks after
the completion of the combination phase until disease progression. The primary objective is overall response rate (ORR) as defined by RECIST v1.1 with
secondary objectives evaluating the safety and tolerability of CX-072. The cohort utilizes a Simon 2 Stage design with approximately 40 patients being
enrolled into Stage 1 with additional patients being enrolled into Stage 2, pending the outcome of Stage 1. CytomX anticipates initial data from Stage 1
during 2020.
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Melanoma is a life-threatening form of skin cancer. The incidence of melanoma has been increasing over the last 40 years, with about 150,000 newly
diagnosed patients across major markets in 2018. In the unresectable/metastatic setting, approximately 60% of melanoma patients will receive immune
checkpoint blockade, (approximately 35% BRAF+ patients and 45% BRAF WT) and approximately 85% of those patients will progress. For patients with
unresectable/metastatic melanoma who progress, there are limited treatment options available. The figure below describes the design of PROCLAIM-CX-
072-001.
PFS – Progression free survival
OS – Overall survival
Part C CX-072 Combination with Vemurafenib
Part C of the PROCLAIM-CX-072 Phase 1/2 clinical trial was designed to assess escalating doses of CX-072 (1, 3 or 10 mg/kg administered IV every two
weeks) in combination with the approved dose of Zelboraf® (vemurafenib: 960mg twice daily) in patients with V600E BRAF-positive melanoma. This study
was designed to evaluate whether CX-072 could be more safely and effectively combined with vemurafenib than the combination of the anti-PD-L1 antibody,
atezolizumab, plus vemurafenib, which has been shown by others to be severely toxic. A total of 11 patients with unresectable, V600E BRAF positive
melanoma were enrolled during 2018 and 2019 into this study arm, principally in Eastern Europe. Patients were assigned to dose escalation cohorts
evaluating 960mg BID vemurafenib with 1 mg/kg CX-072 (n=3), 3 mg/kg CX-072 (n=6) or 10 mg/kg CX=072 (n=2). During 2019, enrollment into this
study arm was closed, prior to its completion. At the time of enrollment closure, there was one confirmed partial response and one confirmed complete
response per RECIST v1.1. The median number of CX-072 doses administered was 6 (range 1-30). Three patients experienced Grade 3+ TRAE of
lymphopenia (n=1), lipase increase (n=1) and elevated bilirubin (n=1). There were no reported Grade 3+ irAEs. We do not intend to pursue this combination
further. Since the initiation of this study arm, based on the work of others, the standard of care for patients with V600E BRAF-positive melanoma has
advanced to doublet combination therapy (BRAF plus MEK inhibition). The triple combination of PD-L1 inhibition, BRAF inhibition and MEK inhibition is
also currently being studied by others.
Additional Combination Therapies
We are aiming to initiate a new clinical study of CX-072 in combination with CX-2009 in 2020 and continue to evaluate the potential for additional
combination therapy trials with CX-072.
CX-2009 (CD166 Probody Drug Conjugate) Program
Overview and Limitations of Existing Therapies
Our second most advanced product candidate is CX-2009, a wholly owned PDC directed against CD166, a novel target that would be traditionally considered
difficult to drug, and which we are currently evaluating in a Phase 2 clinical trial. PDCs are unique, CytomX-designed Probody therapeutic versions of a class
of drugs called Antibody Drug Conjugates (ADCs), which are antibodies that have been conjugated to a small molecule cytotoxic agent via a chemical
linker. At least seven ADCs have been approved for the treatment of cancer in the United States and elsewhere, including Kadcyla®, which targets HER2-
positive metastatic breast cancer, and Adcetris®, which targets CD30 in Classical Hodgkin Lymphoma and Mylotarg® which targets CD33 for the treatment
of Acute Myeloid Leukemia. To avoid target-related toxicities, traditional ADCs have historically been limited to targeting proteins that are expressed highly
in tumors, but that are also absent or poorly expressed in healthy tissues. Very few cancer-associated proteins have this desired profile. Because our Probody
therapeutics are designed to minimize binding of potent anti-cancer therapy to normal tissues, we believe we can address a new class of targets with attractive
features that were previously unsuitable because of expression on normal tissues. We have a broad research program at CytomX aimed at discovering and
validating this new class of targets and CD166 is the first such target for which we advanced a PDC product candidate into clinical trials. CD166 is highly
and homogenously expressed in multiple different tumors types, which makes it an attractive target for a Probody drug conjugate therapeutic; however, the
high expression of CD166 on normal tissues makes this a difficult target to drug with a traditional ADC.
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CX-2009 is derived from a CytomX discovered and humanized CD166 antibody that exhibits high affinity binding to CD166. Using our proprietary
technology, we used this antibody to engineer a Probody therapeutic targeting CD166 that is designed to be masked when active proteases are absent but can
be specifically activated by any one of several different tumor-associated proteases. Furthermore, through a license from ImmunoGen, we have gained access
to the potent microtubule inhibiting payload DM4 which we conjugated to the anti-CD166 Probody, resulting in CX-2009; a PDC designed to bind to CD166
specifically in the tumor microenvironment. The design of CX-2009 is intended to maximize the anti-cancer potential of CD166 by targeting the antibody-
conjugated cytotoxic payload, DM4, to tumor cells but not normal cells that express CD166.
PROCLAIM-CX-2009 Clinical Program
PROCLAIM-CX-2009-001 is a Phase 1/2 clinical trial evaluating the tolerability and preliminary antitumor activity of CX-2009 as a monotherapy, which we
initiated in June 2017. This study is in seven tumor types that have high CD166 expression: breast carcinoma, castration-resistant prostate carcinoma,
cholangiocarcinoma, endometrial carcinoma, epithelial ovarian carcinoma, head and neck squamous cell carcinoma and non-small cell lung carcinoma. The
figure below describes the design of PROCLAIM-CX-2009-001.
Design and status of PROCLAIM-CX-2009-001 Phase 1/2 clinical trial
Part A; A2- Monotherapy Dose Escalation
At the CytomX 2019 R&D Day, we presented data as of a February 6, 2019 data cutoff on 76 patients treated at doses ranging from 0.25 to 10 mg/kg of CX-
2009 every three weeks. Preliminary data from 46 efficacy evaluable patients demonstrated evidence of anti-cancer activity observed at doses of greater than
or equal to 4 mg/kg. Tumor shrinkage was observed in 16 (34.8%) patients in multiple tumor types with 5 unconfirmed partial responses (2 each in ovarian
and breast cancers and one in head and neck cancer). Of note, comparable levels of anti-cancer activity were observed in patients who were PD-pathway
inhibitor naive or resistant, respectively.
CX-2009 was generally well tolerated and the MTD was not reached. Of the 76 patients, 47 (61.8%) patients experienced a Grade 3/4 TEAEs and 23
(30.3%) patients experienced a Grade 3/4 TRAE. The most common adverse event observed was ocular toxicity, an anticipated toxicity associated with the
DM4 payload.
In April 2019, we presented updated interim safety and antitumor data from the dose-escalation phase (Part A and A2) of the ongoing PROCLAIM-CX-2009-
001 study at the annual meeting of the AACR. As of a February 26, 2019 data cutoff, 78 patients were enrolled. Evidence of clinical activity was observed at
doses of 4 mg/kg and above, a dose range at which DM4 conjugates have been shown by others to demonstrate anti-tumor activity. 39 patients received ≥4
mg/kg of CX-2009 and had at least one post-baseline on-study tumor assessment at time of data cut-off. Of these, 15 (38%) patients had evidence of tumor
shrinkage, including seven unconfirmed partial responses (four patients with breast cancer, two with ovarian cancer and one with head and neck cancer). 29
(74%) patients achieved stable disease or better at the time of the first on-treatment scan. The MTD was not reached at the highest dose level tested of 10
mg/kg. The most common TRAEs were grade 1 and 2 and included nausea (32%), fatigue (24%) and decreased appetite (23%). In the design of CX-2009, the
CD-166 antibody is masked, but not the DM4 payload. Therefore, non-specific, DM4-mediated toxicities, such as ocular toxicity, were expected and were
seen in this trial. Accordingly, the most common grade 3/4 TRAE was keratitis, occurring in 6 patients (8%), 5 of whom received doses equal to or greater
than 8 mg/kg. The achievement of therapeutic doses of CX-2009 during this first dose escalation study of this agent in the absence of any evidence of acute,
on-target, CD-166 toxicities, is consistent with the Probody platform hypothesis and with CX-2009 performing as it was designed. Enrollment in Q3W dose
escalation is complete and we have determined that 7 mg/kg is our Recommended Phase 2 Dose (RP2D).
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Part B - Phase 2 Cohort Expansion Trial
Based on the tolerability and activity data from Part A and A2, in December 2019, we announced that we were initiating a Phase 2 expansion study of CX-
2009 monotherapy at 7 mg/kg administered every three weeks in up to 40 patients with hormone receptor (ER, PR) positive, HER2 negative breast
cancer. This cohort expansion trial is open to enrollment.
Worldwide, breast cancer is the most commonly occurring cancer in women and the second most common cancer overall. In the U.S. in 2019, there will be
an estimated 271,270 new cases of invasive breast cancer diagnosed in women and 2,670 cases diagnosed in men, of which 60% to 70% are hormone-
positive/HER2-negative breast cancer. Newly diagnosed patients with invasive breast cancer are treated with anti-estrogen therapy, which can be single-agent
hormone therapy or doublet-based hormonal therapy (including therapy based on CDK4/6 inhibition or mTOR inhibition). If their cancer progresses, patients
may require cytotoxic chemotherapy. For patients that progress following the later stage therapies, there is a significant need for more efficacious treatment
options.
Collaboration Product Candidates in the Clinic
We are actively developing additional Probody therapeutics in the clinic in collaboration with other companies.
BMS-986249, a CTLA-4 Probody Therapeutic in Collaboration with Bristol-Myers Squibb
Treatment with ipilimumab as a monotherapy or in combination with nivolumab (anti-PD-1 mAb) results in clinically meaningful anti-tumor activity in
several malignancies; however, treatment is also associated with irAEs. Strategies to reduce the frequency and severity of anti-CTLA-4-associated irAEs
while preserving anti-tumor activity could improve the benefit/risk of anti-CTLA-4 containing treatment regimens.
In collaboration with our partner, Bristol-Myers Squibb, we are conducting Probody versions of ipilimumab and unmasked nivolumab. Ipilimumab is a
successful drug with global sales in excess of $1 billion. However, ipilimumab has a narrow therapeutic window and the FDA approval has a black box
warning about potential severe and fatal immune-related adverse events. We believe that our CTLA-4 Probody therapeutic may be able to effectively localize
the CTLA-4 antibody activity to the tumor microenvironment, thereby limiting systemic toxicities normally seen with Yervoy® and expanding the reach of
this important anti-cancer mechanism. We believe that Bristol-Myers Squibb is the optimal strategic partner for our CTLA-4 Probody therapeutic given their
expertise in cancer immunotherapy and their success with Yervoy®.
At various scientific congresses in 2017 and 2018, Bristol-Myers Squibb presented pre-clinical efficacy and safety data on BMS-986249. For example, at the
2018 Keystone Drugs as Antibodies Conference, Bristol-Myers Squibb scientists presented preclinical efficacy data that showed that BMS-986249
demonstrates comparable anti-tumor activity to ipilimumab in preclinical models. At the Society of Immunotherapy of Cancer (“SITC”) meeting in 2017,
Bristol-Myers Squibb scientists presented preclinical data that showed that non-human primates treated with BMS-986249 demonstrated reduced peripheral
T-cell activation compared to ipilimumab, suggesting the Probody could have reduced systemic side effects. In addition, Bristol-Myers Squibb scientists
presented data on the toxicity profile BMS-986249 and ipilimumab at the AACR-EORTC-NCI meeting in 2017. Bristol-Myers Squibb scientists concluded
that the highest non-severely toxic dose (“HNSTD”) of BMS-986249 was 50 mg/kg, while the HNSTD of ipilimumab was determined to be 10 mg/kg. The
efficacy data, along with the peripheral T-cell activation data and the widened safety window suggests that BMS-986249 has the potential to widen the
therapeutic window of ipilimumab.
Based on the preliminary results of the Phase 1 arm of the trial, Bristol-Myers Squibb has initiated a randomized cohort expansion in its ongoing Phase 1/2a
trial of the anti-CTLA-4 Probody BMS-986249. The randomized Phase 2 cohort expansion is designed to further evaluate the safety and efficacy of BMS-
986249 alone and in combination with OPDIVO® (nivolumab) in patients with metastatic melanoma, as part of the larger clinical trial. The advancement of
BMS-986249 into this part of the planned study triggered a Phase 2 initiation milestone payment of $10.0 million from Bristol-Myers Squibb to CytomX.
In September 2019, Bristol-Myers Squibb also initiated the dose escalation phase of a Phase 1/2a clinical trial of a second anti-CTLA-4 Probody, BMS-
986288, based on a modified version of ipilimumab, administered as monotherapy and in combination with nivolumab in patients with selected advanced
solid tumors.
CX-2029, a CD71 Probody Drug Conjugate in Collaboration with AbbVie
We are collaborating with AbbVie on the development of CX-2029, a CD71 Probody Drug Conjugate (“CD71-PDC”). CD71, also known as transferrin
receptor 1 (“TfR1”), is a protein that is essential for iron uptake in dividing cells, is highly expressed in a number of solid and hematologic cancers and has
attractive molecular properties for efficient delivery of cytotoxic payloads to tumor cells, such as rapid and efficient internalization of ADCs and PDCs into
the cancer cell. However, the combination of high expression in tumors and ubiquitous expression in normal tissues makes CD71 a difficult target for
conventional ADCs, but potentially a good candidate for development of PDCs.
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In preclinical efficacy models, we have shown that CX-2029 is efficacious in many cell line and patient-derived xenograft models that represent many
different cancer types. As part of our pre-clinical assessment of CD71-PDCs, we assessed activity in 42 pre-clinical models. We observed tumor regression or
stasis in 30 of 42 models (71%) and tumor growth inhibition in 10 of 42 models (24%), demonstrating a wide-ranging pre-clinical anti-tumor activity profile
for CD71-PDCs. We have also compared the toxicity profile of a CD71 Antibody Drug Conjugate (“CD71-ADC”) to a CD71-PDC in preclinical studies in
non-human primates and have demonstrated lethality of the ADC, compared to the PDC, which was well tolerated. Taken together, we believe that CX-2029
has the potential to create a therapeutic window for the otherwise undruggable CD71 target. CX-2029 is currently being studied in a Phase 1/2 clinical trial
(PROCLAIM-CX-2029) that is being conducted by CytomX.
Preclinical Product Candidates
We are actively pursuing the application of our Probody platform technology to multiple other product candidates. These include additional potential first-in-
class PDC product candidates and T-Cell Engaging bispecific product candidates. Below are selected examples of product candidates that we are pursuing.
Probody T-Cell Engaging Bispecific Platform
We believe that our Probody platform can be applied to T-cell engaging bispecific antibodies (“TCBs”). TCBs are a highly potent therapeutic modality,
designed to direct the activity of cytotoxic T-cells to tumors. TCBs such as Blincyto®, a CD19-directed TCB commercialized by Amgen, have shown clinical
activity in hematologic malignancies, but development of TCBs for solid tumor indications is proving challenging. Due to their high potency, TCBs can target
normal tissues with low antigen expression, resulting in significant on-target, off-tumor toxicity that can limit dosing to low levels. As a result, it has been
difficult to reach the level of drug exposure required for efficacy without excessive toxicity. Therefore, novel methods are needed to enable the potent anti-
tumor activity of TCBs while limiting toxicity due to cytokine release and damage to healthy tissues.
Our most advanced asset in this modality is a T cell-engaging Bispecific Probody therapeutic (“Pb-TCB”) targeting EGFR and CD3. EGFR is a validated
oncology target. Multiple marketed drugs target EGFR, among them the antibodies cetuximab (Erbitux®), panitumumab (Vectibix®) and necitumumab
(Portrazza®). These and other approved EGFR-targeting drugs produce an anti-cancer effect by blocking EGFR-mediated growth signals in cancer
cells. However, there is untapped potential in targeting EGFR, because while many tumors express EGFR, some do not respond to drugs that work by
blocking EGFR signals. A TCB targeting EGFR and CD3 has the potential to address those patients, because blockade of EGFR-mediated growth signals is
not required for a TCB to have a therapeutic effect. However, preclinical studies have demonstrated that because EGFR is expressed on many normal tissues,
a conventional EGFR-directed TCB is very toxic. A Pb-TCB is designed to address the untapped potential of an EGFR-targeting TCB while reducing the
associated toxicity.
In in vitro preclinical studies, we have demonstrated that the unmasked EGFR-CD3 TCB can exhibit potent dose-dependent tumor cell killing, while the
masked EGFR-CD3 Pb-TCB reduced cytotoxicity by more than 100,000-fold. A TCB, which does not bind EGFR, does not kill tumor cells, demonstrating
that the activity of the TCB is target dependent. However, in established tumor models, we have demonstrated that Pb-TCBs can induce tumor regressions
and demonstrate significant anti-tumor activity. In nonhuman primates, the EGFR-CD3 Pb-TCB has a significantly higher maximum tolerated dose than the
unmasked TCB. Cynomologus monkeys were able to tolerate a dose of 4,000 microgram/kg of the Pb-TCB, while the maximum tolerated dose of the
unmasked TCB was 60 microgram/kg.
Taken together, we believe our Probody Platform has the potential to enable the development of T-cell engaging bispecific therapeutics against broadly
expressed targets such as EGFR. Our EGFR-CD3 Pb-TCB program is partnered with Amgen and we anticipate advancing a lead candidate for this program
during 2020.
EPCAM Probody Drug Conjugate Preclinical Development Program
At the end of 2019, as a result of a strategic restructuring by ImmunoGen, and its decision to out-license certain programs, we obtained a worldwide,
exclusive, sublicensable license from ImmunoGen, to its epithelial cell adhesion molecule (EpCAM)-targeting PDC program. We paid ImmunoGen an
upfront license payment and will pay certain clinical development, approval and commercialization milestone payments if achieved and royalties on product
sales. This program was originally developed by ImmunoGen utilizing our Probody technology and ImmunoGen’s next-generation linker chemistry and
novel maytansinoid payload, DM-21, and arose from our collaboration with ImmunoGen as discussed below.
EpCAM is a target that is highly expressed on a wide variety of tumor types; however, it has been difficult to drug as it is also expressed widely on normal
tissues. Pre-clinical data presented by ImmunoGen at the 2018 European Antibody Congress and the 2019 AACR Annual Meeting indicated that PDCs
against EpCAM elicited potent tumor regression in multiple tumor models while
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minimizing anticipated on-target toxicities outside the tumor microenvironment. We anticipate moving this program into IND-enabling studies during 2020.
Our Collaborations
We believe that the Probody platform has broad applicability across a number of targets and antibody formats. We have leveraged strategic partnering to (a)
extend the reach of our therapeutic opportunity and (b) bring in significant non-dilutive capital into the Company. Since 2013, we have entered into
collaborations with AbbVie, Amgen, Bristol-Myers Squibb and ImmunoGen, among others, to enable development of certain Probody therapeutics. In
constructing each of these collaborations, our primary objectives were to collaborate with leading biopharmaceutical players to validate the potential of
Probody therapeutics, to gain meaningful near-term funding and/or technology access to enable advancement of our wholly owned Probody therapeutics
pipeline, broaden the number of Probody therapeutics that ultimately reach the clinic, and to retain significant milestones, royalties, and in some cases product
rights, for long term upside.
AbbVie Ireland Unlimited Company
In April 2016, we entered into two agreements with AbbVie, a CD71 Co-Development and Licensing Agreement (the “CD71 Agreement”) and the Discovery
Agreement (the Discovery Agreement, together with the CD71 Agreement are collectively referred to as the “AbbVie Agreements”). Under the terms of the
CD71 Agreement, we and AbbVie are co-developing CX-2029, a Probody Drug Conjugate (“PDC”) against CD71, and we are responsible for pre-clinical
and early clinical development. AbbVie will be responsible for later development and commercialization, with global late-stage development costs shared
between the two companies. We will assume 35% of the net profits or net losses related to later development unless we opt-out. If we opt-out from
participation of co-development of CX-2029, AbbVie will have sole right and responsibility for the further development, manufacturing and
commercialization of CX-2029.
Under the CD71 Agreement, we received an upfront payment of $20.0 million in April 2016, and we are eligible to receive up to $470.0 million in
development, regulatory and commercial milestone payments and royalties on ex-US sales in the high teens to low twenties if we participate in the co-
development of CX-2029 subject to a reduction in such royalties if we opt-out from the co-development of the CD71 PDC. Our share of later stage co-
development costs for CX-2029 is capped, provided that AbbVie may offset our co-development cost above the capped amounts from future payments such
as milestone payments and royalties.
Under the terms of the Discovery Agreement, AbbVie received exclusive worldwide rights to develop and commercialize PDCs against up to two targets, one
of which was selected in March 2017 and the second of which was selected in July 2019. We shall perform research services to discover the Probody
therapeutics and create PDCs for the nominated collaboration targets. From that point, AbbVie shall have sole right and responsibility for development and
commercialization of products comprising or containing such PDCs (“Discovery Licensed Products”).
Under the Discovery Agreement, we received an upfront payment of $10.0 million in April 2016 and we received an additional upfront payment of $10.0
million in July 2019 upon the selection by AbbVie of the second target and the satisfaction of certain performance conditions under the CD71 Agreement. We
are also eligible to receive up to $275.0 million in target nomination, development, regulatory and commercial milestone payments and royalties in the high
single to low teens from commercial sales of any resulting PDCs.
Amgen, Inc.
In September 2017, we entered into a Collaboration and License Agreement (the “Amgen Agreement”) with Amgen. Pursuant to the Amgen Agreement, we
received an upfront payment of $40.0 million in October 2017. Concurrent with the entry into the Amgen Agreement, Amgen purchased 1,156,069 shares of
our common stock for $20.0 million.
Under the terms of the Amgen Agreement, we and Amgen are co-developing a Probody T-cell engaging bi-specific therapeutic targeting EGFR (“EGFR
Products”). We are responsible for early-stage development of EGFR Products and all related costs (up to certain pre-set costs and certain limits based on
clinical study size). Amgen will be responsible for late-stage development, commercialization, and all related costs of EGFR Products. Following early-stage
development, we will have the right to elect to participate financially in the global co-development of EGFR Products with Amgen, during which we would
bear certain of the worldwide development costs for EGFR Products and Amgen would bear the rest of such costs (the “EGFR Co-Development Option”). If
we exercise our EGFR Co-Development Option, we will share in somewhat less than 50% of the profit and losses from sales of such EGFR Products in the
U.S., subject to certain caps, offsets, and deferrals. If we choose not to exercise our EGFR Co-Development Option, we will not bear any costs of later stage
development. We are eligible to receive up to $455.0 million in development, regulatory, and commercial milestone payments for EGFR Products, and
royalties in the low-double digit to mid-teen
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percentage of worldwide commercial sales, provided that if we exercise our EGFR Co-Development option, we shall only receive royalties in the low-double
digit to mid-teen percentage of commercial sales outside of the United States.
Amgen also has the right to select a total of up to three targets, including the two additional targets discussed below. We and Amgen will collaborate in the
research and development of Probody T-cell engaging bi-specifics products directed against such targets. Amgen has selected one such target (the “Amgen
Other Product”). If Amgen exercises its option within a specified period of time, it can select two such additional targets (the “Amgen Option Products” and,
together with the Amgen Other Product, the “Amgen Products”). Except with respect to preclinical activities to be conducted by us, Amgen will be
responsible, at its expense, for the development, manufacture, and commercialization of all Amgen Products. If Amgen exercises all of its options and
advances all three of the Amgen Products, we are eligible to receive up to $950.0 million in upfront, development, regulatory, and commercial milestones and
tiered high single-digit to low-teen percentage royalties.
We have the option to select, from programs specified in the Amgen Agreement, an existing pre-clinical stage T-cell engaging bispecific product from the
Amgen pre-clinical pipeline. We will be responsible, at our expense, for converting this program to a Probody T-cell engaging bispecific product, and
thereafter, be responsible for development, manufacturing, and commercialization of the product (“CytomX Product”). Amgen is eligible to receive up to
$203.0 million in development, regulatory, and commercial milestone payments for the CytomX Product, and tiered mid-single digit to low double-digit
percentage royalties.
Bristol-Myers Squibb Company
In May 2014, we and Bristol-Myers Squibb entered into a Collaboration and License Agreement (the “BMS Agreement”) to discover and develop compounds
for use in human therapeutics aimed at multiple immuno-oncology targets using our Probody therapeutic technology.
Under the terms of the BMS Agreement, we granted Bristol-Myers Squibb exclusive worldwide rights to develop and commercialize Probody therapeutics for
up to four oncology targets, two of which were selected upon the execution of the BMS Agreement. Pursuant to the BMS Agreement, we received an upfront
payment of $50.0 million and were initially entitled to receive contingent payments of up to an aggregate of $1,217.0 million in development, regulatory and
commercial milestone payments, which can be reduced by any such payments received or by any termination of targets being pursued. We are entitled to
royalty payments in the mid-single digit to low double digits percentage from potential future sales. We also receive research and development service
fees. Bristol-Myers Squibb has terminated certain targets from the BMS Agreement, as described below.
In January 2016, Bristol-Myers Squibb selected the third target pursuant to the BMS Agreement and paid us $10.0 million. In December 2016, Bristol-Myers
Squibb selected the fourth and its final target pursuant to the BMS Agreement and paid us $15.0 million. In December 2016, Bristol-Myers Squibb selected
BMS-986249, a CTLA-4 Probody therapeutic, as a clinical candidate pursuant to the BMS Agreement, which triggered a $2.0 million pre-clinical milestone
payment to us. In November 2017, Bristol-Myers Squibb received acceptance of the IND for BMS-986249 from the FDA, which triggered a $10.0 million
milestone payment to us. Bristol-Myers Squibb recently advanced BMS-986249 into a randomized Phase 2 cohort expansion in patients with metastatic
melanoma in combination with the PD-1 inhibitor nivolumab as part of the larger clinical trial, triggering, in February 2020, a $10.0 million milestone
payment from Bristol-Myers Squibb to us.
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In September 2019, Bristol-Myers Squibb initiated the dose escalation phase of a Phase 1/2a clinical trial of a second anti-CTLA-4 Probody, BMS-986288,
based on a modified version of ipilimumab, administered as monotherapy and in combination with nivolumab in patients with selected advanced solid
tumors.
In March 2017, we and Bristol-Myers Squibb entered into Amendment Number 1 to Extend Collaboration and License Agreement (the “Amendment”). The
Amendment grants Bristol-Myers Squibb exclusive worldwide rights to develop and commercialize Probody therapeutics for up to six additional oncology
targets and two non-oncology targets.
Under the terms of the Amendment, we will continue to collaborate with Bristol-Myers Squibb to discover and conduct preclinical development of Probody
therapeutics against targets selected by Bristol-Myers Squibb.
Pursuant to the Amendment, we received an upfront payment of $200.0 million and we will be eligible to receive up to an aggregate of $3,586.0 million as
follows: (i) up to $116.0 million in development milestone payments per target or up to $928.0 million if the maximum of eight targets are selected for the
first product modality; (ii) up to $124.0 million in milestone payments for the first commercial sale in various territories for up to three indications per target
program or up to $992.0 million if the maximum of eight targets are selected for the first product modality; (iii) up to $60.0 million in sales milestone
payments per target or up to $480.0 million if maximum of eight targets are selected for the first product modality; and (iv) up to $56.3 million in
development milestone payments or up to $450.0 million if the maximum of eight targets are selected for the second product modality; (v) up to $62.0 million
in milestone payments for the first commercial sale in various territories for up to three indications per target program or up to $496.0 million if the maximum
of eight targets are selected for the second product modality; (iii) up to $30.0 million in sales milestone payments per target or up to $240.0 million if
maximum of eight targets are selected for the second product modality. We are also entitled to tiered mid-single to low double-digit percentage royalties from
potential future sales.
In January 2019, Bristol-Myers Squibb provided us notification of termination of three of the targets in the BMS Agreement. The termination of these
targets does not affect the Amendment, which remains in full force and effect.
ImmunoGen, Inc.
In January 2014, CytomX and ImmunoGen entered into the Research Collaboration Agreement (the “ImmunoGen Research Agreement”). The ImmunoGen
Research Agreement provides us with the right to use ImmunoGen’s ADC technology in combination with our Probody therapeutic technology to create a
PDC directed at one specified target under a research license, and to subsequently obtain an exclusive, worldwide development and commercialization license
to use ImmunoGen’s ADC technology to develop and commercialize such PDCs. Under the agreement, we provided ImmunoGen with the rights to our
Probody therapeutic technology to create PDCs directed at two targets under the research license and to subsequently obtain exclusive, worldwide
development and commercialization licenses to develop and commercialize such PDCs. In February 2016, we exercised our option to obtain a development
and commercialization license for CX-2009 pursuant to the terms of the ImmunoGen Research Agreement (the “CX-2009 License”). In February 2017,
ImmunoGen exercised its option to obtain a development and commercialization license for the first of its two targets. ImmunoGen discontinued this program
in July 2017 and substitution rights for this program terminated in February 2017. ImmunoGen exercised its second option to obtain a development and
commercialization license pursuant to the ImmunoGen Research Agreement (the “ImmunoGen 2017 License”) for a target, epithelial cell adhesion molecule
(EPCAM), in December 2017. At the end of 2019, as a result of a strategic restructuring by ImmunoGen and its decision to out-license certain programs, we
obtained a worldwide, exclusive, sublicensable license to the EPCAM PDC program from ImmunoGen (the “ImmunoGen 2019 License”) and the
ImmunoGen 2017 license ended.
Under the terms of the ImmunoGen Research Agreement, both we and ImmunoGen were required to perform research activities on behalf of the other party
for no monetary consideration. Each party was solely responsible for the development, manufacturing and commercialization of any products resulting from
the exclusive development and commercialization license obtained by such party under the agreement. In consideration for the CX-2009 License,
ImmunoGen is entitled to receive up to $60.0 million in development and regulatory milestone payments, up to $100.0 million in sales milestone payments
and royalties in the mid to high single digits percentage on the commercial sales of any resulting product. In August 2017, we made a milestone payment of
$1.0 million to ImmunoGen for the first patient dosing with CX-2009 and in February 2020, we triggered a $3.0 million milestone payment to ImmunoGen
for the first dosing of a patient in the CX-2009 Phase 2 clinical trial. Under the ImmunoGen 2019 License, we gained rights to the EPCAM PDC program
and, in return, we made an upfront payment, and we will pay certain clinical development, approval and commercialization milestone payments if achieved
and royalties on product sales.
Manufacturing
Our Probody therapeutic candidates are designed to be produced as fully recombinant antibody prodrugs. Our Probody therapeutic candidates are also
designed to maintain the manufacturability benefits of antibodies and leverage well established technologies used
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for antibody production. We conduct cell line development and process development both in-house and in collaboration with contract development and
manufacturing organizations (“CMO”). CMOs are responsible for manufacturing of drug substance and clinical drug product materials.
Our preferred cell line has been successfully used for manufacturing several antibodies and requires minimal process optimization to establish a process to
support early phase manufacturing. We utilize well established production steps typically part of a platform manufacturing process for antibodies. The CMO
we have selected has a strong track record in manufacturing therapeutic biologics, including antibodies. Similarly, for our PDC projects we have selected
CMOs with strong expertise in clinical/commercial drug conjugate manufacturing and with capabilities for toxin conjugation and fill-finish. Furthermore, our
two lead PDC programs incorporate toxin payloads that have an established clinical and regulatory history.
To date, we have generally been able to successfully manufacture CX-072, CX-2009 and CX-2029 for our ongoing early stage clinical trials with contract
manufacturers. Our partner, Bristol-Myers Squibb, has also been successful in independently manufacturing drug product for BMS-986249 and BMS-
986288. However, in November 2019, we encountered a production failure at one of our CMOs that manufactures CX-072 for our Phase 2 clinical trial. We
have contracted with alternative suppliers that we believe will be able to timely deliver clinical trial drug product for our ongoing trial. However, if the
contract manufacturers are not able to manufacture satisfactory drug product in the second quarter of 2020, we may be required to temporarily suspend our
ongoing trial for new and ongoing patients, which could affect our ability to conduct our trial on our originally planned timeline. Furthermore, in order to
conduct later stage clinical trials of our product candidates, including CX-072, CX-2009 and CX-2029, and eventually, if approved, commercial products, we
will need to manufacture them in larger quantities. We, or any manufacturing partners, may be unable to successfully increase the manufacturing scale and
capacity for any of our product candidates in a timely or cost-effective manner, or at all. For example, we are currently working with our CMOs to change
our manufacturing processes and formulations as well as scaling up for large drug manufacturing capability and to increase the term of stability for CX-072
drug product for late stage clinical trials and commercialization. However, we may have to start late stage trials with our early clinical trial drug product and
switch to the late stage or commercial drug product mid trial. In such event, the FDA will require us to complete bridging studies to compare the earlier stage
material with the late stage or commercial material to assure comparability between the earlier trial material and the late stage or commercial
material. Changing the formulation and scale up process is a complicated and difficult task. While we believe we can complete the process successfully,
there can be no assurances that the changes we make to the drug product and manufacturing process will be successful or completed in a timely manner or
that the FDA will not require additional development steps or studies from those we believe are necessary. If we are unable scale up our manufacturing
capabilities with respect to CX-072 or any of our other product candidates, increase the life of drug stability of CX-072 or such other product candidates, or
successfully complete the FDA’s bridging requirements, we may not be able to successfully obtain FDA approval and commercialize CX-072 or such other
product candidates in a timely manner or at all.
The supply chain for the manufacturing of our product candidates is complicated and can involve many parties. We do not own manufacturing facilities for
producing such supplies and rely on third-party contract manufacturers to manufacture our clinical trial and preclinical study product supplies. Our clinical
trial manufacturing contractors and suppliers are our sole source for their respective manufacturing and supplies. Failure of any of these contractors could
affect our ability to have clinical trial material available when needed. This could result in a substantial delay of our clinical trials. For example, for each of
CX-072, CX-2009 and CX-2029, our manufacturing supply chain includes several contract manufacturers, and failure by any of these manufacturers could
result in interruptions of our clinical studies. We do not have any long-term contracts and we do not currently have an alternative to any of our third-party
contract manufacturers. Consequently, there can be no assurance that our preclinical and clinical development product supplies will not be limited,
interrupted, or of satisfactory quality or continue to be available at acceptable prices. In particular, any replacement of any of our third-party contract
manufacturers could require significant effort and expertise because there may be a limited number of qualified replacements. In addition, we may encounter
issues with transferring technology to a new third-party manufacturer, and we may encounter regulatory delays if we need to move the manufacturing of our
products from one third-party manufacturer to another. For example, we were dependent on ImmunoGen under our collaboration for certain steps in the
manufacturing of clinical quantities of CX-2009. At the end of 2018, ImmunoGen closed their clinical manufacturing facility in Norwood, Massachusetts
provided clinical manufacturing support for the CX-2009 program. We recently completed the transfer of the drug substance manufacturing process from
ImmunoGen to a contract manufacturer, where we have an existing relationship and with expertise in the manufacture of antibody drug conjugates at a
clinical and commercial scale. While the manufacturing transfer process has been completed, there can be no assurance that we will not experience a
disruption in the supply of CX-2009 as a result of such transfer or that we will not experience any other disruption in the manufacturing of CX-2009.
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In-Licenses
License from UCSB
In August 2010, we entered into an agreement with UCSB, that grants us an exclusive license, with the right to sublicense, under the patent rights owned by
UCSB covering mask and screening technologies relating to the identification and discovery of pro-protein biologics, including masks and substrates, for the
identification of pro-proteins, for use in the fields of therapeutics, in vivo diagnostics, and prophylactics (the “UCSB Agreement”). The UCSB Agreement
also grants us an exclusive license, with the right to sublicense, under UCSB’s interest in certain patent rights we co-own with UCSB covering Probody
antibodies and other pro-proteins in the fields of therapeutics, in vivo diagnostics and prophylactics.
We had no upfront payment obligations under the agreement. In April 2019, we amended the UCSB Agreement and in connection with the amendment, we
paid UCSB $1.0 million and issued 150,000 shares of our common stock to UCSB. We are obligated to pay to UCSB royalties on net sales of licensed
products in the low single digit percentages, subject to annual minimum amounts as well as certain reductions. We are required to make milestone payments
to UCSB on the accomplishment of certain milestones totaling up to $1,075 million for each of the first two indications for each licensed product consisting
of a molecule or compound covered by the licensed patent rights. We were also obligated to make a payment to UCSB upon the first occurrence of an IPO or
change of control. If the Company sublicenses its rights under the UCSB Agreement, it must pay UCSB a percentage of our total sublicense revenues ranging
from the mid-single to mid-teen percentages, which total amount would be first reduced by the aggregate amount of certain research and development related
expenses incurred by the Company and other permitted deductions.
Licenses from ImmunoGen
In February 2016, we exercised our option to obtain a worldwide, exclusive, sublicensable license from ImmunoGen for development and commercialization
of products directed against the target selected by us under our research collaboration agreement with ImmunoGen. Additionally, in December 2019, we
obtained a worldwide, exclusive, sublicensable license to ImmunoGen’s EPCAM PDC program. See the description of the license agreements set forth under
the caption “Our Collaborations—ImmunoGen, Inc.” in this Item 1 of this Annual Report on Form 10-K.
Competition
CytomX is pioneering a new class of antibody therapeutics – the Probody therapeutic platform. The biotechnology and biopharmaceutical industries, and the
immuno-oncology subsector, are characterized by rapid evolution of technologies, fierce competition and strong defense of intellectual property. Any product
candidates that we successfully develop and commercialize will have to compete with existing therapies and new therapies that may become available in the
future. While we believe that our proprietary Probody platform and scientific expertise in the field of biologics and immuno-oncology provide us with
competitive advantages, a wide variety of institutions, including large biopharmaceutical companies, specialty biotechnology companies, academic research
departments and public and private research institutions, are actively developing potentially competitive products and technologies. We face substantial
competition from biotechnology and biopharmaceutical companies developing biopharmaceutical products, particularly with respect to in immuno-oncology
therapeutics, where competition is intense and rapidly evolving. These competitors generally fall within the following categories:
Masking and conditional activation: Several companies, including AbbVie, Adagene, Akriveia, Amgen, Amunix, BioAtla, Halozyme, Harpoon, Maverick
Therapeutics, Pandion Therapeutics, Revitope, Roche, Seattle Genetics, and Werewolf are exploring antibody masking and/or conditional activation
strategies, which could compete with our Probody Platform.
Cancer immunotherapies: Cancer immunotherapy is one of the most competitive and fastest growing segments of the pharmaceutical industry. Almost
every large pharmaceutical company is developing cancer immunotherapies, including Amgen, AstraZeneca PLC, Bristol-Myers Squibb, Celgene,
GlaxoSmithKline plc, Merck & Co., Inc., Novartis AG, Pfizer, Roche Holding Ltd and Sanofi SA. In addition, many large and mid-sized biotech companies
such as BeiGene Incyte, TESARO, Inc., Nektar, and Alkermes have ongoing efforts in cancer immunotherapy. In addition, numerous smaller companies are
also working in the space.
Antibody drug conjugates: Several large pharmaceutical companies, such as AbbVie, Daiichi Sankyo, Pfizer, Roche, and Takeda are developing
ADCs. Three mid-sized companies, ImmunoGen, Seattle Genetics, and Immunomedics are also leaders in this space. In addition, numerous smaller
companies have ongoing efforts in the space.
T-cell engaging bispecifics: Several large pharmaceutics companies, such as Amgen, Novartis, and Roche, have on-going efforts in the space of TCBs. In
additional, several mid-sized biotech companies such as Macrogenics and Xencor have ongoing efforts in TCBs. In addition, numerous smaller companies
have ongoing efforts in the space.
Many of our competitors, either alone or with strategic partners, have substantially greater financial, technical and human resources than we do. Accordingly,
our competitors may be more successful than us in obtaining approval for treatments and achieving widespread market acceptance, rendering our treatments
obsolete or non-competitive. Accelerated merger and acquisition activity in
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the biotechnology and biopharmaceutical industries may result in even more resources being concentrated among a smaller number of our competitors. These
companies also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical study sites and patient
registration for clinical studies and acquiring technologies complementary to, or necessary for, our programs. Smaller or early-stage companies may also
prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Our commercial opportunity could
be substantially limited in the event that our competitors develop and commercialize products that are more effective, safer, less toxic, more convenient or
less expensive than our comparable products. In geographies that are critical to our commercial success, competitors may also obtain regulatory approvals
before us, resulting in our competitors building a strong market position in advance of our products’ entry. We believe the factors determining the success of
our programs will be the efficacy, safety and convenience of our product candidates.
Intellectual Property
We strive to protect and enhance the proprietary technology, inventions, and improvements that are commercially important to our business, including
seeking, maintaining, and defending patent rights, whether developed internally or licensed from third parties. Our policy is to seek to protect our proprietary
position by, among other methods, pursuing and obtaining patent protection in the United States and in jurisdictions outside of the United States related to our
proprietary technology, inventions, improvements, platforms and product candidates that are important to the development and implementation of our
business. Our patent portfolio is intended to cover, but is not limited to, our technology platforms, our product candidates and components thereof, their
methods of use and processes for their manufacture, our proprietary reagents and assays, and any other inventions that are commercially important to our
business. We also rely on trade secret protection of our confidential information and know-how relating to our proprietary technology, platforms and product
candidates, continuing innovation, and in-licensing opportunities to develop, strengthen, and maintain our proprietary position in our Probody platform and
product candidates. We expect to rely on data exclusivity, market exclusivity, patent term adjustment and patent term extensions when available. Our
commercial success may depend in part on our ability to obtain and maintain patent and other proprietary protection for our technology, inventions, and
improvements; to preserve the confidentiality of our trade secrets; to maintain our licenses to use intellectual property owned or controlled by third parties; to
defend and enforce our proprietary rights, including our patents; to defend against and challenge the assertion by third parties of their purported intellectual
property rights; and to operate without the unauthorized infringement of valid and enforceable patents and other proprietary rights of third parties.
We believe that we have a strong global intellectual property position and substantial know-how and trade secrets relating to our Probody therapeutic
technology, platform and product candidates. Our patent portfolio as of February 20, 2020 contains at least 135 issued patents (some of which are co-owned
with a third party) and 325 pending patent applications (some of which are co-owned with a third party). We have exclusively licensed UCSB’s interest in the
co-owned patent family covering Probody and other pro-protein technology in the fields of therapeutics, in vivo diagnostics and prophylactics.
These patents and patent applications include claims directed to:
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Probody platform and PDC platform;
Other pro-protein platforms;
Probody conjugates and conjugation methods to produce PDCs;
Bispecific and other multispecific Probody therapeutics, including T-cell-recruiting bispecific Probody therapeutics;
Protease-cleavable linkers, e.g., serine protease- and/or MMP-cleavable linkers;
Improved display systems for peptide display, e.g., to identify masks, substrates, and other proteins;
Cancer immunotherapy Probody therapeutics, e.g., PD-L1, PD-1, and CTLA-4 Probody therapeutics, as well as related novel antibodies and
combination therapies;
Probody drug conjugates, e.g., CD-166, CD71 (transferrin receptor), CD49c (integrin alpha 3), and CD147 PDCs, as well as related Probody
therapeutics, novel antibodies and ADCs;
Probody therapeutics to other targets, e.g., EGFR, Jagged, and IL6R Probody therapeutics, as well as related PDCs, novel antibodies and
ADCs;
Antibodies that bind Probody therapeutics, e.g., anti-mask and anti-Probody antibodies;
Antibodies that bind key targets;
Antibodies that bind the active site of uPA protease;
Compositions and methods to discriminate between intact Probody therapeutics and activated versions thereof, as well as other translation
assays;
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Methods to produce intact Probody therapeutics; and
Methods to use any of the above-referenced compounds and compositions.
In addition, we have exclusively licensed a patent portfolio of patent families from UCSB patents and patent applications that cover compositions and
methods related to screening for and identification of masks and protease-cleavable linkers that we incorporate into our Probody therapeutics.
As for the Probody platform, product candidates and processes we develop and commercialize, in the normal course of business, we intend to pursue, where
appropriate, patent protection or trade secret protection relating to compositions, methods of manufacture, assay methods, methods of use, treatment of
indications, dosing and formulations. We may also pursue patent protection with respect to product development processes and technology.
We continually assess and refine our intellectual property strategy as we develop new platform technologies and product candidates. To that end, we are
prepared to file additional patent applications if our intellectual property strategy requires such filings, or where we seek to adapt to competition or seize
business opportunities. Further, we are prepared to file patent applications, as we consider appropriate under the circumstances, relating to the new
technologies that we develop. In addition to filing and prosecuting patent applications in the United States, we often file counterpart patent applications in the
European Union and in additional countries where we believe such foreign filing is likely to be beneficial, including but not limited to any or all of Australia,
Brazil, Canada, China, Europe, Hong Kong, India, Indonesia, Israel, Japan, Malaysia, Mexico, New Zealand, Russia or Eurasian Patent Organization,
Singapore, South Africa and South Korea.
Our currently issued patents will likely expire on dates ranging from 2028 to 2035, unless we receive patent term extension or adjustment as might be
available under applicable law. If patents are issued on our pending patent applications, the resulting patents are projected to expire on dates ranging from
2028 to 2040, unless we receive patent term extension or adjustment. However, the actual protection afforded by a patent varies on a product-by-product
basis, from country-to-country, and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related
extensions, the availability of legal remedies in a particular country, and the validity and enforceability of the patent.
All of our patents and patent applications are subject to risks and uncertainties under U.S. and foreign law. We also rely on trademark registration to protect
our trademarks. For a more comprehensive discussion of risks related to our proprietary technology, inventions, improvements, platforms and product
candidates, please see the section entitled “Risk Factors—Risks Related to Intellectual Property.”
We also rely on trade secret protection for our confidential and proprietary information. It is our policy to require our employees, consultants, outside
scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting
relationships with us. In the case of employees, the agreements provide that all inventions conceived by the individual, and which are related to our current or
planned business or research and development or made during normal working hours, on our premises or using our equipment or proprietary information, are
our exclusive property. In many cases our confidentiality and other agreements with consultants, outside scientific collaborators, sponsored researchers and
other advisors require them to assign or grant us licenses to inventions they invent as a result of the work or services they render under such agreements or
grant us an option to negotiate a license to use such inventions.
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Government Regulation and Product Approval
Governmental authorities in the U.S., at the federal, state and local level, and other countries extensively regulate, among other things, the research,
development, testing, manufacture, labeling, packaging, promotion, storage, advertising, distribution, marketing and export and import of products such as
those we are developing. Our product candidates are subject to regulation in the U.S. as biologics, which must be approved by the FDA through the BLA
process before they may be legally marketed in the U.S. and will be subject to similar requirements in other countries prior to marketing in those countries.
The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations require
the expenditure of substantial time and financial resources.
U.S. Government Regulation
In the U.S., the FDA regulates biologics under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and the Public Health Service Act (“PHSA”), and their
respective implementing regulations. Failure to comply with the applicable U.S. requirements at any time during the product development or approval
process, or after approval, may subject an applicant to administrative or judicial sanctions, any of which could have a material adverse effect on us. These
sanctions could include:
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refusal to approve pending applications;
withdrawal of an approval;
imposition of a clinical hold;
warning or untitled letters;
seizures or administrative detention of product;
total or partial suspension of production or distribution; or
injunctions, fines, disgorgement, or civil or criminal penalties.
BLA Approval Process
The process required by the FDA before a biologic may be marketed in the U.S. generally involves the following:
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completion of nonclinical laboratory tests, animal studies and formulation studies conducted according to good laboratory practices (“GLPs”),
and other applicable regulations;
submission to the FDA of an IND, which must become effective before human clinical trials may begin;
performance of adequate and well-controlled human clinical trials according to good clinical practices (“GCPs”), to establish the safety, purity
and potency of the product candidate for its intended use;
submission to the FDA of a BLA;
satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the product candidate is
produced to assess compliance with current good manufacturing practices (“cGMPs”) to assure that the facilities, methods and controls are
adequate to preserve the product candidate’s continued safety, purity and potency, and of selected clinical investigation sites to assess
compliance with GCPs; and
FDA review and approval of the BLA to permit commercial marketing of the product for its particular labeled uses in the United States.
Preclinical and Clinical Studies
Once a biologic product candidate is identified for development, it enters the preclinical or nonclinical testing stage. Nonclinical tests include laboratory
evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit the results of the nonclinical tests, together
with manufacturing information and analytical data, to the FDA as part of the IND. Some nonclinical testing may continue even after the IND is submitted. In
addition to including the results of the nonclinical studies, the IND will also include a protocol detailing, among other things, the objectives of the clinical trial,
the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the first phase lends itself to an efficacy determination. The IND
automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the IND on clinical hold. In such a case,
the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. A clinical hold may occur at any time during the life of an
IND and may affect one or more specific studies or all studies conducted under the IND.
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All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCPs. They must be conducted under
protocols detailing the objectives of the trial, dosing procedures, research subject selection and exclusion criteria and the safety and effectiveness criteria to be
evaluated. Each protocol, and any subsequent material amendment to the protocol, must be submitted to the FDA as part of the IND, and progress reports
detailing the status of the clinical trials must be submitted to the FDA annually. Sponsors also must report to the FDA serious and unexpected adverse
reactions in a timely manner, any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or
investigation brochure or any findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the product
candidate. An institutional review board (“IRB”) at each institution participating in the clinical trial must review and approve the protocol before a clinical
trial commences at that institution and must also approve the information regarding the trial and the consent form that must be provided to each research
subject or the subject’s legal representative, monitor the study until completed and otherwise comply with IRB regulations. There are also requirements
governing the reporting of ongoing clinical trials and completed clinical trial results to public registries.
Human clinical trials are typically conducted in three sequential phases that may overlap or be combined.
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Phase 1—The product candidate is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption,
metabolism, distribution and elimination. In the case of some therapeutic candidates for severe or life-threatening diseases, such as cancer,
especially when the product candidate may be inherently too toxic to ethically administer to healthy volunteers, the initial human testing is
often conducted in patients.
Phase 2—Clinical trials are performed on a limited patient population intended to identify possible adverse effects and safety risks, to
preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.
Phase 3—Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at
geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of the product and provide an
adequate basis for product approval.
A pivotal study is a clinical study that adequately meets regulatory agency requirements for the evaluation of a product candidate’s efficacy and safety such
that it can be used to justify the approval of the product. Generally, pivotal studies are also Phase 3 studies but may be Phase 2 studies if the trial design
provides a reliable assessment of clinical benefit, particularly in situations where there is an unmet medical need. Human clinical trials are inherently
uncertain, and Phase 1, Phase 2 and Phase 3 testing may not be successfully completed. The FDA or the sponsor may suspend a clinical trial at any time for a
variety of reasons, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or
terminate approval of a clinical trial at its institution 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.
During the development of a new biologic product candidate, sponsors are given opportunities to meet with the FDA at certain points; specifically, prior to
the submission of an IND, at the end of Phase 2 and before a BLA is submitted. Meetings at other times may be requested. These meetings can provide an
opportunity for the sponsor to share information about the data gathered to date and for the FDA to provide advice on the next phase of development.
Sponsors typically use the meeting at the end of Phase 2 to discuss their Phase 2 clinical results and present their plans for the pivotal Phase 3 clinical trial
that they believe will support the approval of the new therapeutic. If a Phase 3 clinical trial is the subject of discussion at the end of Phase 2 meeting with the
FDA, a sponsor may be able to request a Special Protocol Assessment (“SPA”), the purpose of which is to reach agreement with the FDA on the Phase 3
clinical trial protocol design and analysis that will form the primary basis of an efficacy claim. If a written agreement is reached, it will be binding on the
FDA and may not be changed by the sponsor or the FDA after the trial begins except with the written agreement of the sponsor and the FDA or if the FDA
determines that a substantial scientific issue essential to determining the safety or efficacy of the product candidate was identified after the testing began.
Post-approval trials, sometimes referred to as “Phase 4” clinical trials, may be conducted after initial marketing approval. These trials are used to gain
additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, FDA may mandate the performance of such
“Phase 4” clinical trials as a condition of approval for a BLA.
Concurrent with clinical trials, sponsors usually complete additional animal safety studies, develop additional information about the chemistry and physical
characteristics of the product candidate and finalize a process for manufacturing commercial quantities of the product candidate in accordance with cGMP
requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and the manufacturer must
develop methods for testing the safety, purity and potency of the product candidate. Additionally, appropriate packaging must be selected and tested, and
stability studies must be conducted to demonstrate that the biologic product candidate does not undergo unacceptable deterioration over its shelf life.
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Submission of a BLA to the FDA
The results of product development, nonclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests and other
control mechanisms, proposed labeling and other relevant information are submitted to the FDA as part of a BLA requesting approval to market the product
for one or more indications.
Under the Prescription Drug User Fee Act (“PDUFA”) as amended, each BLA must be accompanied by a significant user fee. The FDA adjusts the PDUFA
user fees on an annual basis. PDUFA also imposes an annual program fee for marketed products. Fee waivers or reductions are available in certain
circumstances, such as where a waiver is necessary to protect the public health, where the fee would present a significant barrier to innovation, or where the
applicant is a small business submitting its first human therapeutic application for review.
Within 60 days following submission of the application, the FDA reviews a BLA to determine if it is substantially complete before the agency accepts it for
filing. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission and may request additional
information. In this event, the BLA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA
accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the BLA. The FDA reviews a BLA to
determine, among other things, whether the proposed product is safe, pure and potent for its intended use, and whether the facility in which it is being
manufactured, processed, packaged, or held meets standards designed to assure the product’s continued safety, purity and potency in accordance with cGMP.
The FDA may refer applications for novel products or products that present difficult questions of safety or efficacy to an advisory committee, typically a
panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under
what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making
decisions.
Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured. 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. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure that the clinical trials were
conducted in compliance with GCP requirements. To assure cGMP and GCP compliance, an applicant must incur significant expenditure of time, money and
effort in the areas of training, record keeping, production and quality control.
Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for
approval and deny approval of the application. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than
we interpret the same data. If the agency decides not to approve the BLA in its present form, the FDA will issue a complete response letter that describes all
of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for
example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to
place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the
deficiencies identified in the letter, or withdraw the application.
Even if a product receives regulatory approval, the approval may be significantly limited to specific indications and dosages or the indications for use may
otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or
precautions be included in the product labeling.
As a condition of BLA approval, the FDA may require a Risk Evaluation and Mitigation Strategy (“REMS”) to ensure that the benefits of the drug outweigh
its risks. If the FDA determines a REMS is necessary prior to or during review of the application, the sponsor must submit a REMS as part of its application,
and the FDA will not approve a BLA without a REMS, if required. A REMS program may be required to include various elements, such as a medication
guide or patient package insert, a communication plan to educate healthcare providers of the product’s risks, or other elements to assure safe use, such as
limitations on who may prescribe or dispense the drug, dispensing only under certain circumstances, special monitoring and the use of patient registries. In
addition, all REMS programs must include a timetable to periodically assess the strategy following implementation.
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Further, product approval may require substantial post-approval testing and surveillance to monitor the product’s safety and efficacy, and the FDA has the
authority to prevent or limit further marketing of a product based on the results of these post-marketing programs. Once granted, product approvals may be
withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing. Moreover, changes to the
conditions established in an approved application, including changes in indications, labeling or manufacturing processes or facilities may require submission
and FDA approval of a new supplement before the changes can be implemented. A supplement for a new indication typically requires clinical data similar to
that supporting the original approval, and the FDA uses similar procedures in reviewing supplements as it does in reviewing original applications.
Companion Diagnostics
Some of our product candidates may require use of an in vitro diagnostic to identify appropriate patient populations. These diagnostics, often referred to as
companion diagnostics, are regulated as medical devices. In the United States, the FDCA and its implementing regulations, and other federal and state statutes
and regulations govern, among other things, medical device design and development, pre-clinical and clinical testing, premarket clearance or approval,
registration and listing, manufacturing, labeling, storage, advertising and promotion, sales and distribution, export and import, and post-market surveillance.
Unless an exemption applies, companion diagnostic tests require marketing clearance or approval from the FDA prior to commercial distribution. The two
primary types of FDA marketing authorization applicable to a medical device are premarket notification, also called 510(k) clearance, and premarket approval
(“PMA”).
If use of companion diagnostic is essential to safe and effective use of a biologic product, then the FDA generally will require approval or clearance of the
diagnostic contemporaneously with the approval of the biologic product. According to FDA guidance, for novel product candidates such as drugs and
therapeutic biologics, a companion diagnostic device and its corresponding product candidate should be approved or cleared contemporaneously by FDA for
the use indicated in the product labeling. The guidance also explains that a companion diagnostic device used to make treatment decisions in clinical trials of
a product candidate generally will be considered an investigational device, unless it is employed for an intended use for which the device is already approved
or cleared. If used to make critical treatment decisions, such as patient selection, the diagnostic device generally will be considered a significant risk device
under the FDA’s Investigational Device Exemption (“IDE”) regulations. Thus, the sponsor of the diagnostic device will be required to comply with the IDE
regulations. According to the guidance, if a diagnostic device and a drug or biologic product candidate are to be studied together to support their respective
approvals, both products can be studied in the same investigational study, if the study meets both the requirements of the IDE regulations and the IND
regulations. The guidance provides that depending on the details of the study plan and subjects, a sponsor may seek to submit an IND alone, or both an IND
and an IDE.
The FDA generally requires companion diagnostics intended to select the patients who will respond to cancer treatment to obtain approval of a PMA for that
diagnostic contemporaneously with approval of the therapeutic product. The PMA process, including the gathering of clinical and pre-clinical data and the
submission to and review by the FDA, can take several years or longer. It involves a rigorous premarket review during which the applicant must prepare and
provide the FDA with reasonable assurance of the device’s safety and effectiveness and information about the device and its components regarding, among
other things, device design, manufacturing and labeling. PMA applications are also subject to an application fee. In addition, PMAs for certain devices must
generally include the results from extensive pre-clinical and adequate and well-controlled clinical trials to establish the safety and effectiveness of the device
for each indication for which FDA approval is sought. In particular, for a diagnostic, the applicant must demonstrate that the diagnostic produces reproducible
results when the same sample is tested multiple times by multiple users at multiple laboratories. In addition, as part of the PMA review, the FDA will
typically inspect the manufacturer’s facilities for compliance with the Quality System Regulation (“QSR”) which imposes elaborate testing, control,
documentation and other quality assurance requirements.
After a device is placed on the market, it remains subject to significant regulatory requirements. Medical devices may be marketed only for the uses and
indications for which they are cleared or approved. Device manufacturers must also establish registration and device listings with the FDA. A medical device
manufacturer’s manufacturing processes and those of its suppliers are required to comply with the applicable portions of the QSR, which cover the methods
and documentation of the design, testing, production, processes, controls, quality assurance, labeling, packaging and shipping of medical devices. Domestic
facility records and manufacturing processes are subject to periodic unscheduled inspections by the FDA. The FDA also may inspect foreign facilities that
export products to the United States.
Expedited Development and Review Programs
The FDA offers a number of expedited development and review programs for qualifying product candidates.
A product candidate may be eligible for fast track designation if it is intended to treat a serious or life-threatening disease or condition and demonstrates the
potential to address unmet medical needs for the disease or condition. Fast track designation applies to the combination of the product and the specific
indication for which it is being studied. The sponsor of a fast track product has opportunities for frequent interactions with the review team during product
development and, once a BLA is submitted, the product may be eligible for priority review. A fast track product may also be eligible for rolling review, where
the FDA may consider for
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review sections of the BLA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the
sections of the BLA, the FDA agrees to accept sections of the BLA and determines that the schedule is acceptable, and the sponsor pays any required user
fees upon submission of the first section of the BLA.
A product intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation to expedite its
development and review. A product can receive breakthrough therapy designation if preliminary clinical evidence indicates that the product may demonstrate
substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical
development. The designation includes all of the fast track program features, as well as more intensive FDA interaction and guidance beginning as early as
Phase 1 and an organizational commitment to expedite the development and review of the product, including involvement of senior managers.
After a BLA is submitted for a product, including a product with a fast track designation and/or breakthrough therapy designation, the BLA may be eligible
for other types of FDA programs intended to expedite the FDA review and approval process, such as priority review and accelerated approval. A product is
eligible for priority review if it has the potential to provide a significant improvement in the treatment, diagnosis or prevention of a serious disease or
condition compared to marketed products. Priority review designation means the FDA’s goal is to take action on the marketing application within six months
of the 60-day filing date, compared to ten months under standard review.
Additionally, products studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may receive accelerated approval
upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that
can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other
clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of
accelerated approval, the FDA will generally require the sponsor to perform adequate and well-controlled post-marketing clinical studies to verify and
describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. In addition, the FDA currently requires as a condition for
accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product.
Patent Term Restoration and Marketing Exclusivity
Depending upon the timing, duration and specifics of FDA approval of the use of our therapeutic candidates, some of our U.S. patents may be eligible for
limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act. The Hatch-
Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory
review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product candidate’s
approval date. The patent term restoration period is generally one half of the time between the effective date of an IND and the submission date of a BLA,
plus the time between the submission date of a BLA and the approval of that application, except that the review period is reduced by any time during which
the applicant failed to exercise due diligence. Only one patent applicable to an approved product candidate is eligible for the extension and the application for
extension must be made prior to expiration of the patent. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term
extension or restoration. In the future, we intend to apply for restorations of patent term for some of our currently owned or licensed patents to add patent life
beyond their current expiration date, depending on the expected length of clinical trials and other factors involved in the submission of the relevant BLA.
Biosimilars and Exclusivity
The Affordable Care Act, signed into law in 2010, includes the Biologics Price Competition and Innovation Act (“BPCIA”), which created an abbreviated
approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. The FDA has issued
several guidance documents outlining an approach to review and approval of biosimilars. Biosimilarity, which requires that there be no clinically meaningful
differences between the biological product and the reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal
studies, and a clinical study or studies. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that
it can be expected to produce the same clinical results as the reference product in any given patient and, for products that are administered multiple times to
an individual, the biologic and the reference biologic may be alternated or switched after one has been previously administered without increasing safety risks
or risks of diminished efficacy relative to exclusive use of the reference biologic. However, complexities associated with the larger, and often more complex,
structures of biological products, as well as the processes by which such products are manufactured, pose significant hurdles to implementation of the
abbreviated approval pathway that are still being worked out by the FDA.
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Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was
first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the
reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product
if the FDA approves a full BLA for the competing product containing that applicant’s own preclinical data and data from adequate and well-controlled
clinical trials to demonstrate the safety, purity and potency of its product. The BPCIA also created certain exclusivity periods for biosimilars approved as
interchangeable products. At this juncture, it is unclear whether products deemed “interchangeable” by the FDA will, in fact, be readily substituted by
pharmacies, which are governed by state pharmacy law.
A biological product can also obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity
periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the
voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study.
The BPCIA is complex and continues to be interpreted and implemented by the FDA. In addition, 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 impact of the BPCIA is subject to significant uncertainty. Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant Orphan Drug Designation to therapeutic candidates intended to treat a rare disease or condition, which is
generally a disease or condition that affects either (1) fewer than 200,000 individuals in the U.S., or (2) more than 200,000 individuals in the U.S. and for
which there is no reasonable expectation that the cost of developing and making available in the U.S. a product candidate for this type of disease or condition
will be recovered from sales in the U.S. for that product candidate. Orphan Drug Designation must be requested before submitting a BLA. After the FDA
grants Orphan Drug Designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan Drug
Designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.
If a product candidate that has Orphan Drug Designation subsequently receives the first FDA approval for the disease for which it has such designation, the
product candidate is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same product
candidate for the same indication, except under limited circumstances, for seven years. Orphan drug exclusivity, however, could also block the approval of
one of our therapeutic candidates for seven years if a competitor obtains approval of the same product candidate as defined by the FDA or if our product
candidate is determined to be contained within the competitor’s product candidate for the same indication or disease.
In addition, the orphan drug credit is available for qualifying costs incurred between the date the FDA designates a drug as an orphan drug and the date the
FDA approves the drug. Tax reform legislation, enacted in December 2017, reduced the amount of the qualified clinical research costs for a designated
orphan product that a sponsor may claim as a credit from 50% to 25%.
Pediatric Exclusivity and Pediatric Use
Under the Best Pharmaceuticals for Children Act (the “BPCA”), certain therapeutic candidates may obtain an additional six months of exclusivity if the
sponsor submits information requested in writing by the FDA, referred to as a Written Request, relating to the use of the active moiety of the product
candidate in children. Although the FDA may issue a Written Request for studies on either approved or unapproved indications, it may only do so where it
determines that information relating to that use of a product candidate in a pediatric population, or part of the pediatric population, may produce health
benefits in that population.
In addition, the Pediatric Research Equity Act (“PREA”), requires a sponsor to conduct pediatric studies for most therapeutic candidates and biologics, for a
new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, original BLAs and supplements
thereto must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must assess the safety and
effectiveness of the product candidate for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each
pediatric subpopulation for which the product candidate is safe and effective. The sponsor or FDA may request a deferral of pediatric studies for some or all
of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the product candidate or biologic is ready for approval
for use in adults before pediatric studies are complete or that additional safety or effectiveness data needs to be collected before the pediatric studies begin.
The law requires the FDA to send a PREA Non-Compliance letter to sponsors who have failed to submit their pediatric assessments required under PREA,
have failed to seek or obtain a deferral or deferral extension or have failed to request approval for a required pediatric formulation. It further requires the FDA
to post the PREA Non- Compliance letter and sponsor’s response.
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Post-Approval Requirements
Once a BLA approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if problems occur after
the biologic product reaches the market. Later discovery of previously unknown problems with a product candidate may result in restrictions on the product
candidate or even complete withdrawal of the product candidate from the market. 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 FDA review and approval. In addition, the FDA may
under some circumstances require testing and surveillance programs to monitor the effect of approved product that have been commercialized, and the FDA
under some circumstances has the power to prevent or limit further marketing of a product candidate based on the results of these post-marketing programs.
Any biologic products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including, among other
things:
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record-keeping requirements;
reporting of adverse experiences with the product candidate;
providing the FDA with updated safety and efficacy information;
product sampling and distribution requirements;
notifying the FDA and gaining its approval of specified manufacturing or labeling changes; and
complying with FDA promotion and advertising requirements, which include, among other things, standards for direct-to-consumer advertising,
restrictions on promoting products for uses or in-patient populations that are not described in the product’s approved labeling, limitations on
industry-sponsored scientific and educational activities and requirements for promotional activities involving the internet.
Biologic manufacturers and other entities involved in the manufacture and distribution of approved therapeutic products are required to register their
establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and some state agencies for
compliance with cGMPs and other laws. The FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive
procedural, substantive and record-keeping requirements. In addition, changes to the manufacturing process are strictly regulated, and, depending on the
significance of the change, may require FDA approval before being implemented. FDA regulations would also require investigation and correction of any
deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use if our
product candidates are approved. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to
maintain compliance with cGMP and other aspects of regulatory compliance.
New Legislation and Regulations
From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the testing,
approval, manufacturing and marketing of products regulated by the FDA. In addition to new legislation, FDA regulations and policies are often revised or
interpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict whether further legislative changes
will be enacted or whether FDA regulations, guidance, policies or interpretations changed or what the effect of such changes, if any, may be.
Regulation Outside of the U.S.
In addition to regulations in the U.S., we will be subject to regulations of other jurisdictions governing any clinical trials and commercial sales and
distribution of our therapeutic candidates. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory
authorities of countries outside of the U.S. before we can commence clinical trials in such countries and approval of the regulators of such countries or
economic areas, such as the European Union, before we may market products in those countries or areas. The approval process and requirements governing
the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that
required for FDA approval.
Under European Union regulatory systems, a company can consider applying for marketing authorization in several European Union member states by
submitting its marketing authorization application(s) under a centralized, decentralized or mutual recognition procedure. The centralized procedure provides
for the grant of a single marketing authorization that is valid for all European Union member states. The centralized procedure is compulsory for medicines
derived from biotechnology, orphan medicinal products, or those medicines with an active substance not authorized in the European Union on or before May
20, 2004 intended to treat acquired immune deficiency syndrome (“AIDS”), cancer, neurodegenerative disorders or diabetes and optional for those medicines
containing
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a new active substance not authorized in the European Union on or before May 20, 2004, medicines which are highly innovative, or medicines to which the
granting of a marketing authorization under the centralized procedure would be in the interest of patients at the European Union-level. The decentralized
procedure provides for recognition by European Union national authorities of a first assessment performed by one of the member states. Under this procedure,
an identical application for marketing authorization is submitted simultaneously to the national authorities of several European Union member states, one of
them being chosen as the “Reference Member State”, and the remaining being the “Concerned Member States”. The Reference Member State must prepare
and send drafts of an assessment report, summary of product characteristics and the labelling and package leaflet within 120 days after receipt of a valid
marketing authorization application to the Concerned Member States, which must decide within 90 days whether to recognize approval. If any Concerned
Member State does not recognize the marketing authorization on the grounds of potential serious risk to public health, the disputed points are eventually
referred to the European Commission, whose decision is binding on all member states. The mutual recognition procedure is similar to the decentralized
procedure except that a medicine must have already received a marketing authorization in at least one of the member states, and that member state acts as the
Reference Member State.
As in the U.S., we may apply for designation of a product candidate as an orphan drug for the treatment of a specific indication in the European Union before
the application for marketing authorization is made.
Orphan drugs in the European Union enjoy economic and marketing benefits, including up to ten years of market exclusivity for the approved indication
unless another applicant can show that its product is safer, more effective or otherwise clinically superior to the orphan-designated product, the marketing
authorization holder is unable to supply sufficient quantity of the medicinal product or the marketing authorization holder has given its consent.
Coverage and Reimbursement
Sales of our products will depend, in part, on the extent to which our products will be covered by third-party payors, such as government health programs,
commercial insurance and managed healthcare organizations. These third-party payors are increasingly reducing reimbursements for medical products and
services. Additionally, the containment of healthcare costs has become a priority of federal and state governments and the prices of therapeutics have been a
focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment
programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-
containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and
results. If these third- party payors do not consider our products to be cost-effective compared to other therapies, they may not cover our products after
approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (together, the “ACA”) has had a significant
impact on the health care industry. The ACA expanded coverage for the uninsured while at the same time containing overall healthcare costs. With regard to
biopharmaceutical products, the ACA, among other things, addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug
Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increased the minimum Medicaid rebates owed by
manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations,
established annual fees and taxes on manufacturers of certain branded prescription drugs, and a new Medicare Part D coverage gap discount program, in
which manufacturers must agree to offer 50% point-of-sale discounts, which, through subsequent legislative amendments, will be increased to 70% starting in
2019, off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s
outpatient drugs to be covered under Medicare Part D. Since its enactment, there have been judicial and Congressional challenges to certain aspects of the
ACA, as well as efforts by the current presidential administration to modify, repeal, or otherwise invalidate all, or certain provisions of, the ACA. By way of
example, the Tax Cuts and Jobs Act was enacted, which, among other things, removes penalties for not complying with the ACA’s individual mandate to
carry health insurance. It is unclear how these challenges, subsequent appeals, and other efforts to challenge, repeal, or replace the ACA will impact the ACA.
In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted that impact payment methodologies
and reimbursement amounts. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress,
which led to aggregate reductions to Medicare payments to providers of 2% per fiscal year starting in April 2013, and, due to subsequent legislative
amendments, will stay in effect through 2027 unless additional Congressional action is taken. On January 2, 2013, President Obama signed into law the
American Taxpayer Relief Act of 2012 (the “ATRA”) which among other things, also reduced Medicare payments to several types of providers, including
hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to
providers from three to five years.
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Recently, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted
in several Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship
between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. For example, the 21st
Century Cures Act changed the reimbursement methodology for infusion drugs and biologics furnished through durable medical equipment in an attempt to
remedy over- and underpayment of certain products. Individual states in the United States have also become increasingly aggressive in passing legislation and
implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on
certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries
and bulk purchasing. We cannot predict the extent of the impact of any changes to any of these laws on us.
Finally, in some foreign countries, the proposed pricing for a product candidate must be approved before it may be lawfully marketed. The requirements
governing therapeutic pricing vary widely from country to country. For example, the European Union provides options for its member states to 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. A 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. 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 product candidates. Historically,
therapeutic candidates launched in the European Union do not follow price structures of the U.S. and generally tend to be significantly lower.
Other Healthcare Laws
We may also be subject to healthcare regulation and enforcement by the federal government and the states and foreign governments where we may market our
product candidates, if approved. These laws include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, privacy and security,
physician sunshine and drug pricing transparency laws and regulations.
The federal Anti-Kickback Statute prohibits, among other things, any person from knowingly and willfully offering, soliciting, receiving or providing
remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for
which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs. The Anti-Kickback Statute is subject to
evolving interpretations. In the past, the government has enforced the Anti-Kickback Statute to reach large settlements with healthcare companies based on
sham consulting and other financial arrangements with physicians. A person or entity does not need to have actual knowledge of the statute or specific intent
to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation
of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act. The majority of states also have anti-
kickback laws, which establish similar prohibitions and, in some cases, may apply to items or services reimbursed by any third-party payor, including
commercial insurers.
Additionally, the civil False Claims Act prohibits knowingly presenting or causing the presentation of a false, fictitious or fraudulent claim for payment to the
U.S. government, knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the U.S.
government, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. government. Actions under the
False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Violations of the
False Claims Act can result in very significant monetary penalties and treble damages. The federal government is using the False Claims Act, and the
accompanying threat of significant liability, in its investigation and prosecution of pharmaceutical and biotechnology companies throughout the U.S., for
example, in connection with the promotion of products for unapproved uses and other sales and marketing practices. The government has obtained multi-
million and multi-billion-dollar settlements under the False Claims Act in addition to individual criminal convictions under applicable criminal statutes.
Given the significant size of actual and potential settlements, it is expected that the government will continue to devote substantial resources to investigating
healthcare providers’ and manufacturers’ compliance with applicable fraud and abuse laws.
The U.S. federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), created new federal criminal statutes that prohibit among other
actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party
payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare
offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in
connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not
need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
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There has also been a recent trend of increased federal and state regulation of payments made to physicians and other healthcare providers. The ACA, among
other things, imposes new reporting requirements on drug manufacturers for payments made by them to physicians, teaching hospitals and, beginning in
2022, certain other health care professionals, as well as ownership and investment interests held by physicians and their immediate family members. Failure
to submit required information may result in civil monetary penalties for all payments, transfers of value or ownership or investment interests that are not
timely, accurately and completely reported in an annual submission. Certain states also mandate implementation of compliance programs and compliance
with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, impose
restrictions on drug manufacturer marketing practices and/or require the tracking and reporting of pricing and marketing information as well as gifts,
compensation and other remuneration or items of value provided to physicians and other healthcare professionals and entities.
We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as
amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”) and their respective implementing regulations, including
the final omnibus rule published on January 25, 2013, imposes specified requirements relating to the privacy, security and transmission of individually
identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,”
defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with
providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities,
business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts
to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws and non-US laws
and regulations (particularly EU laws regarding personal data relating to individuals based in Europe) govern the privacy and security of health information in
certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts. . For example, California recently
enacted legislation, the California Consumer Privacy Act, or CCPA, which went into effect January 2020. The CCPA, among other things, creates new data
privacy obligations for covered companies and provides new privacy rights to California residents, including the right to opt out of certain disclosures of their
information. The CCPA also creates a private right of action with statutory damages for certain data breaches, thereby potentially increasing risks associated
with a data breach. Although the law includes limited exceptions, including for “protected health information” maintained by a covered entity or business
associate, it may regulate or impact our processing of personal information depending on the context.
Environment
Our third-party manufacturers are subject to inspections by the FDA for compliance with cGMP and other U.S. regulatory requirements, including U.S.
federal, state and local regulations regarding environmental protection and hazardous and controlled substance controls, among others. Environmental laws
and regulations are complex, change frequently and have tended to become more stringent over time. We have incurred, and may continue to incur, significant
expenditures to ensure we are in compliance with these laws and regulations. We would be subject to significant penalties for failure to comply with these
laws and regulations.
Our Company Origins and Team
Our Probody platform technology has its origins in work performed at the University of California, Santa Barbara (“UCSB”), by our scientific founder
Professor Patrick Daugherty. Since our inception, we have continued developing and adding to this technology and aspire to design a pipeline of Probody
therapeutics that will better the lives of cancer patients. We have assembled an experienced and talented group of individuals dedicated to the advancement of
cancer care. Our chief executive officer, Dr. Sean McCarthy, leads a team that draws on robust experience in all phases of product discovery, clinical
development and commercialization. Our research and preclinical development team is led by Dr. Michael Kavanaugh, chief scientific officer, and includes
renowned and established researchers, and our clinical development team is led by Dr. Amy Peterson, chief development officer. Our management team
members have significant experience in oncology with previous experience at BeiGene, Chiron, Five Prime, Genentech, Maxygen, Medivation, Millennium,
Novartis, SGX and other companies.
Employees
As of December 31, 2019, we had 158 full-time employees and 2 part-time employees. Of these employees, 118 were primarily engaged in research and
development activities.
Corporate Information
Our operations commenced in February 2008 when our predecessor entity was formed. We were incorporated in Delaware in September 2010. We maintain
our executive offices at 151 Oyster Point Blvd., Suite 400, South San Francisco, California 94080, and our main telephone number is (650) 515-3185.
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We view our operations and measure our business as one reportable segment operating in the United States. See Note 2 to our audited financial statement
included elsewhere in this Annual Report on Form 10-K for additional information. Additional information required by this item is incorporated herein by
reference to PART II. Item 6 of this Annual Report on Form 10-K.
Our research and development expenses were $131.6 million, $103.9 million and $92.3 million for the years ended December 31, 2019, 2018 and 2017,
respectively. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Research and Development Expenses” for
additional detail regarding our research and development activities.
We maintain a website at www.cytomx.com, which contains information about us. The information in, or that can be accessed through, our website is not part
of this Annual Report on Form 10-K. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to
those reports are available, free of charge, on or through our website as soon as reasonably practicable after we electronically file such material with, or
furnish it to, the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding our filings
at www.sec.gov.
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PART II – OTHER INFORMATION
Item 1A.
Risk Factors
You should consider carefully the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K,
including our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If
any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. The
risks described below are not the only risks facing the Company. Risks and uncertainties not currently known to us or that we currently deem to be immaterial
also may materially adversely affect our business, financial condition, results of operations and/or prospects.
Risks Related to Our Business
We are a clinical-stage biopharmaceutical company with a limited operating history and have not generated any revenue from product sales. We have a
history of losses, expect to continue to incur significant losses for the foreseeable future and may never achieve or maintain profitability, which could
result in a decline in the market value of our common stock.
We are a clinical-stage biopharmaceutical company with a limited operating history, developing a novel class of therapeutic antibody product candidates,
based on our proprietary biologic Probody technology platform. Since our inception, we have devoted our resources to the development of Probody
therapeutics. We have had significant operating losses since our inception. As of December 31, 2019 and 2018, we had an accumulated deficit of $417.2
million and $315.0 million, respectively. Substantially all of our losses have resulted from expenses incurred in connection with our research and
development programs and from general and administrative costs associated with our operations.
Though we have developed our Probody platform, our technologies and product candidates are in early stages of development, and we are subject to the risks
of failure inherent in the development of product candidates based on novel technologies. We have not yet demonstrated our ability to successfully complete
any clinical trials, including large-scale, pivotal clinical trials, obtain regulatory approvals, arrange for a third party to manufacture a commercial scale
product candidate, or conduct sales and marketing activities necessary for successful commercialization. Typically, it takes many years to develop one
product candidate from the time it enters initial preclinical studies to when it is available for treating patients. Consequently, any predictions made about our
future success or viability may not be as accurate as they could be if we had a longer operating history. 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.
Furthermore, we have never generated any revenue from product sales, and have not obtained regulatory approval for any of our product candidates. We also
do not expect to generate any revenue from product sales for the foreseeable future, and we expect to continue to incur significant operating losses for the
foreseeable future due to the cost of research and development, preclinical studies and clinical trials and the regulatory approval process for our product
candidates. We expect our net losses to increase substantially as we continue clinical development of our lead programs and advance additional programs into
clinical development. In particular, we expect our losses to increase substantially as we begin to enroll patients in our Phase 2 clinical trial of CX-072, our
candidate directed against PD-L1, in combination with ipilimumab in patients with relapsed or refractory melanoma and our Phase 2 clinical trial of CX-
2009, our PDC candidate directed against CD-166 in patients with hormone receptor (ER, PR) positive, HER2 negative breast cancer, as we continue our
other ongoing Phase 1/2 clinical trials of CX-072, CX-2009, and CX-2029, our PDC candidate directed against CD71 in collaboration with AbbVie Inc., and
as we advance into later trials and new trials for other programs. However, the amount of our future losses is uncertain. Our ability to achieve profitability, if
ever, will depend on, among other things, our, or our collaborators, successfully developing product candidates, obtaining regulatory approvals to market and
commercialize product candidates, manufacturing any approved products on commercially reasonable terms, establishing a sales and marketing organization
or suitable third-party alternatives for any approved product and raising sufficient funds to finance business activities. If we, or our collaborators, are unable
to develop our technologies and commercialize one or more of our product candidates or if sales revenue from any product candidate that receives approval is
insufficient, we will not achieve profitability, which could have a material and adverse effect on our business, financial condition, results of operations and
prospects.
We expect that we will need to raise substantial additional funds to advance development of our product candidates and we cannot guarantee that this
additional funding will be available on acceptable terms or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or
terminate our product development and commercialization of our current or future product candidates.
The development of biopharmaceutical product candidates is capital-intensive. To date we have used substantial funds to develop our technology and product
candidates and will require significant funds to conduct our ongoing clinical trials as well as to further our research and development, preclinical testing and
future clinical trials of additional product candidates, to seek regulatory approvals for our product candidates and to manufacture and market any products that
are approved for commercial sale. In addition, we have incurred and will continue to incur additional costs associated with operating as a public company.
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As of December 31, 2019, we had $296.1 million in cash, cash equivalents and short-term investments. We believe that our existing capital resources will be
sufficient to fund our planned operations at least for the next twelve months from the date the financial statements included in this report are issued. Our
future capital requirements and the period for which we expect our existing resources to support our operations may vary significantly from what we expect.
Our monthly spending levels vary based on our ongoing clinical trials, new and ongoing research and development and other corporate activities. For
example, we expect our monthly spending to increase substantially as we begin to enroll patients in both our Phase 2 clinical trial of CX-072 in combination
with ipilimumab in patients with relapsed or refractory melanoma and our Phase 2 clinical trial of CX-2009 in patients with hormone receptor (ER, PR)
positive, HER2 negative breast cancer, as we continue our other ongoing Phase 1/2 clinical trials of CX-072, CX-2009, and CX-2029, and as we advance into
later trials and new trials for other programs. Because the length of time and activities associated with conducting our clinical trials and successfully
researching and developing our product candidates is highly uncertain, we are unable to estimate the actual funds we will require for development and, once
any product candidate is approved, any subsequent marketing and commercialization activities.
The timing and amount of our operating expenditures will depend largely on:
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the scope, timing and progress of our ongoing clinical trials as well as any other preclinical and clinical development activities;
the number, size and type of clinical trials and preclinical studies that we may be required to complete for our product candidates, as well as the
cost and time of such studies and trials;
the number, scope and prioritization of preclinical and clinical programs we decide to pursue;
the time and cost necessary to produce clinical supplies of our product candidates;
the time and cost necessary to scale our manufacturing capabilities following regulatory approval and commercial launch of any product
candidates.
the progress of the development efforts of parties with whom we have entered or may in the future enter into collaborations and research and
development agreements;
the timing and amount of payments we may receive or are obligated to pay under our collaboration agreements and license agreements;
our ability to maintain our current licenses and research and development programs and to establish new collaboration arrangements;
the costs involved in prosecuting and enforcing patent and other intellectual property claims;
the cost and timing of regulatory approvals; and
our efforts to enhance operational systems and hire additional personnel, including personnel to support development and commercialization of
our product candidates and satisfy our obligations as a public company.
If we are unable to obtain funding on a timely basis or on acceptable terms, we may have to delay, reduce or terminate our research and development
programs and preclinical studies or clinical trials, limit strategic opportunities or undergo reductions in our workforce or other corporate restructuring
activities. We also could be required to seek funds through arrangements with collaborators or others that may require us to relinquish rights to some of our
technologies or product candidates that we would otherwise pursue on our own. We do not expect to realize revenue from sales of products or royalties from
licensed products in the foreseeable future, if at all, and unless and until our product candidates are clinically tested, approved for commercialization and
successfully marketed. To date, we have financed our operations primarily through sales of our common stock, sale of our convertible preferred securities
prior to our IPO and payments received under our collaboration agreements, including, most recently, the Collaboration and License Agreement that we
entered into with Amgen in September 2017. We will be required to seek additional funding in the future and currently intend to do so through additional
collaborations, public or private equity offerings or debt financings, credit or loan facilities or a combination of one or more of these funding sources. Our
ability to raise additional funds will depend on financial, economic and other factors, many of which are beyond our control. Additional funds may not be
available to us on acceptable terms or at all. If we raise additional funds by issuing equity securities, our stockholders will suffer dilution and the terms of any
financing may adversely affect the rights of our stockholders. In addition, as a condition to providing additional funds to us, future investors may demand, and
may be granted, rights superior to those of existing stockholders. Debt financing, if available, is likely to involve restrictive covenants limiting our flexibility
in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities received any
distribution of our corporate assets.
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Clinical development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive
of future trial results. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and
commercialization of our product candidates.
As is the case with all oncology drugs, our product candidates in clinical development or preclinical development have a high risk of failure. We initiated a
Phase 2 clinical trial of CX-072 in combination with ipilimumab for cancer in October 2019, have initiated a Phase 2 clinical trial of CX-2009 in patients with
hormone receptor (ER, PR) positive, HER2 negative breast cancer, and we continue our 2017 Phase 1/2 clinical trials of CX-072 and CX-2009. We also
initiated our Phase 1/2 clinical trial of CX-2029, our PDC candidate directed against CD71 in collaboration with AbbVie, for cancer in June 2018. Each of
these clinical trials is ongoing. In addition, Bristol-Myers Squibb commenced enrollment of a Phase 1/2 clinical trial for BMS-986249, a Probody therapeutic
directed against CTLA-4, in 2018 and initiated a Phase 1/2 trial for BMS-986288 in 2020. It is impossible to predict when or if any of our or our partner’s
product candidates will prove effective and safe in humans or will receive regulatory approval. Before obtaining marketing approval from regulatory
authorities for the sale of any product candidate, we or our partners must complete extensive clinical trials to demonstrate the safety and efficacy of our
product candidates in humans. Commencement of clinical trials for programs beyond CX-072, CX-2009, CX-2029, BMS-986249 and BMS-986288 is subject
to finalizing the trial design and filing an IND or similar filing with the FDA or similar foreign regulatory authority. In addition, even if we file our IND or
comparable submissions in other jurisdictions for these or other product candidates, the FDA or other regulatory authorities could disagree that we have
satisfied their requirements to commence our clinical trials or disagree with our study design, which may require us to complete additional preclinical studies
or amend our protocols or impose stricter conditions on the commencement of clinical trials and may delay our ability to begin Phase 1 clinical trials, causing
an increase in the amount of time and expense required to develop our product candidates. As a result of the foregoing, the research and development,
preclinical studies and clinical testing of any product candidate is expensive and can take many years to complete, and its outcome is inherently uncertain.
Failure can occur at any time during the development process.
Further, we or our collaborators may also experience delays in completing ongoing clinical trials, completing preclinical studies or initiating further clinical
trials of our product candidates. We do not know whether our or our collaborators’ ongoing clinical trials or preclinical studies will be completed on schedule
or at all, or whether planned clinical trials or preclinical studies will begin on time, need to be redesigned, enroll patients on time or be completed on
schedule, if at all. We or our collaborators may have insufficient internal resources to complete ongoing clinical trials or initiate clinical trials for our other
product candidates. The development programs for our product candidates may be delayed for a variety of reasons, including delays related to:
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recruiting suitable patients to participate in a clinical trial;
developing and validating any companion diagnostic to be used in a clinical trial;
the FDA or other regulatory authorities requiring us to submit additional data or imposing other requirements before permitting us to initiate a
clinical trial;
obtaining regulatory clearance to commence a clinical trial;
reaching agreement on acceptable terms with prospective contract research organization (“CROs”) and clinical trial sites, the terms of which
can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites;
obtaining institutional review board (“IRB”) approval at each clinical trial site;
having patients complete a clinical trial or return for post-treatment follow-up;
clinical trial sites deviating from trial protocol or dropping out of a trial;
adding new clinical trial sites;
manufacturing our product candidates in sufficient quality and quantity for use in clinical trials; or
collaborators electing to not pursue development and commercialization of our product candidates.
In addition, the results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials.
Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies
and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of
efficacy or safety profiles, notwithstanding promising results in earlier trials.
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Our product candidates are in early stages of development and may fail or suffer delays that materially and adversely affect their commercial viability. If
we are unable to advance our product candidates through clinical development, obtain regulatory approval and ultimately commercialize such product
candidates, or experience significant delays in doing so, our business will be materially harmed.
We are very early in our development efforts, with only three product candidates, CX-072, CX-2009 and CX-2029, currently in early stage clinical
development. In addition, Bristol-Myers Squibb is currently evaluating BMS-986249, a CTLA-4-directed Probody therapeutic in a Phase 1/2 clinical trial
that it initiated in January 2018 and a Phase 2 trial initiated in 2020. We have no products on the market and our ability to achieve and sustain profitability
depends on obtaining regulatory approvals for and successfully commercializing our product candidates, either alone or with third parties. Before obtaining
regulatory approval for the commercial distribution of our product candidates, we or our collaborator must conduct extensive preclinical tests and clinical
trials to demonstrate sufficient safety and efficacy of our product candidates in patients.
As a result, we may not have the financial resources to continue development of, or to modify existing or enter into new collaborations for, a product
candidate if we experience any issues that delay or prevent regulatory approval of, or our ability to commercialize, product candidates, including:
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negative or inconclusive results from our clinical trials, the clinical trials of our collaborators or the clinical trials of others for product
candidates similar to ours, leading to a decision or requirement to conduct additional preclinical testing or clinical trials or abandon a program;
product-related side effects experienced by participants in our clinical trials, the clinical trials of our collaborators or by individuals using drugs
or therapeutic biologics similar to our product candidates;
delays in submitting INDs or comparable foreign applications or delays or failure in obtaining the necessary approvals from regulators to
commence a clinical trial, or a suspension or termination of a clinical trial once commenced;
conditions imposed by the FDA or comparable foreign authorities regarding the scope or design of our clinical trials;
delays in enrolling research subjects in clinical trials;
high drop-out rates of research subjects;
inadequate supply or quality of product candidate components or materials or other supplies necessary for the conduct of our clinical trials or
the clinical trials of our collaborators;
greater than anticipated clinical trial costs;
delay in the development or approval of companion diagnostic tests for our product candidates;
unfavorable FDA or other regulatory agency inspection and review of a clinical trial site;
failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a
timely manner, or at all;
delays and changes in regulatory requirements, policy and guidelines, including the imposition of additional regulatory oversight around
clinical testing generally or with respect to our technology in particular; or
varying interpretations of data by the FDA and similar foreign regulatory agencies.
We could find that the therapeutics we or our collaborators pursue are not safe or efficacious. Further, a clinical trial may be suspended or terminated by us,
our collaborators, the IRBs of the institutions in which such trials are being conducted, the Data Safety Monitoring Board for such trial or by the FDA or
other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical
protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold,
unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug or therapeutic biologic, changes in governmental
regulations or administrative actions or lack of adequate funding to continue the clinical trial. Furthermore, we expect to rely on our collaborators, CROs and
clinical trial sites to ensure proper and timely conduct of our clinical trials and while we expect to enter into agreements governing their committed activities,
we have limited influence over their actual performance.
If we or our collaborators experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of
our product candidates will be harmed, and our ability to generate product revenues or receive royalties from any of these product candidates will be delayed.
In addition, any delays in completing our clinical trials will increase our costs, slow down our product development and approval process and jeopardize our
ability to commence product sales and generate revenues. Furthermore, if one or more of our product candidates or our Probody therapeutic technology
generally prove to be ineffective, unsafe or commercially unviable, the development of our entire platform and pipeline could be delayed, potentially
permanently. Any of these occurrences may materially and adversely affect our business, financial condition, results of operations and prospects. In addition,
many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory
approval of our product candidates.
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Our product candidates may cause undesirable side effects at any time during or after the clinical trial process that could delay or prevent their regulatory
approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any, including
withdrawal from the market.
Undesirable side effects caused by our product candidates could cause us, our collaborators or regulatory authorities to interrupt, delay or halt clinical trials
and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities. As is the case with all
oncology drugs, there may be immediate or late side effects associated with the use of our product candidates (e.g. CX-072, CX-2009 and CX-2029). There
can be no assurance that unexpected adverse events will not occur in our ongoing trials or in future trials involving our product candidates or the product
candidates of our collaborators. Undesirable side effects may appear in later trials that were not observed in our earlier trials or may be more severe in later
trials than earlier trials.
We have announced preliminary clinical data on CX-072 and CX-2009 at various meetings and at our CytomX 2019 R&D Day. Clinical data we report,
including efficacy and safety data, will vary over time and such data will evolve as we treat additional patients and pursue further clinical trials. The rates of
clinical activity and rates and types of adverse events will evolve as well. Interim, top-line or preliminary data from our clinical trials, which is based on a
preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review
of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we
may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line or preliminary results that we report may differ
from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully
evaluated.
In June 2019, we reported that the administration of monotherapy CX-072 has been generally well tolerated with the majority of treatment-related adverse
events (“TRAEs”) as Grade 1/2. At that time, we also reported that of the 72 monotherapy patients treated with 10mg/kg every two weeks and who were
evaluable for safety, 6% of patients experienced a grade ≥3 TRAE, and 3% experienced grade ≥3 immune related adverse events (irAEs), with no (0%)
TRAEs leading to treatment discontinuation. We have also reported that at the 10 mg/kg dose the anti-drug antibody (“ADA”) rate was approximately 62%.
While we do not believe this ADA is impacting our ability to reach targeted drug exposures, we cannot provide assurance that the rate will not change or that
it will not later limit drug exposure or cause severe adverse events. We also cannot provide assurance that the rates and the types of adverse events will not
increase with time as more patients are treated in ongoing or future studies.
Administration of CX-072 in combination with ipilimumab has been generally well tolerated with the majority of TRAEs as Grade 1/2. In October 2019, we
reported that of the 27 patients treated across all combination doses, Grade 3/4 TRAEs were reported in nine (33%) patients and Grade 3/4 immune related
adverse events (irAEs) were reported in six (22%) patients. Of the 20 patients treated with ipilimumab at 3 mg/kg at varying doses of CX-072, Grade 3/4
TRAEs were reported in five (25%) patients and Grade 3/4 irAEs were reported in three (15%) patients. We cannot provide assurance that these rates and the
types of adverse events will not increase over time with more patients being treated in ongoing or future studies.
Administration of CX-2009 has also been generally well tolerated to date with most reported TRAEs being Grade 1/2. In February 2019 we announced that
23/76 (30.3%) patients experienced a Grade 3/4 TRAE. The most common adverse event observed was ocular toxicity, an anticipated toxicity associated with
the DM4 payload. Other Grade 3/4 TRAEs included liver function test abnormalities, gastrointestinal disorders and nervous system disorders. We cannot
guarantee that these rates and the types of adverse events will not increase over time with more patients being treated in ongoing or future studies.
The results of our future clinical trials or the clinical trials of our collaborators could reveal a high and unacceptable severity of adverse side effects including
immune system related adverse events or increased toxicity, and it is possible that patients enrolled in such clinical trials could respond in unexpected ways or
otherwise have unexpected adverse events. For example, in October 2019, we announced the initiation of our first Phase 2 clinical trial of CX-072 at a dose
level of 10 mg/kg in combination with ipilimumab at a dose level of 3mg/kg. This dose of ipilimumab in combination with another PD agent, Nivolumab, is
often not tolerated by patients. While we believe our Phase 1 clinical data supports this combination, only further clinical testing will determine whether such
a combination is tolerable for patients. Additionally, the Phase 2 clinical trial of BMS-986249 being conducted by Bristol-Myers Squibb includes the
administration of the product candidate at relatively high dosage levels, which could further exacerbate such risks. In our Phase 2 clinical trial with CX-2009
and CX-2029, we are targeting CD-166 and CD71, respectively, targets that are broadly expressed on normal tissue, which could create unacceptable toxicity
or fail to result in anti-tumor activity. For instance, CD71 is a metabolic protein with high levels of expression in healthy tissues, and the consequences of
targeting such protein in humans are unknown. Any future clinical trials of our product candidates could face similar or heightened risks depending on the
modality.
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In the event that our clinical trials or the clinical trials of our collaborators reveal severe adverse side effects, our trials or the clinical trials of our
collaborators could be suspended or terminated and the FDA or comparable foreign regulatory authorities could impose a clinical hold, order us to cease
further development of or deny approval of our product candidates for any or all targeted indications. Such side effects could also affect patient recruitment or
the ability of enrolled patients to complete the trial or result in potential product liability claims. For example, in our Phase 1/2 clinical trial of CX-2009, some
patients have stopped treatment due to ocular toxicity. While we are using ocular toxicity prophylactic measures in our dose optimization phase and our
Phase 2 clinical trial, we cannot be assured that such measures will be effective. In addition, any of these occurrences with respect to one of our product
candidates could negatively affect our or any collaborator’s ability to enroll patients and seek regulatory approval for other product candidates that we have
developed using our Probody platform, which could also result in a collaborator terminating any program utilizing our Probody platform and the termination
of such collaborative relationship. Any of these occurrences may materially and adversely affect our business, financial condition, results of operations and
prospects. Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of patients and limited duration of
exposure, rare and severe side effects of our product candidates may only be uncovered with a significantly larger number of patients exposed to the product
candidate.
In the event that any of our product candidates receives regulatory approval and we, our collaborators or others identify undesirable side effects caused by
such product or any other Probody therapeutics, any of the following adverse events could occur, which could result in the loss of significant revenue to us
and materially and adversely affect our results of operations and business:
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regulatory authorities may withdraw their approval of the product or seize the product;
we or our collaborators may be required to recall the product or change the way the product is administered to patients;
additional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product or any
component thereof;
we may be subject to fines, injunctions or the imposition of civil or criminal penalties;
regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;
we may be required to create a Medication Guide outlining the risks of such side effects for distribution to patients;
we could be sued and held liable for harm caused to patients;
the product may become less competitive; and
our reputation may suffer.
In addition, adverse side effects caused by any drugs of other companies utilizing the same or similar anti-bodies of our product candidates, or that are similar
in nature to our product candidates could delay or prevent regulatory approval of our product candidates, limit the commercial profile of an approved label for
our product candidates, or result in significant negative consequences following marketing approval.
We believe that any of these events could prevent us from achieving or maintaining market acceptance of our product candidates and could substantially
increase the costs of commercializing our product candidates, if approved, and significantly impact our ability to successfully commercialize our product
candidates and generate revenues.
If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or
prevented.
We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients
to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. Patient enrollment, a significant factor in the
timing of clinical trials, is affected by many factors, including:
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the size and nature of the target patient population;
the eligibility criteria for the clinical trial;
the design of the clinical trial;
the availability of an appropriate genomic screening test;
the perceived risks and benefits of the product candidate under study;
the efforts to facilitate timely enrollment in clinical trials;
the patient referral practices of physicians;
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the ability to monitor patients adequately during and after treatment; and
the proximity and availability of clinical trial sites for prospective patients.
In addition, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation
to other available therapies, including any new drugs or therapeutic biologics that may be approved for the indications we are investigating, could affect our
ability to enroll a sufficient number of eligible patients in our clinical trials. For example, in our Phase 1/2 clinical trial of CX-072, which is directed against
PD-L1, we were only permitted to enroll patients with cancer types for which there are no PD inhibitors available for sale. As there are currently several PD-
1 and/or PD-L1 agents approved for a growing list of cancer types along with hundreds of clinical trials exploring the use of PD-1 and PD-L1 agents, there
was no assurance that patients would choose to enroll in our clinical trial. While that trial is fully enrolled, there can be no assurance that further trials with
CX-072, including our Phase 2 clinical trial that we initiated in October 2019, or our other drug candidates will not be adversely affected by a limited patient
population. Our clinical trials of CX-072, CX-2009 and CX-2029 study patients who have one or a select number of specific tumor types rather than patients
suffering from any cancer, which limits the rate of enrollment of the trial. In addition, some of our clinical trials seek to treat indications with small population
sizes which could be particularly difficult to enroll. As with the clinical trials of CX-072, our clinical trials of CX-2009 and CX-2029 are also competing
with hundreds of clinical trials with alternative anti-cancer drugs in a similar class (e.g. antibody drug conjugates), and certain arms of the clinical trials may
be difficult to enroll due to the emerging standard of care for such indications in certain jurisdictions, including the United States. Any clinical trials of our
product candidates initiated by our collaborators, including Bristol-Myers Squibb’s ongoing Phase 2 clinical trial, face similar and additional risks relating to
enrollment. We or our collaborators could also encounter delays in the development of any of our product candidates if prescribing physicians encounter
unresolved ethical issues associated with enrolling patients in clinical trials of our product candidates in lieu of prescribing existing treatments that have
established safety and efficacy profiles. Any delays relating to patient enrollment could cause significant delays in the timing of our clinical trials or the
clinical trials of our collaborators, which may materially and adversely affect our business, financial condition, results of operations and prospects.
Our approach to the discovery and development of our therapeutic treatments is based on novel technologies that are unproven and may not result in
marketable products.
We plan to continue to develop a pipeline of product candidates using our proprietary Probody platform. We believe that product candidates (including cancer
immunotherapies, PDCs and bispecific antibodies) identified with our product discovery platform may offer an improved therapeutic approach by taking
advantage of unique conditions in the tumor microenvironment, thereby reducing the dose-limiting toxic effects associated with traditional antibody products,
which can also attack healthy tissue. However, the scientific research that forms the basis of our efforts to develop product candidates based on our Probody
platform is ongoing, including the research resulting from our ongoing clinical trials for CX-072, CX-2009 and CX-2029.
We may ultimately discover that our Probody platform and any product candidates resulting from it do not possess certain properties required for therapeutic
effectiveness or protection from toxicity. For example, when Probody therapeutics are administered to human subjects, protease levels in tumors may not be
sufficient and the peptide mask may not be cleaved, which would limit the potential efficacy of the antibody. In addition, if the peptide mask is
inappropriately released, for example, due to an inflammatory disease, it may reduce the potential to limit toxicity of the anti-cancer agent or result in
unforeseen events when administered in humans. Binding of the peptide mask to the antigen binding domain of the Probody may not be constant, which could
lead to intermittent periods when the antigen binding domain or antibody portion is unmasked. Furthermore, Probody product candidates may not remain
stable in the human body for the period of time required for the drug to reach and to bind to the target tissue. In addition, product candidates based on our
Probody platform may demonstrate different chemical and pharmacological properties in patients than they do in laboratory studies. Although our Probody
platform and certain product candidates have demonstrated successful results in animal studies, they may not demonstrate the same chemical and
pharmacological properties in humans and may interact with human biological systems in unforeseen, ineffective or harmful ways. Our understanding of the
molecular pharmacology of Probody therapeutics, that is, the precise manner and sequence in which they are activated and behave in vivo, is incomplete.
Probody therapeutics are complex biological molecules and we are evaluating the performance of this new technology in cancer patients for the first time.
Many specific elements of Probody therapeutic function may contribute to their overall safety and efficacy profile including, but not limited to, the removal of
only one mask from the dually masked antibody, the removal of both masks from the dually masked antibody, the binding strength of masks for the
underlying antibody, and the binding strength of the underlying antibody for its target. We have no direct structural evidence for how masks interact with
antibodies. It may take many years before we develop a full understanding of Probody pharmacology, and we may never know precisely how they function in
vivo. As with any new biologic or product developed on a novel platform, we have a limited understanding of the immunogenicity profile of Probody
therapeutics. As a result, our Probody product candidates may trigger immune responses, such as ADA, that may inhibit the ability of the antibody to reach
the target tissue, inhibit the ability of the antibody to bind to its target, cause adverse side effects in humans or cause hypersensitivity reactions. For example,
we reported in February 2019 that in our ongoing CX-072 trial at the 10 mg/kg dose, the anti-drug antibody (“ADA”) rate was approximately 62%. We do
not believe ADA is impacting our ability to reach targeted drug exposures. However, we cannot provide assurance that it will not later limit drug exposure or
cause severe adverse events. Problems that are specific to our Probody platform may have an unfavorable impact on all of our product candidates. As a
result, we may never succeed in developing a marketable product and we may never become profitable, which would cause the value of our common stock to
decline.
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In addition, the scientific evidence to support the feasibility of developing product candidates against novel, difficult to drug targets, is both preliminary and
limited. For example, our understanding of the expression of CD166 in both healthy and diseased tissues is still developing. As a result, we cannot provide
any assurance that we will be able to successfully identify and advance any product candidates to target novel, difficult to drug targets.
We believe the only clinical experience that the FDA and foreign regulatory authorities have with Probody-based therapeutics in oncology comes from CX-
072, CX-2009, CX-2029 and BMS-986249. We believe that the FDA and foreign regulatory authorities, have no clinical experience in other disease areas,
and such limited experience may increase the complexity, uncertainty and length of the regulatory approval process for our product candidates and may keep
us from commencing first-in-human trials in certain countries. As there is limited historical precedent for the regulatory clearance of Probody-based
therapeutics in oncology, there is a higher degree of risk that the FDA or other regulatory authorities could disagree that we or our collaborators have satisfied
their requirements to commence clinical trials for some product candidates or disagree with our study designs, which may require us to complete additional
preclinical studies or amend our protocols or impose stricter conditions on the commencement of clinical trials. In addition, local clinical practice in other
countries may affect whether we or our collaborators are able to initiate a clinical trial there. As a result, we and our collaborators may never receive approval
to market and commercialize any product candidate. Even if we or our collaborators obtain regulatory approval, the approval may be for targets, disease
indications or patient populations that are not as broad as we or they intended or desired or may require labeling that includes significant use or distribution
restrictions or safety warnings. We or our collaborators may be required to perform additional or unanticipated clinical trials to obtain approval or be subject
to post-marketing testing requirements to maintain regulatory approval. If one or more of our product candidates or our Probody technology generally prove
to be ineffective, unsafe or commercially unviable, our entire platform and pipeline may have little, if any, value, which would have a material and adverse
effect on our business, financial condition, results of operations and prospects.
The market may not be receptive to our product candidates based on a novel therapeutic modality, and we may not generate any future revenue from the
sale or licensing of product candidates.
Even if regulatory approval is obtained for a product candidate, we may not generate or sustain revenue from sales of the product due to factors such as
whether the product can be sold at a competitive cost and whether it will otherwise be accepted in the market. The product candidates that we are developing
are based on our Probody platform, which is a new technology and therapeutic approach. Market participants with significant influence over acceptance of
new treatments, such as physicians and third-party payors, may not adopt a product or treatment based on our Probody platform and technologies, and we
may not be able to convince the medical community and third-party payors to accept and use, or to provide favorable reimbursement for, any product
candidates developed by us or our collaborators. This may be particularly true for any of our product candidates (including CX-072 and BMS-986249) for
which there are existing approved therapies, such as approved agents targeting PD-L1, PD-1, or CTLA-4. Market acceptance of our product candidates will
depend on, among other factors:
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the timing of our receipt of any marketing and commercialization approvals;
the terms of any approvals and the countries in which approvals are obtained;
the safety and efficacy of our product candidates, including those being developed by our collaborators;
the prevalence and severity of any adverse side effects associated with our product candidates;
limitations or warnings contained in any labeling approved by the FDA or other regulatory authority;
the availability of effective companion diagnostics;
relative convenience and ease of administration of our product candidates;
the willingness of patients to accept any new methods of administration;
the success of our physician education programs;
the availability of coverage and adequate reimbursement from government and third-party payors;
the pricing of our products, particularly as compared to alternative treatments; and
the availability of alternative effective treatments for the disease indications our product candidates are intended to treat and the relative risks,
benefits and costs of those treatments.
If any product candidate we commercialize fails to achieve market acceptance, it could have a material and adverse effect on our business, financial condition,
results of operations and prospects.
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We have entered, and may in the future seek to enter, into collaborations with third parties for the development and commercialization of our product
candidates using our Probody platform. If we fail to enter into such collaborations, or such collaborations are not successful, we may not be able to
capitalize on the market potential of our Probody platform and resulting product candidates.
Since 2013, we have entered into collaborations with AbbVie, Amgen, Bristol-Myers Squibb, ImmunoGen, Pfizer and others to develop certain Probody
therapeutics. We may in the future seek third-party collaborators for development and commercialization of other therapeutic technologies or product
candidates. Biopharmaceutical companies are our prior and likely future collaborators for any marketing, distribution, development, licensing or broader
collaboration arrangements. With respect to our existing collaboration agreements, and what we expect will be the case with any future collaboration
agreements, we have and would expect to have limited control over whether such collaborations pursue the development of our product candidates or the
amount and timing of resources that such collaborators dedicate to the development or commercialization of our product candidates. For instance, in March
2018, Pfizer terminated the collaboration agreement we had entered into with them in May 2013. Such collaboration agreement had entitled Pfizer to
nominate up to four research targets and since 2013, we had collaborated with Pfizer on three of such targets. However, no program was ever advanced
beyond the lead optimization stage pursuant to the agreement, and Pfizer had previously elected not to select a fourth target and had decided to discontinue its
epidermal growth factor receptor Probody Drug Conjugate. In July 2017, ImmunoGen discontinued the preclinical evaluation of one of its two programs
being developed under our collaboration and in December 2019, licensed the other program to us, terminating their license agreement from us. In addition, in
January 2019, Bristol-Myers Squibb terminated its programs for three targets it had selected under our agreement with them. As a result, there can be no
assurances that any of the programs covered by our existing or future collaborations will be developed further. Further, our ability to generate revenues from
our existing and future arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.
Additionally, some of our collaborations may require us to share in certain development and commercialization expenses. If we cannot afford to share such
expenses when required, our rights under such collaborations may be adversely affected, including potentially that our collaborator may terminate the relevant
agreement.
Overall, collaborations involving our product candidates currently pose, and will continue to pose, the following risks to us:
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collaborators have significant discretion in determining the amount and timing of efforts and resources that they will apply to these
collaborations, including, with respect to Bristol-Myers Squibb, BMS-986249 and BMS-986288;
collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development
or commercialization programs based on preclinical or clinical trial results, changes in the collaborators’ strategic focus or available funding or
resources, or external factors such as an acquisition that diverts resources or creates competing priorities;
collaborators have significant discretion in designing any clinical trials they operate pursuant to our collaboration agreements, including
Bristol-Myers Squibb’s ongoing Phase 2 cohort expansion of BMS-986249 and its Phase 1/2 clinical trial of BMS-986288, and may release
data from such clinical trials, including with respect to our Probody therapeutics, without consulting us;
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product
candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing and are not necessarily
required to give us information about their clinical data;
collaborators may independently develop, or develop with third parties, products that compete directly or indirectly with our product candidate
if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that
are more economically attractive than ours;
collaborators with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and
distribution of such product or products;
collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to
invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to litigation or potential
liability;
collaborators may infringe, misappropriate or otherwise violate the intellectual property rights of third parties, which may expose us to
litigation and potential liability;
disputes may arise between the collaborators and us that result in the delay or termination of the research, development or commercialization of
our product candidate or that result in costly litigation or arbitration that diverts management attention and resources; and
collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or
commercialization of the applicable product candidates.
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As a result of the foregoing, our current and any future collaboration agreements may not lead to development or commercialization of our product candidates
in the most efficient manner or at all and may not result in the realization of the benefits we expected to achieve upon our entry into such agreements. Any
failure to successfully develop or commercialize our product candidates pursuant to our current or any future collaboration agreements could have a material
and adverse effect on our business, financial condition, results of operations and prospects.
If our collaborators cease development efforts under our collaboration agreements, or if any of those agreements are terminated, these collaborations
may fail to lead to commercial products and we may never receive milestone payments or future royalties under these agreements.
Substantially all of our revenue to date has been derived from our existing collaboration agreements, including, most recently, the Amgen Agreement that we
entered into with Amgen in September 2017, and a significant portion of our future revenue and cash resources is expected to be derived from these
agreements or other similar agreements we may enter into in the future. Revenue from research and development collaborations depend upon continuation of
the collaborations, reimbursement of development costs, the achievement of milestones and royalties, if any, derived from future products developed from our
research. If we are unable to successfully advance the development of our product candidates or achieve milestones, revenue and cash resources from
milestone payments under our collaboration agreements will be substantially less than expected.
In addition, to the extent that any of our collaborators were to terminate a collaboration agreement, we may decide to independently develop these product
candidates to the extent we retain development rights. Such development could include funding preclinical or clinical trials, assuming marketing and
distribution costs and defending intellectual property rights. Alternatively, in certain instances, we may choose to abandon product candidates altogether. For
instance, in March 2018, Pfizer terminated our 2013 collaboration agreement with them, and in January 2019, Bristol-Myers Squibb terminated its programs
for three targets it had selected under our agreement with them. The termination of any of our collaboration agreements or individual programs within a
collaboration agreement could result in a change to our business plan and may have a material adverse effect on our business, financial condition, results of
operations and prospects. If a collaboration is terminated, we would not be eligible to receive the milestone, royalty or other payments that would have been
payable under the collaboration agreement. For example, as a result of ImmunoGen’s decision to out-license the EPCAM program and our licensing of the
program from them in 2019, their license for the program from us ended and we will not receive milestone or other payments from them.
If we do not achieve our projected development and commercialization goals in the timeframes we announce and expect, the commercialization of any of
our product candidates may be delayed, and our business will be harmed.
For planning purposes, we sometimes estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product development
objectives. These milestones may include our expectations regarding the commencement or completion of scientific studies and clinical trials, the submission
of regulatory filings, or commercialization objectives. From time to time, we may publicly announce the expected timing of some of these milestones, such as
the completion of an ongoing clinical trial, the initiation of other clinical programs, receipt of marketing approval, or a commercial launch of a product. The
achievement of many of these milestones may be outside of our control. All of these milestones are based on a variety of assumptions which may cause the
timing of achievement of the milestones to vary considerably from our estimates, including:
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our available capital resources or capital constraints we experience;
the rate of progress, costs and results of our clinical trials and research and development activities, including the extent of scheduling conflicts
with participating clinicians and collaborators;
our ability to identify and enroll patients who meet clinical trial eligibility criteria;
our receipt of approvals by the FDA and other regulatory authorities and the timing thereof;
other actions, decisions or rules issued by regulators;
our ability to access sufficient, reliable and affordable supplies of materials used in the manufacture of our product candidates;
our ability to manufacture and supply clinical trial materials to our clinical sites on a timely basis;
the efforts of our collaborators with respect to the commercialization of our products; and
the securing of, costs related to, and timing issues associated with, product manufacturing as well as sales and marketing activities.
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If we fail to achieve announced milestones in the timeframes we expect, the commercialization of any of our product candidates may be delayed, and our
business and results of operations may be harmed.
We may not successfully engage in strategic transactions, including any additional collaborations we seek, which could adversely affect our ability to
develop and commercialize product candidates, impact our cash position, increase our expense and present significant distractions to our management.
Since commencing operations, we have entered into several collaboration agreements, including the Amgen Agreement that we entered into with Amgen in
September 2017. From time to time, we may consider strategic transactions, such as additional collaborations, acquisitions of companies, asset purchases and
out- or in-licensing of product candidates or technologies. In particular, we will evaluate and, if strategically attractive, seek to enter into additional
collaborations, including with major biotechnology or biopharmaceutical companies. The competition for collaborators is intense, and the negotiation process
is time-consuming and complex. Any new collaboration may be on terms that are not optimal for us, and we may not be able to maintain any new
collaboration if, for example, development or approval of a product candidate is delayed, sales of an approved product candidate do not meet expectations or
the collaborator terminates the collaboration. Any such collaboration, or other strategic transaction, may require us to incur non-recurring or other charges,
increase our near- and long-term expenditures and pose significant integration or implementation challenges or disrupt our management or business. These
transactions would entail numerous operational and financial risks, including exposure to unknown liabilities, disruption of our business and diversion of our
management’s time and attention in order to manage a collaboration or develop acquired products, product candidates or technologies, incurrence of
substantial debt or dilutive issuances of equity securities to pay transaction consideration or costs, higher than expected collaboration, acquisition or
integration costs, write-downs of assets or goodwill or impairment charges, increased amortization expenses, difficulty and cost in facilitating the
collaboration or combining the operations and personnel of any acquired business, impairment of relationships with key suppliers, manufacturers or
customers of any acquired business due to changes in management and ownership and the inability to retain key employees of any acquired business.
Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, any
transactions that we do complete may be subject to the foregoing or other risks and have a material and adverse effect on our business, financial condition,
results of operations and prospects. The termination by a collaborator of a collaboration may cause a decrease in the price of our stock. Conversely, any
failure to enter any additional collaboration or other strategic transaction that would be beneficial to us could delay the development and potential
commercialization of our product candidates and have a negative impact on the competitiveness of any product candidate that reaches market.
If we are unable to successfully develop companion diagnostic tests for certain of our product candidates, or experience significant delays in doing so, we
may not realize the full commercial potential of our product candidates.
Because we are focused on precision medicine, in which predictive biomarkers will be used to identify the right patients for our product candidates, we
believe that our success may depend, in part, on the development of companion diagnostic tests. To successfully develop a companion diagnostic test, we
would need to address a number of scientific, technical and logistical challenges. However, we have little experience in the development of companion
diagnostic tests and may not be successful in developing appropriate tests to pair with any of our product candidates. Companion diagnostic tests are subject
to regulation by the FDA and similar regulatory authorities outside the United States as medical devices and require separate regulatory approval prior to
commercialization. Given our limited experience in developing companion diagnostic tests, we could seek to rely on third parties to design, manufacture,
obtain regulatory approval for any companion diagnostic tests for our product candidates. However, we and such collaborators may encounter difficulties in
developing and obtaining approval for the companion diagnostic tests, including issues relating to selectivity/specificity, analytical validation, reproducibility,
or clinical validation. Any delay or failure by us or our collaborators to develop or obtain regulatory approval of the companion diagnostic tests could delay or
prevent approval of our product candidates. As a result, our business would be harmed, possibly materially.
We rely on third parties to conduct all of our clinical trials and certain of our preclinical studies and intend to continue to do so, and if such third parties
do not perform as contractually required, fail to satisfy regulatory or legal requirements or miss expected deadlines, our development programs could be
delayed with material and adverse effects on our business, financial condition, results of operations and prospects.
We do not have the ability to independently conduct clinical trials. As such, we currently rely and intend to continue to rely on third-party clinical
investigators, CROs, clinical data management organizations and consultants to help us design, conduct, supervise and monitor clinical trials of our product
candidates. As a result, we will have less control over the timing, quality and other aspects of our clinical trials than we would have had we conducted them
on our own. These investigators, CROs and consultants are not our employees and we have limited control over the amount of time and resources that they
dedicate to our programs. These third parties may have contractual relationships with other entities, some of which may be our competitors, which may draw
time and resources from our programs. The third parties with which we contract might not be diligent, careful or timely in conducting our preclinical studies
or clinical trials, resulting in the preclinical studies or clinical trials being delayed or unsuccessful.
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If we cannot contract with acceptable third parties on commercially reasonable terms, or at all, or if these third parties do not carry out their contractual duties,
satisfy legal and regulatory requirements for the conduct of preclinical studies or clinical trials or meet expected deadlines, our clinical development programs
could be delayed and otherwise adversely affected. In all events, we will be responsible for ensuring that each of our preclinical studies and clinical trials are
conducted in accordance with the general investigational plan and protocols for the trial. The FDA requires preclinical studies to be conducted in accordance
with good laboratory practices (“GLPs”) and clinical trials to be conducted in accordance with good clinical practices (“GCPs”), including for designing,
conducting, recording and reporting the results of preclinical studies and clinical trials to assure that data and reported results are credible and accurate and
that the rights, integrity and confidentiality of clinical trial participants are protected. Our reliance on third parties that we do not control will not relieve us of
these responsibilities and requirements. Any adverse development or delay in our clinical trials could have a material and adverse effect on our business,
financial condition, results of operations and prospects.
We are currently conducting and will continue to conduct clinical trials and will contract with third-party manufacturers in foreign countries, which
could expose us to risks that could have a material adverse effect on the success of our business.
We have enrolled or are planning to enroll patients in our clinical trials outside the United States, including in Europe, Australia and South Korea. Although
the FDA may accept data from clinical trials conducted outside the United States, acceptance of this data is subject to certain conditions imposed by the
FDA. Conducting clinical trials outside the United States also exposes us to additional risks, including risks associated with additional foreign regulatory
requirements; foreign exchange fluctuations; patient monitoring and compliance; compliance with foreign manufacturing, customs, shipment and storage
requirements; and cultural differences in medical practice and clinical research. We are also subject to risks associated with doing business globally,
including commercial, political, and financial risks. In addition, we are subject to potential disruption caused by military conflicts; potentially unstable
governments or legal systems; civil or political upheaval or unrest; local labor policies and conditions; possible expropriation, nationalization, or confiscation
of assets; problems with repatriation of foreign earnings; economic or trade sanctions; closure of markets to imports; anti-American sentiment; terrorism or
other types of violence in or outside the United States; health pandemics; and a significant reduction in global travel. For example, pandemics and public
health emergencies, such as the COVID-19 coronavirus, could disrupt or delay enrollment in our clinical trials in South Korea. Our success will depend, in
part, on our ability to overcome the challenges we encounter with respect to these risks and other factors affecting U.S. companies with global operations. If
our global clinical trials or foreign third-party suppliers were to experience significant disruption due to these risks or for other reasons, it could have a
material adverse effect on our business, financial condition, results of operations and prospects.
Because we have no long term contracts with and rely on third-party manufacturing and supply partners, most of which are sole source suppliers, our
supply of research and development, preclinical and clinical development materials may become limited or interrupted or may not be of satisfactory
quantity or quality.
We rely on third-party contract manufacturers to manufacture our clinical trial and preclinical study product supplies. Most of our clinical trial manufacturing
contractors and suppliers are our sole source for their respective manufacturing and supplies. Failure of any of these contractors could put our ability to have
clinical trial material available when needed. This could result in a substantial delay of our clinical trials. For each of CX-072 CX-2009 and CX-2029, our
manufacturing supply chain includes several contract manufacturers, and failure by any of these manufacturers could result in interruptions of our clinical
studies. For example, in November 2019 one of our contract manufacturers that manufactures CX-072 for our Phase 2 clinical trial experienced a production
failure. We believe we have contracted with alternative suppliers that will be able to timely deliver clinical trial drug product for our ongoing trial. However,
if the contract manufacturers are not able to manufacture satisfactory drug product in the second quarter of 2020, we may be required to temporarily suspend
our ongoing trial for new and ongoing patients, which could affect our ability to conduct our trial on our originally planned timeline. We do not own
manufacturing facilities for producing such supplies and do not have any long-term contracts and we do not currently have an alternative to any of our third-
party contract manufacturers. There can be no assurance that our preclinical and clinical development product supplies will not be limited, interrupted, or of
satisfactory quality or continue to be available at acceptable prices. In particular, any replacement of any of our third-party contract manufacturers could
require significant effort and expertise because there may be a limited number of qualified replacements. In addition, we may encounter issues with
transferring technology to a new third-party manufacturer, and we may encounter regulatory delays if we need to move the manufacturing of our products
from one third-party manufacturer to another. For example, we were dependent on ImmunoGen under our collaboration for certain steps in the manufacturing
of clinical quantities of CX-2009. At the end of 2018, ImmunoGen closed their clinical manufacturing facility in Norwood, MA. This site provided clinical
manufacturing support for the CX-2009 program. We have recently completed transfer of the drug substance manufacturing process from ImmunoGen to a
CMO, where we have an existing relationship and which has expertise in the manufacture of antibody drug conjugates at a clinical and commercial scale.
While the manufacturing transfer process has been completed, there can be no assurance that we will not experience a disruption in the supply of CX-2009 as
a result of such transfer or that we will not experience any other disruption in the manufacture of CX-2009.
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The manufacturing process for a product candidate is subject to FDA and foreign regulatory authority review. Suppliers and manufacturers must meet
applicable manufacturing requirements and undergo rigorous facility and process validation tests required by regulatory authorities in order to comply with
regulatory standards, such as current Good Manufacturing Practices (“cGMPs”). In the event that any of our manufacturers fails to comply with such
requirements or to perform its obligations to us in relation to quality, timing or otherwise, such as the CX-072 manufacturing production failure our contract
manufacturer experienced in November 2019, or if our supply of components or other materials becomes limited or interrupted for other reasons, such as one
of our manufacturers going out of business, we may be forced to manufacture the materials ourselves, for which we currently do not have the capabilities or
resources, or enter into an agreement with another third party, which we may not be able to do on reasonable terms, if at all. In some cases, the technical skills
or technology required to manufacture our product candidates may be unique or proprietary to the original manufacturer and we may have difficulty
transferring such skills or technology to another third party and a feasible alternative may not exist. These factors would increase our reliance on such
manufacturer or require us to obtain a license from such manufacturer in order to have another third party manufacture our product candidates. If we are
required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with
quality standards and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer could negatively affect
our ability to develop product candidates in a timely manner or within budget.
We expect to continue to rely on third-party manufacturers if we receive regulatory approval for any product candidate. To the extent that we have existing, or
enter into future, manufacturing arrangements with third parties, we will depend on these third parties to perform their obligations in a timely manner
consistent with contractual and regulatory requirements, including those related to quality control and assurance. If we are unable to obtain or maintain third-
party manufacturing for product candidates, or to do so on commercially reasonable terms, we may not be able to develop and commercialize our product
candidates successfully. We may find that our third-party manufacturer is unable to scale up the process in order to produce commercial quantities of our
products. Our or a third party’s failure to execute on our manufacturing requirements and comply with cGMPs could adversely affect our business in a
number of ways, including:
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an inability to initiate or continue clinical trials of product candidates under development;
delay in submitting regulatory applications, or receiving regulatory approvals, for product candidates;
loss of the cooperation of a collaborator;
subjecting third-party manufacturing facilities or our manufacturing facilities to additional inspections by regulatory authorities;
requirements to cease distribution or to recall batches of our product candidates; and
in the event of approval to market and commercialize a product candidate, an inability to meet commercial demands for our products.
The supply chain for the manufacturing of our product candidates is complicated and can involve many parties. This is especially the case for our clinical
stage Probody Drug Conjugates, CX-2009 and CX-2029. If we were to experience any supply chain issues, our product supply could be seriously disrupted.
In addition, we expect the logistical challenges associated with our supply chain to grow more complex as additional product candidates commence any
clinical trials.
We, or third-party manufacturers, may be unable to successfully scale-up manufacturing of our product candidates in sufficient quality and quantity,
which would delay or prevent us from developing our product candidates and commercializing approved products, if any.
It may prove more challenging than we anticipate to manufacture products that incorporate our Probody therapeutic technology. In order to conduct clinical
trials of our product candidates, including our clinical trials for CX-072, CX-2009 and CX-2029, we will need to manufacture them in large quantities. To
date we have generally been able to successfully manufacture CX-072, CX-2009 and CX-2029 for our ongoing early stage clinical trials. However, in
November 2019 we had a production failure at one of our contract manufacturers that manufactures CX-072 for our Phase 2 clinical trial. We believe we
have contracted with alternative suppliers that will be able to timely deliver clinical trial drug product for our ongoing trial. However, if the contract
manufacturers are not able to manufacture satisfactory drug product in the second quarter of 2020, we may be required to temporarily suspend our ongoing
trial for new and ongoing patients, which could affect our ability to conduct our trial on our originally planned timeline. Furthermore, in order to conduct
later stage clinical trials of our product candidates, such as our Phase 2 clinical trial for CX-072, and eventually, if approved, commercial products, we will
need to manufacture them in larger quantities. We, or any manufacturing partners, may be unable to successfully increase the manufacturing scale and
capacity for any of our product candidates in a timely or cost-effective manner, or at all. For example, we are currently working with our CMOs to change
our manufacturing processes and formulations as well as scaling up for larger drug manufacturing capability and to increase the term of stability for CX-072
drug product and we are scaling up CX-2009 drug product for late stage clinical trials and commercialization. However, we may have to start late stage trials
with our early clinical trial drug product and switch to late stage or commercial drug product mid trial. In such event, the FDA will require us to complete
bridging studies to compare the earlier stage material with late stage or commercial material to assure comparability between the earlier trial material and the
late stage or commercial material. Changing formulation and scaling up the
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process is a complicated and difficult task. While we believe we can complete this process successfully, there can be no assurances that the changes we make
to the drug product and manufacturing process will be successful or completed in a timely manner or that the FDA will not require additional development
steps or studies from those we believe are necessary. If we are not able to scale up our manufacturing capabilities with respect to CX-072 or any of our other
product candidates, increase the life of drug stability of CX-072 or such other product candidates, or successfully complete the FDA’s bridging requirements,
we may not be able to successfully obtain FDA approval and commercialize CX-072 or such other product candidates in a timely manner or at all.
Additionally, we were dependent on ImmunoGen under our collaboration for certain steps in the manufacturing of clinical quantities of CX-2009. At the end
of 2018, ImmunoGen closed their clinical manufacturing facility in Norwood, Massachusetts, which provided clinical manufacturing support for the CX-2009
program. We recently completed the transfer of the drug substance manufacturing process from ImmunoGen to a contract manufacturer, where we have an
existing relationship and with expertise in the manufacture of antibody drug conjugates at a clinical and commercial scale. While the manufacturing transfer
process has been completed, there can be no assurance that we will not experience a disruption in the supply of CX-2009 in connection with such transfer or
that we will not experience any other disruption in the manufacturing of CX-2009 . In addition, for CX-2029, the manufacturing of additional clinical
quantities could be particularly difficult because we are relying on three different parties to manufacture supplies. If we, or any manufacturing partners, are
unable to successfully scale up the manufacture of our product candidates in sufficient quality and quantity, the development, testing, and clinical trials of that
product candidate may be delayed or infeasible, and regulatory approval or commercial launch of any resulting product may be delayed or not obtained,
which could significantly harm our business.
We may acquire assets or form strategic alliances in the future, and we may not realize the benefits of such acquisitions.
As we continue to mature our Probody platform and our clinical stage pipeline, we may seek to acquire and/or in-license other oncology products, product
candidates, programs or companies that we consider complimentary to our efforts. Such efforts may never result in a transaction and any future growth
through acquisition or in-licensing will depend upon the availability of suitable products, product candidates, programs or companies for acquisition or in-
licensing on acceptable prices, terms and conditions. Even if appropriate opportunities are available, we may not be able to acquire rights to them on
acceptable terms, or at all. The competition to acquire or in-license rights to promising products, product candidates, programs and companies is fierce, and
many of our competitors are large, multinational pharmaceutical and biotechnology companies with considerably more financial, development and
commercialization resources, personnel, and experience than we have. In order to compete successfully in the current business climate, we may have to pay
higher prices for assets than may have been paid historically, which may make it more difficult for us to realize an adequate return on any acquisition. In
addition, even if we succeed in identifying promising products, product candidates, programs or companies, we may not have the ability to develop, obtain
regulatory approval for and commercialize such opportunities, or the financial resources necessary to pursue them.
Even if we are able to successfully identify and acquire or in-license new products, product candidates, programs or companies, we may not be able to
successfully manage the risks associated with integrating any products, product candidates, programs or companies into our business or the risks arising from
anticipated and unanticipated problems in connection with an acquisition or in-licensing. Further, while we seek to mitigate risks and liabilities of potential
acquisitions through, among other things, due diligence, there may be risks and liabilities that such due diligence efforts fail to discover, that are not disclosed
to us, or that we inadequately assess. Any failure in identifying and managing these risks and uncertainties effectively would have a material adverse effect on
our business. In any event, we may not be able to realize the anticipated benefits of any acquisition or in-licensing for a variety of reasons, including the
possibility that a product candidate fails to advance to clinical development, proves not to be safe or effective in clinical trials, or fails to reach its forecasted
commercial potential or that the integration of a product, product candidate, program or company gives rise to unforeseen difficulties and expenditures. Any
failure in identifying and managing these risks and uncertainties would have a material adverse effect on our business.
In addition, acquisitions create other uncertainties and risks, particularly when the acquisition takes the form of a merger or other business consolidation. We
may encounter unexpected difficulties, or incur unexpected costs, in connection with transition activities and integration efforts, which include:
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high acquisition costs;
the need to incur substantial debt or engage in dilutive issuances of equity securities to pay for acquisitions;
the potential disruption of our historical business and our activities under our collaboration agreements;
the strain on, and need to expand, our existing operational, technical, financial and administrative infrastructure;
our lack of experience in late-stage product development and commercialization;
the difficulties in assimilating employees and corporate cultures;
the difficulties in hiring qualified personnel and establishing necessary development and/or commercialization capabilities;
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the failure to retain key management and other personnel;
the challenges in controlling additional costs and expenses in connection with and as a result of the acquisition;
the need to write down assets or recognize impairment charges;
the diversion of our management’s attention to integration of operations and corporate and administrative infrastructures; and
any unanticipated liabilities for activities of or related to the acquired business or its operations, products or product candidates.
If we fail to integrate or otherwise manage an acquired business successfully and in a timely manner, resulting operating inefficiencies could increase our
costs more than we planned, could negatively impact the market price of our common stock and could otherwise distract us from execution of our strategy.
Failure to maintain effective financial controls and reporting systems and procedures could also impact our ability to produce timely and accurate financial
statements.
We may expend our limited resources to pursue a particular product candidate and fail to capitalize on product candidates that may be more profitable or
for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we focus on specific product candidates and indications, including CX-072, CX-2009 and CX-
2029. As a result, we may forgo or delay pursuit of opportunities with those products in other indications or with other product candidates that later prove to
have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market
opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any
commercially viable product candidates. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may
relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more
advantageous for us to retain sole development and commercialization rights to such product candidate.
We may experience difficulties in managing our growth and expanding our operations successfully.
We will need to grow our organization substantially to continue development and pursue the potential commercialization of CX-072, CX-2009 and CX-2029
and our other product candidates, as well as function as a public company. As we increase the number of our product candidates entering and advancing
through preclinical studies and clinical trials, we will need to expand our development, regulatory and manufacturing capabilities or contract with additional
organizations to provide these capabilities for us. In addition, we expect our collaborations to require greater resources as the development of our product
candidates under such agreements progresses. In the future, we expect to also have to manage additional relationships with collaborators or partners,
suppliers and other organizations. In particular, if the third-parties on which we currently rely are not capable of delivering services or supplies in a manner
that is sufficient to meet our requirements as we expand our operations, we could be required to contract with new third parties and there can be no assurances
that the services or supplies of such third parties will be available on commercially reasonable terms, or at all. Furthermore, our ability to manage our
operations and future growth will require us to continue to increase headcount as well as improve our operational, financial and management controls,
reporting systems and procedures. We may not be able to implement improvements to our management information and control systems in an efficient or
timely manner and may discover deficiencies in existing systems and controls.
We face competition from entities that have developed or may develop product candidates for cancer, including companies developing novel treatments
and technology platforms. If these companies develop technologies or product candidates more rapidly than we do or their technologies are more
effective, our ability to develop and successfully commercialize product candidates may be adversely affected.
The development and commercialization of drugs and therapeutic biologics is highly competitive. We compete with a variety of multinational
biopharmaceutical companies and specialized biotechnology companies, as well as technology being developed at universities and other research institutions.
Our competitors have developed, are developing or will develop product candidates and processes competitive with our product candidates. Competitive
therapeutic treatments include those that have already been approved and accepted by the medical community and any new treatments that enter the market.
We believe that a significant number of products are currently under development, and may become commercially available in the future, for the treatment of
conditions for which we may try to develop product candidates. For instance, there is intense and rapidly evolving competition in the biotechnology,
biopharmaceutical and antibody and immunoregulatory therapeutics fields, and our competitors include larger and better funded biopharmaceutical,
biotechnological and therapeutics companies. In addition, these companies compete with us in recruiting scientific and managerial talent.
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We believe that while our Probody platform, its associated intellectual property and our scientific and technical know-how, give us a competitive advantage in
this space, competition from many sources remains. The clinical development pipeline for cancer includes small molecules, antibodies and therapies from a
variety of groups. In addition, numerous compounds are in clinical development for cancer treatment. As a result, our success will partially depend on our
ability to develop and protect therapeutics that are safer and more effective than competing products. Our commercial opportunity and success will be reduced
or eliminated if competing products that are safer, more effective, or less expensive than the therapeutics we develop or if we are unable to utilize our
Probody therapeutic technology to differentiate our Probody therapeutics from the products of our competitors. For instance, if any of our lead product
candidates, including CX-072, CX-2009 and CX-2029 are approved, they will compete with a range of therapeutic treatments that are either in development
or currently marketed. A variety of oncology drugs and therapeutic biologics are currently on the market or in clinical development. The market for
immunotherapies like CX-072 is, in particular, highly competitive and the field is changing quickly. Given the amount of time required to successfully
develop and obtain regulatory approval for each of our product candidates, it is therefore possible that by the time we obtain any such approval, if ever, and
commence sales, we may no longer be able to differentiate such product candidate from those of our competitors.
We face substantial competition from pharmaceutical companies developing products in immuno-oncology, including companies, such as Amgen,
AstraZeneca PLC, Bristol-Myers Squibb, Celgene, GlaxoSmithKline plc, Merck & Co., Inc. Novartis AG, Pfizer, Roche Holding Ltd. and Sanofi SA. Many
large and mid-sized biotech companies, including BeiGene, Incyte, Nektar, and Alkermes have ongoing efforts in cancer immunotherapy. Finally, numerous
small companies are also working in the space. Several companies, including Akriveia, Amgen, Amunix, BioAtla, Halozyme, Maverick Therapeutics,
Pandion Therapeutics, Revitope, Roche, and Seattle Genetics are exploring antibody masking and/or conditional activation strategies, which could compete
with our Probody Platform. We are also aware of several companies that are developing ADCs, such as AbbVie, Immunomedics, Pfizer, Roche Holding Ltd.
and Takeda. In addition, two mid-sized companies, ImmunoGen and Seattle Genetics, Inc. are also leaders in the development of ADCs and we are aware of
numerous small companies with ongoing efforts in this field. Furthermore, several large pharmaceutical companies, including Amgen, Novartis AG and
Roche Holding Ltd., are developing T-cell engaging immunotherapies, and we are aware of several mid-sized biotech companies, such as Macrogenics and
Xencor, and small companies with ongoing efforts to develop T-cell engaging immunotherapies. Any of these companies may be well-capitalized and may
have significant clinical experience. In addition, these companies include our collaborators.
Many of our competitors have significantly greater financial, technical, manufacturing, marketing, sales and supply resources or experience than we do. If we
successfully obtain approval for any product candidate, we will face competition based on many different factors, including the safety and effectiveness of our
products, the ease with which our products can be administered and the extent to which patients accept relatively new routes of administration, the timing and
scope of regulatory approvals for these products, the availability and cost of manufacturing, marketing and sales capabilities, price, reimbursement coverage
and patent position. Competing products could present superior treatment alternatives, including by being more effective, safer, less expensive or marketed
and sold more effectively than any products we may develop. Competitive products may make any products we develop less differentiated or noncompetitive
before we recover the expense of developing and commercializing our product candidates. Such competitors could also recruit our employees, which could
negatively impact our level of expertise and our ability to execute our business plan.
Any inability to attract and retain qualified key management and technical personnel would impair our ability to implement our business plan.
Our success largely depends on the continued service of key management, advisors and other specialized personnel, including Sean A. McCarthy, D.Phil., our
president and chief executive officer, W. Michael Kavanaugh, M.D., our chief scientific officer and Amy C. Peterson, M.D., our newly appointed chief
development officer. The loss of one or more members of our management team or other key employees or advisors could delay our research and
development programs and have a material and adverse effect on our business, financial condition, results of operations and prospects. The relationships that
our key managers have cultivated within our industry make us particularly dependent upon their continued employment with us. We are dependent on the
continued service of our technical personnel because of the highly technical nature of our product candidates and technologies and the specialized nature of
the regulatory approval process. Because our management team and key employees are not obligated to provide us with continued service, they could
terminate their employment with us at any time without penalty. Our future success will depend in large part on our continued ability to attract and retain
other highly qualified scientific, technical and management personnel, as well as personnel with expertise in clinical testing, manufacturing, governmental
regulation and commercialization. We face competition for personnel from other companies, universities, public and private research institutions, government
entities and other organizations, especially as job opportunities in the biotechnology industry have recently increased significantly in the San Francisco Bay
Area.
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If any of our product candidates are approved for marketing and commercialization and we are unable to develop sales, marketing and distribution
capabilities on our own or enter into agreements with third parties to perform these functions on acceptable terms, we will be unable to commercialize
successfully any such future products.
We currently have no sales, marketing or distribution capabilities or experience. If any of our product candidates is approved, we will need to develop internal
sales, marketing and distribution capabilities to commercialize such products, which would be expensive and time-consuming, or enter into collaborations
with third parties to perform these services. If we decide to market our products directly, we will need to commit significant financial and managerial
resources to develop a marketing and sales force with technical expertise and supporting distribution, administration and compliance capabilities. If we rely
on third parties with such capabilities to market our products or decide to co-promote products with collaborators, we will need to establish and maintain
marketing and distribution arrangements with third parties, and there can be no assurance that we will be able to enter into such arrangements on acceptable
terms or at all. In entering into third-party marketing or distribution arrangements, any revenue we receive will depend upon the efforts of the third parties and
there can be no assurance that such third parties will establish adequate sales and distribution capabilities or be successful in gaining market acceptance of any
approved product. If we are not successful in commercializing any product approved in the future, either on our own or through third parties, our business,
financial condition, results of operations and prospects could be materially and adversely affected.
Our future growth may depend, in part, on our ability to operate in foreign markets, where we would be subject to additional regulatory burdens and
other risks and uncertainties.
Our future growth may depend, in part, on our ability to develop and commercialize our product candidates in foreign markets for which we may rely on
collaboration with third parties. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the
applicable regulatory authority in that foreign market, and we may never receive such regulatory approval for any of our product candidates. To obtain
separate regulatory approval in many other countries we must comply with numerous and varying regulatory requirements of such countries regarding safety
and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our product candidates, and we cannot predict
success in these jurisdictions. If we obtain approval of our product candidates and ultimately commercialize our product candidates in foreign markets, we
would be subject to the risks and uncertainties, including the burden of complying with complex and changing foreign regulatory, tax, accounting and legal
requirements and the reduced protection of intellectual property rights in some foreign countries. We may need to rely on third parties to market, distribute
and sell our products in foreign markets.
Price controls imposed in foreign markets may adversely affect our future profitability.
In some countries, particularly member states of the European Union, the pricing of prescription drugs is subject to governmental control. In these countries,
pricing negotiations with governmental authorities can take considerable time after receipt of marketing approval for a product. In addition, there can be
considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political,
economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been
obtained. Reference pricing used by various European Union member states and parallel distribution, or arbitrage between low-priced and high-priced
member states, can further reduce prices. In some countries, we or future collaborators may be required to conduct a clinical trial or other studies that
compare the cost-effectiveness of our Probody therapeutic candidates to other available therapies in order to obtain or maintain reimbursement or pricing
approval. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of
publication and other countries. If reimbursement of any product candidate approved for marketing is unavailable or limited in scope or amount, or if pricing
is set at unsatisfactory levels, our business, financial condition, results of operations or prospects could be materially and adversely affected. We currently do
not know how the exit of the United Kingdom from the European Union will affect the pricing of prescription drugs, either in the United Kingdom or in the
remaining European Union member states.
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Our business entails a significant risk of product liability and our ability to obtain sufficient insurance coverage could have a material and adverse effect
on our business, financial condition, results of operations and prospects.
We are exposed to significant product liability risks inherent in the development, testing, manufacturing and marketing of therapeutic treatments, including as
a result of the clinical testing of CX-072, CX-2009, CX-2029, BMS-986249 and any of our other product candidates or those of our collaborators. Product
liability claims could delay or prevent completion of our development programs. If we succeed in marketing product candidates, such claims could result in
an FDA investigation of the safety and effectiveness of our product candidates, our manufacturing processes and facilities (or the manufacturing processes
and facilities of our third-party manufacturers) or our marketing programs and potentially a recall of our products or more serious enforcement action,
limitations on the approved indications for which they may be used or suspension or withdrawal of approvals. Regardless of the merits or eventual outcome,
liability claims may also result in decreased demand for our products, injury to our reputation, costs to defend the related litigation, a diversion of
management’s time and our resources, substantial monetary awards to trial participants or patients and a decline in our stock price. We currently have
insurance that we believe is appropriate for our stage of development and may need to obtain higher levels of insurance prior to marketing any of our product
candidates. Any insurance we have or may obtain may not provide sufficient coverage against potential liabilities. Furthermore, clinical trial and product
liability insurance is becoming increasingly expensive. As a result, we may be unable to obtain sufficient insurance at a reasonable cost to protect us against
losses caused by product liability claims that could have a material and adverse effect on our business, financial condition, results of operations and prospects.
Our employees and independent contractors may engage in misconduct or other improper activities, including noncompliance with regulatory standards
and requirements.
We are exposed to the risk of fraud or other misconduct by our employees or independent contractors. Misconduct by these parties could include intentional
failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards we may establish, comply with
federal and state data privacy, security, fraud and abuse, and other healthcare laws and regulations, report financial information or data accurately or disclose
unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations
intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing,
discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws
could also involve the improper use or misrepresentation of information obtained in the course of clinical trials, which could result in regulatory sanctions and
cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we
take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental
investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Additionally, we are subject to the risk
that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not
successful in defending ourselves or asserting our rights, those actions could have a material and adverse effect on our business, financial condition, results of
operations and prospects, including the imposition of significant fines or other sanctions.
Our information technology systems, or those of our CROs or other contractors or consultants we may utilize, may fail, suffer disruptions or suffer
security breaches, which could result in a material disruption of our product development programs.
Our information technology and other internal infrastructure systems and those of our CROs and contractors and consultants, including corporate firewalls,
servers, leased lines and connection to the Internet, face the risk of systemic failure and may be vulnerable to damage from computer viruses, unauthorized
access, natural disasters, terrorism, war and telecommunication and electrical failures. Such events could cause interruptions of our operations. For instance,
the loss of data from any current or future clinical trial or data from any preclinical studies involving our product candidates could result in delays in our
development and regulatory filing efforts and significantly increase our costs. To the extent that any disruption or security breach were to result in a loss of, or
damage to, our data, or inappropriate disclosure of confidential or proprietary information, we could incur liability, recovery of our data could take a
prolonged period of time, and the development of our research or product candidates could be delayed.
Cybersecurity breaches and other disruptions could compromise our information, including the theft of our intellectual property, and could expose us to
liability, which could cause our business and reputation to suffer.
We are increasingly dependent on information technology systems and infrastructure, including mobile technologies, to operate our business. In the ordinary
course of our business, we collect and store confidential and sensitive electronic information on our networks and in our data centers. This information
includes, among other things, our intellectual property and proprietary information, the confidential information of our collaborators and licensees, and the
personally identifiable information of our employees. It is important to our operations and business strategy that this electronic information remains secure
and is perceived to be secure. The size and complexity of our information technology systems, and those of third-party vendors with whom we contract, and
the volume of data we retain, make such systems potentially vulnerable to breakdown, malicious intrusion, security breaches and other cyber-attacks.
Information security risks have significantly increased in recent years in part due to the proliferation of new technologies and
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the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign private parties and state actors. A
security breach or privacy violation that leads to disclosure or modification of or prevents access to personally identifiable information or other protected
information could harm our reputation, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to
mandatory corrective action, require us to verify the correctness of database contents and otherwise subject us to liability under laws and regulations that
protect personal data, resulting in increased costs or loss of revenue. Similarly, the loss of clinical trial data from completed or ongoing or planned clinical
trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Additionally, theft of our
intellectual property or proprietary business information could require substantial expenditures to remedy. If we are unable to prevent such security breaches
or privacy violations or implement satisfactory remedial measures, our operations could be disrupted, and we may suffer loss of reputation, financial loss and
other regulatory penalties because of lost or misappropriated information. In addition, these breaches and other inappropriate access can be difficult to detect,
and any delay in identifying them may lead to increased harm of the type described above. Moreover, the prevalent use of mobile devices that access
confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual
property. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective
measures or to investigate and remediate any information security vulnerabilities. While we have implemented security measures to protect our data security
and information technology systems, such measures may not prevent such events. Significant disruptions of our information technology systems or breaches
of data security could have a material adverse effect on our business, financial condition and results of operations.
If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.
Our research and development activities involve the use of hazardous materials and various chemicals. We maintain quantities of various flammable and toxic
chemicals in our facilities in South San Francisco, California that are required for our research and development activities. We are subject to federal, state and
local laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. We believe our procedures for storing,
handling and disposing these materials in our South San Francisco facilities comply with the relevant guidelines of South San Francisco, the state of
California and the Occupational Safety and Health Administration of the U.S. Department of Labor. Although we believe that our safety procedures for
handling and disposing of these materials comply with the standards mandated by applicable regulations, the risk of accidental contamination or injury from
these materials cannot be eliminated. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to
numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne
pathogens and the handling of animals and biohazardous materials. Although we maintain workers’ compensation insurance to cover us for costs and
expenses we may incur due to injuries to our employees resulting from the use of these materials, this insurance may not provide adequate coverage against
potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our
storage or disposal of biological or hazardous materials. Additional federal, state and local laws and regulations affecting our operations may be adopted in
the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.
Our current operations are concentrated in one location, and we or the third parties upon whom we depend may be adversely affected by earthquakes or
other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Our current operations are located in our facilities in South San Francisco, California. Any unplanned event, such as flood, fire, explosion, earthquake,
extreme weather condition, medical epidemics, power shortage, telecommunication failure or other natural or manmade accidents or incidents that result in us
being unable to fully utilize our facilities, or the manufacturing facilities of our third-party contract manufacturers, may have a material and adverse effect on
our ability to operate our business, particularly on a daily basis, and have significant negative consequences on our financial and operating conditions. Loss of
access to these facilities may result in increased costs, delays in the development of our product candidates or interruption of our business operations.
Earthquakes or other natural disasters could further disrupt our operations and have a material and adverse effect on our business, financial condition, results
of operations and prospects. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our
headquarters, that damaged critical infrastructure, such as our research facilities or the manufacturing facilities of our third-party contract manufacturers, or
that otherwise disrupted operations, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. The
disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may incur
substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, could have a material and adverse effect on
our business. As part of our risk management policy, we maintain insurance coverage at levels that we believe are appropriate for our business. However, in
the event of an accident or incident at these facilities, we cannot assure you that the amounts of insurance will be sufficient to satisfy any damages and losses.
If our facilities, or the manufacturing facilities of our third-party contract manufacturers, are unable to operate because of an accident or incident or for any
other reason, even for a short period of time, any or all of our research and development programs may be harmed. Any business interruption may have a
material and adverse effect on our business, financial condition, results of operations and prospects.
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Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the U.S.
We prepare our financial statements in conformity with accounting principles generally accepted in the U.S. These accounting principles are subject to
interpretation by the Financial Accounting Standards Board (“FASB”) and the SEC. A change in these policies or interpretations could have a significant
effect on our reported financial results, may retroactively affect previously reported results, could cause unexpected financial reporting fluctuations, and may
require us to make costly changes to our operational processes and accounting systems. For example, in May 2014, the FASB issued Accounting Standards
Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it
expects to be entitled for the transfer of promised goods or services to customers. The ASU replaced most existing revenue recognition guidance in the U.S.
GAAP when it became effective. The new standard was effective at the beginning of our fiscal year 2018 with early adoption permitted for our fiscal year
2017. We evaluated the impact of ASU 2014-09 on our financial statements and adoption of the standard had a significant impact on our financial statements
and retroactively affected the accounting treatment of transactions completed before adoption. Additionally, for the purpose of revenue recognition, we are
required to estimate research service periods as well as the related cost to completion, of our research development program. Such estimates are inherently
uncertain and may result in changes in estimates to financial statements in subsequent periods.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “IRC”), if a corporation undergoes an “ownership change” (generally
defined as a greater than 50 percentage points change (by value) in the ownership of its equity over a rolling three-year period), the corporation’s ability to use
its pre-change net operating loss carryforwards and certain other pre-change tax attributes to offset its post-change income and taxes may be limited.
California has similar rules. For example, we performed an IRC Section 382 analysis in 2017 and determined there was an ownership change that resulted in
Section 382 limitations. The ownership change limited our ability to utilize net operating losses against taxable income in 2018 for both federal and
California tax purposes. The remaining net operating losses and credit will be available in future years before expiration during their respective carryforward
periods. We may experience ownership changes in the future as a result of shifts in our stock ownership, some of which are outside our control, and our
ability to utilize net operating loss carryforwards could be limited by an “ownership change” as described above, which could result in additional increased
tax liability to the Company.
Changes in U.S. or foreign tax laws or regulations that are applied adversely to us may have a material adverse effect on our business, cash flow,
financial condition or results of operations.
New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect our business
and financial condition. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us.
For example, legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act (the “Tax Act”), enacted many significant changes to the U.S. tax laws.
Future guidance from the Internal Revenue Service and other tax authorities with respect to the Tax Act may affect us, and certain aspects of the Tax Act
could be repealed or modified in future legislation. In addition, it is uncertain if and to what extent various states will conform to the Tax Act or any newly
enacted federal tax legislation. Changes in corporate tax rates, the realization of net deferred tax assets relating to our operations, the taxation of foreign
earnings, and the deductibility of expenses under the Tax Act or future reform legislation could have a material impact on the value of our deferred tax assets,
could result in significant one-time charges, and could increase our future tax expense. Recent presidential candidate proposals for U.S. tax legislation could
have a material adverse effect on our future business, financial condition and results of operations.
Risks Related to Intellectual Property
If we are not able to obtain and enforce patent protection for our technologies or product candidates, development and commercialization of our product
candidates may be adversely affected.
Our success depends in part on our ability to obtain and maintain patents and other forms of intellectual property rights, including in-licenses of intellectual
property rights of others, for our product candidates, methods used to manufacture our product candidates and methods for treating patients using our product
candidates, as well as our ability to preserve our trade secrets, to prevent third parties from infringing upon our proprietary rights and to operate without
infringing upon the proprietary rights of others. We have a substantial number of issued patents and pending patent applications, some of which are co-owned
with a third party, covering our Probody platforms and products as well as methods of use and production thereof; we have exclusively licensed UCSB’s
interest in the patent family co-owned with UCSB that covers Probody and other pro-protein technology in the fields of therapeutics, in vivo diagnostics and
prophylactics. In addition, we have exclusively licensed a patent portfolio of three patent families from UCSB that includes patents and patent applications
that cover compositions and methods related to the screening for and identification of the masks and protease-cleavable linkers that we incorporate into our
Probody candidates. We may not be able to apply for patents on certain aspects of our product candidates in a timely fashion or at all. Our existing issued and
granted patents and any future patents
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we obtain may not be sufficiently broad to prevent others from using our technology or from developing competing products and technology. There is no
guarantee that any of our pending patent applications will result in issued or granted patents, that any of our issued or granted patents will not later be found to
be invalid or unenforceable or that any issued or granted patents will include claims that are sufficiently broad to cover our product candidates or to provide
meaningful protection from our competitors. Moreover, the patent position of biotechnology and biopharmaceutical companies can be highly uncertain
because it involves complex legal and factual questions. We will be able to protect our proprietary rights from unauthorized use by third parties only to the
extent that our current and future proprietary technology and product candidates are covered by valid and enforceable patents or are effectively maintained as
trade secrets. If third parties disclose or misappropriate our proprietary rights, it may materially and adversely affect our position in the market.
The U.S. Patent and Trademark Office (“USPTO”) and various foreign governmental patent agencies require compliance with a number of procedural,
documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of
a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to
enter the market earlier than would otherwise have been the case. The standards applied by the USPTO and foreign patent offices in granting patents are not
always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims
allowable in biotechnology and biopharmaceutical patents. As such, we do not know the degree of future protection that we will have on our proprietary
products and technology. While we will endeavor to try to protect our product candidates with intellectual property rights such as patents, as appropriate, the
process of obtaining patents is time-consuming, expensive and sometimes unpredictable.
In addition, there are numerous recent changes to the patent laws and proposed changes to the rules of the USPTO that may have a significant impact on our
ability to protect our technology and enforce our intellectual property rights. For example, the America Invents Act (“AIA”) enacted within the last several
years involves significant changes in patent legislation. The Supreme Court has ruled on several patent cases in recent years, some of which cases either
narrow the scope of patent protection available in certain circumstances or weaken the rights of patent owners in certain situations. The recent decision by the
Supreme Court in Association for Molecular Pathology v. Myriad Genetics, Inc. precludes a claim to a nucleic acid having a stated nucleotide sequence that is
identical to a sequence found in nature and has not been modified. We currently are not aware of an immediate impact of this decision on our patents or patent
applications because we are developing product candidates that contain modifications, such as our Probody substrates and masks, that we believe are not
found in nature. However, this decision has yet to be clearly interpreted by courts and by the USPTO. We cannot assure you that the interpretations of this
decision or subsequent rulings will not adversely impact our patents or patent applications. In addition to increasing uncertainty with regard to our ability to
obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by
the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our
ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
Once granted, patents may remain open to opposition, interference, re-examination, post-grant review, inter parties review, nullification or derivation action in
court or before patent offices or similar proceedings for a given period after allowance or grant, during which time third parties can raise objections against
such initial grant. In the course of such proceedings, which may continue for a protracted period of time, the patent owner may be compelled to limit the
scope of the allowed or granted claims thus attacked, or may lose the allowed or granted claims altogether. In addition, there can be no assurance that:
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Others will not or may not be able to make, use or sell compounds that are the same as or similar to our product candidates but that are not
covered by the claims of the patents that we own or license.
We or our licensors, or our collaborators are the first to make the inventions covered by each of our issued patents and pending patent
applications that we own or license.
We or our licensors, or our collaborators are the first to file patent applications covering certain aspects of our inventions.
Others will not independently develop similar or alternative technologies or duplicate any of our technologies without infringing,
misappropriating or otherwise violating our intellectual property rights.
A third party may not challenge our patents and, if challenged, a court would hold that our patents are valid, enforceable and infringed.
Any issued patents that we own or have licensed will provide us with any competitive advantages, or will not be challenged by third parties.
We may develop additional proprietary technologies that are patentable.
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The patents of others will not have a material or adverse effect on our business, financial condition, results of operations and prospects.
Our competitors do not conduct research and development activities in countries where we do not have enforceable patent rights and then use
the information learned from such activities to develop competitive products for sale in our major commercial markets.
Other companies or organizations may challenge our or our licensors’ patent rights or may assert patent rights that prevent us from developing and
commercializing our products.
Probody therapeutics are a relatively new scientific field. We have obtained grants and issuances of Probody therapeutic patents and have licensed one patent
family comprising several of these patents from a third party on an exclusive basis for therapeutics applications. The issued patents and pending patent
applications in the United States and in key markets around the world that we own or license claim many different methods, compositions and processes
relating to the discovery, development, manufacture and commercialization of antibody and immunoregulatory therapeutics. Specifically, we own and have
licensed a portfolio of patents, patent applications and other intellectual property covering Probody compositions of matter as well as their methods of
manufacturing and use.
As the field of antibody and immunoregulatory therapeutics matures, patent applications are being processed by national patent offices around the world.
There is uncertainty about which patents will issue, and, if they do, as to when, to whom, and with what claims. In addition, third parties may attempt to
invalidate our intellectual property rights. Even if our rights are not directly challenged, disputes could lead to the weakening of our intellectual property
rights. Our defense against any attempt by third parties to circumvent or invalidate our intellectual property rights could be costly to us, could require
significant time and attention of our management and could have a material and adverse effect on our business, financial condition, results of operations and
prospects or our ability to successfully compete.
There are many issued and pending patents that claim aspects of our product candidates and modifications that we may need to apply to our product
candidates. There are also many issued patents that claim antibodies or portions of antibodies that may be relevant for Probody products we wish to develop.
Thus, it is possible that one or more organizations will hold patent rights to which we will need a license. If those organizations refuse to grant us a license to
such patent rights on reasonable terms, we may not be able to market products or perform research and development or other activities covered by these
patents.
We may not be able to protect our intellectual property rights throughout the world.
Obtaining a valid and enforceable issued or granted patent covering our technology in the U.S. and worldwide can be extremely costly. In jurisdictions where
we have not obtained patent protection, competitors may use our technology to develop their own products and further, may export otherwise infringing
products to territories where we have patent protection, but where it is more difficult to enforce a patent as compared to the U.S. Competitor products may
compete with our future products in jurisdictions where we do not have issued or granted patents or where our issued or granted patent claims or other
intellectual property rights are not sufficient to prevent competitor activities in these jurisdictions. The legal systems of certain countries, particularly certain
developing countries, make it difficult to enforce patents and such countries may not recognize other types of intellectual property protection, particularly that
relating to biopharmaceuticals. This could make it difficult for us to prevent the infringement of our patents or marketing of competing products in violation
of our proprietary rights generally in certain jurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and
divert our efforts and attention from other aspects of our business.
We generally file a provisional patent application first (a priority filing) at the USPTO. An international application under the Patent Cooperation Treaty
(“PCT”) is usually filed within twelve months after the priority filing. Based on the PCT filing, national and regional patent applications may be filed in the
United States, Europe, Japan, Australia and Canada and, depending on the individual case, also in any or all of, inter alia, Brazil, China, Hong Kong, India,
Indonesia, Israel, Malaysia, Mexico, New Zealand, Russia or Eurasian Patent Organization, Singapore, South Africa, South Korea and other jurisdictions. We
have so far not filed for patent protection in all national and regional jurisdictions where such protection may be available. In addition, we may decide to
abandon national and regional patent applications before grant. Finally, the grant proceeding of each national or regional patent is an independent proceeding
which may lead to situations in which applications might in some jurisdictions be refused by the relevant registration authorities, while granted by others. It is
also quite common that depending on the country, various scopes of patent protection may be granted on the same product candidate or technology.
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The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws in the U.S., and many companies have encountered
significant difficulties in protecting and defending such rights in such jurisdictions. If we or our licensors encounter difficulties in protecting, or are otherwise
precluded from effectively protecting, the intellectual property rights important for our business in such jurisdictions, the value of these rights may be
diminished and we may face additional competition from others in those jurisdictions. Many countries have compulsory licensing laws under which a patent
owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or
government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or
any of our licensors are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position in the relevant
jurisdiction may be impaired and our business and results of operations may be adversely affected.
We or our licensors, or any future strategic partners may become subject to third party claims or litigation alleging infringement of patents or other
proprietary rights or seeking to invalidate patents or other proprietary rights, and we may need to resort to litigation to protect or enforce our patents or
other proprietary rights, all of which could be costly, time consuming, delay or prevent the development and commercialization of our product candidates,
or put our patents and other proprietary rights at risk.
We or our licensors, or any future strategic partners may be subject to third-party claims for infringement or misappropriation of patent or other proprietary
rights. We are generally obligated under our license or collaboration agreements to indemnify and hold harmless our licensors or collaborators for damages
arising from intellectual property infringement by us. If we or our licensors, or any future strategic partners are found to infringe a third-party patent or other
intellectual property rights, we could be required to pay damages, potentially including treble damages, if we are found to have willfully infringed. In
addition, we or our licensors, or any future strategic partners may choose to seek, or be required to seek, a license from a third party, which may not be
available on acceptable terms, if at all. Even if a license can be obtained on acceptable terms, the rights may be non-exclusive, which could give our
competitors access to the same technology or intellectual property rights licensed to us. If we fail to obtain a required license, we or our collaborators may be
unable to effectively market product candidates based on our technology, which could limit our ability to generate revenue or achieve profitability and
possibly prevent us from generating revenue sufficient to sustain our operations. In addition, we may find it necessary to pursue claims or initiate lawsuits to
protect or enforce our patent or other intellectual property rights. The cost to us in defending or initiating any litigation or other proceeding relating to patent
or other proprietary rights, even if resolved in our favor, could be substantial, and litigation would divert our management’s attention. Some of our
competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources.
Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could delay our research and development efforts and
limit our ability to continue our operations.
If we were to initiate legal proceedings against a third party to enforce a patent covering one of our products or our technology, the defendant could
counterclaim that our patent is invalid or unenforceable. In patent litigation in the U.S., defendant counterclaims alleging invalidity or unenforceability are
commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty,
obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent
withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and
unenforceability during patent litigation is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating
prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or
unenforceability, we would lose at least part, and perhaps all, of the patent protection on one or more of our products or certain aspects of our platform
technology. Such a loss of patent protection could have a material and adverse effect on our business, financial condition, results of operations and prospects.
Patents and other intellectual property rights also will not protect our technology if competitors design around our protected technology without legally
infringing, misappropriating or otherwise violating our patents or other intellectual property rights.
Intellectual property rights of third parties could adversely affect our ability to commercialize our product candidates, and we might be required to litigate
or obtain licenses from third parties in order to develop or market our product candidates. Such litigation or licenses could be costly or not available on
commercially reasonable terms.
Because the antibody landscape is still evolving, including the masked antibody landscape, it is difficult to conclusively assess our freedom to operate without
infringing on third-party rights. There are numerous companies that have pending patent applications and issued patents broadly covering antibodies generally
or covering antibodies directed against the same targets as, or targets similar to, those we are pursuing. There are many issued patents and patent applications
covering antibodies targeted against PD-1 and PD-L1, and the intellectual property covering PD-1 and PD-L1 antibodies has been the subject of litigation and
licensing, especially regarding how broadly certain claims should be construed. If the claims were to be construed broadly by the courts, we may need to
obtain a license to some of such intellectual property, covering PD-1 and/or PD-L1 antibodies, which would decrease the profits we would realize from the
sale of such products. An increasing number of third parties are filing masked antibody patent applications, several of which contain claims that are patterned
after our own patent claims. Our competitive position may suffer if patents issued to third
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parties or other third-party intellectual property rights cover our products or product candidates or elements thereof, or our manufacture or uses relevant to our
development plans. In such cases, we may not be in a position to develop or commercialize products or product candidates unless we successfully pursue
litigation to nullify or invalidate the third-party intellectual property right concerned, or enter into a license agreement with the intellectual property right
holder, if available on commercially reasonable terms. There may be issued patents of which we are not aware, held by third parties that, if found to be valid
and enforceable, could be alleged to be infringed by our Probody therapeutic technologies. There also may be pending patent applications of which we are not
aware that may result in issued patents, which could be alleged to be infringed by our Probody therapeutic technologies. If such an infringement claim should
be brought and be successful, we may be required to pay substantial damages, be forced to abandon our product candidates or seek a license from any patent
holders. No assurances can be given that a license will be available on commercially reasonable terms, if at all.
It is also possible that we have failed to identify relevant third-party patents or applications. For example, U.S. applications filed before November 29, 2000
and certain U.S. applications filed after that date that will not be filed outside the U.S. remain confidential until patents issue. Patent applications in the U.S.
and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly
referred to as the priority date. Therefore, patent applications covering our products or platform technology could have been filed by others without our
knowledge. Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could
cover our platform technologies, our products or the use of our products. Third-party intellectual property right holders may also actively bring infringement
claims against us. We cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we are unable to
successfully settle future claims on terms acceptable to us, we may be required to engage in or continue costly, unpredictable and time-consuming litigation
and may be prevented from or experience substantial delays in marketing our products. If we fail in any such dispute, in addition to being forced to pay
damages, we may be temporarily or permanently prohibited from commercializing any of our product candidates that are held to be infringing. We might, if
possible, also be forced to redesign product candidates so that we no longer infringe the third-party intellectual property rights. Any of these events, even if
we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our
business.
Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time
consuming and is likely to divert significant resources from our core business, including distracting our technical and management personnel from their
normal responsibilities. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk
that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements
of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it
could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and
reduce the resources available for development activities or any future sales, marketing or distribution activities.
We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain
the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed
intellectual property portfolios. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon, misappropriating or
otherwise violating or from successfully challenging our intellectual property rights. Uncertainties resulting from the initiation and continuation of patent
litigation or other proceedings could have a material and adverse effect on our ability to compete in the marketplace.
If we fail to comply with our obligations under any license, collaboration or other agreements, we may be required to pay damages and could lose our
rights to intellectual property rights that are necessary for developing and protecting our product candidates or we could lose certain rights to grant
sublicenses.
Our licenses from Amgen, ImmunoGen and UCSB impose, and any future licenses we enter into are likely to impose, various development,
commercialization, funding, diligence, sublicensing, insurance, patent prosecution and enforcement and/or other obligations on us, including various payment
obligations such as milestone and royalty payments and payments based on sublicensing revenues. Our rights under our agreements with our licensors or
collaborators may be limited or modified according to their terms. Additionally, if we breach any of these obligations, or use the intellectual property licensed
to us in an unauthorized manner, we may be required to pay damages and the licensor may have the right to terminate the license, which could result in us
being unable to develop, manufacture and sell products that are covered by the licensed technology or enable a competitor to gain access to the licensed
technology. Moreover, our licensors and collaborators may own or control intellectual property that has not been licensed to us and, as a result, we may be
subject to claims, regardless of their merit, that we are infringing, misappropriating or otherwise
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violating the licensor’s rights. In addition, while we cannot currently determine the amount of the royalty or sublicense revenue payment obligations we
would be required to pay on development or sales of future products, if any, the amounts may be significant. The amount of our future royalty or sublicense
revenue payment obligations will depend on the technology and intellectual property we use in products that we successfully develop and commercialize, if
any. Therefore, even if we successfully develop and commercialize products, we may be unable to achieve or maintain profitability.
Our intellectual property agreements with our licensors, collaborators and third parties may be subject to disagreements over contract interpretation,
which could narrow the scope of, or result in termination of, our rights to the relevant intellectual property or technology or increase our financial or
other obligations to such third parties.
Certain provisions in our intellectual property agreements may be susceptible to multiple interpretations. For example, we may disagree with our licensors or
collaborators regarding whether, when and to what extent various obligations under these agreements apply to certain of our product candidates and products,
including various payment, development, commercialization, funding, diligence, sublicensing, insurance, patent prosecution and enforcement and/or other
obligations. The resolution of any contract interpretation disagreement that may arise could affect the scope of our rights to the relevant intellectual property
or technology, or affect financial or other obligations under the relevant agreement. In either case, such disagreement could have a material adverse effect on
our business, financial condition, results of operations and prospects.
In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to
execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact conceives
or develops intellectual property that we regard as our own. Our assignment agreements may not be self‑executing or may be breached, and we may be forced
to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patent protection for certain aspects of our product candidates, we also consider trade secrets, including confidential and unpatented
know-how, important to the maintenance of our competitive position. We protect trade secrets and confidential and unpatented know-how, in part, by entering
into non-disclosure and confidentiality agreements with parties who have access to such knowledge, such as our employees, corporate collaborators, outside
scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent
assignment agreements with our employees and consultants that obligate them to maintain confidentiality and assign their inventions to us.
Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be
able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive
and time-consuming, and the outcome is unpredictable. In addition, some courts in the U.S. and certain foreign jurisdictions are less willing or unwilling to
protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent
them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a
competitor, our competitive position would be harmed.
We may be subject to claims that we or our employees or consultants have wrongfully used or disclosed alleged trade secrets of our employees’ or
consultants’ former employers or their clients. These claims may be costly to defend and if we do not successfully do so, we may be required to pay
monetary damages and may lose valuable intellectual property rights or personnel.
Many of our employees were previously employed at universities or biotechnology or biopharmaceutical companies, including our competitors or potential
competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise
used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we
fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key research
personnel or their work product could hamper our ability to commercialize, or prevent us from commercializing, our product candidates, which could
severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to
management.
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If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our
business may be adversely affected.
Our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be
able to protect our rights to these trademarks and trade names or may be forced to stop using these names, which we need for name recognition by potential
partners or customers in our markets of interest. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able
to compete effectively and our business may be adversely affected.
Risks Related to Government Regulation
We may be unable to obtain or be delayed in obtaining U.S. or foreign regulatory approval and, as a result, be unable or delayed in being able to
commercialize our product candidates.
Our product candidates that we are currently developing are regulated as therapeutic biologics that are subject to requirements for review and approval of a
BLA by the FDA’s Center for Drug Evaluation and Research (“CDER”). Therefore, our product candidates are subject to extensive governmental regulations
relating to, among other things, research, testing, development, manufacturing, safety, efficacy, approval, recordkeeping, reporting, labeling, storage,
packaging, advertising and promotion, pricing, marketing and distribution of drugs and therapeutic biologics. Rigorous preclinical testing and clinical trials
and an extensive regulatory approval process are required to be successfully completed in the U.S. and in many foreign jurisdictions before a new drug or
therapeutic biologic can be marketed. Satisfaction of these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated
delays. It is possible that none of the product candidates we may develop will obtain the regulatory approvals necessary for us or our existing or future
collaborators to begin selling them.
As a company, we have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including approval by the
FDA. The time required to obtain FDA and other approvals is unpredictable but typically takes many years following the commencement of clinical trials,
depending upon the type, complexity and novelty of the product candidate. The standards that the FDA and its foreign counterparts use when regulating us
require judgment and can change, which makes it difficult to predict with certainty how they will be applied. Any analysis we perform of data from
preclinical and clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory
approval. We may also encounter unexpected delays or increased costs due to new government regulations, for example, from future legislation or
administrative action, or from changes in FDA policy during the period of product development, clinical trials and FDA regulatory review. Further,
government shutdowns, such as the partial U.S. federal government shutdown in late 2018 or the uncertain impact of the United Kingdom’s departure from
the European Union may impact our ability to access government agencies in a timely manner or otherwise impact our ability to move our product candidates
through the regulatory process. It is impossible to predict whether legislative changes will be enacted, or whether FDA or foreign regulations, guidance or
interpretations will be changed, or what the impact of such changes, if any, may be.
Moreover, the FDA may respond to our submissions by defining requirements we may not have anticipated. Such responses could lead to significant delays in
the clinical development of our product candidates. In addition, because there may be approved treatments for some of the diseases for which we may seek
approval, in order to receive regulatory approval, we may need to demonstrate through clinical trials that the product candidates we develop to treat these
diseases, if any, are not only safe and effective, but safer or more effective than existing products. Furthermore, in recent years, there has been increased
public and political pressure on the FDA with respect to the approval process for new drugs and therapeutic biologics, and the FDA’s standards, especially
regarding product safety, appear to have become more stringent.
Any delay or failure in obtaining required approvals could have a material and adverse effect on our ability to generate revenues from the particular product
candidate for which we are seeking approval. Furthermore, any regulatory approval to market a product may be subject to limitations on the approved uses for
which we may market the product or the labeling or other restrictions. In addition, the FDA has the authority to require a REMS as part of a BLA or after
approval, which may impose further requirements or restrictions on the distribution or use of an approved drug or biologic, such as limiting prescribing to
certain physicians or medical centers that have undergone specialized training, limiting treatment to patients who meet certain safe-use criteria and requiring
treated patients to enroll in a registry. These limitations and restrictions may limit the size of the market for the product and affect reimbursement by third-
party payors.
We are also subject to numerous foreign regulatory requirements governing, among other things, the conduct of clinical trials, manufacturing and marketing
authorization, pricing and third-party reimbursement. The foreign regulatory approval process varies among countries and may include all of the risks
associated with FDA approval described above as well as risks attributable to the satisfaction of local regulations in foreign jurisdictions. Moreover, the time
required to obtain approval may differ from that required to obtain FDA approval. Approval by the FDA does not ensure approval by regulatory authorities
outside the U.S. and vice versa.
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Even if we receive regulatory approval for any of our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory
review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other
restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated
problems with our products.
Any regulatory approvals that we or our collaborators obtain for our product candidates may also be subject to limitations on the approved indicated uses for
which a product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including “Phase 4”
clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. In addition, if the FDA or a comparable foreign regulatory
authority approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, import,
export, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements
include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and good clinical
practices for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of
unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may
result in, among other things:
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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market or voluntary or mandatory product
recalls;
fines, warning letters or holds on clinical trials;
refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic partners;
suspension or revocation of product license approvals;
product seizure or detention or refusal to permit the import or export of products; and
injunctions or the imposition of civil or criminal penalties.
The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product
candidates 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.
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. For example, certain policies of the U.S. government may impact our business and industry. For example, the
Executive Branch of the U.S. government has taken several executive actions, including the issuance of a number of Executive Orders, that could impose
significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes
through rulemaking, issuance of guidance, and review and approval of marketing applications. It is difficult to predict how these requirements will be
implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on
FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.
Healthcare legislative reform measures may have a material and adverse effect on our business and results of operations.
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (together, the “ACA”), was passed, which
substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry.
The ACA, among other things, subjected therapeutic biologics to potential competition by lower-cost biosimilars, addressed a new methodology by which
rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs and therapeutic biologics that are inhaled, infused, instilled,
implanted or injected, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate
program to individuals enrolled in Medicaid managed care organizations, established annual fees and taxes on manufacturers of certain branded prescription
drugs and therapeutic biologics, and created a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-
of-sale discounts, which, through subsequent legislative amendments, will be increased to 70% starting in 2019, off negotiated prices of applicable brand
drugs and therapeutic biologics to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs and
therapeutic biologics to be covered under Medicare Part D.
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Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, and we expect there will be additional challenges
and amendments to the ACA in the future. By way of example, the Tax Cuts and Jobs Act of 2017 includes a provision repealing the tax-based shared
responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly
referred to as the “individual mandate.” On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, ruled that the individual
mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the Tax Cuts and Jobs Act, the remaining provisions
of the ACA are invalid as well. On December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court's decision that the individual
mandate was unconstitutional but remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well.
It is unclear how these decisions, subsequent appeals, and other efforts to challenge, repeal, or replace the ACA will impact the ACA or our business or
financial condition. In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted to reduce
healthcare expenditures. The Budget Control Act of 2011, among other things, included aggregate reductions of Medicare payments to providers of 2% per
fiscal year. These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2029
unless additional Congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other
things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the
statute of limitations period for the government to recover overpayments to providers from three to five years. If federal spending is further reduced,
anticipated budgetary shortfalls may also impact the ability of relevant agencies, such as the FDA or the National Institutes of Health to continue to function
at current levels. Amounts allocated to federal grants and contracts may be reduced or eliminated. These reductions may also impact the ability of relevant
agencies to timely review and approve research and development, manufacturing, and marketing activities, which may delay our ability to develop, market
and sell any products we may develop.
Moreover, payment methodologies, including payment for companion diagnostics, may be subject to changes in healthcare legislation and regulatory
initiatives. For example, the Centers for Medicare & Medicaid Services (“CMS”) has begun bundling the Medicare payments for certain laboratory tests
ordered while a patient received services in a hospital outpatient setting. Additionally, CMS significantly altered the payment methodology under the
Medicare Clinical Laboratory Fee Schedule (CLFS). Effective 2018, the CFLS is based on a weighted average of reported prices that private payors,
Medicare Advantage plans, and Medicaid Managed Care plans pay for laboratory services. Further, in March 2018, CMS finalized a national coverage
determination extending coverage under the Medicare program for certain diagnostic laboratory tests using next generation sequencing (“NGS”) that are
approved by the FDA as a companion in vitro diagnostic and used in a cancer with an FDA-approved companion diagnostic indication. Under the national
coverage determination, diagnostic tests that meet these criteria are covered only in patients with recurrent, metastatic, relapsed, refractory or stages III or IV
cancer if the test has an FDA-approved or cleared indication for use in that patient’s cancer and results are provided to the treating physician for management
of the patient using a report template to specify treatment options. Although the Medicare program increasingly is used as a model for how private payors and
other governmental payors develop their coverage and reimbursement policies, it is difficult to predict at this time what third-party payors will decide with
respect to the coverage and reimbursement for any companion diagnostics associated with our product candidates.
In addition, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which
has resulted in several Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing, review the
relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. For
example, the 21st Century Cures Act changed the reimbursement methodology for infusion drugs and biologics furnished through durable medical equipment
in an attempt to remedy over- and underpayment of certain products. Individual states in the United States have also become increasingly active in passing
legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts,
restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from
other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to
determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. We expect that
additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments
will pay for healthcare products and services, which could result in reduced demand for our product candidates or companion diagnostics or additional pricing
pressures.
Furthermore, certain candidates for the U.S. Presidential race in 2020 have promoted substantial changes to the healthcare system and drug pricing rules. If
some of these changes were implemented, it could have a materially adverse impact on the ability of biotechnology and pharmaceutical companies, like us, to
obtain capital to further their research or develop their product candidates and could make it economically unfeasible for such companies to continue to
develop needed new innovative therapies.
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If we or our collaborators, manufacturers or service providers fail to comply with healthcare laws and regulations, we or they could be subject to
enforcement actions, which could affect our ability to develop, market and sell our products and may harm our reputation.
Although we do not currently have any products on the market, once we begin commercializing our product candidates, we will be subject to additional
healthcare statutory and regulatory requirements and enforcement by the federal government and the states and foreign governments in which we conduct our
business. Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product candidates for
which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse
and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and
distribute our product candidates for which we obtain marketing approval. In addition, we may be subject to patient data privacy and security regulation by
both the U.S. federal government and the states in which we conduct our business. Restrictions under applicable federal and state healthcare laws and
regulations, include the following:
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the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering,
receiving or providing remuneration, directly or indirectly, in cash or in kind to induce or reward either the referral of an individual for, or the
purchase, or order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs
such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order
to have committed a violation;
the U.S. federal False Claims Act, which imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against
individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or
fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from
knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. In addition, the
government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a
false or fraudulent claim for purposes of the False Claims Act;
the U.S. federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which imposes criminal and civil liability for, among
other things, knowingly and willfully executing, or attempting to execute a scheme to defraud any healthcare benefit program, or knowingly
and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or
payment for healthcare benefits, items or services; similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual
knowledge of the statute or specific intent to violate it in order to have committed a violation;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), which imposes obligations on
certain covered entity healthcare providers, health plans, and healthcare clearinghouse as well as their business associates that perform certain
services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to
safeguarding the privacy, security, and transmission of individually identifiable health information, and require notification to affected
individuals and regulatory authorities of certain breaches of security of individually identifiable health information;
the U.S. federal legislation commonly referred to as Physician Payments Sunshine Act, enacted as part of the ACA, and its implementing
regulations, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare,
Medicaid, or the Children’s Health Insurance Program to report annually to the CMS information related to certain payments and other transfers
of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), teaching hospitals and, beginning in
2022, certain other health care professionals, as well as ownership and investment interests held by the physicians described above and their
immediate family members; and
analogous state laws and regulations, such as state anti-kickback and false claims laws that may apply to sales or marketing arrangements and
claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; state laws that
require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance
guidance promulgated by the federal government in addition to requiring drug and therapeutic biologics manufacturers to report information
related to payments to physicians and other healthcare providers or marketing expenditures and pricing information; and state laws governing
the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are
not preempted by HIPAA, thus complicating compliance efforts.
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Ensuring that our future business arrangements with third-parties comply with applicable healthcare laws and regulations could involve substantial costs. It is
possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or
case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any such
requirements, we may be subject to penalties, including civil or criminal penalties, monetary damages, the curtailment or restructuring of our operations, loss
of eligibility to obtain approvals from the FDA, or exclusion from participation in government contracting, healthcare reimbursement or other government
programs, including Medicare and Medicaid, any of which could adversely our financial results. Although effective compliance programs can mitigate the
risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any action against us for an alleged or suspected
violation could cause us to incur significant legal expenses and could divert our management’s attention from the operation of our business, even if our
defense is successful. In addition, achieving and sustaining compliance with applicable laws and regulations may be costly to us in terms of money, time and
resources.
If we or future collaborators, manufacturers or service providers fail to comply with applicable federal, state or foreign laws or regulations, we could be
subject to enforcement actions, which could affect our ability to develop, market and sell our products successfully and could harm our reputation and lead to
reduced acceptance of our products by the market. These enforcement actions include, among others:
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adverse regulatory inspection findings;
warning letters;
voluntary or mandatory product recalls or public notification or medical product safety alerts to healthcare professionals;
restrictions on, or prohibitions against, marketing our products;
restrictions on, or prohibitions against, importation or exportation of our products;
suspension of review or refusal to approve pending applications or supplements to approved applications;
exclusion from participation in government-funded healthcare programs;
exclusion from eligibility for the award of government contracts for our products;
suspension or withdrawal of product approvals;
seizures or administrative detention of products;
injunctions; and
civil and criminal penalties and fines.
If we fail to comply with U.S. and foreign regulatory requirements, regulatory authorities could limit or withdraw any marketing or commercialization
approvals we may receive and subject us to other penalties that could materially harm our business.
Even if we receive marketing and commercialization approval of a product candidate, we will be subject to continuing regulatory requirements, including in
relation to adverse patient experiences with the product and clinical results that are reported after a product is made commercially available, both in the U.S.
and any foreign jurisdiction in which we seek regulatory approval. The FDA has significant post-market authority, including the authority to require labeling
changes based on new safety information and to require post-market studies or clinical trials to evaluate safety risks related to the use of a product or to
require withdrawal of the product from the market. The FDA also has the authority to require a REMS plan after approval, which may impose further
requirements or restrictions on the distribution or use of an approved drug or therapeutic biologic. The manufacturer and manufacturing facilities we use to
make a future product, if any, will also be subject to periodic review and inspection by the FDA and other regulatory agencies, including for continued
compliance with cGMP requirements. The discovery of any new or previously unknown problems with our third-party manufacturers, manufacturing
processes or facilities may result in restrictions on the product, manufacturer or facility, including withdrawal of the product from the market. If we rely on
third-party manufacturers, we will not have control over compliance with applicable rules and regulations by such manufacturers. Any product promotion and
advertising will also be subject to regulatory requirements and continuing regulatory review. If we or our collaborators, manufacturers or service providers
fail to comply with applicable continuing regulatory requirements in the U.S. or foreign jurisdictions in which we seek to market our products, we or they
may be subject to, among other things, fines, warning letters, holds on clinical trials, delay of approval or refusal by the FDA to approve pending applications
or supplements to approved applications, suspension or withdrawal of regulatory approval, product recalls and seizures, administrative detention of products,
refusal to permit the import or export of products, operating restrictions, injunction, civil penalties and criminal prosecution.
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We face regulation and potential liability related to the privacy, data protection and information security which may require significant resources and may
adversely affect our business, operations and financial performance.
The regulatory environment surrounding information security, data collection and privacy is increasingly demanding. We are subject to numerous U.S. federal
and state laws and non-U.S. regulations governing the protection of personal and confidential information of our clinical subjects, clinical investigators,
employees and vendors/business contacts, including in relation to medical records, credit card data and financial information. For example, on May 25, 2018,
the European General Data Protection Regulation, or GDPR, became effective, implementing more stringent requirements in relation to our use of personal
data relating to individuals located in the E.U. (and E.E.A.). The GDPR repeals the Data Protection Directive (95/46/EC) and is directly applicable in all E.U.
member states. The GDPR significantly increased fining levels to up to 4% total worldwide annual turnover or up to €20 million (whichever is higher) for
non-compliance with its requirements. We will be subject to the GDPR where we have an E.U. presence or “establishment” (e.g., E.U. based subsidiary or
operations), when conducting clinical trials with E.U. based data subjects (whether the trials are conducted directly by us or through a clinical vendor or
collaborator) or offering approved products or services (if relevant) to E.U. based data subjects (regardless of whether involving our E.U. based subsidiary or
operations).
The GDPR sets out a number of requirements that must be complied with when handling the personal data of such E.U. based data subjects including:
providing expanded disclosures about how their personal data will be used; higher standards for organizations to demonstrate that they have obtained valid
consent or have another legal basis in place to justify their data processing activities; the obligation to appoint data protection officers in certain
circumstances; new rights for individuals to be “forgotten” and rights to data portability, as well as enhanced current rights (e.g., access requests); the
principal of accountability and demonstrating compliance through policies, procedures, training and audit; the new mandatory data breach regime. In
particular, medical or health data, genetic data and biometric data where the latter is used to uniquely identify an individual (even, in certain situations, where
such data is key coded) are all classified as “special category” data under GDPR and afford greater protection and require additional compliance obligations.
Further, E.U. member states have a broad right to impose additional conditions – including restrictions – on these data categories. This is because the GDPR
allows E.U. member states to derogate from the requirements of the GDPR mainly in regard to specific processing situations (including special category data
and processing for scientific or statistical purposes). As the E.U. member states reframe their national legislation to harmonize with the GDPR, we will need
to monitor compliance with all relevant E.U. member states' laws and regulations, including where permitted derogations from the GDPR are introduced.
We will also be subject to evolving E.U. laws on data export, where we transfer data outside the E.U. (or E.E.A.) to group companies or third parties. The
GDPR only permits exports of data outside the E.U. (and E.E.A.) where there is a suitable data transfer solution in place to safeguard personal data (e.g., the
EU Commission approved Standard Contractual Clauses). Some of the approved current data transfer mechanisms are under review in the E.U. courts and by
the E.U. Commission and therefore we need to monitor this space for any future changes.
Where we rely on third parties to carry out a number of services for us, including processing personal data on our behalf, we are required under GDPR to
enter into contractual arrangements to help ensure that these third parties only process such data according to our instructions and have sufficient security
measures in place. Any security breach or non-compliance with our contractual terms or breach of applicable law by such third parties could result in
enforcement actions, litigation, fines and penalties or adverse publicity and could cause our customers to lose trust in us, which could have an adverse impact
on our reputation and business.
In recent years, U.S. and European lawmakers and regulators have expressed concern over electronic marketing and the use of third-party cookies, web
beacons and similar technology for online behavioral advertising. In the E.U., marketing is defined broadly to include any promotional material and the rules
specifically on e-marketing are currently set out in the ePrivacy Directive which will be replaced by a new ePrivacy Regulation. While the ePrivacy
Regulation was originally intended to be adopted on May 25, 2018 (alongside the GDPR), it is still going through the European legislative process and
commentators now expect it to be adopted during the middle or second half of 2019. The current draft of the ePrivacy Regulation imposes strict opt-in e-
marketing rules with limited exceptions to business to business communications and significantly increases fining powers to the same levels as GDPR (see
above).
We may find it necessary or desirable to join self-regulatory bodies or other privacy-related organizations, particularly relating to biopharmacy and/or
scientific research, that require compliance with their rules pertaining to privacy and data security.
The introduction of the GDPR, and any resultant changes in E.U. member states’ national laws and regulations and the ePrivacy Regulation, will increase our
compliance obligations and will necessitate the review and implementation of policies and processes relating to our collection and use of data. This increase
in compliance obligations could also lead to an increase in compliance costs which may have an adverse impact on our business, financial condition or results
of operations.
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In the United States, California enacted the California Consumer Privacy Act (“CCPA”) on June 28, 2018, which went into effect on January 1, 2020. The
CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive
detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for
data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability. Some observers have
noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the United States, which could increase our potential
liability and adversely affect our business.
If any person, including any of our employees, clinical vendors or collaborators or those with whom we share such information, negligently disregards or
intentionally breaches our established controls with respect to our clinical subject, clinical investigator or employee data, or otherwise mismanages or
misappropriates that data, we could be subject to significant monetary damages, regulatory enforcement actions, fines and/or criminal prosecution in one or
more jurisdictions. As above, under the GDPR there are significant new punishments for non-compliance which could result in a penalty of up to 4% of a
firm’s global annual revenue. In addition, a data breach could result in negative publicity which could damage our reputation and have an adverse effect on
our business, financial condition or results of operations.
We strive to comply with all applicable laws, but they may conflict with each other, and by complying with the laws or regulations of one jurisdiction, we
may find that we are violating the laws or regulations of another jurisdiction. Despite our efforts, we may not have fully complied in the past and may not in
the future. If we become liable under laws or regulations applicable to us, we could be required to pay significant fines and penalties, our reputation may be
harmed and we may be forced to change the way we operate. That could require us to incur significant expenses or to discontinue certain services, which
could negatively affect our business.
Even if we are able to commercialize any product candidate, such product candidate may become subject to unfavorable pricing regulations or third-party
coverage and reimbursement policies, which would harm our business.
The regulations that govern regulatory approvals, pricing and reimbursement for new drugs and therapeutic biologics vary widely from country to country.
Some countries require approval of the sale price of a drug or therapeutic biologic before it can be marketed. In many countries, the pricing review period
begins after marketing approval is granted. In some foreign markets, prescription biopharmaceutical pricing remains subject to continuing governmental
control even after initial approval is granted. As a result, we might obtain regulatory approval for a product in a particular country, but then be subject to price
regulations that delay our commercial launch of the product, possibly for lengthy time periods and negatively impact the revenues we are able to generate
from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates,
even if our product candidates obtain regulatory approval.
Our ability to commercialize any products successfully also will depend in part on the extent to which coverage and reimbursement for these products and
related treatments will be available from government authorities, private health insurers and other organizations. Even if we succeed in bringing one or more
products to the market, these products may not be considered cost-effective, and the amount reimbursed for any products may be insufficient to allow us to
sell our products on a competitive basis. Because our programs are in the early stages of development, we are unable at this time to determine their cost
effectiveness or the likely level or method of reimbursement. Increasingly, the third-party payors who reimburse patients or healthcare providers, such as
government and private insurance plans, are requiring that drug companies provide them with predetermined discounts from list prices, and are seeking to
reduce the prices charged or the amounts reimbursed for biopharmaceutical products. If the price we are able to charge for any products we develop, or the
reimbursement provided for such products, is inadequate in light of our development and other costs, our return on investment could be adversely affected.
There may be significant delays in obtaining reimbursement for newly-approved drugs or therapeutic biologics, and coverage may be more limited than the
purposes for which the drug or therapeutic biologic is approved by the FDA or similar regulatory authorities outside of the United States. Moreover,
eligibility for reimbursement does not imply that any drug or therapeutic biologic will be reimbursed in all cases or at a rate that covers our costs, including
research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs or therapeutic biologics, if applicable, may also not be
sufficient to cover our costs and may not be made permanent. Reimbursement rates may be based on payments allowed for lower-cost drugs or therapeutic
biologics that are already reimbursed, may be incorporated into existing payments for other services and may reflect budgetary constraints or imperfections in
Medicare data. Net prices for drugs or therapeutic biologics may be reduced by mandatory discounts or rebates required by government healthcare programs
or private payors and by any future relaxation of laws that presently restrict imports of drugs or therapeutic biologics from countries where they may be sold
at lower prices than in the U.S. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement
rates. Our inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for new drugs or
therapeutic biologics that we develop and for which we obtain regulatory approval could have a material and adverse effect on our operating results, our
ability to raise capital needed to commercialize products and our financial condition.
64
We may seek and fail to obtain fast track or breakthrough therapy designations for our current or future product candidates. If we are successful, these
programs may not lead to a faster development or regulatory review process, and they do not guarantee we will receive approval for any product
candidate. We may also seek to obtain accelerated approval for one or more of our product candidates but the FDA may disagree that we have met the
requirements for such approval.
If a product is intended for the treatment of a serious or life-threatening condition and preclinical or clinical data demonstrate the potential to address an
unmet medical need for this condition, the product sponsor may apply for fast track designation. The FDA has broad discretion whether or not to grant this
designation, so even if we believe a particular product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it.
Even if we do receive fast track designation, we may not experience a faster development process, review or approval compared to conventional FDA
procedures. The FDA may rescind the fast track designation if it believes that the designation is no longer supported by data from our clinical development
program.
We may also seek breakthrough therapy designation for any product candidate that we develop. A breakthrough therapy is defined as a drug that is intended,
alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates
that the drug may demonstrate substantial improvement over currently approved therapies on one or more clinically significant endpoints, such as substantial
treatment effects observed early in clinical development. Like fast track designation, breakthrough therapy designation is within the discretion of the FDA.
Accordingly, even if we believe a product candidate we develop meets the criteria for designation as a breakthrough therapy, the FDA may disagree and
instead determine not to make such designation. In any event, the receipt of breakthrough therapy designation for a product candidate may not result in a
faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate
approval by the FDA. In addition, even if a product candidate we develop qualifies as a breakthrough therapy, the FDA may later decide that the drug no
longer meets the conditions for qualification and rescind the designation.
Drugs designated as fast track products or breakthrough therapies by the FDA are also eligible for accelerated approval if the product has an effect on a
surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or
mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or
prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the FDA will generally require the
sponsor to perform adequate and well-controlled post-marketing clinical studies to verify and describe the anticipated effect on irreversible morbidity or
mortality or other clinical benefit. In addition, the FDA requires pre-approval of promotional materials for accelerated approval products, once approved. We
cannot guarantee that the FDA will agree any of our product candidates has met the criteria to receive accelerated approval, which would require us to
conduct additional clinical testing prior to seeking FDA approval. Even if any of our product candidates received approval through this pathway, the product
may fail required post-approval confirmatory clinical trials, and we may be required to remove the product from the market or amend the product label in a
way that adversely impacts its marketing.
We may seek Orphan Drug Designation for some of our product candidates, and we may be unsuccessful or may be unable to maintain the benefits
associated with Orphan Drug Designation, including the potential for market exclusivity.
As part of our business strategy, we may seek Orphan Drug Designation for our product candidates, and we may be unsuccessful. Regulatory authorities in
some jurisdictions, including the United States and Europe, may designate drugs and therapeutic biologics for relatively small patient populations as orphan
drugs. Under the Orphan Drug Act, the FDA may designate a drug or therapeutic biologic as an orphan drug if it is a drug or therapeutic biologic intended to
treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States, or a
patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug or therapeutic
biologic will be recovered from sales in the United States. In the United States, Orphan Drug Designation entitles a party to financial incentives such as
opportunities for grant funding toward clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has Orphan Drug Designation
subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity, which means
that the FDA may not approve any other applications, including a full BLA, to market the same product for the same indication for seven years, except in
limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or where the manufacturer is unable to assure
sufficient product quantity.
Even if we obtain Orphan Drug Designation for our product candidates in specific indications, we may not be the first to obtain marketing approval of these
product candidates for the orphan-designated indication due to the uncertainties associated with developing pharmaceutical products. In addition, exclusive
marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan-designated indication or may be lost if the
FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to
meet the needs of patients with the rare disease or condition. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not
effectively protect the product from competition because different drugs or therapeutic biologics with different active moieties can be approved for the same
condition. Even after an orphan product is approved, the FDA can subsequently approve the same drug or
65
therapeutic biologic with the same active moiety for the same condition if the FDA concludes that the later drug or therapeutic biologic is safer, more
effective or makes a major contribution to patient care. Orphan Drug Designation neither shortens the development time or regulatory review time of a drug
or therapeutic biologic nor gives the drug or therapeutic biologic any advantage in the regulatory review or approval process. In addition, while we may seek
Orphan Drug Designation for our product candidates, we may never receive such designations.
Tax reform legislation passed in 2017 reduced the amount of the qualified clinical research costs for a designated orphan product that a sponsor may claim as
a credit from 50% to 25%. Thus, further limiting the advantage and may impact our future business strategy of seeking the Orphan Drug Designation.
Risks Related to Ownership of Our Common Stock
Our quarterly operating results may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause
our stock price to fluctuate or decline.
We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors,
including:
•
•
•
•
•
•
•
•
•
•
variations in the level of expense related to the ongoing development of our Probody platform, our product candidates or future development
programs;
results of clinical trials, or the addition or termination of clinical trials or funding support by us, or existing or future collaborators or licensing
partners;
our execution of any additional collaboration, licensing or similar arrangements, and the timing of payments we may make or receive under
existing or future arrangements or the termination or modification of any such existing or future arrangements;
developments or disputes concerning patents or other proprietary rights, including patents, litigation matters and our ability to obtain patent
protection for our products;
any intellectual property infringement lawsuit or opposition, interference or cancellation proceeding in which we may become involved;
additions and departures of key personnel;
strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in
business strategy;
if any of our product candidates receives regulatory approval, the terms of such approval and market acceptance and demand for such product
candidates;
regulatory developments affecting our product candidates or those of our competitors; and
changes in general market and economic conditions.
If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially.
Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially. We believe that quarterly
comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
Our stock price may be volatile and purchasers of our common stock could incur substantial losses.
Our stock price is volatile. Since our initial public offering (“IPO”), our stock had low and high sales prices in the range of $5.17 and $35.00 per share. The
market price for our common stock may be influenced by many factors, including the other risks described in this section titled “Risk Factors” and the
following:
•
•
•
results of clinical trials and preclinical studies of our product candidates, or those of our competitors or our collaborators;
regulatory or legal developments in the U.S. and other countries, especially changes in laws or regulations applicable to our products;
the success of competitive products or technologies;
66
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
introductions and announcements of new products by us, our future commercialization partners, or our competitors, and the timing of these
introductions or announcements;
actions taken by regulatory agencies with respect to our products, clinical studies, manufacturing process or sales and marketing terms;
actual or anticipated variations in our financial results or those of companies that are perceived to be similar to us;
the success of our efforts to acquire or in-license additional technologies, products or product candidates;
developments concerning any existing or future collaborations, including but not limited to those with our sources of manufacturing supply and
our commercialization partners;
market conditions in the pharmaceutical and biotechnology sectors;
announcements by us or our competitors of significant acquisitions, strategic collaborations, joint ventures or capital commitments;
developments or disputes concerning patents or other proprietary rights, including patents, litigation matters and our ability to obtain patent
protection for our products;
our ability or inability to raise additional capital and the terms on which we raise it;
the recruitment or departure of key personnel;
changes in the structure of healthcare payment systems;
actual or anticipated changes in earnings estimates or changes in stock market analyst recommendations regarding our common stock, other
comparable companies or our industry generally;
our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market;
fluctuations in the valuation of companies perceived by investors to be comparable to us;
announcement and expectation of additional financing efforts;
speculation in the press or investment community;
trading volume of our common stock;
sales of our common stock by us or our stockholders;
the concentrated ownership of our common stock;
changes in accounting principles;
terrorist acts, acts of war or periods of widespread civil unrest;
natural disasters and other calamities; and
general economic, industry and market conditions.
In addition, the stock markets in general, and the markets for pharmaceutical, biopharmaceutical and biotechnology stocks in particular, have experienced
extreme volatility that has been often unrelated to the operating performance of the issuer. These broad market and industry factors may seriously harm the
market price of our common stock, regardless of our operating performance.
The future issuance of equity or of debt securities that are convertible into equity will dilute our share capital.
We may choose to raise additional capital in the future, depending on market conditions, strategic considerations and operational requirements. To the extent
that additional capital is raised through the issuance of shares or other securities convertible into shares, our stockholders will be diluted. Future issuances of
our common stock or other equity securities, or the perception that such sales may occur, could adversely affect the trading price of our common stock and
impair our ability to raise capital through future offerings of shares or equity securities. No prediction can be made as to the effect, if any, that future sales of
common stock or the availability of common stock for future sales will have on the trading price of our common stock.
67
The employment agreements with our executive officers may require us to pay severance benefits to officers in connection with termination of
employment or upon a change of control of us, which could harm our financial condition.
Each of our executive officers is entitled to receive a lump sum payment equal to one year or more of his or her base salary as well as continued medical and
dental coverage for a period of one year or more plus a prorated portion of his or her target annual bonus for the calendar year in which his or her employment
is terminated following his or her termination of employment due to good reason or without cause. In the event of a change in control and a termination of
employment without cause or due to good reason, each of our executive officers would similarly receive one year or more of his or her base salary as well as
continued medical and dental coverage for a period of one year or more, as well as an additional lump sum payment equal to 100% or more of his or her
target annual bonus for the calendar year in which his or her employment is terminated and full vesting of his or her outstanding option awards. The
accelerated vesting of options could result in dilution to our existing stockholders and harm the market price of our common stock. Furthermore, the payment
of these severance benefits could harm our financial condition. In addition, these potential severance payments may discourage or prevent third parties from
seeking a business combination with us.
An active market for our common stock may not be maintained.
Prior to our IPO in October 2015, there had been no public market for shares of our common stock. Our stock began trading on the Nasdaq Global Select
Market in 2015, and we can provide no assurance that we will be able to maintain an active trading market on The Nasdaq Global Select Market or any other
exchange in the future. If an active market for our common stock is not maintained, it may be difficult for our stockholders to sell shares without depressing
the market price for the shares or at all. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire
other businesses, applications or technologies using our shares as consideration.
If securities or industry analysts do not publish research or reports about our business, or if they issue adverse or misleading opinions regarding our
stock, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If
any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance,
or if our target studies and operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts
cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or
trading volume to decline.
Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to
stockholder approval.
As of December 31, 2019, our executive officers, directors, holders of 5% or more of our capital stock based on publicly available filings made with the SEC
and their respective affiliates beneficially owned approximately 30% of our outstanding common stock. Therefore, these stockholders have the ability to
influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these
stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other
major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that our stockholders may feel
are in their best interest.
Anti-takeover provisions in our charter documents and under 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 our current management.
Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws may delay or prevent an acquisition of us or a
change in our management. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current
management by making it more difficult for stockholders to replace members of our board of directors. Because our board of directors is responsible for
appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our
management team. These provisions include:
•
•
a prohibition on actions by our stockholders by written consent;
a requirement that special meetings of stockholders, which our company is not obligated to call more than once per calendar year, be called
only by the chairman of our board of directors, our chief executive officer, our board of directors pursuant to a resolution adopted by a majority
of the total number of authorized directors, or, subject to certain conditions, by our secretary at the request of the stockholders holding of
record, in the aggregate, shares entitled to cast not less than ten percent of the votes at a meeting of the stockholders (assuming all shares
entitled to vote at such meeting were present and voted);
68
•
•
•
advance notice requirements for election to our board of directors and for proposing matters that can be acted upon at stockholder meetings;
division of our board of directors into three classes, serving staggered terms of three years each; and
the authority of the board of directors to issue preferred stock with such terms as the board of directors may determine.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, as
amended, which prohibits a person who owns in excess of 15 percent of our outstanding voting stock from merging or combining with us for a period of three
years after the date of the transaction in which the person acquired in excess of 15 percent of our outstanding voting stock, unless the merger or combination
is approved in a prescribed manner. These provisions would apply even if the proposed merger or acquisition could be considered beneficial by some
stockholders.
We incur increased costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance
initiatives and corporate governance practices.
As a public company, we incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer
Protection Act, the listing requirements of The Nasdaq Global Select Market and other applicable securities rules and regulations impose various
requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance
practices. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and
regulations increase our legal and financial compliance costs and make some activities more time consuming and costly. For example, we expect that these
rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more
difficult for us to attract and retain qualified members of our board of directors. However, these rules and regulations are often subject to varying
interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided
by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing
revisions to disclosure and governance practices.
If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 in a timely manner or with adequate compliance, we
may be subject to sanctions by regulatory authorities.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and determine the effectiveness of our internal controls over financial reporting and
provide a management report on the internal control over financial reporting. If we have a material weakness in our internal controls over financial reporting,
we may not detect errors on a timely basis and our financial statements may be materially misstated. We evaluate our internal controls systems to allow
management to report on the effectiveness of the operation of our internal controls.
However, if we are not able to comply with the requirements of Section 404, or if we or our independent registered public accounting firm identify
deficiencies in our internal controls that are deemed to be material weaknesses, we could be subject to sanctions or investigations by The Nasdaq Global
Select Market, the SEC or other regulatory authorities, which would entail expenditure of additional financial and management resources and could materially
adversely affect our stock price. Deficient internal controls could also cause us to fail to meet our reporting obligations or cause investors to lose confidence
in our reported financial information, which could have a negative effect on our stock price.
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole
source of gain.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and
development of our business. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
We may incur significant costs from class action litigation due to our expected stock volatility.
Our stock price may fluctuate for many reasons, including as a result of public announcements regarding the progress of our development efforts or the
development efforts of future collaborators or competitors, the addition or departure of our key personnel, variations in our quarterly operating results and
changes in market valuations of biopharmaceutical and biotechnology companies.
69
This risk is especially relevant to us because biopharmaceutical and biotechnology companies have experienced significant stock price volatility in recent
years. When the market price of a stock has been volatile as our stock price may be, holders of that stock have occasionally brought securities class action
litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit of this type against us, even if the lawsuit is without
merit, we could incur substantial costs defending the lawsuit. The lawsuit could also divert the time and attention of our management.
Our amended and restated bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions
and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes
with us or our directors, officers or employees.
Our amended and restated bylaws provide that, subject to limited exceptions, the Court of Chancery of the State of Delaware will be the sole and exclusive
forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of a fiduciary duty owed by any of our directors,
officers or other employees to us or our stockholders, any action asserting a claim against us arising pursuant to any provision of the Delaware General
Corporation Law, as amended, our amended and restated certificate of incorporation or our amended and restated bylaws, any action to interpret, apply,
enforce or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws or any other action asserting a
claim against us that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital
stock shall be deemed to have notice of and to have consented to the provisions of our amended and restated certificate of incorporation described above. This
choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors,
officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find
these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of
actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business
and financial condition.
Item 1B.
Unresolved Staff Comments
None
Item 2.
Properties
Our principal executive office is currently located in South San Francisco, California, and consists of approximately 76,000 square feet of office and research
and development space, all of which is located in a single building, under a lease that expires in October 2026. We believe that our existing facilities are
sufficient for our current needs.
Item 3.
Legal Proceedings
We are not currently a party to any material litigation or legal proceedings.
Item 4.
Mine Safety Disclosures
Not applicable.
70
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Market Information for Common Stock
Our common stock has been listed on the Nasdaq Global Select Market under the symbol “CTMX” since our initial public offering in October 2015. Prior to
that time, there was no public market for our common stock.
Holders of Record
As of January 31, 2020, there were approximately 36 stockholders of record of our common stock. The actual number of stockholders is greater than this
number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This
number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Dividend Policy
We currently intend to retain future earnings, if any, for use in operation of our business and to fund future growth. We have never declared or paid any cash
dividends on our capital stock and do not anticipate paying any cash dividends in the foreseeable future. Payment of cash dividends, if any, in the future will
be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual
restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.
71
Stock Performance Graph
The following graph shows the total stockholder’s return on an investment of $100 in cash at market close on October 8, 2015 (the first day of trading of our
common stock), through December 31, 2019 for (i) our common stock, (ii) the Nasdaq Composite Index and (iii) the Nasdaq Biotechnology Index. Pursuant
to applicable Securities and Exchange Commission rules, all values assume reinvestment of pre-tax amount of all dividends; however, no dividends have been
declared on our common stock to date. The stockholder return shown on the graph below is not necessarily indicative of future performance, and we do not
make or endorse any predictions as to future stockholder return. This graph shall not be deemed “soliciting material” or be deemed “filed” for purposes of
Section 18 of the Securities Exchange Act of 1934 as amended (the “Exchange Act”), or otherwise subject to the liabilities under that Section, and shall not
be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended (the “Securities Act”), whether made before or
after the date hereof and irrespective of any general incorporation language in any such filing.
$100 investment in stock or index
CytomX (CTMX)
Nasdaq Composite Index
(IXIC)
Nasdaq Biotech Index (^NBI)
October 8, 2015 December 31, 2015
161.78
$
100.00 $
December 31, 2016
$
85.19 $
December 31, 2017
December 31, 2018
117.05 $
December 31, 2019
64.42
$
$
100.00 $
100.00 $
104.09
110.25
$
$
111.90 $
86.34 $
137.92 $
94.77 $
186.51
117.91
163.64 $
143.50 $
104.52 $
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this Item regarding equity compensation plans is incorporated by reference to the information set forth in PART III. Item 12 of
this Annual Report on Form 10-K.
Use of Proceeds from Registered Securities
None.
72
Recent Sales of Unregistered Equity Securities
As disclosed in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, filed with the Securities and Exchange Commission on May 9,
2019, we entered into Amendment No.3 to the UCSB Agreement with UCSB on April 2, 2019 to adjust and clarify certain sublicense terms (“Amendment
No.3”). In connection with Amendment No.3, we issued 150,000 shares of CytomX common stock, pursuant to a Securities Issuance Agreement, dated April
2, 2019, by and between CytomX and UCSB. The issuance of shares described in the preceding sentence was deemed to be exempt from registration under
Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.
Issuer Purchases of Equity Securities
None.
Item 6.
Selected Financial Data
You should read the following selected financial data together with the information under “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our financial statements and related notes included in this Form 10-K. The statement of operations data for each of
the years ended December 31, 2019, 2018 and 2017 and the balance sheet data as of December 31, 2019 and 2018 are derived from our audited financial
statements included elsewhere in this Form 10-K. The statement of operations data for each of the years ended December 31, 2016 and 2015 and the selected
balance sheet data as of December 31, 2017, 2016 and 2015 are derived from our audited financial statements which are not included in this Annual Report
on Form 10-K. Our historical results of any prior periods are not necessary indicative of results to be expected in any future period.
We adopted the Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), effective January 1, 2018 on a modified
retrospective basis. As such, the prior period amounts were not restated and continue to be presented in accordance with Accounting Standards Codification
605, Revenue Recognition (“ASC 605”).
We adopted the Accounting Standard Update (“ASU”) No. 2016-02, Leases (Topic 842), effective on January 1, 2019 on a modified retrospective basis. We
also elected for the new transition method to use the effective date as the date of initial application and accordingly the prior period amounts were not
restated.
73
Statement of Operations Data:
(in thousands, except share and per share data)
Revenues
Revenues from related parties
Total revenues
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Interest income
Interest expense
Other expense, net
Loss before income taxes
Provision for (benefit from)
income taxes
Net loss
Accretion to redemption value and
cumulative dividends on
preferred stock
Net loss attributable to
common stockholders
Net loss per share attributable to
common stockholders, basic
and diluted
Shares used to compute net loss per
share attributable to common
stockholders, basic and diluted
Other comprehensive loss:
Changes in unrealized gain (losses)
on investments
Impact of adoption of new accounting
pronouncement
Comprehensive loss
Balance Sheet Data:
(in thousands)
Balance Sheet Data:
Cash, cash equivalents and short term
investments
Working capital
Total assets
Accumulated deficit
Total stockholders' equity
2019
2018
Year Ended December 31,
2017
2016
2015
$
57,489 $
—
57,489
59,502 $
—
59,502
71,623 $
—
71,623
12,845 $
2,198
15,043
131,619
36,765
168,384
(110,895)
8,365
—
(135)
(102,665)
(427)
(102,238)
103,866
33,510
137,376
(77,874)
7,641
—
(68)
(70,301)
14,303
(84,604)
92,277
25,605
117,882
(46,259)
2,674
—
(27)
(43,612)
(513)
(43,099)
54,755
19,874
74,629
(59,586)
736
—
(69)
(58,919)
(19)
(58,900)
5,941
1,771
7,712
28,357
12,558
40,915
(33,203)
1,315
(1,732)
(1,744)
(35,364)
10
(35,374)
—
—
—
—
(6,705)
$
(102,238) $
(84,604) $
(43,099) $
(58,900) $
(42,079)
$
(2.26) $
(2.03) $
(1.16) $
(1.63) $
(4.90)
45,335,927
41,664,382
37,166,830
36,234,732
8,595,247
139
11
1
-
(67)
-
49
-
$
(102,088) $
(84,603) $
(43,166) $
(58,851) $
(76)
-
(35,450)
2019
2018
As of December 31,
2017
2016
2015
$
296,145 $
217,745
341,282
(417,230)
51,113
436,127 $
347,567
457,108
(314,981)
130,883
374,110 $
327,454
397,644
(219,465)
69,896
181,938 $
152,380
199,128
(176,366)
78,479
186,711
174,015
197,215
(117,466)
126,068
74
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the attached financial statements and notes thereto. This Annual Report on Form 10-K, including
the following sections, contains forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and
uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements. For a
detailed discussion of these risks and uncertainties, see the “Risk Factors” section in Item 1A of this Annual Report on Form 10-K. We caution the reader not
to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Form 10-K. We undertake no
obligation to update forward-looking statements, which reflect events or circumstances occurring after the date of this Form 10-K.
Overview
We are a clinical-stage, oncology-focused biopharmaceutical company with a vision of transforming lives with safer, more effective therapies. We are
developing a novel class of investigational antibody therapeutics, based on our Probody® technology platform, for the treatment of cancer. Our innovative
technology is designed to turn previously undruggable targets into druggable targets and to enable more effective combination therapies. Together with our
partners, we have advanced five novel drug-candidates into clinical trials, three of which are in Phase 2 studies. We have strong industry partnerships with
leading biotech and pharmaceutical companies. Our Probody therapeutic approach is designed to enable “conditional activation” of antibody-based drugs
within cancer tissue to more specifically target the tumor microenvironment and minimize drug activity in healthy tissue and in circulation. We achieve
conditional activation of antibodies by modifying them with a mask which blocks binding of the antibody to its target until the mask is removed. Mask
removal occurs in cancer tissue when proteases, enzymes that are highly active in cancer but not normal tissue, selectively cleave the mask from the antibody,
resulting in unmasked antibody activity in the tumor but not normal tissue. We believe this approach has the potential to develop clinically meaningful
therapeutics and improve patient outcomes in three ways: 1) by enhancing the “therapeutic window” for drug candidates, that is, the balance between their
tolerability and activity, 2) by pursuing tumor targets that were previously considered ‘undruggable’ due to their ubiquitous expression on normal tissues, and
3) by pursuing novel combination therapies that are poorly tolerated without using our Probody platform. We are developing a robust pipeline by leveraging
our Probody platform to develop a product pipeline of potential best-in-class immunotherapies against clinically validated targets and potential first-in-class
therapeutics against novel, difficult to drug targets.
We are currently conducting clinical trials for three product candidates derived from our Probody platform. Our partner, Bristol-Myers Squibb is conducting
clinical trials for a fourth and fifth product candidate derived from our Probody platform. We do not have any product candidates approved for sale, and we
continue to incur significant research and development and general administrative expenses related to our operations. We are not profitable and have incurred
losses in each year since our founding in 2008. Our net loss was $102.2 million, $84.6 million and $43.1 million for 2019, 2018 and 2017, respectively. As of
December 31, 2019 and 2018, we had an accumulated deficit of $ 417.2 million and $315.0 million, respectively. We expect to continue to incur significant
losses for the foreseeable future.
Regulatory agencies, including the FDA, regulate many aspects of a product candidate’s life cycle, including research and development and preclinical and
clinical testing. We will need to commit significant time, resources, and funding to develop our wholly owned and partnered product candidates in clinical
trials, including CX-072, CX-2009 and CX-2029 as well as any additional product candidates for which we initiate clinical trials in the future. We are unable
to provide the nature, timing, and estimated costs of the efforts necessary to complete the development of our product candidates because, among other
reasons, of regulatory uncertainty, manufacturing limitations and the pace of enrollment of our clinical trials, which is a function of many factors, including
the availability and proximity of patients with the relevant condition.
We currently have no manufacturing capabilities and do not intend to establish any such capabilities in the near term. As such, we are dependent on third
parties to supply our product candidates according to our specifications, in sufficient quantities, on time, in compliance with appropriate regulatory standards
and at competitive prices.
Components of Results of Operations
Revenue
Our revenue to date has been primarily derived from non-refundable license payments, milestone payments and reimbursements for research and
development expenses under our research, collaboration, and license agreements. We recognize revenue from upfront payments over the term of our
estimated period of performance under the agreement using a cost-based input method or a common measure of progress for the entire performance
obligation. In addition to receiving upfront payments, we may also be entitled to milestone and other contingent payments upon achieving predefined
objectives. Revenue from milestones and other contingent payments, when it is probable that there will not be a significant revenue reversal, is also
recognized over the performance period based on a similar method. Reimbursements from Bristol-Myers Squibb and Pfizer for research and development
costs incurred under our research, collaboration and license agreements with them are classified as revenue.
75
For the foreseeable future, we do not expect to generate any revenue from the sale of products unless and until such time as our product candidates have advanced
through clinical development and obtained regulatory approval. We expect that any revenue we generate in the foreseeable future will fluctuate from year to year
as a result of the timing and amount of milestones and other payments from our collaboration agreements with AbbVie, Amgen, Bristol-Myers Squibb and any
other collaboration partners, and as a result of the fluctuations in the research and development expenses we incur in the performance of assigned activities under
these agreements.
AbbVie Ireland Unlimited Company (“AbbVie”), one of our collaboration partners, entered into a license agreement with Seattle Genetics, Inc. (“SGEN”) to
license certain intellectual property rights. As part of our collaboration agreement with AbbVie, we received a sublicense to these intellectual property rights and
therefore pay SGEN sublicense fees. These sublicense fees are treated as reductions to the transaction price and combined with the performance obligation to
which they relate. Milestone payments, when considered probable of being reached and when a significant revenue reversal would not be probable of occurring,
are also recorded net of the associated sublicense fees and included in the transaction price.
On January 1, 2018, we adopted Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606) using the
modified retrospective transition method. See further discussion under “Critical Accounting Policies and Estimates – Revenue Recognition.”
Research and Development Expenses
Our research and development expenses consist primarily of costs incurred to conduct research, such as the discovery and development of our product
candidates, clinical development including activities with third parties, such as contract research organizations (“CRO”) and contract development and
manufacturing organizations (“CMO”), the manufacture of drug products used in clinical trials, as well as the development of product candidates pursuant to
our research, collaboration and license agreements. Research and development expenses include personnel costs, including stock-based compensation
expense, contractor services, laboratory materials and supplies, depreciation and maintenance of research equipment, and an allocation of related facilities
costs. We expense research and development costs as incurred.
We expect our research and development expenses to increase substantially in absolute dollars in the future as we advance our product candidates through
clinical trials, initiate additional clinical trials, and pursue regulatory approval of our product candidates. Examples include the recent initiation of our Phase
2 clinical trials for each of CX-072 and CX-2009 and the continuation of our ongoing Phase 1/2 clinical trials evaluating CX-072, CX-2009 and CX-2029.
The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for
our product candidates may be affected by a variety of factors including: the safety and efficacy of our product candidates, early clinical data, investment in
our clinical program, the ability of collaborators to successfully develop our licensed product candidates, competition, manufacturing capability and
commercial viability. We may never succeed in achieving regulatory approval for any of our product candidates. As a result of the uncertainties discussed
above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate
revenue from the commercialization and sale of our product candidates.
General and Administrative Expenses
General and administrative expenses include personnel costs, expenses for outside professional services and other allocated expenses. Personnel costs consist
of salaries, bonuses, benefits and stock-based compensation. Outside professional services consist of accounting and audit services, legal and other consulting
fees. Allocated expenses primarily consist of rent expense related to our office and information technology related costs.
Interest Income
Interest income primarily consists of interest income from our cash equivalents and short-term investments, and accretion of discounts or amortization of
premiums on our short-term investments.
Other Income (Expense), Net
Other income (expense), net consists primarily of changes to currency exchange rates.
76
Provision for (Benefit from) Income Taxes
Income taxes are recorded in accordance with ASC 740, Accounting for Income Taxes, or ASC 740, which provides for deferred taxes using an asset and
liability approach. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial
statements or tax returns. We determine our deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and
liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances
are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
We also account for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, we recognize the tax benefit of
tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be
realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances.
Comparison of Years Ended December 31, 2019 and 2018
Revenue
Revenue
2019
Year Ended December 31,
2018
(in thousands)
Change
$
57,489 $
59,502 $
(2,013)
Revenue decreased by $2.0 million for 2019 compared to 2018. The following table summarizes our revenue by collaboration partner during the respective
periods:
AbbVie
Amgen
Bristol-Myers Squibb
ImmunoGen
Pfizer
Total Revenue
2019
Year Ended December 31,
2018
(in thousands)
Change
5,878 $
3,871
47,740
-
-
57,489 $
18,997 $
4,899
32,780
1,471
1,355
59,502 $
(13,119)
(1,028)
14,960
(1,471)
(1,355)
(2,013)
$
$
The decrease in revenue of $2.0 million for 2019 compared to 2018 was primarily due to:
•
•
•
•
•
a decrease in revenue from AbbVie due to the $21.0 million milestone payment (net of the associated sublicense fee of $4.0 million) earned in
May 2018 under the CD71 Co-Development and Licensing Agreement with AbbVie (the “CD71 Agreement”), of which $11.7 million was
recognized in 2018 (reflecting the percentage completed to-date on the project);
the lower percentage of completion progress under the CD71 Agreement in 2019 as a result of ongoing dose escalation in the continued
development program for CX-2029, which extended the estimated research service period;
a decrease in revenue from Amgen of $1.0 million due to lower percentage of completion progress in 2019 as a result of a joint decision with
Amgen to perform additional research, which required a corresponding extension of the research service period under the Collaboration and
License Agreement with Amgen (the “Amgen Agreement”);
a decrease in revenue from ImmunoGen of $1.5 million due to the completion of the related research term in June 2018 under our Research
Collaboration Agreement with ImmunoGen (the “ImmunoGen Research Agreement”); and
a decrease in revenue from Pfizer of $1.4 million due to termination of our Research Collaboration, Option and License Agreement with Pfizer
Inc. in March 2018.
The above decreases were partially offset by the accelerated recognition of revenue of $17.4 million related to the termination of certain targets under the
Collaboration and License Agreement with Bristol-Myers Squibb (the “BMS Agreement”) in the first quarter of 2019.
77
Operating Costs and Expenses
Research and Development Expenses
Research and development
2019
Year Ended December 31,
2018
(in thousands)
Change
$
131,619 $
103,866 $
27,753
Research and development expenses increased by $27.8 million during 2019 compared to 2018. The increase was attributable to the following:
•
•
•
•
•
•
•
an increase of $7.9 million in personnel-related expenses primarily due to an increase in headcount;
a $5.0 million charge relating to the acquisition of technical know-how related to drug conjugate linker-toxin and CD3-based bispecific
technologies during the first quarter of 2019;
an increase of $11.2 million in license fees primarily due to (1) $3.4 million associated with entering into the amendment to the license
agreement with UCSB (the “UCSB Agreement”) in the second quarter of 2019 (“Amendment No.3”) (representing the 150,000 shares of
common stock issued for $1.6 million, the upfront payment of $1.0 million and the additional annual maintenance fee of $0.8 million) and (2) a
$7.5 million upfront license fee for the ImmunoGen EpCAM agreement (the “ImmunoGen 2019 License”) established in the fourth quarter of
2019;
an increase of $1.8 million in clinical related expenses resulting from increased clinical trial activities;
an increase of $2.7 million in the allocation of information technology and facilities related expenses resulting from an increase in headcount
and overall overhead expenses;
an increase of $1.4 million in consulting expenses resulting from increased clinical trial activities; and
an increase of $0.4 million in depreciation expense due to the addition of machinery and equipment.
The above increases were partially offset by a decrease of $2.6 million in laboratory contracts and services as a result of timing of manufacturing activities
and reduced related activities as well as reduced costs relating to CX-188 following our indefinite postponement of further development of such program.
The following table summarizes our research and development expenses by program incurred during the respective periods presented:
External costs incurred by product candidate (target):
CX-072 (PD-L1)
CX-2009 (CD166)
CX-2029 (CD71)
Other wholly owned and partnered programs
General research and development expenses
Internal Costs
Total research and development expenses
2019
Year Ended December 31,
2018
Change
(in thousands)
$
$
27,054 $
15,014
9,376
11,591
21,568
84,603
47,016
131,619 $
19,393
16,615
10,798
10,261
10,547
67,614
36,252
103,866
$
$
7,661
(1,601)
(1,422)
1,330
11,021
16,989
10,764
27,753
78
The increase in CX-072 costs for 2019 compared to 2018 was primarily due to an increase in laboratory contracts and services of $5.4 million and clinical
trial expenses of $1.2 million. The decreases in CX-2009 and CX-2029 costs for 2019 compared to 2018 were primarily due to decreased drug production
runs in 2019. The increase in “Other wholly-owned and partnered programs” for 2019 compared to 2018 was primarily due to the $7.5 million upfront
license fee for the EPCAM PDC program we entered into with Immunogen in the fourth quarter of 2019 (the “ImmunoGen 2019 License”), partially offset by
reduced costs relating to CX-188 following our indefinite postponement of further development of such program at the end of 2018. The increase in general
research and development expenses for 2019 compared to 2018 was primarily due to a $5.0 million charge relating to the acquisition of technical know-how
during the first quarter of 2019, and a $3.4 million expense associated with entering into Amendment No.3 to the UCSB Agreement in the second quarter of
2019. The increase in internal costs for 2019 was primarily due to increase in personnel-related expenses and allocation of information technology and
facilities-related expenses resulting from an increase in headcount and overall overhead expenses.
General and Administrative Expenses
General and administrative
2019
Year Ended December 31,
2018
(in thousands)
Change
$
36,765 $
33,510 $
3,255
General and administrative expenses increased by $3.3 million during 2019 compared to that in 2018. The increase was attributable to the following:
•
•
•
•
•
an increase of $3.3 million in personnel-related and recruiting expense due to an increase in headcount;
an increase of $1.1 million in dues and subscriptions expenses primarily related to software and other IT services;
an increase of $1.0 million in consulting and professional services primarily due to an increase in tax and audit activities in the first quarter of
2019;
an increase of $0.3 million in building maintenance charges; and
an increase of $0.3 million in depreciation and amortization expenses due to addition of furniture and fixtures and leasehold improvements.
These increases were partially offset by a decrease of $2.7 million through more overhead expenses allocated out to research and development due to an
increase in research and development headcount relative to general and administrative headcount.
Interest Income and Other Expense, Net
Interest income
Other expense, net
Total interest income and other expense
Interest Income
2019
Year Ended December 31,
2018
(in thousands)
Change
$
$
8,365 $
(135)
8,230 $
7,641 $
(68)
7,573 $
724
(67)
657
Interest income increased $0.7 million for 2019 compared to 2018. The increase was primarily attributable to an increase in interest income earned since July
2018 on our short-term investments due to an overall increase in our cash, cash equivalents and short-term investments position resulting from the common
stock offering completed in July 2018.
Other Expense, net
Other expenses, net increased by $0.1 million in expense for 2019 compared to 2018. The increase in expense was primarily attributable to an increase in
foreign currency losses resulting from the weakening of the U.S. dollar against the Euro and British Pound Sterling.
79
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes
$
(427) $
14,303 $
(14,730)
Provision for income taxes decreased by $14.7 million for 2019 compared to 2018. The benefit from income taxes of $0.4 million for 2019 was primarily due
to a true-up of 2018 federal income tax expense and an unrealized gain related to the available-for-sale securities recorded in other comprehensive income for
2019. The provision for income taxes of $14.3 million for 2018 was generated as a result of a temporary difference in the recognition of revenue under tax
and U.S. GAAP authoritative guidance, primarily due to revenue recognition for tax purposes in 2018 of certain upfront payments received in 2017.
2019
Year Ended December 31,
2018
(in thousands)
Change
Comparison of Years Ended December 31, 2018 and 2017
Revenue
Revenue
2018
Year Ended December 31,
2017
(in thousands)
Change
$
59,502 $
71,623 $
(12,121)
Revenue decreased by $12.1 million for 2018 compared to 2017. The following table summarizes our revenue by collaboration partner during the respective
periods:
AbbVie
Amgen
Bristol-Myers Squibb
ImmunoGen
Pfizer
Total Revenue
2018
Year Ended December 31,
2017
(in thousands)
Change
$
$
18,997 $
4,899
32,780
1,471
1,355
59,502 $
19,434 $
1,311
36,492
12,503
1,883
71,623 $
(437)
3,588
(3,712)
(11,032)
(528)
(12,121)
The variances in revenue for 2018 compared to 2017 were partially due to the adoption of ASC 606.
Under ASC 605, total revenue for 2018 would have been $66.0 million, a decrease of $5.6 million from $71.6 million in 2017, primarily due to a $3.0 million
net decrease in milestone payments, as well as a $2.6 million decrease in the recognition of deferred revenues in 2018 as follows:
•
•
•
in 2017, a total of $24.0 million in milestone payments were recognized, including $14.0 million (net of the payment of an associated license
fee of $1.0 million to Seattle Genetics (“SGEN”) under the Seattle Genetics Agreement) received from AbbVie for meeting the criteria to begin
the CD71 GLP toxicology studies under the AbbVie Agreements and $10.0 million received from Bristol-Myers Squibb related to the IND
filing for BMS-986249 in 2017;
in 2018, a $21.0 million milestone payment (net of the payment of an associated sublicense fee of $4.0 million to SGEN) was received from
AbbVie for the achievement of the successful IND filing criteria related to CX-2029; and
the $2.6 million decrease in recognition of deferred revenue under ASC 605 was attributable to a decrease of $11.8 million related to
ImmunoGen, partially offset by a $6.2 million increase and a $3.1 million increase related to Bristol-Myers Squibb and Amgen, respectively.
The difference between the amount of revenue recognized under ASC 606 and the amount that would have been recognized under ASC 605 was primarily a
result of the difference in how revenue is recognized related to the $21.0 million (net of the payment of an associated sublicense fee of $4.0 million to SGEN)
CD71 milestone payment. Under ASC 606, the milestone payment is included in the transaction price and recognized over time based on the total estimated
percentage completed to-date. Under ASC 605, the entire $21.0 million would have been recognized upon satisfaction of the successful IND filing criteria.
80
The decrease in revenue from AbbVie of $0.4 million for 2018 compared to 2017 was primarily due to the recognition of $14.0 million (net of the payment of
an associated license fee of $1.0 million to SGEN) in milestone revenue as a result of completion of certain milestones under the CD71 Agreement during the
third quarter of 2017, which was partially offset by the recognition of $11.7 million of revenue based on the percentage completed to-date on the project of
the $21.0 million milestone payment received(net of the payment of an associated sublicense fee of $4.0 million to SGEN) and added to the transaction price
in May 2018 for the achievement of the IND filing success criteria under the CD71 Agreement; and an increase of $1.9 million in revenue resulting from the
change in the method of revenue recognition for the CD71 Agreement from straight-line under ASC 605 to percentage-of-completion under ASC 606, which
we adopted on January 1, 2018.
Revenue from Amgen under the Amgen Agreement entered into in September 2017 increased by $3.6 million for 2018 compared to 2017. The increase in
revenue was primarily due to a full year of revenue recognized for 2018 as compared to a partial year’s revenue recognition for this agreement starting in
October 2017. In the fourth quarter of 2018, the joint steering committee (“JSC”) officially terminated any further work on two molecules in the Amgen
EGFR project due to unacceptable test results. The current plan is to evaluate other molecules as part of the candidate identification phase of the project, and
as a result, there has been a change in estimate of the actual full-time employee (“FTE”) hours-to-completion and an extended research service period to
seven years. As such, the revenue growth in 2018 was not as large as it may have been before this change in estimate in late 2018.
The decrease in revenue from Bristol-Myers Squibb of $3.7 million for 2018 compared to 2017 was primarily due to a $10.0 million milestone payment
related to the IND filing for BMS-986249 by Bristol-Myers Squibb in 2017, a decrease of $1.3 million in amortization of certain deferred revenue resulting
from an increase in the estimated length of the research terms during late April 2017, which caused average monthly amortization in 2018 to be less than that
reported in 2017, and a decrease in service revenue of $0.3 million for 2018 compared to that in 2017. These factors that contributed to larger revenue in
2017 were partially offset by an increase of $7.9 million in amortization of deferred revenue for 2018 related to the $200.0 million upfront payment we
received in the second quarter of 2017 as a result of Amendment Number 1 to Extend Collaboration and License Agreement (“BMS Amendment) entered into
in March 2017.
The decrease in revenue from ImmunoGen of $11.0 million for 2018 compared to 2017 was the result of the recognition of $6.5 million in revenue in 2017
related to the delivery of the ImmunoGen 2017 License to ImmunoGen in connection with the ImmunoGen Research Agreement, as well as the recognition of
$5.9 million of revenue during 2017 resulting from an amendment to the ImmunoGen Research Agreement extending the research term to June 2018, which
was partially offset by an increase of $1.4 million in revenue in 2018 due to the related extension of the research term to June 2018.
The decrease in revenue from Pfizer of $0.5 million for 2018 compared to 2017 was as a result of Pfizer terminating our Research Collaboration, Option and
License Agreement in March 2018.
Research and Development Expenses
Research and development
2018
Year Ended December 31,
2017
(in thousands)
Change
$
103,866 $
92,277 $
11,589
Research and development expenses increased by $11.6 million during 2018 compared to 2017. The increase was primarily attributable to the following:
•
•
•
•
an increase of $10.0 million in lab services and $12.3 million in clinical trial expenses related to CX-072, CX-2009 and CX-2029 Phase 1/2
clinical development and the ramp up for IND filing and clinical trial preparation for CX-188;
an increase of $10.5 million in personnel related expenses and a $1.2 million allocation of information technology and facilities-related
expenses resulting from an increase in headcount;
an increase of $0.9 million in lab supplies; and
an increase of $0.7 million in consulting expenses.
These increases were partially offset by:
•
a $10.7 million of non-cash research and development expense recognized in 2017 related to the estimated fair value of the CytomX Product
under the Amgen Agreement;
81
•
a $10.0 million sublicense fee payment made to UCSB in 2017, which was triggered by the $200 million upfront payment made by Bristol-
Myers Squibb in connection with our expanded collaboration;
82
•
•
a $2.1 million sublicense fee payable to UCSB recognized as a result of the Amgen Agreement in 2017; and
a $1.0 million sublicense payment to ImmunoGen upon the commencement of enrollment of Phase 1/2 and first patient dosing in the clinical
trial for CX-2009 during the second quarter of 2017.
The following table summarizes our research and development expenses by program incurred during the respective periods:
External costs incurred by product candidate (target):
CX-072 (PD-L1)
CX-2009 (CD166)
CX-2029 (CD71)
Other wholly owned and partnered programs
General research and development expenses
Internal Costs
Total research and development expenses
2018
Year Ended December 31,
2017
Change
(in thousands)
$
$
19,393 $
16,615
10,798
10,261
10,547
67,614
36,252
103,866 $
9,290
8,533
9,550
21,099
18,976
67,448
24,829
92,277
$
$
10,103
8,082
1,248
(10,838)
(8,429)
166
11,423
11,589
The decrease in “Other wholly owned and partnered programs” for 2018 compared to 2017 was primarily due to $10.7 million of research and development
expense recognized during 2017 related to the estimated fair value of the CytomX Product under the Amgen Agreement. The decrease in general research
and development expenses for 2018 compared to 2017 was primarily a payment of $10.0 million in sublicense fee under the UCSB Agreement in 2017. The
increase in other categories of external costs for 2018 was due primarily to increases in laboratory contracts and services and clinical trial expenses related to
CX-072, CX-2009 and CX-2029 Phase 1/2 clinical development and the ramp up for IND filing and clinical trial preparation for CX-188. The increase in
internal costs for 2018 was primarily due to increase in personnel-related expenses and allocation of information technology and facilities-related expenses
resulting from an increase in headcount.
General and Administrative Expenses
General and administrative
2018
Year Ended December 31,
2017
(in thousands)
Change
$
33,510 $
25,605 $
7,905
General and administrative expenses increased by $7.9 million during 2018 compared to 2017. The increase was attributable to an increase of $5.6 million in
personnel-related expenses primarily due to an increase in headcount, and an increase of $2.3 million in subscription services and consulting or services
expenses related to audit, strategic planning, tax compliance, legal compliance and facilities.
Interest Income and Other Expense, Net
Interest income
Other expense, net
Total interest income and other expense
Interest Income
2018
Year Ended December 31,
2017
(in thousands)
Change
$
$
7,641 $
(68)
7,573 $
2,674 $
(27)
2,647 $
4,967
(41)
4,926
Interest income increased by $5.0 million for 2018 compared to 2017. The increase was primarily attributable to an increase in interest earned on our short-
term investments due to an overall increase in our cash and cash equivalents position resulting from the common stock offering completed in July 2018.
83
Other Expense, Net
Other expense, net increased by $41,000 in expense was primarily due to increased loss in currency exchange resulting from unfavorable movements in the
US dollar relative to Euros.
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes
$
14,303 $
(513) $
14,816
Provision for income taxes increased to $14.3 million in 2018 from a benefit from income taxes of $0.5 million in 2017. The income tax expense was
generated as a result of a temporary difference in the recognition of revenue under tax and U.S. GAAP authoritative guidance, primarily due to revenue
recognized for tax purposes in 2018 related to upfront payments received in 2017, prior to revenue recognition for U.S. GAAP purposes. These upfront
payments will be recognized over the related research and development service periods under U.S. GAAP for book purposes and the associated deferred tax
assets due to the timing differences are subject to a valuation allowance. In addition, the ownership changes under Section 382 of the IRC in 2017 limited the
use of available net operating losses and research tax credits against our 2018 taxable income.
2018
Year Ended December 31,
2017
(in thousands)
Change
Liquidity and Capital Resources
Sources of Liquidity
As of December 31, 2019, we had cash, cash equivalents and short-term investments of $296.1 million and an accumulated deficit of $417.2 million,
compared to cash, cash equivalents and short-term investments of $436.1 million and an accumulated deficit of $315.0 million as of December 31, 2018. To
date, we have financed our operations primarily through sales of our common stock in conjunction with the IPO and a subsequent stock offering, sales of our
convertible preferred securities prior to our IPO and payments received under our collaboration agreements.
Based upon our current operating plan, we expect our existing capital resources will be sufficient to fund operations for a period of at least twelve months
from the date the financial statements included in this report are issued. However, if the anticipated operating results and future financing are not achieved in
future periods, our planned expenditures may need to be reduced in order to extend the time period over which the then-available resources would be able to
fund the operations. The amounts and timing of our actual expenditures depend on numerous factors, including the progress of our preclinical and clinical
development efforts, the results of any clinical trials and other studies, our operating costs and expenditures and other factors described under the caption
“Risk Factors” in this Annual Report on Form 10-K. The cost and timing of developing our products, including CX-072, CX-2009 and CX-2029 are highly
uncertain, are subject to substantial risks and many changes. As such, we may alter our expenditures as a result of contingencies such as the failure of one or
all of our product candidates currently in clinical development, the acceleration of one or all of our product candidates in clinical development, the initiating
of clinical trials for additional product candidates, the identification of a more promising product candidate in our research efforts or unexpected operating
costs and expenditures. We will need to raise additional funds in the future. There can be no assurance, however, that such efforts will be successful or that,
in the event that they are successful, the terms and conditions of such financing will be favorable to us.
Summary Statement of Cash Flows
The following table summarizes our cash flows for the periods presented:
Net cash (used in) provided by operating activities
Net cash provided by (used in) by investing activities
Net cash provided by financing activities
Net increase in cash, cash equivalents and restricted cash
2019
Year Ended December 31,
2018
(in thousands)
$
$
(140,480) $
79,701
1,627
(59,152) $
(75,521) $
5,926
139,624
70,029 $
2017
170,373
(121,266)
23,796
72,903
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Cash Flows from Operating Activities
2019
During the year ended December 31, 2019, cash used in operating activities was $140.5 million, which consisted of a net loss of $102.2 million, adjusted by
non-cash charges of $21.1 million and a net decrease of $59.4 million relating to the change in our net operating assets and liabilities. The non-cash charges
primarily consisted of $19.1 million in stock-based compensation; $1.6 million of common stock issued in connection with our entry into Amendment No.3
to the UCSB Agreement and $2.6 million in depreciation and amortization expense; which amounts were partially offset by $2.2 million in accretion of
discounts on our short-term investments.
The change in our net operating assets and liabilities was primarily due to:
a decrease of $47.7 million in deferred revenue resulting from continued recognition of deferred revenue from existing customers and the
accelerated recognition of revenue of $17.4 million related to the termination of certain targets under the BMS Agreement in the first quarter of
2019, partially offset by the additional $10.0 million milestone payment due from AbbVie in June 2019, which payment was triggered by its
selection of the second target under the Discovery Collaboration and Licensing Agreement with AbbVie (as amended, the “Discovery
Agreement”);
a decrease of $12.7 million in accrued liabilities and income tax payable primarily due to the net payment of $13.1 million for our 2018 income
tax liability and $3.8 million in sublicense fees, partially offset by $4.2 million increase in other liabilities during 2019;
a decrease of $1.0 million in cashflow with $0.4 million from accounts payable and $0.6 million from other assets; and
an increase of $2.0 million in cash flows from prepaid expenses and other current assets.
•
•
•
•
2018
During the year ended December 31, 2018, cash used in operating activities was $75.5 million, which consisted of a net loss of $84.6 million, adjusted by
non-cash charges of $17.1 million and a net decrease of $8.0 million in our operating assets and liabilities. The non-cash charges primarily consisted of $16.9
million in stock-based compensation and $1.9 million in depreciation and amortization, partially offset by $1.7 million in accretion of discounts on our short-
term investments.
The net decrease in our operating assets and liabilities of $8.0 million was primarily attributable to:
a net decrease in deferred revenue of $38.2 million resulting from the recognition of $59.2 million in upfront fees and milestone payments
under ASC 606 pursuant to our collaboration agreements, offset by the $21.0 million (net of the payment of an associated sublicense fee of $4.0
million to SGEN) new milestone addition to deferred revenue in 2018 resulting from the AbbVie CX-2029 milestone payment received;
a decrease of $4.9 million resulting from the increase in prepaid expenses and other current assets; partially offset by
an increase in cash flows from accounts receivable primarily from the $10.0 million we received from Bristol-Myers Squibb for achieving the
milestone of IND filing of BMS-986249 in 2018;
an increase of $24.8 million in accrued liabilities, income tax payable and other long-term liabilities resulting primarily from a $13.3 million
increase in income tax payable, a $10.3 million in accrued liabilities driven by increases in laboratory services, UCSB sublicense fee accrual
and CRO expenses accrual relating to clinical trial activities; and
an increase in accounts payable of $0.3 million.
•
•
•
•
•
2017
During the year ended December 31, 2017, cash provided by operating activities was $170.4 million, which consisted of a net loss of $43.1 million, non-cash
charges of $23.5 million, and an increase of $190.0 million in our net operating assets and liabilities. The non-cash charges primarily consisted of $1.6 million
in depreciation and amortization, $11.3 million in stock-based compensation and a $10.7 million non-cash acquisition of in-process research and development
asset charged to expense.
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The change in our net operating assets and liabilities of $190.0 million was primarily attributable to:
•
•
•
•
•
an increase of $189.9 million in deferred revenue resulting from Bristol-Myers Squibb upfront payment of $200.0 million and $40.0 million
received in connection with the collaboration we entered into with Amgen in September 2017. These increases were partially offset by an
increase in the recognition of revenue associated with upfront fees of $34.4 million under our various collaboration agreements, $6.6 million in
recognized revenue from our delivery of a Development and Commercialization License to ImmunoGen in connection with the ImmunoGen
Research Agreement, and $5.9 million in recognized revenue from ImmunoGen as a result of the amendment to the ImmunoGen Research
Amendment;
an increase in accrued and long-term liabilities of $9.2 million; and
an increase in other assets of $1.6 million; partially offset by
a decrease in accounts receivable of $8.0 million resulting primarily from the $10.0 million of milestone billing to Bristol-Myers Squibb for the
IND filing of BMS-986249, offset by a $2.0 million payment received from Bristol-Myers Squibb relating to the 2016 milestone for the
selection of BMS-986249; and
a decrease of $2.4 million in accounts payable.
Cash Flows from Investing Activities
During the year ended December 31, 2019, cash provided by investing activities was $79.7 million, which consisted of $258.2 million in proceeds received
upon the maturity of marketable securities, partially offset by $175.0 million used in the purchases of short-term investments and $3.5 million of capital
expenditures used to purchase property and equipment.
During the year ended December 31, 2018, cash provided by investing activities was $5.9 million, which consisted of $204.6 million used in purchases of
short-term investments and $3.8 million of capital expenditures used to purchase property and equipment. This was offset by $214.3 million in proceeds
received upon the maturity of short-term investments.
During the year ended December 31, 2017, cash used in investing activities was $121.3 million, which consisted of $218.7 million used in the purchase of
short-term investments and $1.6 million of capital expenditures used to purchase property and equipment. This amount was partially offset by $99.0 million
in proceeds received upon the maturity of short-term investments.
Cash Flows from Financing Activities
During the year ended December 31, 2019, cash provided by financing activities was $1.6 million, primarily consisted of proceeds from the exercise of stock
options and employee stock purchases under the employee stock purchase plan (“ESPP”).
During the year ended December 31, 2018, cash provided by financing activities was $139.6 million, primarily consisted of proceeds from our common stock
public offering of $134.6 million (net of underwriting discounts and stock issuance costs of $9.2 million) and proceeds from the exercise of stock options and
employee stock purchases under the ESPP of $5.0 million.
During the year ended December 31, 2017, cash provided by financing activities was $23.8 million, which primarily consisted of proceeds received from the
issuance of common stock to Amgen pursuant to a stock purchase of $20.0 million and proceeds from the exercise of stock options and ESPP of $3.8 million.
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2019 (in thousands):
Operating leases(1)
Royalty obligations(2)
License maintenance fees(3)
Total contractual obligations
2020
2021
4,990 $
150
750
5,890 $
5,129 $
—
750
5,879 $
$
$
Payments Due by Period(4)
2022
2023
2024+
Total
5,273 $
—
750
6,023 $
5,420 $
—
750
6,170 $
15,689 $
—
5,625
21,314 $
36,501
150
8,625
45,276
(1) We lease our current facility under a long-term operating lease, which expires in 2026. The lease provides us with one option to extend the lease term
for a period of five years at the then fair market rental value.
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(2) We have royalty obligations under the terms of certain exclusive licensed patent rights. The royalty obligations are cancellable any time by giving
notice to the licensor, with the termination being effective 60 days after giving notice. See Part II. Item 8. Financial Statements and Supplementary
Data, Note 10 - “License Agreement" in the accompanying Notes to the financial statements for more information.
(3) We have annual license maintenance fees under the terms of certain license agreement with UCSB. See Part II. Item 8. Financial Statements and
(4)
Supplementary Data, Note 10 - “License Agreement” in the accompanying Notes to the financial statements for more information.
This table does not include any milestone payments or royalty payments to third parties as the amounts, timing and likelihood of such payments are
not known. See Part II. Item 8. Financial Statements and Supplementary Data, Note 9 - “Research and Collaboration Agreements” in the
accompanying Notes to the financial statements for more information.
We enter into agreements in the normal course of business with CROs for clinical trials and with vendors for pre-clinical studies and other services and
products for operating purposes, which are cancelable at any time by us, generally upon 30 to 60 days prior written notice. These payments are not included in
the above table of contractual obligations. The above table also excludes unrecognized tax benefits of $5.2 million as of December 31, 2019 because these
uncertain tax positions, if recognized, would be an adjustment to our deferred tax assets, which are subject to a valuation allowance.
Segment Information
We have one primary business activity and operate as one reportable segment.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared
in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of these financial statements requires our
management to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on
our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments
and estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below
are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments
and estimates.
Revenue Recognition
On January 1, 2018, we adopted Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606) using the
modified retrospective transition method.
We recognize revenue when our customer obtains control of the promised goods or services, in an amount that reflects the consideration which we have
received or expect to receive in exchange for those goods or services.
Our revenues are primarily derived through our license, research, development and commercialization agreements. The terms of these types of agreements
may include (i) licenses for our technology or programs, (ii) research and development services, and (iii) services or obligations in connection with
participation in research or steering committees. Payments to us under these arrangements typically include one or more of the following: nonrefundable
upfront and license fees, research funding, milestone and other contingent payments to us for the achievement of defined collaboration objectives and certain
preclinical, clinical, regulatory and sales-based events, as well as royalties on sales of any commercialized products.
We assess whether the promises in its arrangements with customers are considered as distinct performance obligations that should be accounted for separately.
Judgment is required to determine whether the license to our intellectual property is distinct from the research and development services or participation on
steering committees.
87
Our collaboration and license agreements may include contingent payments related to specified research, development and regulatory milestones. Such
milestone payments are typically payable under the collaborations when the collaboration partner claims or selects a target, or initiates or advances a covered
product candidate in preclinical or clinical development, upon submission for marketing approval of a covered product with regulatory authorities; or upon
receipt of actual marketing approvals of a covered product or for additional indications. Milestone payments that are not within the control of us or the
licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. In certain agreements, the
collaboration partner is solely responsible for meeting the defined collaboration objectives that trigger the contingent payment. At each reporting date, we re-
evaluate whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price by using the most
likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price
in such period of determination.
Our collaboration and license agreements may also include contingent payments related to sales-based milestones. Sales-based milestones are typically
payable when annual sales of a covered product reach specified levels. Sales-based milestones are recognized at the later of when the associated performance
obligation has been satisfied or when the sales occur. Unlike other contingency payments, such as regulatory milestones, sales-based milestones are not
included in the transaction price based on estimates at the inception of the contract, but rather, are included when the sales or usage occur.
The transaction price in each arrangement is allocated to the identified performance obligations based on the relative standalone selling price (“SSP”) of each
distinct performance obligation, which requires judgment. In instances where SSP is not directly observable, such as when a license or service is not sold
separately, SSP is determined using information that may include market conditions and other observable inputs. Due to the early stage of our licensed
technology, the license of such technology is typically combined with research and development services and steering committee participation as one
performance obligation. In the event that we receive non-cash consideration such as consideration in the form of a research license and research support
services from the counterparty, the transaction price of a non-monetary exchange that has commercial substance is estimated based on the fair value of the
non-cash consideration received, which may be determined through a valuation analysis.
In certain cases, our performance creates an asset that does not have an alternative use to the customer and we have an enforceable right to payment at all
times for performance completed to date. In these cases, we utilize judgment to assess the nature of the combined performance obligation to determine
whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for
purposes of recognizing revenue. We evaluate the measure of progress each reporting period and, if necessary, we adjust the measure of performance and
related revenue recognition. There have been changes in estimates of research service periods and the related estimated FTE hours-to-completion, of certain
of our research development programs in 2018 and 2019. Such adjustments have impacted and may continue to impact the amounts and timing of our
revenue recognized.
Research and Development Expenses
We record accrued liabilities for estimated costs of research, preclinical and clinical studies and contract manufacturing activities, which are a significant
component of research and development expenses. A substantial portion of our ongoing research and development activities is conducted by third-party
service providers, including CROs. Our contracts with CROs generally include pass-through costs, such as regulatory expenses, investigator fees, travel costs
and other miscellaneous costs. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in
payments that do not match the periods over which materials or services are provided to us under such contracts. We accrue the costs incurred under
agreements with these third parties based on actual work completed in accordance with the respective agreements. In the event we make advance payments,
they are recorded as prepaid expenses and recognized as the services are performed. We determine the estimated costs through discussions with internal
personnel and external service providers as to the progress of stage of completion of the services and the agreed-upon fees to be paid for such services.
We make significant judgments and estimates in determining the accrual balance in each reporting period. As actual costs become known, we adjust our
accruals. Although we do not expect our estimates to be materially different than the actual amounts incurred, such estimates for the status and timing of
services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too
low in any one period. Our accrual is dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors.
Variations in the assumptions used to estimate accruals including, but not limited to, the number of patients enrolled, the rate of patient enrollment and the
actual services performed, may vary from our estimates, resulting in adjustments to clinical trial expenses in future periods. Changes in these estimates that
result in material changes to our accruals could materially affect our financial condition and results of operations.
88
Stock-based Compensation
We recognize compensation costs related to stock options granted to employees based on the estimated fair value of the awards on the date of grant and we
record forfeitures as they are incurred. We estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes
option-pricing model. The grant date fair value of stock-based awards is expensed on a straight-line basis over the period during which the employee is
required to provide service in exchange for the award (generally the vesting period).
We estimate the fair value of our stock-based awards using the Black-Scholes option-pricing model, which requires the input of assumptions. Our
assumptions are as follows:
•
•
•
•
Expected term. The expected term of stock options represents the period that the stock options are expected to remain outstanding and is based
on vesting terms, exercise term and contractual lives of the options. The expected term of the ESPP shares is equal to the six-month look-back
period;
Expected volatility. The expected stock price volatility for our stock options was derived from the average historical volatilities of our stock
price and the stock price of several comparable publicly traded companies within the biotechnology and pharmaceutical industry. We will
continue to apply this process until a sufficient amount of historical information of our own stock price becomes available. Volatility for ESPP
shares is equal to our stock price’s historical volatility over a six-month period;
Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield with a maturity equal to the expected term of the stock
option in effect at the time of grant; and
Dividend yield. The expected dividend is assumed to be zero as we have never paid dividends and have no current plans to pay any dividends
on our common stock.
On January 2019, the Company adopted ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting. Under this new standard, stock options granted to non-employees as consideration for services received are measured on the date of
grant using the Black-Scholes option-pricing model. The related grant date fair values of stock options are expensed on a straight-line basis over the period,
generally the vesting period, during which the non-employee is required to provide service in exchange for the award.
Prior to the adoption of ASU 2018-07, stock-based compensation expense for options granted to non-employees as consideration for services received was
measured on the date of performance at the fair value of the consideration received or the fair value of the equity instruments issued, using the Black-Scholes
option-pricing model, whichever can be more reliably measured. Stock-based compensation expense for options granted to non-employees was periodically
remeasured as the underlying options vest.
Income Taxes
We account for income taxes using an asset and liability approach. Deferred tax assets and liabilities reflect the net tax effects of temporary differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. We record a valuation allowance to reduce our deferred tax assets to reflect the net amount that we believe is more likely than not to be realized.
Realization of our deferred tax assets is dependent on the generation of future taxable income, the amount and timing of which are uncertain. The valuation
allowance requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are
recoverable. Based upon the weight of available evidence at December 31, 2019, we continue to maintain a full valuation allowance against all of our
deferred tax assets after management considered all available evidence, both positive and negative, including but not limited to our historical operating
results, income or loss in recent periods, cumulative income in recent years, forecasted earnings, future taxable income, and significant risk and uncertainty
related to forecasts.
89
We recognize the tax effects of an uncertain tax position only if it is more likely than not that it will be sustained based solely on its technical merits as of the
reporting date and only in an amount more likely than not that it will be sustained upon review by the tax authorities. We evaluate uncertain tax positions on a
quarterly basis and adjust the liability for changes in facts and circumstances, such as new regulations or interpretations by the taxing authorities, including
the 2017 Tax Cuts and Jobs Act (“Tax Act”), new information obtained during a tax examination, significant amendment to an existing tax law, or resolution
of an examination. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the income tax
provision in the period in which such determination is made. The resolution of our uncertain income tax positions is dependent on uncontrollable factors such
as law changes, new case law, and the willingness of the income tax authorities to settle, including the timing thereof and other factors. Although we do not
anticipate significant changes to our uncertain income tax positions in the next twelve months, items outside of our control could cause our uncertain income
tax positions to change in the future, which would be recorded in our statements of operations. Interest and/or penalties related to income tax matters are
recognized as a component of income tax expense.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rate risks. We had cash, cash equivalents and
short-term investments of $296.1 million and $436.1 million as of December 31, 2019 and 2018, respectively, which consists of bank deposits, money market
funds and U.S. government bonds. Such interest-bearing instruments carry a degree of interest rate risk; however, historical fluctuations of interest income
have not been significant.
We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate
exposure. We have not historically been exposed to material risks due to changes in interest rates. Based on our investment positions as of December 31,
2019, a hypothetical 100 basis point change in interest rates would not have material effect in the fair value of the portfolio. Any changes would only be
realized if we sold the investments prior to maturity.
90
Item 8.
Financial Statements and Supplementary Data
CYTOMX THERAPEUTICS, INC.
ANNUAL REPORT ON FORM 10-K
INDEX TO AUDITED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
Financial Statements
Balance Sheets
Statements of Operations and Comprehensive Loss
Statements of Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
91
Page
92
95
96
97
98
99
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of CytomX Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of CytomX Therapeutics, Inc. (the Company) as of December 31, 2019 and 2018, the related
statements of operations and comprehensive loss, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2019, and
the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles
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 December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 27, 2020 expressed an
unqualified opinion thereon.
Adoption of ASU No. 2016-02
As discussed in Note 3 to the financial statements, the Company changed its method for accounting for leases as a result of the adoption of
Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), using the modified retrospective transition method effective January 1, 2019.
Adoption of ASU No. 2014-09
As discussed in Note 2 to the financial statements, the Company changed its method for recognizing revenue as a result of the adoption of
Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective transition method
effective January 1, 2018.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s
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 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.
92
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated
or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical
audit matter or on the account or disclosure to which it relates.
Accounting for revenue and collaboration agreements
Description of the Matter
The Company recorded revenue from collaboration agreements of $57.4 million for the year ended December 31, 2019. As
described in Note 2, the terms of the Company’s collaboration agreements may include licenses for the Company’s technology
or programs, research and development services, and services or obligations in connection with participation in research or
steering committees. Amounts received under these arrangements typically include nonrefundable upfront payments and
license fees, research funding, milestone and other contingent payments for the achievement of defined collaboration objectives
and certain preclinical, clinical, regulatory and sales-based events, as well as royalties on sales of any commercialized products.
Auditing the Company’s accounting for revenues from collaboration arrangements was complex and required significant
judgments primarily in identifying which elements represent revenue producing performance obligations, determining the
measurement and allocation of arrangement consideration, and evaluating estimates of the total expected inputs under the input
method for revenue recognized over time.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s
processes for assessing the accounting treatment of its collaboration arrangements, including controls over the review of
contracts and accounting conclusions, as well as controls over the completeness and accuracy of the data used. We also tested
the controls over the development of estimated total inputs for revenue recognized over time.
To test the accounting treatment for revenue from collaboration arrangements, we evaluated, among other things, whether the
identified performance obligations were properly determined, and the transaction price was properly measured and allocated to
the identified performance obligations. To test the measurement of efforts toward satisfying the performance obligation, our
audit procedures included, among others, reviewing management’s analysis for accuracy and completeness by agreeing data to
the underlying contract, inspecting communications with the collaborative partner, evaluating the application of the input
method for the recognition of revenue and testing the estimated total inputs and actual inputs incurred.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2017.
Redwood City, California
February 27, 2020
93
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of CytomX Therapeutics, Inc.
Opinion on Internal Control over Financial Reporting
We have audited CytomX Therapeutics, Inc.’s internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO
criteria). In our opinion, CytomX Therapeutics, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance
sheets of the Company as of December 31, 2019 and 2018, the related statements of operations and comprehensive loss, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 2019, and the related notes and our report dated February 27, 2020 expressed an unqualified
opinion thereon.
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 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, testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk, and 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 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 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 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/ Ernst & Young LLP
Redwood City, California
February 27, 2020
94
CYTOMX THERAPEUTICS, INC.
BALANCE SHEETS
(in thousands, except share and per share data)
December 31,
2019
December 31,
2018
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Restricted cash
Operating lease right-of-use asset
Other assets
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
Accrued liabilities
Income tax payable
Deferred revenues, current portion
Total current liabilities
Deferred revenue, net of current portion
Operating lease liabilities - long term
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 11)
Stockholders' equity
Convertible preferred stock, $0.00001 par value; 10,000,000 shares authorized at
December 31, 2019 and 2018; no shares issued and outstanding at
December 31, 2019 and 2018, respectively
Common stock, $0.00001 par value; 75,000,000 shares authorized at
December 31, 2019 and 2018; 45,523,088 and 45,083,209 shares issued
and outstanding at December 31, 2019 and 2018, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying notes to financial statements
95
$
$
$
$
188,425 $
107,720
13
7,177
303,335
7,372
1,312
949
917
25,382
2,015
341,282 $
4,158 $
30,051
—
51,381
85,590
178,858
24,871
850
290,169
247,577
188,550
97
9,251
445,475
6,934
1,458
949
917
—
1,375
457,108
5,132
26,724
13,339
52,713
97,908
225,267
—
3,050
326,225
—
—
1
468,285
57
(417,230)
51,113
341,282 $
1
445,956
(93)
(314,981)
130,883
457,108
CYTOMX THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share data)
Revenues
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Interest income
Other expense, net
Loss before income taxes
Provision for (benefit from) income taxes
Net loss
Net loss per share, basic and diluted
Shares used to compute net loss per share, basic and diluted
Other comprehensive income (loss):
Changes in unrealized gain (loss) on short-term investments, net of tax
Impact of adoption of new accounting pronouncement
Total comprehensive loss
2019
Year Ended December 31,
2018
2017
$
57,489
$
59,502
$
71,623
131,619
36,765
168,384
(110,895)
8,365
(135)
(102,665)
(427)
(102,238)
(2.26)
$
$
103,866
33,510
137,376
(77,874)
7,641
(68)
(70,301)
14,303
(84,604)
(2.03)
$
$
92,277
25,605
117,882
(46,259)
2,674
(27)
(43,612)
(513)
(43,099)
(1.16)
45,335,927
41,664,382
37,166,830
139
11
(102,088)
$
1
—
(84,603)
$
(67)
—
(43,166)
$
$
$
See accompanying notes to financial statements
96
CYTOMX THERAPEUTIC, INC.
Statements of Stockholders’ Equity
(in thousands, except share and per share data)
Additional
Accumulated
Other
Total
Common Stock
Paid-in Comprehensive Accumulated Stockholders'
Shares
Amount
Capital
Income/(Loss)
Deficit
Equity
36,490,169 $
764,576
67,746
Balance at December 31, 2016
Exercise of stock options
Issuance of common stock under the Employee Stock Purchase Plan
Issuance of common stock pursuant to the Amgen Stock Purchase
Agreement
Stock-based compensation
Other comprehensive income
Net loss
Balance at December 31, 2017
Impact of adoption of new accounting pronouncement - ASU 2014-09
Issuance of common stock in follow-on offering, net of issuance costs
Exercise of stock options
Issuance of common stock under the Employee Stock Purchase Plan
Stock-based compensation
Other comprehensive income
Net loss
Balance at December 31, 2018
Impact of adoption of new accounting pronouncement - ASU 2018-02
Exercise of stock options
Issuance of common stock under the Employee Stock Purchase Plan
Issuance of common stock to UCSB
Stock-based compensation
Other comprehensive income
Net loss
Balance at December 31, 2019
1,156,069
—
—
—
38,478,560
—
5,867,347
673,382
63,920
—
—
—
45,083,209
—
146,930
142,949
150,000
—
—
—
45,523,088 $
1 $
—
—
254,871 $
3,165
674
(27) $
—
—
(176,366) $
—
—
78,479
3,165
674
—
—
—
—
1
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
1 $
19,457
11,287
—
—
289,454
—
134,596
4,156
872
16,878
—
—
445,956
—
633
994
1,602
19,100
—
—
468,285 $
—
—
(67)
—
(94)
—
—
—
—
—
1
—
(93)
11
—
—
—
—
139
—
57 $
—
—
—
(43,099)
(219,465)
(10,912)
—
—
—
—
—
(84,604)
(314,981)
(11)
—
—
—
—
—
(102,238)
(417,230) $
19,457
11,287
(67)
(43,099)
69,896
(10,912)
134,596
4,156
872
16,878
1
(84,604)
130,883
-
633
994
1,602
19,100
139
(102,238)
51,113
See accompanying notes to financial statements
97
CYTOMX THERAPEUTICS, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Amortization of intangible assets
Depreciation and amortization
Amortization of premium (accretion of discount) on investments
Stock-based compensation expense
Issuance of common stock in connection with UCSB sublicense fee
Non-cash acquisition of in process research and development asset charged to
expense
Deferred income taxes
Changes in operating assets and liabilities
Accounts receivable
Related party accounts receivable
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued liabilities, income tax payable and other long-term liabilities
Deferred revenue
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Purchases of short-term investments
Maturities of short-term investments
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs
Proceeds from employee stock purchase plan and exercise of stock options
Net cash provided by financing activities
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of year
Cash, cash equivalents and restricted cash, end of year
Supplemental disclosures of cash flow information:
Cash paid for income taxes
Supplemental disclosures of noncash investing items:
Purchases of property and equipment in accounts payable and accrued liabilities
2019
Year Ended December 31,
2018
2017
$
(102,238) $
(84,604) $
(43,099)
146
2,459
(2,228)
19,100
1,602
—
—
84
—
2,074
(640)
(374)
(12,724)
(47,741)
(140,480)
(3,497)
(174,992)
258,190
79,701
—
1,627
1,627
(59,152)
248,494
189,342
$
146
1,738
(1,701)
16,878
—
—
—
10,042
—
(4,899)
(20)
261
24,833
(38,195)
(75,521)
(3,788)
(204,601)
214,315
5,926
134,596
5,028
139,624
70,029
178,465
248,494 $
146
1,516
371
11,287
—
10,700
(513)
(7,980)
154
(456)
1,618
(2,441)
9,157
189,913
170,373
(1,559)
(218,707)
99,000
(121,266)
19,957
3,839
23,796
72,903
105,562
178,465
13,061
$
— $
—
428
$
1,027
$
361
$
$
$
See accompanying notes to financial statements
98
1. Description of the Business
CytomX Therapeutics, Inc. (the “Company”) is a clinical-stage, oncology-focused biopharmaceutical company with a vision of transforming lives with safer,
more effective therapeutics. The Company is pioneering a novel class of investigational antibody therapeutics, based on its Probody® therapeutic technology
platform, for the treatment of cancer. The Probody therapeutic approach is designed to more specifically target antibody therapeutics to the tumor
microenvironment and minimize drug activity in healthy tissue and in circulation. The Company is located in South San Francisco, California and was
incorporated in the state of Delaware in September 2010.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America
(“U.S. GAAP”).
Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those estimates.
Concentration of Credit Risk and Other Risks and Uncertainties
The Company is subject to a number of risks similar to other biopharmaceutical companies in the early stage, including, but not limited to, the need to obtain
adequate additional funding, possible failure of preclinical testing or clinical trials, the need to obtain marketing approval for its product candidates,
competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s products, and
protection of proprietary technology. If the Company does not successfully obtain regulatory approval, commercialize or partner any of its product candidates,
it will be unable to generate revenue from product sales or achieve profitability.
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, short-term investments and
accounts receivable. Substantially all the Company’s cash is held by one financial institution. Such deposits may, at times, exceed federally insured limits.
The Company invests its cash equivalents and short-term investments in highly rated money market funds and its short-term investments in U.S. Government
Bonds.
Customers and collaboration partners who represent 10% or more of the Company’s total revenue during each period presented or accounts receivable
balance at each respective balance sheet date are as follows (in thousands):
AbbVie Ireland Unlimited Company
Bristol-Myers Squibb Company
ImmunoGen, Inc.
Revenue
Year Ended December 31,
2018
2019
Accounts Receivable, net
December 31,
2017
2019
2018
$
5,878 $
47,740
—
18,997 $
32,780
*
19,434 $
36,492
12,503
— $
13
—
Total revenue from customers who represent 10% or more
of the Company's total revenue
$
53,618 $
51,777 $
68,429 $
13 $
*
Revenue from the customer was less than 10% of the Company’s total revenue for the respective periods presented.
All of the Company’s customers are located in the United States of America.
—
97
—
97
Segments
Management has determined that it has one business activity and operates as one operating segment as it only reports financial information on an aggregate
basis to its chief executive officer and principal financial officer, who are the Company’s chief operating decision makers. All long-lived assets are maintained
in the United States of America.
99
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less at the date of purchase to be cash equivalents.
Restricted Cash
Restricted cash represents a standby letter of credit issued pursuant to an office lease entered in December 2015.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the balance sheets that sum to the total of the
amounts shown in the statement of cash flows (in thousands):
Cash and cash equivalents
Restricted cash
Short-term Investments
December 31
2019
2018
$
$
188,425
917
189,342
$
$
247,577
917
248,494
All investments have been classified as “available-for-sale” and are carried at fair value as determined based upon quoted market prices or pricing models for
similar securities at period end. Generally, those investments with contractual maturities greater than 12 months are considered long-term
investments. Unrealized gains and losses, deemed temporary in nature, are reported as a component of accumulated other comprehensive income (loss), net
of tax.
A decline in the fair value of any security below cost that is deemed other than temporary results in a charge to earnings and the corresponding establishment
of a new cost basis for the security. The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity. Dividend
and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method
for determining the cost of securities sold.
Property and Equipment, net
Property and equipment are recorded at cost net of accumulated depreciation and amortization. Depreciation is provided using the straight-line method over
the estimated useful lives of the respective assets. The useful lives of property and equipment are as follows:
Machinery and equipment
Computer equipment and software
Furniture and fixtures
Leasehold improvements
5 years
3 years
3 years
Shorter of remaining lease term or estimated life of the assets
Maintenance and repairs that do not extend the life or improve the asset are expensed when incurred.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price paid over the fair value of tangible and identifiable intangible assets acquired in business combinations.
Goodwill and other intangible assets with indefinite lives are not amortized, but are assigned to reporting units and tested for impairment annually, or
whenever there is an impairment indicator. Intangible assets are comprised of in-process research and development. The Company assesses impairment
indicators annually as of December 31 or more frequently, if a change in circumstances or the occurrence of events suggests the remaining value may not be
recoverable. Intangible assets that are not deemed to have an indefinite life are amortized over their estimated useful lives. There was no impairment of
goodwill or intangible assets identified during the years ended December 31, 2019, 2018 and 2017.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group)
may not be recoverable and prior to any goodwill impairment test. An impairment loss is recognized when the total of estimated undiscounted future cash
flows expected to result from the use of the asset (or asset group) and its eventual
100
disposition is less than its carrying amount. Impairment, if any, would be assessed using discounted cash flows or other appropriate measures of fair value.
There was no impairment of long-lived assets during the years ended December 31, 2019, 2018 and 2017.
Revenue Recognition
On January 1, 2018, the Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which
supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (ASC 605), using the
modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Under the prior revenue recognition
standard, milestone payments were recognized when earned and upfront fees were generally recognized as revenue over the research term on a straight-line
basis if another method of revenue recognition did not more clearly match the pattern of delivery of goods or services to the customer. Under ASC 606,
milestone payments are included in the initial transaction price when it is probable that a significant reversal of the milestone payment will not occur. In
addition, the Company can no longer default to the straight-line method as the default method in recognizing revenue for goods or services delivered over
time. As such, the amount and timing of revenue recognition for its collaboration agreements changed under ASC 606. The impact of the adoption of ASC
606 was an increase in the balance of deferred revenue and an increase in the accumulated deficit balance of $10.9 million on January 1, 2018 in the
Company’s Balance Sheet. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts have not
been adjusted and continue to be reported in accordance with our historic accounting under ASC 605.
The Company’s revenues are primarily derived through its license, research, development and commercialization agreements. The terms of these types of
agreements may include (i) licenses for the Company’s technology or programs, (ii) research and development services, and (iii) services or obligations in
connection with participation in research or steering committees. Payments to the Company under these arrangements typically include one or more of the
following: nonrefundable upfront and license fees, research funding, milestone and other contingent payments to the Company for the achievement of defined
collaboration objectives and certain preclinical, clinical, regulatory and sales-based events, as well as royalties on sales of any commercialized products.
The Company assesses whether the promises in its arrangements with customers are considered as distinct performance obligations that should be accounted
for separately. Judgment is required to determine whether the license to the Company’s intellectual property is distinct from the research and development
services or participation on steering committees.
The Company’s collaboration and license agreements may include contingent payments related to specified research, development and regulatory milestones.
Such milestone payments are typically payable under the collaborations when the collaboration partner claims or selects a target, or initiates or advances a
covered product candidate in preclinical or clinical development, upon submission for marketing approval of a covered product with regulatory authorities; or
upon receipt of actual marketing approvals of a covered product or for additional indications. Milestone payments that are not within the control of the
Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At each reporting
date, the Company re-evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction
price by using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included
in the transaction price in such period of determination.
The Company’s collaboration and license agreements may also include contingent payments related to sales-based milestones. Sales-based milestones are
typically payable when annual sales of a covered product reach specified levels. Sales-based milestones are recognized at the later of when the associated
performance obligation has been satisfied or when the sales occur. Unlike other contingency payments, such as regulatory milestones, sales-based milestones
are not included in the transaction price based on estimates at the inception of the contract, but rather, are included when the sales or usage occur.
The transaction price in each arrangement is allocated to the identified performance obligations based on the relative standalone selling price (“SSP”) of each
distinct performance obligation, which requires judgment. In instances where SSP is not directly observable, such as when a license or service is not sold
separately, SSP is determined using information that may include market conditions and other observable inputs. Due to the early stage of the Company’s
licensed technology, the license of such technology is typically combined with research and development services and steering committee participation as one
performance obligation. In the event that the Company receives non-cash consideration such as consideration in the form of a research license and research
support services from the counterparty, the transaction price of a non-monetary exchange that has commercial substance is estimated based on the fair value
of the non-cash consideration received, which may be determined through a valuation analysis.
101
In certain cases, the Company’s performance creates an asset that does not have an alternative use to the customer and the Company has an enforceable right
to payment at all times for performance completed to date. In these cases, the Company utilizes judgment to assess the nature of the combined performance
obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of
measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the
measure of performance and related revenue recognition.
AbbVie Ireland Unlimited Company (“AbbVie”), one of the Company’s collaboration partners, entered into a license agreement with Seattle Genetics, Inc.
(“SGEN”) to license certain intellectual property rights. As part of the Company’s collaboration agreement with AbbVie, the Company pays SGEN
sublicense fees. These sublicense fees are treated as reductions to the transaction price and combined with the performance obligation to which they relate.
Comprehensive Loss
Comprehensive loss represents all changes in stockholders’ equity except those resulting from distributions to stockholders. The Company’s unrealized gains
and losses on short-term investments and impact of adoption of new accounting pronouncements during the period represents the components of other
comprehensive income (loss) that is excluded from the reported net loss.
Contract Balances
Customer payments are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the
Company satisfies its performance obligations under these arrangements. Amounts payable to the Company are recorded as accounts receivable when the
Company’s right to consideration is unconditional.
Stock-Based Compensation
The Company measures its stock-based awards made to employees based on the fair values of the awards as of the grant date using the Black-Scholes option-
pricing model. Stock-based compensation expense is recognized over the requisite service period using the ratable method and is based on the value of the
portion of stock-based payment awards that is ultimately expected to vest. Forfeitures are recognized as they occur.
On January 2019, the Company adopted ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting. Under this new standard, stock options granted to non-employees as consideration for services received are measured on the date of
grant using the Black-Scholes option-pricing model. The related grant date fair values of stock options are expensed on a straight-line basis over the period,
generally the vesting period, during which the non-employee is required to provide service in exchange for the award.
Prior to the adoption of ASU 2018-07, such stock-based compensation expense was measured on the date of performance at the fair value of the consideration
received or the fair value of the equity instruments issued, using the Black-Scholes option-pricing model, whichever can be more reliably measured. Stock-
based compensation expense for options granted to non-employees was periodically remeasured as the underlying options vest.
Income Taxes
The Company accounts for income taxes using an asset and liability approach. Deferred tax assets and liabilities reflect the net tax effects of temporary
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The Company records a valuation allowance to reduce its deferred tax assets to reflect the net amount that it believes as more likely than not to be
realized. Realization of the deferred tax assets is dependent on the generation of future taxable income, the amount and timing of which are uncertain. The
valuation allowance requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax
assets are recoverable. Based upon the weight of available evidence at December 31, 2019, the Company continues to maintain a full valuation allowance
against all of its deferred tax assets after management considered all available evidence, both positive and negative, including but not limited to its historical
operating results, income or loss in recent periods, cumulative income in recent years, forecasted earnings, future taxable income, and significant risk and
uncertainty related to forecasts.
102
The Company recognizes the tax effects of an uncertain tax position only if it is more likely than not that it will be sustained based solely on its technical
merits as of the reporting date and only in an amount more likely than not that it will be sustained upon review by the tax authorities. The Company evaluates
uncertain tax positions on a quarterly basis and adjust the liability for changes in facts and circumstances, such as new regulations or interpretations by the
taxing authorities, new information obtained during a tax examination, significant amendment to an existing tax law, or resolution of an examination. To the
extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the income tax provision in the period in
which such determination is made. The resolution of its uncertain income tax positions is dependent on uncontrollable factors such as law changes, new case
law, and the willingness of the income tax authorities to settle, including the timing thereof and other factors. Although the Company does not anticipate
significant changes to its uncertain income tax positions in the next twelve months, items outside of its control could cause its uncertain income tax positions
to change in the future, which would be recorded in its statements of operations. Interest and/or penalties related to income tax matters are recognized as a
component of income tax expense.
Research and Development Expenses
The Company records accrued liabilities for estimated costs of research and development activities conducted by third-party service providers, which include
the conduct of preclinical and clinical studies, and contract manufacturing activities. The Company records the estimated costs of research and development
activities based upon the estimated amount of services provided but not yet invoiced, and includes these costs in accrued liabilities in the balance sheets and
within research and development expense in the statements of operations. These costs are a significant component of the Company’s research and
development expenses. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements
established with its third-party service providers under the service agreements. The Company makes significant judgments and estimates in determining the
accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities. The Company has not
experienced any material differences between accrued costs and actual costs incurred. However, the status and timing of actual services performed may vary
from the Company’s estimates, resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to the
Company’s accruals could materially affect the Company’s results of operations.
Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries,
payroll taxes, employee benefits, materials, supplies, depreciation on and maintenance of research equipment, the cost of services provided by outside
contractors, and the allocated portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation, and general support services.
All costs associated with research and development are expensed as incurred.
In January 2019, the Company acquired certain technology know-how that is complementary to the Company’s proprietary Probody technology from a third
party for $5.0 million. The Company plans to use this technology in certain of the Company’s discovery stage projects, and has concluded that the
technology acquired does not have an alternative future use. Accordingly, the $5.0 million has been recorded as research and development expense for 2019.
Leases
The Company determines if an arrangement is or contains a lease at inception. Operating leases are recorded as operating lease right-of-use (“ROU”) assets
and operating lease liabilities in the Company’s balance sheet. ROU assets represent the Company’s right to use an underlying asset for the lease term and
lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at
commencement date based on the present value of lease payments over the lease term. The Company uses an implicit rate when readily available, or its
incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments. The
operating lease ROU assets also include any lease prepayments made and reduced by lease incentives. The Company’s lease terms may include options to
extend the lease when it is reasonably certain that such option will be exercised. Lease expenses are recognized on a straight-line basis over the lease
term. The Company elected the short-term lease recognition exemption. The Company’s operating lease arrangement includes lease and non-lease
components which are generally accounted for separately.
3. Adopted and Recent Accounting Pronouncements
Adopted Accounting Pronouncements
Leases
The Company adopted the Accounting Standard Update (“ASU”) No. 2016-02, Leases (Topic 842) on January 1, 2019, using the modified retrospective
approach. This new standard amends the guidance for the accounting and disclosure of leases and requires that
103
lessees recognize on the balance sheet the assets and liabilities that arise from leases, including leases classified as operating leases under current GAAP, and
disclose qualitative and quantitative information about leasing arrangements. In July 2018, the Financial Accounting Standard Board (“FASB”) further
amended this standard to allow for a new transition method that provides the option to use the effective date as the date of initial application. The Company
has elected such option and accordingly the comparative periods are not recast.
The Company has also elected the package of practical expedients permitted under the new standard (“ASC 842”). Accordingly, the Company continues to
account for its existing operating leases as operating leases under the new guidance, without reassessing (a) whether the contracts contain a lease under ASC
842, (b) whether classification of the operating leases would be different in accordance with ASC 842, or (c) whether the unamortized initial direct costs
before transition adjustments would have met the definition of initial direct costs in ASC 842 at lease commencement. In addition, the Company also elected
the short-term lease practical expedients allowed under the standard. As a result of the adoption of ASC 842, the Company recorded a right-of-use asset of
$28.0 million and a lease liability $30.1 million on January 1, 2019. There was no impact on the Company’s accumulated deficit as of the adoption
date. This standard does not have material impact on the Company’s results of operations or cash flows.
Reclassification of Certain Tax Effects
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax
Effects from Accumulated Other Comprehensive Income. The amendments in this standard allows a reclassification from accumulated other comprehensive
income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The Company adopted this standard on January 1, 2019. There
was no material impact on its financial statement upon adoption of this ASU and the Company recorded an increase in other comprehensive income of
$11,000 against its retained earnings upon adoption.
Nonemployee Share-Based Payment
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting. The amendments in this ASU expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from
nonemployees. The Company adopted this standard on January 1, 2019. There was no material impact on its financial statements upon the adoption of this
ASU.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
The new standard changes the impairment model for most financial assets and certain other instruments. Under the new standard, entities holding financial
assets and net investment in leases that are not accounted for at fair value through net income are to be presented at the net amount expected to be collected.
An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying
value at the amount expected to be collected on the financial asset. The new standard will be effective for the Company on January 1, 2020. The Company
does not expect the adoption of this ASU will have a material impact on its financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new
standard simplifies the measurement of goodwill by eliminating the Step 2 impairment test. Step 2 measures a goodwill impairment loss by comparing the
implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. The new guidance requires an entity to compare the fair value of a
reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair
value. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when
measuring the goodwill impairment loss, if applicable. The new guidance becomes effective for goodwill impairment tests in fiscal years beginning after
December 15, 2019, though early adoption is permitted. The Company does not expect the adoption of this ASU will have a material impact on its financial
statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820). The amendments in this ASU modify the disclosure requirements
on fair value measurements in Topic 820, Fair Value Measurement. Various disclosure requirements have been removed, including the amount of and reasons
for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, the valuation processes for Level 3 fair
value measurements held at the end of the reporting period. The ASU also modified various disclosure requirements and added some disclosure requirements
for Level 3 fair value measurements. The amendments in this ASU are effective for the Company on January 1, 2020. The additional disclosures on changes
in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the
narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial
fiscal year of adoption. All other amendments should be applied retrospectively to all
104
periods presented upon their effective date. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay
adoption of the additional disclosures until their effective date. The Company does not expect the adoption of this ASU will have a material impact on its
financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40). The amendments in this
ASU on the accounting for implementation, setup and other upfront costs (collectively “implementation costs”) apply to entities that are a customer in a
hosting arrangement. The amendments under this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is
a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Accordingly, the
amendments in this ASU require an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which
implementation costs to expense. They also require an entity to expense the capitalized implementation costs of a hosting arrangement that is a service
contract over the term of the hosting arrangement. This ASU is effective for the Company on January 1, 2020. The Company is currently evaluating the
impact of this new guidance.
In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the interaction between Topic 808 and Topic
606. The amendments in this ASU targeted improvements to generally accepted accounting principles for collaborative arrangements by clarifying that
certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement
participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition,
measurement, presentation, and disclosure requirements. In addition, unit-of-account guidance in Topic 808 was aligned with the guidance in Topic 606 (that
is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic
606. The ASU is effective for the Company on January 1, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company
does not expect the adoption of this ASU will have a material impact on its financial statements.
In May 2019, the FASB issued ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief, to provide entities with an option
to irrevocably elect the fair value option in Subtopic 825-10, applied on an instrument-by-instrument basis for eligible instruments, that are within the scope
of Subtopic 326-20, upon adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. This targeted transition
relief is intended to increase comparability of financial statement information for some entities that otherwise would have measured similar financial
instruments using different measuring methodologies. The effective date of this ASU is the same as ASU No. 2016-13, for the Company on January 1,
2020. The Company does not expect the adoption of this ASU will have a material impact on its financial statements.
In November 2019, the FASB issued ASU 2019-08, Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic
606): Codification Improvements – Share-Based Consideration Payable to a Customer. The amendments in this ASU require that an entity measure and
classify share-based payment awards granted to a customer by applying the guidance in Topic 718. Under ASC 606, these awards are considered a reduction
of the transaction price, unless the awards are payment for a distinct good or service received from the customer and should be recorded as a reduction of the
transaction price. However, the ASU requires these awards to be measured on the basis of the grant-date fair value of the share-based payment award in
accordance with Topic 718 and should be recognized at the later of when the award is promised and when the entity recognizes revenue for the transfer of the
related goods or services in accordance with ASC 606. The grant date is the date at which a grantor (supplier) and a grantee (customer) reach a mutual
understanding of the key terms and conditions of a share-based payment award. The classification and subsequent measurement of the award are subject to
the guidance in Topic 718 unless the share-based payment award is subsequently modified and the grantee is no longer a customer. The ASU is effective for
the Company on January 1, 2020, and interim periods within those fiscal years. The Company does not expect the adoption of this ASU will have a material
impact on its financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU
simplify the accounting for income taxes by removing certain exceptions to the general principles of ASC 740 in order to reduce cost and complexity of its
application. The ASU removes the exception related to the incremental approach for intraperiod tax allocation as well as two exceptions related to accounting
for outside basis differences of equity method investments and foreign subsidiaries. The ASU also amends the scope of ASC 740 related to a franchise tax (or
similar tax) that is partially based on income; clarifies when a step-up in the tax basis of goodwill should be considered part of the business combination in
which the book goodwill was originally recognized and when it should be considered a separate transaction; specifies that an entity is not required to allocate
income tax expense to a legal entity that is both not subject to tax and disregarded by the taxing authority; and clarifies that all tax effects, both deferred and
current, should be accounted for in the interim period that includes the enactment date. The ASU is effective for the Company on January 1, 2021, and
interim periods within those fiscal years. The Company does not expect the adoption of this ASU will have a material impact on its financial statements.
4. Net Loss Per Share
105
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. Diluted
net loss per share is calculated using the weighted-average number of common shares outstanding, plus potential dilutive common stock during the
period. Diluted net loss per share is the same as basic net loss per share since the effect of the potentially dilutive securities is anti-dilutive.
The following weighted-average outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share for the
periods presented, because including them would have been anti-dilutive:
Options to purchase common stock
5. Fair Value Measurements and Short-Term Investments
2019
9,687,844
Year Ended December 31,
2018
7,478,755
2017
6,891,123
In accordance with Accounting Standards Codification (“ASC”) 820-10, Fair Value Measurements and Disclosures, the Company determines the fair value of
financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value,
as follows:
•
•
•
Level I: Inputs which include quoted prices in active markets for identical assets and liabilities.
Level II: Inputs other than Level I that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the
full term of the assets or liabilities.
Level III: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities.
The carrying amounts of the Company’s financial instruments, including restricted cash, accounts receivable, accounts payable and accrued liabilities
approximate fair value due to their relatively short maturities. The Company’s financial instruments consist of Level I assets which consist primarily of highly
liquid money market funds, some of which is included in restricted cash and U.S. government bonds that are included in short-term investments.
The following tables set forth the fair value of the Company’s short-term investments subject to fair value measurements on a recurring basis and the level of
inputs used in such measurements (in thousands):
Assets
Money market funds
Restricted cash (money market funds)
U.S. Government bonds
Total Securities
Assets
Money market funds
Restricted cash (money market funds)
U.S. Government bonds
Total Securities
Valuation
Hierarchy
Amortized
Cost
December 31, 2019
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Level I
Level I
Level I
$
$
170,757 $
917
107,610
279,284 $
— $
—
110
110 $
Aggregate
Fair Value
— $
—
—
— $
170,757
917
107,720
279,394
Valuation
Hierarchy
Amortized
Cost
December 31, 2018
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Aggregate
Fair Value
Level I
Level I
Level I
$
$
226,979 $
917
188,616
416,512 $
— $
—
—
— $
— $
—
(66)
(66) $
226,979
917
188,550
416,446
No securities have contractual maturities of longer than one year
106
6. Property and Equipment
Property and equipment, net consisted of the following (in thousands):
Machinery and equipment
Computer equipment and software
Furniture and fixtures
Leasehold improvements
Construction in progress
Less: accumulated depreciation and amortization
December 31
2019
2018
12,124
1,555
1,024
1,483
236
16,422
(9,050)
7,372
$
$
10,498
955
749
893
785
13,880
(6,946)
6,934
$
$
Depreciation and amortization expense was $2.5 million, $1.7 million and $1.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.
7. Goodwill and Intangible Assets
Goodwill and in-process research and development assets resulted from a series of integrated financing transactions in 2010 that was accounted for as a
business combination. The in-process research and development relates to the Company’s proprietary Probody Platform and was accounted for as an
indefinite-lived intangible asset until the underlying project was completed or abandoned. In connection with the collaboration agreements, the Company
began amortizing the intangible asset in 2017. The intangible asset is being amortized over the estimated lives of the patents which average 12 years. The
amortization expense for the years ended December 31, 2019, 2018 and 2017 was $0.1 million, $0.1 million and $0.1 million, respectively.
Goodwill and intangible assets consisted of the following (in thousands):
Goodwill
Goodwill
Intangible assets
In-process research and development
Less accumulated amortization
8. Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
Research and clinical expenses
Payroll and related expenses
Legal and professional expenses
Operating lease liabilities - short term
Other accrued expenses
Total
107
December 31,
2019
2018
$
949 $
949
December 31,
2019
2018
1,750 $
(438)
1,312 $
1,750
(292)
1,458
December 31,
2019
2018
19,006 $
6,721
1,062
2,810
452
30,051 $
18,520
6,585
830
—
789
26,724
$
$
$
$
9. Research and Collaboration Agreements
The following table summarizes the revenue by collaboration partner (in thousands):
AbbVie
Amgen
Bristol-Myers Squibb
ImmunoGen
Pfizer
Total Revenue
AbbVie Ireland Unlimited Company
2019
Year Ended December 31,
2018
2017
5,878 $
3,871
47,740
-
-
57,489 $
18,997 $
4,899
32,780
1,471
1,355
59,502 $
19,434
1,311
36,492
12,503
1,883
71,623
$
$
In April 2016, the Company and AbbVie entered into two agreements, a CD71 Co-Development and Licensing Agreement (the “CD71 Agreement”) and a
Discovery Collaboration and Licensing Agreement (as amended, the “Discovery Agreement” and together with the CD71 Agreement the “AbbVie
Agreements”). Under the terms of the CD71 Agreement, the Company and AbbVie will co-develop a Probody Drug Conjugates (“PDC”) against CD71, with
the Company responsible for pre-clinical and early clinical development. AbbVie will be responsible for later development and commercialization, with
global late-stage development costs shared between the two companies. The Company will assume 35% of the net profits or net losses related to later
development unless it opts-out. If the Company opts-out from participation of co-development of the CD71 PDC, AbbVie will have sole right and
responsibility for the further development, manufacturing and commercialization of such CD71 PDC.
Under the CD71 Agreement, the Company received an upfront payment of $20.0 million in April 2016, and is eligible to receive up to $470.0 million in
development, regulatory and commercial milestone payments, a 35% profit split on U.S. sales, and royalties on ex-U.S. sales in the high teens to low twenties
if the Company participates in the co-development of the CD71 Licensed Product subject to a reversion to a royalty on U.S. sales, and reduction in royalties
on ex-U.S. sales, if the Company opts-out from the co-development of the CD71 PDC. The Company’s share of later stage co-development costs for each
CD71 PDC are capped, provided that AbbVie may offset the Company’s co-development cost above the capped amounts from future payments such as
milestone payments and royalties. In July 2017, the Company received a milestone payment of $14.0 million (net of payment of an associated sublicense fee
of $1.0 million to SGEN under the Seattle Genetics Agreement) from AbbVie for achieving certain milestones required to be met to begin GLP toxicology
studies under the CD71 Agreement. In May 2018, the United States Food and Drug Administration (“FDA”) cleared the IND application for CX-2029, the
PDC targeting CD71. As a result, the Company achieved the IND success criteria under the CD71 Agreement and received a $21.0 million milestone
payment (net of the payment of an associated sublicense fee of $4.0 million to SGEN). The Company commenced enrollment of its Phase 1/2 clinical trial
and dosed the first patient in a clinical trial at the end of the second quarter of 2018.
Under the terms of the Discovery Agreement, AbbVie receives exclusive worldwide rights to develop and commercialize PDCs against up to two targets, one
of which was selected in March 2017. The Company shall perform research services to discover the Probody therapeutics and create PDCs for the nominated
collaboration targets. From that point, AbbVie shall have sole right and responsibility for development and commercialization of products comprising or
containing such PDCs (“Discovery Licensed Products”).
Under the Discovery Agreement, the Company received an upfront payment of $10.0 million in April 2016 and subsequently earned an additional $10.0
million milestone payment triggered by selection of the second target by AbbVie in June 2019. The Company is also eligible to receive up to $275.0 million
in development, regulatory and commercial milestone payments and royalties in the high single to low teens from commercial sales of any resulting
PDCs. The second target was selected under the Amended and Restated Discovery Collaboration and License Agreement entered into in June 2019 that
allows AbbVie to select a target for developing a PDC or a Probody.
The Company has determined that the CD71 Agreement and Discovery Agreement with AbbVie should be combined and evaluated as a single arrangement
in determining revenue recognition, because both agreements were concurrently negotiated and executed.
The Company identified the following performance obligations at the inception of the AbbVie Agreements:
(1)
the research, development and commercialization license for CD71 Probody therapeutic,
108
(2)
(3)
(4)
(5)
(6)
the research services related to CD71 Probody therapeutic,
the obligation to participate in the CD71 Agreement joint research committee,
the research services related to the first discovery target
the research, development and commercialization license for the first discovery target, and
the obligation to participate in the Discovery Agreement joint research committee.
The Company concluded that AbbVie’s option for the second discovery target was not a material right and was therefore not a performance obligation at the
inception of the AbbVie Agreements. However, it was subsequently included in the total transaction price in June 2019 as a performance obligation upon
AbbVie’s selection of such second target as further discussed below.
The Company determined that the research, development and commercialization licenses for CD71 and discovery targets are not distinct from the Company’s
respective research services and expertise. The Company considered factors such as novelty of the Probody therapeutic and PDC technology and lack of other
parties’ expertise in this space, the Company’s rights to technology relating to a proprietary platform to enable the Probody therapeutic development and
AbbVie’s contractual obligation to use the Company’s research services. The Company determined that the CD71 Agreement research, development and
commercialization license, related research service and participation in the joint research committee were a combined performance obligation and were
distinct from the Discovery Agreement research, development and commercialization license, related research service and participation in the joint research
committee. Therefore, the Company concluded that there are two distinct performance obligations:
(1)
(2)
the CD71 Agreement performance obligation consisting of the CD71 Agreement research, development and commercialization license, related
research service and participation in the joint research committee, and
the Discovery Agreement performance obligation consisting of the Discovery Agreement research, development and commercialization
license, related research service and participation in the joint research committee.
The total transaction price upon adoption of ASC 606 on January 1, 2018 of $39.8 million consists of $30.0 million in upfront payments, $14.0 million
milestone payment received (net of the payment of an associated sublicense fee of $1.0 million to SGEN) less $4.2 million of estimated sublicense fees. The
upfront payments under the AbbVie Agreements are allocated between the two performance obligations based on the estimated relative standalone selling
prices. The $30.0 million of upfront payments is allocated $20.0 million to the CD71 Agreement, with the remaining $10.0 million allocated to the Discovery
Agreement. The $14.0 million milestone payment received (net of the payment of an associated sublicense fee of $1.0 million to SGEN) and estimated
sublicense fees of $4.2 million are allocated to the CD71 Agreement performance obligation as they are directly related to the development of the CD71
Probody therapeutic.
In May 2018, the Company earned a $21.0 million milestone payment (net of the payment of an associated sublicense fee of $4.0 million to SGEN) under the
CD71 Agreement. The $21.0 million milestone payment was included as part of the transaction price in May 2018 and a revenue adjustment of $9.9 million
was recognized in the second quarter of 2018 reflecting the percentage completed to-date on the project related to this milestone. The Company determined
that the remaining potential milestone payments are probable of significant revenue reversal as their achievement is highly dependent on factors outside the
Company’s control. Therefore, these payments have been fully constrained and were not included in the transaction price as of December 31, 2019.
The Company is obligated to make sublicense payments under the license agreement with the Regents of the University of California, acting through its Santa
Barbara campus (“UCSB”), as amended, equal to 7.5% of certain upfront and milestone payments owed to or received by the Company. As of December 31,
2019 and 2018, the Company recorded accrued sublicense fees of zero and $1.1 million, respectively, under the UCSB Agreement.
Of the $39.8 million total initial transaction price, the Company allocated $29.8 million to the CD71 Agreement performance obligation and recognized
revenue using a cost-based input measure, the common measure of progress for the performance obligation. In applying the cost-based input method, revenue
is recognized based on actual full-time employee (“FTE”) hours incurred as a percentage of total estimated FTE hours for completing its combined
performance obligation over the estimated service period. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the
measure of performance and related revenue recognition. During 2019, as a result of ongoing dose escalation in the continued development program, there
has been a change in estimates of the research service period as well as an increase in the projected FTE hours-to-completion. The research service period for
the CD71 Agreement performance obligation is extended from April 2021 to March 2022.
The remaining $10.0 million of the total initial transaction price of $39.8 million allocated to the Discovery Agreement performance obligation represents an
obligation to continuously make the Company’s Probody therapeutic technology platform available to AbbVie. The $10.0 million is recognized using the
common measure of progress for the entire performance obligation over the estimated research service period of five years through April 2021.
109
In June 2019, the Company earned a $10.0 million milestone payment for the second target selected by AbbVie under the Discovery Agreement. It is
recognized also using the common measure of progress of the related obligation over the estimated research service period of five years through June 2024.
The Company recognized revenue of $5.9 million, $19.0 million and $19.4 million for 2019, 2018 and 2017, respectively, related to the AbbVie Agreements.
As of December 31, 2019 and 2018, deferred revenue related to the CD71 Agreement performance obligation was $20.0 million and $23.2 million,
respectively, and deferred revenue related to the Discovery Agreement performance obligation was $11.6 million and $4.7 million, respectively. As of both
December 31, 2019 and 2018, no amount was due from AbbVie under the CD71 Agreement and the Discovery Agreement.
Amgen, Inc.
On September 29, 2017, the Company and Amgen, Inc. (“Amgen”) entered into a Collaboration and License Agreement (the “Amgen Agreement”). Pursuant
to the Amgen Agreement, the Company received an upfront payment of $40.0 million in October 2017. Concurrent with the entry into the Amgen Agreement,
the Company and Amgen entered into a Share Purchase Agreement (the “Purchase Agreement”) pursuant to which Amgen purchased 1,156,069 shares of the
Company’s common stock at a price of $17.30 per share (calculated based on a 20-day volume-weighted average price), for total proceeds of $20.0 million,
which the Company received on October 6, 2017, the closing date of the transaction. The Company estimated a premium on the stock sold to Amgen of $0.5
million, which takes into account a discount due to the lack of marketability resulting from the six-month lockup period.
Under the terms of the Amgen Agreement, the Company and Amgen will co-develop a Probody T-cell engaging bi-specific therapeutic targeting epidermal
growth factor receptor (the “EGFR Products”). The Company is responsible for early-stage development of EGFR Products and all related costs up to certain
pre-set costs and certain limits based on clinical trial size. Amgen will be responsible for late-stage development, commercialization, and all related costs of
EGFR Products. Following early-stage development, the Company will have the right to elect to participate financially in the global co-development of EGFR
Products with Amgen, during which the Company would bear certain of the worldwide development costs for EGFR Products and Amgen would bear the rest
of such costs (the “EGFR Co-Development Option”). If the Company exercises its EGFR Co-Development Option, the Company will share in somewhat less
than 50% of the profit and losses from sales of such EGFR Products in the U.S., subject to certain caps, offsets, and deferrals. If the Company chooses not to
exercise its EGFR Co-Development Option, the Company will not bear any costs of later stage development. The Company is eligible to receive up to $455.0
million in development, regulatory, and commercial milestone payments for EGFR Products, and royalties in the low-double-digit to mid-teen percentage of
worldwide commercial sales, provided that if the Company exercises its EGFR Co-Development option, it shall receive a profit and loss split of sales in the
United States and royalties in the low-double-digit to mid-teen percentage of commercial sales outside of the United States.
Amgen also has the right to select a total of up to three targets, including the two additional targets discussed below. The Company and Amgen collaborate in
the research and development of Probody T-cell engaging bi-specifics products directed against such targets. Amgen has selected one such target (the
“Amgen Other Product”). If Amgen exercises its option within a specified period of time, it can select two such additional targets (the “Amgen Option
Products” and, together with the Amgen Other Product, the “Amgen Products”). Except with respect to preclinical activities to be conducted by CytomX,
Amgen will be responsible, at its expense, for the development, manufacture, and commercialization of all Amgen Products. If Amgen exercises all of its
options and advances all three of the Amgen Products, CytomX is eligible to receive up to $950.0 million in upfront, development, regulatory, and
commercial milestones and tiered high single-digit to low-teen percentage royalties. The Company concluded that, at the inception of the agreement,
Amgen’s option to select the two additional targets is not a material right and does not represent a performance obligation of the agreement.
At the initiation of the collaboration, CytomX had the option to select, from programs specified in the Amgen Agreement, an existing pre-clinical stage T-cell
engaging bispecific product from the Amgen pre-clinical pipeline. In March 2018, CytomX selected the program. CytomX is responsible, at its expense, for
converting this program to a Probody T-cell engaging bispecific product, and thereafter, will be responsible for development, manufacturing, and
commercialization of the product (“CytomX Product”). Amgen is eligible to receive up to $203.0 million in development, regulatory, and commercial
milestone payments for the CytomX Product, and tiered mid-single digit to low double-digit percentage royalties.
The Company considered the criteria for combining contracts in ASC 606 and determined that the Amgen Agreement and the Purchase Agreement should be
combined into one contract. The Company accounted for the Amgen Agreement based on the fair values of the assets and services exchanged. The Company
identified the following performance obligations at the inception of the Amgen Agreement:
(1)
(2)
the research, development and commercialization license,
the research and development services for the EGFR Products and the Amgen Other Product, and
110
(3)
the obligation to participate in the joint steering committee (“JSC”) and the joint research committee (“JRC”).
The Company determined that research, development and commercialization license and the participation in the JSC and JRC are not distinct from the
research and development services and therefore those performance obligations were combined into one combined performance obligation. The Amgen Other
Products are accounted for as a separate performance obligation from the EGFR Products as the nature of the services being performed is not the same and
the value that Amgen can derive from one program is not dependent on the success of the other. The Company evaluates the measure of progress each
reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Concurrent with the execution of the Amgen Agreement, the Company entered into a sublicense agreement whereby the Company granted Amgen a
sublicense of its rights to one patent family that it co-owns with UCSB, that is exclusively licensed to the Company under the UCSB Agreement covering
Probody antibodies and other pro-proteins in the fields of therapeutics, in vivo diagnostics and prophylactics. This sublicense was incremental to the patents,
patent applications and know-how covering T-cell engaging bispecific Probody molecules that were developed and owned by the Company and licensed to
Amgen. Under the UCSB Agreement, as amended, the Company is obligated to make a sublicense payment to UCSB equal to 7.5% of certain upfront and
milestone payments owed to or received by the Company. As of December 31, 2019 and 2018, the Company recorded liabilities of zero and $2.1 million,
respectively, representing the sublicense fee payable to UCSB.
The total transaction price of $51.2 million, consisting of the $40.0 million upfront payment, an estimated fair value of $10.7 million for the CytomX Product
and $0.5 million of premium on the sale of the Company’s common stock, was allocated between the two performance obligations based on the relative
standalone selling price of each performance obligation. To determine the standalone selling price, the Company used the discounted cash flow method by
calculating risk-adjusted net present values of estimated cash flows. The Company determined that the remaining potential milestone payments were probable
of significant revenue reversal as their achievement was highly dependent on factors outside the Company’s control. As a result, these payments were fully
constrained and were not included in the transaction price as of January 1, 2018, the adoption date of ASC 606.
Of the $51.2 million total transaction price, the Company allocated $46.4 million to the EGFR Products performance obligation and $4.8 million to the
Amgen Other Product performance obligations. The transaction price of the EGFR Product performance obligation was recognized using a cost-based input
measure. In applying the cost-based input method of revenue recognition, the Company uses actual FTE hours incurred relative to estimated FTE hours
expected to be incurred for the combined performance obligation over the research service period. In the fourth quarter of 2018, the JSC officially terminated
any further work on two molecules that did not meet required research criteria. Pre-clinical evaluation of additional molecules has been ongoing as part of the
candidate identification phase of the EGFR project, and as a result, there was a change in estimate of the FTE hours-to-completion and research service period
to seven years during the fourth quarter of 2018. At the end of the second quarter of 2019, the Company determined it will undertake additional testing and
assessment of the molecules being evaluated under the EGFR project. As a result, the estimated FTE hours-to-completion and research service period was
further increased to eight years.
The $4.8 million transaction price allocated to the Amgen Other Product performance obligation represents an obligation to continuously make the Probody
therapeutic technology platform available to Amgen, which is recognized over the common measure of progress for the entire performance obligation over
the estimated research service period of six years.
The Company recognized revenue of $3.9 million, $4.9 million and $1.3 million for the years ended December 31, 2019, 2018 and 2017, respectively, related
to the Amgen Agreement. As of December 31, 2019 and 2018, deferred revenue related to the EGFR Products performance obligation was $37.6 million and
$40.7 million, respectively. As of December 31, 2019 and 2018, deferred revenue related to the Amgen Other Products performance obligation was $3.0
million and $3.8 million, respectively. As of December 31, 2019 and 2018, no amount was due from Amgen under the Amgen Agreement.
Bristol-Myers Squibb Company
On May 23, 2014, the Company and Bristol-Myers Squibb Company (“Bristol-Myers Squibb”) entered into a Collaboration and License Agreement (the
“BMS Agreement”) to discover and develop compounds for use in human therapeutics aimed at multiple immuno-oncology targets using the Company’s
Probody therapeutic technology. The effective date of the BMS Agreement was July 7, 2014.
Under the terms of the BMS Agreement, the Company granted Bristol-Myers Squibb exclusive worldwide rights to develop and commercialize Probody
therapeutics for up to four oncology targets. Bristol-Myers Squibb had additional rights to substitute up to two collaboration targets within three years of the
effective date of the BMS Agreement. These rights expired in May 2017. Each collaboration target had a two-year research term and the two additional
targets had to be nominated by Bristol-Myers Squibb within
111
five years of the effective date of the BMS Agreement. The research term for each collaboration target could be extended in one year increments up to three
times.
Pursuant to the BMS Agreement, the financial consideration from Bristol-Myers Squibb was comprised of an upfront payment of $50.0 million and the
Company was initially entitled to receive contingent payments of up to an aggregate of $1,217.0 million as follows: (i) up to $25.0 million for additional
targets; (ii) up to $114.0 million in development milestone payments per research target program or up to $456.0 million if the maximum of four research
targets are selected; (iii) up to $124.0 million in milestone payments for the first commercial sale in various territories for up to three indications per research
target program or up to $496.0 million if the maximum of four research targets are selected, and (iv) up to $60.0 million in sales milestones payments per
research target program or up to $240.0 million if maximum of four research targets are selected. The Company is entitled to royalty payments in the mid-
single digits to low double-digit percentages from potential future sales. The Company also receives research and development service fees based on a
prescribed FTE rate that is capped.
The Company identified the following performance obligations at the inception of the BMS Agreement:
(1)
(2)
(3)
the exclusive research, development and commercialization license,
the research and development services and
the obligation to participate in the joint research committee.
The Company determined that the license, the Company’s research services and expertise related to the development of the product candidates should be
combined with the research services and participation in the joint research committee as one combined performance obligation. The Company concluded that,
at the inception of the agreement, Bristol-Myers Squibb’s options for the third and fourth targets were not material rights and not performance obligations. As
such, each option was accounted for as a separate arrangement upon exercise. Additionally, the Company considered whether the services performed for each
target should be considered as separate performance obligations and concluded that all targets should be accounted for as one combined performance
obligation.
The Company received an upfront payment of $50.0 million from Bristol-Myers Squibb in July 2014. In January and December 2016, Bristol-Myers Squibb
selected the third and fourth targets, respectively, and paid the Company $10.0 million and $15.0 million, respectively, pursuant to the terms of the BMS
Agreement. In December 2016, Bristol-Myers Squibb selected a clinical candidate pursuant to the BMS Agreement, which triggered a $2.0 million pre-
clinical milestone payment to the Company. In November 2017, the Company recognized a $10.0 million milestone payment from Bristol-Myers Squibb
upon approval of the investigational new drug application for the CTLA-4-directed Probody therapeutic.
On March 17, 2017, the Company and Bristol-Myers Squibb entered into Amendment Number 1 to Extend Collaboration and License Agreement (the “BMS
Amendment”). The BMS Amendment grants Bristol-Myers Squibb exclusive worldwide rights to develop and commercialize Probody therapeutics for up to
six additional oncology targets and two non-oncology targets. The effective date of the BMS Amendment was April 25, 2017 (“Amendment Effective Date”).
Under the terms of the BMS Amendment, the Company continues to collaborate with Bristol-Myers Squibb to discover and conduct preclinical development
of Probody therapeutics against targets selected by Bristol-Myers Squibb under the terms of the BMS Amendment.
Pursuant to the BMS Amendment, the financial consideration from Bristol-Myers Squibb is comprised of an upfront payment of $200.0 million and the
Company is eligible to receive up to an aggregate of $3,586.0 million as follows:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
up to $116.0 million in development milestone payments per target or up to $928.0 million if the maximum of eight targets are selected for the
first product modality;
up to $124.0 million in milestone payments for the first commercial sale in various territories for up to three indications per target program or
up to $992.0 million if the maximum of eight targets are selected for the first product modality;
up to $60.0 million in sales milestone payments per target or up to $480.0 million if maximum of eight targets are selected for the first product
modality; and
up to $56.3 million in development milestone payments or up to $450.0 million if the maximum of eight targets are selected for the second
product modality;
up to $62.0 million in milestone payments for the first commercial sale in various territories for up to three indications per target program or up
to $496.0 million if the maximum of eight targets are selected for the second product modality;
up to $30.0 million in sales milestone payments per target or up to $240.0 million if maximum of eight targets are selected for the second
product modality.
112
The Company is also entitled to tiered mid-single to low double-digit percentage royalties from potential future sales. The BMS Amendment does not change
the term of the Bristol-Myers Squibb’s royalty obligation under the BMS Agreement. Bristol-Myers Squibb’s royalty obligation continues on a licensed-
product by licensed-product basis until the later of (i) the expiration of the last claim of the licensed patents covering the licensed products in the country, (ii)
the twelfth anniversary of the first commercial sale of a licensed product in a country, or (iii) the expiration of any applicable regulatory, pediatric, orphan
drug or data exclusivity with respect to such product.
The initial transaction price is $272.8 million consisting of the upfront fees of $250.0 million, research and development service fees of $10.8 million and
milestone payments received to date of $12.0 million. The Company determined that the remaining potential milestone payments were probable of significant
revenue reversal as their achievement was highly dependent on factors outside the Company’s control. Therefore, these payments were fully constrained and
were not included in the transaction price as of December 31, 2019. The BMS Agreement represents an obligation to continuously make the Probody
therapeutic technology platform available to BMS. Therefore, the initial transaction price is recognized over the estimated research service period, which ends
on April 25, 2025.
During the first quarter of 2019, Bristol-Myers Squibb terminated pre-clinical activities on three of the first four collaboration targets selected under the initial
original 2014 BMS Agreement. The first and second targets under the BMS Agreement were combined into a single performance obligation. The Company
determined that termination of pre-clinical activities on the second target does not impact the Company’s continuing obligation to Bristol-Myers Squibb for
the first target, CTLA-4, as it is still being actively developed by Bristol-Myers Squibb. Therefore, the Company concluded that it will continue to amortize
the related deferred revenue over the original performance period. The Company has determined that upon the termination of pre-clinical activities on the
third and the fourth collaboration targets selected by Bristol-Myers Squibb in January and December of 2016, respectively, under the BMS Agreement, it has
no further obligations and is no longer eligible to receive any further proceeds from milestones, royalties or research and development fees for such
targets. As a result, the Company accelerated recognition of all of the related deferred revenue of the third and the fourth targets upon the effective date of
termination and recognized $17.4 million in the first quarter of 2019. Research work under the BMS Amendment executed in March 2017 continues.
The Company recognized revenue of $47.7 million, $32.8 million and $36.5 million for the years ended December 31, 2019, 2018, and 2017, respectively. As
of December 31, 2019 and 2018, deferred revenue related to the BMS Agreement was $158.0 million and $205.6 million, respectively. The amount due from
Bristol-Myers Squibb under the BMS Agreement was $13,000 and $97,000 as of December 31, 2019 and 2018, respectively.
ImmunoGen, Inc.
In January 2014, the Company and ImmunoGen, Inc. (“ImmunoGen”) entered into the Research Collaboration Agreement (the “ImmunoGen Research
Agreement”). The ImmunoGen Research Agreement provided the Company with the right to use ImmunoGen’s Antibody Drug Conjugate (“ADC”)
technology in combination with the Company’s Probody therapeutic technology to create a PDC directed at one specified target under a research license, and
to subsequently obtain an exclusive, worldwide development and commercialization license to use ImmunoGen’s ADC technology to develop and
commercialize such PDCs. The Company made no upfront cash payment in connection with the execution of the agreement. Instead, the Company provided
ImmunoGen with the rights to CytomX’s Probody therapeutic technology to create PDCs directed at two targets under the ImmunoGen Research Agreement
and to subsequently obtain exclusive, worldwide development and commercialization licenses to develop and commercialize such PDCs. In February 2016,
the Company exercised its option to obtain a development and commercialization license for CX-2009 pursuant to the terms of the ImmunoGen Research
Agreement (the “CX-2009 License”). In February 2017, ImmunoGen exercised its first option to obtain a development and commercialization license for one
of the two targets. Substitution rights for this first target selection program terminated in February 2017 and ImmunoGen discontinued the program in July
2017. The Company recognized the remaining deferred revenue related to the discontinued program upon the termination of the program. ImmunoGen
exercised its second option to obtain a development and commercialization license pursuant to the ImmunoGen Research Agreement (the “ImmunoGen 2017
License”) for a target in December 2017. In December 2019, the parties entered into a license agreement pursuant to which the ImmunoGen 2017 License
was terminated and ImmunoGen granted a license for all of ImmunoGen’s rights under the ImmunoGen 2017 license to the Company. See Note 10. License
Agreement, for more information.
113
Under the terms of the ImmunoGen Research Agreement, both the Company and ImmunoGen performed research activities on behalf of the other party for
no monetary consideration through January 2018 and the arrangement was extended to June 2018, as discussed below. Each party is solely responsible for the
development, manufacturing and commercialization of any products resulting from the exclusive development and commercialization license obtained by
such party under the agreement.
In consideration for the ImmunoGen 2017 License, the Company is entitled to receive up to $30.0 million in development and regulatory milestone payments,
up to $50.0 million in sales milestone payments and royalties in the mid-single digits percentage on the commercial sales of any resulting product. For the
CX-2009 License, the Company is obligated to pay ImmunoGen up to $60.0 million in development and regulatory milestone payments and up to $100.0
million in sales milestone payments and royalties in the mid to high single digits percentage on the commercial sales of any resulting product. In August
2017, the Company made a milestone payment of $1.0 million to ImmunoGen for the first patient dosing with CX-2009. No milestone payments were
payable to the Company under the ImmunoGen 2017 License while it was in effect.
The Company accounted for the ImmunoGen Research Agreement based on the fair value of the assets and services exchanged. The Company identified the
following performance obligations at the inception of the ImmunoGen Research Agreement:
(1)
(2)
(3)
(4)
(5)
the research license,
the research services,
the obligation to participate in the joint research committee,
the exclusive research, development and commercialization license and
the obligation to provide future technology improvements, when available.
The Company determined that the research license, the research services, the participation in the joint steering committee, and the technology improvements
are not distinct from the development and commercialization license and therefore those performance obligations were combined into one combined
performance obligation. The Company considered factors such as the limited economic benefits to ImmunoGen if the development and commercialization
license was not obtained and the lack of sublicensing rights in the research license.
The estimated total fair value of the consideration of $13.2 million was recorded as deferred revenue at the inception of the ImmunoGen Research Agreement.
In December 2017, the Company entered into the ImmunoGen 2017 License arrangement and extended the Company’s obligation to provide research
services under the ImmunoGen Research Agreement to June 30, 2018. The fair value of the consideration for the combined performance obligation was
recognized as revenue over the research period that ended on June 30, 2018. As of December 31, 2019 and 2018, neither company has further research
obligations under the ImmunoGen Research Agreement.
The estimated total fair value of assets and services received was also $13.2 million, of which $12.7 million was allocated to the licenses received and was
charged to research and development expense, with the remaining amount of $0.5 million allocated to the research services, joint research committee
participation and technology improvements, which was expensed over the period of services provided.
The Company recognized no revenue for the year ended December 31, 2019 and revenue of $1.5 million and $12.5 million for the years ended December 31,
2018 and 2017, respectively. As of December 31, 2019 and 2018, there was no deferred revenue relating to the ImmunoGen Research Agreements,
respectively. As of both December 31, 2019 and 2018, no amount was due from ImmunoGen under the ImmunoGen Research Agreement.
114
MD Anderson
In November 2015, the Company entered into a research collaboration agreement with MD Anderson to research Probody-enabled chimeric antigen receptor
killer (CAR-NK) cell therapies, known as ProCAR-NK cell therapies. Under this collaboration, MD Anderson used the Company’s Probody technology to
conduct research of ProCAR-NK cell therapies against certain targets selected by the Company in cancer immunotherapy. Under the research collaboration
agreement, the Company had the right to exercise an option, during the option period expiring on November 2, 2019 and upon payment of an option exercise
fee, to negotiate and acquire a worldwide, exclusive, sublicensable license from MD Anderson for development and commercialization of products directed
against any of the selected targets. The Company decided not to exercise the option and the research collaboration agreement expired on November 2, 2019.
The expenses related to this agreement were not material to the financial statements for the years ended December 31, 2019, 2018 and 2017.
Pfizer Inc.
In May 2013, the Company and Pfizer Inc. (“Pfizer”) entered into a Research Collaboration, Option and License Agreement (the “Pfizer Agreement”) to
collaborate on the discovery and preclinical research activities related to Probody therapeutics, and PDCs for research project targets nominated by Pfizer.
Pfizer nominated two research targets in 2013 and, pursuant to the Pfizer Agreement, had the option of nominating two additional research targets. In
December 2014, Pfizer selected an additional research target and paid the Company $1.5 million. The option to select a fourth target lapsed in May 2016.
Pfizer discontinued the epidermal growth factor receptor (“EGFR”) program and decided to terminate the remaining two targets in February and March 2018.
In March 2018, Pfizer terminated the Pfizer Agreement. As such, the Company had no further performance obligations under this agreement after the first
quarter of 2018.
Pursuant to the Pfizer Agreement, the Company received an upfront payment of $6.0 million and research and development service fees based on a prescribed
FTE rate per year that is capped. The Company identified the following performance obligations at the inception of the Pfizer Agreement: (1) the research
license, (2) the research services and (3) the obligation to participate in the joint research committee. The Company determined that the research license was
not distinct from the research services and participation in the joint research committee due to the specialized nature of the research services to be provided by
the Company, and accordingly, this deliverable was combined with the research services and participation in the joint research committee as a combined
performance obligation. The Company concluded that, at the inception of the agreement, Pfizer’s options to obtain an exclusive development and
commercialization license for each research project target did not represent a material right and were not performance obligations.
As the combined performance obligation represented an obligation to continuously make the Probody therapeutic technology platform available to Pfizer, the
initial transaction price was recognized over the common measure of progress for the entire performance obligation over the estimated research service period
of five and a half years.
The Company recognized no revenue for the year ended December 31, 2019, and recognized revenue of $1.4 million and $1.9 million for the years ended
December 31, 2018 and 2017, respectively. As of December 31, 2019 and 2018, there was no deferred revenue relating to the Pfizer Agreement. As of
December 31, 2019 and 2018, there was no amount due from Pfizer under the Pfizer Agreement, respectively.
Contract Liabilities
The following table presents changes in the Company’s total contract liabilities for the year ended December 31, 2019 (in thousands):
Contract liabilities:
Deferred revenue
$
277,980 $
10,000 $
57,741 $
230,239
Balance at
12/31/2018
Additions
Deductions
(in thousands)
Balance at
12/31/2019
There was a $10.0 million addition to deferred revenue related to the milestone payment triggered by selection of the second target by AbbVie during the year
ended December 31, 2019. Deductions of $57.7 million represent primarily revenue recognized, including the accelerated recognition of deferred revenue of
$17.4 million due to termination of certain targets by Bristol-Myers Squibb in the first quarter of 2019 that was included in the contract liability balance at the
beginning of the period.
115
The Company estimates that the $230.2 million of deferred revenue related to the following contracts as of December 31, 2019 to be recognized as revenue as
set forth below. However, the timing of revenue recognition could differ from the estimates depending on facts and circumstances impacting the various
contracts, including progress of research and development, resources assigned to the contracts by the Company or its collaboration partners or other factors
outside of the Company’s control.
•
•
•
•
•
The $20.0 million of deferred revenue related to the CD71 Agreement as of December 31, 2019 is expected to be recognized based on actual
FTE effort and program progress until approximately March 2022.
The $2.6 million of deferred revenue related to the first target under Discovery Agreement as of December 31, 2019 is expected to be
recognized ratably until approximately April 2021. The $9.0 million of deferred revenue related to the second target under the Discovery
Agreement as of December 31, 2019 is expected to be recognized ratably until approximately June 2024.
The $37.6 million of deferred revenue related to the Amgen EGFR Products as of December 31, 2019 is expected to be recognized based on
actual FTE effort and program progress until approximately September 2025.
The $3.0 million of deferred revenue related to the Amgen Other Products as of December 31, 2019 is expected to be recognized ratably until
approximately September 2023.
The $158.0 million of deferred revenue related to the BMS Agreement as of December 31, 2019 is expected to be recognized ratably until
approximately April 2025.
10. License Agreement
UCSB
The Company has an exclusive, worldwide license agreement with UCSB (the “UCSB Agreement”), relating to the use of certain patents and technology
relating to its core technology, including its therapeutic antibodies, and to certain patent rights the Company co-owns with UCSB covering Probody
antibodies and other pro-proteins.
Pursuant to the UCSB Agreement, the Company is obligated to (i) make royalty payments to UCSB on net sales of its products covered under the agreement,
subject to annual minimum amounts, (ii) make milestone payments to UCSB upon the occurrence of certain events, (iii) make a milestone payment to UCSB
upon occurrence of an IPO or change of control, and (iv) reimburse UCSB for prosecution and maintenance of the licensed patents. If the Company
sublicenses its rights under the UCSB Agreement, it is obligated to pay UCSB a percentage of the total sublicense revenue received, which total amount
would be first reduced by the aggregate amount of certain research and development related expenses incurred by the Company and other permitted
deductions. As part of the UCSB Agreement, the Company has annual minimum royalty obligations of $150,000 under the terms of certain exclusive licensed
patent rights. The royalty obligations are cancellable any time by giving notice to the licensor, with the termination being effective 60 days after giving
notice.
In 2013, the Company amended the UCSB Agreement to reduce certain amounts due to UCSB upon receipt by the Company of upfront payments, milestone
payments and royalties from sublicensees. In exchange for this amendment, the Company issued to UCSB 157,332 shares of common stock. The UCSB
Agreement, as amended, will remain in effect until the expiration or abandonment of the last to expire of the licensed patents.
In April 2019, the Company entered into Amendment No.3 to the UCSB Agreement to adjust and clarify certain sublicense terms (“Amendment No.3”). In
connection with the amendment, the Company issued to UCSB 150,000 shares of CytomX common stock with a fair value of $10.68 per share. Under the
terms of Amendment No.3, the Company and UCSB agreed to modify the determination of sublicense revenues payable by the Company to UCSB on certain
existing collaboration agreements and on collaboration agreements executed subsequent to Amendment No.3. In exchange, the Company agreed to make an
upfront payment of $1.0 million as well as additional annual license maintenance fees of $0.8 million through 2031. In the event that the Company
terminates the agreement due to material concern of the safety or efficacy of the related technology, 50% of all remaining maintenance fees will become due
immediately. Otherwise, all remaining maintenance fees will become due immediately upon early termination of the agreement unless there is a material
breach by UCSB. Pursuant to Amendment No.3, the Company recorded in research and development expense a charge of $3.4 million relating to sublicense
and maintenance fees representing the 150,000 shares issued with a fair value of $1.6 million, the upfront payment of $1.0 million and the additional annual
maintenance fee of $0.8 million during the second quarter of 2019.
In June 2019, the Company incurred an additional $0.8 million of sublicense fees related to the $10.0 million milestone payment for the second target selected
by AbbVie under the Discovery Agreement.
116
During the years ended December 31, 2019, 2018 and 2017, the Company incurred sublicense expenses of $4.3 million, $0.6 million and $13.5 million,
respectively, under the provisions of the UCSB Agreement. As of December 31, 2019 and 2018, the Company recorded a liability of $0.2 million and $3.2
million, representing sublicense fee payable to UCSB, respectively.
ImmunoGen
In December 2019, the Company entered into a License Agreement (the “ImmunoGen 2019 License”) with ImmunoGen, Inc. to obtain an exclusive license
with respect to epithelial cell adhesion molecule (“EPCAM”). Under the ImmunoGen 2019 License, ImmunoGen agreed to transfer its know-how, patents,
intellectual property rights, and technology transfer materials and information related to its EpCAM program. The license gives the Company the sole ability
to develop, manufacture, use and commercialize any licensed product that incorporates, is comprised of, or otherwise derived from a Probody that targets
EpCAM in any human therapeutic field on a worldwide basis. In exchange, the Company agreed to make non-refundable and non-creditable payments
including an upfront license payment of $7.5 million and certain clinical development, approval and commercialization milestone payments, if achieved and
royalties on product sales.
The upfront license fee of $7.5 million was recorded as research and development expense in December 2019 and included in accrued liabilities as of
December 31, 2019. The upfront license fee was paid in January 2020.
11. Commitments and Contingencies
Legal Proceedings
The Company is subject to claims and assessments from time to time in the ordinary course of business but is not aware of any such matters, individually or
in the aggregate, that will have a material adverse effect on the Company’s financial position, results of operations or cash flows.
Indemnifications
In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the
Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will
limit losses to those arising from third party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum
potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has never incurred
material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has also entered into indemnification agreements
with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or
service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors’ and officers’ insurance.
12. Leases
Operating Lease
On December 10, 2015, the Company entered into a lease (the “2016 Lease”) with HCP Oyster Point III LLC (the “Landlord”) to lease approximately 76,000
rentable square feet of office and laboratory space located in South San Francisco, California for the Company’s new corporate headquarters.
The term of the Lease commenced on October 1, 2016. The 2016 Lease has an initial term of ten years from the commencement date, and the Company has
an option to extend the initial term for an additional five years at the then fair rental value as determined pursuant to the 2016 Lease.
The Lease provided for annual base rent of approximately $3.1 million in the first year of the lease term. The annual base rent for the second twelve months
was approximately $4.3 million, which will increase on an annual basis beginning from the 25th month to approximately $5.5 million for the tenth year of the
lease. The Company utilized the full amount of the one-time improvement allowance of $12.6 million, of which $2.3 million is recoverable by the landlord
through increased rent which continues through the expiration of the initial lease term.
117
In addition, the Company obtained a standby letter of credit (the “Letter of Credit”) in an amount of approximately $0.9 million, which may be drawn by the
Landlord to be applied for certain purposes upon the Company’s breach of any provisions under the 2016 Lease. The Company has recorded the $0.9 million
Letter of Credit as non-current restricted cash on its balance sheet as at both December 31, 2019 and 2018.
Rent expense is recognized on a straight-line basis over the term of the lease and accordingly the Company records the difference between cash rent payments
and the recognition of rent expense against the operating lease ROU asset. Rent expense during the years ended December 31, 2019, 2018 and 2017 was $4.8
million, $4.2 million and $4.2 million, respectively.
Supplemental information related to leases are as follows:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
Supplemental balance sheet information related to leases:
Operating lease right-of-use assets
Current operating lease liabilities
Non-current operating lease liabilities
Total operating lease liabilities
Weighted-average remaining lease term (in years)
Operating lease
Weighted-average discount rate
Operating lease
Maturity of operating lease liabilities
2020
2021
2022
2023
2024 and beyond
Total lease payments
Less imputed interest
Present value of lease liabilities
13. Common Stock
Year Ended
December 31, 2019
(in thousands)
4,855
December 31, 2019
(in thousands)
25,382
2,810
24,871
27,681
December 31, 2019
6.85
8.25%
December 31, 2019
(in thousands)
4,990
5,129
5,273
5,420
15,689
36,501
(8,820)
27,681
$
$
$
$
In October 2015, the Company’s board of directors and stockholders approved the amended and restatement of the Company’s certificate of incorporation.
The Amended and Restated Certificate of Incorporation was effective as of October 14, 2015, which provides for 75,000,000 authorized shares of common
stock with par value of $0.00001 per share and 10,000,000 shares of preferred stock with a par value of $0.00001 per share.
Common stockholders are entitled to dividends if and when declared by the Board of Directors subject to the prior rights of the preferred stockholders. As of
December 31, 2019 and 2018, no dividends on common stock had been declared by the Board of Directors.
118
In July 2018, the Company completed an underwritten public offering of 5,867,347 shares of common stock at a price of $24.50 per share, which included
765,306 shares issued pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock. The aggregate net proceeds
received by the Company from the offering were approximately $134.6 million after deducting underwriting discounts and commissions and offering
expenses of $9.2 million.
The Company had reserved shares of common stock for issuance, as follows:
Options issued and outstanding
Shares available for future stock option grants
Shares available for future employee stock purchase plan
Total
14. Stock-based Compensation
The 2010 Plan and 2011 Plan
December 31,
2019
2018
9,936,168
3,145,266
1,609,137
14,690,571
7,803,773
1,884,494
1,301,254
10,989,521
In 2010, the Company adopted its 2010 Stock Incentive Plan (the “2010 Plan”) which provided for the granting of stock options to employees, directors and
consultants of the Company. Options granted under the 2010 Plan were either incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”).
In February 2012, the Company adopted its 2011 Stock Incentive Plan (the “2011 Plan”). The 2011 Plan is divided into two separate equity programs, an
option and stock appreciation rights grant program and a stock award program. In conjunction with adopting the 2011 Plan, the Company discontinued the
2010 Plan and released the shares reserved and still available under that plan.
In connection with the consummation of the IPO in October 2015, the board of directors adopted the Company’s 2015 Equity Incentive Plan (the “2015 Plan”
and collectively with the 2010 Plan and 2011 Plan, the “Plans”). In conjunction with adopting the 2015 Plan, the Company discontinued the 2011 Plan with
respect to new equity awards.
The 2015 Plan
Options under the 2015 Plan may be granted for periods of up to ten years. All options issued to date have had a 10-year life. Under the terms of the 2015
Plan, options may be granted at an exercise price not less than the estimated fair value of the Company’s common stock on the date of grant, as determined by
the Company’s board of directors. For employees holding more than 10% of the voting rights of all classes of stock, the exercise price of ISOs and NSOs may
not be less than 110% of the estimated fair value of the shares on the date of grant, as determined by the board of directors. To date, options granted under the
2015 Plan generally vest over four years and vest at a rate of 25% upon the first anniversary of the issuance date and 1/48th per month thereafter.
The initial number of shares of common stock available for future issuance under the 2015 Plan was 2,444,735. Beginning on January 1, 2016 and continuing
until the expiration of the 2015 Plan, the total number of shares of common stock available for issuance under the 2015 Plan will automatically increase
annually on January 1 by 4% of the total number of issued and outstanding shares of common stock as of January 1 of the same year. As of December 31,
2019, 1,808,066 shares of common stock were available for future issuance under the 2015 Plan.
The 2019 Plan
In September 2019, the Board of Directors adopted the 2019 Employment Inducement Incentive Plan (the “2019 Plan”) which provides for the grant of stock
options and other equity awards to any employee who has not previously been an employee or director of the Company or who is commencing employment
with the Company following a bona fide period of nonemployment by the Company. Awards granted under the 2019 Plan are intended to constitute
“employment inducement awards” under Nasdaq Listing Rule 5635(c)(4). Options granted under the 2019 Plan are nonqualified stock options (“NSOs”)
which may be exercisable for periods of up to ten years and the options shall be granted at an exercise price of not less than 100% of the fair market value of
the Company’s common stock on the date of grant.
The initial number of shares of common stock available for future issuance under the 2019 Plan was 1,815,000. As of December 31, 2019, 1,337,200 shares
of common stock were available for future issuance under the 2019 Plan.
119
Activity under the Company’s stock option plans is set forth below:
Balances at December 31, 2016
Options authorized
Options granted
Options exercised
Options forfeited
Balances at December 31, 2017
Options authorized
Options granted
Options exercised
Options forfeited
Balances at December 31, 2018
Options authorized
Options granted
Options exercised
Options forfeited
Balances at December 31, 2019
Options Exercisable—December 31, 2019
Options vested and expected to vest—December 31,
2019
Options
Available
for Grant
Number of
Options
2,493,188
1,459,606
(2,138,620)
—
510,619
2,324,793
1,539,142
(2,127,400)
—
147,959
1,884,494
3,618,328
(3,269,683)
—
912,127
3,145,266
6,158,746 $
—
2,138,620
(764,576)
(1,029,332)
6,503,458
2,127,400
(673,382)
(153,703)
7,803,773
3,269,683
(146,930)
(990,358)
9,936,168 $
6,023,372 $
Options Outstanding
Weighted-
Average
Exercise
Price Per
Share
Weighted-
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(in thousands)
3.69
—
13.57
4.14
9.12
8.16
—
24.65
6.17
14.29
12.62
—
12.40
4.30
16.75
12.26
10.50
6.5 $
6.5 $
14,220
13,310
9,936,168 $
12.26
5.0 $
14,220
The aggregate intrinsic values of options outstanding, exercisable, vested and expected to vest were calculated as the difference between the exercise price of
the options and the estimated fair value of the underlying common stock as of December 31, 2019, 2018 and 2017, respectively.
The aggregate intrinsic value of stock options exercised in the years ended December 31, 2019, 2018 and 2017 was $0.9 million, $14.6 million and $10.5
million, respectively.
The options granted in the years ended December 31, 2019, 2018 and 2017 had weighted-average per share grant-date fair values of $7.03, $14.21 and $8.21,
respectively. At December 31, 2019 and 2018, the unrecognized compensation expense with respect to options granted to employees was $31.1 million and
$34.6 million, respectively, and is expected to be recognized over 2.6 years and 2.4 years, respectively.
Early Exercise of Employee Options
Certain stock options granted under the Plans provide option holders the right to elect to exercise unvested options in exchange for restricted common stock.
Such unvested restricted shares are subject to a repurchase right held by the Company at the original issuance price in the event the optionee’s service to the
Company is terminated either voluntarily or involuntarily. The right usually lapses 25% on the first anniversary of the vesting start date and in 36 equal
monthly amounts thereafter. These repurchase terms are considered to be a forfeiture provision. The cash or full recourse notes received from employees for
exercise of unvested options is treated as a refundable deposit and is classified as a liability on the balance sheets.
Employee Stock Purchase Plan
Concurrent with the completion of the IPO in October 2015, the Company’s Employee Stock Purchase Plan (“ESPP”) became effective. The ESPP allows
eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation,
subject to any plan limitations. The ESPP generally provides for six-month offering periods, and at the end of each offering period, employees are able to
purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last
trading day of the offering period. The Company issued 142,949 shares and 63,920 shares of common stock under the ESPP in 2019 and 2018, respectively.
120
Shares available for future purchase under the ESPP were 1,609,137 shares and 1,301,254 shares at December 31, 2019 and 2018, respectively. The
compensation expense related to the ESPP was $0.6 million, $0.5 million and $0.2 million for the years ended December 31, 2019, 2018 and 20167
respectively. As of December 31, 2019 and 2018, there was $0.2 million and $0.3 million, respectively, of unrecognized compensation cost related to the
ESPP, which the Company expects to recognize over 5 months.
Stock Based Compensation
Total stock-based compensation recorded related to options granted to employees and non-employees and employee stock purchase plan was as follows (in
thousands):
Research and development
General and administrative
Total stock-based compensation expense
2019
Year Ended December 31,
2018
2017
$
$
9,226
9,874
19,100
$
$
8,313
8,565
16,878
$
$
5,161
6,126
11,287
Stock-based compensation expense for employees was $18.9 million, $16.7 million and $11.0 million for the years ended December 31, 2019, 2018 and
2017, respectively.
Stock-based compensation expense for non-employees was $0.2 million, $0.2 million and $0.3 million for the years ended December 31, 2019, 2018 and
2017, respectively.
The Company estimated the fair value of employee stock options and ESPP using the Black-Scholes valuation model based on the date of grant with the
following assumptions:
Expected volatility
Risk-free interest rate
Dividend yield
Expected term
(in years)
Options
Year Ended December 31,
2018
2017
2019
ESPP
Year Ended December 31,
2018
2019
64.4% - 68.6%
1.4% - 2.5%
— %
65.6%-69.3%
2.5%-3.0%
— %
69.1%-72.4%
1.7%-2.2%
— %
46.4%-70.5%
2.1%-2.6%
— %
2017
52.3%-63.8%
1.1%-1.5%
— %
60.81%-71.89%
1.62%-2.35%
— %
0.5
4.9 - 5.0
4.7-4.9
4.9-5.3
0.5
0.5
Expected term. The expected term of stock options represents the period that the stock options are expected to remain outstanding and is based on vesting
terms, exercise term and contractual lives of the options. The expected term of the ESPP shares is equal to the six-month look-back period.
Expected volatility. The expected stock price volatility for the Company’s stock options was derived from the average historical volatilities of the Company’s
stock price and the stock price of several comparable publicly traded companies within the biotechnology and pharmaceutical industry. The Company will
continue to apply this process until a sufficient amount of historical information on the Company’s own stock price becomes available. Volatility for ESPP
shares is equal to the Company’s historical volatility over a six-month period.
Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield with a maturity equal to the expected term of the stock options in effect at
the time of grant.
Dividend yield. The expected dividend is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its
common stock.
121
15. Income Taxes
The Company derives its income only from the United States. The components of the provision for (benefit from) income taxes are as follows (in thousands):
Current:
Federal
State
Total current
Deferred:
Federal
State
Total deferred
Provision for (benefit from) income taxes
2019
Years Ended December 31,
2018
2017
$
$
(390) $
—
(390)
(37)
—
(37)
(427) $
14,302 $
1
14,303
—
—
—
14,303 $
A reconciliation of the Company’s effective tax rate to the statutory U.S. federal rate is as follows:
U.S. federal taxes at statutory rate
State tax, net of federal benefit
Stock compensation
Tax attributes subject to 382 limitation
Tax credits
Change in valuation allowance
Change in deferreds due to rate change
Return to provision adjustment
Other
Total
2019
Years Ended December 31,
2018
2017
21.0%
1.3%
(1.2)%
0.0%
2.5%
(22.8)%
0.0%
(0.3)%
(0.1)%
0.4%
21.0%
0.7%
1.7%
0.0%
6.2%
(49.5)%
0.0%
0.0%
(0.5)%
(20.4)%
—
1
1
(514)
—
(514)
(513)
34.0%
7.6%
2.3%
27.5%
2.7%
(9.3)%
(58.6)%
0.0%
(5.0)%
1.2%
The types of temporary differences that give rise to significant portions of the Company’s deferred income tax liabilities are set out below (in thousands):
Net operating loss carryforwards
Research and development credits
Lease liability
Intangible assets
Deferred revenue
Accruals and deferred rent
Stock-based compensation
Other
Total gross deferred income tax assets
Less: valuation allowance
Deferred tax assets, net of valuation allowance
Fixed assets
Right-of-use assets
Intangible assets
Prepaid expenses
Other
Deferred tax liabilities
Net deferred income tax liabilities
2019
Year Ended December 31,
2018
2017
38,967 $
10,940
5,813
3,320
47,180
1,296
7,837
—
115,353
(109,174)
6,179
(591)
(5,330)
—
(243)
(15)
(6,179)
— $
15,468 $
7,514
—
—
56,881
1,955
5,746
39
87,603
(86,466)
1,137
(854)
—
(108)
(175)
—
(1,137)
— $
24,682
5,757
—
—
15,631
1,256
3,831
32
51,189
(50,791)
398
(282)
—
(116)
—
—
(398)
—
$
$
122
The Company has established a valuation allowance against all of its net deferred tax assets. Management considered all available evidence, both positive and
negative, including but not limited to our historical operating results, income or loss in recent periods, cumulative losses in recent years, forecasted earnings,
future taxable income, and significant risk and uncertainty related to forecasts, and concluded the deferred tax assets are not more likely than not to be
realized. The net change in the total valuation allowance for the years ended December 31, 2019, 2018 and 2017 was an increase of $22.7 million, $35.7 million
and $4.7 million, respectively.
The Company had net operating loss carryforwards for federal and state income tax purposes of approximately $177.5 million and $24.2 million, respectively,
as of December 31, 2019, available to reduce future taxable income. Of the federal net operating loss carryforwards, $65.6 million will begin to expire in
2034, if not utilized and $111.9 million will carryforward indefinitely. The state net operating loss carryforwards will begin to expire in 2032, if not utilized.
The Company also has federal and state research and development tax credits carryforwards of $9.3 million and $7.1 million, respectively, as of December
31, 2019 available to reduce future income taxes. The federal research and development tax credits will begin to expire in 2031 if not utilized. The state
research and development tax credits have no expiration date.
Internal Revenue Code section 382 (“IRC Section 382”) places a limitation (the “Section 382 Limitation”) on the amount of taxable income that can be offset
by net operating loss (“NOL”) carryforwards after a change in control (generally greater than 50% change in ownership) of a loss corporation. California has
similar rules. The Company has performed an IRC Section 382 analysis and determined there was an ownership change in 2017 that resulted in 382
limitations. When an ownership change occurs, IRC Section 382 limits the use of NOLs and credits in subsequent periods based on the annual 382
limitations. The annual 382 limitations may limit the full use of available tax attributes in one year but the identified ownership changes may not result in
expiration of tax attributes for use prior to expiration of their respective carryforward periods. Accordingly, none of the tax attributes have been reduced but
limited the full use in 2018. The Company has determined that, while an ownership change has occurred, the applicable limits would not impair the value or
anticipated use of the Company’s federal and state net operating losses. Although realization is not assured, management believes it is more likely than not
that any limitation under IRC Section 382 will not impair the realizability of the deferred income tax assets related to federal and state net operating loss
carryforwards. The Company reviewed its stock ownership for the year ended December 31, 2019 and concluded no ownership changes occurred which
would result in a reduction of its net operating loss or in its research and development credits expiring unused. If additional ownership change occurs, the
utilization of net operating loss and credit carryforwards could be significantly reduced.
The Company had approximately $5.2 million and $3.8 million of unrecognized tax benefits as of December 31, 2019 and 2018, respectively, and
approximately $0.9 million and $1.0 million, respectively, would affect the Company’s effective tax rate if recognized.
A reconciliation of the beginning and ending unrecognized tax benefit amount is as follows (in thousands):
Balance at the beginning of the year
Additions based on tax positions related to current year
Adjustment based on tax positions related to prior years
Balance at end of the year
2019
Year Ended December 31,
2018
2017
$
$
3,756 $
1,403
90
5,249 $
4,320 $
1,166
(1,730)
3,756 $
1,182
521
2,617
4,320
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. To the extent accrued interest and penalties do not
ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the provision for income taxes in the period that such
determination is made. Interest and penalties have not been accrued for 2019, 2018 and 2017.
The Company files income tax returns in the United States, including California state jurisdiction. The tax years 2010 to 2018 remains open to U.S. federal
and state examination to the extent of the utilization of net operating loss and credit carryovers. As of December 31, 2019, the Company is under examination by
the State of California.
123
16. Defined Contribution Plan
The Company sponsors a defined contribution plan under Section 401(k) of the Internal Revenue Code covering substantially all full-time U.S. employees.
Employee contributions are voluntary and are determined on an individual basis subject to the maximum allowable under federal tax regulations. During the
years ended December 31, 2019, 2018 and 2017, the Company made contributions to the plan of $0.8 million, $0.6 million and $0.3 million, respectively.
17. Supplementary Data – Quarterly Financial Data (Unaudited)
The following table represents certain unaudited financial information for each of the quarters in the twelve-month periods ended December 31, 2019 and
2018:
(in thousands, except per share data)
Revenue
Net income (loss)
Net loss per share attributable to common stockholders,
basic and diluted
(in thousands, except per share data)
Revenue
Net income (loss)
Net loss per share attributable to common stockholders,
basic and diluted
18. Subsequent Events
Three Months Ended
September 30, 2019
June 30, 2019
December 31, 2019
$
$
8,279 $
(35,455) $
10,712 $
(23,699) $
9,013 $
(28,960) $
March 31, 2019
29,485
(14,124)
$
(0.78) $
(0.52) $
(0.64) $
(0.31)
Three Months Ended
September 30, 2018
June 30, 2018
December 31, 2018
$
$
11,471 $
(32,233) $
12,509 $
(23,431) $
21,338 $
(13,447) $
March 31, 2018
14,184
(15,493)
$
(0.72) $
(0.53) $
(0.35) $
(0.40)
In February 2020, Bristol-Myers Squibb initiated a randomized Phase 2 cohort expansion in its Phase 1/2a trial of the anti-CTLA-4 Probody BMS-986249
and triggered a $10.0 million milestone payment to the Company pursuant to the terms of the BMS Agreement.
In February 2020, the Company initiated a first dosing of a patient in the CX-2009 Phase 2 clinical trial and triggered a $3.0 million milestone payment to
ImmunoGen pursuant to the ImmunoGen Research Agreement.
124
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (the “Exchange
Act”) refers to controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that
it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an
issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal
executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, 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 our management necessarily applies its judgment in evaluating the cost-
benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving
their control objectives.
Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures as of December 31, 2019, the end of the period covered by this Annual Report on Form 10-K. Management’s assessment of internal
control over financial reporting was conducted using the criteria defined in the Internal Control—Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon such evaluation, our Principal Executive Officer and Principal Financial
Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of such date.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15(d)-15(f). Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control – Integrated Framework, management
concluded that our internal control over financial reporting was effective as of December 31, 2019.
The effectiveness of our internal control over financial reporting as of December 31, 2019 has also been audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in its report included in this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred
during our fiscal quarter ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
125
Item 9B.
Other Information
On February 27, 2020, we entered into an Open Market Sale Agreement (the “Sales Agreement”) with Jefferies LLC (“Jefferies”), to sell shares of our
common stock, par value $0.00001 per share, with aggregate gross sales proceeds of up to $75,000,000, from time to time, through an at the market offering
under which Jefferies will act as sales agent (the “Agent”).
Subject to the terms and conditions of the Sales Agreement, the Agent has agreed to use its commercially reasonable efforts, consistent with its normal
trading and sales practices and applicable law and regulations, to sell all of the shares of our common stock so designated by us as agent in accordance with
an instruction from us. The sales, if any, of shares of our common stock under the Sales Agreement, as amended, will be made by any method permitted that
is deemed an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act, or, with our prior consent, in negotiated transactions. The Sales
Agreement, as amended, provides that the commission payable to the Agent for sales of shares of our common stock with respect to which the Agent acts as
sales agent shall be 3.0% of the gross sales price for such shares of our common stock sold pursuant to the Sales Agreement. The Sales Agreement contains
customary representations and warranties of the parties and indemnification and contribution provisions under which we and the Agent have agreed to
indemnify each other against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). We and the Agent
have the right, by giving written notice as specified in the Sales Agreement to terminate the Sales Agreement.
The offering has been registered under the Securities Act pursuant to our shelf registration statement on Form S-3, as amended (No. 333-228203), as
supplemented by the Prospectus Supplement dated February 27, 2020 relating to the sale of shares of our common stock.
The foregoing description of the Sales Agreement is not complete and is qualified in its entirety by reference to the full text of such agreement, a copy of
which was filed hereto as Exhibit 1.1 and is incorporated by reference herein.
A copy of the opinion of Latham & Watkins LLP relating to the validity of the securities to be issued pursuant to the Sales Agreement is filed hereto as
Exhibit 5.1.
126
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
The information required by this Item will be set forth in the Company’s proxy statement to be filed with the Securities and Exchange Commission within
120 days after the Company’s fiscal year end and is incorporated herein by reference.
We have adopted a code of business conduct and ethics that applies to all employees, including our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar functions. The code of business conduct and ethics is available on our website at
www.cytomx.com. Amendments to, and waivers from, the code of business conduct and ethics that apply to any director, executive officer or persons
performing similar functions will be disclosed at the website address provided above and, to the extent required by applicable regulations, on a Current Report
on Form 8-K filed with the SEC.
Item 11.
Executive Compensation
The information required by this Item will be set forth in the Company’s proxy statement to be filed with the Securities and Exchange Commission within
120 days after the Company’s fiscal year end and is incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item will be set forth in the Company’s proxy statement to be filed with the Securities and Exchange Commission within
120 days after the Company’s fiscal year end and is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions and Director Independence
The information required by this Item will be set forth in the Company’s proxy statement to be filed with the Securities and Exchange Commission within
120 days after the Company’s fiscal year end and is incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services
The information required by this Item will be set forth in the Company’s proxy statement to be filed with the Securities and Exchange Commission within
120 days after the Company’s fiscal year end and is incorporated herein by reference.
127
Item 15.
Exhibits and Financial Statement Schedules
(1)
Financial Statements:
PART IV
The financial statements required by Item 15(a) are filed as part of this Annual Report on Form 10-K under Item 8 “Financial Statements and Supplementary
Data.”
(2)
Financial Statement Schedules
The financial statement schedules required by Item 15(a) are omitted because they are not applicable, not required or the required information is included in
the financial statements or notes thereto as filed in Item 8 of this Annual Report on Form 10-K.
(3)
Exhibits.
Filed
Herewith
X
X
X
Exhibit
Number
1.1
3.1
3.2
4.1
4.2
4.3
4.4
Exhibit Description
Form
Date
Number
Incorporated by Reference
Open Market Sale Agreement, dated as of February 27, 2020, by and between CytomX
Therapeutics, Inc. and Jefferies LLC.
Amended and Restated Certificate of Incorporation.
Amended and Restated Bylaws.
Reference is made to exhibits 3.1 through 3.2.
8-K 10/19/2015
8-K 10/19/2015
3.1
3.2
Specimen Common Stock Certificate.
S-1/A 9/28/2015
4.1
Registration Rights Agreement dated as of September 29, 2017 by and between CytomX
Therapeutics, Inc. and Amgen, Inc.
10-Q 11/7/2017
4.4
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities
Exchange Act of 1934.
5.1
Opinion of Latham & Watkins LLP.
10.1(a)#
2010 Stock Incentive Plan adopted on September 21, 2010 (“2010 Plan”).
S-1
8/28/2015
10.3
10.1(b)#
Form of Stock Option Agreement under the 2010 Plan.
S-1
8/28/2015
10.4
10.2(a)#
2011 Stock Incentive Plan, adopted on February 7, 2012, as amended (“2011 Plan”).
S-1
8/28/2015
10.1
10.2(b)#
Form of Restricted Stock Award Agreement and Option Exercise Agreement under the 2011
Plan.
S-1
8/28/2015
10.2
10.3(a)#
2015 Equity Incentive Plan (“2015 Plan”).
S-1/A 10/6/2015
10.5
10.3(b)#
Form of 2015 Plan Option Agreement under the 2015 Plan.
10-Q 11/23/2015
10.4
10.3(c)#
Form of 2015 Plan Early Exercise Option Agreement
10-Q 11/23/2015
10.5
10.4#
2015 CytomX Therapeutics, Inc. Employee Stock Purchase Plan.
S-1/A 9/28/2015
10.6
10.5#
Employment Offer Letter Agreement between CytomX Therapeutics, Inc. and Sean A.
McCarthy, D. Phil, dated as of December 15, 2010.
S-1
8/28/2015
10.7
128
Exhibit
Number
10.6#
10.7†
10.8†
10.9†
10.10†
10.11
Exhibit Description
Form
Date
Number
Filed
Herewith
Incorporated by Reference
Form of Indemnification Agreement by and between CytomX Therapeutics, Inc. and each of its
directors and each of its executive officers.
S-1
8/28/2015
10.16
Research Collaboration Agreement dated as of January 8, 2014, by and between ImmunoGen,
Inc. and CytomX Therapeutics, Inc., as amended by the First Amendment to Research
Collaboration Agreement effective as of April 3, 2015.
S-1/A 10/2/2015
10.17
Collaboration and License Agreement dated as of May 23, 2014, by and between CytomX
Therapeutics, Inc. and Bristol-Myers Squibb Company.
S-1/A 10/2/2015
10.18
Amendment to Extend Collaboration and License Agreement, dated March 17, 2017, by and
between the Company and Bristol-Myers Squibb.
10-Q
5/5/2017
10.1
Co-Development and License Agreement, dated April 21, 2016, by and between CytomX
Therapeutics, Inc. and AbbVie Ireland Unlimited Company.
10-Q
8/3/2016
10.1
Exclusive License Agreement dated as of August 19, 2010, by and between The Regents of the
University of California and CytomX Therapeutics, Inc., as amended by Amendment No. 1 to
Exclusive Agreement effective as of May 30, 2013 and Amendment No. 2 to Exclusive
Agreement effective as of November 8, 2013.
S-1/A 9/18/2015
10.21
10.12††
Amendment No.3 to Exclusive License Agreement effective as of April 2, 2019, by and
between CytomX Therapeutics, Inc. and The Regents of the University of California.
10-Q
5/9/2019
10.6
10.13†
10.14
10.15†
10.16†
10.17†
10.18†
10.19†
10.20†
10.21†
Collaboration and License Agreement by and between CytomX Therapeutics, Inc. and Amgen,
Inc. dated as of September 29, 2017.
10-Q 11/7/2017
10.1
Lease dated as of December 10, 2015, by and between CytomX Therapeutics, Inc. and HCP
Oyster Point III LLC.
8-K 12/16/2015
10.1
First Amendment to the CD71 Co-Development and License Agreement by and between
CytomX Therapeutics, Inc. and AbbVie Ireland Unlimited Company, dated as of October 5,
2016.
10-Q 11/6/2018
10.1
Second Amendment to the CD71 Co-Development and License Agreement by and between
CytomX Therapeutics, Inc. and AbbVie Ireland Unlimited Company, effective as of March 31,
2017.
10-Q 11/6/2018
10.2
Third Amendment to the CD71 Co-Development and License Agreement by and between
CytomX Therapeutics, Inc. and AbbVie Ireland Unlimited Company, effective as of January 3,
2018.
10-Q 11/6/2018
10.3
Amended and Restated Discovery Collaboration and License Agreement, dated as of June 28,
2019, by and between CytomX Therapeutics, Inc., and AbbVie Ireland Unlimited Company.
10-Q
8/7/2019
10.1
License Agreement by and between CytomX Therapeutics, Inc. and ImmunoGen Inc., dated as
of February 12, 2016.
10-Q 11/6/2018
10.4
Second Amendment to the Research Collaboration Agreement by and between CytomX
Therapeutics, Inc. and ImmunoGen Inc., dated as of February 12, 2016.
10-Q 11/6/2018
10.5
Third Amendment to the Research Collaboration Agreement by and between CytomX
Therapeutics, Inc. and ImmunoGen Inc., dated as of March 3, 2017.
10-Q 11/6/2018
10.6
129
Exhibit
Number
10.22#
10.23#
10.24#
10.25#
10.26#
Exhibit Description
Form
Date
Number
Filed
Herewith
Incorporated by Reference
Consulting Agreement between CytomX Therapeutics, Inc and Dr. Hoyoung Huh, effective as
of December 31, 2018.
10-K 2/27/2019
10.27
Amended and Restated Severance and Change of Control Agreement dated February 27, 2019,
by and between CytomX Therapeutics, Inc. and Sean McCarthy. D. Phil.
10-Q
5/9/2019
10.1
Amended and Restated Severance and Change of Control Agreement dated March 25, 2019, by
and between CytomX Therapeutics, Inc. and Lloyd Rowland.
10-Q
5/9/2019
10.2
Amended and Restated Severance and Change of Control Agreement dated March 25, 2019, by
and between CytomX Therapeutics, Inc. and Michael Kavanaugh, M.D.
10-Q
5/9/2019
10.4
Consulting Agreement effective as of May 15, 2019, by and between CytomX Therapeutics,
Inc. and Debanjan Ray.
10-Q
5/9/2019
10.7
10.27(a)# 2019 Employment Inducement Incentive Plan adopted on September 18, 2019 (“2019 Plan”).
10-Q 11/7/2019
10.1
10.27(b)# Form of Stock Option Agreement under the 2019 Plan.
10-Q 11/7/2019
10.2
10.28#
10.29#
10.30#
10.31#
Consulting Agreement effective as of August 19, 2019, by and between CytomX Therapeutics,
Inc. and Rachel W. Humphrey, M.D.
10-Q 11/7/2019
10.3
Separation Agreement effective as of September 5, 2019, by and between CytomX
Therapeutics, Inc. and Rachel W. Humphrey, M.D.
10-Q 11/7/2019
10.4
Employment Offer Letter Agreement between CytomX Therapeutics, Inc. and Amy C.
Peterson, M.D. dated as of September 23, 2019.
10-Q 11/7/2019
10.5
Severance and Change of Control Agreement effective as of October 14, 2019, by and between
CytomX Therapeutics, Inc. and Amy C. Peterson, M.D.
10-Q 11/7/2019
10.6
10.32††
Severance and Change of Control Agreement effective as of February 3, 2020, by and between
CytomX Therapeutics, Inc. and Alison Hannah, M.D.
23.1
23.2
24.1
31.1
31.2
Consent of Independent Registered Public Accounting Firm.
Consent of Latham & Watkins LLP (included in Exhibit 5.1)
Power of Attorney (included on signature page)
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
32.1**
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
130
X
X
X
X
X
X
X
Exhibit Description
Form
Date
Number
Filed
Herewith
Incorporated by Reference
Exhibit
Number
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive
Data File because its XBRL tags are embedded within the Inline XBRL document
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
†
††
#
**
Confidential treatment has been granted for certain information contained in this exhibit. Such information has been omitted and filed separately with the Securities and
Exchange Commission.
Certain confidential portions of this exhibit have been omitted from this exhibit.
Indicates management contract or compensatory plan.
The certifications attached as Exhibit 32.1 that accompany this Annual Report on Form 10-K are not deemed filed with the Securities and Exchange Commission and
are not to be incorporated by reference into any filing of CytomX Therapeutics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such
filing.
Item 16. Form 10-K Summary
Registrants may voluntarily include a summary of information required by Form 10-K under Item 16. We have elected not to include such summary.
131
Pursuant to the requirements of Section 13 or 15(d) 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.
CYTOMX THERAPEUTICS, INC.
SIGNATURES
Date: February 27, 2020
/s/ Sean A. McCarthy
By:
Name: Sean A. McCarthy, D.Phil.
Title:
President and Chief Executive Officer
(Principal Executive Officer and Principal Financial
Officer)
/s/ Robin Knifsend
By:
Name: Robin Knifsend
Title: Vice President of Finance
(Principal Accounting Officer)
132
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and appoints Sean A. McCarthy, D. Phil. and Lloyd Rowland and each of them,
with full power of substitution and resubstitution, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to
execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this Annual Report on
Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agents full power and authority to do and perform each and every act and thing, ratifying and confirming all that said
attorney-in-fact and agents or his substitute or substitutes may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Sean A. McCarthy
Sean A. McCarthy, D.Phil.
President, Chief Executive Officer and Director
(Principal Executive Officer and Principal Financial Officer)
/s/ Matthew P. Young
Matthew P. Young
/s/ Charles S. Fuchs
Charles S. Fuchs, M.D., M.P.H.
/s/ Frederick W. Gluck
Frederick W. Gluck
/s/ John A. Scarlett
John A. Scarlett, M.D.
/s/ Elaine V. Jones
Elaine V. Jones, Ph.D.
/s/ James R. Meyers
James Meyers
Director
Director
Director
Director
Director
Director
133
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
OPEN MARKET SALE AGREEMENTSM
Exhibit 1.1
February 27, 2020
JEFFERIES LLC
520 Madison Avenue
New York, New York 10022
Ladies and Gentlemen:
CytomX Therapeutics, Inc., a Delaware corporation (the “Company”), proposes, subject to the terms and conditions
stated herein, to issue and sell from time to time through Jefferies LLC, as sales agent and/or principal (the “Agent”), shares of the
Company’s common stock, par value $0.00001 per share (the “Common Shares”), having an aggregate offering price of up to
$75,000,000 on the terms set forth in this agreement (this “Agreement”).
Section 1. DEFINITIONS
(a)
Certain Definitions. For purposes of this Agreement, capitalized terms used herein and not otherwise
defined shall have the following respective meanings:
“affiliate” of a Person means another Person that directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first- mentioned Person. The term “control” (including the terms
“controlling,” “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or
otherwise.
“Agency Period” means the period commencing on the date of this Agreement and expiring on the earliest to occur of
(x) the date on which the Agent shall have placed the Maximum Program Amount pursuant to this Agreement and (y) the date this
Agreement is terminated pursuant to Section 7.
“Commission” means the U.S. Securities and Exchange Commission.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the
Commission thereunder.
“Floor Price” means the minimum price set by the Company in the Issuance Notice below which the Agent shall not sell
Shares during the applicable period set forth in the Issuance Notice, which may be adjusted by the Company at any time during the
period set forth in the Issuance Notice by delivering written notice of such change to the Agent and which in no event shall be less
SM “Open Market Sale Agreement” is a service mark of Jefferies LLC
than $1.00 without the prior written consent of the Agent, which may be withheld in the Agent’s sole discretion.
“Issuance Amount” means the aggregate Sales Price of the Shares to be sold by the Agent pursuant to any Issuance
Notice.
“Issuance Notice” means a written notice delivered to the Agent by the Company in accordance with this Agreement in
the form attached hereto as Exhibit A that is executed by its Chief Executive Officer, President or Chief Financial Officer.
“Issuance Notice Date” means any Trading Day during the Agency Period that an Issuance Notice is delivered pursuant
to Section 3(b)(i).
“Issuance Price” means the Sales Price less the Selling Commission.
“Maximum Program Amount” means Common Shares with an aggregate Sales Price of the lesser of (a) the number or
dollar amount of Common Shares registered under the effective Registration Statement (defined below) pursuant to which the
offering is being made, (b) the number of authorized but unissued Common Shares (less Common Shares issuable upon exercise,
conversion or exchange of any outstanding securities of the Company or otherwise reserved from the Company’s authorized capital
stock), (c) the number or dollar amount of Common Shares permitted to be sold under Form S-3 (including General Instruction
I.B.6 thereof, if applicable), or (d) $75,000,000.
“Person” means an individual or a corporation, partnership, limited liability company, trust, incorporated or
unincorporated association, joint venture, joint stock company, governmental authority or other entity of any kind.
“Principal Market” means the Nasdaq Global Select Market or such other national securities exchange on which the
Common Shares, including any Shares, are then listed.
“Sales Price” means the actual sale execution price of each Share placed by the Agent pursuant to this Agreement.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the Commission
thereunder.
“Selling Commission” means three percent (3.0%) of the gross proceeds of Shares sold pursuant to this Agreement, or as
otherwise agreed between the Company and the Agent with respect to any Shares sold pursuant to this Agreement.
“Settlement Date” means the second business day following each Trading Day during the period set forth in the Issuance
Notice on which Shares are sold pursuant to this Agreement, when the Company shall deliver to the Agent the amount of Shares
sold on such Trading Day and the Agent shall deliver to the Company the Issuance Price received on such sales.
“Shares” shall mean the Company’s Common Shares issued or issuable pursuant to this Agreement.
2
“Trading Day” means any day on which the Principal Market is open for trading.
Section 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to, and agrees with, the Agent that as of (1) the date of this Agreement, (2) each
Issuance Notice Date, (3) each Settlement Date, (4) each Triggering Event Date with respect to which the Company is obligated to
deliver a certificate pursuant to Section 4(o) and (5) as of each Time of Sale (each of the times referenced above is referred to
herein as a “Representation Date”), except as may be disclosed in the Prospectus (including any documents incorporated by
reference therein and any supplements thereto) on or before a Representation Date:
(a)
Registration Statement. The Company has prepared and filed with the Commission a shelf registration
statement on Form S-3 (File No. 333-228203) that contains a base prospectus (the “Base Prospectus”). Such registration statement
registers the issuance and sale by the Company of the Shares under the Securities Act. Except where the context otherwise
requires, such registration statement, including any information deemed to be a part thereof pursuant to Rule 430B under the
Securities Act, including all financial statements, exhibits and schedules thereto and all documents incorporated or deemed to be
incorporated therein by reference pursuant to Item 12 of Form S-3 under the Securities Act as from time to time amended or
supplemented, is herein referred to as the “Registration Statement,” and the Base Prospectus constituting a part of such
registration statement(s), together with any prospectus supplement filed with the Commission pursuant to Rule 424(b) under the
Securities Act relating to a particular issuance of the Shares, including all documents incorporated or deemed to be incorporated
therein by reference pursuant to Item 12 of Form S-3 under the Securities Act, in each case, as from time to time amended or
supplemented, is referred to herein as the “Prospectus,” except that if any revised prospectus is provided to the Agent by the
Company for use in connection with the offering of the Shares that is not required to be filed by the Company pursuant to Rule
424(b) under the Securities Act, the term “Prospectus” shall refer to such revised prospectus from and after the time it is first
provided to the Agent for such use. The Registration Statement at the time it originally became effective is herein called the
“Original Registration Statement.” As used in this Agreement, the terms “amendment” or “supplement” when applied to the
Registration Statement or the Prospectus shall be deemed to include the filing by the Company with the Commission of any
document under the Exchange Act after the date hereof that is or is deemed to be incorporated therein by reference.
All references in this Agreement to financial statements and schedules and other information which is “contained,”
“included” or “stated” in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to
mean and include all such financial statements and schedules and other information which is or is deemed to be incorporated by
reference in or otherwise deemed under the Securities Act to be a part of or included in the Registration Statement or the
Prospectus, as the case may be, as of any specified date; and all references in this Agreement to amendments or supplements to the
Registration Statement or the Prospectus shall be deemed to mean and include, without limitation, the filing of any document under
the Exchange Act which is or is deemed to be incorporated by reference in or otherwise deemed under the Securities Act to be a
part of or included in the Registration Statement or the Prospectus, as the case may be, as of any specified date.
3
At the time the Registration Statement was originally declared effective and at the time the Company’s most recent
annual report on Form 10-K was filed with the Commission, the Company met the then-applicable requirements for use of Form S-
3 under the Securities Act. During the Agency Period, each time the Company files an annual report on Form 10-K the Company
will meet the then-applicable requirements for use of Form S-3 under the Securities Act.
(b)
Compliance with Registration Requirements. The Original Registration Statement has been declared
effective by the Commission under the Securities Act and any Rule 462(b) Registration Statement will be declared effective by the
Commission under the Securities Act. The Company has complied to the Commission’s satisfaction with all requests of the
Commission for additional or supplemental information. No stop order suspending the effectiveness of the Registration Statement
or any Rule 462(b) Registration Statement is in effect and no proceedings for such purpose have been instituted or are pending or,
to the knowledge of the Company, are contemplated or threatened by the Commission.
The Prospectus when filed complied in all material respects with the Securities Act and, if filed with the Commission
through its Electronic Data Gathering, Analysis and Retrieval system (“EDGAR”) (except as may be permitted by Regulation S‑T
under the Securities Act), was identical to the copy thereof delivered to the Agent for use in connection with the issuance and sale
of the Shares. Each of the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendment
thereto, at the time it became effective and at all subsequent times, complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading. As of the date of this Agreement, the Prospectus and any
Free Writing Prospectus (as defined below) considered together (collectively, the “Time of Sale Information”) did not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Prospectus, as amended or supplemented, as of its date, did not,
and, at each Settlement Date, will not contain any untrue statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The
representations and warranties set forth in the three immediately preceding sentences do not apply to statements in or omissions
from the Registration Statement, any Rule 462(b) Registration Statement, or any post-effective amendment thereto, or the
Prospectus, or any amendments or supplements thereto, made in reliance upon and in conformity with information relating to the
Agent furnished to the Company in writing by the Agent expressly for use therein, it being understood and agreed that the only
such information furnished by the Agent to the Company consists of the information described in Section 6 below. There are no
contracts or other documents required to be described in the Prospectus or to be filed as exhibits to the Registration Statement
which have not been described or filed as required. The Registration Statement and the offer and sale of the Shares as contemplated
hereby meet the requirements of Rule 415 under the Securities Act and comply in all material respects with said rule.
(c)
Ineligible Issuer Status. The Company is not an “ineligible issuer” in connection with the offering of
the Shares pursuant to Rules 164, 405 and 433 under the Securities Act. Any Free Writing Prospectus that the Company is required
to file pursuant to Rule 433(d) under the Securities Act has been, or will be, filed with the Commission in accordance with the
requirements
4
of the Securities Act. Each Free Writing Prospectus that the Company has filed, or is required to file, pursuant to Rule 433(d)
under the Securities Act or that was prepared by or on behalf of or used or referred to by the Company complies or will comply in
all material respects with the requirements of Rule 433 under the Securities Act including timely filing with the Commission or
retention where required and legending, and each such Free Writing Prospectus, as of its issue date and at each Settlement Date
does not and will not include any information that conflicted, conflicts with or will conflict with the information contained in the
Registration Statement or the Prospectus, including any document incorporated by reference therein. Except for the Free Writing
Prospectuses, if any, and electronic road shows, if any, furnished to you before first use, the Company has not prepared, used or
referred to, and will not, without your prior consent, prepare, use or refer to, any Free Writing Prospectus.
(d)
Incorporated Documents. The documents incorporated or deemed to be incorporated by reference in the
Registration Statement and the Prospectus, at the time they were filed with the Commission, complied in all material respects with
the requirements of the Exchange Act, as applicable, and, when read together with the other information in the Prospectus, do not
contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made, not misleading. The representation and warranty set
forth in the immediately preceding sentence does not apply to statements in or omissions from the Registration Statement, any
Rule 462(b) Registration Statement, or any post-effective amendment thereto, or the Prospectus, or any amendments or
supplements thereto, made in reliance upon and in conformity with the Agent Information (as defined below) furnished to the
Company in writing by the Agent expressly for use therein.
(e)
Exchange Act Compliance. The documents incorporated or deemed to be incorporated by reference in
the Prospectus, at the time they were or hereafter are filed with the Commission, and any Free Writing Prospectus or amendment or
supplement thereto complied and will comply in all material respects with the requirements of the Exchange Act.
(f)
Material Adverse Effect. Since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus, the Company has not (i) sustained any material loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree or (ii) entered into any transaction or agreement (whether or not in the ordinary course of
business) that is material to the Company or incurred any liability or obligation, direct or contingent, that is material to the
Company, in each case otherwise than as set forth or contemplated in the Prospectus; and, since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there has not been (x) any change in the capital stock (other
than as a result of (i) the exercise, if any, of stock options or the award, if any, of stock options or restricted stock in the ordinary
course of business pursuant to the Company’s equity plans that are described in the Prospectus or (ii) the issuance, if any, of stock
upon conversion of Company securities as described in the Prospectus) or long term debt of the Company or (y) any Material
Adverse Effect (as defined below); as used in this Agreement, “Material Adverse Effect” shall mean any material adverse change
or effect in (i) the condition (financial or otherwise), earnings, business prospects or business operations, financial position,
stockholders’ equity of the Company or (ii) the ability of the Company to perform its obligations under this
5
Agreement, including the issuance and sale of the Shares, or to consummate the transactions contemplated hereby.
(g)
Real Property. The Company has good and marketable title to all real property owned by them and
good title to all other properties owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (i) are described in the Registration Statement and the Prospectus
or (ii) would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect; and all of the
leases and subleases material to the business of the Company, considered as one enterprise, and under which the Company holds
properties described in the Registration Statement or the Prospectus, are in full force and effect, and the Company has no notice of
any material claim of any sort that has been asserted by anyone adverse to the rights of the Company under any of the leases or
subleases mentioned above, or affecting or questioning the rights of the Company to the continued possession of the leased or
subleased premises under any such lease or sublease.
(h)
Incorporation and Good Standing of the Company. The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State of Delaware and has full corporate power and
authority to own or lease, as the case may be, and to operate its properties and conduct its business as described in the Registration
Statement and the Prospectus, and is duly qualified to do business as a foreign corporation and is in good standing under the laws
of each jurisdiction which requires such qualification, except where the failure so to qualify or to be in good standing would not,
individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(i)
XBRL. The interactive data in the eXtensible Business Reporting Language (“XBRL”) included as an
exhibit to the Registration Statement fairly presents the information called for in all material respects and has been prepared in
accordance with the SEC’s rules and guidelines applicable thereto.
(j)
Capitalization. The Company’s authorized equity capitalization is as set forth in the Registration
Statement and the Prospectus; the capital stock of the Company conforms to the description thereof contained in the Registration
Statement and the Prospectus; the outstanding Common Shares have been duly and validly authorized and issued and are fully paid
and non-assessable; the Shares have been duly authorized for issuance and sale pursuant to this Agreement and, when issued and
delivered by the Company against payment therefor pursuant to this Agreement, will be validly issued, fully paid and
nonassessable, the certificates for the Shares are in valid and sufficient form; the holders of outstanding shares of capital stock of
the Company are not entitled to preemptive or other rights to subscribe for the Shares; and, except as set forth in the Registration
Statement and the Prospectus, no options, warrants or other rights to purchase, agreements or other obligations to issue, or rights to
convert any obligations into or exchange any securities for, shares of capital stock of or ownership interests in the Company are
outstanding.
(k)
(l)
No Subsidiaries. The Company has no subsidiaries.
Exhibits. There is no franchise, contract or other document of a character required to be described in
the Registration Statement or the Prospectus, or to be filed as an exhibit thereto, which is not described or filed as required.
6
(m)
This Agreement. This Agreement has been duly authorized, executed and delivered by the Company.
(n)
Company Not an “Investment Company.” The Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as described in the Prospectus, will not be an “investment
company” as defined in the Investment Company Act of 1940, as amended.
(o)
No Consents. No consent, approval, authorization, filing with or order of any court or governmental
agency or body is required in connection with the transactions contemplated herein, except (i) such as have been obtained under the
Securities Act, the rules of the Nasdaq Global Market and the rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”)
and (ii) such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the
Shares in the manner contemplated herein and in the Prospectus.
(p)
Non-Contravention. Neither the issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will conflict with, result in a breach or violation of, or
imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to, (i) the charter or by-laws of
the Company, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to which the Company is a party or bound or to which its or their property
is subject, or (iii) any statute, law, rule, regulation, judgment, order or decree applicable to the Company of any court, regulatory
body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Company or any of its
properties, except in the case of clauses (ii) and (iii) above, for any conflict, breach or violation of, or imposition that would not,
individually or in the aggregate, have a Material Adverse Effect.
(q)
No Registration Rights. No holders of securities of the Company have registration rights or other
similar rights to have any securities registered for sale pursuant to the Registration Statement or otherwise registered for sale or
sold by the Company under the Securities Act pursuant to this Agreement, other than those rights that have been disclosed in the
Registration Statement and the Prospectus.
(r)
Financial Statements. The balance sheets and related statements of operations and comprehensive loss,
stockholders’ equity and of cash flows included in the Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly, in all material respects, the financial position of the Company at the dates indicated and the
results of operations and cash flows of the Company and for the periods specified; said financial statements have been prepared in
conformity with U.S. generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods
involved, except, in the case of unaudited financial statements, subject to normal year-end audit adjustments and the exclusion of
certain footnotes as permitted by applicable rules of the Commission. The supporting schedules, if any, present fairly in accordance
with GAAP in all material respects the information required to be stated therein. The selected financial data and the summary
financial information included in the Registration Statement and the Prospectus present fairly the information shown therein and
have been compiled on a basis consistent with that of the audited financial statements included therein.
7
(s)
No Litigation. Except as disclosed in the Registration Statement and the Prospectus, there is no action,
suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator (including, without limitation,
any action, suit, proceeding, inquiry or investigation before or brought by the U.S. Food and Drug Administration (the “FDA”))
involving the Company or its property pending or, to the knowledge of the Company, threatened that would, individually or in the
aggregate, have a Material Adverse Effect.
(t)
No Defaults. The Company is not in violation or default of (i) any provision of its charter or bylaws,
(ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument to which it is a party or bound or to which its property is subject, except for such
defaults that would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, or (iii) any
statute, law, rule, regulation, judgment, order or decree of any court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or any of its properties, as applicable, except in the cases of
clauses (ii) or (iii) for such defaults that would not, individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.
(u)
Independent Auditor. Ernst & Young LLP, who have certified certain financial statements of the
Company and delivered their reports with respect to the audited consolidated financial statements and schedules included in the
Prospectus, are an independent registered public accounting firm with respect to the Company within the meaning of the Securities
Act and the applicable published rules and regulations thereunder and the Public Company Accounting Oversight Board.
(v)
Tax Law Compliance. The Company has filed all tax returns that are required to be filed or has
requested extensions thereof (except in any case in which the failure so to file would not have a Material Adverse Effect, except as
set forth in or contemplated in the Prospectus (exclusive of any amendment or supplement thereto)) and has paid all taxes required
to be paid by it and any other assessment, fine or penalty levied against it, to the extent that any of the foregoing is due and payable,
except for any such assessment, fine or penalty that is currently being contested in good faith or as would not have a Material
Adverse Effect, except as set forth in or contemplated in the Prospectus (exclusive of any amendment or supplement thereto).
(w)
No Labor Disputes. No labor problem or dispute with the employees of the Company exists or, to the
knowledge of the Company, is threatened or imminent, and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, contractors or customers, which, in either case, would reasonably be
expected to result in a Material Adverse Effect.
(x)
Insurance. The Company carries or is entitled to the benefits of insurance in such amounts and
covering such risks the Company reasonably believes is adequate for the conduct of its business, and all such insurance is in full
force and effect. The Company has no reason to believe that it will not be able (i) to renew its existing insurance coverage as an
when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to
conduct its business as now conducted and at a cost that would not reasonably be
8
expected to result in a Material Adverse Effect. The Company has not been denied any insurance coverage for which it has sought
or for which it has applied.
(y)
All Necessary Permits, etc. The Company possesses such permits, licenses, approvals, consents and
other authorizations (collectively, “Governmental Licenses”) issued by the appropriate governmental bodies necessary to conduct
the business now operated by them, except where the failure so to possess would not, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect. The Company is in compliance with the terms and conditions of all
Governmental Licenses, except where the failure so to comply would not, individually or in the aggregate, reasonably be expected
to result in a Material Adverse Effect. The Company has not received any notice of proceedings relating to the revocation or
modification of any Governmental Licenses which, individually or in the aggregate, if the subject of an unfavorable decision, ruling
or finding, would reasonably be expected to result in a Material Adverse Effect. Except as set forth in the Registration Statement
and the Prospectus, the Company (i) is, and at all times has been, in material compliance with all statutes, rules and regulations
applicable to the ownership, testing, development, manufacture, packaging, processing, use, distribution, storage, import export or
disposal of any product manufactured or distributed by the Company (“Applicable Laws”); and (ii) has not received any FDA
Form 483, written notice of adverse finding, warning letter, untitled letter or other correspondence or written notice from any court
or arbitrator or governmental or regulatory authority alleging or asserting material non-compliance with (x) any Applicable Laws or
(y) any licenses, exemptions, certificates, approvals, clearances, authorizations, permits and supplements or amendments thereto
required by any such Applicable Law.
(z)
Intellectual Property Rights. (i) Except as set forth in the Registration Statement and the Prospectus,
the Company owns, or has obtained valid and enforceable licenses for, or other rights to use on reasonable terms, the inventions,
patent applications, patents, trademarks (both registered and unregistered), service marks, trade names, copyrights, know-how
(including trade secrets, and other unpatented and/or unpatentable proprietary information or confidential information, systems or
procedures), software, domain names and other intellectual property rights, including registrations and applications for registration
thereof, and all goodwill associated with any of the foregoing (collectively, the “Intellectual Property”) described in the
Registration Statement and the Prospectus as being owned or licensed by the Company; (ii) the Company owns, or possesses
sufficient rights to use all Intellectual Property used in, or necessary for or material to the conduct of, its business as currently
conducted or as proposed to be conducted and as described in the Registration Statement and the Prospectus; (iii) there is no
pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others (A) alleging that the Company has
infringed, misappropriated or otherwise violated, or would, upon the commercialization of any product or service described in the
Registration Statement or the Prospectus, infringe or misappropriate or otherwise violate, any Intellectual Property rights of others,
(B) challenging the Company’s rights in or to, or alleging the violation of any of the terms of, any of its Intellectual Property, or
(C) challenging the validity, scope or enforceability of any Intellectual Property owned by or exclusively licensed to the Company, and
with respect to the foregoing clauses (A) through (C), the Company is unaware of any facts which, in the Company’s view, could
form a reasonable basis for any such claim; (iv) none of the technology employed by the Company has been obtained or is being
used by the Company in violation of any contractual obligation binding on the Company or, to the Company’s knowledge, upon
any of its officers,
9
directors or employees; (v) all Intellectual Property owned by or licensed to the Company (A) is, to the knowledge of the Company,
valid and enforceable, (B) is solely owned by or, licensed to the Company, and (C) is owned free and clear of all liens,
encumbrances, defects and other restrictions; (vi) to the knowledge of the Company, no third party has infringed, misappropriated
or otherwise violated any Intellectual Property owned by or exclusively licensed to the Company; and (vii) the Company has not
infringed, misappropriated or otherwise violated any Intellectual Property of any person and the conduct of its business as presently
conducted or as proposed to be conducted in the Registration Statement and the Prospectus does not and will not infringe,
misappropriate or otherwise violate any Intellectual Property of any person. To the Company’s knowledge, there are no third parties
who have or will be able to establish rights to any Intellectual Property described in the Registration Statement and the Prospectus
as exclusively owned or exclusively licensed by the Company, except for licenses granted in writing by the Company to any third-
parties (“Exclusive Intellectual Property”); there is no pending or, to the Company’s knowledge, threatened action, suit,
proceeding or claim by others challenging the Company’s ownership or rights in or to any Exclusive Intellectual Property, and the
Company is unaware of any facts which, in the Company’s view, could form a reasonable basis for any such claim. The Company
has at all times taken reasonable steps in accordance with normal industry practice to maintain the confidentiality of all Intellectual
Property the value of which to the Company is contingent upon maintaining the confidentiality thereof. All founders, current and
former employees, contractors, consultants and other parties involved in the development of Intellectual Property for the Company
have signed confidentiality and invention assignment agreements with the Company, pursuant to which the Company either (y) has
obtained ownership of and is the exclusive owner of such material Intellectual Property, or (z) has obtained a valid right to exploit
such material Intellectual Property, sufficient for the conduct of its business as currently conducted and as proposed in the
Registration Statement and the Prospectus to be conducted.
(aa)
Patents. All patents and patent applications owned by or licensed to the Company or under which the
Company has rights have, to the knowledge of the Company, been duly and properly filed and maintained; to the knowledge of the
Company, the parties prosecuting such applications have complied with their duty of candor and disclosure to the USPTO in
connection with such applications; and the Company is not aware of any facts required to be disclosed to the USPTO that were not
disclosed to the USPTO and which would preclude the grant of a patent in connection with any such application expected to form
the basis of a finding of invalidity or unenforceability with respect to any patents that have issued with respect to such applications.
(bb)
Cybersecurity; Data Privacy. (i) Except as disclosed in the Registration Statement and the Prospectus,
to the Company’s knowledge, there has been no security breach, attack or other compromise of or relating to any of the Company’s
information technology and computer systems, networks, hardware, software or data maintained by or on behalf of the Company
(including the data of its customers, employees, suppliers, vendors and any other third party data maintained by or on behalf of the
Company) (collectively, the “IT Systems and Data”) that would not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect; (ii) the Company has been in compliance with all applicable laws or statutes and all applicable
judgments, orders, rules and regulations of any court or arbitrator or governmental or regulatory authority, internal policies and
contractual obligations relating to (x) the privacy and security of the IT Systems and Data, (y) the protection of the IT Systems and
Data from unauthorized use, access, misappropriation or modification and (z) the collection, use, transfer, processing, storage,
10
disposal and disclosure by the Company of personally identifiable information and/or any other information collected from or
provided by third parties, except as would not, in the case of this clause (ii), individually or in the aggregate, have a Material
Adverse Effect; (iii) the Company has implemented commercially reasonable backup and disaster recovery and security plans,
procedures and facilities for its business consistent with industry standards and practices; and (iv) the Company has taken
commercially reasonable steps for its business consistent with industry standards and practices to protect the IT Systems and Data.
(cc)
Internal Controls. The Company maintains a system of internal control over financial reporting (as
such term is defined in Rule 13a-15(f) under the Exchange Act) that (i) complies with the requirements of the Exchange Act
applicable to the Company, (ii) has been designed by the Company’s principal executive officer and principal financial officer, or
under their 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 and (iii) is sufficient to
provide reasonable assurance that (A) transactions are executed in accordance with management’s general or specific authorization,
(B) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (C) access to assets is permitted only in accordance with
management’s general or specific authorization and (D) the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any differences; and the Company is not aware of any
material weaknesses in its internal control over financial reporting (it being understood that this subsection shall not require the
Company to comply with Section 404 of the Sarbanes Oxley Act of 2002 as of an earlier date than it would otherwise be required
to so comply under applicable law). Since the date of the latest audited financial statements included or incorporated by reference
in the Prospectus, there has been no change in the Company’s internal control over financial reporting that has materially and
adversely affected, or is reasonably likely to materially and adversely affect, the Company’s internal control over financial
reporting.
(dd)
Disclosure Controls. The Company maintains disclosure controls and procedures (as such term is
defined in Rule 13a-15(e) under the Exchange Act) that comply with the requirements of the Exchange Act as applicable to the
Company; such disclosure controls and procedures have been designed to ensure that material information relating to the Company
is made known to the Company’s principal executive officer and principal financial officer by others within the Company; and such
disclosure controls and procedures are effective.
(ee)
No Price Stabilization or Manipulation. The Company has not taken, directly or indirectly, any action
designed to or that would constitute or that might reasonably be expected to cause or result in, under the Exchange Act or
otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares.
(ff)
Environmental Laws. Except as set forth in the Registration Statement and the Prospectus or would
not, individually or in the aggregate, result in a Material Adverse Effect, (i) the Company is not in violation of any applicable
federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or
administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to
pollution or protection of human health, the environment (including, without limitation,
11
ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of hazardous chemicals, pollutants, contaminants, hazardous wastes, toxic
substances, hazardous substances, petroleum or petroleum products, asbestos-containing materials or toxic mold (collectively,
“Hazardous Materials”) or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, “Environmental Laws”), (ii) the Company has all permits, authorizations and approvals
required under any applicable Environmental Laws for the operation of its business and the occupancy of its real property and is in
compliance with their requirements, (iii) there are no pending or, to the Company’s knowledge, threatened administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigations or
proceedings relating to any Environmental Law against the Company and (iv) to the Company’s knowledge, there are no events or
circumstances that would reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or governmental entity, against or affecting the Company relating to Hazardous Materials or any
Environmental Laws.
(gg)
ERISA. None of the following events has occurred or exists: (i) a failure to fulfill the obligations, if
any, under the minimum funding standards of Section 302 of the United States Employee Retirement Income Security Act of 1974,
as amended (“ERISA”), and the regulations and published interpretations thereunder with respect to a Plan that is required to be
funded, determined without regard to any waiver of such obligations or extension of any amortization period; (ii) an audit or
investigation by the Internal Revenue Service, the U.S. Department of Labor, the Pension Benefit Guaranty Corporation or any
other federal or state governmental agency or any foreign regulatory agency with respect to the employment or compensation of
employees by any of the Company that would reasonably be expected, individually or in the aggregate, to have a Material Adverse
Effect; or (iii) any breach of any contractual obligation, or any violation of law or applicable qualification standards, with respect to
the employment or compensation of employees by the Company that would reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. None of the following events has occurred or is reasonably likely to occur: (1) a
material increase in the aggregate amount of contributions required to be made to all Plans in the current fiscal year of the
Company compared to the amount of such contributions made in the most recently completed fiscal year of the Company; (2) a
material increase in the “accumulated post-retirement benefit obligations” (within the meaning of Statement of Financial
Accounting Standards 106) of the Company compared to the amount of such obligations in the most recently completed fiscal year
of the Company; (3) any event or condition giving rise to a liability under Title IV of ERISA that would be reasonably expected,
individually or in the aggregate, to have a Material Adverse Effect; or (4) the filing of a claim by one or more employees or former
employees of the Company related to their employment that would or would be reasonably expected, individually or in the
aggregate, to have a Material Adverse Effect. For purposes of this paragraph, the term “Plan” means a plan (within the meaning of
Section 3(3) of ERISA) subject to Title IV of ERISA with respect to which the Company may have any liability.
(hh)
Sarbanes-Oxley Act. There is and has been no failure on the part of the Company and any of the
Company’s directors or officers, in their capacities as such, to comply with any provision of the Sarbanes-Oxley Act of 2002, as
amended, and the rules and regulations
12
promulgated in connection thereunder (the “Sarbanes-Oxley Act”), including Section 402 relating to loans and Sections 302 and
906 relating to certifications.
(ii)
Anti-Corruption and Anti-Bribery Laws. Neither the Company nor, to the knowledge of the Company,
any director, officer, or employee of the Company or any agent, affiliate or other person acting on behalf of the Company has, in
the course of its actions for, or on behalf of, the Company (i) used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity; (ii) made or taken any act in furtherance of an offer, promise,
or authorization of any direct or indirect unlawful payment or benefit to any foreign or domestic government official or employee,
including of any government-owned or controlled entity or public international organization, or any political party, party official, or
candidate for political office; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended (the “FCPA”), the UK Bribery Act 2010, or any other applicable anti-bribery or anti-corruption law; or (iv) made,
offered, authorized, requested, or taken an act in furtherance of any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment or benefit. The Company has instituted and maintains policies and procedures reasonably designed to
ensure compliance with the FCPA. No part of the proceeds of the offering will be used, directly or indirectly, in violation of the
FCPA or the U.K. Bribery Act 2010, each as may be amended, or similar law of any other relevant jurisdiction, or the rules or
regulations thereunder.
(jj)
Money Laundering Laws. The operations of the Company are, and have been conducted at all times, in
compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions
Reporting Act of 1970, as amended, the money laundering statutes of all applicable jurisdictions, the rules and regulations
thereunder and any related or similar applicable rules, regulations or guidelines, issued, administered or enforced by any
governmental agency within the jurisdictions in which the Company conducts business (collectively, the “Money Laundering
Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator
involving the Company with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened.
(kk)
Sanctions. None of the Company nor, to the knowledge of the Company, any director, officer, agent,
employee or affiliate of the Company is currently the subject or the target of any U.S. sanctions administered by the Office of
Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”) or the U.S. Department of State, the United Nations
Security Council, the European Union, Her Majesty’s Treasury of the United Kingdom, or other relevant sanctions authority
(collectively, “Sanctions”); nor is the Company located, organized or resident in a country or territory that is the subject or the
target of Sanctions, including, without limitation, Crimea, Cuba, Iran, North Korea, and Syria (each, a “Sanctioned Country”);
and the Company will not directly or indirectly use the proceeds of this offering, or lend, contribute or otherwise make available
such proceeds to any subsidiary, or any joint venture partner or other person or entity, for the purpose of financing the activities of
or business with any person, or in any country or territory, that at the time of such financing, is the subject or the target of Sanctions
or in any other manner that will result in a violation by any person (including any person participating in the transaction whether as
underwriter, advisor, investor or otherwise) of applicable Sanctions. For the past five years, the Company has not knowingly
engaged in and are not now knowingly
13
engaged in any dealings or transactions with any person that at the time of the dealing or transaction is or was the subject or the
target of Sanctions or with any Sanctioned Country.
(ll)
Statistical and Market Data. Any statistical and market-related data included in the Registration
Statement or the Prospectus are based on or derived from sources that the Company believes, after reasonable inquiry, to be reliable
and accurate in all material respects and, to the extent required, the Company has obtained the written consent to the use of such
data from such sources.
(mm)
Clinical Trials. The clinical trials and preclinical studies conducted by or, to the knowledge of the
Company after due inquiry, on behalf of or sponsored by the Company, or in which the Company has participated, that are
described in the Registration Statement and the Prospectus, or the results of which are referred to in the Registration Statement and
the Prospectus, as applicable, were, and if still pending are, being conducted in all material respects in accordance with standard
industry practice and any applicable rules and regulations of the FDA and comparable drug regulatory agencies outside of the
United States to which they are subject (collectively, the “Regulatory Authorities”) and current Good Clinical Practices and Good
Laboratory Practices; the descriptions of the results of such trials and studies contained in the Registration Statement or the
Prospectus are accurate and complete in all material respects and fairly present the data derived from such trials and studies; the
Company has no knowledge of any other trials not described in the Registration Statement and the Prospectus, the results of which
reasonably call into question the results described or referred to in the Registration Statement and the Prospectus; the Company has
operated at all times and is currently in compliance in all material respects with all Applicable Laws of the Regulatory Authorities;
and the Company has not received any written notices, correspondence or other communications from the Regulatory Authorities
or any other governmental agency with jurisdiction over it requiring or threatening the termination, material modification or
suspension of any clinical trials or preclinical studies that are described in the Registration Statement and the Prospectus or the
results of which are referred to in the Registration Statement and the Prospectus, other than ordinary course communications with
respect to modifications in connection with the design and implementation of such trials, and, to the Company’s knowledge, there
are no reasonable grounds for the same.
(nn)
Regulatory Authority Filings. The Company has not failed to file with the Regulatory Authorities any
required filing, declaration, listing, registration, report or submission (other than any such immaterial filing, declaration, listing,
registration, report or submission) with respect to the Company’s product candidates that are described or referred to in the
Registration Statement and the Prospectus; and all such filings, declarations, listings, registrations, reports or submissions were in
material compliance with applicable laws when filed; and no material deficiencies regarding compliance with applicable law have
been asserted by any applicable regulatory authority with respect to any such filings, declarations, listings, registrations, reports or
submissions.
(oo)
No Debt Securities. The Company does not have any debt securities or preferred stock that are rated
by any “nationally recognized statistical rating agency” (as defined in Section 3(a)(62) of the Exchange Act).
14
(pp)
Other Underwriting Agreements. Other than as disclosed to the Agent, as of the date of this
Agreement, the Company is not a party to any agreement with an agent or underwriter for any other “at the market” or continuous
equity transaction.
(qq)
Brokers. Except as otherwise disclosed in the Prospectus, there is no broker, finder or other party that
is entitled to receive from the Company any brokerage or finder’s fee or other fee or commission as a result of any transactions
contemplated by this Agreement.
(rr)
FINRA Matters. The Company meets the requirements for use of Form S-3 under the Securities Act
specified in FINRA Rule 5110(b)(7)(C)(i).
(ss)
Stock Exchange Listing. The Common Shares are registered pursuant to Section 12(b) or 12(g) of the
Exchange Act and are listed on the Principal Market, and the Company has taken no action designed to, or likely to have the effect
of, terminating the registration of the Common Shares under the Exchange Act or delisting the Common Shares from the Principal
market, nor has the Company received any notification that the Commission or the Principal Market is contemplating terminating
such registration or listing. To the Company’s knowledge, it is in compliance with all applicable listing requirements of the
Principal Market.
Any certificate signed by any officer or representative of the Company or any of its subsidiaries and delivered to the
Agent or counsel for the Agent in connection with an issuance of Shares shall be deemed a representation and warranty by the
Company to the Agent as to the matters covered thereby on the date of such certificate.
The Company acknowledges that the Agent and, for purposes of the opinions to be delivered pursuant to Section 4(p) and
Section 5(a)(v) hereof, counsel to the Company and counsel to the Agent, will rely upon the accuracy and truthfulness of the
foregoing representations and hereby consents to such reliance.
Section 3. ISSUANCE AND SALE OF COMMON SHARES
(a)
Sale of Securities. On the basis of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company and the Agent agree that the Company may from time to time
seek to sell Shares through the Agent, acting as sales agent, or directly to the Agent, acting as principal, as follows, with an
aggregate Sales Price of up to the Maximum Program Amount, based on and in accordance with Issuance Notices as the Company
may deliver, during the Agency Period.
(b)
Mechanics of Issuances.
(i) Issuance Notice. Upon the terms and subject to the conditions set forth herein, on any Trading Day during the
Agency Period on which the conditions set forth in Section 5(a) and Section 5(b) shall have been satisfied, the Company may
exercise its right to request an issuance of Shares by delivering to the Agent an Issuance Notice; provided, however, that (A) in no
event may the Company deliver an Issuance Notice to the extent that (I) the sum of (x) the aggregate Sales Price of the requested
Issuance Amount, plus (y) the aggregate Sales Price of all Shares issued under all previous Issuance Notices effected pursuant to
this Agreement, would exceed the Maximum Program Amount; and (B) prior to delivery of any Issuance Notice, the
15
period set forth for any previous Issuance Notice shall have expired or been terminated. An Issuance Notice shall be considered
delivered on the Trading Day that it is received by e‑mail to the persons set forth in Schedule A hereto and confirmed by the
Company by telephone (including a voicemail message to the persons so identified), with the understanding that, with adequate
prior written notice, the Agent may modify the list of such persons from time to time.
(ii)
Agent Efforts. Upon the terms and subject to the conditions set forth in this Agreement, upon the receipt of an
Issuance Notice, the Agent will use its commercially reasonable efforts consistent with its normal sales and trading practices to
place the Shares with respect to which the Agent has agreed to act as sales agent, subject to, and in accordance with the information
specified in, the Issuance Notice, unless the sale of the Shares described therein has been suspended, cancelled or otherwise
terminated in accordance with the terms of this Agreement. For the avoidance of doubt, the parties to this Agreement may modify
an Issuance Notice at any time provided they both agree in writing to any such modification.
(iii)
Method of Offer and Sale. The Shares may be offered and sold (A) in privately negotiated transactions with
the consent of the Company; (B) as block transactions with the consent of the Company; or (C) by any other method permitted by
law deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act, including sales made directly
on the Principal Market or sales made into any other existing trading market of the Common Shares. Nothing in this Agreement
shall be deemed to require either party to agree to the method of offer and sale specified in the preceding sentence, and (except as
specified in clauses (A) and (B) above) the method of placement of any Shares by the Agent shall be at the Agent’s discretion.
(iv)
Confirmation to the Company. If acting as sales agent hereunder, the Agent will provide written confirmation
to the Company no later than the opening of the Trading Day next following the Trading Day on which it has placed Shares
hereunder setting forth the number of Shares sold on such Trading Day, the corresponding Sales Price and the Issuance Price
payable to the Company in respect thereof.
(v)
Settlement. Each issuance of Shares will be settled on the applicable Settlement Date for such issuance of
Shares and, subject to the provisions of Section 5, on or before each Settlement Date, the Company will, or will cause its transfer
agent to, electronically transfer the Shares being sold by crediting the Agent or its designee’s account at The Depository Trust
Company through its Deposit/Withdrawal At Custodian (DWAC) System, or by such other means of delivery as may be mutually
agreed upon by the parties hereto and, upon receipt of such Shares, which in all cases shall be freely tradable, transferable,
registered shares in good deliverable form, the Agent will deliver, by wire transfer of immediately available funds, the related
Issuance Price in same day funds delivered to an account designated by the Company prior to the Settlement Date. The Company
may sell Shares to the Agent as principal at a price agreed upon at each relevant time Shares are sold pursuant to this Agreement
(each, a “Time of Sale”).
(vi)
Suspension or Termination of Sales. Consistent with standard market settlement practices, the Company or
the Agent may, upon notice to the other party hereto in writing (including by email correspondence to each of the individuals of the
other party whose names are set forth on Schedule A) or by telephone (confirmed immediately by verifiable email), suspend
16
any sale of Shares, and the period set forth in an Issuance Notice shall immediately terminate; provided, however, that (A) such
suspension and termination shall not affect or impair either party’s obligations with respect to any Shares placed or sold hereunder
prior to the receipt of such notice; (B) if the Company suspends or terminates any sale of Shares after the Agent confirms such sale
to the Company, the Company shall still be obligated to comply with Section 3(b)(v) with respect to such Shares; and (C) if the
Company defaults in its obligation to deliver Shares on a Settlement Date, the Company agrees that it will hold the Agent harmless
against any loss, claim, damage or expense (including, without limitation, penalties, interest and reasonable legal fees and
expenses), as incurred, arising out of or in connection with such default by the Company. The parties hereto acknowledge and agree
that, in performing its obligations under this Agreement, the Agent may borrow Common Shares from stock lenders in the event
that the Company has not delivered Shares to settle sales as required by subsection (v) above, and may use the Shares to settle or
close out such borrowings. The Company agrees that no such notice shall be effective against the Agent unless it is made to the
persons identified in writing by the Agent pursuant to Section 3(b)(i).
(vii)
No Guarantee of Placement, Etc. The Company acknowledges and agrees that (A) there can be no assurance
that the Agent will be successful in placing Shares; (B) the Agent will incur no liability or obligation to the Company or any other
Person if it does not sell Shares; and (C) the Agent shall be under no obligation to purchase Shares on a principal basis pursuant to
this Agreement, except as otherwise specifically agreed by the Agent and the Company.
(viii)
Material Non-Public Information. Notwithstanding any other provision of this Agreement, the Company and
the Agent agree that the Company shall not deliver any Issuance Notice to the Agent, and the Agent shall not be obligated to place
any Shares, during any period in which the Company is in possession of material non-public information.
(c)
Fees. As compensation for services rendered, the Company shall pay to the Agent, on the applicable
Settlement Date, the Selling Commission for the applicable Issuance Amount (including with respect to any suspended or
terminated sale pursuant to Section 3(b)(vi)) by the Agent deducting the Selling Commission from the applicable Issuance Amount.
(d)
Expenses. The Company agrees to pay all costs, fees and expenses incurred in connection with the
performance of its obligations hereunder and in connection with the transactions contemplated hereby, including without limitation
(i) all expenses incident to the issuance and delivery of the Shares (including all printing and engraving costs); (ii) all fees and
expenses of the registrar and transfer agent of the Shares; (iii) all necessary issue, transfer and other stamp taxes in connection with
the issuance and sale of the Shares; (iv) all fees and expenses of the Company’s counsel, independent public or certified public
accountants and other advisors; (v) all costs and expenses incurred in connection with the preparation, printing, filing, shipping and
distribution of the Registration Statement (including financial statements, exhibits, schedules, consents and certificates of experts),
the Prospectus, any Free Writing Prospectus (as defined below) prepared by or on behalf of, used by, or referred to by the
Company, and all amendments and supplements thereto, and this Agreement; (vi) all filing fees, attorneys’ fees and expenses
incurred by the Company or the Agent in connection with qualifying or registering (or obtaining exemptions from the qualification
or registration of) all or any part of the Shares for offer and sale under the state securities or blue sky laws or the provincial
securities laws of Canada; (vii) the
17
reasonable and documented fees and disbursements of the Agent’s counsel, including the reasonable fees and expenses of counsel
for the Agent in connection with, FINRA review, if any, and approval of the Agent’s participation in the offering and distribution of
the Shares; (viii) the filing fees incident to FINRA review, if any; (ix) the fees and expenses associated with listing the Shares on
the Principal Market; and (x) all expenses incurred by the Company in connection with any “road show” presentation to potential
investors. The fees and disbursements of Agent’s counsel pursuant to subsections (vi) and (vii) above shall not exceed (A) $50,000
in connection with the execution of this Agreement and (B) $15,000 in connection with each Triggering Event Date (as defined
below) on which the Company is required to provide a certificate pursuant to Section 4(o).
Section 4. ADDITIONAL COVENANTS
The Company covenants and agrees with the Agent as follows, in addition to any other covenants and agreements made
elsewhere in this Agreement:
(a)
Exchange Act Compliance. During the Agency Period, the Company shall (i) file, on a timely basis,
with the Commission all reports and documents required to be filed under Section 13, 14 or 15 of the Exchange Act in the manner
and within the time periods required by the Exchange Act; and (ii) either, in the Company’s sole discretion, (A) include in its
quarterly reports on Form 10-Q and its annual reports on Form 10-K, a summary detailing, for the relevant reporting period, (1) the
number of Shares sold, if any, through the Agent pursuant to this Agreement and (2) the net proceeds, if any, received by the
Company from such sales or (B) prepare a prospectus supplement containing, or include in such other filing permitted by the
Securities Act or Exchange Act (each an “Interim Prospectus Supplement”), such summary information and, at least once a
quarter and subject to this Section 4, file such Interim Prospectus Supplement pursuant to Rule 424(b) under the Securities Act (and
within the time periods required by Rule 424(b) and Rule 430B under the Securities Act).
(b)
Securities Act Compliance. After the date of this Agreement, the Company shall promptly advise the
Agent in writing (i) of the receipt of any comments of, or requests for additional or supplemental information from, the
Commission; (ii) of the time and date of any filing of any post-effective amendment to the Registration Statement, any Rule 462(b)
Registration Statement or any amendment or supplement to the Prospectus, or any Free Writing Prospectus; (iii) of the time and
date that any post-effective amendment to the Registration Statement or any Rule 462(b) Registration Statement becomes effective;
and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto, any Rule 462(b) Registration Statement or any amendment or supplement to the Prospectus or of
any order preventing or suspending the use of any Free Writing Prospectus or the Prospectus, or of any proceedings to remove,
suspend or terminate from listing or quotation the Common Shares from any securities exchange upon which they are listed for
trading or included or designated for quotation, or of the threatening or initiation of any proceedings for any of such purposes. If
the Commission shall enter any such stop order at any time, the Company will use its commercially reasonable efforts to obtain the
lifting of such order as soon as practicable. Additionally, the Company agrees that it shall comply with the provisions of Rule
424(b) and Rule 433, as applicable, under the Securities Act and will use its reasonable efforts to
18
confirm that any filings made by the Company under such Rule 424(b) or Rule 433 were received in a timely manner by the
Commission.
(c)
Amendments and Supplements to the Prospectus and Other Securities Act Matters. If any event shall
occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus so that the Prospectus does not
include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in
the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if in the opinion of the Agent or
counsel for the Agent it is otherwise necessary to amend or supplement the Prospectus to comply with applicable law, including the
Securities Act, the Company agrees (subject to Section 4(d) and Section 4(f)) to promptly prepare, file with the Commission and
furnish at its own expense to the Agent, amendments or supplements to the Prospectus so that the statements in the Prospectus as so
amended or supplemented will not include an untrue statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus, as amended or supplemented, will comply with applicable law including the Securities Act. Neither the
Agent’s consent to, or delivery of, any such amendment or supplement shall constitute a waiver of any of the Company’s
obligations under Section 4(d) and Section 4(f); provided, however that the only remedy the Agent shall have with respect to the
failure by the Company to make such filing (other than the Agent’s rights under Section 3(d) or Section 6 hereof) shall be to cease
making sales under this Agreement until such amendment or supplement is filed; provided further, that the failure of the Company
to file such amendment or supplement request shall not relieve the Company of any obligation or liability under Section 3(d) or
Section 6 hereof, or affect the Agent’s right to rely on the representations and warranties made by the Company in this
Agreement. Notwithstanding the foregoing, the Company shall not be required to file such amendment or supplement if there is no
pending Issuance Notice and the Company believes that it is in its best interest not to file such amendment or supplement.
(d)
Agent’s Review of Certain Proposed Amendments and Supplements. During any period in which an
Issuance Notice is pending, prior to amending or supplementing the Registration Statement (including any registration statement
filed under Rule 462(b) under the Securities Act) or the Prospectus (excluding any amendment or supplement through
incorporation of any report filed under the Exchange Act), insofar as such proposed amendment or supplement relates to the Shares
or the transactions contemplated hereby, the Company shall furnish to the Agent for review, a reasonable amount of time prior to
the proposed time of filing or use thereof, a copy of each such proposed amendment or supplement, and the Company shall not file
or use any such proposed amendment or supplement without the Agent’s prior consent, and the Company shall file with the
Commission within the applicable period specified in Rule 424(b) under the Securities Act any prospectus required to be filed
pursuant to such Rule.
(e)
Use of Free Writing Prospectus. Neither the Company nor the Agent has prepared, used, referred to or
distributed, or will prepare, use, refer to or distribute, without the other party’s prior written consent, any “written communication”
that constitutes a “free writing prospectus” as such terms are defined in Rule 405 under the Securities Act with respect to the
offering contemplated by this Agreement (any such free writing prospectus being referred to herein as a “Free Writing
Prospectus”).
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(f)
Free Writing Prospectuses. During any period in which an Issuance Notice is pending, the Company
shall furnish to the Agent for review, a reasonable amount of time prior to the proposed time of filing or use thereof, a copy of each
proposed free writing prospectus or any amendment or supplement thereto to be prepared by or on behalf of, used by, or referred to
by the Company insofar as such proposed amendment or supplement relates to the Shares and the transactions contemplated
hereby, and the Company shall not file, use or refer to any proposed free writing prospectus or any amendment or supplement
thereto without the Agent’s consent. The Company shall furnish to the Agent, without charge, as many copies of any free writing
prospectus prepared by or on behalf of, or used by the Company insofar as such proposed amendment or supplement relates to the
Shares or the transactions contemplated hereby, as the Agent may reasonably request. If at any time when a prospectus is required
by the Securities Act (including, without limitation, pursuant to Rule 173(d)) to be delivered in connection with sales of the Shares
(but in any event if at any time through and including the date of this Agreement) there occurred or occurs an event or development
as a result of which any free writing prospectus prepared by or on behalf of, used by, or referred to by the Company conflicted or
would conflict with the information contained in the Registration Statement or included or would include an untrue statement of a
material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the
circumstances prevailing at that subsequent time, not misleading, the Company shall promptly amend or supplement such free
writing prospectus to eliminate or correct such conflict or so that the statements in such free writing prospectus as so amended or
supplemented will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances prevailing at such subsequent time, not misleading, as the case may be;
provided, however, that prior to amending or supplementing any such free writing prospectus, the Company shall furnish to the
Agent for review, a reasonable amount of time prior to the proposed time of filing or use thereof, a copy of such proposed amended
or supplemented free writing prospectus and the Company shall not file, use or refer to any such amended or supplemented free
writing prospectus without the Agent’s consent.
(g)
Filing of Agent Free Writing Prospectuses. The Company shall not take any action that would result in
the Agent or the Company being required to file with the Commission pursuant to Rule 433(d) under the Securities Act a free
writing prospectus prepared by or on behalf of the Agent that the Agent otherwise would not have been required to file thereunder.
(h)
Copies of Registration Statement and Prospectus. After the date of this Agreement through the last
time that a prospectus is required by the Securities Act (including, without limitation, pursuant to Rule 173(d)) to be delivered in
connection with sales of the Shares, the Company agrees to furnish the Agent with copies (which may be electronic copies) of the
Registration Statement and each amendment thereto, and with copies (which may be electronic copies) of the Prospectus and each
amendment or supplement thereto in the form in which it is filed with the Commission pursuant to the Securities Act or
Rule 424(b) under the Securities Act, both in such quantities as the Agent may reasonably request from time to time; and, if the
delivery of a prospectus is required under the Securities Act or under the blue sky or securities laws of any jurisdiction at any time
on or prior to the applicable Settlement Date for any period set forth in an Issuance Notice in connection with the offering or sale of
the Shares and if at such time any event has occurred as a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any material fact necessary in order to make
20
the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not
misleading, or, if for any other reason it is necessary during such same period to amend or supplement the Prospectus or to file
under the Exchange Act any document incorporated by reference in the Prospectus in order to comply with the Securities Act or the
Exchange Act, to notify the Agent and to request that the Agent suspend offers to sell Shares (and, if so notified, the Agent shall
cease such offers as soon as practicable); and if the Company decides to amend or supplement the Registration Statement or the
Prospectus as then amended or supplemented, to advise the Agent promptly by telephone (with confirmation in writing) and to
prepare and cause to be filed promptly with the Commission an amendment or supplement to the Registration Statement or the
Prospectus as then amended or supplemented that will correct such statement or omission or effect such compliance; provided,
however, that if during such same period the Agent is required to deliver a prospectus in respect of transactions in the Shares, the
Company shall promptly prepare and file with the Commission such an amendment or supplement.
(i)
Blue Sky Compliance. The Company shall cooperate with the Agent and counsel for the Agent to
qualify or register the Shares for sale under (or obtain exemptions from the application of) the state securities or blue sky laws or
Canadian provincial securities laws of those jurisdictions designated by the Agent, shall comply with such laws and shall continue
such qualifications, registrations and exemptions in effect so long as required for the distribution of the Shares. The Company shall
not be required to qualify as a foreign corporation or to take any action that would subject it to general service of process in any
such jurisdiction where it is not presently qualified or where it would be subject to taxation as a foreign corporation. The Company
will advise the Agent promptly of the suspension of the qualification or registration of (or any such exemption relating to) the
Shares for offering, sale or trading in any jurisdiction or any initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification, registration or exemption, the Company shall use its commercially
reasonable efforts to obtain the withdrawal thereof as soon as practicable.
(j)
Earnings Statement. As soon as practicable, the Company will make generally available to its security
holders and to the Agent an earnings statement (which need not be audited) covering a period of at least twelve months beginning
with the first fiscal quarter of the Company occurring after the date of this Agreement which shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 under the Securities Act.
(k)
Listing; Reservation of Shares. (a) The Company will maintain the listing of the Shares on the
Principal Market; and (b) the Company will reserve and keep available at all times, free of preemptive rights, Shares for the
purpose of enabling the Company to satisfy its obligations under this Agreement.
(l)
Transfer Agent. The Company shall engage and maintain, at its expense, a registrar and transfer agent
for the Shares.
(m)
Due Diligence. During the term of this Agreement, the Company will reasonably cooperate with any
reasonable due diligence review conducted by the Agent in connection with the transactions contemplated hereby, including,
without limitation, providing information and making available documents and senior corporate officers, during normal business
hours and at the Company’s principal offices, as the Agent may reasonably request from time to time.
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(n)
Representations and Warranties. The Company acknowledges that each delivery of an Issuance Notice
and each delivery of Shares on a Settlement Date shall be deemed to be (i) an affirmation to the Agent that the representations and
warranties of the Company contained in or made pursuant to this Agreement are true and correct as of the date of such Issuance
Notice or of such Settlement Date, as the case may be, as though made at and as of each such date, except as may be disclosed in
the Prospectus (including any documents incorporated by reference therein and any supplements thereto); and (ii) an undertaking
that the Company will advise the Agent if any of such representations and warranties will not be true and correct as of the
Settlement Date for the Shares relating to such Issuance Notice, as though made at and as of each such date (except that such
representations and warranties shall be deemed to relate to the Registration Statement and the Prospectus as amended and
supplemented relating to such Shares).
(o)
Deliverables at Triggering Event Dates; Certificates. The Company agrees that on or prior to the date of
the first Issuance Notice and, during the term of this Agreement after the date of the first Issuance Notice, upon:
(A) the filing with the Commission of an amendment or supplement of any Registration Statement or Prospectus
(other than a prospectus supplement relating solely to an offering of securities other than the Shares or a prospectus filed pursuant
to Section 4(a)(ii)(B)), by means of a post-effective amendment, sticker or supplement, but not by means of incorporation of
documents by reference into the Registration Statement or Prospectus;
in each case, of the Company;
(B)
the filing with the Commission of an annual report on Form 10-K or a quarterly report on Form 10-Q,
the filing with the Commission of any Form 10-K/A or Form 10-Q/A containing amended financial
information or a material amendment to the previously filed annual report on Form 10-K or quarterly report on Form 10-Q, in each
case, of the Company; or
(C)
(D)
the filing with the Commission of a current report on Form 8-K of the Company containing amended
financial information (other than information “furnished” pursuant to Item 2.02 or 7.01 of Form 8-K or to provide disclosure
pursuant to Item 8.01 of Form 8-K relating to reclassification of certain properties as discontinued operations in accordance with
Statement of Financial Accounting Standards No. 144) that the Agent reasonably determines is material to the offering of securities
of the Company;
(any such event described in clauses (A) through (D) above, a “Triggering Event Date”), the Company shall furnish the Agent
(but in the case of clauses (C) or (D) above, only if the Agent reasonably determines that the information contained in such
amendment to Form 10-K or Form 10-Q or such current report on Form 8-K of the Company is material to a holder of Common
Shares and the Agent requests such certification after the filing of such amendment or Form 8-K with the Commission) with a
certificate as of the Triggering Event Date, substantially in the form attached as Exhibit B hereto executed by the Chief Executive
Officer, President or Chief Financial Officer of the Company. The requirement to provide a certificate under this Section 4(o) shall
be automatically waived for any Triggering Event Date occurring at a time when no Issuance Notice is pending or a suspension is
in effect, which waiver shall continue until the earlier to occur of the date the Company delivers instructions for the sale of Shares
hereunder (which for such calendar
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quarter shall be considered a Triggering Event Date) and the next occurring Triggering Event Date. Notwithstanding the foregoing,
if the Company subsequently decides to sell Shares following a Triggering Event Date when a suspension was in effect and did not
provide the Agent with a certificate under this Section 4(o), then before the Company delivers the instructions for the sale of Shares
or the Agent sells any Shares pursuant to such instructions, the Company shall provide the Agent with a certificate in conformity
with this Section 4(o) dated as of the date that the instructions for the sale of Shares are issued.
(p)
Legal Opinions. On or prior to the date of the first Issuance Notice and on or prior to each Triggering
Event Date with respect to which the Company is obligated to deliver a certificate pursuant to Section 4(o) for which no waiver is
applicable and excluding the date of this Agreement, the Company shall cause Latham & Watkins LLP, counsel to the Company
(“Company Counsel”), to furnish the Agent a negative assurances letter and the written legal opinion, each dated the date of
delivery, in form and substance reasonably satisfactory to Agent and its counsel, substantially similar to the form previously
provided to the Agent and its counsel, modified, as necessary, to relate to the Registration Statement and the Prospectus as then
amended or supplemented. In lieu of such opinion for subsequent periodic filings, in the discretion of the Agent, the Company may
furnish a reliance letter from counsel to the Company to the Agent, permitting the Agent to rely on a previously delivered opinion
letter, modified as appropriate for any passage of time or Triggering Event Date (except that statements in such prior opinion shall
be deemed to relate to the Registration Statement and the Prospectus as amended or supplemented as of such Triggering Event
Date). The Company shall be required to furnish no more than one opinion letter and negative assurance letter per counsel
hereunder per filing of an annual report on Form 10-K or quarterly report on Form 10-Q.
(q)
Comfort Letter. On or prior to the date of the first Issuance Notice and on or prior to each Triggering
Event Date with respect to which the Company is obligated to deliver a certificate pursuant to Section 4(o) for which no waiver is
applicable and excluding the date of this Agreement, the Company shall cause Ernst & Young LLP, the independent registered
public accounting firm who has audited the financial statements included or incorporated by reference in the Registration
Statement, to furnish the Agent a comfort letter, dated the date of delivery, in form and substance reasonably satisfactory to the
Agent and its counsel, substantially similar to the form previously provided to the Agent and its counsel; provided, however, that
any such comfort letter will only be required on the Triggering Event Date specified to the extent that it contains financial
statements filed with the Commission under the Exchange Act and incorporated or deemed to be incorporated by reference into a
Prospectus. The Company shall be required to furnish no more than one comfort letter hereunder per filing of an annual report on
Form 10-K or quarterly report on Form 10-Q.
(r) Secretary’s Certificate. On or prior to the date of the first Issuance Notice and on or prior to each Triggering Event
Date with respect to which the Company is obligated to deliver a certificate pursuant to Section 4(o) for which no waiver is
applicable and excluding the date of this Agreement, the Company shall furnish the Agent a certificate executed by the Secretary of
the Company, signing in such capacity, dated the date of delivery substantially in the form as Exhibit C hereto, along with such
certificates of good standing or other certificates of public officials as may be reasonably requested by Company Counsel or Agent
Counsel (as defined below) in
23
connection with the rendering of their opinions and negative assurance letters as contemplated by Section 4(p) and Section 5(a)(v).
(s)
Agent’s Own Account; Clients’ Account. The Company consents to the Agent trading, in compliance
with applicable law, in the Common Shares for the Agent’s own account and for the account of its clients at the same time as sales
of the Shares occur pursuant to this Agreement.
(t)
Investment Limitation. The Company shall not invest, or otherwise use the proceeds received by the
Company from its sale of the Shares in such a manner as would require the Company or any of its subsidiaries to register as an
investment company under the Investment Company Act.
(u)
Market Activities. The Company will not take, directly or indirectly, any action designed to or that
might be reasonably expected to cause or result in stabilization or manipulation of the price of the Shares or any other reference
security, whether to facilitate the sale or resale of the Shares or otherwise, and the Company will, and shall use commercially
reasonable efforts to cause each of its affiliates to, comply with all applicable provisions of Regulation M. If the limitations of Rule
102 of Regulation M (“Rule 102”) do not apply with respect to the Shares or any other reference security pursuant to any exception
set forth in Section (d) of Rule 102, then promptly upon notice from the Agent (or, if later, at the time stated in the notice), the
Company will, and shall use commercially reasonable efforts to cause each of its affiliates to, comply with Rule 102 as though such
exception were not available but the other provisions of Rule 102 (as interpreted by the Commission) did apply. The Company shall
promptly notify the Agent if it no longer meets the requirements set forth in Section (d) of Rule 102.
(v)
Notice of Other Sale. Without the written consent of the Agent, the Company will not, directly or
indirectly, offer to sell, sell, contract to sell, grant any option to sell or otherwise dispose of any Common Shares or securities
convertible into or exchangeable for Common Shares (other than Shares hereunder), warrants or any rights to purchase or acquire
Common Shares, during the period beginning on the third Trading Day immediately prior to the date on which any Issuance Notice
is delivered to the Agent hereunder and ending on the earlier of (x) the third Trading Day immediately following the Settlement
Date with respect to Shares sold pursuant to such Issuance Notice and (y) the date the Company notifies the Agent of the
withdrawal of such Issuance Notice; and will not directly or indirectly enter into any other “at the market” or continuous equity
transaction pursuant to which the Company (including through another person as agent or principal) offers to sell, sells, contracts to
sell, grants any option to sell or otherwise disposes of any Common Shares (other than the Shares offered pursuant to this
Agreement) or securities convertible into or exchangeable for Common Shares, warrants or any rights to purchase or acquire,
Common Shares prior to the termination of this Agreement; provided, however, that such restrictions will not be required in
connection with the Company’s (i) issuance or sale of Common Shares, options to purchase Common Shares or Common Shares
issuable upon the exercise of options or other equity awards pursuant to any employee or director share option, incentive or benefit
plan, share purchase or ownership plan, long-term incentive plan, dividend reinvestment plan, inducement award under Nasdaq
rules or other compensation plan of the Company or its subsidiaries whether now in effect or hereafter implemented, (ii) issuance
or sale of Common Shares issuable upon exchange, conversion or redemption of securities or the exercise
24
or vesting of warrants, options or other equity awards disclosed in filings by the Company available on EDGAR or otherwise in
writing to the Agent, (iii) modification of any outstanding options, warrants of any rights to purchase or acquire Common Shares
and (iv) Common Shares or securities convertible into or exchangeable for Common Shares as consideration for mergers,
acquisitions, other business combinations, collaboration agreements or strategic alliances occurring after the date of this Agreement
which are not issued primarily for capital raising purposes.
Section 5. CONDITIONS TO DELIVERY OF ISSUANCE NOTICES AND TO SETTLEMENT
(a)
Conditions Precedent to the Right of the Company to Deliver an Issuance Notice and the Obligation of
the Agent to Sell Shares. The right of the Company to deliver an Issuance Notice hereunder is subject to the satisfaction, on the
date of delivery of such Issuance Notice, and the obligation of the Agent to use its commercially reasonable efforts to place Shares
during the applicable period set forth in the Issuance Notice is subject to the satisfaction, on each Trading Day during the applicable
period set forth in the Issuance Notice, of each of the following conditions:
(i)
(ii)
(iii)
(iv)
Accuracy of the Company’s Representations and Warranties; Performance by the Company. The Company
shall have delivered the certificate required to be delivered pursuant to Section 4(o) on or before the date on
which delivery of such certificate is required pursuant to Section 4(o). The Company shall have performed,
satisfied and complied with all covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to such date, including, but not limited to, the
covenants contained in Section 4(p), Section 4(q) and Section 4(r).
No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or
any self-regulatory organization having authority over the matters contemplated hereby that prohibits or
directly and materially adversely affects any of the transactions contemplated by this Agreement, and no
proceeding shall have been commenced that may have the effect of prohibiting or materially adversely affecting
any of the transactions contemplated by this Agreement.
Material Adverse Effect. Except as disclosed in the Prospectus and the Time of Sale Information, since the
respective dates as of which information is given in the Registration Statement and the Prospectus, there has
not been, in the judgment of the Agent, any Material Adverse Effect.
No Suspension of Trading in or Delisting of Common Shares; Other Events. The trading of the Common
Shares (including without limitation the Shares) shall not have been suspended by the Commission, the
Principal Market or FINRA and the Common Shares (including without limitation the Shares) shall have been
approved for listing or quotation on and shall not have been delisted from the Nasdaq Stock
25
Market, the New York Stock Exchange or any of their constituent markets. There shall not have occurred (and
be continuing in the case of occurrences under clauses (i) and (ii) below) any of the following: (i) trading or
quotation in any of the Company’s securities shall have been suspended or limited by the Commission or by the
Principal Market or trading in securities generally on either the Principal Market shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on any of such stock exchanges
by the Commission or the FINRA; (ii) a general banking moratorium shall have been declared by any of federal
or New York, authorities; or (iii) there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United States or international financial
markets, or any substantial change or development involving a prospective substantial change in United States’
or international political, financial or economic conditions, as in the judgment of the Agent is material and
adverse and makes it impracticable to market the Shares in the manner and on the terms described in the
Prospectus or to enforce contracts for the sale of securities.
(v)
Agent Counsel Opinion and Negative Assurances Letter. On or prior to the date of the first Issuance Notice
and on or prior to each Triggering Event Date with respect to which the Company is obligated to deliver a
certificate pursuant to Section 4(o) for which no waiver is applicable and excluding the date of this Agreement,
Davis Polk & Wardwell LLP, counsel to the Agent (“Agent Counsel”), shall have furnished to the Agent a
negative assurances letter and the written legal opinion, each dated the date of delivery, in form and substance
reasonably satisfactory to the Agent, modified, as necessary, to relate to the Registration Statement and the
Prospectus as then amended or supplemented. In lieu of such opinion for subsequent periodic filings, Agent
Counsel may furnish a reliance letter, permitting the Agent to rely on a previously delivered opinion letter,
modified as appropriate for any passage of time or Triggering Event Date (except that statements in such prior
opinion shall be deemed to relate to the Registration Statement and the Prospectus as amended or supplemented
as of such Triggering Event Date).
(b)
Documents Required to be Delivered on each Issuance Notice Date. The Agent’s obligation to use its
commercially reasonable efforts to place Shares hereunder shall additionally be conditioned upon the delivery to the Agent on or
before the Issuance Notice Date of a certificate in form and substance reasonably satisfactory to the Agent, executed by the Chief
Executive Officer, President or Chief Financial Officer of the Company, to the effect that all conditions to the delivery of such
Issuance Notice shall have been satisfied as at the date of such certificate as required to be delivered pursuant to Section 4(o)
(which certificate shall not be required if the foregoing representations shall be set forth in the Issuance Notice).
(c)
No Misstatement or Material Omission. Agent shall not have advised the Company that the
Registration Statement, the Prospectus or the Times of Sales Information, or any amendment or supplement thereto, contains an
untrue statement of fact that in the Agent’s reasonable opinion is material, or omits to state a fact that in the Agent’s reasonable
opinion is material and is required to be stated therein or is necessary to make the statements therein not misleading.
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Section 6. INDEMNIFICATION AND CONTRIBUTION
(a)
Indemnification of the Agent. The Company agrees to indemnify and hold harmless the Agent, its
officers and employees, and each person, if any, who controls the Agent within the meaning of the Securities Act or the Exchange
Act against any loss, claim, damage, liability or expense, as incurred, to which the Agent or such officer, employee or controlling
person may become subject, under the Securities Act, the Exchange Act, other federal or state statutory law or regulation, or the
laws or regulations of foreign jurisdictions where Shares have been offered or sold or at common law or otherwise (including in
settlement of any litigation), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated
below) arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any information deemed to be a part thereof pursuant to Rule 430B
under the Securities Act, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in
any Free Writing Prospectus that the Company has used, referred to or filed, or is required to file, pursuant to Rule 433(d) of the
Securities Act or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not
misleading; or (iii) any act or failure to act or any alleged act or failure to act by the Agent in connection with, or relating in any
manner to, the Common Shares or the offering contemplated hereby, and which is included as part of or referred to in any loss,
claim, damage, liability or action arising out of or based upon any matter covered by clause (i) or (ii) above, provided that the
Company shall not be liable under this clause (iii) to the extent that a court of competent jurisdiction shall have determined by a
final judgment that such loss, claim, damage, liability or action resulted directly from any such acts or failures to act undertaken or
omitted to be taken by the Agent through its bad faith or willful misconduct, and to reimburse the Agent and each such officer,
employee and controlling person for any and all reasonable and documented expenses (including the reasonable and documented
fees and disbursements of counsel chosen by the Agent) as such expenses are reasonably incurred by the Agent or such officer,
employee or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action; provided, however, that the foregoing indemnity agreement shall not apply to any loss, claim,
damage, liability or expense to the extent, but only to the extent, arising out of or based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the
Company by the Agent expressly for use in the Registration Statement, any such Free Writing Prospectus or the Prospectus (or any
amendment or supplement thereto), it being understood and agreed that the only such information furnished by the Agent to the
Company consists of the tenth paragraph under the caption “Plan of Distribution” in the Prospectus beginning with the words: “A
prospectus supplement and the accompanying prospectus in electronic format. . . ” (the “Agent Information”). The indemnity
agreement set forth in this Section 6(a) shall be in addition to any liabilities that the Company may otherwise have.
(b)
Indemnification of the Company, its Directors and Officers. The Agent agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who signed the Registration Statement and each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange Act against any loss, claim, damage, liability or
expense, as
27
incurred, to which the Company or any such director, officer or controlling person may become subject, under the Securities Act,
the Exchange Act, or other federal or state statutory law or regulation, or the laws or regulations of foreign jurisdictions where
Shares have been offered or sold or at common law or otherwise (including in settlement of any litigation), insofar as such loss,
claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based upon (i) any
untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule 430B under the Securities Act, or the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading; or
(ii) any untrue statement or alleged untrue statement of a material fact contained in any Free Writing Prospectus that the Company
has used, referred to or filed, or is required to file, pursuant to Rule 433(d) of the Securities Act or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were made, not misleading; and to reimburse the Company
and each such director, officer and controlling person for any and all reasonable and documented expenses (including the
reasonable and documented fees and disbursements of counsel chosen by the Company) as such expenses are reasonably incurred
by the Company or such officer, director or controlling person in connection with investigating, defending, settling, compromising
or paying any such loss, claim, damage, liability, expense or action; provided, however, that the foregoing indemnity agreement
shall only apply to any loss, claim, damage, liability or expense to the extent, but only to the extent, arising out of or based upon
any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with the
Agent Information expressly for use in the Registration Statement, any such Free Writing Prospectus or the Prospectus (or any
amendment or supplement thereto). The indemnity agreement set forth in this Section 6(b) shall be in addition to any liabilities that
the Agent or the Company may otherwise have.
(c)
Notifications and Other Indemnification Procedures. Promptly after receipt by an indemnified party
under this Section 6 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party under this Section 6, notify the indemnifying party in writing of the commencement thereof,
but the omission to so notify the indemnifying party will not relieve the indemnifying party from any liability which it may have to
any indemnified party for contribution or otherwise than under the indemnity agreement contained in this Section 6 or to the extent
it is not prejudiced as a proximate result of such failure. In case any such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it shall elect, jointly with all other indemnifying parties similarly notified, by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded based on
the advice of counsel that a conflict may arise between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which
are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise participate in the defense of such
28
action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified
party of such indemnifying party’s election to so assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party under this Section 6 for any reasonable and
documented legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless
(i) the indemnified party shall have employed separate counsel in accordance with the proviso to the preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for the fees and expenses of more than one separate counsel
(together with local counsel), representing the indemnified parties who are parties to such action), which counsel (together with any
local counsel) for the indemnified parties shall be selected by the Agent (in the case of counsel for the indemnified parties referred
to in Section 6(a) above) or the Company (in the case of counsel for the indemnified parties referred to in Section 6(b) above),
(ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action or (iii) the indemnifying party has authorized in writing the
employment of counsel for the indemnified party at the expense of the indemnifying party, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying party and shall be paid as they are incurred.
(d)
Settlements. The indemnifying party under this Section 6 shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of
such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by Section 6(b) hereof, the
indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request; and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement,
compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any
indemnified party is or could have been a party and indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an unconditional release of such indemnified party from all liability on
claims that are the subject matter of such action, suit or proceeding.
(e)
Contribution. If the indemnification provided for in this Section 6 is for any reason held to be
unavailable to or otherwise insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities
or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount paid or payable by such
indemnified party, as incurred, as a result of any losses, claims, damages, liabilities or expenses referred to therein (i) in such
proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Agent, on the other
hand, from the offering of the Shares pursuant to this Agreement; or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company, on the one hand, and the Agent, on the other
29
hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Agent, on
the other hand, in connection with the offering of the Shares pursuant to this Agreement shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares (net of commissions to the Agent but before deducting
expenses) received by the Company bear to the total commissions received by the Agent. The relative fault of the Company, on the
one hand, and the Agent, on the other hand, shall be determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by
the Company, on the one hand, or the Agent, on the other hand, and the parties’ relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in Section 6(b), any reasonable and documented legal or other
fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The
provisions set forth in Section 6(b) with respect to notice of commencement of any action shall apply if a claim for contribution is
to be made under this Section 6(e); provided, however, that no additional notice shall be required with respect to any action for
which notice has been given under Section 6(b) for purposes of indemnification.
The Company and the Agent agree that it would not be just and equitable if contribution pursuant to this Section 6(e)
were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable
considerations referred to in this Section 6(e).
Notwithstanding the provisions of this Section 6(e), the Agent shall not be required to contribute any amount in excess of
the agent fees received by the Agent in connection with the offering contemplated hereby. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of this Section 6(e), each officer and employee of the Agent and
each person, if any, who controls the Agent within the meaning of the Securities Act or the Exchange Act shall have the same rights
to contribution as the Agent, and each director of the Company, each officer of the Company who signed the Registration
Statement, and each person, if any, who controls the Company with the meaning of the Securities Act and the Exchange Act shall
have the same rights to contribution as the Company.
Section 7. TERMINATION & SURVIVAL
(a)
Term. Subject to the provisions of this Section 7, the term of this Agreement shall continue from the
date of this Agreement until the end of the Agency Period, unless earlier terminated by the parties to this Agreement pursuant to
this Section 7.
(b)
Termination; Survival Following Termination.
30
(i) Either party may terminate this Agreement prior to the end of the Agency Period, by giving written notice as
required by this Agreement, upon ten (10) days’ notice to the other party; provided that, (A) if the Company
terminates this Agreement after the Agent confirms to the Company any sale of Shares, the Company shall
remain obligated to comply with Section 3(b)(v) with respect to such Shares and (B) Section 2, Section 6,
Section 7 and Section 8 shall survive termination of this Agreement. If termination shall occur prior to the
Settlement Date for any sale of Shares, such sale shall nevertheless settle in accordance with the terms of this
Agreement.
(ii) In addition to the survival provision of Section 7(b)(i), the respective indemnities, agreements, representations,
warranties and other statements of the Company, of its officers and of the Agent set forth in or made pursuant
to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of
the Agent or the Company or any of its or their partners, officers or directors or any controlling person, as the
case may be, and, anything herein to the contrary notwithstanding, will survive delivery of and payment for the
Shares sold hereunder and any termination of this Agreement.
Section 8. MISCELLANEOUS
(a)
Press Releases and Disclosure. The Company may issue a press release describing the material terms
of the transactions contemplated hereby as soon as practicable following the date of this Agreement, and may file with the
Commission a current report on Form 8‑K or annual report on Form 10-K, with this Agreement attached as an exhibit thereto,
describing the material terms of the transactions contemplated hereby, and the Company shall consult with the Agent prior to
making such disclosures, and the parties hereto shall use all commercially reasonable efforts, acting in good faith, to agree upon a
text for such disclosures that is reasonably satisfactory to all parties hereto. No party hereto shall issue thereafter any press release
or like public statement related to this Agreement or any of the transactions contemplated hereby without the prior written approval
of the other party hereto, except as may be necessary or appropriate in the reasonable opinion of the party seeking to make
disclosure to comply with the requirements of applicable law or stock exchange rules, including any disclosure regarding sales of
Common Shares pursuant hereto on current reports on Form 8-K, quarterly reports on Form 10-Q or annual reports on Form 10-K.
If any such press release or like public statement is so required (other than disclosure regarding sales of Common Shares pursuant
hereto on current reports on Form 8-K, quarterly reports on Form 10-Q or annual reports on Form 10-K), the party making such
disclosure shall consult with the other party prior to making such disclosure, and the parties shall use all commercially reasonable
efforts, acting in good faith, to agree upon a text for such disclosure that is reasonably satisfactory to all parties hereto.
(b)
No Advisory or Fiduciary Relationship. The Company acknowledges and agrees that (i) the
transactions contemplated by this Agreement, including the determination of any fees, are arm’s-length commercial transactions
between the Company and the Agent, (ii) when acting as a principal under this Agreement, the Agent is and has been acting solely
as a principal and is not the agent or fiduciary of the Company, or its stockholders, creditors, employees or any other party, (iii) the
Agent has not assumed nor will assume an advisory or fiduciary responsibility in
31
favor of the Company with respect to the transactions contemplated hereby or the process leading thereto (irrespective of whether
the Agent has advised or is currently advising the Company on other matters) and the Agent does not have any obligation to the
Company with respect to the transactions contemplated hereby except the obligations expressly set forth in this Agreement, (iv) the
Agent and its respective affiliates may be engaged in a broad range of transactions that involve interests that differ from those of
the Company, and (v) the Agent has not provided any legal, accounting, regulatory or tax advice with respect to the transactions
contemplated hereby and the Company has consulted its own legal, accounting, regulatory and tax advisors to the extent it deemed
appropriate.
(c)
Research Analyst Independence. The Company acknowledges that the Agent’s research analysts and
research departments are required to and should be independent from their respective investment banking divisions and are subject
to certain regulations and internal policies, and as such the Agent’s research analysts may hold views and make statements or
investment recommendations and/or publish research reports with respect to the Company or the offering that differ from the views
of their respective investment banking divisions. The Company understands that the Agent is a full service securities firm and as
such from time to time, subject to applicable securities laws, may effect transactions for its own account or the account of its
customers and hold long or short positions in debt or equity securities of the companies that may be the subject of the transactions
contemplated by this Agreement.
(d)
Notices. All communications hereunder shall be in writing and shall be mailed, hand delivered or
telecopied and confirmed to the parties hereto as follows:
If to the Agent:
Jefferies LLC
520 Madison Avenue
New York, NY 10022
Attention: General Counsel
with a copy (which shall not constitute notice) to:
Davis Polk & Wardwell LLP
1600 El Camino Real
Menlo Park, CA 94025
Attention: Alan F. Denenberg
E-mail: alan.denenberg@davispolk.com
If to the Company:
CytomX Therapeutics, Inc.
343 Oyster Point Blvd #100
South San Francisco, CA 94080
Attention: General Counsel
with a copy (which shall not constitute notice) to:
32
Latham & Watkins LLP
140 Scott Drive
Menlo Park, CA 94025
Attention: Mark Roeder; Miles Jennings
Email: mark.roeder@lw.com; miles.jennings@lw.com
Any party hereto may change the address for receipt of communications by giving written notice to the others in accordance with
this Section 8(d).
(e)
Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto, and to
the benefit of the employees, officers and directors and controlling persons referred to in Section 6, and in each case their
respective successors, and no other person will have any right or obligation hereunder. The term “successors” shall not include any
purchaser of the Shares as such from the Agent merely by reason of such purchase.
(f)
Partial Unenforceability. The invalidity or unenforceability of any Article, Section, paragraph or
provision of this Agreement shall not affect the validity or enforceability of any other Article, Section, paragraph or provision
hereof. If any Article, Section, paragraph or provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it
valid and enforceable.
(g)
Governing Law Provisions. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York applicable to agreements made and to be performed in such state. Any legal suit, action
or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby may be instituted in the federal
courts of the United States of America located in the Borough of Manhattan in the City of New York or the courts of the State of
New York in each case located in the Borough of Manhattan in the City of New York (collectively, the “Specified Courts”), and
each party irrevocably submits to the exclusive jurisdiction (except for proceedings instituted in regard to the enforcement of a
judgment of any such court as to which such jurisdiction is non-exclusive) of such courts in any such suit, action or
proceeding. Service of any process, summons, notice or document by mail to such party’s address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally
waive any objection to the laying of venue of any suit, action or other proceeding in the Specified Courts and irrevocably and
unconditionally waive and agree not to plead or claim in any such court that any such suit, action or other proceeding brought in
any such court has been brought in an inconvenient forum.
(h)
General Provisions. This Agreement constitutes the entire agreement of the parties to this Agreement
and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in two or more counterparts, each one of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same instrument, and may be delivered by facsimile
transmission or by electronic delivery of a portable document format (PDF) file. This Agreement may not be amended or modified
unless in writing by all of the parties hereto, and no condition herein (express or implied) may be waived unless waived in writing
by
33
each party whom the condition is meant to benefit. The Article and Section headings herein are for the convenience of the parties
only and shall not affect the construction or interpretation of this Agreement.
(i)
Recognition of the U.S. Special Resolution Regimes.
(a)
In the event that the Agent is a Covered Entity and becomes subject to a proceeding
under a U.S. Special Resolution Regime, the transfer from the Agent of this Agreement, and any interest and obligation
in or under this Agreement, will be effective to the same extent as the transfer would be effective under the U.S. Special
Resolution Regime if this Agreement, and any such interest and obligation, were governed by the laws of the United
States or a state of the United States.
(b)
In the event that the Agent is a Covered Entity or a BHC Act Affiliate of the Agent
becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Agreement that may
be exercised against the Agent are permitted to be exercised to no greater extent than such Default Rights could be
exercised under the U.S. Special Resolution Regime if this Agreement were governed by the laws of the United States or
a state of the United States.
(c)
As used in this Section 8(i):
“BHC Act Affiliate” has the meaning assigned to the term “affiliate” in, and shall be interpreted in
accordance with, 12 U.S.C. § 1841(k).
“Covered Entity” means any of the following:
(i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. §
252.82(b);
(ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. §
47.3(b); or
(iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. §
382.2(b).
“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with,
12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
“U.S. Special Resolution Regime” means each of (i) the Federal Deposit Insurance Act and the
regulations promulgated thereunder and (ii) Title II of the Dodd-Frank Wall Street Reform and
Consumer Protection Act and the regulations promulgated thereunder.
[Signature Page Immediately Follows]
34
If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to the Company the
enclosed copies hereof, whereupon this instrument, along with all counterparts hereof, shall become a binding agreement in
accordance with its terms
Very truly yours,
CYTOMX THERAPEUTICS, INC.
By: /s/ Sean A.
McCarthy
Name: Sean A. McCarthy, D. Phil.
Title: President and Chief Executive
Officer
[Signature Page to Sale Agreement]
The foregoing Agreement is hereby confirmed and accepted by the Agent in New York, New York as of the date first
above written.
JEFFERIES LLC
By: /s/ Michael Magarro
Name: Michael Magarro
Title: Managing Director
[Signature Page to Sale Agreement]
EXHIBIT A
ISSUANCE NOTICE
_____________, 20__
Jefferies LLC
520 Madison Avenue
New York, New York 10022
Attn: __________
Reference is made to the Open Market Sale Agreement between CytomX Therapeutics, Inc., a Delaware corporation (the
“Company”), and Jefferies LLC (the “Agent”) dated as of February 27, 2020. The Company confirms that all conditions to the
delivery of this Issuance Notice are satisfied as of the date hereof.
Date of Delivery of Issuance Notice (determined pursuant to Section 3(b)(i)): _______________________
Issuance Amount (equal to the total Sales Price for such Shares):
$
Number of days in selling period:
First date of selling period:
Last date of selling period:
Settlement Date(s) if other than standard T+2 settlement:
Floor Price Limitation (in no event less than $1.00 without the prior written consent of the Agent, which consent may be withheld
in the Agent’s sole discretion): $ ____ per share
Comments:
______________________
By:
Name:
Title:
A-1
Schedule A
Notice Parties
The Company
Sean McCarthy
sean@cytomx.com
(650) 273 4618
The Agent
Michael Magarro
mmagarro@jefferies.com
(917) 421-1963
Donald Lynaugh
dlynaugh@jefferies.com
(917) 421-1946
EXHIBIT B
OFFICER’S CERTIFICATE
_____________, 20__
Reference is made to that certain Sale Agreement, dated as of February 27, 2020 (the “Agreement”), by and between
CytomX Therapeutics, Inc., a Delaware corporation (the “Company”), and Jefferies LLC. Capitalized terms used without
definition herein shall have the meanings assigned thereto in the Agreement.
The undersigned, being the _________ of the Company, hereby certifies on behalf of the Company and not in a personal
capacity (and with no personal liability therefor) as follows:
1. No stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose
are pending before or, to the best of my knowledge, threatened by the Commission.
2.
The representations and warranties of the Company in Section 2 of the Agreement are true and correct on and as of the
date hereof with the same force and effect as if expressly made on and as of the date hereof, except for those
representations and warranties that speak solely as of a specific date and which were true and correct as of such date.
3.
The Company has performed all of its obligations under the Agreement to be performed on or prior to the date hereof.
[Signature Page Immediately Follows]
1.
IN WITNESS WHEREOF, the undersigned has caused this certificate to be executed as of the date first written above.
Name:
Title:
[Signature Page to Officer’s Certificate]
EXHIBIT C
SECRETARY’S CERTIFICATE
_____________, 20__
Reference is made to that certain Sale Agreement, dated as of February 27, 2020 (the “Agreement”) by and between
CytomX Therapeutics, Inc., a Delaware corporation (the “Company”), and Jefferies LLC. Capitalized terms used without
definition herein shall have the meanings assigned thereto in the Agreement.
The undersigned, being the Secretary of the Company, hereby certifies on behalf of the Company, and not in a personal
capacity (and with no personal liability therefor) as follows:
1. No proceeding for the dissolution, merger, consolidation or liquidation of the Company or for the sale of all or
substantially all of its assets is pending or, to the best of my knowledge, threatened, and no such proceeding is
contemplated by the Company.
2. Attached hereto as Annex A is a true, correct and complete copy of the Amended and Restated Certificate of
Incorporation of the Company, as amended to date (the “Certificate of Incorporation”), as certified by an appropriate
public official of the State of Delaware and as in full force and effect as of _________, 20__. No action has been taken by
the Company or its stockholders, directors or officers to effect or authorize any amendment or other modification to the
Certificate of Incorporation since such date.
3. Attached hereto as Annex B is a true, correct and complete copy of the Amended and Restated Bylaws of the Company
(the “Bylaws”) as in effect at the date hereof and at all times since _________, 20__. No action has been taken by the
Company or its stockholders, directors or officers to effect or authorize any amendment or other modification to the
Bylaws.
4. Attached hereto as Annex C is a true, correct and complete copy of resolutions duly adopted by the Board of Directors of
the Company on __________, 20__ authorizing the filing of the Registration Statement and the Prospectus, the execution
and delivery of the Agreement and the consummation of the transactions contemplated thereby (including, without
limitation, the issuance of the Shares pursuant to the Agreement). Such resolutions have not been amended or modified,
are in full force and effect in the form adopted and are the only resolutions adopted by the Board of Directors or by any
committee or officers of or designated by the Board of Directors relating to the Registration Statement, the offering of the
Shares and the Agreement.
5.
The Agreement as executed and delivered by the Company is in substantially the form approved by the Company’s Board
of Directors in the resolutions referred to in paragraph 4 above.
6.
7.
8.
Each person who, as an officer or director of the Company, signed the Registration Statement and any amendment thereto
was duly elected or appointed, qualified and acting as such officer or director at the respective times of the signing
thereof and was duly authorized to sign such document on behalf of the Company, and the signature of each such person
appearing on each such document is the genuine signature of such officer or director.
Each person who, as an officer of the Company, signed (a) the Agreement or (b) any other document delivered in
connection with the sale and public offering of the Shares and the settlement related thereto was duly elected or
appointed, qualified and acting as such officer at the respective times of the signing and delivery thereof and was duly
authorized to sign such document on behalf of the Company, and the signature of each such person appearing on each
such document is the genuine signature of such officer.
The minute books and records of the Company relating to all proceedings of the stockholders and the Board of Directors
(and any committee of the Board of Directors) of the Company made available to Latham & Watkins LLP and Davis Polk
& Wardwell LLP are the original minute books and records of the Company, or are true, correct and complete copies
thereof, with respect to all proceedings of said stockholders, Board of Directors and committees since _________, 20__.
The minute books, records and other documents of the Company made available to Latham & Watkins LLP and Davis
Polk & Wardwell LLP were true, correct and complete in all respects, except for _________. There have been no material
changes, additions or alterations in said minute books, records and other documents that have not been disclosed to
Latham & Watkins LLP Davis Polk & Wardwell LLP in writing.
[Signature Page Immediately Follows]
1.
2
IN WITNESS WHEREOF, the undersigned has caused this certificate to be executed as of the date first written above.
Name:
Title:
[Signature Page to Secretary’s Certificate]
DESCRIPTION OF REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF
1934
The following summary describes the capital stock of CytomX Therapeutics, Inc. (the “Company,” “we,” “us,” and “our”) and the material provisions of
our amended and restated certificate of incorporation and our amended and restated bylaws, the registration rights agreement to which we and a stockholder
are parties and of the General Corporation Law of the State of Delaware. Because the following is only a summary, it does not contain all of the information
that may be important to you. For a complete description, you should refer to our amended and restated certificate of incorporation, amended and restated
bylaws, and registration rights agreement, copies of which are incorporated by reference as exhibits to our Annual Report on Form 10-K.
As of December 31, 2019, CytomX Therapeutics, Inc. (“CytomX”) had common stock, $0.00001 par value per share, registered under Section 12 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), and listed on The Nasdaq Global Select Market under the trading symbol “CTMX.”
Exhibit 4.4
General
We have authorized 75,000,000 shares of common stock, $0.00001 par value per share, and 10,000,000 shares of preferred stock, $0.00001 par value per
share under our amended and restated certificate of incorporation. As of December 31, 2019, there were outstanding:
•
•
45,523,088 shares of our common stock; and
9,936,168 shares of common stock subject to outstanding stock options.
As of December 31, 2019, there were approximately 36 holders on record of our common stock. This number does not include beneficial owners whose
shares are held by nominees in street name.
Common Stock
Voting Rights
Holders of our common stock are entitled to one vote for each share of common stock held of record for the election of directors and on all matters submitted
to a vote of stockholders. In the election of directors, a plurality of the votes cast at a meeting of stockholders is sufficient to elect a director. Our stockholders
do not have cumulative voting rights in the election of directors. Accordingly, holders of a majority of the voting shares are able to elect all of the directors. In
all other matters, except as noted below under “Anti-Takeover Effects of Delaware Law, Our Certificate of Incorporation and Our Bylaws,” a majority vote of
common stockholders is generally required to take action under our certificate of incorporation and bylaws.
Dividends
Holders of our common stock are entitled to receive dividends ratably, if any, as may be declared by our board of directors out of legally available funds,
subject to any preferential dividend rights of any preferred stock then outstanding.
Liquidation
Upon our dissolution, liquidation or winding up, holders of our common stock are entitled to share ratably in our net assets legally available after the payment
of all our debts and other liabilities, subject to the preferential rights of any preferred stock then outstanding.
Other Rights and Preferences
Holders of our common stock have no preemptive, subscription or conversion rights, and there are no redemption or sinking fund provisions applicable to our
common stock. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of
shares of any series of preferred stock that we may designate and issue in the future.
Preferred Stock
Our board of directors has the authority, without action by the stockholders, to designate and issue up to an aggregate of 10,000,000 shares of preferred stock
in one or more series. The board of directors can fix the rights, preferences and privileges of the shares of each series and any of its qualifications, limitations
or restrictions. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting
power or other rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with possible future
financings and acquisitions and other corporate purposes could, under certain circumstances, have the effect of delaying or preventing a change in control of
our company and might harm the market price of our common stock. As of December 31, 2019, no shares of preferred stock were outstanding, and we have
no present plan to issue any shares of preferred stock.
Registration Rights Agreement
Pursuant to our registration rights agreement, as of December 31, 2019, Amgen Inc. (“Amgen”), the holder of 1,156,069 shares of our common stock, is
entitled to require us register the resale of the shares purchased by Amgen pursuant to that certain share purchase agreement, dated September 29, 2017,
between the Company and Amgen, on a registration statement to be filed with the Securities and Exchange Commission. The registration rights agreement
contains customary indemnification provisions, and terminates if there are no registrable shares outstanding.
Anti-Takeover Effects of Delaware Law, Our Certificate of Incorporation and Our Bylaws
Our certificate of incorporation and bylaws include a number of provisions that may have the effect of encouraging persons considering unsolicited tender
offers or other unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. These provisions
include the items described below.
Removal of Directors
Our certificate of incorporation and bylaws provide that subject to any limitations imposed by law and the rights of the holders of any series of our preferred
stock, the board of directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of a
majority of the voting power of all the then-outstanding shares of voting stock of our company entitled to vote at an election of directors.
No Written Consent of Stockholders
Our bylaws provide that all stockholder actions are required to be taken by a vote of the stockholders at an annual or special meeting, and that stockholders
may not take any action by written consent in lieu of a meeting.
Staggered Board
Our board of directors is divided into three staggered classes of directors of the same or nearly the same number and each director will be assigned to one of
the three classes. At each annual meeting of the stockholders, a class of directors will be elected for a three-year term to succeed the directors of the same
class whose terms are then expiring. Our amended and restated certificate of incorporation provides that the number of our directors shall be fixed from time
to time by a resolution of the majority of our board of directors. Any additional directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class shall consist of one third of the board of directors. The division of our board of
directors into three classes with staggered three-year terms may delay or prevent stockholder efforts to effect a change of our management or a change in
control.
Meetings of Stockholders
Our bylaws provide that special meetings of stockholders, which our company is not obligated to call more than once per calendar year, may only be called by
the chairman of our board of directors, our chief executive officer, or our board of directors pursuant to a resolution adopted by a majority of the total number
of authorized directors. In addition, our bylaws will limit the business that may be conducted at an annual meeting of stockholders to those matters properly
brought before the meeting.
Advance Notice Requirements
Our bylaws include advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new
business to be brought before meetings of our stockholders. These procedures provide that notice of stockholder proposals must be timely given in writing to
our secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive offices not later
than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the first
anniversary of the annual meeting for the preceding year. The notice must contain certain information specified in the bylaws. These provisions may have the
effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a
potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our
company.
Amendment to Certificate of Incorporation and Bylaws
Our certificate of incorporation provides that the affirmative votes of the holders of at least a majority of the voting power of all of the then-outstanding
shares of our voting stock will be required to amend certain provisions of our certificate of incorporation, including provisions relating to the size of our board
of directors, removal of directors, special meeting of stockholders and actions by written consent. The affirmative votes of the holders of at least a majority of
the voting power of all of the then-outstanding shares of our voting stock will be required to amend or repeal our bylaws. In addition, our bylaws may be
amended by our board of directors, subject to any limitations set forth in the bylaws.
Blank Check Preferred Stock
Our certificate of incorporation provides for 10,000,000 authorized shares of preferred stock. The existence of authorized but unissued shares of preferred
stock may enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy
contest or otherwise. For example, if in the due exercise of its fiduciary obligations, our board of directors were to determine that a takeover proposal is not in
the best interests of us or our stockholders, our board of directors could cause shares of preferred stock to be issued without stockholder approval in one or
more private offerings or other transactions that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group.
In this regard, our certificate of incorporation grants our board of directors broad power to establish the rights and preferences of authorized and unissued
shares of preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings and assets available for distribution to holders of
shares of common stock. The issuance may also adversely affect the rights and powers, including voting rights, of these holders and may have the effect of
delaying, deterring or preventing a change in control of us.
Section 203 of the Delaware General Corporation Law
We are subject to the provisions of Section 203 of the Delaware General Corporation Law, as amended. In general, Section 203 prohibits a publicly-held
Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a three-year period following the time that this
stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes,
among other things, a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. An “interested stockholder”
is a person who, together with affiliates and associates, owns, or did own
within three years prior to the determination of interested stockholder status, 15 percent or more of the corporation’s voting stock.
Under Section 203, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following
conditions:
•
•
•
before the stockholder became interested, the board of directors of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder;
upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at
least 85 percent of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining
the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans, in some instances; or
at or after the time the stockholder became interested, the business combination was approved by the board of directors of the corporation and
authorized at an annual or special meeting of the stockholders by the affirmative vote of at least 66 2/3 percent of the outstanding voting stock
which is not owned by the interested stockholder.
A Delaware corporation may “opt out” of these provisions with an express provision in its original certificate of incorporation or an express provision in its
certificate of incorporation or bylaws resulting from a stockholders’ amendment approved by at least a majority of the outstanding voting shares. We have not
opted out of these provisions. As a result, mergers or other takeover or change in control attempts of us may be discouraged or prevented.
Delaware as Sole and Exclusive Forum
Our bylaws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent
permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim of
breach of a fiduciary duty owed by, or otherwise wrongdoing by, any of our directors, officers or other employees to us or our stockholders, (iii) any action
asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, as amended, or our certificate of incorporation or
bylaws, (iv) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws, or (v) any action asserting a claim
against us or any of our directors, officers or employees governed by the internal affairs doctrine.
Limitations of Liability and Indemnification
As permitted by the Delaware General Corporation Law, as amended, our amended and restated certificate of incorporation and amended and restated bylaws,
in each case, limit or eliminate the personal liability of our directors. Consequently, a director will not be personally liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director, except for liability for:
•
•
•
•
any breach of the director’s duty of loyalty to us or our stockholders;
any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or
any transaction from which the director derived an improper personal benefit.
These limitations of liability do not alter director liability under the U.S. federal securities laws and do not affect the availability of equitable remedies such as
an injunction or rescission.
In addition, our amended and restated bylaws provide that:
•
we will indemnify our directors, officers and, at the discretion of our board of directors, certain employees and agents to the fullest extent
permitted by the Delaware General Corporation Law, as amended;
•
•
we will advance expenses, including attorneys’ fees, to our directors and to our officers and certain employees, in connection with legal
proceedings, subject to limited exceptions; and
the indemnification and advancement of expenses provided in our amended and restated bylaws are not exclusive of any other right to which our
directors or officers may be entitled under any indemnification agreement we enter into with any individual director, officer, employee or agent.
We have entered into indemnification agreements with each of our executive officers and directors. The form of these agreements have been approved by our
stockholders. These agreements provide that we will indemnify each of our executive officers and directors to the fullest extent permitted by law and advance
expenses to each indemnitee in connection with any proceeding in which indemnification is available.
We have obtained general liability insurance that covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their
capacities as directors or officers, including liabilities under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, we have been informed that in the opinion of the
SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
The above provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. The provisions may also
have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise
benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage
awards against directors and officers pursuant to these indemnification provisions. We believe that these provisions, the indemnification agreements and the
insurance are necessary to attract and retain talented and experienced directors and officers.
At present, there is no pending litigation or proceeding involving any of our directors or officers where indemnification will be required or permitted. We are
not aware of any threatened litigation or proceedings that might result in a claim for such indemnification.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Computershare Trust Company, N.A. The transfer agent and registrar’s address is 462 South 4th
Street, Suite 1600, Louisville, KY 40202.
140 Scott Drive
Menlo Park, California 94025
Tel: +1.650.328.4600 Fax: +1.650.463.2600
www.lw.com
FIRM / AFFILIATE OFFICES
Abu Dhabi
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Washington, D.C.
February 27, 2020
CytomX Therapeutics, Inc.
151 Oyster Point Blvd., Suite 400
South San Francisco, CA 94080
Exhibit 5.1
Re: Registration Statement No. 333-228203; Up to $75,000,000 of Shares of Common Stock, par value $0.00001 per
share
Ladies and Gentlemen:
We have acted as special counsel to CytomX Therapeutics, Inc., a Delaware corporation (the “Company”), in connection
with the proposed issuance from time to time of shares of common stock of the Company, par value $0.00001 per share, having an
aggregate offering price of up to $75,000,000 (the “Shares”), by the Company pursuant to the Open Market Sale Agreement dated
February 27, 2020 (the “Sales Agreement”) between the Company and Jefferies LLC. The Shares are included in a registration
statement on Form S-3 under the Securities Act of 1933, as amended (the “Act”), filed with the Securities and Exchange
Commission (the “Commission”) on April 3, 2017 (Registration No. 333–228203) (as amended, the “Registration Statement”), a
related base prospectus dated February 11, 2019 (the “Base Prospectus”) and a prospectus supplement dated February 27, 2020
filed with the Commission pursuant to Rule 424(b) under the Act (the “Sales Agreement Prospectus” and, together with the Base
Prospectus, the “Prospectus”). This opinion is being furnished in connection with the requirements of Item 601(b)(5) of Regulation
S-K under the Act. No opinion is expressed herein as to any matter pertaining to the contents of the Registration Statement or the
Prospectus, other than as expressly stated herein with respect to the issue of the Shares.
As such counsel, we have examined such matters of fact and questions of law as we have considered appropriate for
purposes of this letter. With your consent, we have relied upon certificates and other assurances of officers of the Company and
others as to factual matters without having independently verified such factual matters. We are opining herein as to the General
Corporation Law of the State of Delaware, and we express no opinion with respect to any other laws.
US-DOCS\114264363.3
February 27, 2020
Page 2
Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof, when (i) the
Shares shall have been duly registered on the books of the transfer agent and registrar therefor in the name or on behalf of the
purchasers, and (ii) have been issued by the Company against payment therefor in total numbers that do not exceed the total
number of shares available under the Company’s certificate of incorporation and in the circumstances contemplated by the Sales
Agreement, (a) the issue and sale of the Shares will have been duly authorized by all necessary corporate action of the Company,
(b) the Shares will be validly issued, and (c) the Shares will be fully paid and nonassessable. In rendering the foregoing opinion,
we have assumed that the Company will comply with all applicable notice requirements regarding uncertificated shares provided in
the General Corporation Law of the State of Delaware.
This opinion is for your benefit in connection with the Registration Statement and may be relied upon by you and by
persons entitled to rely upon it pursuant to the applicable provisions of the Act. We consent to your filing this opinion as an exhibit
to the Company’s Form 10-K dated February 27, 2020 and to the reference to our firm in the Prospectus under the heading “Legal
Matters.” In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Latham & Watkins
US-DOCS\114264363.3
Amended and Restated Severance and Change of Control Agreement
This Amended and Restated Severance and Change of Control Agreement (the “Agreement”) is made and entered into, effective as of February 3,
2020 (the “Effective Date”), by and between CytomX Therapeutics, Inc. a Delaware corporation (the “Company”), and Alison Hannah, M.D.
(“Employee”).
Upon acceptance of this Agreement, the following terms and conditions shall apply to your employment:
Exhibit 10.32
1.
Term of Employment and Severance Benefits. It is important for you to understand that California is an "at will" employment state. This
means that you will have the right to terminate your employment relationship with the Company at any time for any reason. Similarly, the
Company will have the right to terminate its employment relationship with you at any time for any reason. Your employment and this
Agreement will be governed by the laws of California, without regard to the conflict of law rules thereof. Notwithstanding the foregoing,
in the event that, other than during a Change of Control Period (as defined below), the Company terminates your employment at any time
without Cause (as defined below), or if you terminate your employment for Good Reason (as defined below), then the Company shall pay
you a lump sum amount equal to (i) twelve (12) months of your then current base salary (without giving any effect to any reduction thereof
which may constitute Good Reason), plus (ii) the annual bonus you are eligible to receive for the Calendar year in which your termination
occurs assuming performance is achieved at target and pro-rated based on your termination date, which will be payable within the period
of time set forth in Section 3 below following your termination of employment. In addition, the Company will provide and pay the
premium cost for you and your dependents of medical and dental insurance benefits to the extent you were receiving such benefits
immediately prior to your termination date from the date of your termination of employment through the earlier of the twelve (12) month
anniversary of the termination of your employment, or the date you become eligible for medical and dental insurance benefits from a
subsequent employer, provided, that you timely elect "COBRA" coverage under the Company group health insurance plan under which
coverage was being provided to you at the time when your employment terminates. If the Company is unable to provide such medical and
dental insurance benefits or "COBRA" coverage is not available to you as of the time when your employment is terminated, then the
Company will pay to you a lump sum equal to the premium cost of the benefits provided for the twelve (12) months prior to your
termination, payable within the period of time set forth in Section 3 below following your termination of employment.
2.
Termination in Connection with a Change of Control. In the event that within sixty (60) days before or twelve (12) months following
the consummation of a Change of Control (as defined below) (the “Change of Control Period”), the Company, or any successor thereto,
terminates your employment without Cause or you terminate your employment for Good Reason, then the Company shall (i) pay a lump
sum amount equal to twelve (12) months of your then current base salary (without giving any effect to any reduction thereof which may
constitute Good Reason), which will be payable within the period of time set forth in Section 3 below following your termination of
employment, (ii) pay a lump
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sum amount equal to twelve (12) months of the annual bonus you are eligible to receive for the current Calendar year assuming
performance is achieved at target and, which will be payable within the period of time set forth in Section 3 below following your
termination of employment, and (iii) the vesting and, if applicable, exercisability of each Company equity award held by you, including,
without limitation, each stock option of any kind and nature (e.g., time or performance based, etc.), shall accelerate in full as of
immediately prior to your termination of employment. In addition, the Company will provide and pay the premium cost for you and your
dependents of medical and dental insurance benefits to the extent you were receiving such benefits immediately prior to your termination
date from the date of your termination of employment through the earlier of the twelve (12) month anniversary of the termination of your
employment or the date you become eligible for medical and dental insurance benefits from a subsequent employer, provided that you
timely elect "COBRA" coverage under the Company group health insurance plan under which coverage was being provided to you at the
time when your employment terminates. If the Company is unable to provide such medical and dental insurance benefits or "COBRA"
coverage is not available to you as of the time when your employment is terminated, then the Company will pay to you a lump sum equal
to the premium cost of the benefits provided for the twelve (12) months prior to your termination, payable within the period of time set
forth in Section 3 below following your termination of employment.
3.
Release. The Company's obligations to make such payments and provide such benefits shall be contingent upon your execution of a
release in a form reasonably acceptable to the Company (the "Release") which Release must be signed and any applicable revocation
period with respect thereto must have expired by the 30th day following your termination of employment (unless your termination is “in
connection with an exit incentive or other employment termination program” (as such phrase is defined in the Age Discrimination in
Employment Act of 1967), in which case the date shall be by the 52nd day following your termination of employment). The Release
will not waive any of your rights, or obligations of the Company, regarding: (1) any right to indemnification and/or contribution,
advancement or payment of related expenses you may have pursuant to the Company’s Bylaws, Articles of Incorporation, under any
written indemnification or other agreement between the parties, and/or under applicable law; (2) any rights that you may have to insurance
coverage under any directors and officers liability insurance, other insurance policies of the Company, COBRA or any similar state law;
(3) any claims for worker’s compensation, state disability or unemployment insurance benefits, or any other claims that cannot be released
as a matter of applicable law; (4) rights to any vested benefits under any stock, compensation or other employee benefit plan of the
Company; (5) any rights you may have as an existing shareholder of the Company; and (6) any claims arising after the effective date of the
Release. Nothing in the Release or any other agreement between you and the Company will prohibit or prevent you from providing
truthful testimony or otherwise responding accurately and fully to any question, inquiry or request for information or documents when
required by legal process, subpoena, notice, court order or law (including, without limitation, in any criminal, civil, or regulatory
proceeding or investigation), or as necessary in any action for enforcement or claimed breach of this Agreement or any other legal dispute
with the Company. If the Release has been signed and any applicable revocation period has expired prior to the 30th day (or 52nd day, as
applicable) following your termination of employment, then the severance payments above may be made on such earlier date; provided,
however, that if the 30th day (or 52nd day, as applicable) following your termination of employment occurs in the calendar year following
the year of your termination date, then the payments shall not be made earlier than January 1 of such subsequent calendar year.
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4.
Section 280G of the Code.
(a) Notwithstanding anything in this Agreement to the contrary, if any payment, distribution, or other benefit provided by the Company
to or for the benefit of you, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or
otherwise (collectively, the “Payments”), (x) constitute a “parachute payment” within the meaning of Section 280G of the Code, and
(y) but for this Section 4 would be subject to the excise tax imposed by Section 4999 of the Code or any similar or successor
provision thereto (the “Excise Tax”), then the Payments shall be either: (i) delivered in full pursuant to the terms of this Agreement,
or (ii) delivered to such lesser extent as would result in no portion of the payment being subject to the Excise Tax, as determined in
accordance with Section 4(b).
(b) The determination of whether Section 4(a)(i) or Section 4(a)(ii) shall be given effect shall be made by the Company on the basis of
which of such clauses results in the receipt by you of the greater Net After-Tax Receipt (as defined herein) of the aggregate
Payments. The term “Net After-Tax Receipt” shall mean the present value (as determined in accordance with Section 280G of the
Code) of the payments net of all applicable federal, state and local income, employment, and other applicable taxes and the Excise
Tax.
(c)
If Section 4(a)(ii) is given effect, the reduction shall be accomplished in accordance with Section 409A of the Code and the
following: first by reducing, on a pro rata basis, cash Payments that are exempt from Section 409A of the Code; second by reducing,
on a pro rata basis, other cash Payments; and third by forfeiting any equity-based awards that vest and become payable, starting with
the most recent equity-based awards that vest, to the extent necessary to accomplish such reduction.
(d) Unless the Company and Employee otherwise agree in writing, any determination required under this Section 4 shall be made by the
Company’s independent accountants or compensation consultants (the “Third Party”), and all such determinations shall be
conclusive, final and binding on the parties hereto. The Company and Employee shall furnish to the Third Party such information and
documents as the Third Party may reasonably request in order to make a determination under this Section 4. The Company shall bear
all fees and costs of the Third Party with respect to all determinations under or contemplated by this Section 4.
For purposes of this Agreement, a "Change of Control" shall mean the occurrence of any of the following events, provided that such event or
occurrence constitutes a change in the ownership or effective control of the Company, or a change in the ownership of a substantial portion of the
assets of the Company, as defined in Treasury Regulation §§ 1.409A-3(i)(5)(v), (vi), and (vii): (i) any merger or consolidation that results in the voting
securities of the Company outstanding immediately prior thereto representing (either by remaining outstanding or by being converted into voting
securities of the surviving or acquiring entity) less than 50% of the combined voting power of the voting securities of the Company or such surviving
or acquiring entity outstanding immediately after such merger or consolidation; (ii) any sale of all or substantially all of the assets of the Company;
(iii) the complete liquidation or dissolution of the Company; or (iv) the acquisition of "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities
(other than through a merger or consolidation or an acquisition of securities directly from the Company) by any "person," as such term is used in
Sections 13(d) and 14(d) of the Exchange Act, or combination of persons, other than the Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any corporation owned directly or indirectly by the stockholders of the Company in substantially
the same proportion as their ownership of stock of the Company.
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For purposes of this Agreement, "Cause" shall mean a termination of your employment based upon a finding by a majority of the Board of Directors
of the Company or its successor, acting in good faith and based on its reasonable belief at the time, that you (a) have refused to perform the explicitly
stated or reasonably assigned lawful and material duties required by your position (other than by reason of a disability or analogous condition); (b)
have committed or engaged in a material act of theft, embezzlement, dishonesty or fraud, a breach of confidentiality, an unauthorized disclosure or use
of inside information, customer lists, trade secrets or other confidential information; (c) have breached a material fiduciary duty, or willfully and
materially violated any other duty, law, rule, or regulation relating to the performance of your duties to the Company or material policy of the
Company or its successor; (d) have been convicted of, or pled guilty or nolo contendere to, misdemeanor involving moral turpitude or a felony; (e)
have willfully and materially breached any of the provisions of any agreement with the Company or its successor which causes material injury to the
Company; (f) have willfully engaged in unfair competition with, or otherwise acted intentionally in a manner materially injurious to the reputation,
business or assets of, the Company or its successor; or (g) have improperly induced a vendor or customer to break or terminate any material contract
with the Company or its successor or induced a principal for whom the Company or its successor acts as agent to terminate such agency
relationship. “Cause” shall only exist if the Company first provides you with written notice of any claimed ground for Cause and an opportunity
to cure such ground, if curable, for thirty (30) days. For purposes of this Agreement, no act or failure to act on your part will be considered “willful”
unless it is done, or omitted to be done, by you intentionally, not in good faith and without reasonable belief that the action or omission was in the best
interest of the Company.
For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following events or circumstances without your written
consent: (i) a material diminution in your base compensation; (ii) a material diminution in your authority, duties or responsibility; (iii) a material
change in the principal geographic location at which you must perform services from South San Francisco, California; (iv) any requirement that you
engage in any illegal conduct; or (v) a material breach by the Company of this Agreement or any other material written agreement between you and
the Company.
In order to establish a "Good Reason" for terminating employment, you must provide written notice to the Company of the existence of the condition
giving rise to the Good Reason, which notice must be provided within 90 days of the initial existence of such condition, the Company must fail to cure
the condition within 30 days thereafter, and your termination of employment must occur no later than 30 days following the expiration of that 30-day
cure period.
All severance or change of control payments are intended to be exempt from or, if not, shall be made in full compliance with Section 409A and shall
begin only upon the date of your "separation from service" (as defined below), which occurs on or after the date of termination of the employment
relationship, and shall be subject to the rules set forth below.
(a) It is intended that each installment, if any, of the severance or change of control payments and benefits provided under this Agreement
shall be treated as a separate "payment" for purposes of Section 409 A of the Internal Revenue Code and the guidance issued thereunder
("Section 409A"). Neither you nor the Company shall have the right to accelerate or defer the delivery of any such payments or benefits
except to the extent specifically permitted or required by Section 409A.
(b) If, as of the date of your "separation from service" from the Company, you are not a "specified employee" (within the meaning of
Section 409A), then each installment, if any, of the severance or change of control payments and benefits shall be made on the dates and
terms set forth in this Agreement.
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(c) If, as of the date of your "separation from service" from the Company, you are a "specified employee" (within the meaning of Section
409A), then:
(i) Each installment, if any, of the severance or change of control payments and benefits due under this Agreement that, in
accordance with the dates and terms set forth herein, will in all circumstances, regardless of when the separation from service
occurs, be paid within the short-term deferral period (as defined under Section 409A) shall be treated as a short-term deferral
within the meaning of Treasury Regulation Section 1.409A-l(b)(4) to the maximum extent permissible under Section 409A;
and
(ii) Each installment, if any, of the severance or change of control payments and benefits due under this Agreement that is not
described in paragraph (i) above and that would, absent this subsection, be paid within the six-month period following your
"separation from service" from the Company shall not be paid until the date that is six months and one day after such
separation from service (or, if earlier, upon your death), with any such installments that are required to be delayed being
accumulated during the six-month period and paid in a lump sum on the date that is six months and one day following your
separation from service and any subsequent installments, if any, being paid in accordance with the dates and terms set forth
herein; provided, however, that the preceding provisions of this sentence shall not apply to any installment of severance or
change of control payments and benefits if and to the maximum extent that that such installment is deemed to be paid under a
separation pay plan that does not provide for a deferral of compensation by reason of the application of Treasury Regulation
Section 1.409A-l(b)(9)(iii) (relating to separation pay upon an involuntary separation from service). Any installments that
qualify for the exception under Treasury Regulation Section 1.409A-l(b)(9)(iii) must be paid no later than the last day of your
second taxable year following the taxable year in which the separation from service occurs.
(d) The determination of whether and when your separation from service from the Company has occurred shall be made and in a manner
consistent with and based on the presumptions set forth in, Treasury Regulation Section 1.409A-l(h). Solely for purposes of this paragraph
(d), "the Company" shall include all persons with whom the Company would be considered a single employer under Sections 414(b) and
414(c) of the Code.
(e) All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements
of Section 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A, including, where applicable, the
requirement that (i) any reimbursement is for expenses incurred during your lifetime (or during a shorter period of time specified in this
Agreement), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for
reimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the
calendar year following the year in which the expense is incurred and (iv) the right to reimbursement is not subject to set off or liquidation
or exchange for any other benefit.
(f) If either you or the Company reasonably determines that any payment hereunder will violate Section 409A, you and the Company shall
use best efforts to restructure the payment in a manner that is either exempt from or compliant with Section 409A. You and the Company
agree that they will execute any and all amendments to this Agreement as may be necessary to ensure compliance with the distribution
provisions of Section 409A in an effort to avoid or minimize, to the extent allowable by law, the tax (and any interest or penalties thereon)
associated with Section 409A. If it is determined that a payment under this Agreement was (or may be) made in violation of Section
409A, the Company will cooperate reasonably with any effort by you to mitigate the tax consequences of such violation, including
cooperation with your participation in any IRS voluntary compliance program or other correction procedure under Section 409A that may
be available to you.
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This Agreement will be binding on the parties and their successors and assigns. The Company shall require any successors or assigns to expressly
assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such
succession or assignment had taken place. The terms of this Agreement and all of your rights hereunder will inure to the benefit of, and be
enforceable by, your personal representatives, executors, administrators, successors, heirs, distributes, devisees and legatees.
This Agreement shall be governed by and construed in accordance with California law, without regard to the conflict of law rules thereof.
If any provision of this Agreement is determined to be illegal or unenforceable, then the remainder of this Agreement nonetheless shall be fully
enforceable and binding upon the parties hereto, and it is the intent of the parties that a court or arbitrator shall enforce the remainder of this
Agreement to the maximum extent permitted by law. The prevailing party in any dispute concerning the interpretation or enforcement of this
Agreement will be entitled to an award of his or its costs and reasonable attorneys' fees, in addition to any other eligible relief.
This Agreement (a) represents our entire understanding regarding the subject matter hereof, and supersedes and replaces all prior and
contemporaneous understandings regarding such subject matter, whether oral or written, and (b) may not be modified or amended, except by a written
instrument executed by you and by a duly authorized officer of the Company. In the event of any conflict between any of the terms in this Agreement
and the terms of any other agreement between you and the Company, the terms of this Agreement shall control.
ACCEPTANCE
The undersigned agrees to and accepts the terms and conditions set forth above.
25-January-2020
Date
29-January-2020
Date
/s/ Alison Hannah, M.D.
Alison Hannah, M.D.
/s/ Sean McCarthy
Sean McCarthy, Chief Executive Officer
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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-216567 and 333-228203) and Form S-8 (Nos. 333-
229916, 333-207694, 333-209992, 333-215795 and 333-223491) of CytomX Therapeutics, Inc. of our reports dated February 27, 2020, with respect to the
financial statements of CytomX Therapeutics, Inc. and the effectiveness of internal control over financial reporting of CytomX Therapeutics, Inc., included in
this Annual Report (Form 10-K) for the year ended December 31, 2019.
Exhibit 23.1
/s/ Ernst & Young LLP
Redwood City, California
February 27, 2020
Exhibit 31.1
I, Sean A. McCarthy, certify that:
CERTIFICATIONS
1.
I have reviewed this Annual Report on Form 10-K of CytomX Therapeutics, Inc. for the year ended December 31, 2019;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: February 27, 2020
/s/ Sean A. McCarthy
Sean A. McCarthy, D.Phil.
President and Chief Executive Officer
Exhibit 31.2
I, Sean A. McCarthy, certify that:
CERTIFICATIONS
1.
I have reviewed this Annual Report on Form 10-K of CytomX Therapeutics, Inc. for the year ended December 31, 2019;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: February 27, 2020
/s/ Sean A. McCarthy
Sean A. McCarthy
Principal Financial Officer
SECTION 1350 CERTIFICATIONS*
Exhibit 32.1
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of
Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350), Sean A. McCarthy, D.Phil., President and Chief Executive Officer and Principal
Financial Officer of CytomX Therapeutics, Inc. (the “Company”), hereby certifies that, to the best of his knowledge:
1. The Company’s Annual Report on Form 10-K for the year ended December 31, 2019 to which this Certification is attached as Exhibit 32.1 (the
“Annual Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the
Company for the period covered by the Annual Report.
Dated: February 27, 2020
/s/ Sean A. McCarthy
Sean A. McCarthy, D.Phil.
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Sean A. McCarthy
Sean A. McCarthy, D.Phil.
Principal Financial Officer
(Principal Financial Officer)
*
This certification accompanies the Annual Report on Form 10-K, to which it relates, is not deemed filed with the Securities and Exchange Commission
and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such
filing.