UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________________________________________________________
__________________________________________________________________________________
FORM 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission file number: 001-38796
__________________________________________________________________________________
GOSSAMER BIO, INC.
(Exact name of Registrant as specified in its charter)
__________________________________________________________________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
3013 Science Park Road
San Diego, California
(Address of principal executive offices)
47-5461709
(I.R.S. Employer
Identification No.)
92121
(Zip Code)
Registrant’s telephone number, including area code: (858) 684-1300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.0001 par value per share
Trading
Symbol(s)
GOSS
Name of each exchange on which registered
Nasdaq Global Select Market
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 ☒
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated
filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.
Large accelerated filer
Non-accelerated filer
Emerging growth company
☐
☒
☐
Accelerated filer
Smaller reporting company
☐
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-
Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial
statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant
recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 30, 2022 (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 $541.3 million, based on the closing price of the registrant’s common stock on the Nasdaq Global Select Market of $8.37 per share.
As of March 10, 2023, the registrant had 94,984,560 shares of common stock ($0.0001 par value) outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant’s definitive proxy statement for the 2022 annual meeting of stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after
end of this fiscal year covered by this Form 10-K are incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 9C
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Reserved
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Item 15
Exhibits, Financial Statement Schedules
Item 16
Form 10-K Summary
Signatures
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FORWARD-LOOKING STATEMENTS AND MARKET DATA
PART I
This annual report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended, or the Exchange Act, and Section 27A of the Securities Act of 1933, as amended, or the Securities Act. All statements other than
statements of historical facts contained in this annual report, including statements regarding our future results of operations and financial position, business
strategies and plans, research and development plans, the anticipated timing, costs, design and conduct of our ongoing and planned preclinical studies and
planned clinical trials for our product candidates, the timing and likelihood of regulatory filings and approvals for our product candidates, the impact of
COVID-19 on our business, timing and likelihood of success, plans and objectives of management for future operations and future results of anticipated
products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important 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 the
forward-looking statements. This annual report on Form 10-K also contains estimates and other statistical data made by independent parties and by us
relating to market size and growth and other data about our industry. This data involves a number of assumptions and limitations, and you are cautioned not
to give undue weight to such estimates. In addition, projections, assumptions and estimates of our future performance and the future performance of the
markets in which we operate are necessarily subject to a high degree of uncertainty and risk.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,”
“could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other
similar expressions. The forward-looking statements in this annual report are only predictions. We have based these forward-looking statements largely on
our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of
operations. These forward-looking statements speak only as of the date of this annual report and are subject to a number of risks, uncertainties and
assumptions, including those described in Part I, Item 1A, “Risk Factors.” The events and circumstances reflected in our forward-looking statements may
not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an
evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors
and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein,
whether as a result of any new information, future events, changed circumstances or otherwise. All forward-looking statements are qualified in their
entirety by this cautionary statement, which is made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
This annual report includes trademarks, tradenames and service marks that are the property of other organizations. Solely for
convenience, trademarks and tradenames referred to in this annual report appear without the ® and ™ symbols, but those references are not intended to
indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to
these trademarks and tradenames.
This Annual Report also contains industry, market and competitive position data from our own internal estimates and research, as well as
from independent market research, industry and general publications and surveys, governmental agencies and publicly available information. In some
cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in
any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly
stated or the context otherwise requires. In addition, while we believe the industry, market and competitive position data included in this report is reliable
and based on reasonable assumptions, such data involve risks and uncertainties and are subject to change based on various factors, including those
discussed in in Part I, Item 1A, “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made
by the independent parties or by us.
We maintain a website at www.gossamerbio.com, to which we regularly post copies of our press releases as well as additional
information about us. Our filings with the Securities and Exchange Commission, or SEC, are available free of charge through our website as soon as
reasonably practicable after being electronically filed with or furnished to the SEC. Information contained in our website does not constitute a part of this
report or our other filings with the SEC.
Item 1. Business.
Overview
the disease areas of immunology, inflammation and oncology. Our goal is to be an industry
We are a clinical-stage biopharmaceutical company focused on discovering, acquiring, developing and commercializing therapeutics in
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leader in each of these therapeutic areas and to enhance and extend the lives of patients suffering from such diseases. To accomplish this goal, we have
assembled a deeply experienced and highly skilled group of industry veterans, scientists, clinicians and key opinion leaders from leading biotechnology and
pharmaceutical companies, as well as leading academic centers from around the world. Our collective immunology and translational discovery and
development expertise serves as the foundation of our company. We intend to maintain a scientifically rigorous and inclusive corporate culture where
employees strive to bring improved therapeutic options to patients.
We are pursuing product candidates with strong scientific rationale to address indications where there is both a high unmet need and an
opportunity to develop best-in-class or first-in-class therapeutics. We currently have two clinical-stage product candidates, in addition to one late-stage
preclinical product candidate.
The following table summarizes our current programs:
Seralutinib (PDGFR, CSF1R and c-KIT Inhibitor)
Seralutinib, also known as GB002, is an inhaled, small molecule, platelet-derived growth factor receptor, or PDGFR, colony-stimulating
factor 1 receptor, or CSF1R, and c-KIT inhibitor in development for the treatment of pulmonary arterial hypertension, or PAH. In contrast to the three
classes of marketed vasodilatory therapies for PAH, we believe that seralutinib has the potential to reverse pathological remodeling by addressing
mechanisms that underlie PAH. Inhaled seralutinib, which is designed to act on both isoforms of the PDGFR, α and β, as well as the CSF1R and c-KIT
pathways, inhibited and reversed cellular overgrowth in lung blood vessels in multiple animal PAH models. In December 2022, we announced positive
topline results from the 24-week Phase 2 TORREY trial in 86 PAH patients. In this well-treated patient population, the seralutinib arm demonstrated a
statistically significant improvement of 14.3% against the placebo arm in its primary efficacy endpoint, pulmonary vascular resistance, or PVR. Seralutinib
has been generally well tolerated in all completed clinical trials. Upon completion of the 24-week blinded portion of the Phase 2 TORREY Study, patients
were able to enroll into an open-label extension trial. We anticipate reporting results from this ongoing open-label extension trial in the middle of 2023. We
expect to commence a registrational Phase 3 clinical trial in PAH in the second half of 2023. We in-licensed seralutinib from Pulmokine, Inc. in 2017 and
retain worldwide rights. The United States Food and Drug Administration, or FDA, and the European Commission, or EC, have granted seralutinib orphan
drug designation for the treatment of patients with PAH.
GB5121 (CNS-Penetrant BTK Inhibitor)
GB5121 is an oral, irreversible, covalent, small molecule inhibitor of Bruton’s Tyrosine Kinase, or BTK, in clinical development for the
treatment of primary central nervous system lymphoma, or PCNSL. GB5121 was selected based on its central nervous system, or CNS, penetration and
kinase selectivity. BTK is expressed in several immune cells including B cells and myeloid cells, where it mediates signaling downstream of multiple
receptors. Inhibition of BTK results in the immediate blockade and down-regulation of several cellular activities that drive autoimmunity and
inflammation. Active BTK
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signaling is also present in many B cell malignancies. BTK inhibitors are approved in the United States to treat oncology indications. In preclinical mouse
models, GB5121 has demonstrated superior CNS penetration at studied doses when compared to selected BTK inhibitors. We believe the CNS penetration
observed in these preclinical studies supports the development of GB5121 as a potential therapy for the treatment of hematologic malignancies in the CNS,
including PCNSL. GB5121 is currently being evaluated in the Phase 1b/2 STAR CNS Study in relapsed / refractory PCNSL and other rare CNS
malignancies. Based upon the benefit / risk profile observed to date and a prioritization of resources to support the seralutinib program, we have decided to
pause enrollment in the Phase 1b/2 STAR CNS study. We plan to discuss available data with the study’s Data Review Committee to determine next steps.
We expect to report data from this ongoing, open-label clinical trial at relevant medical conferences. GB5121 was internally developed and is wholly
owned.
GB7208 (CNS-Penetrant BTK Inhibitor)
GB7208 is an oral, small molecule, BTK inhibitor in preclinical development for the treatment of multiple sclerosis, or MS. Like
GB5121, GB7208 was selected based on its CNS penetration and kinase selectivity. Immune cells are believed to play an important role in the pathology of
MS, and BTK inhibitors are in late-stage clinical development for the treatment of autoimmune indications, such as MS. In preclinical mouse models,
GB7208 has demonstrated superior CNS penetration at studied doses, when compared to selected BTK inhibitors in development for autoimmune
indications, including MS. GB7208 is currently undergoing preclinical testing. GB7208 was internally developed and is wholly owned.
Our Research Capabilities and Preclinical Programs
inflammation and oncology, and we are currently evaluating the continued development of our multiple programs in preclinical development.
Including GB7208, we have multiple programs in preclinical development, with a focus on the therapeutic areas of immunology,
Our Team
experience and expertise across the spectrum of drug discovery, development and commercialization.
Our founders and management team have held senior positions at leading biopharmaceutical companies and possess substantial
Faheem Hasnain is our Co-Founder and has served as our Chief Executive Officer since November 2020 and as our Chairman since our
inception. Mr. Hasnain also served as our Chief Executive Officer from our inception through July 2018 and our Executive Chairman from July 2018
through June 2019. Prior to co-founding Gossamer Bio, Mr. Hasnain served as President, CEO and as a Director of Receptos, Inc. from November 2010 to
August 2015. Receptos was a public company formed in 2009 focused on developing treatments in immunology and metabolic disorders and was
purchased by Celgene Corporation in August 2015. Previously, Mr. Hasnain was the President and Chief Executive Officer and a director of Facet Biotech
Corporation, a biology-driven antibody company with a focus in MS and oncology. He held that position from December 2008 until the company's
acquisition by Abbott Laboratories in April 2010.
Bryan Giraudo, our Chief Financial Officer and Chief Operating Officer, has extensive biotechnology and medical technology finance
experience, having previously served as Senior Managing Director at Leerink Partners and Managing Director at Merrill Lynch, Pierce, Fenner & Smith
Incorporated. Richard Aranda, M.D., our Chief Medical Officer, is an experienced clinician and drug developer with previous experience at Bristol Myers
Squibb Company, Novo-Nordisk, Inc., Receptos and Celegene Corporation. Laura Carter, Ph.D., our Chief Scientific Officer, has over 20 years of industry
experience spanning target identification and validation activities through Phase 2 clinical trials in multiple therapeutic areas having previously held
positions at Lycera Corporation, Medimmune, Array Biopharma and Wyeth. Christian Waage, our Executive Vice President, Technical Operations &
Administration, has meaningful management biotechnology experience, having previously held various positions at Receptos, most recently as Managing
Director after its acquisition by Celgene, and served at Ardea Biosciences, Inc. as Vice President, General Counsel. Caryn Peterson, our Executive Vice
President, Regulatory Affairs, has considerable experience and regulatory expertise as a Managing Director of Development & Strategic Consulting
Associates, as well as management positions leading regulatory affairs at Syndax Pharmaceuticals and FeRx Incorporated.
Our Strategy
We are a clinical-stage biopharmaceutical company focused on discovering, acquiring, developing and commercializing therapeutics in
the disease areas of immunology, inflammation and oncology. Our goal is to be an industry leader in these therapeutic areas and to enhance and extend the
lives of patients suffering from such diseases. Critical components of our business strategy include:
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•
•
•
Leverage the clinical development and commercialization expertise of our world-class team. Our executive management
team and key scientific leaders have successfully discovered, developed and commercialized small molecule and biologic agents
at both large and small biopharmaceutical companies. We plan to utilize this deep, broad set of expertise and experiences as we
execute on our in-house discovery and development strategies, including our planned registrational Phase 3 clinical trial of
seralutinib in PAH.
Increase the impact of our product candidates by expanding development across multiple indications. We aim to focus our
development efforts on product candidates that have the potential to treat multiple diseases and plan to develop them in
additional indications where warranted. For example, we plan to develop seralutinib in both WHO Group 1 and WHO Group 3
pulmonary hypertension. We also continue to evaluate potential neurological conditions for our CNS-penetrant BTK inhibitors,
GB5121 and GB7208.
Engage in partnerships, collaborations, licensing deals or other transactions. Gossamer may seek to enter transactions to
gain access to additional financial, clinical or commercial resources to support the development and commercialization of its
product candidates.
Our Product Candidates
Seralutinib (PDGFR, CSF1R and c-KIT Inhibitor)
Seralutinib, also known as GB002, is an inhaled, small molecule, PDGFR, CSF1R, and c-KIT inhibitor in development for the treatment
of PAH. In contrast to the three classes of marketed vasodilatory therapies for PAH, we believe that seralutinib has the potential to reverse pathological
remodeling by addressing mechanisms that underlie PAH. Inhaled seralutinib, which is designed to act on both isoforms of the PDGFR, α and β, as well as
the CSF1R and c-KIT pathways, inhibited and reversed cellular overgrowth in lung blood vessels in multiple animal PAH models. In December 2022, we
announced positive topline results from the 24-week Phase 2 TORREY trial in 86 PAH patients. In this well-treated patient population, the seralutinib arm
demonstrated a statistically significant improvement against the placebo arm in its primary efficacy endpoint, pulmonary vascular resistance, or PVR.
Improvements in PVR favored the seralutinib arm across all pre-specified patient sub-groups. Seralutinib has been generally well tolerated in all completed
clinical trials. Upon completion of the 24-week blinded portion of the Phase 2 TORREY Study, patients were able to enroll into an open-label extension
trial. We anticipate reporting results from this ongoing open-label extension trial in the middle of 2023. We expect to commence a registrational Phase 3
clinical trial in PAH in the second half of 2023. We in-licensed seralutinib from Pulmokine, Inc. in 2017 and retain worldwide rights. The FDA and the EC
have granted seralutinib orphan drug designation for the treatment of patients with PAH.
Mechanism of Action
PAH is driven by abnormal cellular proliferation within and around the small blood vessels of the lung that carry blood from the right
side of the heart to the lungs. Functional and structural changes in the pulmonary vasculature, known as vascular remodeling, can lead to smooth muscle
cell proliferation and migration from the middle layer of the blood vessel into the inner layer. This can result in the development of plexiform and
neointimal lesions that can obstruct blood flow. The obstruction of blood flow in the pulmonary vessels can also predispose patients to thrombosis, or blood
clots, within these small pulmonary vessels that further blocks blood flow. This progressive obstruction of blood flow from the right side of the heart to the
lungs can cause the right ventricle to fail, thus leading to severe breathlessness, reduced exercise tolerance and death. Seralutinib was designed to inhibit
multiple kinases that play a role in the pathology of PAH, including PDGFRα/β, CSF1R and c-KIT.
The PDGFR is a tyrosine kinase receptor which, when activated by its agonist, induces cellular proliferation. PDGF expression is known
to be particularly important to stimulating smooth muscle cell proliferation in PAH patients. PDGFRs and their ligands are both upregulated in PAH.
Upregulated PDGFR signaling results in endothelial cell and fibroblast dysfunction and the proliferation and migration of smooth muscle cells. This effect
results in the overgrowth and occlusion of blood vessels in the lung. Kinase inhibitors with activity against the PDGFR pathway have shown the ability to
reverse PAH in animal models.
Inhaled seralutinib is designed to act on both isoforms of the PDGFR, α and β. Data from preclinical animal models and human lung
histology from PAH patients suggests that it is important to inhibit both of these isoforms of the PDGF receptor. PDGFRα is highly expressed in pulmonary
arteriole vascular smooth muscle cells, or PAVSMCs. Inhibiting PDGFRα may help reduce the abnormal cell proliferation of PAVSMCs that results in
blood vessel thickening. PDGFRβ is more highly
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expressed in fibroblasts and myofibroblasts that are involved with the abnormal cell proliferation within the blood vessel that leads to the obstruction of the
pulmonary arterioles. We believe inhibiting PDGFRβ is therefore important in decreasing the abnormal cell proliferation of these cell types.
The c-KIT pathway was also identified as an important growth factor involved in pulmonary vascular remodeling, particularly in the cells
implicated in perivascular inflammation. An analysis of lung and pulmonary arteriole samples has also shown increased gene expression of c-KIT in
idiopathic PAH. C-KIT positive endothelial cells may also secrete PDGF, and perivascular c-KIT positive mast cells have been shown to secrete pro-
inflammatory cytokines and tryptase that further contribute to the inflammatory process in PAH.
Mechanistic validation of a PDGFR and c-KIT kinase inhibitor has been observed in clinical trials of imatinib (Gleevec), an oral tyrosine
kinase inhibitor with known activity against the PDGFR and c-KIT pathways, which demonstrated proof-of-concept in humans in a Phase 3 clinical trial in
PAH. In preclinical models, as compared to imatinib, seralutinib was a more potent inhibitor of the PDGFRα isoform, and seralutinib was a ten-fold more
potent inhibitor of the PDGFRβ isoform and c-KIT.
Macrophages have also been identified as one of the most important inflammatory cells in the development and exacerbation of PAH.
Macrophages, which express the CSF1 receptor, are now recognized to play an important role in PAH pathology. Activated CSF1R positive macrophages
accumulate around pulmonary arterioles in PAH, which have been shown in vivo in PAH patients with positron emission tomography. Additionally,
macrophage activity in PAH is associated with bone morphogenetic protein receptor type II, or BMPR2, levels. The decrease in BMPR2 characteristic of
PAH results in induction of granulocyte-macrophage colony-stimulating factor, or GM-CSF, and macrophage recruitment. Notably, in the BMPR2 knock
out mouse, there is significant pulmonary inflammation due to activation of tissue macrophages.
Furthermore, inflammatory macrophages secrete PDGF and stimulate pulmonary artery smooth muscle cell migration and proliferation,
accelerating the feedback loop of inflammation, hyperproliferation and fibrosis that characterize PAH.
Prior PDGF Pathway Development in PAH - The IMPRES Phase 3 Clinical Trial of Imatinib
The IMPRES trial was a Phase 3 clinical trial conducted by Novartis of imatinib (Gleevec) in patients with PAH. Imatinib has known
activity against multiple tyrosine kinases, including the PDGFR, c-KIT receptors and Abelson murine leukemia viral oncogene homolog 1, or c-ABL. 202
patients were enrolled in the IMPRES trial, of which 41% were being treated with prostanoids, oral phosphodiesterase type 5, or PDE5, inhibitors and oral
endothelin receptor agonists, or ERAs. The trial met its primary endpoint, improvement in 6-minute walk distance, or 6MWD, versus placebo at week 24
from baseline, with statistical significance (p = 0.002). The p-value is the probability that the difference between two data sets was due to chance. The
smaller the p-value, the more likely the differences are not due to chance alone. In general, if the p-value is less than or equal to 0.05, the outcome is
considered statistically significant.
Patients on imatinib also demonstrated statistically significant improvements in measures of hemodynamics, including pulmonary
vascular resistance, or PVR, a standard measurement in the evaluation of patients with PAH. However, systemic adverse events such as bleeding and poor
tolerability and frequent drug discontinuation led to a high drop-out rate within the active arm of the trial. Subdural hematomas occurred in eight patients
who were also being administered oral anticoagulants during the trial. Novartis withdrew its supplemental regulatory applications in PAH in 2013 and, to
our knowledge, did not pursue further development of imatinib in the indication.
Overview of Pulmonary Arterial Hypertension
PAH is a rare disease that is characterized by abnormally high blood pressure in the blood vessels carrying deoxygenated blood from the
right side of the heart to the lungs and is progressive and often fatal. Symptoms include shortness of breath at rest or with minimal exertion. Other
symptoms include fatigue, chest pain, dizzy spells and fainting. The progressive nature of this disease causes the right side of the heart to work much
harder and eventually weaken or fail.
Patients are often evaluated by functional class, which categorizes patients by their ability to carry out physical activity and symptom
severity. Worsening symptoms, and thus higher numbered functional classes, are associated with higher mortality. The four functional classes established
by the World Health Organization are detailed below in Table 1.
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Table 1. PAH Functional Classes
Functional
Class
Class I
Class II
Class III
Class IV
Description
Patients with PAH, but without resulting limitation of physical activity. Ordinary physical activity does not cause undue dyspnea or
fatigue, chest pain or near syncope.
Patients with PAH resulting in slight limitation of physical activity. They are comfortable at rest. Ordinary physical activity causes undue
dyspnea or fatigue, chest pain or near syncope.
Patients with PAH resulting in marked limitation of physical activity. They are comfortable at rest. Less than ordinary activity causes
undue dyspnea or fatigue, chest pain or near syncope.
Patients with PAH with inability to carry out any physical activity without symptoms. These patients manifest signs of right heart failure.
Dyspnea and/or fatigue may even be present at rest. Discomfort is increased by any physical activity.
Additionally, recent medical society guidelines have identified intermediate and high-risk categories of PAH based on several variables
including signs of right heart failure, rate of symptom progression, functional class, 6MWD, maximum oxygen consumption, NT-proBNP, which is a
biomarker for heart failure and measures of right heart function. One of these risk categorization tools, the REVEAL 2.0 Risk Score, was utilized in the
completed Phase 2 TORREY Study.
Multiple PAH-specific treatments have been introduced in the past two decades, however PAH continues to have a high morbidity and
mortality. Based on REVEAL registry data, newly diagnosed functional class III and IV patients have 5-year survival rates of 60% and 44%, respectively,
while rates for previously diagnosed patients were even lower at 57% and 27%, respectively.
Overview of PAH Market
PAH most commonly affects women between the ages of 30 and 60. The true incidence and prevalence of PAH are unknown. The
American Lung Association estimates that between 500 and 1,000 new cases are diagnosed each year in the US. PAH has an estimated prevalence of
70,000 patients in the US and Europe. The number of diagnosed PAH patients continues to increase, and we believe this increase is likely due to enhanced
awareness and diagnosis of the disease. Total branded PAH drug sales worldwide in 2021 were approximately $5.9 billion.
Treatment Paradigm in PAH
Currently approved PAH therapies consist of three classes of vasodilators: PDE5 inhibitors (and guanylate cyclase stimulators), ERAs,
and prostanoids (and prostacyclin receptor agonists). PDE5 inhibitors are often used in combination with ERAs as an early treatment strategy. In patients
who fail to respond to combination therapy of an ERA and a PDE5 inhibitor, it is common practice to add a prostanoid. Prostanoids are also commonly
used to treat patients with evidence of right heart failure. While some existing treatments have led to significant improvements in time to clinical worsening
and other composite endpoints in PAH patients, none directly alter the underlying disease pathophysiology. The vasodilation effects of approved PAH
therapies, while capable of improving blood flow through the lungs, may eventually be overtaken by the worsening cellular proliferation and arterial
remodeling underlying the condition. We believe an agent with the ability to safely reverse pathological remodeling could provide utility across functional
classes and risk categories. New investigational therapies, such as sotatercept (Merck & Co., Inc.), may impact the PAH treatment paradigm, if approved.
Sotatercept, a subcutaneously administered activin receptor type IIA-Fc fusion protein, is an investigational drug candidate that has been evaluated in a
completed Phase 3 PAH clinical trial.
Seralutinib Product Differentiation
Seralutinib is an inhaled kinase inhibitor designed to build on the evidence of efficacy seen in trials of imatinib while overcoming
imatinib’s observed systemic safety and tolerability issues and improving on imatinib's kinase inhibitory profile. Seralutinib is designed to have a
differentiated selectivity profile as compared to imatinib with increased potency against the PDGFRα isoform, ten-fold higher potency against the PDGFRβ
isoform and c-KIT, and no activity against c-ABL or the tyrosine kinase, LCK. Additionally, seralutinib is multiple orders more potent against CSF1R, as
compared to imatinib. We believe seralutinib has the potential to be a PAH therapeutic that may provide a:
•
differentiated, anti-proliferative mechanism that addresses the underlying mechanisms of PAH;
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•
•
more tolerable safety profile than systemic imatinib; and
convenient, simple and portable inhalation methodology and delivery system.
Clinical Development History of Seralutinib
Summary of Preclinical Program
Seralutinib inhibits both PGDFR α and β, and it inhibited and reversed cell overgrowth in lung blood vessels in a PAH rat model, which
replicates many features of human PAH, including the abnormal cell proliferation that can block the small vessels of the lung. Seralutinib substantially
reduced the occlusive lesions in the small lung blood vessels in this model. Additionally, seralutinib demonstrated a statistically significant reduction in
right ventricular systolic pressure as compared to placebo. In a separate rat model of PAH, the SU5416 hypoxia model, seralutinib demonstrated a
statistically significant reduction in circulating plasma NT-proBNP compared to placebo, while the difference between imatinib and placebo was not
significant for this PAH biomarker. Seralutinib also restored rat lung BMPR2 expression to healthy levels, which was a statistically significant
improvement as compared to placebo and imatinib. Irregularities in BMPR2 expression have been linked to PAH. In a separate rat model of PAH, the
SU5416 hypoxia model, seralutinib demonstrated a statistically significant reduction in circulating plasma NT-proBNP compared to placebo, while the
difference between imatinib and placebo was not significant for this PAH biomarker. Seralutinib also restored rat lung BMPR2 expression to healthy levels,
which was a statistically significant improvement as compared to placebo and imatinib. Irregularities in BMPR2 expression have been linked to PAH.
Summary of Completed Phase 1a Studies
We completed Phase 1a SAD and MAD double-blind, placebo-controlled, randomized studies of orally inhaled seralutinib in 82 healthy
adult volunteers. We assessed pharmacokinetics, or PK, parameters and safety. Seralutinib was well-tolerated, and there were no dose-limiting toxicities.
No serious adverse events, or SAEs, were reported, and no reported adverse events, or AEs, led to study drug discontinuation. The most common AEs were
throat irritation and cough, which were mild in severity and similar in incidence to placebo. Following single and multiple oral inhalations, seralutinib was
rapidly absorbed into and cleared from the systemic circulation. Seralutinib exposure increased in a dose-proportional manner following single and multiple
dose administration.
Summary of Completed Phase 1b PAH Clinical Trial
In December 2020, we announced topline results from the completed Phase 1b randomized, double-blind, placebo-controlled, multi-
center trial of seralutinib in functional class II and III PAH patients. Eight patients completed the two-week blinded portion of the trial. Enrollment for this
trial was temporarily paused due to the COVID-19 pandemic but was reopened in the third quarter of 2020. The primary outcome of this 2-week trial was
safety and tolerability. Seralutinib was generally well tolerated in PAH patients, and all eight patients completed the 2-week study. There were no SAEs,
and the most frequently reported AEs were mild-to-moderate cough and mild headache. Systemic PK was characterized by low systemic exposure and
rapid drug clearance in PAH patients, which was consistent with PK data from the Phase 1a studies in healthy volunteers. Target engagement in PAH
patients was demonstrated via whole blood CSF1R stabilization assay across all tested dose levels.
Upon completion of the two-week Phase 1b trial, two PAH patients were able to enroll and complete a six-month open label extension
trial of seralutinib. Both patients were able to titrate up to the maximum allowed dose, 90 mg twice daily. No SAEs were reported during the extension trial.
Both patients demonstrated a decrease in NT-proBNP levels from baseline, and both patients demonstrated an increase in 6MWD from baseline.
Summary of Completed Phase 2 PAH Clinical Trial (TORREY Study)
In December 2022, we announced positive topline results from the completed Phase 2 TORREY Study, a randomized, double-blind,
placebo-controlled, multi-center clinical trial in PAH patients. We enrolled 86 Functional Class II and III PAH patients who were not meeting treatment
goal despite background PAH treatment. 57% of enrolled patients were on triple background PAH therapy, and 40% were on double background PAH
therapy. Patients on the active arm received seralutinib at doses starting at 60 mg twice daily, and they titrated up to 90 mg twice daily. While the protocol
allowed for down-titration to 45 mg twice daily as necessary, the substantial majority of patients on the seralutinib arm were able to achieve and maintain
90 mg twice daily. Patients remained on their background PAH therapies throughout the trial.
Seralutinib demonstrated a statistically significant improvement on the primary endpoint, change from baseline in PVR over a 24-week
treatment period. A mean improvement in PVR between the placebo and seralutinib arms of
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96.1 dynes (p = 0.0310), equating to a placebo-corrected improvement of 14.3%, was observed in the study. Improvements in PVR favored the seralutinib
arm across all pre-specified patient sub-groups. The key secondary endpoint in the TORREY Study was change from baseline to week 24 in 6MWD. An
observed mean difference in 6MWD between placebo and seralutinib of 6.5 meters numerically favored the seralutinib arm. Changes in 6MWD also
favored seralutinib in the majority of pre-specified sub-groups. The trial was neither powered nor designed for statistical significance in 6MWD.
Enhanced effects for both PVR and 6MWD were observed in patients with more severe baseline disease, as defined by WHO Functional
Class, or FC, and REVEAL 2.0 Risk Scores. In FC III patients, a 21% reduction in PVR (p = 0.0427) and 37-meter improvement in 6MWD (p = 0.0476)
were observed for the seralutinib arm vs. placebo. In patients with a baseline REVEAL 2.0 Risk Score of 6 or greater, a 23% reduction in PVR (p = 0.0134)
and 22-meter improvement in 6MWD (p = 0.2482) were observed for the seralutinib arm vs. placebo.
Seralutinib treatment resulted in a statistically significant reduction in NT-proBNP, a biomarker of right heart stress, as early as 12 weeks,
increasing to a 408.3 ng/L mean difference from placebo at Week 24 (p = 0.0012). This biomarker change was accompanied by clinically relevant and
statistically significant changes for seralutinib vs. placebo in key assessments of right heart structure and function, including right atrium area, right
ventricle free wall strain and pulmonary artery compliance.
Seralutinib was generally well tolerated in the TORREY study, with treatment emergent adverse events, or TEAEs, reported in 36 (86%)
and 41 (93%) of the patients in the placebo and seralutinib arms, respectively. The vast majority of TEAEs reported in the study were mild to moderate in
severity. In the seralutinib arm, there was one SAE related to study drug reported, while no SAEs related to study drug were reported in the placebo arm.
The most frequently reported TEAE in the study was cough, reported in 16 (38%) and 19 (43%) of the patients in the placebo and seralutinib arms,
respectively. Of the 19 patients reporting cough in the seralutinib arm, 17 experienced mild cough, while 2 experienced moderate cough. The most
frequently reported TEAEs in the IMPRES Phase 3 study of imatinib in PAH, including nausea, peripheral edema, diarrhea, and vomiting, were observed at
substantially lower frequency in the TORREY study, and reported cases were generally well balanced between the seralutinib and placebo arms. No cases
of subdural hematoma were reported in the study.
Upon completion of the 24-week blinded portion of the Phase 2 TORREY Study, patients were able to enroll into an open-label extension trial. We
anticipate reporting results from this ongoing open-label extension trial in the middle of 2023.
Summary of Planned Phase 3 PAH Clinical Trial
We expect to commence a Phase 3 PAH clinical trial in the second half of 2023. The planned Phase 3 clinical trial will be a randomized,
double-blind, placebo-controlled, global clinical trial in PAH patients. Patients will be randomized to receive either seralutinib or placebo, in addition to
their background PAH therapies. We are engaging with global regulatory authorities in the first half of 2023 and expect that these interactions will inform
the final design of the Phase 3 clinical trial. Based on FDA feedback, we expect to test a single dose of 90 mg twice daily, and we expect the primary
endpoint of the trial to be change in 6MWD from baseline; provided, however, the final trial design is subject to further feedback from global regulatory
authorities. In addition to secondary and exploratory endpoints, safety and tolerability will also be evaluated in the Phase 3 clinical trial.
Clinical Development Plan in Additional Indications
We believe that seralutinib has potential for use as a therapeutic treatment for pulmonary hypertension associated with interstitial lung
disease, or PH-ILD. A subgroup of WHO Group 3 Pulmonary Hypertension, PH-ILD is a collection of progressive and often fatal forms of pulmonary
hypertension that affect the small airways of the lungs. These diseases are characterized by pulmonary vascular pathology associated with pulmonary
hypertension, in addition to thickening and scarring of the lung interstitium from interstitial lung disease. There is only one FDA-approved treatment for
PH-ILD, and there are no approved therapies in the EU. We believe that seralutinib has the potential to improve the quality of life for PH-ILD patients. We
expect to commence clinical development in PH-ILD in the second half of 2023 or the first half of 2024.
GB5121 (CNS-Penetrant BTK Inhibitor)
GB5121 is an oral, irreversible, covalent, small molecule inhibitor of BTK, in clinical development for the treatment of PCNSL. GB5121
was selected based on its CNS penetration and kinase selectivity. BTK is expressed in several immune cells including B cells and myeloid cells, where it
mediates signaling downstream of multiple receptors. Inhibition of BTK results in the immediate blockade and down-regulation of several cellular
activities that drive autoimmunity and inflammation. Active BTK signaling is also present in many B cell malignancies. BTK inhibitors are approved in the
United States to treat oncology indications. In preclinical mouse models, GB5121 has demonstrated superior CNS penetration at studied doses when
compared to selected BTK inhibitors. We believe the CNS penetration observed in these preclinical studies
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supports the development of GB5121 as a potential therapy for the treatment of hematologic malignancies in the CNS, including PCNSL. GB5121 is
currently being evaluated in the Phase 1b/2 STAR CNS Study in relapsed / refractory PCNSL and other rare CNS malignancies. Based upon the benefit /
risk profile observed to date and a prioritization of resources to support the seralutinib program, we have decided to pause enrollment in the Phase 1b/2
STAR CNS study. We plan to discuss available data with the study’s Data Review Committee to determine next steps. We expect to report data from this
ongoing, open-label clinical trial at relevant medical conferences. GB5121 was internally developed and is wholly owned.
Mechanism of Action
BTK plays a critical and multifaceted role within the immune system. BTK is a non-receptor protein-tyrosine kinase that belongs to the
TEC family of kinases. It is present in hematopoietic cells such as B cells, macrophages, neutrophils and mast cells. BTK is a critical mediator of B cell
receptor, or BCR, signaling and the adaptive immune response. Upon stimulation of BCR, the BTK pathway results in an increased level of intracellular
calcium and activation of transcription factors involved in B cell proliferation, differentiation and survival. The pathway is also key for the proliferation,
migration and survival of malignant B cells, and inhibition of this pathway has been effective in treating several hematological malignancies. BTK
inhibitors are approved by the FDA for the treatment of multiple B cell lymphomas.
While BTK inhibitors provide a valuable treatment option for patients with hematologic malignancies, existing treatments may be
suboptimal for the treatment of CNS disease. The blood brain barrier, or BBB, is comprised of endothelial cells that serve as a highly discriminatory
boundary, separating the systemic circulation and the extracellular fluid of the CNS. The BBB effectively protects the brain from circulating pathogens, but
it also restricts the ability of pharmaceutical agents from crossing from the systemic circulation into the CNS, including most BTK inhibitors. GB5121
demonstrated superior CNS penetration at studied doses in preclinical mouse models, when compared to other BTK inhibitors targeting oncological
conditions.
Treatment with BTK inhibitors is associated with on-target and off-target AEs, such as rash, diarrhea, infection, bleeding, cytopenias and
cardiovascular AEs, including atrial fibrillation. Liver enzyme elevations have also been observed in patients receiving BTK inhibitors. Molecules with
modest selectivity may incur increased off-target AEs through unintended interaction with off-target kinases. Later generation BTK inhibitors have focused
on minimizing off-target toxicities with increased selectivity, but limited CNS penetration makes these molecules potentially suboptimal for the treatment
of CNS disease. In pre-clinical assays, GB5121 has been observed to be highly selective for BTK, and we believe that higher selectivity has the potential to
limit the adverse events associated with modestly selective BTK inhibitors.
Overview of Primary CNS Lymphoma
PCNSL is a rare, aggressive form of non-Hodgkin lymphoma that originates from the brain, eyes and cerebrospinal fluid without
evidence of systemic involvement. Standard lymphoma therapies are inadequate due to poor penetration of the BBB. First-line PCNSL treatment typically
includes polychemotherapy on backbone high-dose methotrexate, followed by consolidative whole brain radiotherapy. Despite this treatment option,
durable remission is achieved in only 50% of patients. Treatment is associated with significant neurotoxicity, and for those patients who cannot tolerate
methotrexate or for those whose cancer progresses, there is no FDA approved treatment.
In human trials, ibrutinib, a non-selective BTK inhibitor with limited ability to cross the BBB, has demonstrated efficacy at high doses in recurrent or
refractory PCSNL patients. We believe the high dose necessary to reach therapeutic levels in the CNS, as well as an affinity for other kinases, including
EGFR, JAK3 and HER2, are likely responsible for some of the toxicities associated with ibrutinib therapy. We believe that the high specificity for BTK and
high CNS penetration observed in preclinical models could potentially allow GB5121 to achieve the clinical efficacy seen with ibrutinib at lower systemic
doses, which could improve tolerability. We selected GB5121 to move forward into human clinical trials based on the potency, specificity and high brain
penetration observed in preclinical models.
Clinical Development History of GB5121
Summary of Ongoing Phase 1 Clinical Study
tolerability, PK and PD of GB5121 in humans. The study includes both SAD and MAD portions as well as clinical pharmacology assessments.
In the fourth quarter of 2021, we commenced a dose-escalating Phase 1 study in healthy human volunteers to evaluate the safety,
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Summary of Ongoing STAR CNS Phase 1b/2 Clinical Trial in PCNSL
In the second quarter of 2022, we commenced the Phase 1b portion of a global Phase 1b/2 clinical trial. The Phase 1b portion of the trial
enrolled patients with recurrent or refractory primary or secondary CNS lymphoma or with recurrent or refractory primary vitreoretinal lymphoma. The
primary endpoint of the Phase 1b is safety and tolerability, and the secondary endpoints include overall response rate, or ORR, and duration of response.
Phase 2 dose selection will be informed by the results from the Phase 1b.
Based upon the benefit / risk profile observed to date and a prioritization of resources to support the seralutinib program, we have decided
to pause enrollment in the Phase 1b/2 STAR CNS study. We plan to discuss available data with the study’s Data Review Committee to determine next
steps.
GB7208 (CNS-Penetrant BTK Inhibitor)
GB7208 is an oral, small molecule, BTK inhibitor in preclinical development for the treatment of MS. Like GB5121, GB7208 was
selected based on its CNS penetration and kinase selectivity. Immune cells are believed to play an important role in the pathology of MS, and BTK
inhibitors are in late-stage clinical development for the treatment of autoimmune indications, such as MS. In preclinical mouse models, GB7208 has
demonstrated superior CNS penetration at studied doses, when compared to selected BTK inhibitors in development for autoimmune indications, including
MS. GB7208 is currently undergoing preclinical testing. GB7208 was internally developed and is wholly owned.
Our Research Capabilities and Preclinical Programs
Including GB7208, we have multiple programs in preclinical development, with a focus on the therapeutic areas of immunology,
inflammation and oncology, and we are currently evaluating the continued development of these programs.
Competition
The biotechnology and pharmaceutical industries are characterized by rapid technological advancement, significant competition and an
emphasis on intellectual property. We face potential competition from many different sources, including major and specialty pharmaceutical and
biotechnology companies, academic research institutions, governmental agencies and public and private research institutions. Any product candidates that
we successfully develop and commercialize will compete with current therapies and new therapies that may become available in the future. Our
commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or
less severe side effects or more convenient than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for
their products more rapidly than we do. We believe that the key competitive factors affecting the success of any of our product candidates will include
efficacy, safety profile, convenience, cost, level of promotional activity devoted to them and intellectual property protection.
We expect to face competition from existing products and products in development for each of our product candidates. Seralutinib is a
PDGFR, CSF1R and c-KIT inhibitor initially targeted for PAH patients. We expect competition in this patient set will include prostanoids / prostacyclin
receptor agonists, including Orenitram (United Therapeutics Corporation, or United Therapeutics), Uptravi (Janssen), Tyvaso (United Therapeutics), and
Remodulin (United Therapeutics). We also may face some competition from products used in class I and II patients, such as the oral PDE5 inhibitors,
including Revatio (Pfizer Inc.) and Adcirca (United Therapeutics); the sGC stimulator Adempas (Bayer AG); and oral ERAs, including Tracleer (Janssen),
Letairis (Gilead Sciences, Inc.) and Opsumit (Janssen). We believe that, if approved, seralutinib could be used alongside all three classes of approved
therapies. PAH is also an active indication for investigational drugs, and we may face competition in the future from ralinepag (Pfizer and United
Therapeutics), sotatercept (Merck & Co., Inc.), rodatristat ethyl (Enzyyant Therapeutics GmbH) and MK-5475 (Merck). Additionally, although not
approved for the treatment of PAH, we may face competition from formulations of imatinib, including those from Tenax Therapeutics, Aerovate
Therapeutics and Aerami Therapeutics / Vectura Group.
GB5121 and GB7208 are BTK inhibitors for the treatment of oncological and immunological indications, including PCNSL and MS.
There are no FDA or EC approved therapies for refractory or recurrent PCNSL. If approved in MS, GB7208 may face competition from existing approved
and investigational therapies. While no BTK inhibitors are FDA or EC approved for the treatment of either PCNSL or MS, we believe that if approved,
GB5121 and / or GB7208 may face competition from currently FDA and / or EC approved BTK inhibitors Imbruvica (AbbVie Inc. / Janssen), Calquence
(AstraZeneca plc), Brukinsa (BeiGene, Ltd.) and / or Jaypirca (Eli Lilly and Company). Our BTK inhibitors may also face competition from BTK inhibitor
Velexbru (Ono Pharmaceutical Co., Ltd.), which is approved in Japan, South Korea and
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Taiwan for the treatment of recurrent or refractory primary central nervous system lymphoma. We may also face competition from early and late-stage
investigational BTK inhibitors, including, but not limited to, evobrutinib, tolebrutinib, fenebrutinib, orelabrutinib, rilzabrutinib and remibrutinib.
There may be other earlier stage clinical programs that, if approved, would compete with our product candidates. Many of our
competitors have substantially greater financial, technical and human resources than we have. Additional mergers and acquisitions in the pharmaceutical
industry may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances made in the
commercial applicability of technologies and greater availability of capital for investment in these fields. Our success will be based in part on our ability to
build and actively manage a portfolio of drugs that addresses unmet medical needs and creates value in patient therapy.
License Agreements
Pulmokine
In October 2017, we entered into a license agreement, or the Pulmokine Agreement, with Pulmokine, Inc., under which we were granted
an exclusive worldwide license and sublicense to certain intellectual property rights owned or controlled by Pulmokine, including intellectual property
rights co-owned by Pulmokine and Gilead Sciences, to develop and commercialize seralutinib and certain backup compounds for the treatment, prevention
and diagnosis of any and all disease or conditions. We also have the right to sublicense our rights under the Pulmokine Agreement, subject to certain
conditions. We are required to use commercially reasonable efforts to develop and commercialize at least one licensed product in the United States and in at
least two countries in the European Union.
Under the terms of the Pulmokine Agreement, we made an upfront payment of $5.5 million and a milestone payment of $5.0 million to
Pulmokine and are obligated to make future development and regulatory milestone payments of up to $58 million, commercial milestone payments of up to
$45 million, and sales milestone payments of up to $190 million. In 2023, we anticipate incurring a development milestone payment of $10.0 million upon
initiation of seralutinib in a Phase 3 clinical trial. We are also obligated to pay tiered royalties on sales for each licensed product, at percentages ranging
from the mid-single digits to the high single-digits. In addition, if we choose to sublicense or assign to any third parties our rights under the Pulmokine
Agreement with respect to a licensed product, or our seralutinib operating subsidiary undergoes a change of control, we must pay to Pulmokine a specified
percentage of all revenue to be received in connection with such transaction.
Our royalty obligations and the Pulmokine Agreement will expire on a licensed product-by-licensed product and country-by-country
basis on the later of ten years from the date of first commercial sale or when there is no longer a valid patent claim covering such licensed product or
specified regulatory exclusivity for the licensed product in such country. The Pulmokine Agreement may be terminated in its entirety either by Pulmokine
or by us in the event of an uncured material breach by the other party, in the event the other party is subject to specified bankruptcy, insolvency or similar
circumstances, or in the event of a force majeure event under certain circumstances. The agreement may be terminated by Pulmokine if we commence a
legal action challenging the validity or enforceability of any licensed patents. We may terminate the agreement, either in its entirety or on a product-by-
product basis, in the event of potential safety or efficacy concerns affecting a licensed product.
The intellectual property rights co-owned by Pulmokine and Gilead Sciences are subject to a license agreement, or the Gilead Agreement,
between Pulmokine and Gilead Sciences. Under the Gilead Agreement, Pulmokine is required to use commercially reasonable efforts to develop and
commercialize at least one licensed product, which obligation can be satisfied through our development efforts required under the Pulmokine Agreement,
and to pay Gilead Sciences future regulatory milestone payments and royalties. Upon termination of the Gilead Agreement for any reason, our sublicense
under the Pulmokine Agreement will survive provided that we did not cause a material breach that was the basis for such termination and we agree to be
bound by the terms of the Gilead Agreement.
The Pulmokine Agreement also includes a sublicense to patents concerning methods for detecting pulmonary arterial hypertension owned
by The Rensselaer Center for Translational Research, Inc., or Rensselaer, and licensed to Pulmokine in an exclusive license agreement, or the Rensselaer
License. Under the Rensselaer License, Pulmokine is required to use commercially reasonable efforts to develop and commercialize at least one licensed
product covered by the Rensselaer patent rights, which obligation can be satisfied through our development efforts. If such obligation is not satisfied by
Pulmokine or us, or the Rensselaer License is otherwise terminated for any reason, our sublicense under the Pulmokine Agreement will, at our option,
either terminate or, subject to Rensselaer’s approval and our acceptance of the provisions of the Rensselaer License, convert to a license directly between us
and Rensselaer.
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Upon termination of the Pulmokine Agreement for any reason, all rights and licenses granted to us under the agreement will terminate
and revert to Pulmokine, and in the event of certain termination events, we would grant Pulmokine worldwide rights to the terminated program.
Manufacturing
We currently rely on multiple third-party manufacturers for the manufacture of our product candidates for preclinical and clinical testing.
We intend to rely on third-party contract manufacturers for commercial manufacturing if our product candidates receive marketing approval. Typically,
there are multiple sources for all of the materials required for the manufacture of our product candidates. Our manufacturing strategy enables us to more
efficiently direct financial resources to the research, development and commercialization of product candidates rather than diverting resources to internally
develop manufacturing facilities. As our product candidates advance through development, we expect to enter into longer-term commercial supply
agreements with key suppliers and manufacturers to fulfill and secure our production needs.
Intellectual Property
We strive to protect 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. We also rely on trade secrets and know-how
relating to our proprietary technology and product candidates and continuing innovation to develop, strengthen and maintain our proprietary position. We
also plan to rely on data exclusivity, market exclusivity and patent term extensions when available. Our commercial success will 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 defend and enforce our proprietary rights, including any patents that we may own in the future; and to operate without infringing on the
valid and enforceable patents and other proprietary rights of third parties. Intellectual property rights may not address all potential threats to our
competitive advantage.
Seralutinib
As of December 31, 2022, with respect to seralutinib, we have exclusively licensed two issued U.S. patents owned by Pulmokine, which
are not due to expire before 2037, excluding any additional term for patent term extension; one pending U.S. Patent application, which, if issued, is not due
to expire before 2037, excluding any additional term for patent term extension; and a number of patents and pending applications in other jurisdictions,
including issued patents in Mexico and Russia, and pending applications in Australia, Brazil, Canada, China, the European Patent Convention, India, Japan,
South Korea, and New Zealand, which, if issued, are not due to expire before 2037, excluding any additional term for patent term extension. These patents
and patent applications are directed to method of use claims. We also have exclusively licensed four issued U.S. patents co-owned by Pulmokine and
Gilead Sciences, Inc., which are not due to expire before 2034, excluding any additional term for patent term extension; two pending U.S. patent
applications, which, if issued, are not due to expire before 2034, excluding any additional term for patent term extension; and a number of patents and
pending patent applications in other jurisdictions, including issued patents in Australia, Canada, China, the European Patent Convention and Japan, and
pending applications in Australia, China, the European Patent Convention and Japan. These patents and patent applications are directed to seralutinib
compound, formulation and method of use claims. We also own one pending patent application, which, if issued, is not due to expire before 2041, directed
to forms of seralutinib.
GB5121
As of December 31, 2022, with respect to GB5121, we owned one pending U.S. patent application, ten corresponding foreign patent
applications, and one international application directed to GB5121 compound, formulation and method of use claims, which, if issued, is not due to expire
before 2041, excluding any additional term for patent term extension.
GB7208
As of December 31, 2022, with respect to GB7208, we owned one pending U.S. patent application, and a corresponding international
patent application, directed to GB7208 compound, formulation and method of use claims, which, if issued, is not due to expire before 2042, excluding any
additional term for patent term extension.
Government Regulation
Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other
things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising,
distribution, marketing and export and import of products such as
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those we are developing. A new drug must be approved by the FDA through the new drug application, or NDA, process before it may be legally marketed
in the United States.
Certain of our product candidates are subject to regulation as combination products, which means that they are composed of both a drug
product and device product. If marketed individually, each component would be subject to different regulatory pathways and reviewed by different centers
within the FDA. A combination product, however, is assigned to a Center that will have primary jurisdiction over its regulation based on a determination of
the combination product’s primary mode of action, which is the single mode of action that provides the most important therapeutic action. In the case of our
inhaled product candidate regulated as a combination product, the primary mode of action is attributable to the drug component of the product, which
means that the FDA’s Center for Drug Evaluation and Research has primary jurisdiction over the premarket development, review and approval.
Accordingly, we plan to investigate this product through the IND framework and seek approval through the NDA pathway. We do not anticipate that the
FDA will require a separate medical device authorization for the device, but this could change during the course of its review of any marketing application
that we may submit.
U.S. Drug Development Process
In the United States, the FDA regulates drugs under the federal Food, Drug, and Cosmetic Act, or the FDCA, and its implementing
regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and
regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during
the product development process, approval process or after approval may subject an applicant to administrative or judicial sanctions. These sanctions could
include the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures,
total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal
penalties. Any agency or judicial enforcement action could have a material adverse effect on us.
The process required by the FDA before a drug may be marketed in the United States generally involves the following:
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completion of preclinical laboratory tests, animal studies and formulation studies in accordance with Good Laboratory Practice,
or GLP, regulations and other applicable regulations;
submission to the FDA of an IND, which must become effective before human clinical trials may begin;
approval by an independent institutional review board, or IRB, or ethics committee at each clinical site before each trial may be
initiated;
performance of adequate and well-controlled human clinical trials in accordance with Good Clinical Practice, or GCP,
regulations to establish the safety and efficacy of the proposed drug for its intended use;
submission to the FDA of an NDA;
satisfactory completion of an FDA advisory committee review, if applicable;
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess
compliance with current GMP, or cGMP, requirements to assure that the facilities, methods and controls are adequate to preserve
the drug’s identity, strength, quality and purity, and of selected clinical investigation sites to assess compliance with GCPs; and
FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the
United States.
Once a pharmaceutical candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory
evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical tests,
together with manufacturing information and analytical data, to the FDA as part of the IND. An IND is a request for authorization from the FDA to
administer an investigational drug product to humans. The sponsor 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 clinical trial lends itself to an
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efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt
by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must
resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during clinical
trials due to safety concerns about on-going or proposed clinical trials or non-compliance with specific FDA requirements, and the trials may not begin or
continue until the FDA notifies the sponsor that the hold has been lifted. Submission of an IND therefore may or may not result in FDA authorization to
begin a clinical trial.
All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCP regulations,
which include the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. They must be
conducted under protocols detailing, among other things, the objectives of the trial, dosing procedures, subject selection and exclusion criteria and the
safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND as well as any subsequent protocol
amendments. While the IND is active, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last
progress report, among other information, must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA
and investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the
same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important increased incidence of a
serious suspected adverse reaction compared to that listed in the protocol or investigator brochure.
Furthermore, an independent IRB at each institution participating in the clinical trial must review and approve each 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
trial subject or his or her legal representative, monitor the study until completed and otherwise comply with IRB regulations. The FDA or the sponsor may
suspend a clinical trial at any time on various grounds, 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 drug has been associated with unexpected serious harm to patients. In addition, some clinical trials are overseen by an
independent group of qualified experts organized by the sponsor, known as a data safety monitoring board or committee. Depending on its charter, this
group may determine whether a trial may move forward at designated check points based on access to certain data from the trial. There are also
requirements governing the reporting of ongoing clinical trials and completed trial results to public registries. Sponsors of certain clinical trials of FDA-
regulated products are required to register and disclose specified clinical trial information, which is publicly available at www.clinicaltrials.gov.
Information related to the product, patient population, phase of investigation, trial sites and investigators and other aspects of the clinical trial is then made
public as part of the registration. Sponsors are also obligated to disclose the results of their clinical trials after completion. Disclosure of the results of these
trials can be delayed until the new product or new indication being studied has been approved.
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 volunteers and tested for safety, dosage tolerance,
absorption, metabolism, distribution and excretion and, if possible, to gain an early indication of its effectiveness. In the case of
some products for severe or life-threatening diseases, such as cancer, especially when the product may be too inherently toxic to
ethically administer to healthy volunteers, the initial human testing is often conducted in patients.
Phase 2: This phase involves clinical trials in a limited patient population to identify possible adverse effects and safety risks, to
preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and
appropriate dosage.
Phase 3: Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population,
generally at geographically dispersed clinical study sites. These clinical trials are intended to establish the overall risk-benefit
ratio of the product candidate and provide an adequate basis for product labeling.
Post-approval trials, sometimes referred to as Phase 4 studies, 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, the FDA may mandate the performance
of Phase 4 clinical trials as a condition of approval of an NDA.
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During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be
prior to submission of an IND, at the end of Phase 2, and before an NDA 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, for the FDA to provide advice, and for the sponsor and the
FDA to reach agreement on the next phase of development. Sponsors typically use the meetings at the end of the Phase 2 trial to discuss Phase 2 clinical
results and present plans for the pivotal Phase 3 clinical trials that they believe will support approval of the new drug.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about
the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in commercial quantities in accordance with
cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other
things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final drug. In addition, appropriate packaging
must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration
over its shelf life.
Regulation of Combination Products in the United States
Certain products may be comprised of components, such as drug components and device components that would normally be regulated
under different types of regulatory authorities, and frequently by different centers at the FDA. These products are known as combination products.
Specifically, under regulations issued by the FDA, a combination product may be:
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•
•
•
a product comprised of two or more regulated components that are physically, chemically, or otherwise combined or mixed and
produced as a single entity;
two or more separate products packaged together in a single package or as a unit and comprised of drug and device products,
device and biological products, or biological and drug products;
a drug, or device, or biological product packaged separately that according to its investigational plan or proposed labeling is
intended for use only with an approved individually specified drug, or device, or biological product where both are required to
achieve the intended use, indication, or effect and where upon approval of the proposed product the labeling of the approved
product would need to be changed, e.g., to reflect a change in intended use, dosage form, strength, route of administration, or
significant change in dose; or
any investigational drug, or device, or biological product packaged separately that according to its proposed labeling is for use
only with another individually specified investigational drug, device, or biological product where both are required to achieve
the intended use, indication, or effect.
Under the FDCA and its implementing regulations, the FDA is charged with assigning a center with primary jurisdiction, or a lead center,
for review of a combination product. The designation of a lead center generally eliminates the need to receive approvals from more than one FDA
component for combination products, although it does not preclude consultations by the lead center with other components of FDA. The determination of
which center will be the lead center is based on the “primary mode of action” of the combination product. Thus, if the primary mode of action of a drug-
device combination product is attributable to the drug product, the FDA center responsible for premarket review of the drug product would have primary
jurisdiction for the combination product. The FDA has also established an Office of Combination Products to address issues surrounding combination
products and provide more certainty to the regulatory review process. That office serves as a focal point for combination product issues for agency
reviewers and industry. It is also responsible for developing guidance and regulations to clarify the regulation of combination products, and for assignment
of the FDA center that has primary jurisdiction for review of combination products where the jurisdiction is unclear or in dispute.
A combination product with a drug primary mode of action generally would be reviewed and approved pursuant to the drug approval
processes under the FDCA. In reviewing the NDA application for such a product, however, FDA reviewers in the drug center could consult with their
counterparts in the device center to ensure that the device component of the combination product met applicable requirements regarding safety,
effectiveness, durability and performance. In addition, under FDA regulations, combination products are subject to cGMP requirements applicable to both
drugs and devices, including the Quality System, regulations applicable to medical devices.
NDA Review and Approval Process
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The results of product development, preclinical and other non-clinical studies and clinical trials, along with descriptions of the
manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the FDA
as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of substantial user fees; a waiver of
such fees may be obtained under certain limited circumstances. Once filed, the FDA reviews an NDA to determine, among other things, whether a product
is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s identity, strength, quality
and purity. Under the Prescription Drug User Fee Act, or PDUFA, guidelines that are currently in effect, the FDA has a goal of ten months from the date of
“filing” of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the
NDA is submitted to FDA because the FDA has approximately two months to make a “filing” decision after it the application is submitted. The FDA
conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are
sufficiently complete to permit substantive review The FDA may request additional information rather than accept an NDA for filing. In this event, the
NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing.
The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts,
including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved
and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully
when making decisions. Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will not
approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to
assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA may inspect one or more
clinical trial sites to assure compliance with GCP requirements.
After the FDA evaluates an NDA, it will issue an approval letter or a Complete Response Letter. An approval letter authorizes
commercial marketing of the drug with prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the
application is complete and the application will not be approved in its present form. A Complete Response Letter usually describes the specific deficiencies
in the NDA identified by the FDA and may require additional clinical data, such as an additional clinical trial or other significant and time consuming
requirements related to clinical trials, nonclinical studies or manufacturing. If a Complete Response Letter is issued, the sponsor must resubmit the NDA or,
addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may decide
that the NDA does not satisfy the criteria for approval.
If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for
use may otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require a sponsor to conduct Phase 4
testing, which involves clinical trials designed to further assess a drug’s safety and effectiveness after NDA approval, and may require testing and
surveillance programs to monitor the safety of approved products which have been commercialized. The FDA may also place other conditions on approval
including the requirement for a risk evaluation and mitigation strategy, or REMS, to assure the safe use of the drug. If the FDA concludes a REMS is
needed, the sponsor of the NDA must submit a proposed REMS. The FDA will not approve the NDA without an approved REMS, if required. A REMS
could include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, patient registries
and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or
dispensing of products. Marketing approval may be withdrawn for non-compliance with regulatory requirements or if problems occur following initial
marketing.
In addition, the Pediatric Research Equity Act, or PREA, requires a sponsor to conduct pediatric clinical trials for most drugs, for a new
active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, original NDAs and supplements
must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the safety and
effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric
subpopulation for which the product is safe and effective. The sponsor or FDA may request a deferral of pediatric clinical trials for some or all of the
pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before
pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA
must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for
approval of a pediatric formulation.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition, which is a
disease or condition that affects fewer than 200,000 individuals in the United States or, if it affects
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more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making a drug product available in
the United States for this type of disease or condition will be recovered from sales of the product. Orphan designation must be requested before submitting
an NDA. After the FDA grants orphan designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA.
Orphan designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.
If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such
designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same
drug for the same disease or condition for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan
exclusivity or inability to manufacture the product in sufficient quantities. The designation of such drug also entitles a party to financial incentives such as
opportunities for grant funding toward clinical trial costs, tax advantages and user-fee waivers. However, competitors, may receive approval of different
products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the
orphan product has exclusivity.
In addition, if an orphan designated product receives marketing approval for an indication broader than what is designated, it may not be
entitled to orphan exclusivity. In addition, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the
request for designation was materially defective or, as noted above, if the second applicant demonstrates that its product is clinically superior to the
approved product with orphan exclusivity or the manufacturer of the approved product is unable to assure sufficient quantities of the product to meet the
needs of patients with the rare disease or condition.
Expedited Development and Review Programs
A sponsor may seek approval of its product candidate under programs designed to accelerate FDA’s review and approval of new drugs
and biological products that meet certain criteria. For example, the FDA has a fast track designation program that is intended to expedite or facilitate the
process for reviewing new drug products that meet certain criteria. Specifically, a product candidate is eligible for fast track designation if it is intended to
treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast track
designation applies to the combination of the product candidate and the specific indication for which it is being studied. The sponsor of a fast track product
candidate has opportunities for more frequent interactions with the applicable FDA review team during development. With regard to a fast track product,
the FDA may also consider for review sections of the NDA on a rolling basis before the complete application is submitted, if the sponsor provides a
schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and
the sponsor pays any required user fees upon submission of the first section of the NDA.
A product candidate 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 candidate can receive breakthrough therapy designation if preliminary clinical evidence
indicates that the product candidate, alone or in combination with one or more other drugs or biologics, 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 candidate, including involvement of senior managers.
Any NDA for a product candidate submitted to the FDA for approval, including for a product candidate with a fast track designation or
breakthrough designation, may also be eligible for other types of FDA programs intended to expedite development and review, such as priority review and
accelerated approval. An NDA is eligible for priority review if the product candidate is designed to treat a serious or life-threatening disease or condition,
and if approved, would provide a significant improvement in safety or effectiveness compared to available alternatives for such disease or condition. The
FDA will attempt to direct additional resources to the evaluation of an application designated for priority review in an effort to facilitate the review. The
FDA endeavors to review applications with priority review designations within six months of the filing date as compared to ten months for review of new
molecular entity NDAs under its current PDUFA review goals.
In addition, a product candidate may be eligible for accelerated approval. Drug products intended to treat serious or life-threatening
diseases or conditions may be eligible for 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 approval, the FDA will generally require that a sponsor of a drug receiving
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accelerated approval perform adequate and well-controlled confirmatory clinical trials. 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. FDA may
withdraw approval of a drug or indication approved under accelerated approval on an expedited basis if, for example, the confirmatory trial fails to verify
the predicted clinical benefit of the product or if the sponsor fails to conduct such trials in a timely manner.
Fast track designation, breakthrough therapy designation, priority review and accelerated approval do not change the standards for
approval but may expedite the development or approval process. Even if a product candidate qualifies for one or more of these programs, the FDA may
later decide that the product candidate no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not
be shortened.
Post-Approval Requirements
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory standards is not maintained or if
problems occur after the product reaches the market. Later discovery of previously unknown problems with a product may result in restrictions on the
product or even complete withdrawal of the product from the market. After approval, some types of changes to the approved product, such as adding new
indications, certain manufacturing changes and additional labeling claims, are subject to further FDA review and approval. Drug manufacturers and other
entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state
agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP regulations and other laws
and regulations. In addition, the FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA
may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness
after commercialization.
Any drug products manufactured or distributed pursuant to FDA approvals will be subject to pervasive and continuing regulation by the
FDA, including, among other things, record-keeping requirements, reporting of adverse experiences with the drug, providing the FDA with updated safety
and efficacy information, drug sampling and distribution requirements, complying with certain electronic records and signature requirements, and
complying with FDA promotion and advertising requirements. The FDA strictly regulates labeling, advertising, promotion and other types of information
on products that are placed on the market and imposes requirements and restrictions on drug manufacturers, such as those related to direct-to-consumer
advertising, the prohibition on promoting products for uses or in patient populations that are not described in the product’s approved labeling (known as
“off-label use”), industry-sponsored scientific and educational activities, and promotional activities involving the internet.
Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements may result in restrictions
on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions. Failure to comply with the
applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant or
manufacturer to administrative or judicial civil or criminal sanctions and adverse publicity. FDA sanctions could include refusal to approve pending
applications, withdrawal of an approval, clinical holds on post-approval clinical trials, warning or untitled letters, product recalls, product seizures, total or
partial suspension of production or distribution, injunctions, fines, refusals of government contracts, mandated corrective advertising or communications
with doctors, debarment, restitution, disgorgement of profits, or civil or criminal penalties.
Marketing Exclusivity
Market exclusivity provisions under the FDCA can delay the submission or the approval of certain marketing applications. The FDCA
provides a five-year period of non-patent data exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical
entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the
molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not approve or even accept for review an
abbreviated new drug application, or ANDA, or an NDA submitted under Section 505(b)(2), or 505(b)(2) NDA, submitted by another company for another
drug based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovative drug or for another
indication, where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be
submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator
NDA holder.
The FDCA alternatively provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if new clinical
investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval
of the application, for example new indications, dosages or
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strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical
investigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the active agent for the original indication
or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full
NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to
demonstrate safety and effectiveness.
Pediatric exclusivity is another type of marketing exclusivity available in the United States. Pediatric exclusivity provides for an
additional six months of marketing exclusivity attached to another period of exclusivity if a sponsor conducts clinical trials in children in response to a
written request from the FDA. The issuance of a written request does not require the sponsor to undertake the described clinical trials. In addition, orphan
drug exclusivity, as described above, may offer a seven-year period of marketing exclusivity, except in certain circumstances.
U.S. Coverage and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any product candidate for which we may seek regulatory
approval. Sales in the United States will depend, in part, on the availability of sufficient coverage and adequate reimbursement from third-party payors,
which include government health programs such as Medicare, Medicaid, TRICARE and the Veterans Administration, as well as managed care
organizations and private health insurers. Prices at which we or our customers seek reimbursement for our product candidates can be subject to challenge,
reduction or denial by third-party payors.
The process for determining whether a third-party payor will provide coverage for a product is typically separate from the process for
setting the reimbursement rate that the payor will pay for the product. A third-party payor’s decision to provide coverage for a product does not imply that
an adequate reimbursement rate will be available. Additionally, in the United States there is no uniform policy among payors for coverage or
reimbursement. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement
policies, but also have their own methods and approval processes. Therefore, coverage and reimbursement for products can differ significantly from payor
to payor. If coverage and adequate reimbursement are not available, or are available only at limited levels, successful commercialization of, and obtaining a
satisfactory financial return on, any product we develop may not be possible.
Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products
and services, in addition to their safety and efficacy. In order to obtain coverage and reimbursement for any product that might be approved for marketing,
we may need to conduct expensive studies in order to demonstrate the medical necessity and cost-effectiveness of any products, which would be in addition
to the costs expended to obtain regulatory approvals. Third-party payors may not consider our product candidates to be medically necessary or cost-
effective compared to other available therapies, or the rebate percentages required to secure favorable coverage may not yield an adequate margin over cost
or may not enable us to maintain price levels sufficient to realize an appropriate return on our investment in drug development.
U.S. Healthcare Reform
In the United States, there has been, and continues to be, several legislative and regulatory changes and proposed changes regarding the
healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect the
profitable sale of product candidates.
Among policy makers and payors in the United States, there is significant interest in promoting changes in healthcare systems with the
stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a
particular focus of these efforts and has been significantly affected by major legislative initiatives. In March 2010, the Patient Protection and Affordable
Care Act, or ACA, was passed, which substantially changed the way healthcare is financed by both the government and private insurers, and significantly
impacts the U.S. pharmaceutical industry. The ACA, among other things: (1) 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; (2) created a new
methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for certain drugs and biologics that are
inhaled, infused, instilled, implanted or injected; (3) established an annual, nondeductible fee on any entity that manufactures or imports certain specified
branded prescription drugs and biologic agents apportioned among these entities according to their market share in certain government healthcare
programs; (4) expanded the availability of lower pricing under the 340B drug pricing program by adding new entities to the program; (5) expanded the
eligibility criteria for Medicaid programs; (6) created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct
comparative clinical effectiveness research, along with funding for such
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research; (7) created a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (which was increased to 70%
commencing January 1, 2019) point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap
period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; (8) established a new Patient-Centered Outcomes
Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and
(9) established a Center for Medicare and Medicaid Innovation at the Centers for Medicare & Medicaid Services, or CMS, to test innovative payment and
service delivery models to lower Medicare and Medicaid spending, potentially including prescription drugs.
Since its enactment, there have been judicial and political challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme
Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA.
Prior to the Supreme Court’s decision, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through
August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain
governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining
Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to
health insurance coverage through Medicaid or the ACA.
Other legislative changes have been proposed and adopted since the ACA was enacted. On August 2, 2011, the Budget Control Act of
2011 was signed into law, which, among other things, resulted in aggregate reductions of Medicare payments to providers, which went into effect on
April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2032, with the exception of a temporary
suspension from May 1, 2020 through March 31, 2022, 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, reduced Medicare payments to several providers, including hospitals, and increased the statute
of limitations period for the government to recover overpayments to providers from three to five years.
Moreover, there has recently 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 and enacted federal and state legislation designed to, among other
things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government
program reimbursement methodologies for drug products. Most recently, on August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into
law. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices
that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first
due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary
of HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. For that and other reasons, it is currently
unclear how the IRA will be effectuated. At the state level, legislatures have increasingly passed legislation and implemented 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 expect that healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria, new payment
methodologies and additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or
other government programs may result in a similar reduction in payments from private payors.
U.S. Healthcare Fraud and Abuse Laws and Compliance Requirements
Federal, state and foreign healthcare laws and regulations restrict business practices in the biopharmaceutical industry. These laws include
anti-kickback and false claims laws and regulations, and transparency laws and regulations.
The federal Anti-Kickback Statute prohibits, among other things, individuals or entities from knowingly and willfully offering, paying,
soliciting or receiving remuneration, directly or indirectly, overtly or covertly, in cash or in kind to induce or in return for purchasing, leasing, ordering or
arranging for or recommending the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare
programs. A person or entity does not need to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation.
The federal civil and criminal false claims laws, including the civil False Claims Act, prohibit, among other things, any individual or
entity from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, using or causing
to be made or used a false record or statement material to a false or fraudulent claim to the federal government. In addition, the government may assert that
a claim including items or services
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resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act and the civil
monetary penalties statute.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal civil and criminal statutes
that prohibit, among other things, knowingly and willfully executing a scheme to defraud any healthcare benefit program. Similar to the federal Anti-
Kickback Statute, A person or entity does not need to have actual knowledge of this statute or specific intent to violate it in order to have committed a
violation.
The federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which
payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to CMS
information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and
chiropractors), certain non-physician providers including physician assistants and nurse practitioners, and teaching hospitals, and applicable manufacturers
and applicable group purchasing organizations to report annually to CMS ownership and investment interests held by physicians (as defined by statute) and
their immediate family members.
Similar state, local and foreign laws and regulations may also restrict business practices in the biopharmaceutical industry, such as state
anti-kickback and false claims laws, which may apply to business practices, including but not limited to, research, distribution, sales and marketing
arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, or by
patients themselves; 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, or otherwise restrict payments that may be made to healthcare providers and
other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information or
which require tracking gifts and other remuneration and items of value provided to physicians, other healthcare providers and entities; and state and local
laws that require the registration of pharmaceutical sales representatives.
Foreign laws and regulations may be broader in scope than the provisions described above and may apply regardless of payor. These laws
and regulations may differ from one another in significant ways, thus further complicating compliance efforts. For instance, in the EU, many EU member
states have adopted specific anti-gift statutes that further limit commercial practices for medicinal products, in particular vis-à-vis healthcare professionals
and organizations. Additionally, there has been a recent trend of increased regulation of payments and transfers of value provided to healthcare
professionals or entities and many EU member states have adopted national “Sunshine Acts” which impose reporting and transparency requirements (often
on an annual basis), similar to the requirements in the United States, on pharmaceutical companies. Certain countries also mandate implementation of
commercial compliance programs, or require disclosure of marketing expenditures and pricing information.
Efforts to ensure compliance with applicable healthcare laws and regulations can involve substantial costs. Violations of healthcare laws
can result in significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines,
disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other U.S. and foreign healthcare programs,
integrity oversight and reporting obligations, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or
restructuring of operations.
U.S. Data Privacy and Security Laws
Numerous state and federal laws, regulations and standards govern the collection, use, access to, confidentiality and security of health-
related and other personal information, and could apply now or in the future to our operations or the operations of our partners. In the United States,
numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws, and federal and state
consumer protection laws and regulations that govern the collection, use, disclosure, and protection of health-related and other personal information could
apply to our operations or the operations of our partners. Failure to comply with these laws, where applicable, can result in the imposition of significant
civil and/or criminal penalties and private litigation. Privacy and security laws, regulations, and other obligations are constantly evolving, may conflict with
each other to make compliance efforts more challenging, and can result in investigations, proceedings, or actions that lead to significant penalties and
restrictions on data processing.
Foreign Regulation
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In order to market any product outside of the United States, we need to comply with numerous and varying regulatory requirements of
other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization,
commercial sales and distribution of our products.
Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals by the comparable foreign
regulatory authorities before we can commence clinical trials or marketing of the product in foreign countries and jurisdictions. Although many of the
issues discussed above with respect to the United States apply similarly in the context of the European Union, or EU, the approval process varies between
countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in
other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or
jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may
negatively impact the regulatory process in others.
Failure to comply with applicable foreign regulatory requirements, may be subject to, among other things, fines, suspension or
withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Non-clinical studies and clinical trials
Similar to the U.S., the various phases of non-clinical and clinical research in the EU are subject to significant regulatory controls.
Non-clinical studies are performed to demonstrate the health or environmental safety of new chemical or biological substances. Non-
clinical (pharmaco-toxicological) studies must be conducted in compliance with the principles of good laboratory practice, or GLP, as set forth in EU
Directive 2004/10/EC (unless otherwise justified for certain particular medicinal products – e.g., radio-pharmaceutical precursors for radio-labelling
purposes). In particular, non-clinical studies, both in vitro and in vivo, must be planned, performed, monitored, recorded, reported and archived in
accordance with the GLP principles, which define a set of rules and criteria for a quality system for the organizational process and the conditions for non-
clinical studies. These GLP standards reflect the Organization for Economic Co-operation and Development requirements.
Certain countries outside of the United States have a similar process that requires the submission of a clinical trial application much like
the IND prior to the commencement of human clinical trials. Clinical trials of medicinal products in the EU must be conducted in accordance with EU and
national regulations and the International Conference on Harmonization, or ICH, guidelines on GCP as well as the applicable regulatory requirements and
the ethical principles that have their origin in the Declaration of Helsinki. If the sponsor of the clinical trial is not established within the EU, it must appoint
an EU entity to act as its legal representative. The sponsor must take out a clinical trial insurance policy, and in most EU countries, the sponsor is liable to
provide ‘no fault’ compensation to any study subject injured in the clinical trial.
The regulatory landscape related to clinical trials in the EU has been subject to recent changes. The EU Clinical Trials Regulation, or
CTR, which was adopted in April 2014 and repeals the EU Clinical Trials Directive, became applicable on January 31, 2022. Unlike directives, the CTR is
directly applicable in all EU member states without the need for member states to further implement it into national law. The CTR notably harmonizes the
assessment and supervision processes for clinical trials throughout the EU via a Clinical Trials Information System, which contains a centralized EU portal
and database.
While the Clinical Trials Directive required a separate clinical trial application, or CTA, to be submitted in each member state in which
the clinical trial takes place, to both the competent national health authority and an independent ethics committee, much like the FDA and IRB respectively,
the CTR introduces a centralized process and only requires the submission of a single application for multi-center trials. The CTR allows sponsors to make
a single submission to both the competent authority and an ethics committee in each member state, leading to a single decision per member state. The CTA
must include, among other things, a copy of the trial protocol and an investigational medicinal product dossier containing information about the
manufacture and quality of the medicinal product under investigation. The assessment procedure of the CTA has been harmonized as well, including a joint
assessment by all member states concerned, and a separate assessment by each member state with respect to specific requirements related to its own
territory, including ethics rules. Each member state’s decision is communicated to the sponsor via the centralized EU portal. Once the CTA is approved,
clinical trial development may proceed.
The CTR foresees a three-year transition period. The extent to which ongoing and new clinical trials will be governed by the CTR varies.
Clinical trials for which an application was submitted (i) prior to January 31, 2022 under the Clinical Trials Directive, or (ii) between January 31, 2022 and
January 31, 2023 and for which the sponsor has opted for the
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application of the EU Clinical Trials Directive remain governed by said Directive until January 31, 2025. After this date, all clinical trials (including those
which are ongoing) will become subject to the provisions of the CTR.
Medicines used in clinical trials must be manufactured in accordance with Good Manufacturing Practices , or GMP. Other national and
EU-wide regulatory requirements may also apply.
Marketing Authorization
To market a medicinal product in the EU, we must obtain a marketing authorization, or MA. To obtain regulatory approval of an
investigational medicinal product under EU regulatory systems, we must submit a MA application, or MAA. The process for doing this depends, among
other things, on the nature of the medicinal product. There are two types of MAs:
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”Centralized MAs” are is issued by the EC through the centralized procedure, based on the opinion of the Committee for
Medicinal Products for Human Use, or CHMP, of the European Medicines Agency, or EMA, and are valid throughout the EU.
The centralized procedure is mandatory for certain types of products, such as: (i) medicinal products derived from biotechnology
medicinal products, (ii) designated orphan medicinal products, (iii) advanced therapy medicinal products, or ATMPs, and (iv)
medicinal products containing a new active substance indicated for the treatment certain diseases, such as HIV/AIDS, cancer,
neurodegenerative diseases, diabetes, auto-immune and other dysfunctions and viral diseases. The centralized procedure is
optional for products containing a new active substance not yet authorized in the EU, or for products that constitute a significant
therapeutic, scientific or technical innovation or which are in the interest of public health in the EU.
“National MAs” are issued by the competent authorities of the EU member states, only cover their respective territory, and are
available for products not falling within the mandatory scope of the centralized procedure. Where a product has already been
authorized for marketing in an EU member state, this national MA can be recognized in another member state through the
mutual recognition procedure. If the product has not received a national MA in any member state at the time of application, it
can be approved simultaneously in various member states through the decentralized procedure. Under the decentralized
procedure an identical dossier is submitted to the competent authorities of each of the member states in which the MA is sought,
one of which is selected by the applicant as the reference member state.
Under the above described procedures, before granting the MA, the regulatory authorities make an assessment of the risk-benefit balance
of the product on the basis of scientific criteria concerning its quality, safety and efficacy.
Under the centralized procedure the maximum timeframe for the evaluation of a MAA by the EMA is 210 days. In exceptional cases, the
CHMP might perform an accelerated review of a MAA in no more than 150 days (not including clock stops). Innovative products that target an unmet
medical need and are expected to be of major public health interest may be eligible for a number of expedited development and review programs, such as
the Priority Medicines, or PRIME, scheme, which provides incentives similar to the breakthrough therapy designation in the U.S. In March 2016, the EMA
launched an initiative, the PRIME scheme, a voluntary scheme aimed at enhancing the EMA’s support for the development of medicines that target unmet
medical needs. It is based on increased interaction and early dialogue with companies developing promising medicines, to optimize their product
development plans and speed up their evaluation to help them reach patients earlier. Product developers that benefit from PRIME designation can expect to
be eligible for accelerated assessment but this is not guaranteed. Many benefits accrue to sponsors of product candidates with PRIME designation,
including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development
program elements, and accelerated MAA assessment once a dossier has been submitted. Importantly, a dedicated contact and rapporteur from the CHMP is
appointed early in the PRIME scheme facilitating increased understanding of the product at EMA’s committee level. An initial meeting initiates these
relationships and includes a team of multidisciplinary experts at the EMA to provide guidance on the overall development and regulatory strategies.
Moreover, in the EU, a “conditional” MA may be granted in cases where all the required safety and efficacy data are not yet available.
The conditional MA is subject to conditions to be fulfilled for generating the missing data or ensuring increased safety measures. It is valid for one year and
has to be renewed annually until fulfillment of all the conditions. Once the pending studies are provided, it can become a “standard” MA. However, if the
conditions are not fulfilled within the timeframe set by the EMA, the MA ceases to be renewed. Furthermore, MA may also be granted “under exceptional
circumstances” when the applicant can show that it is unable to provide comprehensive data on the efficacy and safety under normal conditions of use even
after the product has been authorized and subject to specific procedures being introduced. This
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may arise in particular when the intended indications are very rare and, in the present state of scientific knowledge, it is not possible to provide
comprehensive information, or when generating data may be contrary to generally accepted ethical principles. This MA is close to the conditional MA as it
is reserved to medicinal products to be approved for severe diseases or unmet medical needs and the applicant does not hold the complete data set legally
required for the grant of a MA. However, unlike the conditional MA, the applicant does not have to provide the missing data and will never have to.
Although the MA “under exceptional circumstances” is granted definitively, the risk-benefit balance of the medicinal product is reviewed annually and the
MA is withdrawn in case the risk-benefit ratio is no longer favorable.
MAs have an initial duration of five years. After these five years, the authorization may be renewed for an unlimited period on the basis
of a reevaluation of the risk-benefit balance.
Data and marketing exclusivity
In the EU, new products authorized for marketing, or reference products, generally receive eight years of data exclusivity and an
additional two years of market exclusivity upon MA. If granted, the data exclusivity period prevents generic or biosimilar applicants from relying on the
preclinical and clinical trial data contained in the dossier of the reference product when applying for a generic or biosimilar MA in the EU during a period
of eight years from the date on which the reference product was first authorized in the EU. During the additional two‑year period of market exclusivity, a
generic or biosimilar MAA can be submitted, and the innovator’s data may be referenced, but no generic or biosimilar product can be marketed until 10
years have elapsed from the initial MA of the reference product in the EU. The overall 10-year market exclusivity period can be extended to a maximum of
eleven years if, during the first eight years of those 10 years, the MA holder obtains an authorization for one or more new therapeutic indications which,
during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. However,
there is no guarantee that a product will be considered by the EU’s regulatory authorities to be a new chemical entity, and products may not qualify for data
exclusivity.
Pediatric development
In the EU, MAAs for new medicinal products have to include the results of trials conducted in the pediatric population, in compliance
with a pediatric investigation plan, or PIP, agreed with the EMA’s Pediatric Committee, or PDCO. The PIP sets out the timing and measures proposed to
generate data to support a pediatric indication of the drug for which marketing authorization is being sought. The PDCO can grant a deferral of the
obligation to implement some or all of the measures of the PIP until there are sufficient data to demonstrate the efficacy and safety of the product in adults.
Further, the obligation to provide pediatric clinical trial data can be waived by the PDCO when these data is not needed or appropriate because the product
is likely to be ineffective or unsafe in children, the disease or condition for which the product is intended occurs only in adult populations, or when the
product does not represent a significant therapeutic benefit over existing treatments for pediatric patients. Once the MA is obtained in all EU member states
and study results are included in the product information, even when negative, the product is eligible for six months’ supplementary protection certificate
extension (if any is in effect at the time of approval) or, in the case of orphan pharmaceutical products, a two year extension of the orphan market
exclusivity is granted.
Orphan drug designation
The criteria for designating an “orphan medicinal product” in the EU are similar in principle to those in the United States. A medicinal
product may be designated as orphan if its sponsor can establish that (1) the product is intended for the diagnosis, prevention or treatment of a life
threatening or chronically debilitating condition (2) either (a) such condition affects not more than five in 10,000 persons in the EU when the application is
made, or (b) the product, without the benefits derived from the orphan status, would not generate sufficient return in the EU to justify the necessary
investment; and (3) there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized for
marketing in the EU or, if such method exists, the product will be of significant benefit to those affected by that condition.
In the EU, an application for designation as an orphan product can be made any time prior to the filing of an MAA. Orphan designation
entitles a party to incentives such fee reductions or fee waivers, protocol assistance, and access to the centralized procedure. Upon grant of a MA, orphan
medicinal products are entitled to a ten-year period of market exclusivity for the approved therapeutic indication, which means that the regulatory
authorities cannot accept another MAA, or grant a MA, or accept an application to extend a MA for a similar product for the same indication for a period of
ten years. The period of market exclusivity is extended by two years for orphan medicinal products that have also complied with an agreed PIP. No
extension to any supplementary protection certificate can be granted on the basis of pediatric studies for orphan indications. Orphan designation does not
convey any advantage in, or shorten the duration of, the regulatory review and approval process.
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The orphan exclusivity period may, however, be reduced to six years if, at the end of the fifth year, it is established that the product no
longer meets the criteria for orphan designation, for example because the product is sufficiently profitable not to justify market exclusivity, or where the
prevalence of the condition has increased above the threshold. Granting of an authorization for another similar orphan medicinal product can happen at any
time if: (i) the second applicant can establish that its product, although similar to the authorized product, is safer, more effective or otherwise clinically
superior, (ii) inability of the applicant to supply sufficient quantities of the orphan medicinal product or (iii) where the applicant consents to a second
orphan medicinal product application. A company may voluntarily remove a product from the orphan register.
Post-Approval Requirements
Similar to the United States, both MA holders and manufacturers of medicinal products are subject to comprehensive regulatory
oversight by the EMA, the EC and/or the competent regulatory authorities of the member states. The holder of a MA must establish and maintain a
pharmacovigilance system and appoint an individual qualified person for pharmacovigilance, or QPPV, who is responsible for establishment and
maintenance of that system, and oversees the safety profiles of medicinal products and any emerging safety concerns. Key obligations include expedited
reporting of suspected serious adverse reactions and submission of periodic safety update reports, or PSURs.
All new MAA must include a risk management plan, or RMP describing the risk management system that the company will put in place
and documenting measures to prevent or minimize the risks associated with the product. The regulatory authorities may also impose specific obligations as
a condition of the MA. Such risk-minimization measures or post-authorization obligations may include additional safety monitoring, more frequent
submission of PSURs, or the conduct of additional clinical trials or post-authorization safety studies.
The advertising and promotion of medicinal products is also subject to laws concerning promotion of medicinal products, interactions
with physicians, misleading and comparative advertising and unfair commercial practices. All advertising and promotional activities for the product must
be consistent with the approved summary of product characteristics, and therefore all off-label promotion is prohibited. Direct-to-consumer advertising of
prescription medicines is also prohibited in the EU. Although general requirements for advertising and promotion of medicinal products are established
under EU directives, the details are governed by regulations in each member state and can differ from one country to another.
The aforementioned EU rules are generally applicable in the European Economic Area, or EEA, which consists of the 27 EU member
states plus Norway, Liechtenstein and Iceland.
Failure to comply with EU and member state laws that apply to the conduct of clinical trials, manufacturing approval, MA of medicinal
products and marketing of such products, both before and after grant of the MA, manufacturing of pharmaceutical products, statutory health insurance,
bribery and anti-corruption or with other applicable regulatory requirements may result in administrative, civil or criminal penalties. These penalties could
include delays or refusal to authorize the conduct of clinical trials, or to grant MA, product withdrawals and recalls, product seizures, suspension,
withdrawal or variation of the MA, total or partial suspension of production, distribution, manufacturing or clinical trials, operating restrictions, injunctions,
suspension of licenses, fines and criminal penalties.
Regulation of Combination Products in the EU
The EU regulates medical devices and medicinal products separately, through different legislative instruments, and the applicable
requirements will vary depending on the type of drug-device combination product. EU guidance has been published to help manufacturers select the right
regulatory framework.
Drug-delivery products intended to administer a medicinal product where the medicinal product and the device form a single integral
product are regulated as medicinal products in the EU. The EMA is responsible for evaluating the quality, safety and efficacy of MAAs submitted through
the centralized procedure, including the safety and performance of the medical device in relation to its use with the medicinal product. The EMA or the EU
member state national competent authority will assess the product in accordance with the rules for medicinal products described above but the device part
must comply with the Medical Devices Regulation (including the general safety and performance requirements provided in Annex I). MAA must include –
where available – the results of the assessment of the conformity of the device part with the Medical Devices Regulation contained in the manufacturer’s
EU declaration of conformity of the device or the relevant certificate issued by a notified body. If the MAA does not include the results of the conformity
assessment and where for the conformity assessment of the device, if used separately, the involvement of a notified body is required, the competent
authority must require the applicant to provide a notified body opinion on the conformity of the device.
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By contrast, in case of drug-delivery products intended to administer a medicinal product where the device and the medicinal product do
not form a single integral product (but are e.g. co-packaged), the medicinal product is regulated in accordance with the rules for medicinal products
described above while the device part is regulated as a medical device and will have to comply with all the requirements set forth by the Medical Devices
Regulation.
The characteristics of non-integral devices used for the administration of medicinal products may impact the quality, safety and efficacy
profile of the medicinal products. To the extent that administration devices are co-packaged with the medicinal product or, in exceptional cases, where the
use of a specific type of administration device is specifically provided for in the product information of the medicinal product, additional information may
need to be provided in the MAA for the medicinal product on the characteristics of the medical device(s) that may impact on the quality, safety and/or
efficacy of the medicinal product.
The requirements regarding quality documentation for medicinal products when used with a medical device, including single integral
products, co-packaged and referenced products, are outlined in the EMA guideline of July 22, 2021, which became applicable as of January 1, 2022.
The aforementioned EU rules are generally applicable in the EEA.
Brexit and the Regulatory Framework in the United Kingdom
Since the end of the Brexit transition period on January 1, 2021, Great Britain (England, Scotland and Wales) has not been directly
subject to EU laws, however under the terms of the Ireland/Northern Ireland Protocol, EU laws generally apply to Northern Ireland. It is currently unclear
to what extent the Government of the United Kingdom, or UK, will seek to align its regulations with the EU. The EU laws that have been transposed into
UK law through secondary legislation remain applicable in Great Britain. However, under the Retained EU Law (Revocation and Reform) Bill 2022, which
is currently before the UK parliament, any retained EU law not expressly preserved and “assimilated” into domestic law or extended by ministerial
regulations (to no later than June 23, 2026) will automatically expire and be revoked by December 31, 2023. In addition, new legislation such as the (EU)
CTR is not applicable in Great Britain. Whilst the EU-UK Trade and Cooperation Agreement, or TCA, includes the mutual recognition of GMP inspections
of manufacturing facilities for medicinal products and GMP documents issued, it does not contain wholesale mutual recognition of UK and EU
pharmaceutical regulations and product standards. There may be divergent local requirements in Great Britain from the EU in the future, which may impact
clinical and development activities that occur in the UK in the future. Similarly, clinical trial submissions in the UK will not be able to be bundled with
those of EU countries within the EMA Clinical Trial Information System, or CTIS, adding further complexity, cost and potential risk to future clinical and
development activity in the UK. Significant political and economic uncertainty remains about how much the relationship between the UK and EU will
differ as a result of the UK’s withdrawal.
The UK government has passed a new Medicines and Medical Devices Act 2021, which introduces delegated powers in favor of the
Secretary of State or an ‘appropriate authority’ to amend or supplement existing regulations in the area of medicinal products and medical devices. This
allows new rules to be introduced in the future by way of secondary legislation, which aims to allow flexibility in addressing regulatory gaps and future
changes in the fields of human medicines, clinical trials and medical devices.
Since January 1, 2021, the Medicines and Healthcare products Regulatory Agency, or MHRA, has been the UK’s standalone medicines
and medical devices regulator. As a result of the Northern Ireland protocol, different rules will apply in Northern Ireland than in England, Wales, and
Scotland, together, Great Britain, or GB; broadly, Northern Ireland will continue to follow the EU regulatory regime, but its national competent authority
will remain the MHRA.
The MHRA has introduced changes to national licensing procedures, including procedures to prioritize access to new medicines that will
benefit patients, including a 150-day assessment and a rolling review procedure. All existing EU MAs for centrally authorized products were automatically
converted or grandfathered into UK MAs, effective in GB (only), free of charge on January 1, 2021, unless the MA holder has to opted-out. In order to use
the centralized procedure to obtain a MA that will be valid throughout the EEA, companies must be established in the EEA. Therefore after Brexit,
companies established in the UK can no longer cannot use the EU centralized procedure and instead an EEA entity must hold any centralized MAs. In
order to obtain a UK MA to commercialize products in the UK, an applicant must be established in the UK and must follow one of the UK national
authorization procedures or one of the remaining post-Brexit international cooperation procedures to obtain an MA to commercialize products in the UK.
The MHRA may rely on a decision taken by the EC on the approval of a new (centralized procedure) MA when determining an application for a GB
authorization; or use the MHRA’s decentralized or mutual recognition procedures which enable MAs approved in EU member states (or Iceland,
Liechtenstein, Norway) to be granted in GB.
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There will be no pre-MA orphan designation. Instead, the MHRA will review applications for orphan designation in parallel to the
corresponding MA application. The criteria are essentially the same, but have been tailored for the market, i.e., the prevalence of the condition in GB,
rather than the EU, must not be more than five in 10,000. Should an orphan designation be granted, the period or market exclusivity will be set from the
date of first approval of the product in GB.
The UK regulatory framework in relation to clinical trials is derived from existing EU legislation (as implemented into UK law, through
secondary legislation). On January 17, 2022, the MHRA launched an eight-week consultation on reframing the UK legislation for clinical trials. The
consultation closed on March 14, 2022 and aims to streamline clinical trials approvals, enable innovation, enhance clinical trials transparency, enable
greater risk proportionality, and promote patient and public involvement in clinical trials. The outcome of the consultation is being closely watched and will
determine whether the UK chooses to align with the (EU) CTR or diverge from it to maintain regulatory flexibility.
Data privacy and security laws
We are also subject to laws and regulations in non-U.S. countries governing data privacy and the protection of personal data, including
health-related data. Laws and regulations in the EU and other jurisdictions apply broadly to the collection, use, storage, disclosure, processing and security
of personal data, and have generally become more stringent over time. Privacy and security laws, regulations, and other obligations are constantly evolving,
may conflict with each other to complicate compliance efforts, and can result in investigations, proceedings, or actions that lead to significant civil and/or
criminal penalties and restrictions on data processing.
Human Capital
We have assembled a deeply experienced and highly skilled group of industry veterans, scientists, clinicians and key opinion leaders from
leading biotechnology and pharmaceutical companies, as well as leading academic centers from around the world. Our employees are a team of highly
dedicated, passionate individuals who pride themselves on a culture of respect, humility, transparency, inclusion, dedication, collaboration and fun. Our
ultimate goal is to enhance and extend the lives of patients.
Our philosophy is to offer a comprehensive compensation and benefits package to support our greatest assets, our people, and our human
capital resources objectives include, as applicable, identifying, attracting, retaining and motivating our highly qualified management and our clinical,
scientific and other employees and consultants. The principal purposes of our equity and cash incentive plans are to attract, retain and motivate personnel
through the granting of stock-based and cash-based compensation awards, in order to align our interests and the interests of our stockholders with those of
our employees and consultants.
As of March 10, 2023, we had 178 full-time employees and no part-time employees. Of those 178 employees, 54, or 30%, have a Ph.D.
or M.D., and 94, or 53%, are women. None of our employees are represented by labor unions or covered by collective bargaining agreements. We consider
our relationship with our employees to be good.
Corporate Information
We were incorporated under the laws of the state of Delaware on October 26, 2015 under the name FSG, Bio, Inc. and changed our name
to Gossamer Bio, Inc. in 2017. Our principal executive offices are located at 3013 Science Park Road, San Diego, California 92121, and our telephone
number is (858) 684-1300.
Available Information
Our internet address is www.gossamerbio.com. Our investor relations website is located at http://ir.gossamerbio.com. We make available
free of charge on our investor relations website under “filings” our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, our directors’ and officers’ Section 16 reports and any amendments to those reports as soon as reasonably practicable after filing or furnishing such
materials to the US Securities and Exchange Commission, or SEC. They are also available for free on the SEC’s website at www.sec.gov. We use our
investor relations website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation
FD. Investors should monitor such website, in addition to following our press releases, SEC filings and public conference calls and webcasts. Information
relating to our corporate governance is also included on our investor relations website. The information in or accessible through the SEC and our website
are not incorporated into, and are not considered part of, this filing. Further, our references to the URLs for these websites are intended to be inactive
textual references only.
Item 1A. Risk Factors.
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You should carefully consider the following risk factors, together with the other information contained 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,” before making a decision to purchase or sell shares of our common stock. We cannot assure you that any of the events discussed in the risk
factors below will not occur. These risks could have a material and adverse impact on our business, results of operations, financial condition and growth
prospects. If that were to happen, the trading price of our common stock could decline. Additional risks and uncertainties not presently known to us or that
we currently deem immaterial also may impair our business operations or financial condition.
Summary Risk Factors
The risk factors described below are a summary of the principal risk factors associated with an investment in us. These are not the only
risks we face. You should carefully consider these risk factors, together with the risk factors set forth in this Item 1A.
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We have a limited operating history, a history of losses and expect to incur additional losses in the future.
We will require substantial additional financing to achieve our goals.
Our business activities could be adversely affected by the global COVID-19 pandemic and other epidemic diseases.
We depend heavily on the ability to successfully advance our product candidates through clinical development.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and the results of preclinical
studies and early clinical trials are not necessarily predictive of future results.
Our business may be adversely affected by difficulties or delays in enrolling patients in our current or planned clinical trials or
the commencement or completion, or termination or suspension, of our current or planned clinical trials.
We operate in a highly regulated industry and such regulation may cause unanticipated delays or prevent the receipt of the
required approvals to commercialize our product candidates.
We are dependent on third parties to conduct our pre-clinical and clinical trials.
We are dependent on third parties to manufacture our pre-clinical and clinical product candidates.
We may not be successful in entering into or maintaining collaborations, licenses and other similar arrangements.
If approved, the success of our product candidates will depend on meeting ongoing regulatory obligations, market acceptance
and adequate coverage by governmental authorities and insurers.
We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if
we fail to compete effectively.
Our results of operations may fluctuate significantly.
Our business relies on our ability to attract, retain and motivate highly qualified management, clinical and scientific personnel.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit
commercialization of our product candidates.
Our business relies on our ability to protect our intellectual property and our proprietary technologies.
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We must comply with our license agreements or we could lose our license rights to certain of our product candidates, including
seralutinib.
Our stock price is volatile, and investors may incur substantial losses.
We have been involved in securities class action litigation and could be subject in the future to securities class action litigation.
Risks Related to Our Limited Operating History, Financial Position and Capital Requirements
We have a limited operating history, have incurred significant operating losses since our inception and expect to incur significant losses for the
foreseeable future. We may never generate any revenue or become profitable or, if we achieve profitability, we may not be able to sustain it.
Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are a clinical-
stage biopharmaceutical company with a limited operating history upon which you can evaluate our business and prospects. We commenced operations in
2017, and to date, we have focused primarily on organizing and staffing our company, business planning, raising capital, identifying, acquiring and in-
licensing our product candidates and conducting preclinical studies and clinical trials. Seralutinib and GB5121 are in active clinical development, while
multiple other development programs remain in the preclinical or research stage. We have not yet demonstrated an ability to successfully complete any
clinical trials beyond Phase 2, obtain regulatory approvals, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or
conduct sales and marketing activities necessary for successful product commercialization. Consequently, any predictions made about our future success or
viability may not be as accurate as they could be if we had a history of successfully developing and commercializing biopharmaceutical products.
We have incurred significant operating losses since our inception. If our product candidates are not successfully developed and approved,
we may never generate any revenue. Our net losses were $229.4 million and $234.0 million for the years ended December 31, 2022 and 2021, respectively.
As of December 31, 2022, we had an accumulated deficit of $1,032.2 million. 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. All of our product
candidates, including our multiple preclinical product candidates, will require substantial additional development time and resources before we would be
able to apply for or receive regulatory approvals and begin generating revenue from product sales. We expect to continue to incur losses for the foreseeable
future, and we anticipate these losses will increase substantially as we continue our development of, seek regulatory approval for and potentially
commercialize any of our product candidates and seek to identify, assess, acquire, in-license or develop additional product candidates.
To become and remain profitable, we must succeed in developing and eventually commercializing products that generate significant
revenue. This will require us to be successful in a range of challenging activities, including completing clinical trials and preclinical studies of our product
candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling any products for which we may obtain
regulatory approval. We are only in the preliminary stages of most of these activities. We may never succeed in these activities and, even if we do, may
never generate revenues that are significant enough to achieve profitability. In addition, we have not yet demonstrated an ability to successfully overcome
many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical industry.
Because of the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to accurately predict the timing or
amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or
increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair
our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product candidates or even continue our
operations. A decline in the value of our company could also cause you to lose all or part of your investment.
We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or
at all, could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations.
The development of biopharmaceutical product candidates is capital-intensive. We expect our expenses to increase in connection with our
ongoing activities, particularly as we conduct our ongoing and planned clinical trials of seralutinib and GB5121, continue research and development,
initiate clinical trials of our multiple other development programs including GB7208, and seek regulatory approval for our current product candidates and
any future product candidates we may develop. In addition, as our product candidates progress through development and toward commercialization, we
will need to
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make milestone payments to the licensors and other third parties from whom we have in-licensed or acquired our product candidates, including seralutinib.
Furthermore, if and to the extent we seek to acquire or in-license additional product candidates in the future, we may be required to make significant
upfront payments, milestone payments, and/or licensing payments. If we obtain regulatory approval for any of our product candidates, we also expect to
incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Because the outcome of any clinical trial
or preclinical study is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and
commercialization of our product candidates. Accordingly, we will need to obtain substantial additional funding in connection with our continuing
operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and
development programs or any future commercialization efforts.
We believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operations for at least the next 12
months from the date this annual report is filed with the SEC. In particular, we expect that these funds will allow us to commence our registrational Phase 3
clinical trial in PAH for seralutinib and complete our ongoing Phase 1 healthy volunteer study for GB5121. We have based these estimates on assumptions
that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our operating plans and other demands on our cash
resources may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public
or private equity or debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. In addition, we
may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or
future operating plans. For example, in July 2020, we, and certain of our subsidiaries, as borrowers, amended our credit, guaranty and security agreement,
or the Credit Facility, with MidCap Financial Trust, or MidCap, an agent and as a lender, and the additional lenders party thereto from time to time, or
together with MidCap, the Lenders, pursuant to which the Lenders, including affiliates of MidCap and Silicon Valley Bank agreed to make a $30.0 million
term loan that was funded in May 2019. Attempting to secure additional financing may divert our management from our day-to-day activities, which may
adversely affect our ability to develop our product candidates.
Our future capital requirements will depend on many factors, including:
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the type, number, scope, progress, expansions, results, costs and timing of, our clinical trials and preclinical studies of our
product candidates which we are pursuing or may choose to pursue in the future;
the costs and timing of manufacturing for our product candidates, including commercial manufacturing if any product candidate
is approved;
the costs, timing and outcome of regulatory review of our product candidates;
the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights;
our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including
enhanced internal controls over financial reporting;
the costs associated with hiring additional personnel and consultants as our clinical activities increase;
the timing and amount of the milestone or other payments we must make to the licensors and other third parties from whom we
have in-licensed our acquired our product candidates;
the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved;
our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate
market share and revenue for any approved products;
the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements; and
costs associated with any products or technologies that we may in-license or acquire.
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Conducting clinical trials and preclinical studies is a time consuming, expensive and uncertain process that takes years to complete, and
we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, our product candidates, if
approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be
commercially available for many years, if at all.
Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing
may not be available to us on acceptable terms, or at all, including as a result of financial and credit market deterioration or instability, market-wide
liquidity shortages, geopolitical events or otherwise. In addition, we may seek additional capital due to favorable market conditions or liquidity or strategic
considerations, even if we believe we have sufficient funds for our current or future operating plans.
The terms of our Credit Facility place restrictions on our operating and financial flexibility.
On May 2, 2019, we entered into the Credit Facility, as further amended on September 18, 2019, July 2, 2020 and December 7, 2022. The
outstanding principal balance under the credit facility was $24.2 million as of December 31, 2022.
The Credit Facility includes affirmative and negative covenants applicable to us. The affirmative covenants include, among others,
covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports, maintain insurance coverage, maintain
property, pay taxes, satisfy certain requirements regarding accounts and comply with laws and regulations. The negative covenants include, among others,
restrictions on transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other
distributions, making investments, creating liens, amending material agreements and organizational documents, selling assets and suffering a change in
control, in each case subject to certain exceptions.
The Credit Facility also includes events of default, the occurrence and continuation of which could cause interest to be charged at the rate
that is otherwise applicable plus 3.0% and would provide MidCap, as agent, with the right to exercise remedies against us, and the collateral securing the
Credit Facility, including foreclosure against our properties securing the credit facilities, including our cash. These events of default include, among other
things, our failure to pay any amounts due under the credit facility, a breach of covenants under the Credit Facility, our insolvency or the occurrence of
insolvency events, the occurrence of a change in control, the occurrence of certain FDA and regulatory events, our failure to remain registered with the
SEC and listed for trading on the Nasdaq Global Select Market, or Nasdaq, the occurrence of a material adverse change, the occurrence of a default under a
material agreement reasonably expected to result in a material adverse change, the occurrence of certain defaults under certain other indebtedness in an
amount greater than $2.5 million and the occurrence of certain defaults under subordinated indebtedness and convertible indebtedness. The occurrence of
an event of default could significantly harm our business and prospects and could cause the price of our common stock to decline.
Our ability to make scheduled payments on or to refinance our indebtedness depends on our future performance and ability to raise
additional sources of cash, which is subject to economic, financial, competitive and other factors beyond our control. If we are unable to generate sufficient
cash to service our debt, we may be required to adopt one or more alternatives, such as selling assets, restructuring our debt or obtaining additional equity
capital on terms that may be onerous or highly dilutive. If we desire to refinance our indebtedness, our ability to do so will depend on the capital markets
and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which
could result in a default on our debt obligations. If we raise any additional debt financing, the terms of such additional debt could further restrict our
operating and financial flexibility.
Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business,
financial condition and results of operations and impair our ability to satisfy our obligations under the notes.
As of December 31, 2022, we have sold $200.0 million aggregate principal amount 5.00% convertible senior notes due 2027, and,
excluding intercompany indebtedness, we, including our subsidiaries, had approximately $64.7 million of additional indebtedness and other liabilities,
including trade payables, of which approximately $23.6 million was secured indebtedness under our Credit Facility. We may also incur additional
indebtedness to meet future financing needs. Our indebtedness could have significant negative consequences for our stockholders and our business, results
of operations and financial condition by, among other things:
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increasing our vulnerability to adverse economic and industry conditions;
limiting our ability to obtain additional financing;
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requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce
the amount of cash available for other purposes;
limiting our flexibility to plan for, or react to, changes in our business;
making it more difficult or expensive for a third party to acquire us;
diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of the notes;
and
placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to
capital.
Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due
under our indebtedness, including the notes, and our cash needs may increase in the future. In addition, our existing Credit Facility contains, and any future
indebtedness that we may incur may contain, financial and other restrictive covenants that limit our ability to operate our business, raise capital or make
payments under our other indebtedness. If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would
be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or
product candidates.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through equity offerings,
debt financings or other capital sources, such as our Credit Facility, including potentially collaborations, licenses and other similar arrangements. To the
extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted,
and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing
and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such
as incurring additional debt, making capital expenditures or declaring dividends.
If we raise funds through future collaborations, licenses and other similar arrangements, we may have to relinquish valuable rights to our
future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or that may reduce the value
of our common stock.
Risks Related to the Discovery, Development and Regulatory Approval of Our Product Candidates
Our business is subject to risks arising from epidemic diseases, such as the COVID-19 pandemic.
The COVID-19 pandemic and government measures taken in response have had a significant impact, both direct and indirect, on
businesses and commerce. The extent to which the COVID-19 pandemic may impact our business, including our preclinical studies, clinical trials, and
financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence. For example, our current
expectations in our ability to conduct our expected Phase 3 clinical trial of seralutinib are based on an assumption that clinical trial and healthcare activities
remain somewhat normal, clinical sites stay open throughout such clinical trial and that we do not experience slowdowns in enrollment, such as what we
experienced during the surge of the COVID-19 Delta variant in the summer of 2021 in our Phase 2 clinical trial of seralutinb. To the extent possible, and
consistent with applicable guidance from federal, state and local authorities, we are conducting business as usual, with necessary or advisable modifications
to employee travel. We will continue to monitor COVID-19 and may take further actions that alter our operations, including those that may be required by
federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom the Company does
business. In connection with the COVID-19 pandemic or an outbreak of another highly infectious or contagious disease or other health concern, we may
experience disruptions that could severely impact our business, clinical trials and manufacturing and supply chains, including:
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delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff
for our clinical trials;
delays or difficulties in enrolling patients in our clinical trials, especially if sites do not remain open to screen and enroll
patients;
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diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our
clinical trial sites and hospital staff supporting the conduct of our clinical trials;
interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or
recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study
procedures, which may impact the integrity of subject data and clinical study endpoints;
interruption of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to
staffing shortages, production slowdowns or stoppages and disruptions in delivery systems, including;
delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials and interruption in global
shipping that may affect the transport of clinical trial materials;
limitations on employee resources that would otherwise be focused on the conduct of our clinical trials, including because of
lack of overall staff or sickness of employees or their families or the desire of employees to avoid contact with large groups of
people;
interruptions or delays in the operations of the FDA, EMA, or other regulatory authorities, including in receiving feedback or
approvals from the FDA, EMA or other regulatory authorities with respect to future clinical trials or regulatory submissions;
changes in local regulations as part of a response to COVID-19 or other epidemic diseases which may require us to change the
ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials
altogether;
delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to
limitations in employee resources or forced furlough of government employees;
refusal of the FDA or EMA to accept data from clinical trials in affected geographies; and
difficulties launching or commercializing products, including due to reduced access to doctors as a result of social distancing
protocols.
In addition, the spread of COVID-19 has impacted and may continue to impact the trading price of shares of our common stock and could
impact our ability to raise additional capital on a timely basis or at all.
We depend heavily on the success of seralutinib, which is currently in Phase 2 clinical development. If we are unable to advance our product
candidates in clinical development, obtain regulatory approval and ultimately commercialize our product candidates, or experience significant delays in
doing so, our business will be materially harmed.
Our two clinical-stage product candidates are currently in Phase 1 or Phase 2 clinical development. We are conducting an open-label
extension of our Phase 2 clinical trial of seralutinib in PAH which commenced in 2020, and expect to commence a registrational Phase 3 clinical trial of
seralutinib in PAH in the second half of 2023. We also commenced a Phase 1b/2 clinical trial of GB5121 in PCNSL in 2022.
Our assumptions about why these product candidates are worthy of future development and potential approval in these, or any,
indications are based in part on data collected by other companies. We also have preclinical product candidates that will need to progress through IND-
enabling studies or similar studies in foreign jurisdictions prior to clinical development. None of our product candidates have advanced into a pivotal study
for the indications for which we are studying. Our ability to generate product revenues, which we do not expect will occur for many years, if ever, will
depend heavily on the successful development and eventual commercialization of our product candidates. The success of our product candidates will
depend on several factors, including the following:
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successful enrollment in clinical trials and completion of clinical trials and preclinical studies with favorable results;
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acceptance of INDs by the FDA or similar regulatory filing by comparable foreign regulatory authorities for the conduct of
clinical trials of our preclinical product candidates and our proposed design of future clinical trials;
demonstrating safety and efficacy to the satisfaction of applicable regulatory authorities;
receipt of marketing approvals from applicable regulatory authorities, including new drug applications, or NDAs, from the FDA
and maintaining such approvals;
making arrangements with our third-party manufacturers for, or establishing, commercial manufacturing capabilities;
establishing sales, marketing and distribution capabilities and launching commercial sales of our products, if and when
approved, whether alone or in collaboration with others;
establishment and maintenance of patent and trade secret protection or regulatory exclusivity for our product candidates;
maintaining an acceptable safety profile of our products following approval; and
maintaining and growing an organization of people who can develop our products and technology.
Certain of our product candidates, including seralutinib, are subject to regulation as combination products, which means that they are
composed of both a drug product and device product. If marketed individually, each component would be subject to different regulatory pathways and
reviewed by different centers within the FDA. Our product candidates that are considered to be drug-device combination products will require review and
coordination by FDA’s drug and device centers prior to approval, which may delay approval. Under FDA regulations, combination products are subject to
current good manufacturing practice, or cGMP, requirements applicable to both drugs and devices, including the Quality System, regulations applicable to
medical devices. The EU regulates medical devices and medicinal products separately, through different legislative instruments, and the applicable
requirements will vary depending on the type of drug-device combination product. Problems associated with the device component of the combination
product candidate may delay or prevent approval. If the manufacturer of the device products make modifications, or if we elect to change a device
component or develop our own proprietary device component, we will need to perform validation testing and obtain FDA and other regulatory approval or
certification prior to using the modified device component. If the FDA, any other regulatory authority or notified body fails to approve or certify use of
those modified devices in combination with our product candidates or take significant enforcement action against the manufacturer of the device
component, we would not be able to market or may have to suspend marketing our products in certain jurisdictions.
The success of our business, including our ability to finance our company and generate any revenue in the future, will primarily depend
on the successful development, regulatory approval and commercialization of our product candidates, which may never occur. We have not yet succeeded
and may not succeed in demonstrating efficacy and safety for any product candidates in clinical trials or in obtaining marketing approval thereafter. Given
our current stage of development, it may be several years, if at all, before we have demonstrated the safety and efficacy of a treatment sufficient to warrant
approval for commercialization. If we are unable to develop, or obtain regulatory approval for, or, if approved, successfully commercialize our product
candidates, we may not be able to generate sufficient revenue to continue our business.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and the results of preclinical studies and early clinical
trials are not necessarily predictive of future results. In addition, some of our assumptions about why our product candidates are worthy of future
development and potential approval are based on data collected by other companies. Our product candidates may not have favorable results in later
clinical trials, if any, or receive regulatory approval on a timely basis, if at all.
Clinical drug development is expensive and can take many years to complete, and its outcome is inherently uncertain. We cannot
guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all, and failure can occur at any time during the preclinical
study or clinical trial process. Despite promising preclinical or clinical results, any product candidate can unexpectedly fail at any stage of preclinical or
clinical development. The historical failure rate for product candidates in our industry is high.
The results from preclinical studies or clinical trials of a product candidate or a competitor’s product candidate in the same class may not
predict the results of later clinical trials of our product candidates, and interim, topline or preliminary results of a clinical trial are not necessarily indicative
of final results. Product candidates in later stages of clinical
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trials may fail to show the desired safety and efficacy characteristics despite having progressed through preclinical studies and initial clinical trials. It is not
uncommon to observe results in clinical trials that are unexpected based on preclinical studies and early clinical trials, and many product candidates fail in
clinical trials despite very promising early results. For example, our decision to advance seralutinib as a potential treatment for PAH is based in part on the
efficacy of imatinib (Gleevec), a tyrosine kinase inhibitor with known activity against PDGF and marketed for oncology indications, observed by Novartis
in a Phase 3 clinical trial; however, we may not observe similar efficacy in our planned Phase 3 clinical trial of seralutinib. Moreover, these and any future
preclinical and clinical data may be susceptible to varying interpretations and analyses. A number of companies in the pharmaceutical and biotechnology
industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies. Furthermore, we cannot
assure you that our preclinical programs will be able to progress from candidate identification to Phase 1 clinical development.
For the foregoing reasons, we cannot be certain that our ongoing and planned clinical trials and preclinical studies will be successful. Any
safety concerns observed in any one of our clinical trials in our targeted indications could limit the prospects for regulatory approval of our product
candidates in those and other indications, which could have a material adverse effect on our business, financial condition and results of operations.
Any difficulties or delays in the commencement or completion, or termination or suspension, of our current or planned clinical trials could result in
increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects.
Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive
clinical studies to demonstrate the safety and efficacy of the product candidates in humans. For example, we are currently conducting an open-label
extension of our Phase 2 clinical trial of seralutinib in PAH patients and a Phase 1 clinical study of GB5121 in healthy volunteers and a global Phase 1b/2
clinical trial of GB5121 in PCNSL patients. We expect to commence a registrational Phase 3 clinical trial of seralutinib in the second half of 2023.
In addition, before we can initiate clinical development for our preclinical product candidates, we must submit the results of preclinical
studies to the FDA along with other information, including information about product candidate chemistry, manufacturing and controls and our proposed
clinical trial protocol, as part of an IND, and we are also required to submit regulatory filings to foreign regulatory authorities for clinical trials outside of
the United States.
We do not know whether our planned trials will begin on time or be completed on schedule, if at all. The commencement and completion
of clinical trials can be delayed for a number of reasons including delays related to:
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the FDA or comparable foreign regulatory authorities disagreeing as to the design or implementation of our clinical studies,
including the doses and endpoints of our planned Phase 3 clinical trial of seralutinb;
obtaining regulatory authorizations to commence a trial or reaching a consensus with regulatory authorities on trial design;
any failure or delay in reaching an agreement with contract research organizations, or CROs, and clinical trial sites, the terms of
which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
obtaining approval or positive opinion from one or more institutional review boards, or IRBs or ethics committees;
IRBs refusing to approve, suspending or terminating a trial at an investigational site, precluding enrollment of additional
subjects, or withdrawing their approval of a trial;
changes to clinical trial protocol;
clinical sites deviating from trial protocol or dropping out of a trial;
manufacturing sufficient quantities of product candidate or obtaining sufficient quantities of combination therapies for use in
clinical trials;
subjects failing to enroll or remain in our trials at the rate we expect, or failing to return for post-treatment follow-up, including
subjects failing to remain in our trials due to movement restrictions, heath reasons or otherwise resulting from the novel strain of
coronavirus, COVID-19;
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subjects choosing an alternative treatment for the indication for which we are developing our product candidates, or participating
in competing clinical trials;
lack of adequate funding to continue a clinical trial;
subjects experiencing severe or unexpected drug-related adverse effects;
occurrence of serious adverse events in trials of the same class of agents conducted by other companies;
selection of clinical endpoints that require prolonged periods of clinical observation or analysis of the resulting data;
a facility manufacturing our product candidates or any of their components, including the device component of orally inhaled
seralutinib, being ordered by the FDA or comparable foreign regulatory authorities to temporarily or permanently shut down due
to violations of cGMP or similar foreign regulations or other applicable requirements, or infections or cross-contaminations of
product candidates in the manufacturing process;
any changes to our manufacturing process that may be necessary or desired;
interruptions to operations of clinical sites, manufacturers, suppliers, or other vendors from a health epidemic such as COVID-
19 or staff shortages;
third-party clinical investigators losing the licenses or permits necessary to perform our clinical trials, not performing our
clinical trials on our anticipated schedule or consistent with the clinical trial protocol, good clinical practices, or GCP, or other
regulatory requirements; third-party contractors not performing data collection or analysis in a timely or accurate manner; or
third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory
authorities for violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not
be able to use some or all of the data produced by such contractors in support of our marketing applications.
Such delays or regulatory feedback on our trial designs could also significantly increase the costs of our clinical trials, including our
planned Phase 3 clinical trial of seralutinib. We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the
institutions in which such trials are being conducted, by a Data Safety Monitoring Board for such trial or by the FDA or comparable foreign regulatory
authorities. Such authorities may impose such a suspension or termination 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 comparable foreign
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, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. For example, based
upon the benefit / risk profile observed to date, we have decided to pause enrollment in the Phase 1b/2 study for GB5121 and discuss available data with
the study’s Data Review Committee to determine next steps. In addition, changes in regulatory requirements and policies may occur, and we may need to
amend clinical trial protocols to comply with these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs or ethics
committees for reexamination, which may impact the costs, timing or successful completion of a clinical trial.
In addition, the FDA’s and other regulatory authorities’ policies with respect to clinical trials may change and additional government
regulations may be enacted. For instance, the regulatory landscape related to clinical trials in the EU recently evolved. The EU Clinical Trials Regulation,
or CTR, which was adopted in April 2014 and repeals the EU Clinical Trials Directive, became applicable on January 31, 2022. While the Clinical Trials
Directive required a separate clinical trial application, or CTA, to be submitted in each member state in which the clinical trial takes place, to both the
competent national health authority and an independent ethics committee, the CTR introduces a centralized process and only requires the submission of a
single application concerned for multi-center trials. The CTR allows sponsors to make a single submission to both the competent authority and an ethics
committee in each member state, leading to a single decision per member state. The assessment procedure of the CTA has been harmonized as well,
including a joint assessment by all member states concerned, and a separate assessment by each member state with respect to specific requirements related
to its own territory, including ethics rules. Each member state’s decision is communicated to the sponsor via the centralized EU portal. Once the CTA is
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approved, clinical study development may proceed. The CTR foresees a three-year transition period. The extent to which ongoing and new clinical trials
will be governed by the CTR varies. Clinical trials for which an application was submitted (i) prior to January 31, 2022 under the Clinical Trials Directive,
or (ii) between January 31, 2022 and January 31, 2023 and for which the sponsor has opted for the application of the EU Clinical Trials Directive remain
governed by said Directive until January 31, 2025. After this date, all clinical trials (including those which are ongoing) will become subject to the
provisions of the CTR. Compliance with the CTR requirements by us and our third-party service providers, such as contract research organizations, or
CROs, may impact our developments plans.
It is currently unclear to what extent UK will seek to align its regulations with the EU. The UK, regulatory framework in relation to
clinical trials is derived from existing EU legislation (as implemented into UK law, through secondary legislation). On January 17, 2022, the UK MHRA
launched an eight-week consultation on reframing the UK legislation for clinical trials. The consultation closed on March 14, 2022 and aims to streamline
clinical trials approvals, enable innovation, enhance clinical trials transparency, enable greater risk proportionality, and promote patient and public
involvement in clinical trials. The outcome of the consultation is being closely watched and will determine whether the UK chooses to align with the (EU)
CTR or diverge from it to maintain regulatory flexibility. Under the terms of the Protocol on Ireland/Northern Ireland, provisions of the (EU) CTR which
relate to the manufacture and import of investigational medicinal products and auxiliary medicinal products apply in Northern Ireland. A decision by the
UK Government not to closely align its regulations with the new approach that has been adopted in the EU may have an effect on the cost of conducting
clinical trials in the UK as opposed to other countries.
Clinical trial submissions in the UK will not be able to be bundled with those of EU countries within the EMA CTIS, adding further
complexity, cost and potential risk to future clinical and development activity in the UK. Significant political and economic uncertainty remains about how
much the relationship between the UK and EU will differ as a result of the UK’s withdrawal.
If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies governing clinical
trials, our development plans may also be impacted.
Further, conducting clinical trials in foreign countries, as we currently and may continue to do for our product candidates, presents
additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere to clinical
protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory
schemes, as well as political and economic risks, including war, relevant to such foreign countries. For example, we are currently conducting certain
clinical trials outside the United States, and we expect to conduct our registrational Phase 3 study of seralutinib in PAH at sites outside the United States.
Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive
compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or
comparable foreign regulatory authorities. The FDA or comparable foreign regulatory authority may conclude that a financial relationship between us and a
principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA or comparable foreign regulatory authority
may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized.
This could result in a delay in approval, or rejection, of our marketing applications by the FDA or comparable foreign regulatory authority, as the case may
be, and may ultimately lead to the denial of marketing approval of one or more of our product candidates.
If we experience delays in the completion 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 from any of these product candidates will be delayed. Moreover, any
delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our
ability to commence product sales and generate revenues.
In addition, many of the factors that cause, or lead to, termination or suspension of, or a delay in the commencement or completion of,
clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. We may make formulation or manufacturing changes to
our product candidates, in which case we may need to conduct additional preclinical studies to bridge our modified product candidates to earlier versions.
Any delays to our clinical trials that occur as a result could shorten any period during which we may have the exclusive right to commercialize our product
candidates and our competitors may be able to bring products to market before we do, and the commercial viability of our product candidates could be
significantly reduced. Any of these occurrences may harm our business, financial condition and prospects significantly.
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We may find it difficult to enroll patients in our clinical trials. If we encounter difficulties enrolling subjects in our clinical trials, our clinical
development activities could be delayed or otherwise adversely affected.
We may not be able to initiate or continue clinical trials for our product candidates if we are unable to identify and enroll a sufficient
number of eligible patients to participate in these trials as may be required by the FDA or similar regulatory authorities outside the United States. Subject
enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the
proximity of patients to clinical sites, the eligibility and exclusion criteria for the trial, the design of the clinical trial, the risk that enrolled patients will not
complete a clinical trial, our ability to recruit clinical trial investigators and associated staff with the appropriate competencies and experience, competing
clinical trials and clinicians’ and patients’ perceptions as to the potential advantages and risks of the product candidate being studied in relation to other
available therapies, including any new drugs that may be approved for the indications we are investigating as well as any drugs under development. We will
be required to identify and enroll a sufficient number of subjects for each of our clinical trials. Potential subjects for any planned clinical trials may not be
adequately diagnosed or identified with the diseases which we are targeting or may not meet the entry criteria for such trials. For example, a limited
number of patients are affected by PAH, which is our target indication for seralutinib, and PCNSL, which is our target indication for GB5121, and we have
encountered difficulties enrolling patients in our previous clinical trials of seralutinib in PAH patients. We also may encounter difficulties in identifying and
enrolling subjects with a stage of disease appropriate for our planned clinical trials and monitoring such subjects adequately during and after treatment. We
may not be able to initiate or continue clinical trials if we are unable to locate a sufficient number of eligible subjects to participate in the clinical trials
required by the FDA or comparable foreign regulatory authorities. In addition, the process of finding and diagnosing subjects may prove costly.
The timing of our clinical trials depends, in part, on the speed at which we can recruit patients to participate in our trials, as well as
completion of required follow-up periods. For certain of our product candidates, including seralutinib and PCNSL, the conditions which we currently plan
to evaluate are orphan or rare diseases with limited patient pools from which to draw for clinical trials. The eligibility criteria of our clinical trials, once
established, will further limit the pool of available trial participants. If patients are unwilling to participate in our trials for any reason, including the
existence of concurrent clinical trials for similar patient populations, if they are unwilling to enroll in a clinical trial with a placebo-controlled design or the
availability of approved therapies, or we otherwise have difficulty enrolling a sufficient number of patients, the timeline for recruiting subjects, conducting
studies and obtaining regulatory approval of our product candidates may be delayed. Our ability to activate clinical trial sites and decide to open enrollment
for a given trial or commence a preclinical study may also be negatively affected by public health epidemics, including COVID-19. Our inability to enroll a
sufficient number of subjects for any of our future clinical trials would result in significant delays or may require us to abandon one or more clinical trials
altogether. In addition, we expect to rely on CROs and clinical trial sites to ensure proper and timely conduct of our future clinical trials and, while we
intend to enter into agreements governing their services, we will have limited influence over their actual performance.
We cannot assure you that our assumptions used in determining expected clinical trial timelines are correct or that we will not experience
delays in enrollment, which would result in the delay of completion of such trials beyond our expected timelines.
Use of our product candidates could be associated with side effects, adverse events or other properties or safety risks, which could delay or preclude
approval, cause us to suspend or discontinue clinical trials, abandon a product candidate, limit the commercial profile of an approved label or result in
other significant negative consequences that could severely harm our business, prospects, results of operations and financial condition.
As is the case with pharmaceuticals generally, it is likely that there may be side effects and adverse events associated with our product
candidates’ use. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics.
Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result
in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. For example, based upon
the benefit / risk profile observed to date, we have decided to pause enrollment in the Phase 1b/2 study for GB5121 and discuss available data with the
study’s Data Review Committee to determine next steps. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to
complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects
significantly.
Moreover, if our product candidates are associated with undesirable side effects in clinical trials or have characteristics that are
unexpected, we may elect to abandon their development or limit their development to more narrow uses or subpopulations in which the undesirable side
effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective, which may limit the commercial
expectations for the product candidate if approved. We may
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also be required to modify our study plans based on findings in our ongoing clinical trials. For example, although seralutinib has been generally well
tolerated in completed clinical trials, future clinical trials, including our planned Phase 3 trial of seralutinib in PAH patients may reveal adverse events
inconsistent with the safety findings observed to date. For example, in 2013, results from a Phase 3 clinical trial in PAH of imatinib (Gleevec) showed
statistically significant improvement in its primary efficacy endpoint, but systemic toxicities were also observed. Although we have not observed the
systemic toxicities that imatinib showed in our completed Phase clinical trial, we cannot be certain that seralutinib will not exhibit similar toxicities in a
larger Phase 3 clinical trial. Many compounds that initially showed promise in early-stage testing have later been found to cause side effects that prevented
further development of the compound. In addition, regulatory authorities may draw different conclusions or require additional testing to confirm these
determinations.
It is possible that as we test our product candidates in larger, longer and more extensive clinical trials, or as the use of these product
candidates becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were observed in
earlier trials, as well as conditions that did not occur or went undetected in previous trials, will be reported by subjects. If such side effects become known
later in development or upon approval, if any, such findings may harm our business, financial condition and prospects significantly.
In addition, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects
caused by such products, a number of potentially significant negative consequences could result, including:
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regulatory authorities may withdraw, suspend or limit approvals of such product;
we may be required to recall a product or change the way such product is administered to patients;
regulatory authorities may require additional warnings on the label, such as a “black box” warning or a contraindication;
we may be required to implement a Risk Evaluation and Mitigation Strategy, or REMS, or create a medication guide outlining
the risks of such side effects for distribution to patients, or similar risk management measures;
we may be required to change the way a product is distributed or administered, conduct additional clinical trials or change the
labeling of a product or be required to conduct additional post-marketing studies or surveillance;
we could be sued and held liable for harm caused to patients;
sales of the product may decrease significantly or the product could become less competitive; and
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved,
and could significantly harm our business, results of operations and prospects.
Although we have completed Phase 2 clinical trials for multiple product candidates including seralutinib, we have not as an organization completed
later-stage clinical trials or submitted an NDA, and we may be unable to do so for any of our product candidates.
We are early in our development efforts for our product candidates, and we will need to successfully complete later-stage and pivotal
clinical trials in order to obtain FDA or comparable foreign regulatory approval to market seralutinib, GB5121 or any future product candidates. Carrying
out later-stage clinical trials and the submission of a successful NDA or other comparable foreign regulatory submission is a complicated process. As an
organization, we have completed four Phase 2 clinical trials, including a Phase 2 clinical trial of seralutinb, and are conducting a Phase 1b/2 study for
GB5121 for which enrollment is currently paused. We expect to commence a Phase 3 clinical trial of seralutinb in the second half of 2023. We have not yet
conducted any later-stage or pivotal clinical trials for our product candidates or begun clinical development for our multiple preclinical programs. We also
have limited experience as a company in preparing, submitting and prosecuting regulatory filings and have not previously submitted an NDA or other
comparable foreign regulatory submission for any product candidate. We also plan to conduct a number of clinical trials for multiple product candidates in
parallel over the next several years, which may be a difficult process to manage with our limited resources and which may divert the attention of
management. In addition, we have had limited interactions with the FDA and cannot be certain how many additional clinical trials of seralutinib or any
other product candidate will be required or how such trials should be designed. Consequently, we
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may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to regulatory submission and approval of
any of our product candidates. We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory
approvals of product candidates that we develop. Failure to commence or complete, or delays in, our planned clinical trials, could prevent us from or delay
us in submitting NDAs or other comparable foreign regulatory submissions for and commercializing our product candidates.
Our product candidates are subject to extensive regulation and compliance, which is costly and time consuming, and such regulation may cause
unanticipated delays or prevent the receipt of the required approvals to commercialize our product candidates.
The clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, import, export, marketing and
distribution of our product candidates are subject to extensive regulation by the FDA in the United States and by comparable foreign regulatory authorities
in foreign markets. In the United States, we are not permitted to market our product candidates until we receive regulatory approval from the FDA and
similarly, we are not permitted to market our product candidates until we receive foreign regulatory authorities’ approval. The process of obtaining
regulatory approval is expensive, often takes many years following the commencement of clinical trials and can vary substantially based upon the type,
complexity and novelty of the product candidates involved, as well as the target indications and patient population. Approval policies or regulations may
change, and the FDA and foreign regulatory authorities have substantial discretion in the drug approval process, including the ability to delay, limit or deny
approval of a product candidate for many reasons. Despite the time and expense invested in clinical development of product candidates, regulatory
approval is never guaranteed.
Prior to obtaining approval to commercialize a product candidate in the United States or abroad, we must demonstrate with substantial
evidence from adequate and well-controlled clinical trials, and to the satisfaction of the FDA or comparable foreign regulatory authorities, that such
product candidates are safe and effective for their intended uses. Results from nonclinical studies and clinical trials can be interpreted in different ways.
Even if we believe the nonclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA
and comparable foreign regulatory authorities. The FDA or comparable foreign regulatory authorities, as the case may be, may also require us to conduct
additional preclinical studies or clinical trials for our product candidates either prior to or post-approval, or may object to elements of our clinical
development program.
The FDA or comparable foreign regulatory authorities can delay, limit or deny approval of a product candidate for many reasons,
including:
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such authorities may disagree with the design or implementation of our clinical trials;
negative or ambiguous results from our clinical trials or results may not meet the level of statistical significance required by the
FDA or comparable foreign regulatory agencies for approval;
serious and unexpected drug-related side effects may be experienced by participants in our clinical trials or by individuals using
drugs similar to our product candidates;
the population studied in the clinical trial may not be sufficiently broad or representative to assure safety in the full population
for which we seek approval;
such authorities may not accept clinical data from trials which are conducted at clinical facilities or in countries where the
standard of care is potentially different from that of the United States;
we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
such authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
such authorities may not agree that the data collected from clinical trials of our product candidates are acceptable or sufficient to
support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere, and
such authorities may impose requirements for additional preclinical studies or clinical trials
such authorities may disagree regarding the formulation, labeling and/or the specifications of our product candidates;
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approval may be granted only for indications that are significantly more limited than what we apply for and/or with other
significant restrictions on distribution and use;
such authorities may find deficiencies in the manufacturing processes or facilities of our third-party manufacturers with which
we contract for clinical and commercial supplies; or the approval policies;
regulations of such authorities may significantly change in a manner rendering our or any of our potential future collaborators’
clinical data insufficient for approval; or
such authorities may not accept a submission due to, among other reasons, the content or formatting of the submission.
With respect to foreign markets, approval procedures vary among countries and, in addition to the foregoing risks, may involve additional
product testing, administrative review periods and agreements with pricing authorities. In addition, events raising questions about the safety of certain
marketed pharmaceuticals may result in increased cautiousness by the FDA and comparable foreign regulatory authorities in reviewing new drugs based on
safety, efficacy or other regulatory considerations and may result in significant delays in obtaining regulatory approvals. Any delay in obtaining, or inability
to obtain, applicable regulatory approvals would prevent us or any of our potential future collaborators from commercializing our product candidates.
Of the large number of drugs in development, only a small percentage successfully complete the FDA or foreign regulatory approval
processes and are commercialized. The lengthy approval process, as well as the unpredictability of future clinical trial results, may result in our failing to
obtain regulatory approval to market our product candidates, which would significantly harm our business, financial condition, results of operations and
prospects.
Even if we eventually complete clinical trials and receive approval of an NDA or foreign marketing application for our product
candidates, the FDA or comparable foreign regulatory authority may grant approval contingent on the performance of costly additional clinical trials,
including Phase 4 clinical trials, and/or the implementation of a REMS or similar risk management measures, which may be required to ensure safe use of
the drug after approval. The FDA or the comparable foreign regulatory authority also may approve a product candidate for a more limited indication or
patient population than we originally requested, and the FDA or comparable foreign regulatory authority may not approve the labeling that we believe is
necessary or desirable for the successful commercialization of a product. Any delay in obtaining, or inability to obtain, applicable regulatory approval
would delay or prevent commercialization of that product candidate and would materially adversely impact our business and prospects.
We may attempt to secure approval from the FDA or comparable foreign regulatory authorities through the use of accelerated approval pathways. If we
are unable to obtain such approval, we may be required to conduct additional clinical trials beyond those that we contemplate, which could increase the
expense of obtaining, and delay the receipt of, necessary marketing approvals. Even if we receive accelerated approval from the FDA, if our
confirmatory trials do not verify clinical benefit, or if we do not comply with rigorous post-marketing requirements, the FDA may seek to withdraw
accelerated approval.
We may in the future seek an accelerated approval for our one or more of our product candidates. Under the accelerated approval
program, the FDA may grant accelerated approval to a product candidate designed to treat a serious or life-threatening condition that provides meaningful
therapeutic benefit over available therapies upon a determination that the product candidate has an effect on a surrogate endpoint or intermediate clinical
endpoint that is reasonably likely to predict clinical benefit. The FDA considers a clinical benefit to be a positive therapeutic effect that is clinically
meaningful in the context of a given disease, such as irreversible morbidity or mortality. For the purposes of accelerated approval, a surrogate endpoint is a
marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a
measure of clinical benefit. An intermediate clinical endpoint is a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or
mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. The accelerated approval pathway may
be used in cases in which the advantage of a new drug over available therapy may not be a direct therapeutic advantage, but is a clinically important
improvement from a patient and public health perspective. If granted, accelerated approval is usually contingent on the sponsor’s agreement to conduct, in
a diligent manner, confirmatory studies to verity and describe the drug’s predicted clinical benefit. If such confirmatory studies fail to verify the drug’s
predicted clinical benefit or of the sponsor fails to conduct such studies in a timely manner, the FDA may withdraw its approval of the drug on an expedited
basis. In addition, in December 2022, President Biden signed an omnibus appropriations bill to fund the U.S. government through fiscal year 2023.
Included in the omnibus bill is the Food and Drug Omnibus Reform Act of 2022, which among other things, introduced reforms intended to
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expand the FDA’s ability to regulate products receiving accelerated approval, including by increasing the FDA’s oversight over the conduct of confirmatory
trials; however, the ultimate impact of these reforms remains unclear.
Prior to seeking accelerated approval for any of our product candidates, we intend to seek feedback from the FDA and will otherwise
evaluate our ability to seek and receive accelerated approval. There can be no assurance that after our evaluation of the feedback and other factors we will
decide to pursue or submit an NDA seeking accelerated approval or any other form of expedited development or review program. Furthermore, if we
decide to submit an application seeking accelerated approval, there can be no assurance that such submission or application will be accepted or that any
expedited development, review or approval will be granted on a timely basis, or at all. The FDA or other comparable foreign regulatory authorities could
also require us to conduct further studies prior to considering our application or granting approval of any type. A failure to obtain accelerated approval or
any other form of expedited development, review or approval for our product candidate would result in a longer time period to commercialization of such
product candidate, if any, could increase the cost of development of such product candidate and could harm our competitive position in the marketplace.
Moreover, in the EU, a “conditional” marketing authorization may be granted in cases where all the required safety and efficacy data are
not yet available. A conditional marketing authorization is subject to conditions to be fulfilled for generating missing data or ensuring increased safety
measures. A conditional marketing authorization is valid for one year and has to be renewed annually until fulfillment of all relevant conditions. Once the
applicable pending studies are provided, a conditional marketing authorization can become a “standard” marketing authorization. However, if the
conditions are not fulfilled within the timeframe set by the EMA, the marketing authorization will cease to be renewed.
Furthermore, marketing authorizations may also be granted “under exceptional circumstances” when the applicant can show that it is
unable to provide comprehensive data on the efficacy and safety under normal conditions of use even after the product has been authorized and subject to
the introduction of specific procedures. This may arise when the intended indications are very rare and, in the present state of scientific knowledge, it is not
possible to provide comprehensive information, or when generating data may be contrary to generally accepted ethical principles. This type of marketing
authorization is close to a conditional marketing authorization as it is reserved to medicinal products to be approved for severe diseases or unmet medical
needs and the applicant does not hold the complete data set legally required for the grant of a marketing authorization. However, unlike a conditional
marketing authorization, the applicant does not have to provide the missing data and will never have to. Although a marketing authorization “under
exceptional circumstances” is granted definitively, the risk-benefit balance of the medicinal product is reviewed annually and the marketing authorization
may be withdrawn where the risk-benefit ratio is no longer favorable.
Because we have multiple product candidates in our clinical pipeline and are considering a variety of target indications, we may expend our limited
resources to pursue a particular product candidate and fail to capitalize on product candidates or indications that may be more profitable or for which
there is a greater likelihood of success.
Because we have limited financial and managerial resources, we focus on specific product candidates, indications and development
programs. We currently have two product candidates in clinical development and also plan to conduct several clinical trials for seralutinib in parallel over
the next several years, which may make our decision as to which product candidates to focus on more difficult. As a result, we may forgo or delay pursuit
of opportunities with other product candidates that could have had greater commercial potential. For example, we previously decided not to move forward
with GB001, or its backup molecule, in further clinical trials without a partner and terminated further development of GB004. 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 products. 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
future collaborations, licenses and other similar arrangements in cases in which it would have been more advantageous for us to retain sole development
and commercialization rights to such product candidate.
Additionally, we may pursue additional in-licenses or acquisitions of development-stage assets or programs, which entails additional risk
to us. Identifying, selecting and acquiring promising product candidates requires substantial technical, financial and human resources expertise. Efforts to
do so may not result in the actual acquisition or license of a particular product candidate, potentially resulting in a diversion of our management’s time and
the expenditure of our resources with no resulting benefit. For example, if we are unable to identify programs that ultimately result in approved products,
we may spend material amounts of our capital and other resources evaluating, acquiring and developing products that ultimately do not provide a return on
our investment.
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We may not be able to obtain or maintain orphan drug designations for certain of our product candidates, and we may be unable to maintain the
benefits associated with orphan drug designation, including the potential for market exclusivity.
Regulatory authorities in some jurisdictions, including the United States and the EU, may designate drugs for relatively small patient
populations as orphan drugs. Under the Orphan Drug Act of 1983, the FDA may designate a product as an orphan product if it is intended to treat a rare
disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States, or a patient population of
greater than 200,000 individuals in the United States, but for which there is no reasonable expectation that the cost of developing the drug will be recovered
from sales in the United States. In the EU, the EC grants orphan designation based on the EMA’s Committee for Orphan Medicinal Products’ opinion to
promote the development of products (1) that are intended for the diagnosis, prevention or treatment that is life-threatening or chronically debilitating, and
(2) either (a) such condition affects no more than five in 10,000 persons in the EU when the application is made, or (b) the product, without the benefits
derived from orphan status, would be unlikely to generate sufficient returns in the EU to justify the necessary investment, and (3) there exists no
satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the EU, or, if such a method exists, the medicine
must be of significant benefit to those affected by the condition. We have received orphan drug designation in the United States and the EU for seralutinib
for treatment of PAH, and we may seek orphan drug designation for certain of our other product candidates. There can be no assurance that the FDA or the
EC will grant orphan designation for any indication for which we apply or that we will be able to maintain such designation.
In the United States, orphan 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 candidate that has orphan designation subsequently receives the first FDA approval for
the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve
any other applications, including an NDA, to market the same drug for the same disease or condition 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.
Upon grant of a marketing authorization in the EU, orphan medicinal products are entitled to ten years of market exclusivity, during which time no similar
medicinal product for the same indication may be placed on the market. This period may be reduced to six years if, at the end of the fifth year, it is
established that the product no longer meets the orphan designation criteria, including where it is shown that the product is sufficiently profitable not to
justify maintenance of market exclusivity or where the prevalence of the condition has increased above the threshold.
Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition
because different drugs can be approved for the same condition. Even after an orphan drug is approved, the FDA or comparable foreign regulatory
authority can subsequently approve the same drug for the same condition if such regulatory authority concludes that the later drug is clinically superior if it
is shown to be 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 nor gives the drug any advantage in the regulatory review or approval process.
We are currently conducting, and may in the future conduct, certain of our clinical trials for our product candidates outside of the United States.
However, the FDA and other foreign equivalents may not accept data from such trials, in which case our development plans will be delayed, which
could materially harm our business.
We are currently conducting, and may in the future conduct one or more of our clinical trials for our product candidates outside the
United States. The acceptance of study data from clinical trials conducted outside the U.S. or another jurisdiction by the FDA or comparable foreign
regulatory authority may be subject to certain conditions or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve
as the sole basis for marketing approval in the U.S., the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data
are applicable to the U.S. population and U.S. medical practice; (ii) the trials were performed by clinical investigators of recognized competence and
pursuant to GCP regulations; and (iii) the data may be considered valid without the need for an on-site inspection by the FDA, or if the FDA considers such
inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. In addition, for such clinical trials
not subject to an IND, the FDA will not accept the data as support for an application for marketing approval unless the study was conducted in accordance
with GCP requirements and the FDA is able to validate the data from the study through an onsite inspection if deemed necessary. Many foreign regulatory
authorities have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions
where the trials are conducted. There can be no assurance that the FDA or any comparable foreign regulatory authority will accept data from trials
conducted outside of the U.S. or the applicable jurisdiction. If the FDA or any comparable foreign regulatory authority does not accept such data, it would
result in the need for additional trials, which could be costly and time-consuming, and which may result in current or future product candidates that we may
develop not receiving approval for commercialization in the applicable jurisdiction.
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Conducting clinical trials outside the United States also exposes us to additional risks, including risks associated with:
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additional foreign regulatory requirements;
foreign exchange fluctuations;
compliance with foreign manufacturing, customs, shipment and storage requirements;
cultural differences in medical practice and clinical research;
diminished protection of intellectual property in some countries; and
interruptions or delays in our trials resulting from geopolitical events, such as war or terrorism.
Interim, topline and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become
available and are subject to audit and verification procedures that could result in material changes in the final data or cause us not to proceed into
further clinical development.
From time to time, we may publicly disclose preliminary or topline or data from our clinical studies, 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 preliminary or topline 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. Topline and preliminary data also remain subject to audit and verification procedures that may result in the final data being materially
different from the preliminary data we previously published. As a result, topline and preliminary data should be viewed with caution until the final data are
available. From time to time, we may also disclose interim data from our clinical studies. Interim data from clinical trials that we may complete are subject
to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available.
Adverse differences between topline, preliminary or interim data and final data could significantly harm our business prospects.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or
analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or
commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose
regarding a particular study or clinical trial is based on what is typically extensive information, and others may not agree with what we determine is the
material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed
significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular drug, drug candidate or our business. If the
topline, preliminary or interim data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions
reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, results of
operations, prospects or financial condition.
Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain
or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, cleared or approved or
commercialized in a timely manner or at all, which could negatively impact our business.
The ability of the FDA and foreign regulatory authorities to review and clear or approve new products can be affected by a variety of
factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s or foreign regulatory authorities’ ability to
hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine
functions. Average review times at the FDA and foreign regulatory authorities have fluctuated in recent years as a result. In addition, government funding
of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies, such as the EMA following its relocation to Amsterdam and resulting staff changes, may also slow the time
necessary for new drugs or modifications to cleared or approved drugs and biologics to be reviewed and/or approved by necessary government agencies,
which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain
regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.
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Separately, in response to the COVID-19 pandemic, the FDA postponed most inspections of domestic and foreign manufacturing
facilities at various points. Even though the FDA has since resumed standard inspection operations of domestic facilities where feasible, the FDA has
continued to monitor and implement changes to its inspectional activities to ensure the safety of its employees and those of the firms it regulates as it adapts
to the evolving COVID-19 pandemic, and any resurgence of the virus or emergence of new variants may lead to further inspectional delays. Regulatory
authorities outside the United States have adopted similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged
government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular
inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and
process our regulatory submissions, which could have a material adverse effect on our business.
Risks Related to Our Reliance on Third Parties
We rely on third parties to conduct many of our preclinical studies and clinical trials. Any failure by a third party to conduct the clinical trials
according to GCPs and other requirements and in a timely manner may delay or prevent our ability to seek or obtain regulatory approval for or
commercialize our product candidates.
We are dependent on third parties to conduct our clinical trials and preclinical studies, including our ongoing or potential future clinical
trials for seralutinib and GB5121 and preclinical studies for our multiple preclinical development programs. Specifically, we have used and relied on, and
intend to continue to use and rely on, medical institutions, clinical investigators, CROs and consultants to conduct our clinical trials in accordance with our
clinical protocols and regulatory requirements. These CROs, investigators and other third parties play a significant role in the conduct and timing of these
trials and subsequent collection and analysis of data. While we have agreements governing the activities of our third-party contractors, we have limited
influence over their actual performance. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the
applicable protocol and legal, regulatory and scientific standards, and our reliance on the CROs and other third parties does not relieve us of our regulatory
responsibilities. We and our CROs are required to comply with GCP requirements, which are regulations and guidelines enforced by the FDA and
comparable foreign regulatory authorities for all of our product candidates in clinical development. Regulatory authorities enforce these GCPs through
periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs or trial sites fail to comply with applicable GCPs, the
clinical data generated in our clinical trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require us to perform
additional clinical trials before approving our marketing applications. In addition, our clinical trials must be conducted with product produced under cGMP
or similar regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval
process.
There is no guarantee that any such CROs, investigators or other third parties will devote adequate time and resources to such trials or
perform as contractually required. If any of these third parties fail to meet expected deadlines, adhere to our clinical protocols or meet regulatory
requirements, or otherwise performs in a substandard manner, our clinical trials may be extended, delayed or terminated. In addition, many of the third
parties with whom we contract may also have relationships with other commercial entities, including our competitors, for whom they may also be
conducting clinical trials or other drug development activities that could harm our competitive position. In addition, principal investigators for our clinical
trials may serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with such services.
If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA or foreign regulatory authorities conclude
that the financial relationship may have affected the interpretation of the study, the integrity of the data generated at the applicable clinical trial site may be
questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection of any NDA or similar foreign
applications we submit by the FDA or foreign regulatory authorities. Any such delay or rejection could prevent us from commercializing our product
candidates.
If any of our relationships with these third parties terminate or their services are delayed, we may not be able to enter into arrangements
with alternative third parties or do so on commercially reasonable terms. For example, we rely on CROs in China for certain preclinical studies, and the
outbreak of COVID-19 previously delayed certain preclinical work being conducted with CROs in China. Switching or adding additional CROs,
investigators and other third parties involves additional cost and requires management time and focus. In addition, there is a natural transition period when
a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical and preclinical development
timelines. Though we carefully manage our relationships with our CROs, investigators and other third parties, there can be no assurance that we will not
encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition
and prospects.
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We rely on third parties for the manufacture of our product candidates for clinical and preclinical development and expect to continue to do so for the
foreseeable future. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or
such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We do not own or operate manufacturing facilities and have no plans to build our own clinical or commercial scale manufacturing
capabilities. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates and related raw materials for clinical and
preclinical development, as well as for commercial manufacture if any of our product candidates receive marketing approval. The facilities used by third-
party manufacturers to manufacture our product candidates must be approved by the FDA or foreign regulatory authorities pursuant to inspections that will
be conducted after we submit an NDA to the FDA or similar applications to foreign regulatory authorities. We do not control the manufacturing process of,
and are completely dependent on, third-party manufacturers for compliance with cGMP or similar requirements for manufacture of drug products. If these
third-party manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or
others, including requirements related to the manufacturing of high potency compounds, they will not be able to secure and/or maintain regulatory approval
for their manufacturing facilities. In addition, we have no control over the ability of third-party manufacturers to maintain adequate quality control, quality
assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our
product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly
impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Our failure, or the failure of our third-party
manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil
penalties, delays, suspension or withdrawal of approvals, seizures or recalls of product candidates or products, operating restrictions and criminal
prosecutions, any of which could significantly and adversely affect supplies of our products.
Our or a third party’s failure to execute on our manufacturing requirements, to do so on commercially reasonable terms and comply with
cGMP or similar requirements outside of the United States could adversely affect our business in a number of ways, including:
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an inability to initiate or continue clinical trials of seralutinib, GB5121 or any future product candidates under development;
delay in submitting regulatory applications, or receiving marketing approvals, for our product candidates;
subjecting third-party manufacturing facilities or our manufacturing facilities to additional inspections by regulatory authorities;
requirements to cease development or to recall batches of our product candidates; and
in the event of approval to market and commercialize our product candidates, an inability to meet commercial demands for our
product candidates or any other future product candidates.
In addition, we do not have any long-term commitments or supply agreements with our third-party manufacturers. We may be unable to
establish any supply agreements with third-party manufacturers or to do so on acceptable terms, which increases the risk of timely obtaining sufficient
quantities of our product candidates or products or such quantities at an acceptable cost. Even if we are able to establish agreements with third-party
manufacturers, reliance on third-party manufacturers entails additional risks, including:
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failure of third-party manufacturers to comply with regulatory requirements and maintain quality assurance;
breach of the manufacturing agreement by the third party;
failure to manufacture our product according to our specifications;
failure to manufacture our product according to our schedule or at all;
misappropriation of our proprietary information, including our trade secrets and know-how; and
termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.
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Our product candidates and any products that we may develop may compete with other product candidates and products for access to
manufacturing facilities. There are a limited number of manufacturers that operate under cGMP or similar foreign regulations and that might be capable of
manufacturing for us.
Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval, and
any related remedial measures may be costly or time consuming to implement. We do not currently have arrangements in place for redundant supply or a
second source for all required raw materials used in the manufacture of our product candidates. Further, our third-party manufacturers may experience
manufacturing or shipping difficulties due to resource constraints or as a result of natural disasters, labor disputes, unstable political environments, or
public health epidemics such as the recent COVID-19 outbreak. If our current third-party manufacturers cannot perform as agreed, we may be required to
replace such manufacturers, and we may be unable to replace them on a timely basis or at all.
Our current and anticipated future dependence upon others for the manufacture of our product candidates or products may adversely
affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade
secrets will be misappropriated or disclosed.
Because we currently rely on other third parties to manufacture our product candidates and to perform quality testing, we must, at times,
share our proprietary technology and confidential information, including trade secrets, with them. We seek to protect our proprietary technology, in part, by
entering into confidentiality agreements, consulting agreements or other similar agreements with our advisors, employees and consultants prior to
beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential
information. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential
information increases the risk that such trade secrets become known by our competitors, are intentionally or inadvertently incorporated into the technology
of others or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets
and despite our efforts to protect our trade secrets, a competitor’s discovery of our proprietary technology and confidential information or other
unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business, financial condition, results of
operations and prospects.
We may seek to enter into collaborations, licenses and other similar arrangements and may not be successful in doing so, and even if we are, we may
not realize the benefits of such relationships.
We are currently seeking to enter into collaborations, joint ventures, licenses and other similar arrangements for the development or
commercialization of our product candidates, due to capital costs required to develop or commercialize the product candidate or manufacturing constraints.
We may not be successful in our efforts to establish or maintain such collaborations for our product candidates because our research and development
pipeline may be insufficient, our product candidates may be deemed to be at too early of a stage of development for collaborative effort or third parties may
not view our product candidates as having the requisite potential to demonstrate safety and efficacy or significant commercial opportunity. In addition, we
face significant competition in seeking appropriate strategic partners, and the negotiation process can be time consuming and complex. Further, we may
have to relinquish valuable rights to our future revenue streams, research programs or product candidates, or grant licenses on terms on terms that may not
be favorable to us, as part of any such arrangement, and such arrangements may restrict us from entering into additional agreements with potential
collaborators. We cannot be certain that, following a strategic transaction or license, we will achieve an economic benefit that justifies such transaction.
Even if we are successful in our efforts to establish such collaborations, the terms that we agree upon may not be favorable to us, and we
may not be able to maintain such collaborations if, for example, development or approval of a product candidate is delayed, the safety of a product
candidate is questioned or sales of an approved product candidate are unsatisfactory.
In addition, any potential future collaborations may be terminable by our strategic partners, and we may not be able to adequately protect
our rights under these agreements. Furthermore, strategic partners may negotiate for certain rights to control decisions regarding the development and
commercialization of our product candidates, if approved, and may not conduct those activities in the same manner as we do. Any termination of
collaborations we enter into in the future, or any delay in entering into collaborations related to our product candidates, could delay the development and
commercialization of our product candidates and reduce their competitiveness if they reach the market, which could have a material adverse effect on our
business, financial condition and results of operations.
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Risks Related to Commercialization of Our Product Candidates
Even if we receive regulatory approval for any product candidate, 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
on marketing or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience
unanticipated problems with our product candidates, when and if any of them are approved.
Following potential approval of any our product candidates, the FDA or foreign regulatory authorities may impose significant restrictions
on a product’s indicated uses or marketing or impose ongoing requirements for potentially costly and time consuming post-approval studies, post-market
surveillance or clinical trials to monitor the safety and efficacy of the product. The FDA or foreign regulatory authorities may also require a REMS or
similar risk management measures as a condition of approval of our product candidates, which could include requirements for a medication guide,
physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk
minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves our product candidates, the manufacturing processes,
labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for our products 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 or similar requirements and GCP requirements for any clinical trials that we conduct
post-approval. Later discovery of previously unknown problems with our products, including adverse events of unanticipated severity or frequency, or with
our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:
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restrictions on the marketing or manufacturing of our products, withdrawal of the product from the market or voluntary or
mandatory product recalls;
restrictions on product distribution or use, or requirements to conduct post-marketing studies or clinical trials;
fines, restitutions, disgorgement of profits or revenues, warning letters, untitled letters or holds on clinical trials;
refusal by the FDA or foreign regulatory authorities to approve pending applications or supplements to approved applications
filed by us or suspension or revocation of approvals;
product seizure or detention, or refusal to permit the import or export of our products; and
injunctions or the imposition of civil or criminal penalties.
The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate
revenue and could require us to expend significant time and resources in response and could generate negative publicity.
The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could
prevent, limit or delay regulatory approval of our product candidates. For instance, the EU pharmaceutical legislation is currently undergoing a complete
review process, in the context of the Pharmaceutical Strategy for Europe initiative, launched by the European Commission in November 2020. The
European Commission’s proposal for revision of several legislative instruments related to medicinal products (potentially revising the duration of
regulatory exclusivity, eligibility for expedited pathways, etc.) is expected during the first quarter of 2023. The proposed revisions, once they are agreed
and adopted by the European Parliament and European Council (not expected before the end of 2024 or early 2025) may have a significant impact on the
biopharmaceutical industry in the long term. 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. 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 be subject to enforcement action, and we
may not achieve or sustain profitability.
The commercial success of our product candidates will depend upon the degree of market acceptance of such product candidates by physicians,
patients, healthcare payors and others in the medical community.
Our product candidates may not be commercially successful. Even if any of our product candidates receive regulatory approval, they may
not gain market acceptance among physicians, patients, healthcare payors or the medical
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community. The commercial success of any of our current or future product candidates will depend significantly on the broad adoption and use of the
resulting product by physicians and patients for approved indications. The degree of market acceptance of our products will depend on a number of factors,
including:
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demonstration of clinical efficacy and safety compared to other more-established products;
the indications for which our product candidates are approved;
the limitation of our targeted patient population and other limitations or warnings contained in any FDA- or foreign regulatory
authorities- approved labeling;
acceptance of a new drug for the relevant indication by healthcare providers and their patients;
the pricing and cost-effectiveness of our products, as well as the cost of treatment with our products in relation to alternative
treatments and therapies;
our ability to obtain and maintain sufficient third-party coverage and adequate reimbursement from government healthcare
programs, including Medicare and Medicaid, private health insurers and other third-party payors;
the willingness of patients to pay all, or a portion of, out-of-pocket costs associated with our products in the absence of sufficient
third-party coverage and adequate reimbursement;
any restrictions on the use of our products, and the prevalence and severity of any adverse effects;
potential product liability claims;
the timing of market introduction of our products as well as competitive drugs;
the effectiveness of our or any of our potential future collaborators’ sales and marketing strategies; and
unfavorable publicity relating to the product.
If any product candidate is approved but does not achieve an adequate level of acceptance by physicians, hospitals, healthcare payors or
patients, we may not generate sufficient revenue from that product and may not become or remain profitable. Our efforts to educate the medical community
and third-party payors regarding the benefits of our products may require significant resources and may never be successful.
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. If we are found or
alleged to have improperly promoted off-label uses, we may become subject to significant liability.
The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, as our
product candidates would be, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory
agencies as reflected in the product’s approved labeling. If we are found to have promoted such off-label uses, we may become subject to significant
liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several
companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under
which specified promotional conduct is changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we
could become subject to significant liability, which would materially adversely affect our business and financial condition.
The successful commercialization of our product candidates, if approved, will depend in part on the extent to which governmental authorities and
health insurers establish coverage, adequate reimbursement levels and favorable pricing policies. Failure to obtain or maintain coverage and adequate
reimbursement for our products could limit our ability to market those products and decrease our ability to generate revenue.
The availability of coverage and the adequacy of reimbursement by governmental healthcare programs such as Medicare and Medicaid,
private health insurers and other third-party payors are essential for most patients to be able to afford prescription medications such as our product
candidates, if approved. Our ability to achieve coverage and acceptable levels of reimbursement for our products by third-party payors will have an effect
on our ability to successfully commercialize
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those products. Even if we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or
may require co-payments that patients find unacceptably high. We cannot be sure that coverage and reimbursement in the United States, the EU or
elsewhere will be available for any product that we may develop, and any reimbursement that may become available may be decreased or eliminated in the
future.
Third-party payors increasingly are challenging prices charged for pharmaceutical products and services, and many third-party payors
may refuse to provide coverage and reimbursement for particular drugs when an equivalent generic drug or a less expensive therapy is available. It is
possible that a third-party payor may consider our products as substitutable and only offer to reimburse patients for the less expensive product. Even if we
are successful in demonstrating improved efficacy or improved convenience of administration with our products, pricing of existing drugs may limit the
amount we will be able to charge for our products. These payors may deny or revoke the reimbursement status of a given product or establish prices for
new or existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in product development. If
reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our products and may not be able to
obtain a satisfactory financial return on products that we may develop.
There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved products. In the United
States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining
the extent to which new drugs will be covered. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug
therapies before they will reimburse healthcare providers who use such therapies. It is difficult to predict at this time what third-party payors will decide
with respect to the coverage and reimbursement for our products.
Obtaining and maintaining reimbursement status is time consuming, costly and uncertain. The Medicare and Medicaid programs
increasingly are used as models for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs.
However, no uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. Therefore, coverage and
reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time consuming and
costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that
coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding
reimbursement change frequently, in some cases at short notice, and we believe that changes in these rules and regulations are likely.
Outside the United States, international operations are generally subject to extensive governmental price controls and other market
regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe and other countries has and will continue to put pressure on
the pricing and usage of products. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national
health systems. Other countries allow companies to fix their own prices for medical products but monitor and control company profits. Additional foreign
price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our products. Accordingly, in markets outside
the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially
reasonable revenue and profits.
Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs
may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or
provide adequate payment for our products. We expect to experience pricing pressures in connection with the sale of any of our products due to the trend
toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on
healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly
high barriers are being erected to the entry of new products.
We face significant competition, and if our competitors develop technologies or product candidates more rapidly than we do or their technologies are
more effective, our ability to develop and successfully commercialize products may be adversely affected.
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong
emphasis on proprietary and novel products and product candidates. Our competitors have developed, are developing or may develop products, product
candidates and processes competitive with our product candidates. Any product candidates that we successfully develop and commercialize will compete
with existing therapies and new therapies that may become available in the future. 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 attempt to develop product
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candidates. In particular, there is intense competition in the fields of immunology, inflammation and oncology. Our competitors include larger and better
funded pharmaceutical, biopharmaceutical, biotechnological and therapeutics companies. Moreover, we may also compete with universities and other
research institutions who may be active in the indications we are targeting and could be in direct competition with us. We also compete with these
organizations to recruit management, scientists and clinical development personnel, which could negatively affect our level of expertise and our ability to
execute our business plan. We will also face competition in establishing clinical trial sites, enrolling subjects for clinical trials and in identifying and in-
licensing new product candidates. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative
arrangements with large and established companies.
We expect to face competition from existing products and products in development for each of our product candidates. Seralutinib is a
PDGFR, CSF1R and c-KIT inhibitor initially targeted for PAH patients. We expect competition in this patient set will include prostanoids / prostacyclin
receptor agonists, including Orenitram (United Therapeutics Corporation, or United Therapeutics), Uptravi (Janssen), Tyvaso (United Therapeutics), and
Remodulin (United Therapeutics). We also may face some competition from products used in class I and II patients, such as the oral PDE5 inhibitors,
including Revatio (Pfizer Inc.) and Adcirca (United Therapeutics); the sGC stimulator Adempas (Bayer AG); and oral ERAs, including Tracleer (Janssen),
Letairis (Gilead Sciences, Inc.) and Opsumit (Janssen). We believe that, if approved, seralutinib could be used alongside all three classes of approved
therapies. PAH is also an active indication for investigational drugs, and we may face competition in the future from ralinepag (Pfizer and United
Therapeutics), sotatercept (Merck & Co., Inc.), rodatristat ethyl (Enzyyant Therapeutics GmbH) and MK-5475 (Merck). Additionally, although not
approved for the treatment of PAH, we may face competition from formulations of imatinib, including those from Tenax Therapeutics, Aerovate
Therapeutics and Aerami Therapeutics / Vectura Group.
GB5121 and GB7208 are BTK inhibitors for the treatment of oncological and immunological indications, including PCNSL and MS. There are no
FDA or EC approved therapies for refractory or recurrent PCNSL. If approved in MS, GB7208 may face competition from existing approved and
investigational therapies. While no BTK inhibitors are FDA or EC approved for the treatment of either PCNSL or MS, we believe that if approved,
GB5121 and / or GB7208 may face competition from currently FDA and / or EC approved BTK inhibitors Imbruvica (AbbVie Inc. / Janssen), Calquence
(AstraZeneca plc), Brukinsa (BeiGene, Ltd.) and / or Jaypirca (Eli Lilly and Company). Our BTK inhibitors may also face competition from BTK inhibitor
Velexbru (Ono Pharmaceutical Co., Ltd.), which is approved in Japan, South Korea and Taiwan for the treatment of recurrent or refractory primary central
nervous system lymphoma. We may also face competition from early and late-stage investigational BTK inhibitors, including, but not limited to,
evobrutinib, tolebrutinib, fenebrutinib, orelabrutinib, rilzabrutinib and remibrutinib.
There may be other earlier stage clinical programs that, if approved, would compete with our product candidates. Many of our
competitors have substantially greater financial, technical and human resources than we have. Additional mergers and acquisitions in the pharmaceutical
industry may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances made in the
commercial applicability of technologies and greater availability of capital for investment in these fields. Our success will be based in part on our ability to
build and actively manage a portfolio of drugs that addresses unmet medical needs and creates value in patient therapy.
If the market opportunities for our products are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer.
The precise incidence and prevalence for all the conditions we aim to address with our product candidates are unknown. Our projections
of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment
with our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific
literature, surveys of clinics, patient foundations or market research, and may prove to be incorrect. Further, new trials may change the estimated incidence
or prevalence of these diseases. The total addressable market across all of our product candidates will ultimately depend upon, among other things, the
diagnosis criteria included in the final label for each of our product candidates approved for sale for these indications, the availability of alternative
treatments and the safety, convenience, cost and efficacy of our product candidates relative to such alternative treatments, acceptance by the medical
community and patient access, drug pricing and reimbursement. The number of patients in the United States and other major markets and elsewhere may
turn out to be lower than expected, patients may not be otherwise amenable to treatment with our products or new patients may become increasingly
difficult to identify or gain access to, all of which would adversely affect our results of operations and our business. Further, even if we obtain significant
market share for our product candidates, because some of our potential target populations are very small, we may never achieve profitability despite
obtaining such significant market share.
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We currently have no marketing and sales organization and have no experience as a company in commercializing products, and we may have to invest
significant resources to develop these capabilities. If we are unable to establish marketing and sales capabilities or enter into agreements with third
parties to market and sell our products, we may not be able to generate product revenue.
We have no internal sales, marketing or distribution capabilities, nor have we commercialized a product. If any of our product candidates
ultimately receives regulatory approval, we must build a marketing and sales organization with technical expertise and supporting distribution capabilities
to commercialize each such product in major markets, which will be expensive and time consuming, or collaborate with third parties that have direct sales
forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution
systems. We have no prior experience as a company in the marketing, sale and distribution of biopharmaceutical products, and there are significant risks
involved in building and managing a sales organization, including our ability to hire, retain and incentivize qualified individuals, generate sufficient sales
leads, provide adequate training to sales and marketing personnel and effectively manage a geographically dispersed sales and marketing team. Any failure
or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products.
We may not be able to enter into collaborations or hire consultants or external service providers to assist us in sales, marketing and distribution functions on
acceptable financial terms, or at all. In addition, our product revenues and our profitability, if any, may be lower if we rely on third parties for these
functions than if we were to market, sell and distribute any products that we develop ourselves. We likely will have little control over such third parties, and
any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we are not successful in commercializing
our products, either on our own or through arrangements with one or more third parties, we may not be able to generate any future product revenue, and we
would incur significant additional losses.
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. We are
not permitted to market or promote any of our product candidates before we receive regulatory approval from applicable regulatory authorities in foreign
markets, and we may never receive such regulatory approvals for any of our product candidates. To obtain separate regulatory approval in many other
countries, we must comply with numerous and varying regulatory requirements regarding safety and efficacy and governing, among other things, clinical
trials, commercial sales, pricing and distribution of our product candidates. If we obtain regulatory approval of our product candidates and ultimately
commercialize our products in foreign markets, we would be subject to additional risks and uncertainties, including:
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different regulatory requirements for approval of drugs in foreign countries;
reduced protection for intellectual property rights;
the existence of additional third-party patent rights of potential relevance to our business;
unexpected changes in tariffs, trade barriers and regulatory requirements;
economic weakness, including inflation, or political instability in particular foreign economies and markets; compliance with
tax, employment, immigration and labor laws for employees living or traveling abroad;
foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations
incident to doing business in another country;
foreign reimbursement, pricing and insurance regimes;
workforce uncertainty in countries where labor unrest is common;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting from geopolitical actions, including war and terrorism, health epidemics such as COVID-19, or
natural disasters including earthquakes, typhoons, floods and fires.
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Risks Related to Our Business Operations and Industry
Our results of operations may fluctuate significantly, which makes our future results of operations difficult to predict and could cause our results of
operations to fall below expectations or any guidance we may provide.
Our quarterly and annual results of operations may fluctuate significantly, which makes it difficult for us to predict our future results of
operations. These fluctuations may occur due to a variety of factors, many of which are outside of our control, including, but not limited to:
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the timing and cost of, and level of investment in, research, development, regulatory approval and commercialization activities
relating to our product candidates, which may change from time to time;
coverage and reimbursement policies with respect to our product candidates, if approved, and potential future drugs that
compete with our products;
the cost of manufacturing our product candidates, which may vary depending on the quantity of production and the terms of our
agreements with third-party manufacturers;
the timing and amount of the milestone or other payments we must make to the licensors and other third parties from whom we
have in-licensed our acquired our product candidates, including payments due upon a change in control of our subsidiaries;
expenditures that we may incur to acquire, develop or commercialize additional product candidates and technologies;
the level of demand for any approved products, which may vary significantly;
future accounting pronouncements or changes in our accounting policies; and
the timing and success or failure of preclinical studies or clinical trials for our product candidates or competing product
candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or
partners.
The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual results of
operations. As a result, comparing our results of operations on a period-to-period basis may not be meaningful. Investors should not rely on our past results
as an indication of our future performance.
This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors
for any period. If our revenue or results of operations fall below the expectations of analysts or investors or below any forecasts we may provide to the
market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline
substantially. Such a stock price decline could occur even when we have met any previously publicly stated revenue or earnings guidance we may provide.
We are dependent on the services of our management and other clinical and scientific personnel, and if we are not able to retain these individuals or
recruit additional management or clinical and scientific personnel, our business will suffer.
Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific
personnel. We are highly dependent upon our senior management, particularly our Chief Executive Officer, as well as our senior scientists and other
members of our senior management team. The loss of services of any of these individuals could delay or prevent the successful development of our product
pipeline, initiation or completion of our planned clinical trials or the commercialization of our product candidates. For example, effective November 16,
2020, Faheem Hasnain was appointed as our President and Chief Executive Officer, replacing Sheila Gujrathi, M.D., and in 2021, we appointed three new
members to our executive team. Executive leadership transitions can be inherently difficult to manage and, as a result, we may experience disruption or
have difficulty in maintaining or developing our business. Although we have executed employment agreements or offer letters with each member of our
senior management team, these agreements are terminable at will with or without notice and, therefore, we may not be able to retain their services as
expected. We do not currently maintain “key person” life insurance on the lives of our executives or any of our employees. This lack of insurance means
that we may not have adequate compensation for the loss of the services of these individuals.
We will need to expand and effectively manage our managerial, operational, financial and other resources in order to successfully pursue
our clinical development and commercialization efforts. We may not be successful in maintaining
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our unique company culture and continuing to attract or retain qualified management and scientific and clinical personnel in the future due to the
increasingly intense competition for qualified personnel among pharmaceutical, biotechnology and other businesses, particularly in the San Diego area. Our
industry has experienced a high rate of turnover for all personnel in recent years. If we are not able to attract, integrate, retain and motivate necessary
personnel to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development
objectives, our ability to raise additional capital and our ability to implement our business strategy.
We have recently substantially increased the size of our organization, and we may encounter difficulties in managing our growth and expanding our
operations successfully.
We have substantially increased our organization from 11 employees in January 2018 to 178 full-time employees and no part-time
employee as of March 10, 2023. As we continue development and pursue the potential commercialization of our product candidates, as well as function as
a public company, we may need to continue to expand or augment our financial, development, regulatory, manufacturing, marketing and sales capabilities
or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships
with various strategic partners, suppliers and other third parties. Our future financial performance and our ability to develop and commercialize our product
candidates and to compete effectively will depend, in part, on our ability to manage our recent substantial growth and any future growth effectively.
We are subject to various federal, state and foreign healthcare laws and regulations, and our failure to comply with these laws and regulations could
harm our results of operations and financial condition.
Our business operations and current and future arrangements with investigators, healthcare professionals, consultants, third-party payors
and customers expose us to broadly applicable federal, state and foreign fraud and abuse and other healthcare laws and regulations. These laws may
constrain the business or financial arrangements and relationships through which we conduct our operations, including how we research, market, sell and
distribute any products for which we obtain marketing approval. Such laws include:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully
soliciting, offering, receiving or providing any remuneration (including any kickback, bribe or certain rebates), directly or
indirectly, overtly or covertly, in cash or in kind, in return for, either the referral of an individual or the purchase, lease, or order,
or arranging for or recommending the purchase, lease, or order of any good, facility, item or service, for which payment may be
made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid. A person or entity does not need
to have actual knowledge of the federal Anti- Kickback Statute or specific intent to violate it in order to have committed a
violation.
the federal false claims laws, including the civil False Claims Act, which prohibits, among other things, individuals or entities
from knowingly presenting, or causing to be presented, to the federal government, claims for payment or approval 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 or causing to be made 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 or services
resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil
False Claims Act;
the federal Health Insurance Portability and Accountability Act of 1996, or 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;
the federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical
supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain
exceptions) to report annually to the Centers for Medicare and Medicaid Services, or CMS, information related to payments and
other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors),
certain non-physician practitioners (physician assistants, nurse practitioners, clinical
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nurse specialists, certified nurse anesthetists, anesthesiology assistants and certified nurse-midwives), and teaching hospitals, as
well as ownership and investment interests held by the physicians described above and their immediate family members; and
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analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to our
business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving
healthcare items or services reimbursed by non- governmental third-party payors, including private insurers, or by the patients
themselves; 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, or otherwise restrict
payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require
drug manufacturers to file reports relating to pricing and marketing information or which require tracking gifts and other
remuneration and items of value provided to physicians, other healthcare providers and entities; and state and local laws that
require the registration of pharmaceutical sales representatives.
Ensuring that our internal operations and 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, including our consulting
and advisory board arrangements with physicians and other healthcare providers, some of whom receive stock options as compensation for services
provided, 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 of the laws described above or any other governmental laws and regulations that
may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from U.S.
government funded healthcare programs, such as Medicare and Medicaid, or similar programs in other countries or jurisdictions, disgorgement, individual
imprisonment, contractual damages, reputational harm, additional reporting requirements and oversight if we become subject to a corporate integrity
agreement or similar agreement to resolve allegations of non-compliance with these laws, diminished profits and the curtailment or restructuring of our
operations. Further, defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources.
Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. If any of the
physicians or other providers or entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be subject
to criminal, civil or administrative sanctions, including exclusion from government funded healthcare programs and imprisonment. If any of the above
occur, it could adversely affect our ability to operate our business and our results of operations.
We are subject to governmental regulation and other legal obligations related to privacy, data protection and information security. Actual or perceived
failures to comply with such requirements could have a material adverse effect on our business, financial condition or results of operations.
The global data protection landscape is rapidly evolving, and we are or may become subject to numerous state, federal and foreign laws,
requirements and regulations governing the collection, use, disclosure, retention, and security of personal information, such as information that we may
collect in connection with clinical trials. Implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, and
we cannot yet determine the impact future laws, regulations, standards, or perception of their requirements may have on our business. This evolution may
create uncertainty in our business, affect our ability to operate in certain jurisdictions or to collect, store, transfer use and share personal information,
necessitate the acceptance of more onerous obligations in our contracts, result in liability or impose additional costs on us. Compliance with these data
privacy and security requirements is rigorous and time-intensive and may increase our cost of doing business. Despite our efforts, there is a risk that we
may be subject to fines and penalties, litigation and reputational harm for actual or perceived failures to comply with such requirements, which could
materially and adversely affect our business, financial condition and results of operations.
As our operations and business grow, we may be subject to or affected by new or additional data protection laws and regulations and face
increased scrutiny or attention from regulatory authorities. In the United States, HIPAA, as amended by the Health Information Technology for Economic
and Clinical Health Act, and regulations promulgated thereunder, or collectively, HIPAA, imposes requirements relating to the privacy, security and
transmission of individually identifiable health information held by covered entities and their business associates. We do not believe that we are currently
acting as a covered entity or business associate under HIPAA and thus are not directly subject to its requirements or penalties. However, depending on the
facts and circumstances, we could face substantial criminal penalties if we knowingly receive individually identifiable health information from a HIPAA-
covered healthcare provider or research institution that has not satisfied HIPAA’s requirements for disclosure of individually identifiable health information.
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In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each
other in significant ways and may not have the same requirements, thus complicating compliance efforts. Further, we may also be subject to other state
laws governing the privacy, processing and protection of personal information. By way of example, California enacted the CCPA, effective January 1,
2020, which gives California consumers 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 has increased the likelihood of, and risks associated with data breach litigation. Additionally, the California privacy
Rights Act, or CPRA, generally went into effect on January 1, 2023 and significantly amends the CCPA. The CPRA imposes additional data protection
obligations on companies doing business in California, including additional consumer rights processes, limitations on data uses, new audit requirements for
higher risk data, and opt outs for certain uses of sensitive data. It also creates a new California data protection agency authorized to issue substantive
regulations and could result in increased privacy and information security enforcement. Additional compliance investment and potential business process
changes may also be required.
Our operations abroad may also be subject to increased scrutiny or attention from data protection authorities. For example, in Europe, the
General Data Protection Regulation, or GDPR, went into effect in May 2018, and imposes stringent requirements for controllers and processors of personal
data. The GDPR allows EU and EEA member states to make additional laws and regulations further limiting the processing of genetic, biometric or health
data. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data
protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global revenues of the noncompliant company,
whichever is greater. Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been
found to provide adequate protection to such personal data, including the United States; in July 2020, the Court of Justice of the EU, or CJEU, limited how
organizations could lawfully transfer personal data from the EU/EEA to the United States by invalidating the Privacy Shield for purposes of international
transfers and imposing further restrictions on the use of standard contractual clauses, or SCCs. In March 2022, the US and EU announced a new regulatory
regime intended to replace the invalidated regulations; however, this new EU-US Data Privacy Framework has not been implemented beyond an executive
order signed by President Biden on October 7, 2022 on Enhancing Safeguards for United States Signals Intelligence Activities. European court and
regulatory decisions subsequent to the CJEU decision of July 16, 2020 have taken a restrictive approach to international data transfers. As supervisory
authorities issue further guidance on personal data export mechanisms, including circumstances where the SCCs cannot be used, and/or start taking
enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer
personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical
location or segregation of our relevant systems and operations, and could adversely affect our financial results.
Since the beginning of 2021, we have also been subject to the United Kingdom’s data protection regime, which imposes separate but
similar obligations to those under the GDPR and comparable penalties, including fines of up to £17.5 million or 4% of a noncompliant company’s global
annual revenue for the preceding financial year, whichever is greater. Other foreign jurisdictions, such as China and Russia, are increasingly implementing
or developing their own privacy regimes with complex and onerous compliance obligations and robust regulatory enforcement powers. As we continue to
expand into other foreign countries and jurisdictions, we may be subject to additional laws and regulations that may affect how we conduct business.
Recently enacted legislation, future legislation and healthcare reform measures may increase the difficulty and cost for us to obtain marketing
approval for and commercialize our product candidates and may affect the prices we may set.
In the United States and some foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and
regulatory changes to the healthcare system, including cost-containment measures that may reduce or limit coverage and reimbursement for newly
approved drugs and affect our ability to profitably sell any product candidates for which we obtain marketing approval. In particular, there have been and
continue to be a number of initiatives at the U.S. federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare.
For example, in March 2010, the ACA was enacted in the United States. Among the provisions of the ACA of importance to our potential
product candidates, the ACA: established an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and
biologic agents; extended manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care
organizations; expanded eligibility criteria for Medicaid programs; expanded the entities eligible for discounts under the Public Health program; increased
the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program; created a new Medicare Part D coverage gap discount
program; established a new Patient-Centered Outcomes Research Institute to oversee,
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identify priorities in and conduct comparative clinical effectiveness research, along with funding for such research; and established a Center for Medicare
and Medicaid Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending.
Since its enactment, there have been judicial and political challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme
Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA.
Prior to the Supreme Court’s decision, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through
August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain
governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining
Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to
health insurance coverage through Medicaid or the ACA.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. On August 2, 2011, the Budget
Control Act of 2011 was signed into law, which, among other things, resulted in reductions to Medicare payments to providers, which went into effect on
April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2032, with the exception of a temporary
suspension from May 1, 2020 through March 31, 2022, 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, reduced Medicare payments to several providers, including hospitals, and increased the statute
of limitations period for the government to recover overpayments to providers from three to five years. In addition, on March 11, 2021, the American
Rescue Plan Act of 2021 was signed into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average
manufacturer price, beginning January 1, 2024.
Further, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising
cost of prescription drugs. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation
designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs,
and reform government program reimbursement methodologies for products. On August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was into
law. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), imposes
rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023), and replaces the Part D coverage
gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the Department of Health and Human
Services to implement many of these provisions through guidance, as opposed to regulation, for the initial years. For that and other reasons, it is currently
unclear how the IRA will be effectuated.
We expect that new laws and other healthcare reform measures that may be adopted in the future may result in additional reductions in
Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on the price that
we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in
payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate
revenue, attain profitability or commercialize our product candidates, if approved.
At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and
biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost
disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally mandated
price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition and
prospects. 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. This could reduce the ultimate demand for our
product candidates, if approved, or put pressure on our product pricing, which could negatively affect our business, results of operations, financial
condition and prospects.
In the EU, similar political, economic and regulatory developments may affect our ability to profitably commercialize, or co-
commercialize, our product candidates, if approved. For instance, on December 13, 2021, Regulation No 2021/2282 on Health Technology Assessment, or
HTA, amending Directive 2011/24/EU, was adopted. While the Regulation entered into force in January 2022, it will only begin to apply from January
2025 onwards, with preparatory and implementation-related steps to take place in the interim. Once the Regulation becomes applicable, it will have a
phased implementation depending on the concerned products. This regulation intends to boost cooperation among EU member states in assessing health
technologies, including new medicinal products, and providing the basis for cooperation at the EU level for joint clinical assessments in these areas. The
regulation will permit EU member states to use common HTA tools,
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methodologies, and procedures across the EU, working together in four main areas, including joint clinical assessment of the innovative health technologies
with the most potential impact for patients, joint scientific consultations whereby developers can seek advice from HTA authorities, identification of
emerging health technologies to identify promising technologies early, and continuing voluntary cooperation in other areas. Individual EU member states
will continue to be responsible for assessing non-clinical (e.g., economic, social, ethical) aspects of health technology, and making decisions on pricing and
reimbursement.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our products.
We face an inherent risk of product liability as a result of the clinical trials of our product candidates and will face an even greater risk if
we commercialize our product candidates. For example, we may be sued if our product candidates allegedly cause injury or are found to be otherwise
unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing,
defects in design, a failure to warn of dangers inherent in the product candidate, negligence, strict liability and a breach of warranties. Claims may be
brought against us by clinical trial participants, patients or others using, administering or selling products that may be approved in the future. Claims could
also be asserted under state consumer protection acts.
If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit or
cease the commercialization of our products. Even a successful defense would require significant financial and management resources. Regardless of the
merits or eventual outcome, liability claims may result in:
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decreased demand for our products;
injury to our reputation and significant negative media attention;
withdrawal of clinical trial participants;
costs to defend the related litigation;
a diversion of management’s time and our resources;
substantial monetary awards to trial participants or patients;
product recalls, withdrawals or labeling, marketing or promotional restrictions;
significant negative financial impact;
the inability to commercialize our product candidates; and
a decline in our stock price.
We currently hold approximately $10 million in aggregate product liability insurance coverage. We may need to increase our insurance
coverage as we expand our clinical trials or if we commence commercialization of our product candidates. Insurance coverage is increasingly expensive.
Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could
prevent or inhibit the commercialization of our product candidates. Although we maintain such insurance, any claim that may be brought against us could
result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our
insurance coverage. Our insurance policies will also have various exclusions, and we may be subject to a product liability claim for which we have no
coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by
our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.
We and any of our potential future collaborators will be required to report to regulatory authorities if any of our approved products cause or contribute
to adverse medical events, and any failure to do so would result in sanctions that would materially harm our business.
If we and any of our potential future collaborators are successful in commercializing our products, the FDA and foreign regulatory
authorities would require that we and any of our potential future collaborators report certain information about adverse medical events if those products
may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the
adverse event as well as the nature of the event. We and any of our potential future collaborators or CROs may fail to report adverse events within the
prescribed timeframe. If we
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or any of our potential future collaborators or CROs fail to comply with such reporting obligations, the FDA or a foreign regulatory authority could take
action, including criminal prosecution, the imposition of civil monetary penalties, seizure of our products or delay in approval or clearance of future
products.
Our employees and independent contractors, including principal investigators, CROs, consultants and vendors, may engage in misconduct or other
improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our employees and independent contractors, including principal investigators, CROs, consultants and
vendors may engage in misconduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or
disclosure of unauthorized activities to us that violate: (1) the laws and regulations of the FDA and other similar regulatory requirements, including those
laws that require the reporting of true, complete and accurate information to such authorities, (2) manufacturing standards, including cGMP and similar
requirements, (3) federal and state data privacy, security, fraud and abuse and other healthcare laws and regulations in the United States and abroad or (4)
laws that require the true, complete and accurate reporting of financial information or data. Activities subject to these laws also involve the improper use or
misrepresentation of information obtained in the course of clinical trials, the creation of fraudulent data in our preclinical studies or clinical trials, or illegal
misappropriation of drug product, 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. In addition, we are subject to the risk that a person or government could allege such fraud or other
misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights,
those actions could have a significant impact on our business and financial results, including, without limitation, the imposition of significant civil, criminal
and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid and other federal
healthcare programs, individual imprisonment, contractual damages, reputational harm, diminished profits and future earnings, additional reporting
requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with
these laws, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
We may engage in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our management.
From time to time, we may consider strategic transactions, such as acquisitions of companies, asset purchases and out-licensing or in-
licensing of intellectual property, products or technologies, similar to our approach in in-licensing and acquiring our current product candidates. Any future
transactions could increase our near and long-term expenditures, result in potentially dilutive issuances of our equity securities, including our common
stock, or the incurrence of debt, contingent liabilities, amortization expenses or acquired in process research and development expenses, any of which could
affect our financial condition, liquidity and results of operations. Additional potential transactions that we may consider in the future include a variety of
business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments.
Future acquisitions may also require us to obtain additional financing, which may not be available on favorable terms or at all. These transactions may
never be successful and may require significant time and attention of management. In addition, the integration of any business that we may acquire in the
future may disrupt our existing business and may be a complex, risky and costly endeavor for which we may never realize the full benefits of the
acquisition. Accordingly, although there can be no assurance that we will undertake or successfully complete any additional transactions of the nature
described above, any additional transactions that we do complete could have a material adverse effect on our business, results of operations, financial
condition and prospects.
Risks Related to Our Intellectual Property
Our success depends on our ability to protect our intellectual property and our proprietary technologies.
Our commercial success depends in part on our ability to obtain and maintain patent protection and trade secret protection for our product
candidates, proprietary technologies and their uses as well as our ability to operate without infringing upon the proprietary rights of others. If we are unable
to protect our intellectual property rights or if our intellectual property rights are inadequate for our technology or our product candidates, our competitive
position could be harmed. We generally seek to protect our proprietary position by filing patent applications in the United States and abroad related to our
product candidates, proprietary technologies and their uses that are important to our business. Our patent applications cannot be enforced against third
parties practicing the technology claimed in such applications unless, and until, patents issue from such applications, and then only to the extent the issued
claims cover the technology. There can be no assurance that our patent applications will result in patents being issued or that issued patents will afford
sufficient protection against competitors with
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similar technology, nor can there be any assurance that the patents if issued will not be infringed, designed around or invalidated by third parties. Even
issued patents may later be found invalid or unenforceable or may be modified or revoked in proceedings instituted by third parties before various patent
offices or in courts. The degree of future protection for our proprietary rights is uncertain. Only limited protection may be available and may not adequately
protect our rights or permit us to gain or keep any competitive advantage. These uncertainties and/or limitations in our ability to properly protect the
intellectual property rights relating to our product candidates could have a material adverse effect on our financial condition and results of operations.
Although we own issued patents in the United States and foreign countries, we cannot be certain that the claims in our other U.S. pending
patent applications, corresponding international patent applications and patent applications in certain foreign countries will be considered patentable by the
United States Patent and Trademark Office, or USPTO, courts in the United States or by the patent offices and courts in foreign countries, nor can we be
certain that the claims in our issued patents will not be found invalid or unenforceable if challenged.
The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our
potential future collaborators will be successful in protecting our product candidates by obtaining and defending patents. These risks and uncertainties
include the following:
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the USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,
fee payment and other provisions during the patent process, the noncompliance with which can result in abandonment or lapse
of a patent or patent application, and partial or complete loss of patent rights in the relevant jurisdiction;
patent applications may not result in any patents being issued;
patents may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or otherwise may not
provide any competitive advantage;
our competitors, many of whom have substantially greater resources than we do and many of whom have made significant
investments in competing technologies, may seek or may have already obtained patents that will limit, interfere with or block
our ability to make, use and sell our product candidates;
there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent
protection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy
regarding worldwide health concerns; and
countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts,
allowing foreign competitors a better opportunity to create, develop and market competing products.
The patent prosecution process is also expensive and time consuming, and we may not be able to file and prosecute all necessary or
desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictions where protection may be commercially advantageous. It is also
possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, in
some circumstances, we do not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, directed to
technology that we license from third parties. We may also require the cooperation of our licensor in order to enforce the licensed patent rights, and such
cooperation may not be provided. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best
interests of our business. We cannot be certain that patent prosecution and maintenance activities by our licensors have been or will be conducted in
compliance with applicable laws and regulations, which may affect the validity and enforceability of such patents or any patents that may issue from such
applications. If they fail to do so, this could cause us to lose rights in any applicable intellectual property that we in-license, and as a result our ability to
develop and commercialize products or product candidates may be adversely affected and we may be unable to prevent competitors from making, using
and selling competing products.
In addition, although we enter into non-disclosure and confidentiality agreements with parties who have access to patentable aspects of
our research and development output, such as our employees, outside scientific collaborators, CROs, third-party manufacturers, consultants, advisors and
other third parties, any of these parties may breach such agreements and disclose such output before a patent application is filed, thereby jeopardizing our
ability to seek patent protection.
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If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties, including seralutinib,
or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.
Additionally, several of our license agreements include sublicenses from a third party, including for seralutinib, and we must rely on the direct
licensor’s compliance with its obligations under its original license agreement.
We are a party to a number of license agreements under which we are granted rights to intellectual property that are important to our
business and we may enter into additional license agreements in the future. For example, in October 2017, we entered into an exclusive license agreement
with Pulmokine, Inc. to obtain an exclusive license to certain intellectual property rights to develop and commercialize seralutinib.
These and our other existing license agreements impose, and we expect that any future license agreements where we in-license
intellectual property, will impose on us, various development, regulatory and/or commercial diligence obligations, payment of milestones and/or royalties
and other obligations. If we fail to comply with our obligations under these agreements, or we are subject to bankruptcy-related proceedings, the licensor
may have the right to terminate the license, in which event we would not be able to market products covered by the license. Additionally, several of our
existing license agreements include sublicenses from a third party who is not the original licensor of the intellectual property at issue, including for
seralutinib. Under these agreements, we must rely on our direct licensor to comply with its obligations under the primary license agreements under which
such licensor obtained rights in the applicable intellectual property, where we may have no relationship with the original licensor of such rights. If our
licensors fail to comply with their obligations under these upstream license agreements, the original third-party licensor may have the right to terminate the
original license, which may terminate our sublicense. If this were to occur, we would no longer have rights to the applicable intellectual property unless we
are able to secure our own direct license with the owner of the relevant rights, which we may not be able to do on reasonable terms, or at all, which may
impact our ability to continue to develop and commercialize our product candidates incorporating the relevant intellectual property.
We may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates, and we
cannot provide any assurances that third-party patents do not exist which might be enforced against our product candidates in the absence of such a license.
We may fail to obtain any of these licenses on commercially reasonable terms, if at all. Even if we are able to obtain a license, it may be non-exclusive,
thereby giving our competitors access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to
develop or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affected product candidates,
which could materially harm our business and the third parties owning such intellectual property rights could seek either an injunction prohibiting our sales,
or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation. Licensing of intellectual property is of critical
importance to our business and involves complex legal, business and scientific issues. Disputes may arise between us and our licensors regarding
intellectual property subject to a license agreement, including:
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the scope of rights granted under the license agreement and other interpretation-related issues;
whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject
to the licensing agreement;
our right to sublicense patents and other rights to third parties;
our diligence obligations with respect to the use of the licensed technology in relation to our development and
commercialization of our product candidates, and what activities satisfy those diligence obligations;
our right to transfer or assign the license; and
the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and
us and our partners.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on
acceptable terms, we may not be able to successfully develop and commercialize the affected product candidates, which would have a material adverse
effect on our business.
In addition, certain of our agreements may limit or delay our ability to consummate certain transactions, may impact the value of those
transactions, or may limit our ability to pursue certain activities. For example, if we choose to
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sublicense or assign to any third parties our rights under our existing license agreement with Pulmokine with respect to any licensed product, we may be
required to pay to Pulmokine, as applicable, a specified percentage of all revenue to be received in connection with such transaction.
If the scope of any patent protection we obtain is not sufficiently broad, or if we lose any of our patent protection, our ability to prevent our competitors
from commercializing similar or identical product candidates would be adversely affected.
The patent position of biopharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has
been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are
highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our product candidates or which
effectively prevent others from commercializing competitive product candidates.
Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be
reinterpreted after issuance. Even if patent applications we own currently or in the future issue as patents, they may not issue in a form that will provide us
with any meaningful protection, prevent competitors or other third parties from competing with us, or otherwise provide us with any competitive
advantage. Any patents that we own may be challenged or circumvented by third parties or may be narrowed or invalidated as a result of challenges by
third parties. Consequently, we do not know whether our product candidates will be protectable or remain protected by valid and enforceable patents. Our
competitors or other third parties may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing
manner which could materially adversely affect our business, financial condition, results of operations and prospects.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may not cover our
product candidates or may be challenged in the courts or patent offices in the United States and abroad. We may be subject to a third party pre-issuance
submission of prior art to the USPTO, or become involved in opposition, derivation, revocation, reexamination, post-grant review, or PGR, and inter parties
review, or IPR, or other similar proceedings in the USPTO or foreign patent offices challenging our patent rights. The outcome following legal assertions of
invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior
art, of which we or our predecessors and the patent examiner were unaware during prosecution. There is no assurance that all potentially relevant prior art
relating to our patents and patent applications or those of our licensors has been found. There is also no assurance that there is not prior art of which we, our
predecessors or licensors are aware, but which we do not believe affects the validity or enforceability of a claim in our patents and patent applications or
those of our licensors, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. An adverse determination in any such
submission, proceeding or litigation could reduce the scope of, or invalidate or render unenforceable, our patent rights, allow third parties to commercialize
our product candidates and compete directly with us, without payment to us. Such loss of patent rights, loss of exclusivity or in patent claims being
narrowed, invalidated or held unenforceable could limit our ability to stop others from using or commercializing similar or identical technology and
products, or limit the duration of the patent protection of our product candidates. Such proceedings also may result in substantial cost and require
significant time from our scientists and management, even if the eventual outcome is favorable to us. In addition, if the breadth or strength of protection
provided by our patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license,
develop or commercialize current or future product candidates.
The patent protection and patent prosecution for some of our product candidates may be dependent on third parties.
We or our licensors may fail to identify patentable aspects of inventions made in the course of development and commercialization
activities before it is too late to obtain patent protection on them. Therefore, we may miss potential opportunities to strengthen our patent position. It is
possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, for example with respect
to proper priority claims, inventorship, claim scope, or requests for patent term adjustments. If we or our licensors, whether current or future, fail to
establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If our licensors are not fully
cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised. If there
are material defects in the form, preparation, prosecution, or enforcement of our patents or patent applications, such patents may be invalid and/or
unenforceable, and such applications may never result in valid, enforceable patents. Any of these outcomes could impair our ability to prevent competition
from third parties, which may have an adverse impact on our business.
As a licensee of third parties, we rely on third parties to file and prosecute patent applications and maintain patents and otherwise protect
the licensed intellectual property under some of our license agreements. We have not had and do not have primary control over these activities for certain of
our patents or patent applications and other intellectual property
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rights. We cannot be certain that such activities by third parties have been or will be conducted in compliance with applicable laws and regulations or will
result in valid and enforceable patents or other intellectual property rights. Pursuant to the terms of the license agreements with some of our licensors, the
licensors may have the right to control enforcement of our licensed patents or defense of any claims asserting the invalidity of these patents and even if we
are permitted to pursue such enforcement or defense, we will require the cooperation of our licensors. We cannot be certain that our licensors will allocate
sufficient resources or prioritize their or our enforcement of such patents or defense of such claims to protect our interests in the licensed patents. Even if
we are not a party to these legal actions, an adverse outcome could harm our business because it might prevent us from continuing to license intellectual
property that we may need to operate our business. If any of our licensors or any of our future licensors or future collaborators fail to appropriately
prosecute and maintain patent protection for patents covering any of our product candidates, our ability to develop and commercialize those product
candidates may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products.
In addition, even where we have the right to control patent prosecution of patents and patent applications we have acquired or licensed
from third parties, we may still be adversely affected or prejudiced by actions or inactions of our predecessors or licensors and their counsel that took place
prior to us assuming control over patent prosecution.
Our technology acquired or licensed from various third parties may be subject to retained rights. Our predecessors or licensors often
retain certain rights under their agreements with us, including the right to use the underlying technology for noncommercial academic and research use, to
publish general scientific findings from research related to the technology, and to make customary scientific and scholarly disclosures of information
relating to the technology. It is difficult to monitor whether our predecessors or licensors limit their use of the technology to these uses, and we could incur
substantial expenses to enforce our rights to our licensed technology in the event of misuse.
If we are limited in our ability to utilize acquired or licensed technologies, or if we lose our rights to critical in-licensed technology, we
may be unable to successfully develop, out-license, market and sell our products, which could prevent or delay new product introductions. Our business
strategy depends on the successful development of licensed and acquired technologies into commercial products. Therefore, any limitations on our ability
to utilize these technologies may impair our ability to develop, out-license or market and sell our product candidate.
Some of our intellectual property has been discovered through government-funded programs and thus may be subject to federal regulations such as
“march-in” rights, certain reporting requirements and a preference for U.S.-based companies. Compliance with such regulations may limit our
exclusive rights, and limit our ability to contract with non-U.S. manufacturers.
Some of the intellectual property rights we have acquired or licensed or may acquire or license in the future may have been generated
through the use of U.S. government funding and may therefore be subject to certain federal regulations. For example, some of the research and
development work on seralutinib was funded by government research grants. As a result, the U.S. government may have certain rights to intellectual
property embodied in our product candidates pursuant to the Bayh-Dole Act of 1980, or Bayh-Dole Act. These U.S. government rights include a non-
exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right,
under certain limited circumstances, to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party
if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or
safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”).
The U.S. government also has the right to take title to these inventions if the grant recipient fails to disclose the invention to the government or fails to file
an application to register the intellectual property within specified time limits. Intellectual property generated under a government funded program is also
subject to certain reporting requirements, compliance with which may require us to expend substantial resources. In addition, the U.S. government requires
that any products embodying any of these inventions or produced through the use of any of these inventions be manufactured substantially in the United
States. This preference for U.S. industry may be waived by the federal agency that provided the funding if the owner or assignee of the intellectual property
can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to
manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S.
industry may limit our ability to contract with non-U.S. product manufacturers for products covered by such intellectual property. To the extent any of our
future intellectual property is also generated through the use of U.S. government funding, the provisions of the Bayh-Dole Act may similarly apply.
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Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have
limitations, and may not adequately protect our business or permit us to maintain our competitive advantage. For example:
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others may be able to develop products that are 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 predecessors might not have been the first to make the inventions covered by the issued patents or patent
application that we own or license;
we or our licensors or predecessors might not have been the first to file patent applications covering certain of our inventions;
others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our
intellectual property rights;
it is possible that our pending patent applications will not lead to issued patents;
issued patents that we own or license may be held invalid or unenforceable, as a result of legal challenges by our competitors;
our competitors might conduct research and development activities in countries where we do not have patent rights and then use
the information learned from such activities to develop competitive products for sale in our major commercial markets;
we may not develop additional proprietary technologies that are patentable; and
the patents of others may have an adverse effect on our business.
Should any of these events occur, it could significantly harm our business, results of operations and prospects.
Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.
Claims by third parties that we infringe their proprietary rights may result in liability for damages or prevent or delay our developmental and
commercialization efforts.
Our commercial success depends in part on avoiding infringement of the patents and proprietary rights of third parties. However, our
research, development and commercialization activities may be subject to claims that we infringe or otherwise violate patents or other intellectual property
rights owned or controlled by third parties. Other entities may have or obtain patents or proprietary rights that could limit our ability to make, use, sell,
offer for sale or import our product candidates and products that may be approved in the future, or impair our competitive position. There is a substantial
amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biopharmaceutical industry,
including patent infringement lawsuits, oppositions, reexaminations, IPR proceedings and PGR proceedings before the USPTO and/or foreign patent
offices. Numerous third-party U.S. and foreign issued patents and pending patent applications exist in the fields in which we are developing product
candidates. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for
treatment related to the use or manufacture of our product candidates.
As the biopharmaceutical industry expands and more patents are issued, the risk increases that our product candidates may be subject to
claims of infringement of the patent rights of third parties. Because patent applications are maintained as confidential for a certain period of time, until the
relevant application is published, we may be unaware of third-party patents that may be infringed by commercialization of any of our product candidates,
and we cannot be certain that we were the first to file a patent application related to a product candidate or technology. Moreover, because patent
applications can take many years to issue, there may be currently-pending patent applications that may later result in issued patents that our product
candidates may infringe. In addition, identification of third-party patent rights that may be relevant to our technology is difficult because patent searching is
imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. In addition,
third parties may obtain patents in the future and claim that use
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of our technologies infringes upon these patents. Any claims of patent infringement asserted by third parties would be time consuming and could:
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result in costly litigation that may cause negative publicity;
divert the time and attention of our technical personnel and management;
cause development delays;
prevent us from commercializing any of our product candidates until the asserted patent expires or is held finally invalid or not
infringed in a court of law;
require us to develop non-infringing technology, which may not be possible on a cost-effective basis;
subject us to significant liability to third parties; or
require us to enter into royalty or licensing agreements, which may not be available on commercially reasonable terms, or at all,
or which might be non-exclusive, which could result in our competitors gaining access to the same technology.
Although no third party has asserted a claim of patent infringement against us as of the date of this annual report on Form 10-K, others
may hold proprietary rights that could prevent our product candidates from being marketed. Any patent-related legal action against us claiming damages
and seeking to enjoin activities relating to our product candidates or processes could subject us to potential liability for damages, including treble damages
if we were determined to willfully infringe, and require us to obtain a license to manufacture or develop our product candidates. Defense of these claims,
regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. We
cannot predict whether we would prevail in any such actions or that any license required under any of these patents would be made available on
commercially acceptable terms, if at all. Moreover, even if we or our future strategic partners were able to obtain a license, the rights may be nonexclusive,
which could result in our competitors gaining access to the same intellectual property. In addition, we cannot be certain that we could redesign our product
candidates or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure
to obtain necessary licenses, could prevent us from developing and commercializing our product candidates, which could harm our business, financial
condition and results of operations.
Parties making claims against us may be able to sustain the costs of complex patent litigation more effectively than we can, because they
have substantially greater resources. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation
or administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, any uncertainties
resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise additional funds or otherwise have
a material adverse effect on our business, results of operations, financial condition and prospects.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming and
unsuccessful. Further, our issued patents could be found invalid or unenforceable if challenged in court.
Competitors may infringe our intellectual property rights or those of our licensors. To prevent infringement or unauthorized use, we
and/or our licensors may be required to file infringement claims, which can be expensive and time consuming. In addition, in a patent infringement
proceeding, a court may decide that a patent we own or license is not valid, is unenforceable and/or is not infringed. If we or any of our licensors or
potential future collaborators were to initiate legal proceedings against a third party to enforce a patent directed at one of our product candidates, the
defendant could counterclaim that our patent is invalid and/or unenforceable in whole or in part. In patent litigation, defendant counterclaims alleging
invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include an alleged failure to meet any of several statutory
requirements, including lack of novelty, obviousness, written description or non-enablement. Grounds for an unenforceability assertion could include an
allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during
prosecution.
If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the
patent protection on such product candidate. In addition, if the breadth or strength of protection provided by our patents and patent applications or those of
our licensors is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product
candidates. Such a loss of patent protection would have a material adverse impact on our business.
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Even if resolved in our favor, litigation or other legal proceedings relating to our intellectual property rights may cause us to incur
significant expenses, and could distract our technical and management personnel from their normal responsibilities. Such litigation or proceedings could
substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution
activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be
able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting
from the initiation and continuation of patent litigation or other proceedings could compromise our ability to compete in the marketplace. Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation or other legal proceedings relating to our
intellectual property rights, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation or
other proceedings.
Intellectual property litigation may lead to unfavorable publicity that harms our reputation and causes the market price of our common shares to
decline.
During the course of any intellectual property litigation, there could be public announcements of the initiation of the litigation as well as
results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as
negative, the perceived value of our existing products, programs or intellectual property could be diminished. Accordingly, the market price of shares of our
common stock may decline. Such announcements could also harm our reputation or the market for our future products, which could have a material
adverse effect on our business.
Derivation or interference proceedings may be necessary to determine priority of inventions, and an unfavorable outcome may require us
to cease using the related technology or to attempt to license rights from the prevailing party.
Derivation or interference proceedings provoked by third parties or brought by us or declared by the USPTO or similar proceedings in
foreign patent offices may be necessary to determine the priority of inventions with respect to our patents or patent applications. An unfavorable outcome
could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the
prevailing party does not offer us a license on commercially reasonable terms. Our defense of such proceedings may fail and, even if successful, may result
in substantial costs and distract our management and other employees. In addition, the uncertainties associated with such proceedings could have a material
adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from
third parties or enter into development or manufacturing partnerships that would help us bring our product candidates to market.
Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement
or defense of our issued patents.
On September 16, 2011, the Leahy-Smith America Invents Act, or Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes
a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect
patent litigation. In particular, under the Leahy-Smith Act, the United States transitioned in March 2013 to a “first inventor to file” system in which,
assuming that other requirements of patentability are met, the first inventor to file a patent application will be entitled to the patent regardless of whether a
third party was first to invent the claimed invention. A third party that files a patent application in the USPTO after March 2013 but before us could
therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by such third party. This will require us
to be cognizant going forward of the time from invention to filing of a patent application. Furthermore, our ability to obtain and maintain valid and
enforceable patents depends on whether the differences between our technology and the prior art allow our technology to be patentable over the prior art.
Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot be
certain that we were the first to either (1) file any patent application related to our product candidates or (2) invent any of the inventions claimed in our
patents or patent applications.
The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications will be prosecuted and also
may affect patent litigation. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures
to attack the validity of a patent by USPTO administered post-grant proceedings, including PGR, IPR, and derivation proceedings. An adverse
determination in any such submission or proceeding could reduce the scope or enforceability of, or invalidate, our patent rights, which could adversely
affect our competitive position.
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Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal courts
necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim
invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party
may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a
defendant in a district court action. Thus, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the
prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our
business, financial condition, results of operations and prospects.
Changes in U.S. patent law, or laws in other countries, could diminish the value of patents in general, thereby impairing our ability to protect our
product candidates.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents.
Obtaining and enforcing patents in the biopharmaceutical industry involve a high degree of technological and legal complexity. Therefore, obtaining and
enforcing biopharmaceutical patents is costly, time consuming and inherently uncertain. Changes in either the patent laws or in the interpretations of patent
laws in the United States and other countries may diminish the value of our intellectual property and may increase the uncertainties and costs surrounding
the prosecution of patent applications and the enforcement or defense of issued patents. We cannot predict the breadth of claims that may be allowed or
enforced in our patents or in third-party patents. In addition, Congress or other foreign legislative bodies may pass patent reform legislation that is
unfavorable to us.
For example, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection
available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our
ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on
decisions by the U.S. Congress, the U.S. federal courts, the USPTO, or similar authorities in foreign jurisdictions, 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 we might
obtain in the future.
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We may also be subject to claims that former employees or other third parties have an ownership interest in our patents or other
intellectual property. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending
any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Such an outcome could have a material
adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and distraction to
management and other employees.
Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally
20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is
limited. Even if patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive
products. Given the amount of time required for the development, testing and regulatory review of product candidates, patents protecting our product
candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient
rights to exclude others from commercializing products similar or identical to ours.
If we do not obtain patent term extension for our product candidates, our business may be materially harmed.
Depending upon the timing, duration and specifics of FDA marketing approval of our product candidates, one or more of our U.S. patents
may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman
Amendments. The Hatch- Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product
development and the FDA regulatory review process. A maximum of one patent may be extended per FDA approved product as compensation for the
patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years
from the date of product approval, and only those claims covering such approved drug product, a method for using it or a method for manufacturing it may
be extended. Patent term extension may also be available in certain foreign countries upon regulatory approval of our product candidates. However, we
may not be granted an extension because of, for example,
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failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements.
Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term
extension or restoration or the term of any such extension is less than we request, our competitors may obtain approval of competing products following
our patent expiration, and our revenue could be reduced, possibly materially. Further, if this occurs, our competitors may take advantage of our investment
in development and trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case.
We may not be able to protect our intellectual property rights throughout the world.
Although we have issued patents pending patent applications in the United States and certain other countries, filing, prosecuting and
defending patents in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the
United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights
to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in
all countries outside the United States or from selling or importing products made using our inventions in and into the United States or other jurisdictions.
Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export
otherwise infringing products to territories where we have patent protection but enforcement is not as strong as that in the United States. These products
may compete with our product candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from
competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions.
The legal systems of many foreign countries do not favor the enforcement of patents and other intellectual property protection, which could make it
difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights. Proceedings to enforce our
patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our
patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims
against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful.
Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from
the intellectual property that we develop or license.
Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In
addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner
may have limited remedies, which could materially diminish the value of such patent. If we are forced to grant a license to third parties with respect to any
patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may
be adversely affected.
Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements
imposed by regulations and governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these
requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to
the USPTO and various foreign patent offices at various points over the lifetime of our patents and/or applications. We have systems in place to remind us
to pay these fees, and we rely on third parties to pay these fees when due. Additionally, the USPTO and various foreign patent offices require compliance
with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms
and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance
with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the patent
or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material
adverse effect on our business.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition, we rely on the protection of our trade secrets, including unpatented know-how, technology and other proprietary information
to maintain our competitive position. Although we have taken steps to protect our trade secrets and unpatented know-how, including entering into
confidentiality agreements with third parties and confidential information and inventions agreements with employees, consultants and advisors, we cannot
provide any assurances that all such agreements have been duly executed, and 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
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claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time consuming, and the outcome is unpredictable. In
addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets.
Moreover, third parties may still obtain this information or may come upon this or similar information independently, and we would have
no right to prevent them from using that technology or information to compete with us. If any of these events occurs or if we otherwise lose protection for
our trade secrets, the value of this information may be greatly reduced and our competitive position would be harmed. If we do not apply for patent
protection prior to such publication or if we cannot otherwise maintain the confidentiality of our proprietary technology and other confidential information,
then our ability to obtain patent protection or to protect our trade secret information may be jeopardized.
We may be subject to claims that we have wrongfully hired an employee from a competitor or that we or our employees have wrongfully used or
disclosed alleged confidential information or trade secrets of their former employers.
As is common in the biopharmaceutical industry, in addition to our employees, we engage the services of consultants to assist us in the
development of our product candidates. Many of these consultants, and many of our employees, were previously employed at, or may have previously
provided or may be currently providing consulting services to, other biopharmaceutical companies including our competitors or potential competitors. We
may become subject to claims that we, our employees or a consultant inadvertently or otherwise used or disclosed trade secrets or other information
proprietary to their former employers or their former or current clients. Litigation may be necessary to defend against these claims. If we fail in defending
any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely affect our
business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to our management
team and other employees.
Risks Related to Our Common Stock
An active, liquid and orderly market for our common stock may not be maintained.
Our common stock only began trading on Nasdaq in February 2019, and we can provide no assurance that we will be able to maintain an
active trading market for our common stock. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at
a price that you consider reasonable. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire
other businesses or technologies using our shares as consideration, which, in turn, could materially adversely affect our business.
The trading price of the shares of our common stock could be highly volatile, and purchasers of our common stock could incur substantial losses.
Our stock price has been and is likely to be volatile. Since the shares were sold in our initial public offering, or IPO, in February 2019 at a
price of $16.00 per share, the price per share of our common stock has ranged as low as $1.18 and as high as $27.15 through March 10, 2023. The stock
market in general and the market for stock of biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated
to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the
price at which they paid. The market price for our common stock may be influenced by those factors discussed in this “Risk Factors” section and many
others, including:
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our ability to enroll subjects in our ongoing and planned clinical trials;
results of our clinical trials and preclinical studies, and the results of trials of our competitors or those of other companies in our
market sector;
regulatory approval of our product candidates, or limitations to specific label indications or patient populations for its use, or
changes or delays in the regulatory review process;
regulatory developments in the United States and foreign countries;
changes in the structure of healthcare payment systems, especially in light of current reforms to the U.S. healthcare system;
the success or failure of our efforts to acquire, license or develop additional product candidates;
innovations or new products developed by us or our competitors;
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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital
commitments;
manufacturing, supply or distribution delays or shortages;
any changes to our relationship with any manufacturers, suppliers, licensors, future collaborators or other strategic partners;
achievement of expected product sales and profitability;
variations in our financial results or those of companies that are perceived to be similar to us;
market conditions in the biopharmaceutical sector and issuance of securities analysts’ reports or recommendations;
trading volume of our common stock;
an inability to obtain additional funding;
sales of our stock by insiders and stockholders;
general economic, industry and market conditions other events or factors, many of which are beyond our control, such as the
COVID-19 pandemic, the military conflict between Russia and Ukraine, inflation and interest changes and financial institution
instability;
additions or departures of key personnel; and
intellectual property, product liability or other litigation against us.
In addition, in the past, stockholders have initiated class action lawsuits against biopharmaceutical companies following periods of
volatility in the market prices of these companies’ stock. Such litigation, if instituted against us, could cause us to incur substantial costs and divert
management’s attention and resources, which could have a material adverse effect on our business, financial condition and results of operations.
Our failure to meet the continued listing requirements of the Nasdaq could result in a delisting of our common stock.
If we fail to satisfy the continued listing requirements of the Nasdaq, such as the corporate governance requirements or the minimum
closing bid price requirement, Nasdaq may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our
common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we can provide no
assurance that any action taken by us to restore compliance with listing requirements would allow our common stock to become listed again, stabilize the
market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or
prevent future non-compliance with Nasdaq’s listing requirements.
Our executive officers, directors and principal stockholders, if they choose to act together, have the ability to control or significantly influence all
matters submitted to stockholders for approval. Furthermore, many of our current directors were appointed by our principal stockholders.
Our executive officers, directors and greater than 5% stockholders, in the aggregate, own approximately 67.0% of our outstanding
common stock as of March 10, 2023. As a result, such persons or their appointees to our board of directors, acting together, have the ability to control or
significantly influence all matters submitted to our board of directors or stockholders for approval, including the appointment of our management, the
election and removal of directors and approval of any significant transaction, as well as our management and business affairs. This concentration of
ownership may have the effect of delaying, deferring or preventing a change in control, impeding a merger, consolidation, takeover or other business
combination involving us, or discouraging a potential acquiror from making a tender offer or otherwise attempting to obtain control of our business, even if
such a transaction would benefit other stockholders.
We do not currently intend to pay dividends on our common stock, and, consequently, your ability to achieve a return on your investment will depend
on appreciation, if any, in the price of our common stock.
We have never declared or paid any cash dividend on our common stock. We currently anticipate that we will retain future earnings for
the development, operation and expansion of our business and do not anticipate declaring or paying
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any cash dividends for the foreseeable future. In addition, the terms of our Credit Facility preclude us from paying dividends, subject to certain exceptions,
as may any future debt agreements we enter into. Any return to stockholders will therefore be limited to the appreciation of their stock. There is no
guarantee that shares of our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.
Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could cause our stock price to fall.
Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur could
significantly reduce the market price of our common stock and impair our ability to raise adequate capital through the sale of additional equity securities.
The holders of 11,495,184 shares of our outstanding common stock, or approximately 12% of our total outstanding common stock as of
March 10, 2023, are entitled to rights with respect to the registration of their shares under the Securities Act. Registration of these shares under the
Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by affiliates, as
defined in Rule 144 under the Securities Act. Any sales of securities by these stockholders, or the registration of such shares, could have a material adverse
effect on the trading price of our common stock.
Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to
entrenchment of management.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could significantly reduce
the value of our shares to a potential acquiror or delay or prevent changes in control or changes in our management without the consent of our board of
directors. The provisions in our charter documents include the following:
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a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the
membership of a majority of our board of directors;
no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
the exclusive right of our board of directors, unless the board of directors grants such right to the stockholders, to elect a director
to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which
prevents stockholders from being able to fill vacancies on our board of directors;
the required approval of at least 66-2/3% of the shares entitled to vote to remove a director for cause, and the prohibition on
removal of directors without cause;
the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other
terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to
significantly dilute the ownership of a hostile acquiror;
the ability of our board of directors to alter our amended and restated bylaws without obtaining stockholder approval;
the required approval of at least 66-2/3% of the shares entitled to vote to adopt, amend or repeal our amended and restated
bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of
directors;
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special
meeting of our stockholders;
an exclusive forum provision providing that the Court of Chancery of the State of Delaware will be the exclusive forum for
certain actions and proceedings;
the requirement that a special meeting of stockholders may be called only by the board of directors, which may delay the ability
of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and
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advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to
propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from
conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.
We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under
Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has
held the stock for three years or, among other exceptions, the board of directors has approved the transaction.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for
substantially all disputes between us and our stockholders, and our amended and restated bylaws provide that the federal district courts shall be the
exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, 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 certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum
for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising
pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or any
action asserting a claim against us that is governed by the internal affairs doctrine; provided, that, this exclusive forum provision would not apply to suits
brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Furthermore,
our amended and restated bylaws also provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of the
United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. These choice of
forum provisions 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 other employees. By agreeing to this provision, however,
stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. Furthermore, the
enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is
possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the choice of forum provisions in our
amended and restated certificate of incorporation or amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional
costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
Our ability to use net operating loss carryforwards and other tax attributes may be limited.
We have incurred substantial losses during our history, do not expect to become profitable in the near future, and may never achieve
profitability. To the extent that we continue to generate losses for tax purposes, such losses will carry forward to offset future taxable income, if any, until
such losses are used to offset taxable income (if ever) or expire (if at all). As of December 31, 2022, we had federal and state net operating loss
carryforwards, or NOLs, of approximately $494.6 million and $1.6 million, respectively. Our federal and state NOLs that are subject to expiration will
begin to expire in 2034, unless previously utilized. Our federal NOLs generated in taxable years beginning after December 31, 2017 are not subject to
expiration but may only be used to offset 80% of our taxable income in taxable years beginning after December 31, 2020. As of December 31, 2022, the
Company has foreign NOLs of approximately $200.2 million. The foreign NOLs can be carried forward indefinitely. As of December 31, 2022, we also
had orphan drug credit and federal research tax credit carryforwards of approximately $35.8 million and California research tax credits of $10.6 million.
The federal research tax credit carryforwards begin to expire in 2038. The California research tax credit carryforward does not expire and can be carried
forward indefinitely until utilized.
Our NOLs and credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax
authorities. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, our federal NOL sand credit
carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders
(or groups of stockholders) in excess of 50 percentage points over a rolling three-year period. Similar rules may apply under state and foreign tax laws. In
connection with our IPO in February 2019, we experienced an ownership change for purposes of Section 382 and 383 of the Code. Consequently, our
federal NOLs and tax credits generated through February 2019 will be subject to annual limitations. However, our NOLs and tax credits are not expected to
expire unused as a result of such annual limitations, assuming we otherwise have taxable income or income tax liabilities in future periods. If additional
ownership changes have occurred, or additional ownership changes occur in the future as a result of changes in our stock ownership, many of which are
outside our control, the NOL and credit carryforwards could be subject to further annual limitations. If we earn taxable income, such annual limitations
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increased future tax liability to us and our future cash flows could be adversely affected. We have recorded a full valuation allowance related to our NOLs
and other deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets.
We have been involved in securities class action litigation and could be subject in the future to securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its
securities. This risk is especially relevant for us, because biotechnology and pharmaceutical companies have experienced significant stock price volatility in
recent years. On April 3, 2020, we, certain of our executive officers and directors, and the underwriters of our IPO were named as defendants in a purported
securities class action lawsuit. The complaint, as amended, was filed on behalf of all investors who purchased our securities pursuant to or traceable to our
February 8, 2019 IPO, and alleged that we, and such executive officers and directors and the underwriters of our IPO, made false and/or misleading
statements and failed to disclose material adverse facts about our business, operations and prospects. On September 30, 2022, the court entered a judgment
approving the class action settlement in which we agreed to pay approximately $2.4 million, in exchange for customary releases and settlement terms. This
lawsuit and any future lawsuits to which we may become a party are subject to inherent uncertainties and may be expensive and time-consuming to
investigate, defend and resolve, and may divert our management’s attention and financial and other resources. The outcome of litigation is necessarily
uncertain, and we could be forced to expend significant resources in the defense of future litigation, and we may not prevail. Any litigation to which we are
a party may result in an onerous or unfavorable judgment that may not be reversed upon appeal, or in payments of substantial monetary damages or fines,
or we may decide to settle this or other lawsuits on similarly unfavorable terms, which could adversely affect our business, financial condition, results of
operations or stock price.
We are a smaller reporting company within the meaning of the Securities Act, and if we decide to take advantage of certain exemptions from various
reporting requirements applicable to smaller reporting companies, our common stock could be less attractive to investors.
We are a smaller reporting company. For so long as we qualify as a smaller reporting company, we will have the option to take advantage
of certain exemptions from various reporting and other requirements that are applicable to other public companies that are not smaller reporting companies,
including, but not limited to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. In addition, for
as long as we are deemed neither a large accelerated filer nor accelerated filer, we may continue to use the exemption from compliance with the auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act.
We will remain a smaller reporting company and non-accelerated filer until we have a public float of $700 million or more as of the last
business day of our most recently completed second fiscal quarter and annual revenues of less than $100 million, or a public float of $250 million or more
as of the last business day of our most recently completed second fiscal quarter and annual revenues of $100 million or more. We will need to reassess, as
of June 30, 2023, whether we will continue to qualify as a smaller reporting company and a non-accelerated filer for filings beyond the fiscal year ending
December 31, 2023. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors
find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
General Risk Factors
We and any of our third-party manufacturers or suppliers may use potent chemical agents and hazardous materials, and any claims relating to
improper handling, storage or disposal of these materials could be time consuming or costly.
We and any of our third-party manufacturers or suppliers will use biological materials, potent chemical agents and may use hazardous
materials, including chemicals and biological agents and compounds that could be dangerous to human health and safety of the environment. Our
operations and the operations of our third-party manufacturers and suppliers also produce hazardous waste products. Federal, state and local laws and
regulations govern the use, generation, manufacture, storage, handling and disposal of these materials and wastes. Compliance with applicable
environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our product development
efforts. In addition, we cannot eliminate the risk of accidental injury or contamination from these materials or wastes. We do not carry specific biological or
hazardous waste insurance coverage, and our property, casualty and general liability insurance policies specifically exclude coverage for damages and fines
arising from biological or hazardous waste exposure or contamination. In
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the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical
trials or regulatory approvals could be suspended.
Although we maintain workers’ compensation insurance for certain costs and expenses, we may incur due to injuries to our employees
resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities.
We do not maintain insurance for toxic tort claims that may be asserted against us in connection with our storage or disposal of biologic, hazardous or
radioactive materials.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and
regulations, which have tended to become more stringent over time. These current or future laws and regulations may impair our research, development or
production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions or liabilities, which
could materially adversely affect our business, financial condition, results of operations and prospects.
Our information technology systems, or those of any of our CROs, manufacturers, other contractors or consultants or potential future collaborators,
may fail or suffer security breaches, which could result in a material disruption of our product development programs, which could materially affect
our results.
Despite the implementation of security measures, our information technology systems and those of our current and any future CROs and
other contractors, consultants and collaborators are vulnerable to attack and damage from computer viruses and malware (e.g., ransomware), cybersecurity
threats, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Attacks upon information technology systems
are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and
individuals with a wide range of motives and expertise. As a result of the COVID-19 pandemic, and continued hybrid working environment, we may also
face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create
additional opportunities for cybercriminals to exploit vulnerabilities. Furthermore, because the techniques used to obtain unauthorized access to, or to
sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or
implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period. Even if
identified, we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are
designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence.
We and certain of our service providers are from time to time subject to cyberattacks and security incidents. While we do not believe that
we have experienced any significant system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our
operations or result in the unauthorized disclosure of or access to personally identifiable information or health-related information, it could result in a
material disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other similar disruptions. The
loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs
to recover or reproduce the data. We could also incur liability and the further development and commercialization of our product candidates could be
delayed. In addition, we also rely on third parties to manufacture our product candidates, so similar events relating to their computer systems could also
have a material adverse effect on our business. Some of the federal, state and foreign government requirements under data privacy and security laws
include obligations of companies to notify individuals of security breaches involving particular personally identifiable information, which could result from
breaches experienced by us or by our service providers or organizations with which we have formed strategic relationships. Notifications and follow-up
actions related to a security breach could impact our reputation, cause us to incur significant costs, including legal expenses, harm customer confidence,
hurt our expansion into new markets, cause us to incur remediation costs, or cause us to lose existing customers. Further, our insurance coverage may not
be sufficient to cover the financial, legal, business or reputational losses that may result from an interruption or breach of our systems. To the extent that
any disruption or security breach were to result in violations of privacy and security laws, we could also be subject to significant fines, penalties or
liabilities, which could adversely affect our business, financial condition, results of operations and prospects.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes,
typhoons, fires, extreme weather conditions, and other natural or manmade disasters or business interruptions, for which we are predominantly self-insured.
We rely on third-party manufacturers to produce our product candidates. Our ability to obtain clinical supplies of our product candidates could be disrupted
if the operations of these suppliers were affected by a man-made or natural disaster or other business interruption. In addition, our corporate headquarters is
located in San Diego, California near major earthquake faults and fire zones, and the ultimate impact on us of being located near major earthquake faults
and fire zones and being consolidated in a certain geographical area is unknown. The occurrence
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of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses.
Unfavorable global economic conditions and adverse developments with respect to financial institutions and associated liquidity risk could adversely
affect our business, financial condition and stock price.
The global credit and financial markets are currently, and have from time to time experienced extreme volatility and disruptions, including severely
diminished liquidity and credit availability, rising interest and inflation rates, declines in consumer confidence, declines in economic growth, increases in
unemployment rates and uncertainty about economic stability. The financial markets and the global economy may also be adversely affected by the current
or anticipated impact of military conflict, including the ongoing conflict between Russia and Ukraine, terrorism or other geopolitical events. Sanctions
imposed by the United States and other countries in response to such conflicts, including the one in Ukraine, may also adversely impact the financial
markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability.
More recently, the closures of Silicon Valley Bank, or SVB, and Signature Bank and their placement into receivership with the Federal Deposit Insurance
Corporation, or FDIC created bank-specific and broader financial institution liquidity risk and concerns. Although the Department of the Treasury, the
Federal Reserve, and the FDIC jointly released a statement that depositors at SVB and Signature Bank would have access to their funds, even those in
excess of the standard FDIC insurance limits, under a systemic risk exception, future adverse developments with respect to specific financial institutions or
the broader financial services industry may lead to market-wide liquidity shortages, impair the ability of companies to access near-term working capital
needs, and create additional market and economic uncertainty. There can be no assurance that future credit and financial market instability and a
deterioration in confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic
downturn, liquidity shortages, volatile business environment or continued unpredictable and unstable market conditions. If the equity and credit markets
deteriorate, or if adverse developments are experienced by financial institutions, it may cause short-term liquidity risk and also make any necessary debt or
equity financing more difficult, more costly, more onerous with respect to financial and operating covenants and more dilutive. Failure to secure any
necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock
price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers,
financial institutions, manufacturers and other partners may be adversely affected by the foregoing risks, which could directly affect our ability to attain our
operating goals on schedule and on budget.
We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws and anti-money laundering laws and
regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We could face criminal
liability and other serious consequences for violations, which could harm our business.
We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs
regulations, and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, and
anti-corruption and anti-money laundering laws and regulations, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic
bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and national anti-bribery and anti-money
laundering laws in the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees,
agents, clinical research organizations, contractors and other collaborators and partners from authorizing, promising, offering, providing, soliciting or
receiving, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We may engage third parties for
clinical trials outside of the United States, to sell our products abroad once we enter a commercialization phase, and/or to obtain necessary permits,
licenses, patent registrations and other regulatory approvals. We have direct or indirect interactions with officials and employees of government agencies or
government-affiliated hospitals, universities and other organizations. We can be held liable for the corrupt or other illegal activities of our employees,
agents, clinical research organizations, contractors and other collaborators and partners, even if we do not explicitly authorize or have actual knowledge of
such activities. Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment,
the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm and other consequences.
Furthermore, U.S. export control laws and economic sanctions prohibit the provision of certain products and services to countries,
governments, and persons targeted by U.S. sanctions. U.S. sanctions that have been or may be imposed as a result of military conflicts in other countries
may impact our ability to continue activities at clinical trial sites within regions covered by such sanctions. For example, as a result of the military conflict
between Russia and Ukraine, the United States and its European allies have recently announced the imposition of sanctions on certain industry sectors and
parties in Russia and the
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regions of Donetsk and Luhansk in Ukraine, as well as enhanced export controls on certain products and industries. These and any additional sanctions and
export controls, as well as any economic countermeasures by the governments of Russia or other jurisdictions, could adversely impact our ability to
continue activities at clinical trial sites within regions covered by such sanctions or directly or indirectly disrupt our supply chain. If we fail to comply with
export and import regulations and such economic sanctions, penalties could be imposed, including fines and/or denial of certain export privileges.
We incur significant costs as a result of operating as a public company, and our management will be required to devote substantial time to new
compliance initiatives.
As a public company, we incur significant legal, accounting and other expenses. We are subject to the reporting requirements of the
Exchange Act, which require, among other things, that we file with the SEC annual, quarterly and current reports with respect to our business and financial
condition. In addition, Sarbanes-Oxley, as well as rules subsequently adopted by the SEC and Nasdaq to implement provisions of Sarbanes-Oxley, impose
significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes
in corporate governance practices. Further, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC has adopted
additional rules and regulations in these areas, such as mandatory “say on pay” voting requirements that apply to us. Stockholder activism, the current
political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure
obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently
anticipate.
The rules and regulations applicable to public companies have increased and may continue to increase our legal and financial compliance
costs and to make some activities more time consuming and costly. If these requirements divert the attention of our management and personnel from other
business concerns, they could have a material adverse effect on our business, financial condition and results of operations. The increased costs will
decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or
services. For example, these rules and regulations make it more expensive for us to obtain director and officer liability insurance, and we may be required
to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to
respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on
our board of directors, our board committees or as executive officers.
If securities or industry analysts do not publish research or reports or publish unfavorable research or reports about our business, our stock price and
trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about
us, our business, our market or our competitors. If these analysts cease coverage of our company, the trading price for our stock would be negatively
impacted. If one or more of the analysts who covers us downgrades our stock, our stock price would likely decline. If one or more of these analysts ceases
to cover us or fails to regularly publish reports on us, interest in our stock could decrease, which could cause our stock price or trading volume to decline.
If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements
could be impaired, investors may lose confidence in our financial reporting and the trading price of our common stock may decline.
Pursuant to Section 404 of Sarbanes-Oxley, our management is required to annually report upon the effectiveness of our internal control
over financial reporting. However, as a smaller reporting company and a non-accelerated filer and in accordance with new SEC rules effective in 2020, our
independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to
Section 404 for as long as we are not deemed an “accelerated filer” or “large accelerated filer. The rules governing the standards that must be met for
management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. If
we or, if required, our auditors are unable to conclude that our internal control over financial reporting is effective, investors may lose confidence in our
financial reporting and the trading price of our common stock may decline.
Although we have determined that our internal control over financial reporting was effective as of December 31, 2022, we cannot assure
you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to
maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash
flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm
determines
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we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begin its Section 404 reviews, investors
may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be
subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control
over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to
the capital markets.
Changes in tax laws may materially adversely affect our financial condition, results of operations and cash flows.
New income, sales, use or other tax laws, statutes, rules, regulations or ordinances, including in the United States, Ireland or
Luxembourg, could be enacted at any time, or interpreted, changed, modified or applied adversely to us, any of which could adversely affect our business
operations and financial performance. We are currently unable to predict whether such changes will occur and, if such changes do occur, the ultimate
impact on our business. To the extent that such changes have a negative impact on us, including as a result of related uncertainty, these changes may
materially and adversely impact our business, financial condition, results of operations and cash flows.
Item 1B. Unresolved Staff Comments.
Not Applicable.
Item 2. Properties.
Our corporate headquarters are located in San Diego, California, where we currently lease approximately 63,667 square feet of office,
laboratory and vivarium space. We use our corporate headquarters primarily for corporate, research, development, clinical, regulatory, manufacturing and
quality functions. Our lease for this facility expires in January 2025. We believe that our facilities are adequate to meet our current needs, and that suitable
additional alternative spaces will be available in the future on commercially reasonable terms, if required.
Item 3. Legal Proceedings.
We are not currently a party to any material legal proceedings. From time to time, we may be involved in legal proceedings or subject to
claims incident to the ordinary course of business. Regardless of the outcome, such proceedings or claims can have an adverse impact on us because of
defense and settlement costs, diversion of resources and other factors, and there can be no assurances that favorable outcomes will be obtained.
Item 4. Mine Safety Disclosures.
Not Applicable.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
PART II
Market Information
Our common stock is listed on the Nasdaq Global Select Market under the symbol “GOSS.”
Holders of Common Stock
As of March 10, 2023, there were 94,984,560 shares of our common stock outstanding held by approximately 33 holders of record of our
common stock. This number was derived from our shareholder records and does not include beneficial owners of our common stock whose shares are held
in the name of various dealers, clearing agencies, banks, brokers and other fiduciaries.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We intend to retain future earnings, if any, to finance the
operation of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination related to dividend policy
will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, business
prospects and other factors the board of directors deems relevant, and subject to the restrictions contained in any future financing instruments. In addition,
the terms of our Credit Facility restrict our ability to pay dividends, subject to certain exceptions.
Securities Authorized for Issuance Under Equity Compensation Plans
by reference herein.
See Item 12 of Part III of this Annual Report on Form 10-K for information about our equity compensation plans which is incorporated
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Stock Performance Graph
The following stock performance graph compares our total stock return with the total return for (i) the Nasdaq Composite Index and the
(ii) the Nasdaq Biotechnology Index for the period from February 8, 2019 (the date our common stock commenced trading on the Nasdaq Global Select
Market) through December 31, 2022. The figures represented below assume an investment of $100 in our common stock at the closing price of $17.94 on
February 8, 2019 and in the Nasdaq Composite Index and the Nasdaq Biotechnology Index on February 8, 2019 and the reinvestment of dividends into
shares of common stock. The comparisons in the graph are not intended to forecast or be indicative of possible future performance of our common stock.
Unregistered Sales of Equity Securities
During the year ended December 31, 2022, we did not issue or sell any unregistered securities.
Issuer Repurchases of Equity Securities
None.
Item 6. Reserved
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated
financial statements and related notes included elsewhere in this annual report. This discussion and analysis contains forward-looking statements based
upon our current beliefs, plans and expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this
annual report.
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Overview
We are a clinical-stage biopharmaceutical company focused on discovering, acquiring, developing and commercializing therapeutics in the
disease areas of immunology, inflammation and oncology. We are developing seralutinib for the treatment of pulmonary arterial hypertension, or PAH. In
December 2022, we announced positive topline results from the Phase 2 TORREY Study in PAH patients. Upon completion of the 24-week blinded portion
of the Phase 2 TORREY Study,
patients were able to enroll into an open-label extension trial. We anticipate reporting results from this ongoing
open-label extension trial in the middle of 2023.We expect to initiate a Phase 3 program in PAH in the second half of 2023. We are developing GB5121 for
the treatment of relapsed / refractory primary CNS lymphoma, or PCNSL, and we commenced enrolling healthy volunteers in a Phase 1 clinical trial in the
second quarter of 2021, and we commenced the Phase 1b/2 STAR CNS Study in relapsed / refractory PCNSL and other rare CNS malignancies in the
fourth quarter of 2022. Based upon the benefit / risk profile observed to date and a prioritization of resources to support the seralutinib program, we have
decided to pause enrollment in the Phase 1b/2 STAR CNS Study. We plan to discuss available data with the study's Data Review Committee to determine
next steps. We are developing GB7208 for the treatment of multiple sclerosis. GB7208 is currently undergoing preclinical testing. We also have multiple
preclinical programs at various stages of development in the therapeutic areas of immunology, inflammation and oncology. We have assembled a deeply
experienced and highly skilled group of industry veterans, scientists, clinicians and key opinion leaders from leading biotechnology and pharmaceutical
companies, as well as leading academic centers from around the world. Our employees are a team of highly dedicated, passionate individuals who pride
themselves on a culture of respect, humility, transparency, inclusion, dedication, collaboration and fun. Our ultimate goal is to enhance and extend the lives
of patients.
We were incorporated in October 2015 and commenced operations in 2017. To date, we have focused primarily on organizing and staffing our
company, business planning, raising capital, identifying, acquiring and in-licensing our product candidates and conducting preclinical studies and clinical
trials. We have funded our operations primarily through equity and debt financings. We raised $1,062.1 million from October 2017 through December 31,
2022 through the sale of Series A and B convertible preferred stock financings, issuance of convertible notes, proceeds from our IPO completed in
February 2019, proceeds from our Credit Facility, proceeds from our concurrent underwritten public offerings of 5.00% convertible senior notes due 2027,
or the 2027 Notes, and our common stock in May 2020 and proceeds from a private placement of our common stock in July 2022. As of December 31,
2022, we had $255.7 million in cash, cash equivalents and marketable securities.
We have incurred significant operating losses since our inception and expect to continue to incur significant operating losses for the foreseeable
future. For the years ended December 31, 2022 and 2021, our net loss was $229.4 million and $234.0 million, respectively. As of December 31, 2022, we
had an accumulated deficit of $1,032.2 million. We expect our expenses and operating losses will increase substantially as we conduct our ongoing and
planned clinical trials, continue our research and development activities and conduct preclinical studies, and seek regulatory approvals for our product
candidates, as well as hire additional personnel, protect our intellectual property and incur additional costs associated with being a public company. In
addition, as our product candidates progress through development and toward commercialization, we will need to make milestone payments to the licensors
and other third parties from whom we have in-licensed or acquired our product candidates, including seralutinib. Our net losses may fluctuate significantly
from quarter-to-quarter and year-to-year, depending in particular on the timing of our clinical trials and preclinical studies and our expenditures on other
research and development activities.
We do not expect to generate any revenue from product sales unless and until we successfully complete development and obtain regulatory
approval for one or more of our product candidates, which we expect will take a number of years. If we obtain regulatory approval for any of our product
candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly,
until such time as we can generate substantial product revenues to support our cost structure, if ever, we expect to finance our cash needs through equity
offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. However, we may be
unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into
such other arrangements when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and
strategies. If we are unable to raise additional capital when needed, we could be forced to delay, limit, reduce or terminate our product candidate
development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop
and market such product candidates ourselves.
COVID-19 Pandemic
As we continue to actively advance our programs, we are in close contact with our principal investigators and clinical sites and continue to assess
any impacts of the ongoing COVID-19 global pandemic on our drug manufacturing, nonclinical activities, clinical trials, expected timelines and costs on an
ongoing basis. In addition, while we are continuing the clinical trials
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we have underway in sites across the globe, COVID-19 precautions and related staffing shortages at sites and key vendors have delayed, such as the
temporary closure of enrollment in 2020 at certain sites in our ongoing Phase 2 trial for seralutinib in PAH, and may continue to delay completion of our
current and future trials and may directly or indirectly impact the timeline for data readouts, initiation of, as well as monitoring, data collection and analysis
and other related activities for some of our current and future clinical trials. In light of the COVID-19 pandemic, and consistent with the FDA’s updated
industry guidance for conducting clinical trials, clinical trials may be deprioritized in favor of treating patients who have contracted the virus or to prevent
the spread of the virus. The direct and indirect impacts of COVID-19 on our business could alter our forecasted timelines, which could have a material
adverse effect on our business, results of operations and financial condition. We will continue to evaluate the impact of the COVID-19 pandemic on our
business.
Components of Results of Operations
Revenue
future.
We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products for the foreseeable
Operating expenses
Research and development
Research and development expenses relate primarily to preclinical and clinical development of our product candidates and discovery
efforts, as well as our discontinued clinical product candidates. Research and development expenses are recognized as incurred and payments made prior to
the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.
Research and development expenses include or could include:
•
•
•
•
•
•
salaries, payroll taxes, employee benefits, and stock-based compensation charges for those individuals involved in research and
development efforts;
external research and development expenses incurred under agreements with contract research organizations, or CROs,
investigative sites and consultants to conduct our clinical trials and preclinical and non-clinical studies;
laboratory supplies;
costs related to manufacturing our product candidates for clinical trials and preclinical studies, including fees paid to third-party
manufacturers;
costs related to compliance with regulatory requirements; and
facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent, maintenance of
facilities, insurance, equipment and other supplies.
Our direct research and development expenses consist principally of external costs, such as fees paid to CROs, investigative sites and
consultants in connection with our clinical trials, preclinical and non-clinical studies, and costs related to manufacturing clinical trial materials. We deploy
our personnel and facility related resources across all of our research and development activities. We track external costs and personnel expense on a
program-by-program basis and allocate common expenses, such as facility related resources, to each program based on the personnel resources allocated to
such program. Stock-based compensation and personnel and common expenses not attributable to a specific program are considered unallocated research
and development expenses.
We expect our research and development expenses for the foreseeable future to remain relatively flat as we continue the development of
our product candidates and conduct discovery and research activities for our preclinical programs. We cannot determine with certainty the timing of
initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of our product candidates due to the inherently
unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development
costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much
funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future
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preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. We will
need to raise substantial additional capital in the future.
Our clinical development costs may vary significantly based on factors such as:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
per patient trial costs;
the number of trials required for approval;
the number of sites included in the trials;
the countries in which the trials are conducted;
the length of time required to enroll eligible patients;
the number of patients that participate in the trials;
the number of doses that patients receive;
the drop-out or discontinuation rates of patients;
potential additional safety monitoring requested by regulatory agencies;
the duration of patient participation in the trials and follow-up;
the cost and timing of manufacturing our product candidates;
the costs incurred as a result of the COVID-19 pandemic, including clinical trial delays;
the phase of development of our product candidates; and
the efficacy and safety profile of our product candidates.
In process research and development
there is no alternative future use, are expensed as incurred.
In process research and development, or IPR&D, expenses include IPR&D acquired as part of an asset acquisition or in-license for which
and upfront and milestone payments made in connection with the acquisition of certain preclinical programs.
IPR&D expenses consist of our upfront and milestone payments made to Pulmokine, Inc., in connection with the in-license of seralutinib
General and administrative
General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for
personnel in executive, finance and other administrative functions. Other significant costs include facility-related costs, legal fees relating to intellectual
property and corporate matters, professional fees for accounting and consulting services and insurance costs.
We expect our general and administrative expenses for the foreseeable future to remain relatively flat to support our current infrastructure
and continued costs of operating as a public company. These expenses will likely include audit, legal, regulatory, and tax-related services associated with
maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, and investor relations costs associated with
operating as a public company.
Other income (expense), net
(3) interest expense related to our Credit Facility and our 2027 Notes, and (4) other miscellaneous income (expense).
Other income (expense), net consists of (1) interest income on our cash, cash equivalents and marketable securities, (2) sublease income,
Critical Accounting Policies and Estimates
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Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial
statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these
financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, and expenses and the disclosure of
contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events, and
various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions
or conditions (See Note 2 to our consolidated financial statements).
Accrued expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses as of each
balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have
been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been
invoiced or otherwise notified of the actual cost. We make estimates of our accrued expenses as of each balance sheet date based on facts and
circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if
necessary. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in
connection with research and development activities for which we have not yet been invoiced.
We base our expenses related to research and development activities on our estimates of the services received and efforts expended
pursuant to quotes and contracts with vendors that conduct research and development on our behalf. The financial terms of these agreements are subject to
negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will
exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time
period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the
level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Advance payments for goods and services that will be used in
future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the
payment is made.
Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and
timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too
low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.
Results of Operations for the Years Ended December 31, 2022 and 2021
The following table sets forth our selected statements of operations data for the years ended December 31, 2022 and 2021:
Operating expenses:
Research and development
In process research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense)
Interest income
Interest expense
Other income
Total other expense, net
Net loss
Operating Expenses
Years Ended December 31,
2022
2021
2022 vs 2021 Change
(in thousands)
$
170,919 $
170,267 $
65
47,609
218,593
(218,593)
1,583
(13,880)
1,512
(10,785)
75
45,782
216,124
(216,124)
761
(19,440)
799
(17,880)
$
(229,378) $
(234,004) $
652
(10)
1,827
2,469
(2,469)
822
5,560
713
7,095
4,626
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Research and development
Research and development expenses were $170.9 million for the year ended December 31, 2022, compared to $170.3 million for the year
ended December 31, 2021, for an increase of $0.7 million, which was primarily attributable to an increase of $23.1 million of costs associated with
preclinical studies and clinical trials for GB5121 and an increase of $16.5 million of costs associated with preclinical studies and clinical trials for
seralutinib; offset by a decrease of $20.9 million of costs associated with preclinical studies and clinical trials for terminated GB004 program, a decrease of
$10.3 million of costs associated with preclinical studies for other programs, and a decrease of $7.7 million of costs associated with preclinical studies and
clinical trials for other terminated programs.
The following table shows our research and development expenses by program for the years ended December 31, 2022 and 2021:
Seralutinib
GB5121
GB004
Other programs
Other terminated programs
Total research and development
In process research and development
Years Ended December 31,
2022
2021
(in thousands)
62,983
50,425
21,449
33,378
2,684
46,490
27,365
42,338
43,692
10,382
$
170,919 $
170,267
There were no significant IPR&D expenses for the years ended December 31, 2022 and 2021.
General and administrative
General and administrative expenses were $47.6 million for the year ended December 31, 2022, compared to $45.8 million for the year
ended December 31, 2021, for an increase of $1.8 million, which was primarily attributable to a $5.1 million increase in stock-based compensation costs;
offset by a decrease of $2.4 million of accrued costs associated with a settlement of outstanding securities litigation in 2021 and a $1.0 million decrease in
insurance costs.
Other expense, net
Other expense, net was $10.8 million for the year ended December 31, 2022, compared to other expense, net of $17.9 million for the year
ended December 31, 2021, for a decrease of $7.1 million, which was primarily attributable to a $5.6 million decrease in interest expense, an increase of
$2.2 million of other income related to investment accretion and amortization and a $0.8 million increase in interest income earned on our cash, cash
equivalents and marketable securities during the period; offset by a $1.1 million decrease in sublease income and a decrease of $0.5 million of other
income.
Results of Operations for the Years Ended December 31, 2021 and 2020
The discussion of our financial condition and results of operations for the year ended December 31, 2020 and the comparison of 2021 and
2020 results included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form
10-K for the year ended December 31, 2021 is incorporated by reference into this MD&A.
Liquidity and Capital Resources
We have incurred substantial operating losses since our inception and expect to continue to incur significant operating losses for the
foreseeable future and may never become profitable. As of December 31, 2022 and 2021, we had an accumulated deficit of $1,032.2 million and $811.5
million, respectively.
Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser
extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as
reflected in the change in our outstanding accounts payable and accrued expenses. We may also use cash on hand to repurchase 2027 Notes through open-
market transactions, including through a Rule 10b5-1 trading plan to facilitate open-market repurchases, or otherwise, from time to time.
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Under our license agreement with Pulmokine, as well as our other license and acquisition agreements, we have payment obligations that
are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones and are required to make
royalty payments in connection with the sale of products developed under those agreements. As of December 31, 2022, we were unable to estimate the
timing or likelihood of achieving the milestones or making future product sales. Other contractual obligations include future payments under our Credit
Facility, 2027 Notes and existing operating leases.
From our inception through the year ended December 31, 2022, our operations have been financed primarily by gross proceeds of
$1,062.1 million from the sale of our convertible preferred stock, issuance of convertible notes, proceeds from our IPO, proceeds from our Credit Facility,
proceeds from our concurrent underwritten public offerings of 2027 Notes and common stock, and proceeds from our private placement of common
stock. As of December 31, 2022, we had cash, cash equivalents and marketable securities of $255.7 million. Cash in excess of immediate requirements is
invested in accordance with our investment policy, primarily with a view to capital preservation and liquidity.
On May 2, 2019, we entered into a credit, guaranty and security agreement, as amended on September 18, 2019 and July 2, 2020,
pursuant to which the lenders party thereto agreed to make term loans available to us for working capital and general business purposes, in a principal
amount of up to $150.0 million in term loan commitments, including a $30.0 million term loan which was funded at the closing date, with the ability to
access the remaining $120.0 million in two additional tranches (each $60.0 million), subject to specified availability periods, the achievement of certain
clinical development milestones, minimum cash requirements and other customary conditions, or the Credit Facility. As of December 31, 2022, no tranches
under the Credit Facility were available to be drawn.
On April 10, 2020, we filed a registration statement on Form S-3, or the 2020 Shelf Registration Statement, covering the offering from
time to time of common stock, preferred stock, debt securities, warrants and units, which registration statement became automatically effective on April 10,
2020.
On May 21, 2020, we issued $200.0 million aggregate principal amount 5.00% convertible senior notes due 2027 in a registered public
offering. The interest rate on the 2027 Notes is fixed at 5.00% per annum. Interest is payable semi-annually in arrears on June 1 and December 1 of each
year commencing on December 1, 2020. The total net proceeds from the 2027 Notes, after deducting the underwriting discounts and commissions and
other offering costs, were approximately $193.6 million. Concurrent with the registered underwritten public offering of the 2027 Notes, we completed an
underwritten public offering of 9,433,963 shares of our common stock. We received net proceeds of $117.1 million, after deducting underwriting discounts
and commissions and other offering costs. Our concurrent offerings of 2027 Notes and common stock were registered pursuant to the 2020 Shelf
Registration Statement.
On March 3, 2022, we filed a registration statement on Form S-3 covering the offering from time to time of common stock, preferred
stock, debt securities, warrants and units, which registration statement became automatically effective on March 3, 2022.
On July 15, 2022, we completed a private placement of 16,649,365 shares of our common stock. The aggregate gross proceeds for the
private placement were approximately $120.1 million, before deducting offering expenses. On August 9, 2022, we filed a registration statement on Form S-
3 registering the resale of the shares of common stock issued in the private placement, which registration statement became automatically effective on
August 9, 2022.
Statements included in Part II, Item 8, of this Form 10-K, herein by this reference.
Additional information about our long-term borrowings is presented in Note 5 “Indebtedness” to the Notes to Consolidated Financial
The following table shows a summary of our cash flows for each of the years shown below:
Net cash used in operating activities
Net cash provided by (used in) investing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net (decrease) increase in cash, cash equivalents and restricted cash
87
Years Ended December 31,
2022
2021
(in thousands)
2020
$
$
(187,032) $
(1,035)
117,090
(517)
(71,494) $
(188,890) $
(117,427)
3,329
(165)
(303,153) $
(176,360)
215,342
312,540
9
351,531
Table of Contents
Operating activities
During the year ended December 31, 2022, operating activities used approximately $187.0 million of cash, primarily resulting from a net
loss of $229.4 million and payments against operating lease liabilities of $2.7 million, partially reduced by stock-based compensation expense of $42.6
million and amortization of operating lease right-of-use assets of $2.6 million.
During the year ended December 31, 2021, operating activities used approximately $188.9 million of cash, primarily resulting from a net
loss of $234.0 million, partially reduced by stock-based compensation expense of $32.0 million, amortization of long-term debt discount and issuance costs
of $6.7 million and accrued research and development expenses of $5.8 million.
During the year ended December 31, 2020, operating activities used approximately $176.4 million of cash, primarily resulting from a net
loss of $243.4 million, partially reduced by stock-based compensation expense of $38.7 million, IPR&D expenses of $23.4 million and amortization of
long-term debt discount and issuance costs of $3.9 million.
Investing activities
During the year ended December 31, 2022, investing activities used approximately $1.0 million of cash, primarily resulting from the
purchase of marketable securities of $238.0 million and the purchase of property and equipment of $0.4 million, partially offset by maturities of marketable
securities of $237.5 million.
During the year ended December 31, 2021, investing activities used approximately $117.4 million of cash, primarily resulting from the
purchase of marketable securities of $152.0 million, partially offset by maturities of marketable securities of $36.2 million.
During the year ended December 31, 2020, investing activities provided approximately $215.3 million of cash, primarily resulting from
the sales and maturities of marketable securities of $349.2 million, partially offset by the purchase of marketable securities of $109.0 million and upfront
and milestone payments of $23.4 million made to third parties in connection with the in-license or acquisition of our clinical and preclinical programs.
Financing activities
During the year ended December 31, 2022, financing activities provided $117.1 million of cash, resulting from the proceeds from the
private offering of $119.9 million, the proceeds from the exercise of stock options of $1.7 million, and from proceeds from the purchase of shares pursuant
to our 2019 Employee Stock Purchase Plan, or ESPP, of $1.2 million, partially offset by the principal repayments of long-term debt of $5.8 million.
During the year ended December 31, 2021, financing activities provided $3.3 million of cash, resulting from the proceeds from the
exercise of stock options of $2.0 million, and from the purchase of shares pursuant to the ESPP of $1.3 million.
During the year ended December 31, 2020, financing activities provided $312.5 million of cash, primarily resulting from the concurrent
registered underwritten public offerings of 2027 Notes and common stock for net proceeds of $193.6 million and $117.1 million, respectively.
Funding requirements
Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities, and access to our
Credit Facility, will be sufficient to fund our operations into the second quarter of 2024. However, our forecast of the period of time through which our
financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could
vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect.
Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.
Our future capital requirements will depend on many factors, including:
•
the type, number, scope, progress, expansions, results, costs and timing of, our preclinical studies and clinical trials of our
product candidates which we are pursuing or may choose to pursue in the future;
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•
•
•
•
•
•
•
•
•
•
•
the costs and timing of manufacturing for our product candidates;
the costs, timing and outcome of regulatory review of our product candidates;
the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights;
our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including
enhanced internal controls over financial reporting;
the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities increase;
the timing and amount of the milestone or other payments we must make to the licensors and other third parties from whom we
have in-licensed our acquired our product candidates;
the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved;
our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate
market share and revenue for any approved products;
the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;
costs associated with any products or technologies that we may in-license or acquire; and
any delays and cost increases that result from the COVID-19 pandemic or other epidemic diseases.
Until such time as we can generate substantial product revenues to support our cost structure, if ever, we expect to finance our cash needs
through equity offerings, our Credit Facility, debt financings or other capital sources, including potentially collaborations, licenses and other similar
arrangements.
However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. To
the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or
could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders.
Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, licenses and other
similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or
product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. Our failure to raise capital
or enter into such other arrangements when needed could have a negative impact on our financial condition and on our ability to pursue our business plans
and strategies. If we are unable to raise additional capital when needed, we could be forced to delay, limit, reduce or terminate our product candidate
development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop
and market such product candidates ourselves.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included elsewhere in this annual report.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. As
of December 31, 2022 our cash and cash equivalents consisted of cash, money market funds and commercial paper, and our marketable securities consisted
of commercial paper and corporate debt securities. Due to the conservative nature of these instruments, we do not believe that we have a material exposure
to interest rate risk. A 100 basis points change in interest rates would not have a significant impact on the total value of our portfolio.
Our outstanding debt under the Credit Facility bears interest at an annual rate equal to the sum of (i) the secured overnight financing rate,
or SOFR, plus a corresponding spread, plus (ii) 7.00%, subject to a SOFR floor of 2.00% and an interest rate ceiling of 16%. Given the ceiling of the
interest rate, an increase in market interest rates would increase annual
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interest expense and decrease cash flows by a maximum of $2.1 million. On December 7, 2022, we entered into the Third Amendment to the Credit
Facility which implemented SOFR as the replacement of LIBOR as the benchmark interest rate for borrowings.
We are exposed to market risk related to changes in foreign currency exchange rates associated with our foreign operations where we
conduct business in local currencies. We also contract with vendors that are located outside of the United States and certain invoices are denominated in
foreign currencies. We are subject to fluctuations in foreign currency rates in connection with these arrangements. We do not currently hedge our foreign
currency exchange rate risk. As of December 31, 2022 and 2021, we had minimal assets and liabilities denominated in foreign currencies and an immediate
change of 10% in the exchange rate of the foreign currencies would result in a net impact of approximately $0.3 million in our consolidated balance sheets
and consolidated statement of operations and comprehensive loss.
Inflation generally affects us by increasing our cost of labor and clinical trial costs. Inflation increased during the year ended December
31, 2022, and is expected to continue to increase for the near future. Inflationary factors, such as increases in the cost of our materials, supplies, and
overhead costs may adversely affect our operating results. Although Wwe do not believe that inflation had a material effect on our business, financial
condition or results of operations during the periods presented, we may experience adverse effects if inflation rates continue to rise. Significant adverse
changes in inflation and prices in the future could result in material losses.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements required pursuant to this item are incorporated by reference herein from the applicable information
included in Item 15 of this annual report and are presented beginning on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and
current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms,
and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of
achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with policies or
procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be
detected.
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 defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this
annual report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure
controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2022 that have
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Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022 based on the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission in its 2013 Internal Control — Integrated Framework. Based on this
assessment, our management has concluded that our internal control over financial reporting was effective as of December 31, 2022.
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Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
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Table of Contents
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by this item will be contained in our definitive proxy statement to be filed with the Securities and Exchange
Commission in connection with our 2023 Annual Meeting of Stockholders, or the Definitive Proxy Statement, which is expected to be filed not later than
120 days after the end of our fiscal year ended December 31, 2022, under the headings “Election of Directors,” “Corporate Governance,” “Our Executive
Officers,” and, if applicable, “Delinquent Section 16(a) Reports,” and is incorporated herein by reference.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to our officers, directors and employees, which is available on our
website at www.gossamerbio.com. The Code of Business Conduct and Ethics contains general guidelines for conducting the business of our company
consistent with the highest standards of business ethics and is intended to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-
Oxley Act of 2002 and Item 406 of Regulation S-K. In addition, we intend to promptly disclose (1) the nature of any amendment to our Code of Business
Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons
performing similar functions and (2) the nature of any waiver, including an implicit waiver, from a provision of our code of ethics that is granted to one of
these specified officers, the name of such person who is granted the waiver and the date of the waiver on our website in the future.
Item 11. Executive Compensation.
Definitive Proxy Statement and is incorporated herein by reference.
The information required by this item will be set forth in the section headed “Executive Compensation and Other Information” in our
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 section headed “Security Ownership of Certain Beneficial Owners and
Management” in our Definitive Proxy Statement and is incorporated herein by reference.
The information required by Item 201(d) of Regulation S-K will be set forth in the section headed "Executive Compensation and Other
Information" in our Proxy Statement 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 section headed “Certain Relationships and Related Person Transactions,”
“Board Independence” and “Committees of the Board of Directors” in our Definitive Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
Definitive Proxy Statement and is incorporated herein by reference.
The information required by this item will be set forth in the section headed “Independent Registered Public Accountants’ Fees” in our
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Item 15. Exhibits, Financial Statement Schedules.
(1)
All Financial statements
PART IV
registered public accounting firm, are included in this annual report on Form 10-K beginning on page F-1.
The consolidated financial statements of Gossamer Bio, Inc., together with the report thereon of Ernst & Young LLP, an independent
(2)
Financial statement schedules
All schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the consolidated
financial statements or notes thereto.
(3)
Exhibits
A list of exhibits is set form on the Exhibit Index immediately preceding the signature page of this annual report on Form 10-K and is
incorporated herein by reference.
Item 16. Form 10–K Summary.
None.
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Gossamer Bio, Inc.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
F-1
F-3
F-4
F-5
F-6
F-7
Table of Contents
To the Stockholders and the Board of Directors of Gossamer Bio, Inc.
Opinion on the Financial Statements
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Gossamer Bio, Inc. (the Company) as of December 31, 2022 and 2021, the related
consolidated statements of operations and comprehensive loss, and stockholders' equity and cash flows for each of the three years in the period ended
December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
Adoption of ASU No. 2020-06
As discussed in Note 1 to the consolidated financial statements, the Company changed its method for accounting for convertible instruments and contracts
in an entity's own equity due to the adoption of Accounting Standards Update (ASU) No. 2020-06, Debt: Debt with Conversion and Other Options
(Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) (“ASU 2020-06”), effective January 1, 2022.
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. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit 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 consolidated 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 accounts or disclosures to which it relates.
F-1
Table of Contents
Description of the
Matter
Accrued Research and Development Expenses
As of December 31, 2022, the Company accrued 15.6 million for research and development expenses. As described in Note 2
of the consolidated financial statements, the Company records accruals for estimated research and development costs,
comprising payments due for work performed by third party contractors, laboratories, participating clinical trial sites, and
others. Some of these contractor’s bill monthly based on actual services performed, while others bill periodically based upon
achieving certain contractual milestones. For the latter, the Company accrues the expenses as goods or services are used or
rendered. Clinical trial site costs are accrued as patients enter and progress through the trial.
Auditing management’s accounting for accrued research and development expenses is especially challenging as evaluating the
progress or stage of completion of the activities under the Company’s research and development agreements is dependent upon
a high volume of data from third-party service providers and internal clinical personnel, which is tracked in spreadsheets and
other end user computing programs.
How We Addressed the
Matter in Our Audit
To test the completeness of the Company’s accrued research and development expenses, among other procedures, we obtained
supporting evidence of the research and development activities performed for significant clinical trials. We corroborated the
status of significant research and development activities through meetings with accounting and clinical project managers. To
verify the appropriate measurement of accrued research and development costs, we compared the costs for a sample of
transactions against the related invoices and contracts, and confirmed amounts incurred to-date with third-party service
providers. We also examined a sample of subsequent payments to evaluate the completeness of the accrued research and
development expenses.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2018.
San Diego, California
March 17, 2023
F-2
Table of Contents
GOSSAMER BIO, INC.
Consolidated Balance Sheets
(in thousands, except share and par value amounts)
ASSETS
Current assets
Cash and cash equivalents
Marketable securities
Restricted cash
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable
Accrued research and development expenses
Current portion of long-term debt
Accrued expenses and other current liabilities
Total current liabilities
Long-term convertible senior notes
Long-term debt
Operating lease liabilities - long-term
Total liabilities
Commitments and contingencies
Stockholders' equity
Common stock, $0.0001 par value; 700,000,000 shares authorized as of December 31, 2022 and December 31, 2021;
94,478,405 shares issued and 94,423,181 shares outstanding as of December 31, 2022, and 76,470,588 shares issued and
75,752,664 shares outstanding as of December 31, 2021
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive (deficit) income
Total stockholders' equity
Total liabilities and stockholders' equity
December 31,
2022
2021
111,973 $
143,705
—
6,202
261,880
3,981
5,909
680
272,450 $
1,459 $
15,626
11,613
20,532
49,230
195,709
11,988
3,446
260,373
183,403
141,815
64
6,498
331,780
5,320
5,477
1,080
343,657
3,244
16,205
—
20,410
39,859
150,038
29,079
3,218
222,194
10
1,044,864
(1,032,223)
(574)
12,077
272,450 $
8
932,944
(811,534)
45
121,463
343,657
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Table of Contents
GOSSAMER BIO, INC.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
Operating expenses:
Research and development
In process research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense)
Interest income
Interest expense
Other income (expense), net
Total other expense, net
Net loss
Other comprehensive (loss) income:
Foreign currency translation
Unrealized loss on marketable securities
Other comprehensive (loss) income
Comprehensive loss
Net loss per share, basic and diluted
Years Ended December 31,
2022
2021
2020
$
$
$
170,919 $
65
47,609
218,593
(218,593)
1,583
(13,880)
1,512
(10,785)
(229,378) $
(544)
(75)
(619)
(229,997)
170,267 $
75
45,782
216,124
(216,124)
761
(19,440)
799
(17,880)
(234,004) $
(329)
(225)
(554)
(234,558)
(2.71) $
(3.13) $
160,854
23,380
49,728
233,962
(233,962)
3,442
(12,666)
(174)
(9,398)
(243,360)
441
(100)
341
(243,019)
(3.55)
Weighted average common shares outstanding, basic and diluted
84,574,869
74,843,482
68,510,260
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
Balance as of December 31, 2019
Issuance of common stock in connection
with a public offering, net of underwriting
discounts, commissions, and offering costs
Equity component of convertible note
issuance
Debt issuance costs attributable to
convertible feature
Vesting of restricted stock
Exercise of stock options
Stock-based compensation
Issuance of common stock pursuant to
Employee Stock Purchase Plan
Other additional paid-in capital
Net loss
Other comprehensive income
Balance as of December 31, 2020
Vesting of restricted stock
Exercise of stock options
Stock-based compensation
Issuance of common stock pursuant to
Employee Stock Purchase Plan
Issuance of common stock for restricted
stock units vested
Net loss
Other comprehensive loss
Balance as of December 31, 2021
Cumulative-effect adjustment from change
in accounting principle (See Note 2)
Issuance of common stock in connection
with a private offering, net of offering costs
of $184
Vesting of restricted stock
Exercise of stock options
Stock-based compensation
Issuance of common stock pursuant to
Employee Stock Purchase Plan
Issuance of common stock for restricted
stock units vested
Net loss
Other comprehensive loss
GOSSAMER BIO, INC.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share amounts)
Common stock
Amount
Additional
paid-in
capital
Accumulated
deficit
Accumulated
other
comprehensive
income (loss)
Total
stockholders
equity
7 $
686,390 $
(334,170) $
258 $
352,485
Shares
61,635,477 $
9,433,963
—
—
2,557,375
134,803
—
113,286
—
—
—
—
16,649,365
662,700
270,707
—
157,858
929,887
—
—
73,874,904 $
8 $
906,037
325,494
—
160,790
485,439
—
—
—
—
—
—
—
—
—
75,752,664 $
8 $
1
—
—
—
—
—
—
—
—
—
—
2
—
—
—
—
—
—
—
10 $
117,093
53,635
(109)
—
534
38,748
1,300
—
—
—
—
—
—
16
—
—
897,607 $
—
(243,360)
—
(577,530) $
—
2,014
32,008
1,315
—
—
—
—
—
—
—
—
932,944 $
(234,004)
—
(811,534) $
(53,527)
8,689
119,944
—
1,736
42,553
1,214
—
—
—
—
—
—
—
—
—
(229,378)
—
1,044,864 $
(1,032,223) $
—
—
—
—
—
—
—
—
341
599 $
—
—
—
—
—
—
(554)
45 $
—
—
—
—
—
—
—
117,094
53,635
(109)
—
534
38,748
1,300
16
(243,360)
341
320,684
—
2,014
32,008
1,315
—
(234,004)
(554)
121,463
(44,838)
119,946
—
1,736
42,553
1,214
—
—
(619)
(574) $
(229,378)
(619)
12,077
Balance as of December 31, 2022
94,423,181 $
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
GOSSAMER BIO, INC.
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Stock-based compensation expense
In process research and development expenses
Amortization of operating lease right-of-use assets
Amortization of long-term debt discount and issuance costs
Amortization of discount (premium) on investments, net of accretion of discounts
Net realized loss on investments
Loss on disposal of property and equipment
Changes in operating assets and liabilities:
Prepaid expenses and other current assets
Other assets
Operating lease liabilities
Accounts payable
Accrued expenses
Accrued research and development expenses
Accrued compensation and benefits
Accrued interest expense
Net cash used in operating activities
Cash flows from investing activities
Research and development asset acquisitions, net of cash acquired
Purchase of marketable securities
Maturities of marketable securities
Sales of marketable securities
Purchase of property and equipment
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from issuance of common stock in a public offering, net
Proceeds from issuance of convertible senior notes, net
Proceeds from issuance of common stock in a private offering, net of offering costs
Purchase of shares pursuant to Employee Stock Purchase Plan
Proceeds from the exercise of stock options
Principal repayments of long-term debt
Net cash provided by financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, at the beginning of the period
Cash, cash equivalents and restricted cash, at the end of the period
Supplemental disclosure of cash flow information:
Cash paid for interest
Supplemental disclosure of noncash investing and financing activities:
Right-of-use assets obtained in exchange for lease liabilities
Derecognition ROU lease assets obtained in exchange for operating lease liabilities
Change in unrealized loss on marketable securities, net
Years Ended December 31,
2022
2021
2020
$
(229,378)
$
(234,004)
$
(243,360)
1,832
42,553
65
2,597
1,163
(1,405)
—
—
296
400
(2,721)
(1,813)
(1,659)
(579)
1,618
(1)
1,740
32,008
75
3,427
6,731
339
—
20
2,631
(53)
(3,580)
(4,428)
736
5,774
(278)
(28)
1,409
38,748
23,380
2,859
3,857
98
(256)
—
(1,641)
532
(2,851)
6,984
1,096
(8,827)
1,612
—
(187,032)
(188,890)
(176,360)
(65)
(238,060)
237,500
—
(410)
(1,035)
—
—
119,946
1,214
1,736
(5,806)
117,090
(517)
(71,494)
183,467
(75)
(152,031)
36,225
—
(1,546)
(117,427)
—
—
—
1,315
2,014
—
3,329
(165)
(303,153)
486,620
111,973
$
183,467
$
(23,380)
(108,968)
265,678
83,515
(1,503)
215,342
117,110
193,596
—
1,300
534
—
312,540
9
351,531
135,089
486,620
12,712
$
12,738
$
7,871
3,029
—
(75)
83
$
$
$
$
—
1,650
(225)
—
$
$
$
$
3,106
—
(100)
15
$
$
$
$
Purchases of property and equipment included in accounts payable and accrued expenses and other current liabilities $
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
Note 1—Description of Business
Gossamer Bio, Inc. Notes to Consolidated Financial Statements
Gossamer Bio, Inc. (including its subsidiaries, referred to as "we," "us," "our,", or the “Company”) is a clinical-stage biopharmaceutical
company focused on discovering, acquiring, developing and commercializing therapeutics in the disease areas of immunology, inflammation and oncology.
The Company was incorporated in the state of Delaware on October 25, 2015 (originally as FSG Bio, Inc.) and is based in San Diego, California.
balances and transactions among the consolidated entity have been eliminated in consolidation.
The consolidated financial statements include the accounts of Gossamer Bio, Inc. and its wholly owned subsidiaries. All intercompany
Liquidity and Capital Resources
accumulated deficit of $1,032.2 million and $811.5 million, respectively.
The Company has incurred significant operating losses since its inception. As of December 31, 2022 and 2021, the Company had an
From the Company’s inception through the year ended December 31, 2022, the Company has funded its operations primarily through
equity and debt financings. The Company raised $1,062.1 million from October 2017 through December 31, 2022 through the sale of Series A and Series B
convertible preferred stock, issuance of convertible notes, its initial public offering ("IPO"), the Credit Facility and 2027 Notes (as defined in Note 5
below), and issuance of common stock in May 2020 and July 2022. See Note 5 for additional information regarding the Credit Facility and the 2027 Notes.
The Company expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As a
result, the Company will need to raise additional capital through equity offerings, debt financings or other capital sources, including potential
collaborations, licenses and other similar arrangements. Management believes that it has sufficient working capital on hand to fund operations through at
least the next 12 months from the date these consolidated financial statements were available to be issued. There can be no assurance that the Company will
be successful in acquiring additional funding, that the Company’s projections of its future working capital needs will prove accurate, or that any additional
funding would be sufficient to continue operations in future years.
COVID-19
As we continue to actively advance our programs, we are in close contact with our principal investigators and clinical sites and continue
to assess any impacts of the ongoing COVID-19 global pandemic on our drug manufacturing, nonclinical activities, clinical trials, expected timelines and
costs on an ongoing basis. In addition, while we are continuing the clinical trials we have underway in sites across the globe, COVID-19 precautions and
related staffing shortages at sites and key vendors have delayed, such as the temporary closure of enrollment in 2020 at certain sites in our ongoing Phase 2
trial for seralutinib in PAH, and may continue to delay completion of our current and future trials and may directly or indirectly impact the timeline for data
readouts, initiation of, as well as monitoring, data collection and analysis and other related activities for some of our current and future clinical trials. In
light of the COVID-19 pandemic, and consistent with the FDA’s updated industry guidance for conducting clinical trials, clinical trials may be deprioritized
in favor of treating patients who have contracted the virus or to prevent the spread of the virus. The direct and indirect impacts of COVID-19 on our
business could alter our forecasted timelines, which could have a material adverse effect on our business, results of operations and financial condition. We
will continue to evaluate the impact of the COVID-19 pandemic on our business.
Note 2—Summary of Significant Accounting Policies
Basis of Presentation
United States of America (“GAAP”). Certain prior period amounts have been reclassified to conform to the current period presentation.
The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements
and the reported amounts of expenses during the reporting period. The most significant estimates in the Company’s consolidated financial statements relate
to accrued research and development expenses. These estimates and assumptions are based on current facts, historical experience and various other factors
believed
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to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and
the recording of expenses that are not readily apparent from other sources. Actual results could differ from those estimates.
Segments
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its
operations and manages its business in one operating segment.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The carrying
amounts reported in the consolidated balance sheets for cash and cash equivalents are valued at cost, which approximate their fair value.
Marketable Securities
The Company considers securities with original maturities of greater than 90 days to be marketable securities. The Company has the
ability, if necessary, to liquidate any of its cash equivalents and marketable securities to meet its liquidity needs in the next 12 months. Accordingly, those
investments with contractual maturities greater than one year from the date of purchase are classified as current assets on the accompanying consolidated
balance sheets. The Company’s marketable securities consist of U.S. Treasury and agency securities, commercial paper and corporate debt securities.
Marketable securities are recorded at fair value and unrealized gains and losses are recorded within accumulated other comprehensive loss. The estimated
fair value of the marketable securities is determined based on quoted market prices or rates for similar instruments. The Company evaluates securities with
unrealized losses to determine whether such losses, if any, are due to credit-related factors. The Company records an allowance for credit losses when
unrealized losses are due to credit-related factors. Realized gains and losses are calculated using the specific identification method and recorded as interest
income or expense. The Company does not generally intend to sell the investments and it is not more likely than not that it will be required to sell the
investments before recovery of their amortized cost bases, which may be at maturity. The Company has determined that there were no material declines in
fair values of its investments due to credit-related factors as of December 31, 2022.
Restricted Cash
As of December 31, 2022, all restricted cash was released related to the Company's facility lease, which as of December 31, 2021 was
cash held as collateral.
Concentrations of Credit Risk and Off-Balance Sheet Risk
Cash, cash equivalents and marketable securities are financial instruments that are potentially subject to concentrations of credit risk. The
Company’s cash and cash equivalents are deposited in accounts at large financial institutions, and amounts may exceed federally insured limits. The
Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash and cash
equivalents are held. The Company maintains its cash equivalents in U.S. Treasury and agency securities and commercial paper with maturities less than
three months and in money market funds that invest in U.S. Treasury and agency securities.
The Company’s available for sale securities are also invested in U.S. Treasury and agency securities. The Company has not recognized
any losses from credit risks on such accounts during any of the periods presented. The Company believes it is not exposed to significant credit risk on its
cash, cash equivalents and available for sale securities.
Property and Equipment, Net
depreciation. Depreciation is computed over the estimated useful lives of the respective assets, generally two to seven years, using the straight-line method.
Property and equipment, net, which consists mainly of lab equipment and leasehold improvements, are carried at cost less accumulated
Convertible Senior Notes
Prior to the adoption of ASU 2020-06, the Company accounted for the 2027 Notes as a liability and equity component. The carrying
amount of the liability component was calculated by measuring the fair value of similar debt instruments that do not have associated convertible features.
The carrying amount of the equity component representing the
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Table of Contents
conversion option was determined by deducting the fair value of the liability component from the par value of the 2027 Notes. The equity component was
not re-measured as long as it continued to meet the condition for equity classification. The excess of the principal amount of the liability component over
its carrying amount (“debt discount”) was amortized to interest expense over the term of the 2027 Notes.
The Company allocated the issuance costs incurred to the liability and equity components of the 2027 Notes based on their relative fair
values. Issuance costs attributable to the liability component were recorded as a reduction to the liability portion of the 2027 Notes and were amortized to
interest expense over the term of the 2027 Notes. Issuance costs attributable to the equity component, representing the conversion option, were netted with
the equity component in stockholders' equity.
Effective January 1, 2022 the Company adopted ASU 2020-06. After adoption, the Company now accounts for the 2027 Notes as a single
liability measured at amortized cost. As the equity component is no longer required to be split into a separate component, the Company recorded an
adjustment to reflect this update. See Recent Accounting Pronouncements - Adopted for the impact of this adjustment upon adoption to the 2027 Notes.
Leases
In accordance with Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), the Company determines if an arrangement
is a lease at inception. Operating leases are included in the balance sheet as right-of-use assets and operating lease liabilities at the present value of the lease
payments calculated using the Company’s incremental borrowing rate, unless the implicit rate is readily available. The Company applied the short-term
lease recognition exemption for leases with terms at inception not greater than 12 months and elected to not separate lease and non-lease components for its
long-term leases. The Company records rent expense on a straight-line basis over the term of the lease.
Research and Development
All research and development costs are expensed as incurred. Research and development costs consist primarily of salaries, employee
benefits, costs associated with preclinical studies and clinical trials (including amounts paid to clinical research organizations and other professional
services). Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are
received.
The Company records accruals for estimated research and development costs, comprising payments for work performed by third party
contractors, laboratories, participating clinical trial sites, and others. Some of these contractors bill monthly based on actual services performed, while
others bill periodically based upon achieving certain contractual milestones. For the latter, the Company accrues the expenses as goods or services are used
or rendered. Clinical trial site costs related to patient enrollment are accrued as patients enter and progress through the trial. Upfront costs, such as costs
associated with setting up clinical trial sites for participation in the trials, are expensed immediately once incurred as research and development expenses.
In process research and development
in-license agreement of GB004 and a milestone payment to Pulmokine for the initiation of the Phase 2 clinical trial for seralutinib.
In process research and development costs relate to upfront payment to Aadi Bioscience, Inc. in connection with the amendment to the
Patent Costs
Costs related to filing and pursuing patent applications are expensed as incurred, as recoverability of such expenditures is uncertain.
These costs are included in general and administrative expenses.
Income Taxes
Income taxes are recorded in accordance with Financial Accounting Standards Board (“FASB”) Standards Codification (“ASC”)
No. 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and
liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which 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.
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Table of Contents
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the
Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the
taxing authority. 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.
Deferred tax assets and liabilities reflect the future tax consequences of the differences between the financial reporting and tax bases of
assets and liabilities using current enacted tax rates. Valuation allowances are recorded when the realizability of such deferred tax assets does not meet a
more-likely-than-not threshold. For tax benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing
authorities. The Company is subject to taxation in the United States and California, Ireland and Luxembourg. As of December 31, 2022, the Company’s tax
years since inception are subject to examination by taxing authorities due to the Company’s unutilized net operating losses ("NOLs") and tax credits.
Stock-Based Compensation
The Company expenses stock-based compensation to employees and non-employees over the requisite service period based on the
estimated grant-date fair value of the awards. The Company records the expense for stock-based compensation awards subject to performance-based
milestone vesting over the requisite service period when management determines that achievement of the milestone is probable. Management evaluates
when the achievement of a performance-based milestone is probable based on the expected satisfaction of the performance conditions at each reporting
date. The Company estimates the fair value of stock option grants and shares purchasable under the Company's 2019 Employee Stock Purchase Plan
("ESPP") using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent
management’s best estimates and involve inherent uncertainties and the application of management’s judgment. The Company estimates the fair value of
restricted stock units based on the closing price of the Company's common stock on the date of grant. The Company accounts for forfeitures as they occur.
All share-based compensation costs are recorded in the statements of operations based upon the underlying employees or non-employee’s roles within the
Company.
Foreign Currency
Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where that local currency is the functional
currency, are translated to U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense accounts are translated at average exchange
rates during the year which approximate the rates in effect at the transaction dates. The resulting translation adjustments are recorded in accumulated other
comprehensive income in the Company's consolidated balance sheets. Foreign exchange transaction gains and losses are included in other income
(expense) in the Company’s consolidated statement of operations and comprehensive loss.
Recent Accounting Pronouncements—Adopted
In August 2020, the FASB issued ASU 2020-06, Debt: Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) (“ASU 2020-06”), which simplifies the accounting for convertible instruments and contracts
in an entity's own equity. This guidance is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those
years, with early adoption permitted only as of annual reporting periods beginning after December 15, 2020.
The Company adopted ASU 2020-06 on January 1, 2022 using the modified retrospective approach, and accordingly the Company
recorded an adjustment that reflects the 2027 Notes as if the embedded conversion feature had not been separated. The impact upon adoption on the
Consolidated Balance Sheets was an increase of approximately $44.8 million in convertible senior notes, net, a write-off of $9.4 million in deferred income
tax liabilities and a decrease of $53.5 million in additional paid-in capital. In addition, upon adoption, there was an adjustment of $8.7 million to increase
the beginning balance of accumulated deficit on the Consolidated Balance Sheets for previously recognized interest expense related to amortization of debt
discount related to the carrying value of the embedded conversion feature upon issuance. There was no impact to the Company’s net loss per share
calculation. See Note 5 "Indebtedness" for further information regarding the 2027 Notes.
Net Loss Per Share
Basic net loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average
number of shares of common stock outstanding for the period. The Company uses the if-converted method for assumed conversion of the 2027 Notes to
compute the weighted average shares of common stock
F-10
Table of Contents
outstanding for diluted net loss per share. Diluted net loss per share excludes the potential impact of the Company’s common stock options and unvested
shares of restricted stock and the potential shares issuable upon conversion of the 2027 Notes because their effect would be anti-dilutive due to the
Company’s net loss. Since the Company had a net loss in each of the periods presented, basic and diluted net loss per common share are the same.
The table below provides potentially dilutive securities not included in the calculation of the diluted net loss per share because to do so
would be anti-dilutive:
2027 Notes
Shares issuable upon exercise of stock options
Non-vested shares under restricted stock grants
Total potentially dilutive securities
Note 3—Accrued Expenses and Other Current Liabilities
2022
12,321,900
17,487,165
1,350,035
31,159,100
December 31,
2021
12,321,900
9,434,660
2,561,219
24,317,779
2020
12,321,900
9,401,082
3,330,821
25,053,803
Accrued expenses and other current liabilities consisted of the following (in thousands):
Accrued compensation and benefits
Operating lease liabilities
Accrued consulting fees
Accrued interest
Accrued legal fees
Accrued litigation liability
Accrued accounting fees
Accrued other
Total accrued expenses and other current liabilities
Note 4—Fair Value Measurements and Available for Sale Investments
Years Ended December 31,
2022
2021
$
$
13,534 $
2,983
1,104
1,065
380
—
521
945
20,532 $
11,916
2,902
956
1,066
202
2,375
154
839
20,410
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each
major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the
amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a
market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for
considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value
as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The Company classifies its cash equivalents and available-for-sale investments within Level 1 or Level 2. The fair value of the
Company’s investment grade corporate debt securities and commercial paper is determined using proprietary valuation models and analytical tools, which
utilize market pricing or prices for similar instruments that are both objective and publicly available, such as matrix pricing or reported trades, benchmark
yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, and offers.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
thousands):
The following table presents the hierarchy for assets measured at fair value on a recurring basis as of December 31, 2022 and 2021 (in
F-11
Table of Contents
As of December 31, 2022
Money market funds
U.S. Treasury and agency securities
Commercial paper
Corporate debt securities
As of December 31, 2021
Money market funds
Commercial paper
Corporate debt securities
Fair Value Measurements at End of Period Using:
Quoted Market
Prices for
Identical Assets
(Level 1)
Significant
Other Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Fair Value
$
$
54,662 $
31,458
134,954
8,838
139,794 $
113,939
37,873
54,662 $
31,458
—
—
139,794 $
—
—
— $
—
134,954
8,838
— $
113,939
37,873
—
—
—
—
—
—
—
The Company did not reclassify any investments between levels in the fair value hierarchy during the periods presented.
Fair Value of Other Financial Instruments
As of December 31, 2022 and 2021, the carrying amounts of the Company’s financial instruments, which include cash, restricted cash,
prepaid and other current assets, interest receivable, accrued research and development expenses, accounts payable and accrued expenses and other current
liabilities, approximate fair values because of their short-term maturities.
There was no significant interest receivable as of December 31, 2022. Interest receivable as of December 31, 2021 was $0.2 million, and
is recorded as a component of prepaid expenses and other current assets on the consolidated balance sheets.
The Company believes that its Credit Facility bears interest at a rate that approximates prevailing market rates for instruments with
similar characteristics and, accordingly, the carrying value of the Credit Facility approximates fair value. The Company estimates the fair value of long-
term debt utilizing an income approach. The Company uses a present value calculation to discount principal and interest payments and the final maturity
payment on these liabilities using a discounted cash flow model based on observable inputs. The debt instrument is then discounted based on what the
current market rates would be as of the reporting date. Based on the assumptions used to value these liabilities at fair value, the debt instrument is
categorized as Level 2 in the fair value hierarchy.
As of December 31, 2022 and 2021 the fair value of the Company's 2027 Notes was $61.0 million and $190.5 million, respectively. The
fair value was determined on the basis of market prices observable for similar instruments and is considered Level 2 in the fair value hierarchy (see Note
5).
Available for Sale Investments
The Company invests its excess cash in U.S. Treasury and agency securities, corporate debt securities, and commercial paper, which are
classified as available-for-sale investments. These investments are carried at fair value and are included in the tables below. The Company evaluates
securities with unrealized losses to determine whether such losses, if any, are due to credit-related factors. Realized gains and losses are calculated using the
specific identification method and recorded in other income (expense) in the Company's consolidated statements of operations and comprehensive loss. The
Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recover
of their amortized cost basis.
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Table of Contents
The aggregate market value, cost basis, and gross unrealized gains and losses of available-for-sale investments by security type, classified
in marketable securities and long-term investments as of December 31, 2022 and 2021 are as follows (in thousands):
As of December 31, 2022
U.S Treasury and agency securities
Corporate debt securities
Commercial paper
Total marketable securities
As of December 31, 2021
Corporate debt securities
Commercial paper
Total marketable securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Total
Fair Value
$
$
$
$
31,445 $
8,876
103,508
143,829 $
37,921 $
103,942
141,863 $
13 $
—
—
13 $
— $
—
— $
— $
(38)
(99)
(137) $
(48) $
—
(48) $
31,458
8,838
103,409
143,705
37,873
103,942
141,815
maturities of 90 days or less as cash and cash equivalents.
As of December 31, 2022 and 2021, the Company classified $31.5 million and $10.0 million, respectively, of assets with original
At each reporting date, the Company performs an evaluation of impairment to determine if any unrealized losses are due to credit-related
factors. The Company records an allowance for credit losses when unrealized losses are due to credit-related factors. Factors considered when evaluating
available-for-sale investments for impairment include the severity of the impairment, changes in underlying credit ratings, the financial condition of the
issuer, the probability that the scheduled cash payments will continue to be made and the Company’s intent and ability to hold the investment until recovery
of the amortized cost basis. The Company intends and has the ability to hold its investments in unrealized loss positions until their amortized cost basis has
been recovered. As of December 31, 2022 and 2021, there were no material declines in the market value of the Company's available-for-sale investments
due to credit-related factors.
Contractual maturities of available-for-sale debt securities, as of December 31, 2022, were as follows (in thousands):
Less than one year
Greater than one year
Total
Estimated
Fair Value
143,705
—
143,705
$
$
The Company has the ability, if necessary, to liquidate any of its cash equivalents and marketable securities to meet its liquidity needs in
the next 12 months.
Note 5—Indebtedness
Credit Facility
On May 2, 2019, the Company entered into a credit, guaranty and security agreement, as amended on September 18, 2019, July 2, 2020
and December 7, 2022 (the “Credit Facility”), with MidCap Financial Trust (“MidCap”), as agent and lender, and the additional lenders party thereto from
time to time (together with MidCap, the “Lenders”), pursuant to which the Lenders, including affiliates of MidCap and Silicon Valley Bank, agreed to
make term loans available to the Company for working capital and general business purposes, in a principal amount of up to $150.0 million in term loan
commitments, including a $30.0 million term loan that was funded at the closing date, with the ability to access the remaining $120.0 million in two
additional tranches (each $60.0 million), subject to specified availability periods, the achievement of certain clinical development milestones, minimum
cash requirements and other customary conditions. The Company did not achieve the clinical development milestone required to access one of the
$60.0 million tranches and access to the other $60.0 million tranche expired on December 31, 2021. The Company, GB001, Inc., GB002, Inc., and GB004,
Inc., each wholly-owned subsidiaries of the Company, are designated as co-borrowers to the Credit Facility, whereas GB003, Inc., GB005, Inc., GB007,
Inc., GB008, Inc. and Gossamer Bio Services, Inc., each wholly-owned subsidiaries of the Company, are designated as
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guarantors. The Credit Facility is secured by substantially all of the Company’s and its domestic subsidiaries’ personal property, including intellectual
property.
Each term loan under the Credit Facility bears interest at an annual rate equal to the sum of (i) the secured overnight financing rate
(“SOFR”), plus corresponding spread, plus (ii) 7.00%, subject to a SOFR floor of 2.00%. The borrower is required to make interest-only payments on the
term loan for all payment dates prior to July 1, 2022. The term loans under the Credit Facility began amortizing on July 1, 2022, with equal monthly
payments of principal plus interest being made by the Company to the Lenders in consecutive monthly installments following such interest-only period
until the Credit Facility matures on January 1, 2025. Upon final repayment of the term loans, the borrower must pay an exit fee of 1.75% of the amount
borrowed under the Credit Facility, less any partial exit fees previously paid. Upon partial prepayment of a portion of the term loans, the borrower must pay
a partial exit fee of 1.75% of the principal being prepaid. At the borrower’s option, the borrower may prepay the outstanding principal balance of the term
loan in whole or in part, subject to a prepayment fee of 3.00% of any amount prepaid if the prepayment occurs through and including the first anniversary
of the second amendment effective date, 2.00% of the amount prepaid if the prepayment occurs after the first anniversary of the second amendment
effective date through and including the second anniversary of the second amendment effective date, and 1.00% of any amount prepaid after the second
anniversary of the second amendment effective date and prior to January 1, 2025.
On December 7, 2022, the Company entered into the Third Amendment to the Credit Facility, with no change to the principal or
repayment terms, except with respect to the interest rate applicable to the Credit Facility, with the implementation of a forward-looking term rate based on
SOFR as the replacement of LIBOR as the benchmark interest rate. The Company accounted for the change in reference rate as a not substantial
modification as allowed under ASU 2020-04
The Credit Facility includes affirmative and negative covenants applicable to the Company and certain of its subsidiaries. The affirmative
covenants include, among others, covenants requiring such entities to maintain their legal existence and governmental approvals, deliver certain financial
reports, maintain insurance coverage, maintain property, pay taxes, satisfy certain requirements regarding accounts and comply with laws and regulations.
The negative covenants include, among others, restrictions on such entities from transferring collateral, incurring additional indebtedness, engaging in
mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, amending material agreements and
organizational documents, selling assets and suffering a change in control, in each case subject to certain exceptions. The Company and certain of its
subsidiaries are also subject to an ongoing minimum cash financial covenant in which they must maintain unrestricted cash in an amount not less than 25%
of the outstanding principal amount of the term loans. As of December 31, 2022, the Company was in compliance with these covenants.
The Credit Facility also includes events of default, the occurrence and continuation of which could cause interest to be charged at the rate
that is otherwise applicable plus 3.00% and would provide MidCap, as agent, with the right to exercise remedies against the Company and/or certain of its
subsidiaries, and the collateral securing the Credit Facility, including foreclosure against the properties securing the credit facilities, including cash. These
events of default include, among other things, failure to pay any amounts due under the Credit Facility, a breach of covenants under the Credit Facility,
insolvency or the occurrence of insolvency events, the occurrence of a change in control, the occurrence of certain U.S. Food and Drug Administration
("FDA") and regulatory events, failure to remain registered with the SEC and listed for trading on Nasdaq, the occurrence of a material adverse change, the
occurrence of a default under a material agreement reasonably expected to result in a material adverse change, the occurrence of certain defaults under
certain other indebtedness in an amount greater than $2.5 million and the occurrence of certain defaults under subordinated indebtedness and convertible
indebtedness.
Debt consisted of the following (in thousands):
Debt, current portion
Debt, non-current portion
Total debt
Less: unamortized debt discount and issuance costs
Debt, net
F-14
December 31, 2022
11,613
12,581
24,194
(593)
23,601
$
$
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2023
2024
2025
Total
The scheduled future minimum principal payments are as follows (in thousands):
December 31, 2022
$
$
11,613
11,613
968
24,194
5.00% Convertible Senior Notes due 2027
On May 21, 2020, the Company issued $200.0 million aggregate principal amount of 5.00% convertible senior notes due 2027 in a public
offering (the "2027 Notes"). The 2027 Notes were registered pursuant to the Company’s shelf registration statement on Form S-3 filed with the SEC on
April 10, 2020. The interest rate on the 2027 Notes is fixed at 5.00% per annum. Interest is payable semi-annually in arrears on June 1 and December 1 of
each year, commencing on December 1, 2020. The 2027 Notes will mature on June 1, 2027. The net proceeds from the offering, after deducting the
underwriting discounts and commissions and other offering costs, were approximately $193.6 million. The 2027 Notes may be settled in cash, shares of the
Company’s common stock, or a combination thereof, solely at the Company’s election. The initial conversion rate of the 2027 Notes is 61.6095 shares
per $1,000 principal amount, which is equivalent to a conversion price of approximately $16.23 per share, subject to adjustments. In addition, following
certain corporate events that occur prior to the maturity date or if the Company issues a notice of redemption, the Company will increase the conversion
rate for a holder who elects to convert its 2027 Notes in connection with such a corporate event during the related redemption period in certain
circumstances.
The 2027 Notes are senior unsecured obligations of the Company, ranking senior in right of payment to any of the Company’s
indebtedness that is expressly subordinated in right of payment to the 2027 Notes, and are effectively subordinated to the Company’s existing and future
secured indebtedness, to the extent of the value of the collateral securing that indebtedness, including all indebtedness under the Credit Facility.
Holders may convert their notes at their option only in the following circumstances: (1) during any calendar quarter (and only during
such calendar quarter) commencing after the calendar quarter ending on September 30, 2020, if the last reported sale price per share of the Company’s
common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading
days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days
immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the trading price per
$1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share
of the Company’s common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or
distributions on the Company’s common stock; (4) if the Company calls such notes for redemption; and (5) at any time from, and including, March 1, 2027
until the close of business on the scheduled trading day immediately before the maturity date.
The Company will not have the right to redeem the 2027 Notes prior to June 6, 2024. On or after June 6, 2024 and on or before the 50th
scheduled trading day immediately before the maturity date, the Company may redeem the 2027 Notes, in whole or in part, if the last reported sale price of
the Company’s common stock has been at least 130% of the conversion price then in effect on (1) each of at least 20 trading days (whether or not
consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related
redemption notice; and (2) the trading day immediately before the date the Company sends such notice. In the case of any optional redemption, the
Company will redeem the 2027 Notes at a redemption price equal to 100% of the principal amount of such Notes to be redeemed, plus accrued and unpaid
interest to, but excluding, the redemption date.
If the Company undergoes a fundamental change prior to the maturity date of the 2027 Notes, holders of the 2027 Notes may require the
Company to repurchase for cash all or part of their 2027 Notes at a repurchase price equal to 100% of the principal amount of the 2027 Notes to be
repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The indenture governing the 2027 Notes provides for customary terms and covenants, including that upon certain events of default, either
the trustee or the holders of not less than 25% in aggregate principal amount of the 2027 Notes then outstanding may declare the unpaid principal amount
of the 2027 Notes and accrued and unpaid interest, if any, thereon immediately due and payable. As of December 31, 2022, the Company was in
compliance with these covenants. In the case of
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certain events of bankruptcy, insolvency or reorganization, the principal amount of the 2027 Notes together with accrued and unpaid interest, if any, thereon
will automatically become and be immediately due and payable.
the 2027 Notes become convertible within 12 months of the balance sheet date, the carrying value of the 2027 Notes will be reclassified to short-term.
As of December 31, 2022 and 2021, there were no events or market conditions that would allow holders to convert the 2027 Notes. When
In accounting for the issuance of the 2027 Notes prior to the adoption of ASU 2020-06, the Company separated the 2027 Notes into
liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar debt instruments that
do not have associated convertible features. The carrying amount of the equity component representing the conversion option was $53.5 million and was
determined by deducting the fair value of the liability component from the par value of the 2027 Notes. The equity component is not remeasured as long as
it continues to meet the conditions for equity classification. The debt discount is amortized to interest expense over the term of the 2027 Notes at an
effective interest rate of 11.17% over the contractual terms of the 2027 Notes. As of January 1, 2022 the Company adopted ASU 2020-06, see Note 2 for
the impact upon adoption to the 2027 Notes.
In accounting for the debt issuance costs of $0.4 million related to the 2027 Notes, the Company allocated the total amount incurred to
the liability and equity components of the 2027 Notes based on their relative fair values. Issuance costs attributable to the liability component were
$0.3 million and were amortized to interest expense using the effective interest method over the contractual terms of the 2027 Notes. Issuance costs
attributable to the equity component were netted with the equity component in stockholders’ equity.
The net carrying amount of the liability component of the 2027 Notes was as follows (in thousands):
Principal amount
Unamortized debt discount
Unamortized debt issuance cost
Net carrying amount
December 31, 2022
December 31, 2021
$
$
200,000 $
(4,021)
(270)
195,709 $
200,000
(49,716)
(246)
150,038
The net carrying amount of the equity component of the 2027 Notes was as follows (in thousands):
Debt discount related to the value of conversion option
Debt issuance cost
Net carrying amount
December 31, 2022
December 31, 2021
$
$
— $
—
— $
53,635
(109)
53,526
The following table sets forth the interest expense recognized related to the 2027 Notes (in thousands):
Contractual interest expense
Amortization of debt discount
Amortization of debt issuance cost
Total interest expense related to the 2027 Notes
Note 6—Licenses, Asset Acquisitions and Contingent Consideration
Years Ended December 31,
2022
2021
2020
$
$
10,000 $
782
53
10,835 $
9,972 $
6,364
32
16,368 $
6,139
3,555
17
9,711
The following purchased assets were accounted for as asset acquisitions as substantially all of the fair value of the assets acquired were
concentrated in a group of similar assets and/or the acquired assets were not capable of producing outputs due to the lack of employees and early stage of
development. Because the assets had not yet received regulatory approval, the fair value attributable to these assets was recorded as in process research and
development (“IPR&D”) expenses in the Company’s consolidated statements of operations and comprehensive loss for the years ended December 31,
2022, 2021, and 2020.
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The Company accounts for contingent consideration payable upon achievement of certain regulatory, development or sales milestones in
such asset acquisitions when the underlying contingency is met.
License from Pulmokine, Inc. (Seralutinib)
On October 2, 2017, the Company, entered into a license agreement with Pulmokine, Inc. under which it was granted an exclusive
worldwide license and sublicense to certain intellectual property rights owned or controlled by Pulmokine to develop and commercialize seralutinib and
certain backup compounds for the treatment, prevention and diagnosis of any and all disease or conditions. The Company also has the right to sublicense its
rights under the license agreement, subject to certain conditions. The assets acquired are in the early stages of the FDA approval process, and the Company
intends to further develop the assets acquired through potential FDA approval as evidenced by the milestone arrangement in the contract. The development
activities cannot be performed without significant cost and effort by the Company. The agreement will remain in effect from the effective date, unless
terminated earlier, until, on a licensed product-by-licensed product and country-by-country basis, the later of ten years from the date of first commercial
sale or when there is no longer a valid patent claim covering such licensed product or specified regulatory exclusivity for the licensed product in such
country. The Company is obligated to make future development and regulatory milestone payments of up to $58.0 million, which includes a payment of
$10.0 million due upon initiation of the first Phase 3 clinical trial, commercial milestone payments of up to $45.0 million, and sales milestone payments of
up to $190.0 million. The Company is also obligated to pay tiered royalties on sales for each licensed product, at percentages ranging from the mid-single
digits to the high single-digits. In addition, if the Company chooses to sublicense or assign to any third parties its rights under the agreement with respect to
a licensed product, or the Company’s seralutinib operating subsidiary undergoes a change of control, the Company must pay to Pulmokine a specified
percentage of all revenue to be received in connection with such transaction. The Company made an upfront payment of $5.5 million in October 2017. In
December 2020, the Company accrued a milestone payment of $5.0 million in connection with the initiation of the first Phase 2 clinical trial of seralutinib,
which was paid in January 2021. As of December 31, 2022 and 2021, no other milestones had been accrued as the underlying contingencies had not yet
been met.
The Company recorded the following IPR&D expense on the consolidated statements of operations (in thousands):
Seralutinib
GB004
Other preclinical programs
Total in process research and development
Note 7—Income Taxes
Years Ended December 31,
2022
2021
2020
$
$
— $
—
65
65 $
— $
—
75
75 $
5,000
15,000
3,380
23,380
The amount of net loss before taxes for the years ended December 31, 2022, 2021, and 2020 is as follows (in thousands):
U.S. loss before taxes
Foreign loss before taxes
Loss before income taxes
2022
December 31,
2021
(in thousands)
2020
$
$
175,777 $
183,194 $
53,593
50,802
229,370 $
233,996 $
186,888
56,472
243,360
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at
December 31, 2022, 2021 and 2020 are shown below. The Company has established a valuation allowance against net deferred tax assets due to the
uncertainty that such assets will be realized. The Company periodically evaluates the recoverability of the deferred assets. At such time as it is determined
that it is more likely than not that the deferred tax asset will be realized, the valuation allowance will be reduced. The change in the valuation allowance for
the year ended December 31, 2022 was an increase of $56.3 million.
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Deferred tax assets:
Net operating losses
Tax credits, net
Amortization
Stock-based compensation
Lease liability
Accrued compensation
Section 174
Other
Total gross deferred tax assets
Deferred tax liabilities:
Convertible senior notes
Right of use asset
Property, plant and equipment
Total gross deferred tax liabilities
Valuation allowance
Net deferred tax asset
2022
December 31,
2021
(in thousands)
2020
$
128,989 $
116,425 $
34,193
8,487
8,445
1,354
2,514
21,840
37
205,859
—
(1,244)
(565)
(1,809)
(204,050)
24,964
9,190
4,917
1,285
2,238
—
18
(9,395)
(1,150)
(790)
(11,335)
(147,702)
$
— $
— $
77,946
17,372
10,939
4,448
2,383
2,137
—
16
(10,592)
(2,215)
(776)
(13,583)
(101,658)
—
159,037
115,241
As of December 31, 2022, the Company had federal and state NOL carryforwards of approximately $494.6 million and $1.6 million,
respectively. The federal NOL carryforwards generated prior to January 1, 2018 begin to expire in 2034, unless previously utilized. The federal NOLs
generated in taxable years beginning after December 31, 2017 of $491.6 million can be carried forward indefinitely but may only be used to offset up to
80% of future taxable income each year. The California NOL carryforwards begin to expire in 2036. As of December 31, 2022, the Company also has
foreign NOL carryforwards of approximately $200.2 million. The foreign NOL can be carried forward indefinitely.
As of December 31, 2022, the Company also had orphan drug credit and federal research tax credit carryforwards of approximately $35.8
million and California research tax credits of $10.6 million. The federal research tax credit carryforwards begin to expire in 2038, and the California
research tax credit carryforward does not expire and can be carried forward indefinitely until utilized.
A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows:
Federal statutory income tax rate
State income taxes, net of federal benefit
Change in valuation allowance
Research and experimentation credits
Foreign rate differential
Stock-based compensation
Nondeductible interest
Other
Provision for income taxes
2022
December 31,
2021
2020
21.00 %
— %
(20.25 %)
3.39 %
(1.88 %)
(0.90 %)
(0.99 %)
(0.37 %)
— %
21.00 %
— %
(19.73 %)
2.62 %
(1.95 %)
(1.56 %)
(0.96 %)
0.57 %
— %
21.00 %
— %
(19.50 %)
2.76 %
(1.64 %)
(1.81 %)
— %
(0.80 %)
— %
The NOL carryforward may be subject to an annual limitation under Section 382 and 383 of the Internal Revenue Code of 1986, and
similar state provisions if the Company experienced one or more ownership changes which would limit the amount of NOL and tax credit carryforwards
that can be utilized to offset future taxable income and tax respectively. In general, an ownership change as defined by Sections 382 and 383, results from
the transactions increasing ownership of certain stockholders or public groups in the stock of the corporation of more than 50 percentage points over a
three-year period.
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In connection with the Company's IPO in February 2019, the Company experienced an ownership change for the purposes of Section 382 and 383 of the
Code. The ownership change did not result in the forfeiture of any NOLs or credits generated prior to this date. Consequently, the Company’s federal and
state NOLs and tax credits generated through February 2019 will be subject to annual limitations. If additional ownership changes have occurred, or
additional ownership changes occur, the NOL and tax credits carryforwards could be eliminated or restricted. If eliminated, the related asset would be
removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance,
limitations created by future ownership changes, if any, will not impact the Company’s effective tax rate.
The Company files income tax returns in the United States, California, Florida, Ireland, and Luxembourg. Due to the Company’s losses
incurred, the Company is subject to the income tax examination by authorities since inception. The Company’s policy is to recognize interest expense and
penalties related to income tax matters as tax expense. As of December 31, 2022, 2021, or 2020, there were no accruals for interest related to unrecognized
tax benefits or tax penalties.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for 2022, 2021, and 2020, excluding interest and
penalties, is as follows:
Balance at beginning of the year
Increase related to current year positions
Balance at the end of the year
2022
December 31,
2021
(in thousands)
2020
$
$
7,551 $
3,021
10,572 $
5,060 $
2,491
7,551 $
2,754
2,306
5,060
Included in the balance of unrecognized tax benefits at December 31, 2022 is $10.6 million that, if recognized, would not impact the
Company’s income tax benefit or effective tax rate as long as the Company's deferred tax asset remains subject to a full valuation allowance. The Company
does not expect any significant increases or decreases to the Company's unrecognized tax benefits within the next 12 months.
Note 8—Stockholders’ Equity
Common Stock
Each share of common stock is entitled to one vote. Common stock owners are entitled to dividends when funds are legally available and
declared by the Board.
Shelf Registration Statement and Stock Offering
On April 10, 2020, the Company filed a universal shelf registration statement on Form S-3, covering the offering from time to time of
common stock, preferred stock, debt securities, warrants and units, which registration statement became automatically effective on April 10, 2020 (the
“Shelf Registration Statement”).
On May 21, 2020, the Company completed a public offering of 9,433,963 shares of its common stock at a public offering price of $13.25
per share. The net proceeds from the offering, after deducting underwriting discounts and commissions and other offering costs, were approximately
$117.1 million. The shares sold in the offering were registered pursuant to the Company’s Shelf Registration Statement.
On March 3, 2022, the Company filed a universal shelf registration statement on Form S-3 covering the offering from time to time of
common stock, preferred stock, debt securities, warrants and units, which registration statement became automatically effective on March 3, 2022.
Private Placement Financing
On July 15, 2022, we completed a private placement of 16,649,365 shares of our common stock at purchase price of $7.21 per share. The
gross proceeds for the private placement were approximately $120.1 million, before deducting offering expenses. On August 9, 2022, we filed a
registration statement on Form S-3 registering the shares of common stock issued in the private placement, which registration statement became
automatically effective on August 9, 2022.
Shares of Common Stock Subject to Repurchase
valued at $0.0001 par value per share, for a total of approximately $4,100 (the “founder shares”). On
On December 3, 2015, the Company issued 9,160,888 shares of common stock as founder shares for services rendered to the Company,
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January 4, 2018, incremental vesting conditions were placed on the previously issued founder shares. Fifty percent of the previously issued founder shares
vested on January 4, 2018, and the remaining founder shares are subject to vesting restrictions over a period of five years. These shares are subject to
repurchase by the Company upon a founder's termination of employment or service to the Company.
Pursuant to the employment agreements with the Company’s founders executed January 4, 2018, the Company provided for certain
potential additional issuances of common stock (the “anti-dilution shares”) to each of the founders to ensure the total number of shares of common stock
held by them and their affiliates (inclusive of any shares subject to equity awards granted by the Company) would represent 15% of the Company’s fully-
diluted capitalization until such time as the Company raised $300.0 million in equity capital, including the capital raised in the Series A financing.
In furtherance of this obligation, on May 21, 2018, the Company issued 251,547 shares of common stock to the founders for services
rendered to the Company, valued at $2.61 per share with an additional 251,547 shares of restricted stock subject to the same vesting restrictions and vesting
period as the founder shares. In addition, on September 6, 2018, the Company issued 1,795,023 shares of common stock to the founders for services
rendered to the Company, valued at $9.63 per share, with an additional 1,795,023 shares of restricted stock subject to the same vesting restrictions and
vesting period as the founder shares.
For the year ended December 31, 2022, no shares were forfeited due to termination of employment. Any shares subject to repurchase by
the Company are not deemed, for accounting purposes, to be outstanding until those shares vest. As such, the Company recognizes the measurement date
fair value of the restricted stock over the vesting period as compensation expense. As of December 31, 2022, 55,227 shares of common stock were subject
to repurchase by the Company. The unvested stock liability related to these awards is immaterial to all periods presented.
Note 9—Equity Incentive Plans
2019 Equity Incentive Plan
In January 2019, the Company’s board of directors and stockholders approved and adopted the 2019 Incentive Award Plan (the “2019
Plan”). The 2019 Plan became effective on February 6, 2019, the day prior to the effectiveness of the registration statement filed in connection with the
IPO. Under the 2019 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock or cash-
based awards to individuals who are then employees, officers, directors or consultants of the Company, and employees and consultants of the Company’s
subsidiaries. A total of 5,750,000 shares of common stock were approved to be initially reserved for issuance under the 2019 Plan. The number of shares
that remained available for issuance under the 2017 Plan (as defined below) as of the effective date of the 2019 Plan were, and shares subject to outstanding
awards under the 2017 Plan as of the effective date of the 2019 Plan that are subsequently canceled, forfeited or repurchased by the Company will be added
to the shares reserved under the 2019 Plan. In addition, the number of shares of common stock available for issuance under the 2019 Plan will be
automatically increased on the first day of each calendar year during the ten-year term of the 2019 Plan, beginning with January 1, 2020 and ending with
January 1, 2029, by an amount equal to 5% of the outstanding number of shares of the Company’s common stock on December 31 of the preceding
calendar year or such lesser amount as determined by the Company’s board of directors. As of December 31, 2022, an aggregate of 491,047 shares of
common stock were available for issuance under the 2019 Plan and 16,199,202 shares of common stock were subject to outstanding awards under the 2019
Plan.
2019 Employee Stock Purchase Plan
In January 2019, the Company’s board of directors and stockholders approved and adopted the 2019 Employee Stock Purchase Plan (the
"ESPP"). The ESPP became effective as of February 6, 2019, the day prior to the effectiveness of the registration statement filed in connection with the
IPO. The ESPP permits participants to purchase common stock through payroll deductions of up to 20% of their eligible compensation. A total of 700,000
shares of common stock were approved to be initially reserved for issuance under the ESPP. In addition, the number of shares of common stock available
for issuance under the ESPP will be automatically increased on the first day of each calendar year during the first ten-years of the term of the ESPP,
beginning with January 1, 2020 and ending with January 1, 2029, by an amount equal to 1% of the outstanding number of shares of the Company’s
common stock on December 31 of the preceding calendar year or such lesser amount as determined by the Company’s board of directors. During the years
ended December 31, 2022 and 2021, 157,858 shares and 160,790 shares were issued pursuant to the ESPP, respectively. As of December 31, 2022, an
aggregate of 2,450,855 shares of common stock were available for issuance under the ESPP.
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2017 Equity Incentive Plan
The Company’s 2017 Equity Incentive Plan (the “2017 Plan”) permitted the granting of incentive stock options, non-statutory stock
options, restricted stock, restricted stock units and other stock-based awards. Subsequent to the adoption of the 2019 Plan, no additional equity awards can
be made under the 2017 Plan. As of December 31, 2022, 2,582,771 shares of common stock were subject to outstanding options under the 2017 Plan, and
no shares of restricted stock awards granted under the 2017 Plan were unvested.
Fair Value of Stock Option Awards
The fair value of each employee and non-employee stock option grant is estimated on the date of grant using the Black-Scholes option-
pricing model. The Company uses its own volatility to the extent it has sufficient trading history, and for awards in which sufficient trading history is not
available, a peer group is used. Due to the lack of historical exercise history, the expected term of the Company’s stock options for employees has been
determined utilizing the “simplified” method for awards. The expected term of stock options granted to non-employees is equal to the contractual term of
the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time
periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash
dividends and does not expect to pay any cash dividends in the foreseeable future.
incentive plans and the shares purchasable under the ESPP during the periods presented:
The following assumptions were used to estimate the fair value of stock option awards granted to employees under the Company’s equity
Employee Stock Options
Expected term (in years)
Risk-free interest rate
Volatility
Dividend yield
Employee Stock Purchase Plan
Expected term (in years)
Risk-free interest rate
Volatility
Dividend yield
Year Ended December 31,
2022
2021
2020
4.4 - 6.1
4.6 - 6.1
4.6 - 6.1
1.31% - 4.35%
0.65% - 1.30%
0.22% - 1.67%
71.10% - 89.87%
78.80% - 84.79%
84.38% - 87.23%
—
—
—
0.49 - 2.00
0.60% -3.51%
0.49 - 2.00
0.49 - 2.00
0.06% - 0.20%
0.12% - 0.95%
64.98% - 121.43%
61.29% - 87.13%
85.50% - 99.13%
—
—
—
F-21
Table of Contents
Stock Options
The following table summarizes stock option activity for the years ended December 31, 2022, 2021 and 2020:
Outstanding as of December 31, 2019
Options granted
Options exercised
Options forfeited/cancelled
Outstanding as of December 31, 2020
Options granted
Options exercised
Options forfeited/cancelled
Outstanding as of December 31, 2021
Options granted
Options exercised
Options forfeited/cancelled
Outstanding as of December 31, 2022
Options vested and expected to vest as of December 31, 2022
Options exercisable as of December 31, 2022
Shares Subject to
Options Outstanding
Weighted-
Average
Exercise
Price
13.67
13.78
3.96
15.99
13.42
9.82
6.19
14.14
12.24
6.75
6.41
15.69
9.24
9.24
12.19
Shares
8,538,060 $
2,712,372 $
(134,803) $
(1,714,547) $
9,401,082 $
3,159,126 $
(325,494) $
(2,800,054) $
9,434,660 $
9,271,272 $
(270,707) $
(948,060) $
17,487,165 $
17,487,165 $
6,433,686 $
Weighted-
Average
Remaining
Contractual
Life
(Years)
Aggregate
Intrinsic Value
(in thousands)
9.0 $
35,385
8.1 $
10,182
7.4 $
15,822
8.1 $
8.1 $
6.4 $
47
47
—
The weighted-average grant date fair value per share for the stock options granted during the year ended December 31, 2022, 2021 and
2020 was $4.77, $6.93 and $9.82, respectively.
The aggregate fair value of stock options that vested during the years ended December 31, 2022, 2021 and 2020 was $20.7 million, $21.9
million and $29.9 million, respectively.
The aggregate intrinsic value in the above table is calculated as the difference between fair value of the Company’s common stock price
and the exercise price of the stock options. The aggregate intrinsic value of stock options exercised during the year ended December 31, 2022, 2021 and
2020 was $1.5 million, $1.6 million and $1.1 million, respectively.
the Company expects to recognize over a weighted-average period of approximately 2.3 years.
At December 31, 2022, the total unrecognized compensation related to unvested stock option awards granted was $45.1 million, which
F-22
Table of Contents
Restricted Stock
The summary of the Company’s restricted stock activity during the years ended December 31, 2022, 2021 and 2020 is as follows:
Nonvested at December 31, 2019
Granted
Vested
Forfeited / cancelled
Nonvested at December 31, 2020
Granted
Vested
Forfeited / cancelled
Nonvested at December 31, 2021
Granted
Vested
Forfeited / cancelled
Nonvested at December 31, 2022
Number of
Restricted
Stock Units
Outstanding
Weighted-
Average
Grant Date
Fair Value
4,648,526 $
2,003,900
(2,557,377)
(764,228)
3,330,821 $
1,349,885
(1,391,476)
(728,011)
2,561,219 $
572,901
(1,592,588)
(191,497)
1,350,035 $
3.98
10.96
4.00
8.30
7.16
10.23
5.86
10.03
8.67
11.94
7.78
10.68
10.83
At December 31, 2022, the total unrecognized compensation related to unvested restricted stock awards granted was $7.3 million, which
the Company expects to recognize over a weighted-average period of approximately 1.0 years.
Stock-Based Compensation Expense
Stock-based compensation expense has been reported in the Company’s consolidated statements of operations and comprehensive loss as
follows (in thousands):
Research and development
General and administrative
Total stock-based compensation expense
Year Ended December 31,
2022
2021
2020
$
$
24,415 $
18,138
42,553 $
18,943 $
13,065
32,008 $
18,997
19,751
38,748
In connection with the departure of the Company's former President and Chief Executive Officer in November 2020, the Company
recognized $5.5 million of incremental stock-based compensation expense during the year ended December 31, 2020, due to a modification of the
executive's existing restricted stock award, which included 18 months of accelerated vesting of the executive's outstanding restricted stock in accordance
with the terms of the executive's transition agreement.
As of December 31, 2022, total unrecognized compensation expense related to the ESPP was $1.4 million, which the Company expects
to recognize over a weighted-average period of approximately 0.7 years.
F-23
Table of Contents
Note 10—Property and Equipment, Net
The Company’s property and equipment, net consisted of the following (in thousands):
Office equipment
Computer equipment
Software
Lab equipment
Leasehold improvements
Construction in process
Total property and equipment
Less: accumulated depreciation
Property and equipment, net
Estimated
Useful Life
(in years)
3-7
5
3
2-5
6-7
N/A
December 31,
2022
December 31,
2021
$
$
1,097 $
123
130
6,098
2,562
83
10,093
6,112
3,981 $
1,097
123
130
5,688
2,562
—
9,600
4,280
5,320
Depreciation expense for the years ended December 31, 2022, 2021 and 2020 was approximately $1.8 million, $1.7 million and $1.4
million, respectively, and was recorded in general and administrative expense and research and development expense, respectively, on the consolidated
statements of operations and comprehensive loss.
Note 11—Commitments and Contingencies
Leases
The Company subleases certain office and laboratory space under a non-cancelable operating lease expiring in January 2025 for the
initial leased space and for the expansion space leased pursuant to an amendment to the lease agreement entered into in August 2018. In February 2022, the
Company exercised its renewal option to extend the term of the expansion space until January 2025. The sublease agreement included options to extend for
the entire premises through October 2028. The options to extend must be exercised prior to the termination of the original lease agreement. The period
covered by the options was not included in the non-cancellable lease term as it was not determined to be reasonably certain to be executed. The lease is
subject to charges for common area maintenance and other costs, and base rent is subject to an annual 3% increase each subsequent year. Costs determined
to be variable and not based on an index or rate were not included in the measurement of the operating lease liabilities.
Monthly rent expense is recognized on a straight-line basis over the term of the leases. The operating leases are included in the balance
sheet at the present value of the lease payments at a weighted average discount rate of 7% using the rate of interest that the Company would have to pay to
borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment as the leases do not provide
an implicit rate. The weighted average remaining lease term was 2.0 years.
Lease costs were comprised of the following (in thousands):
Operating lease cost
Short-term lease cost
Total lease cost
Year Ended December 31,
2022
2021
2020
$
$
3,097 $
45
3,142 $
4,029 $
53
4,082 $
3,615
78
3,693
Cash paid for amounts included in the measurement of operating lease liabilities as of December 31, 2022 and 2021 was $3.2 million and
$4.0 million, respectively.
F-24
Table of Contents
Gross future minimum annual rental commitments as of December 31, 2022, were as follows (in thousands):
Year ending December 31,
2023
2024
2025
Total undiscounted rent payments
Present value discount
Present value of lease payments
Current portion of operating lease liabilities (included as a component of accrued expenses and other current liabilities)
Noncurrent operating lease liabilities
Total operating lease liability
Undiscounted Rent
Payments
$
$
$
$
3,319
3,419
144
6,882
(453)
6,429
2,983
3,446
6,429
For the years ended December 31, 2022, 2021 and 2020, the Company recorded approximately $3.3 million, $4.3 million and $4.0
million, respectively, in rent expense.
Subsequent events
the audited consolidated financial statements or disclosures.
The Company has evaluated all subsequent events and transactions through the filing date. There were no material events that impacted
F-25
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
10.1#
10.2#
10.3#
10.4#
10.5#
10.6#
10.7#
10.8#
10.9#
10.10#
10.11#
10.12#
10.13#
10.14#
10.15#
10.16
10.17
10.18
10.19†
10.20
10.21
EXHIBIT INDEX
Exhibit Description
Amended and Restated Certificate of Incorporation.
Amended and Restated Bylaws.
Form of Common Stock Certificate.
Amended and Restated Investors’ Rights Agreement, dated July 20, 2018, by and among the
Registrant and certain of its stockholders.
Description of Securities Registered under Section 12 of the Exchange Act.
Indenture, dated as of May 21, 2020, by and between the Registrant and Wilmington Trust,
National Association.
First Supplemental Indenture, dated May 21, 2020, by and between the Registrant and
Wilmington Trust, National Association.
Form of Global Note representing 5.00% Convertible Senior Notes due 2027 (included as
part of Exhibit 4.5).
Gossamer Bio, Inc. 2017 Equity Incentive Plan, as amended.
Form of stock option grant notice and stock option agreement under Gossamer Bio, Inc.
2017 Equity Incentive Plan, as amended.
Form of restricted stock grant notice and restricted stock agreement under Gossamer Bio,
Inc. 2017 Equity Incentive Plan, as amended.
Form of Founder restricted stock grant notice and restricted stock agreement.
Gossamer Bio, Inc. 2019 Incentive Award Plan and form of stock option grant notice and
stock option agreement thereunder.
Gossamer Bio, Inc. 2019 Employee Stock Purchase Plan.
Gossamer Bio, Inc. Non-Employee Director Compensation Program.
Gossamer Bio, Inc. Restricted Stock Unit Agreement under the 2019 Equity Incentive Plan.
Letter Agreement, dated November 16, 2020, by and between Faheem Hasnain and the
Registrant.
Employment Letter, dated December 4, 2018, by and between Bryan Giraudo and the
Registrant.
Employment Letter, dated December 4, 2018, by and between Christian Waage and the
Registrant.
Employment Letter, dated April 16, 2021, by and between Caryn Peterson and the
Registrant.
Employment Letter, dated May 1, 2021, by and between Laura Carter and the Registrant.
Employment Letter, dated June 21, 2021, by and between Richard Aranda and the
Registrant.
Form of Indemnification Agreement.
Sublease Agreement, dated December 29, 2017, by and between The Medicines Company
and the Registrant.
First Amendment to Sublease Agreement, dated August 24, 2018, by and between The
Medicines Company and the Registrant.
Second Amendment to Sublease Agreement, dated June 1, 2022, by and between the
Medicines Company and the Registrant.
Exclusive License Agreement, dated October 2, 2017, by and between GB002, Inc., the
Registrant and Pulmokine, Inc.
Credit, Guaranty and Security Agreement, dated May 2, 2019, by and among GB001, Inc.,
as Borrower, Gossamer Bio, Inc., as Guarantor, MidCap Financial Trust, as Agent and
Lender, and the additional lenders from time to time party thereto.
First Amendment to Credit, Guaranty and Security Agreement, dated September 18, 2019,
by and among GB001, Inc., as borrower, the Registrant, as guarantor, the other guarantors
from time to time party thereto and MidCap Financial Trust, as Agent and as Lender, and
the additional lenders from time to time party thereto.
Incorporated by Reference
Date
Number
Filed
Herewith
2/12/2019
5/12/2020
1/23/2019
12/21/2018
2/26/2021
5/21/2020
5/21/2020
5/21/2020
12/21/2018
12/21/2018
12/21/2018
12/21/2018
1/23/2019
1/23/2019
5/12/2020
2/26/2021
12/21/2018
12/21/2018
8/9/2021
8/9/2021
8/9/2021
12/21/2018
12/21/2018
12/21/2018
8/9/2022
12/21/2018
3.1
3.2
4.1
4.2
4.3
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.1
10.11
10.10
10.11
10.1
10.2
10.3
10.14
10.15
10.16
10.10
10.17
X
Form
8-K
10-Q
S-1/A
S-1
10-K
8-K
8-K
8-K
S-1
S-1
S-1
S-1
S-1/A
S-1/A
10-Q
10-K
S-1
S-1
10-Q
10-Q
10-Q
S-1
S-1
S-1
10-Q
S-1
8-K
5/3/2019
10.1
10-Q
11/12/2019
10.1
Exhibit
Number
10.22
10.23
10.24
10.3
21.1
23.1
31.1
31.2
32.1*
32.2*
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Exhibit Description
Incorporated by Reference
Form
Date
Number
Filed
Herewith
8-K
7/2/2020
10.1
8-K
7/13/2022
10.1
Second Amendment to Credit, Guaranty and Security Agreement, dated July 2, 2020, by
and among the Registrant, GB001, Inc., GB002, Inc. and GB004, Inc., as co-borrowers, the
other guarantors from time to time party thereto and MidCap Financial Trust, as Agent and
as a Lender and the additional lenders from time to time party thereto.
Third Amendment to Credit, Guaranty and Security Agreement, dated December 7, 2022,
by and among the Registrant, GB001, Inc., GB002, Inc. and GB004, Inc., as co-borrowers,
the other guarantors from time to time party thereto and MidCap Financial Trust, as Agent
and as a Lender and the additional lenders from time to time party thereto.
Fourth Amendment to Credit, Guarantee and Security Agreement, dated February 14, 2023,
by and among the Registrant, GB001, Inc., GB002, Inc. and GB004, Inc., as co-borrowers,
the other guarantors from time to time party thereto and MidCap Financial Trust, as Agent
and as a Lender and the additional lenders from time to time party thereto.
Stock Purchase Agreement, dated July 12, 2022, by and among the Registrant and the
Purchasers named therein.
List of Subsidiaries of the Registrant.
Consent of Ernst & Young LLP, independent registered public accounting firm.
Certification of Chief Executive Officer of Gossamer Bio, Inc., as required by Rule 13a-
14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.
Certification of Chief Financial Officer of Gossamer Bio, Inc., as required by Rule 13a-
14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
XBRL Report Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Label Linkbase Document
XBRL Presentation Linkbase Document
X
X
X
X
X
X
X
X
X
X
X
X
X
X
#
†
*
Indicates management contract or compensatory plan.
Portions of this exhibit (indicated by asterisks) have been omitted for confidentiality purposes pursuant to Item 601(b)(10)(iv) of Regulation S-K.
These certifications are being furnished solely to accompany this annual report pursuant to 18 U.S.C. Section 1350, and are not being filed for
purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Registrant,
whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to
SIGNATURES
be signed on its behalf by the undersigned, thereunto duly authorized.
GOSSAMER BIO, INC.
By:
Date
/s/ Faheem Hasnain
Faheem Hasnain
President and Chief Executive Officer
March 17, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
SIGNATURES AND POWER OF ATTORNEY
behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ Faheem Hasnain
Faheem Hasnain
/s/ Bryan Giraudo
Bryan Giraudo
/s/ Joshua H. Bilenker
Joshua H. Bilenker, M.D.
/s/ Kristina Burow
Kristina Burow
/s/ Russell Cox
Russell Cox
/s/ Thomas Daniel, M.D.
Thomas Daniel, M.D.
/s/ Renée Galá
Renée Galá
/s/ Sandra Milligan, M.D., J.D.
Sandra Milligan
President, Chief Executive Officer and Chairman
of the Board of Directors
(principal executive officer)
Chief Operating Officer and Chief Financial
Officer
(principal financial and
accounting officer)
Director
Director
Director
Director
Director
Director
Date
March 17, 2023
March 17, 2023
March 17, 2023
March 17, 2023
March 17, 2023
March 17, 2023
March 17, 2023
March 17, 2023
Exhibit 10.7
GOSSAMER BIO, INC.
NON-EMPLOYEE DIRECTOR COMPENSATION PROGRAM
Non-employee members of the board of directors (the “Board”) of Gossamer Bio, Inc. (the “Company”) shall receive cash and
equity compensation as set forth in this Non-Employee Director Compensation Program (this “Program”). This Program has been adopted
under the Company’s 2019 Incentive Award Plan (the “Equity Plan”) and shall be effective on the Effective Date. The cash and equity
compensation described in this Program shall be paid or be made, as applicable, automatically and without further action of the Board, to
each member of the Board who is not an employee of the Company or any parent or subsidiary of the Company (each, a “Non-Employee
Director”) who is entitled to receive such cash or equity compensation, unless such Non-Employee Director declines the receipt of such
cash or equity compensation by written notice to the Company. This Program shall remain in effect until it is revised or rescinded by further
action of the Board. This Program may be amended, modified or terminated by the Board at any time in its sole discretion. The terms and
conditions of this Program shall supersede any prior cash and/or equity compensation arrangements for service as a member of the Board
between the Company and any of its Non-Employee Directors. No Non-Employee Director shall have any rights hereunder, except with
respect to stock options granted pursuant to the Program. Capitalized terms not otherwise defined herein shall have the meanings ascribed in
the Equity Plan. All share numbers in this Program give effect to the reverse stock split to be effected by the Company in connection with
its initial public offering.
1. Cash Compensation.
(a) Annual Retainers. Each Non-Employee Director shall receive an annual retainer of $40,000 for service on the Board.
(b) Additional Annual Retainers. In addition, each Non-Employee Director shall receive the following additional annual
retainers, as applicable:
(i) Chairperson of the Board. A Non-Employee Director serving as Chairperson of the Board shall receive an additional
annual retainer of $30,000 for such service.
an additional annual retainer of $25,000 for such service.
(ii) Independent Lead Director. A Non-Employee Director serving as Independent Lead Director of the Board shall receive
(iii) Audit Committee. A Non-Employee Director serving as Chairperson of the Audit Committee shall receive an
additional annual retainer of $15,000 for such service. A Non- Employee Director serving as a member of the Audit Committee (other than
the Chairperson) shall receive an additional annual retainer of $7,500 for such service.
(iv) Compensation Committee. A Non-Employee Director serving as Chairperson of the Compensation Committee
shall receive an additional annual retainer of $12,000 for such service. A Non-Employee Director serving as a member of the Compensation
Committee (other than the Chairperson) shall receive an additional annual retainer of $6,000 for such service.
Nominating and Corporate Governance Committee shall receive an
(v) Nominating and Corporate Governance Committee. A Non-Employee Director serving as Chairperson of the
additional annual retainer of $8,000 for such service. A Non-Employee Director serving as a member of the Nominating and Corporate
Governance Committee (other than the Chairperson) shall receive an additional annual retainer of $4,000 for such service.
(c) Payment of Retainers. The annual retainers described in Sections 1(a) and 1(b) shall be earned on a quarterly basis based
on a calendar quarter and shall be paid by the Company in arrears not later than the fifteenth day following the end of each calendar quarter.
In the event a Non-Employee Director does not serve as a Non-Employee Director, or in the applicable positions described in Section 1(b),
for an entire calendar quarter, the retainer paid to such Non-Employee Director shall be prorated for the portion of such calendar quarter
actually served as a Non-Employee Director, or in such position, as applicable.
2. Equity Compensation. Non-Employee Directors shall be granted the equity awards described below. The awards described below
shall be granted under and shall be subject to the terms and provisions of the Equity Plan, or any other applicable Company equity incentive
plan then-maintained by the Company, and shall be granted subject to the execution and delivery of award agreements, including attached
exhibits, in substantially the forms previously approved by the Board. All applicable terms of the Equity Plan apply to this Program as if fully
set forth herein, and all grants of stock options hereby are subject in all respects to the terms of the Equity Plan and the applicable award
agreement. For the avoidance of doubt, the share numbers in this Section 2 shall be subject to adjustment as provided in the Equity Plan,
including with respect to any reverse stock split of the Company’s common stock effected on or prior to the Effective Date.
(a) Initial Awards. Each Non-Employee Director who is initially elected or appointed to the Board after the Effective Date
shall receive an option under the Equity Plan, or any other applicable Company equity incentive plan then-maintained by the Company, to
purchase 70,000 shares of the Company’s common stock on the date of such initial election or appointment. The awards described in this
Section 2(a) shall be referred to as “Initial Awards.” No Non-Employee Director shall be granted more than one Initial Award.
(b) Subsequent Awards. A Non-Employee Director who (i) is serving on the Board as of the date of any annual meeting of the
Company’s stockholders after the Effective Date and has been serving as a Non-Employee Director for at least six months as of the date of
such meeting, and (ii) will continue to serve as a Non-Employee Director immediately following such meeting, shall be automatically
granted an option under the Equity Plan, or any other applicable Company equity incentive plan then- maintained by the Company, to
purchase 35,000 of the Company’s common stock on the date of such annual meeting. The awards described in this Section 2(b) shall be
referred to as “Subsequent Awards.” For the avoidance of doubt, a Non-Employee Director elected for the first time to the Board at an
annual meeting of the Company’s stockholders shall only receive an Initial Award in connection with such election, and shall not receive any
Subsequent Award on the date of such meeting as well.
(c) Termination of Employment of Employee Directors. Members of the Board who are employees of the Company or any
parent or subsidiary of the Company who subsequently terminate their employment with the Company and any parent or subsidiary of the
Company and remain on the Board will not receive an Initial Award pursuant to Section 2(a) above, but to the extent that they are otherwise
entitled, will receive, after termination from employment with the Company and any parent or subsidiary of the Company, Subsequent
Awards as described in Section 2(b) above.
(d) Terms of Awards Granted to Non-Employee Directors
(i) Purchase Price. The per share exercise price of each option granted to a Non-Employee Director shall equal the Fair
Market Value of a share of common stock on the date the option is granted.
(ii) Vesting. Each Initial Award shall vest and become exercisable in thirty- six (36) substantially equal monthly
installments over the three (3) years following the date of grant, subject to the Non-Employee Director continuing in service on the Board
through each such vesting date. Each Subsequent Award shall vest and/or become exercisable on the first to occur of (A) the first
anniversary of the date of grant or (B) the next occurring annual meeting of the Company's stockholders, subject to the Non-Employee
Director continuing in service on the Board through such vesting date. Unless the Board otherwise determines, no portion of an Initial Award
or Subsequent Award which is unvested and/or exercisable at the time of a Non-Employee Director’s termination of service on the Board
shall become vested and/or exercisable thereafter. Upon a Change in Control, all outstanding equity awards granted under the Equity Plan,
and any other equity incentive plan maintained by the Company, that are held by a Non-Employee Director shall become fully vested and/or
exercisable, irrespective of any other provisions of the Plan or any award agreement.
(iii) Term. The term of each stock option granted to a Non-Employee Director shall be ten (10) years from the date the
option is granted.
3. Compensation Limits. Notwithstanding anything to the contrary in this Program, all compensation payable under this Program will
be subject to any limits on the maximum amount of Non- Employee Director compensation set forth in the Equity Plan, as in effect from
time to time.
4. Reimbursements. The Company shall reimburse each Non-Employee Director for all reasonable, documented, out-of-pocket travel
and other business expenses incurred by such Non-Employee Director in the performance of his or her duties to the Company in accordance
with the Company’s applicable expense reimbursement policies and procedures as in effect from time to time.
* * * * *
Exhibit 10.23
Execution Version
THIRD AMENDMENT TO CREDIT, GUARANTY AND SECURITY AGREEMENT
This THIRD AMENDMENT TO CREDIT, GUARANTY AND SECURITY AGREEMENT
(this “Agreement”) is made as of this 7th day of December, 2022 (“Effective Date”), by and among GB001, INC., a
Delaware corporation (“GB001”), GOSSAMER BIO, INC., Delaware corporation (“Parent”), GB002, INC., a Delaware
corporation (“GB002”), GB004, INC., a Delaware corporation (“GB004” and GB004 together with Parent, GB001 and
GB002, collectively, the “Borrower”) and the Subsidiaries of Parent shown as signatories hereto as Guarantors (collectively,
the “Guarantors”), MIDCAP FINANCIAL TRUST, as Agent for Lenders (in such capacity and together with its permitted
successors and assigns, the “Agent”) and the other financial institutions or other entities from time to time parties to the
Credit Agreement referenced below, each as a Lender.
RECITALS
A. Agent, Lenders, Borrower and Guarantors have entered into that certain Credit, Guaranty and Security
Agreement, dated as of May 2, 2019 (as amended by that certain Omnibus First Amendment to Credit, Guaranty and Security
Agreement and First Amendment to Pledge Agreement, dated as of September 18, 2019, that certain Omnibus Amendment
and Joinder to Credit, Guaranty and Security Agreement and Amendment and Joinder to Pledge Agreement, dated as of
March 10, 2020, that certain Second Amendment to Credit, Guaranty and Security Agreement, dated as of July 2, 2020, and
as further amended, restated, supplemented or otherwise modified prior to the date hereof, the “Existing Credit Agreement”
and as the same is amended hereby and as it may be further amended, restated, supplemented or otherwise modified from
time to time, the “Credit Agreement”), pursuant to which the Lenders have agreed to make certain advances of money and
to extend certain financial accommodations to Borrower in the amounts and manner set forth in the Credit Agreement.
B. Credit Parties have requested, and Agent and Lenders have agreed, on and subject to the terms and conditions set
forth in this Agreement, to amend certain provisions of the Existing Credit Agreement, all in accordance with the terms and
subject to the conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the terms and conditions set forth in this Agreement, and
other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Agent, Lenders, and
the Credit Parties hereby agree as follows:
1. Recitals; Construction. This Agreement shall constitute a Financing Document and the Recitals and each
reference to the Credit Agreement, unless otherwise expressly noted, will be deemed to reference the Credit Agreement as
modified hereby. The Recitals set forth above shall be construed as part of this Agreement as if set forth fully in the body of
this Agreement. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the
Credit Agreement (including those capitalized terms used in the Recitals hereto).
2. Amendments to Existing Credit Agreement. Subject to the terms and conditions of this Agreement, including,
without limitation, the conditions to effectiveness set forth in Section 3 below, the Existing Credit Agreement is hereby
amended as follows, which amendments to the Existing Credit Agreement are effective as of the first day after the end of the
Applicable Interest Period during which this Agreement becomes effective in accordance with Section 3 below:
(a) Section 2.6(a) of the Existing Credit Agreement is hereby amended by:
(i) renumbering the existing Section 2.6(a) as Section 2.6(a)(i); and
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Exhibit 10.23
(ii) adding the following new clauses (ii) and (iii) thereto:
“(ii) In the event one or more of the following events occurs with respect to Term SOFR: (a) a public
statement or publication of information by or on behalf of the SOFR Administrator announcing that the
SOFR Administrator has ceased or will cease to provide Term SOFR for a 1-month period, permanently or
indefinitely, provided that, at the time of such statement or publication, there is no successor administrator
that will continue to provide Term SOFR for a 1-month period; (b) a public statement or publication of
information by the regulatory supervisor for the SOFR Administrator, the Federal Reserve Board, the Federal
Reserve Bank of New York, an insolvency official or resolution authority with jurisdiction over the SOFR
Administrator, or a court or an entity with similar insolvency or resolution authority, which states that the
SOFR Administrator has ceased or will cease to provide Term SOFR for a 1-month period permanently or
indefinitely, provided that, at the time of such statement or publication, there is no successor administrator
that will continue to provide Term SOFR for a 1-month period; or (c) a public statement or publication of
information by the regulatory supervisor for the SOFR Administrator announcing that Term SOFR for a 1-
month period is no longer, or as of a specified future date will no longer be, representative and Agent has
provided Borrower with notice of the same, any outstanding affected SOFR Loans will be deemed to have
been converted to Credit Extensions that bear interest at a rate based on the Applicable Prime Rate at the end
of the Applicable Interest Period.
(iii) In connection with Term SOFR, Agent will have the right to make Conforming Changes from time to
time and, notwithstanding anything to the contrary herein or in any other Financing Document, any
amendments implementing such Conforming Changes will become effective without any further action or
consent of any other party to this Agreement or any other Financing Document. Agent will promptly notify
Borrower and the Lenders of the effectiveness of any Conforming Changes.”
(b) Section 2.6(h) of the Existing Credit Agreement is hereby amended by:
(i) deleting the name of such subsection in its entirety and restating it as
“(h) Taxes; Additional Costs; Increased Costs; Inability to Determine Rates; Illegality.”
(ii) adding the following new clause (x) in the appropriate numerical order
follows:
therein:
“(x) If any Lender shall reasonably determine that the adoption or taking effect of, or any change in,
any applicable Law shall (i) impose, modify or deem applicable any reserve, special deposit,
compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the
account of, or credit extended or participated in by, any Lender, (ii) subject any Lender to any tax of
any kind whatsoever with respect to this Agreement, or any SOFR Loan made by it, or change the
basis of taxation of payments to such Lender in respect thereof (except for Taxes covered by Section
2.6); or (iii) impose on any Lender any other condition, cost or expense affecting this Agreement or
SOFR Loans made by such Lender, and the result of any of the foregoing shall be to increase the
cost to such Lender of making or maintaining any Credit Extension the interest on which is
determined by reference to Term SOFR (or of maintaining its
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Exhibit 10.23
obligation to make any such Credit Extension), or to reduce the amount of any sum received or
receivable by such Lender (whether of principal, interest or any other amount) then, upon request of
such Lender, the Borrower will pay to such Lender such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.”
(iii) renumbering the existing clause (x) as new clause (xi); and
(iv) renumbering the existing clause (xi) as new clause (xii).
new Section 2.8.
(c) Section 2.7 of the Existing Credit Agreement is hereby amended by renumbering such existing Section 2.7 as
(d) The Existing Credit Agreement is hereby amended by adding the following as new Section 2.7:
“2.7 Benchmark Replacement Setting; Conforming Changes.
(a) Upon the occurrence of a Benchmark Transition Event, Agent and Borrowers may amend this
Agreement to replace the then-current Benchmark with a Benchmark Replacement. Any such amendment
will become effective at 5:00 p.m. (New York City time) on the fifth (5th) Business Day after Agent has
posted such proposed amendment to all Lenders and Borrower so long as Agent has not received, by such
time, written notice of objection thereto from Lenders comprising the Required Lenders. No such
replacement will occur prior to the applicable Benchmark Transition Start Date. In connection with the
implementation of a Benchmark Replacement, Agent will have the right to make Conforming Changes from
time to time and, notwithstanding anything to the contrary herein or in any other Financing Document, any
amendments implementing such Conforming Changes will become effective without any further action or
consent of any other party to this Agreement or any other Financing Document. Agent will promptly notify
Borrower and the Lenders of the implementation of any Benchmark Replacement and the effectiveness of
any Conforming Changes.
(b) Any determination, decision or election that may be made by Agent or, if applicable, any Lender
(or group of Lenders) pursuant to this Section will be conclusive and binding absent manifest error and may
be made in its or their sole discretion and without consent from any other party to this Agreement or any
other Financing Document, except, in each case, as expressly required pursuant to this Section.
Notwithstanding anything to the contrary herein or in any other Financing Document, at any time, (a) if the
then-current Benchmark is a term rate (including Term SOFR) and either (i) any tenor for such Benchmark is
not displayed on a screen or other information service that publishes such rate from time to time as selected
by Agent in its reasonable discretion or (ii) the regulatory supervisor for the administrator of such
Benchmark has provided a public statement or publication of information announcing that any tenor for such
Benchmark is or will be no longer representative, then Agent may modify the definition of “Applicable
Interest Period” (or any similar or analogous definition) for any Benchmark settings at or after such time to
remove such unavailable or non- representative tenor, and (b) if a tenor that was removed pursuant to clause
(a) above either (i) is subsequently displayed on a screen or information service for a Benchmark or
(ii) is not, or is no longer, subject to an announcement that it is or will no longer be representative for a
Benchmark, then Agent may modify the definition of “Applicable Interest Period” (or any similar or
analogous definition) for all Benchmark settings at or
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Exhibit 10.23
after such time to reinstate such previously removed tenor. Agent will promptly notify Borrower of the
removal or reinstatement of any tenor of a Benchmark pursuant to this Section.
(c) Upon Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period,
the Applicable Index Rate for any outstanding affected Credit Extensions will be deemed to be the
Applicable Prime Rate at the end of the Applicable Interest Period.”
(e) The definitions of “Applicable Index Rate”, “Applicable Interest Period”, “Applicable Interest Rate
Determination Date”, “Base Rate Index” and “Business Day” in Section 16 of the Existing Credit Agreement are
hereby deleted and replaced in their entirety with the following:
“Applicable Index Rate” means, for any Applicable Interest Period, the rate per annum determined by
Agent equal to the Applicable SOFR Rate; provided, however, that in the event that any change in market
conditions or any law, regulation, treaty, or directive, or any change therein or in the interpretation of
application thereof, shall at any time after the date hereof, in the reasonable opinion of Agent or any Lender,
make it unlawful or impractical for Agent or such Lender to fund or maintain Obligations bearing interest
based upon the Applicable SOFR Rate, Agent or such Lender shall give notice of such changed
circumstances to Agent and Borrower and the Applicable Index Rate for Obligations outstanding or
thereafter extended or made by Agent or such Lender shall thereafter be the Applicable Prime Rate until
Agent or such Lender determines (as to the portion of the Credit Extensions or Obligations owed to it) that it
would no longer be unlawful or impractical to fund or maintain such Obligations or Credit Extensions at the
Applicable SOFR Rate. In the event that Agent shall have determined (which determination shall be final
and conclusive and binding upon all parties hereto), as of any Applicable Interest Rate Determination Date,
that adequate and fair means do not exist for ascertaining the interest rate applicable to any Credit Facility on
the basis provided for herein, then Agent may select a comparable replacement index and corresponding
margin.
“Applicable Interest Period” for each Credit Facility has the meaning specified for that Credit Facility in
the Credit Facility Schedule; provided, however, that, at any time that the Applicable Prime Rate is the
Applicable Index Rate, Applicable Interest Period shall mean the period commencing as of the most recent
Applicable Interest Rate Determination Date and continuing until the next Applicable Interest Rate
Determination Date or such earlier date as the Applicable Prime Rate shall no longer be the Applicable Index
Rate; and provided, further, that, at any time Term SOFR is adjusted as set forth in this Agreement, or re-
implemented following invocation of the Applicable Prime Rate as permitted herein, the Applicable Interest
Period shall mean the period commencing as of such adjustment or re-implementation and continuing until
the next Applicable Interest Rate Determination Date, if any.
“Applicable Interest Rate Determination Date” means the second (2nd) Business Day prior to the first
(1st) day of the related Applicable Interest Period; provided, however, that, at any time that the Applicable
Prime Rate is the Applicable Index Rate, Applicable Interest Rate Determination Date means the date of any
change in the Base Rate Index; and provided, further, that, at any time Term SOFR is adjusted as set forth in
this Agreement, the Applicable Interest Rate Determination Date shall mean the date of such adjustment or
the second (2nd) Business Day prior to the first (1st) day of the related Applicable Interest Period, as elected
by Agent.
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Exhibit 10.23
“Base Rate Index” means, for any Applicable Interest Period, the rate per annum, determined by Agent
(rounded upwards, if necessary, to the next 1/100th%) as being the rate of interest announced, from time to
time, within Wells Fargo Bank, N.A. (“Wells Fargo”) at its principal office in San Francisco as its “prime
rate,” with the understanding that the “prime rate” is one of Wells Fargo’s base rates (not necessarily the
lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those
loans making reference thereto and is evidenced by the recording thereof after its announcement in such
internal publications as Wells Fargo may designate; provided, however, that Agent may, upon prior written
notice to any Borrower, choose a reasonably comparable index or source to use as the basis for the Base Rate
Index.
“Business Day” means any day except a Saturday, Sunday or other day on which either the New York Stock
Exchange is closed, or on which commercial banks in Washington, DC, New York City and the state of
California are authorized by law to close; provided, however, that when used in the context of a SOFR Loan,
the term “Business Day” shall also exclude any day that is not also a SOFR Business Day.”
(f) Section 16 of the Existing Credit Agreement is hereby amended by adding the following new defined
terms in the appropriate alphabetical order therein:
“Applicable SOFR Rate” means, with respect to each day during which interest accrues on a Credit
Extension, the rate per annum (expressed as a percentage) equal to (a) Term SOFR for the Applicable
Interest Period for such day; or (b) if the then-current Benchmark has been replaced with a Benchmark
Replacement pursuant to Section 2.7 such Benchmark Replacement for such day. Notwithstanding the
foregoing, the Applicable SOFR Rate shall not at any time be less the Applicable Floor.
“Available Tenor” means, as of any date of determination with respect to the then- current Benchmark, (a) if
such Benchmark is a term rate, any tenor for such Benchmark (or component thereof) that is or may be used
for determining the length of an interest period pursuant to this Agreement or (b) otherwise, any payment
period for interest calculated with reference to such Benchmark (or component thereof) that is or may be
used for determining any frequency of making payments of interest calculated with reference to such
Benchmark pursuant to this Agreement, in each case, as of such date and not including, for the avoidance of
doubt, any tenor for such Benchmark that is then- removed from the definition of “Applicable Interest
Period” or similar term pursuant to Section 2.7.
“Benchmark” means, initially, Term SOFR; provided that if a Benchmark Transition Event and its related
Benchmark Replacement Date have occurred with respect to Term SOFR or the then-current Benchmark,
then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark
Replacement has replaced such prior benchmark rate pursuant to Section 2.7.
“Benchmark Replacement” means, with respect to any Benchmark Transition Event, the sum of: (a) the
alternate benchmark rate that has been selected by Agent and Borrower giving due consideration to (i) any
selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate
by the Relevant Governmental Body or (ii) any evolving or then-prevailing market convention for
determining a benchmark rate as a replacement to the then-current Benchmark for Dollar-denominated
syndicated credit facilities at such time and (b) the related Benchmark Replacement Adjustment; provided
that, if such Benchmark Replacement as
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Exhibit 10.23
so determined would be less than the Applicable Floor, such Benchmark Replacement will be deemed to be
the Applicable Floor for the purposes of this Agreement and the other Financing Documents.
“Benchmark Replacement Adjustment” means, with respect to any replacement of the then-current
Benchmark with an Unadjusted Benchmark Replacement for any applicable Available Tenor, the spread
adjustment, or method for calculating or determining such spread adjustment (which may be a positive or
negative value or zero) that has been selected by Agent and Borrower giving due consideration to any
selection or recommendation by the Relevant Governmental Body, or any evolving or then-prevailing market
convention at such time, for determining a spread adjustment, or method for calculating or determining such
spread adjustment, for such type of replacement for U.S. dollar-denominated syndicated credit facilities at
such time.
“Benchmark Replacement Date” means the earlier to occur of the following events with respect to the
then-current Benchmark: (a) in the case of clause (a) or (b) of the definition of “Benchmark Transition
Event”, the later of (i) the date of the public statement or publication of information referenced therein and
(ii) the date on which the administrator of such Benchmark (or the published component used in the
calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark
(or such component thereof); or (b) in the case of clause (c) of the definition of “Benchmark Transition
Event”, the first date on which such Benchmark (or the published component used in the calculation thereof)
has been determined and announced by the regulatory supervisor for the administrator of such Benchmark
(or such component thereof) to be no longer representative; provided, that such non-representativeness will
be determined by reference to the most recent statement or publication referenced in such clause (c) even if
any Available Tenor of such Benchmark (or such component thereof) continues to be provided on such date.
For the avoidance of doubt, the “Benchmark Replacement Date” will be deemed to have occurred in the case
of clause (a) or (b) with respect to any Benchmark upon the occurrence of the applicable event or events set
forth therein with respect to all then-current Available Tenors of such Benchmark (or the published
component used in the calculation thereof).
“Benchmark Transition Event” means the occurrence of one or more of the following events with respect
to the then-current Benchmark: (a) a public statement or publication of information by or on behalf of the
administrator of such Benchmark (or the published component used in the calculation thereof) announcing
that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such
component thereof), permanently or indefinitely, provided that, at the time of such statement or publication,
there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or
such component thereof); (b) a public statement or publication of information by the regulatory supervisor
for the administrator of such Benchmark (or the published component used in the calculation thereof), the
Federal Reserve Board, the Federal Reserve Bank of New York, an insolvency official or resolution authority
with jurisdiction over the administrator for such Benchmark (or such component), or a court or an entity with
similar insolvency or resolution authority, which states that the administrator of such Benchmark (or such
component) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component
thereof) permanently or indefinitely, provided that, at the time of such statement or publication, there is no
successor administrator that will continue to provide any Available Tenor of such Benchmark (or such
component thereof); or (c) a public statement or publication of information by the regulatory supervisor for
the administrator of such Benchmark (or the
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Exhibit 10.23
published component used in the calculation thereof) announcing that all Available Tenors of such
Benchmark (or such component thereof) are no longer, or as of a specified future date will no longer be,
representative. For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred
with respect to any Benchmark if a public statement or publication of information set forth above has
occurred with respect to each then-current Available Tenor of such Benchmark (or the published component
used in the calculation thereof).
“Benchmark Transition Start Date” means, in the case of a Benchmark Transition Event, the earlier of (a)
the applicable Benchmark Replacement Date and (b) if such Benchmark Transition Event is a public
statement or publication of information of a prospective event, the 90th day prior to the expected date of
such event as of such public statement or publication of information (or if the expected date of such
prospective event is fewer than 90 days after such statement or publication, the date of such statement or
publication).
“Benchmark Unavailability Period” means the period (if any) (a) beginning at the time that a Benchmark
Replacement Date pursuant to clauses (a) or (b) of that definition has occurred if, at such time, no
Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any
Financing Document in accordance with Section 2.7 and (b) ending at the time that a Benchmark
Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Financing
Document in accordance with Section 2.7.
“Conforming Changes” means, with respect to either the use or administration of Term SOFR or the use,
administration, adoption or implementation of any Benchmark Replacement (as defined in Section 2.7), any
technical, administrative or operational changes (including (a) changes to the definition of “Applicable
Interest Period”, “Base Rate Index”, “Business Day”, “Reference Time” or other definitions, (b) the addition
of concepts such as “interest period”, (c) changes to timing and/or frequency of determining rates, making
interest payments, giving borrowing requests, prepayment, conversion or continuation notices, or length of
lookback periods, (d) the applicability of Section 2.6(h), and (e) other technical, administrative or operational
matters) that Agent decides may be appropriate to reflect the adoption and implementation of Term SOFR or
such Benchmark Replacement and to permit the administration thereof by Agent in a manner substantially
consistent with market practice (or, if Agent decides that adoption of any portion of such market practice is
not administratively feasible or determines that no such market practice exists, in such other manner as
Agent decides is reasonably necessary in connection with the administration of this Agreement and the other
Financing Documents).
“Reference Time” means approximately a time substantially consistent with market practice two (2) SOFR
Business Days prior to the first day of each calendar month. If by 5:00 pm (New York City time) on any
interest lookback day, Term SOFR in respect of such interest lookback day has not been published on the
SOFR Administrator’s Website, then Term SOFR for such interest lookback day will be Term SOFR as
published in respect of the first preceding SOFR Business Day for which Term SOFR was published on the
SOFR Administrator’s Website; provided that such first preceding SOFR Business Day is not more than
three (3) SOFR Business Days prior to such interest lookback day.
“Relevant Governmental Body” means the Federal Reserve Board and/or the Federal Reserve Bank of
New York, or a committee officially endorsed or convened by the
MidCap / Gossamer / Third Amendment
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Exhibit 10.23
Federal Reserve Board and/or the Federal Reserve Bank of New York or any successor thereto.
“SOFR” means, with respect to any SOFR Business Day, a rate per annum equal to the secured overnight
financing rate for such SOFR Business Day.
“SOFR Administrator” means CME Group Benchmark Administration Limited (CBA) (or a successor
administrator of Term SOFR selected by Agent in its reasonable discretion).
SOFR Administrator,
“SOFR Administrator’s Website” means
currently at https://www.cmegroup.com/market-data/cme-group-benchmark- administration/term-
sofr.html, or any successor source for Term SOFR identified by the SOFR Administrator from time to time.
the website
the
of
“SOFR Business Day” means any day other than a Saturday or Sunday or a day on which the Securities
Industry and Financial Markets Association recommends that the fixed income departments of its members
be closed for the entire day for purposes of trading in United States government securities.
“SOFR Loan” means a Credit Extension that bears interest at a rate based on Term SOFR.
“Term SOFR” means the greater of (a) the forward-looking term rate for a period comparable to such
Applicable Interest Period based on SOFR that is published by the SOFR Administrator and is displayed on
the SOFR Administrator’s Website at approximately the Reference Time for such Applicable Interest Period
plus 0.11448% and (b) the Applicable Floor. Unless otherwise specified in any amendment to this
Agreement entered into in accordance with Section 2.7(j), in the event that a Benchmark Replacement with
respect to Term SOFR is implemented, then all references herein to Term SOFR shall be deemed references
to such Benchmark Replacement.
“Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the
related Benchmark Replacement Adjustment.”
(g) Section 16 of the Existing Credit Agreement is hereby amended by deleting in their entirety the
definitions of “Applicable Libor Rate” and “Libor Rate Index” therein.
(h) The Credit Facility Schedule for Credit Facility #1 attached to the Existing Credit Agreement is hereby
amended by replacing the definition of “Applicable Floor” therein in its entirety with the following:
“Applicable Floor: means two percent (2.00%) per annum.”
(i) The Credit Facility Schedule for Credit Facility #2 attached to the Existing Credit Agreement is hereby
amended by replacing the definition of “Applicable Floor” therein in its entirety with the following:
“Applicable Floor: means two percent (2.00%) per annum.”
(j) The Credit Facility Schedule for Credit Facility #3 attached to the Existing Credit Agreement is hereby
amended by replacing the definition of “Applicable Floor” therein in its entirety with the following:
MidCap / Gossamer / Third Amendment
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Exhibit 10.23
“Applicable Floor: means two percent (2.00%) per annum.”
3. Conditions to Effectiveness. This Agreement shall become effective as of the date on which Agent shall have
received (including by way of facsimile or other electronic transmission) a duly authorized, executed and delivered
counterpart of the signature page to this Agreement, from each Borrower, each Guarantor, Agent and the Lenders.
4. No Waiver or Novation. The execution, delivery and effectiveness of this Agreement shall not operate as a
waiver of any right, power or remedy of Agent, nor constitute a waiver of any provision of the Credit Agreement, the
Financing Documents or any other documents, instruments and agreements executed or delivered in connection with any of
the foregoing. Nothing herein is intended or shall be construed as a waiver of any existing Defaults or Events of Default
under the Credit Agreement or other Financing Documents or any of Agent’s rights and remedies in respect of such Defaults
or Events of Default. This Agreement (together with any other document executed in connection herewith) is not intended to
be, nor shall it be construed as, a novation of the Credit Agreement.
5.
Miscellaneous.
(a) Reference to the Effect on the Credit Agreement. Upon the effectiveness of this Agreement, each
reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein,” or words of similar import shall
mean and be a reference to the Credit Agreement, as modified by this Agreement. Except as specifically set forth above, the
Credit Agreement, and all other Financing Documents (and all covenants, terms, conditions and agreements therein), shall
remain in full force and effect, and are hereby ratified and confirmed in all respects by each Credit Party.
(b) THIS AGREEMENT AND THE RIGHTS, REMEDIES AND OBLIGATIONS OF THE PARTIES
HERETO, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS
AGREEMENT, THE RELATIONSHIP OF THE PARTIES, AND/OR THE INTERPRETATION AND ENFORCEMENT OF
THE RIGHTS AND DUTIES OF THE PARTIES AND ALL OTHER MATTERS RELATING HERETO OR ARISING
THEREFROM (WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR OTHERWISE), SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS (OTHER THAN SECTION 5-
1401 OF THE GENERAL OBLIGATIONS LAW). NOTWITHSTANDING THE FOREGOING, AGENT AND LENDERS
SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST EACH CREDIT PARTY OR ITS
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH AGENT AND LENDERS (IN ACCORDANCE
WITH THE PROVISIONS OF SECTION 12.1 OF THE CREDIT AGREEMENT) DEEM NECESSARY OR
APPROPRIATE TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE AGENT’S AND LENDERS’
RIGHTS AGAINST SUCH CREDIT PARTY OR ITS PROPERTY. EACH CREDIT PARTY EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH
COURT, AND EACH CREDIT PARTY HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON
LACK OF PERSONAL JURISDICTION, IMPROPER VENUE, OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY
SUCH COURT. EACH CREDIT PARTY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINTS, AND OTHER PROCESS ISSUED IN SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF
SUCH SUMMONS, COMPLAINTS, AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO THE APPLICABLE CREDIT PARTY AT THE ADDRESS SET FORTH IN ARTICLE 11 OF
THE CREDIT AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED
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Exhibit 10.23
UPON THE EARLIER TO OCCUR OF SUCH CREDIT PARTY’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS
AFTER DEPOSIT IN THE U.S. MAIL, PROPER POSTAGE PREPAID.
(c) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH CREDIT PARTY, AGENT
AND LENDERS EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
ARISING OUT OF OR BASED UPON THIS AGREEMENT OR ANY CONTEMPLATED TRANSACTION,
INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL
INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS
WAIVER WITH ITS COUNSEL.
(d) Incorporation of Credit Agreement Provisions. The provisions contained in Section 12.2(b) (California
Waivers), Section 12.3 (California Waiver) and Section 13.2 (Indemnification) of the Credit Agreement are incorporated
herein by reference to the same extent as if reproduced herein in their entirety.
(e) Headings. Section headings in this Agreement are included for convenience of reference only and shall
not constitute a part of this Agreement for any other purpose.
(f) Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be
deemed an original and all of which when taken together shall constitute one and the same instrument. Delivery of an
executed counterpart of this Agreement by facsimile or by electronic mail delivery of an electronic version (e.g., .pdf or .tif
file) of an executed signature page shall be effective as delivery of an original executed counterpart hereof and shall bind the
parties hereto.
hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.
(g) Entire Agreement. This Agreement constitutes the entire agreement and understanding among the parties
(h) Severability. In case any provision of or obligation under this Agreement shall be invalid, illegal or
unenforceable in any applicable jurisdiction, the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
(i) Successors/Assigns. This Agreement shall bind, and the rights hereunder shall inure to, the respective
successors and assigns of the parties hereto, subject to the provisions of the Credit Agreement and the other Financing
Documents.
[SIGNATURES APPEAR ON FOLLOWING PAGES]
MidCap / Gossamer / Third Amendment
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Exhibit 10.23
IN WITNESS WHEREOF, intending to be legally bound, the undersigned have executed this Agreement as of the day
and year first hereinabove set forth.
AGENT:
MIDCAP FINANCIAL TRUST, a Delaware statutory trust
By: Apollo Capital Management, L.P., its
investment manager
By: Apollo Capital Management GP, LLC, its
general partner
By: _____________________________
Name: Maurice Amsellem
Title: Authorized Signatory
MidCap / Gossamer / Third Amendment
Signature Page(s)
Exhibit 10.23
LENDERS:
MIDCAP FINANCIAL TRUST, a Delaware statutory trust
By: Apollo Capital Management, L.P., its
investment manager
By: Apollo Capital Management GP, LLC, its
general partner
By: _____________________________
Name: Maurice Amsellem
Title: Authorized Signatory
MidCap / Gossamer / Third Amendment
2
Exhibit 10.23
LENDER:
MIDCAP FINANCIAL INVESTMENT
CORPORATION
(formerly known as Apollo Investment Corporation)
By: _____________________________
Name: Kristin Hester
Title: Chief Legal Officer
MidCap / Gossamer / Third Amendment
Exhibit 10.23
LENDER: SILICON VALLEY BANK
By: ______________________________
Title: Director
Name: Kristine Rohmer
MidCap / Gossamer / Third Amendment
Exhibit 10.23
LENDER: ELM 2020-3 TRUST
By: MidCap Financial Services Capital Management, LLC, as Servicer
By: Name: John O’Dea
Title: Authorized Signatory
ELM 2020-4 TRUST
By: MidCap Financial Services Capital Management, LLC, as Servicer
By: Name: John O’Dea
Title: Authorized Signatory
MidCap / Gossamer / Third Amendment
DocuSign Envelope ID: 4AFBCBEE-07CA-4165-9272-5F055C647672
Exhibit 10.23
MidCap / Gossamer / Third Amendment
DocuSign Envelope ID: 4AFBCBEE-07CA-4165-9272-5F055C647672
Exhibit 10.23
MidCap / Gossamer / Third Amendment
Exhibit 10.23
DocuSign Envelope ID: 4AFBCBEE-07CA-4165-9272-5F055C647672
MidCap / Gossamer / Third Amendment
Exhibit 10.24
Execution Version
CONSENT AND RELEASE
This CONSENT AND RELEASE (this “Agreement”) is made as of this 14 day of February, 2023 (“Effective Date”), by and among
GB001, INC., a Delaware corporation (“GB001”), GOSSAMER BIO, INC., Delaware corporation (“Parent”), GB002, INC., a Delaware
corporation (“GB002”), GB004, INC., a Delaware corporation (“GB004” and GB004 together with Parent, GB001, and GB002, each a
“Borrower” and, collectively, the “Borrower”) and the Subsidiaries of Parent shown as signatories hereto as Guarantors, including GB006,
Inc., a Delaware corporation (“GB006”) (collectively, the “Guarantors”), MIDCAP FINANCIAL TRUST, as Agent for Lenders (in such
capacity and together with its permitted successors and assigns, the “Agent”) and the other financial institutions or other entities from time to
time parties to the Credit Agreement referenced below, each as a Lender.
RECITALS
A.
Agent, Lenders, Borrower and Guarantors have entered into that certain Credit, Guaranty and Security Agreement, dated as
of May 2, 2019 (as amended by that certain Omnibus First Amendment to Credit, Guaranty and Security Agreement and First Amendment to
Pledge Agreement, dated as of September 18, 2019, that certain Omnibus Amendment and Joinder to Credit, Guaranty and Security
Agreement and Amendment and Joinder to Pledge Agreement, dated as of March 10, 2020, that certain Second Amendment to Credit,
Guaranty and Security Agreement, dated as of July 2, 2020, that certain Third Amendment to Credit, Guaranty and Security Agreement,
dated as of December 7, 2022 and as further amended, restated, supplemented or otherwise modified prior to the date hereof, the “Existing
Credit Agreement” and as the same is supplemented hereby and as it may be further amended, restated, supplemented or otherwise modified
from time to time, the “Credit Agreement”), pursuant to which the Lenders have agreed to make certain advances of money and to extend
certain financial accommodations to Borrower in the amounts and manner set forth in the Credit Agreement.
B. Parent and GB006 desire to enter into and consummate the transactions contemplated by that certain Agreement and Plan of
Merger (a fully executed copy of which has been delivered to Agent on or prior to the date hereof, the “149 Bio Merger Agreement”), by
and among Parent, GB006, 149 Bio, LLC, a Delaware limited liability company (the “149 Bio”), and Ategrin, Inc., a Delaware corporation
and wholly-owned subsidiary of the Company (“Merger Sub”), pursuant to which, among other things, Merger Sub will merge with and into
GB006 with GB006 as the surviving company and a wholly owned subsidiary of 149 Bio (the “Merger”).
C. Pursuant to Section 7.1 of the Credit Agreement, no Credit Party shall Transfer all or any part of its business or property other
than as specifically permitted therein.
D. Pursuant to Section 7.3 of the Credit Agreement, no Credit Party shall merge or consolidate with or into any other Person other
than as specifically permitted therein.
E. Credit Parties have requested, and Agent and Lenders have agreed, to consent to Parent and GB006 consummating the Merger in
accordance with the terms and subject to the conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the terms and conditions set forth in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Agent, Lenders, and the Credit Parties hereby agree as
follows:
1.
Recitals; Construction. This Agreement shall constitute a Financing Document and the Recitals and each reference to the
Credit Agreement, unless otherwise expressly noted, will be deemed to reference the Credit Agreement as modified hereby. Capitalized terms
used but not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement (including those capitalized terms
used in the Recitals hereto).
MidCap / Gossamer / Consent and Release
Execution Version
2.
Limited Consent. Subject to the terms and conditions of this Agreement, including, without limitation, the conditions to
effectiveness set forth in Section 4 below, Agent and the Lenders hereby consent to Parent and GB006 consummating the Merger; provided
that at the time the Merger is consummated, the GB1275 Assets (as defined in the 149 Bio Merger Agreement) are the only assets owned by
GB006. The consent set forth in this Section 2 is effective solely for the purposes set forth herein and shall be limited precisely as written and
shall not be deemed to (i) be a consent to any amendment, waiver or modification of any other term or condition of the Credit Agreement or
of any other Financing Document, (ii) prejudice any right that Agent or Lenders have or may have in the future under or in connection with
the Credit Agreement or any other Financing Document, (iii) constitute a consent to or waiver of any past, present or future Default or Event
of Default or other violation of any provisions of the Credit Agreement or any other Financing Documents, (iv) create any obligation to
forbear from taking any enforcement action, or to make any further extensions of credit, or (v) establish a custom or course of dealing among
any of the Credit Parties, on the one hand, or Agent or any Lender, on the other hand.
3.
Representations and Warranties; Reaffirmation of Security Interest. Each Credit Party hereby confirms that all of the
representations and warranties set forth in the Credit Agreement are true and correct in all material respects (without duplication of any
materiality qualifier in the text of such representation or warranty) with respect to such Credit Party as of the date hereof except to the extent
that any such representation or warranty relates to a specific date in which case such representation or warranty shall be true and correct in all
material respects as of such earlier date. Except as otherwise expressly provided herein with respect to GB006, nothing herein is intended to
impair or limit the validity, priority or extent of Agent’s security interests in and Liens on the Collateral. Each Credit Party acknowledges and
agrees that the Credit Agreement, the other Financing Documents and this Agreement constitute the legal, valid and binding obligation of
such Credit Party, and are enforceable against such Credit Party in accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency or other similar laws relating to the enforcement of creditors’ rights generally and by general equitable
principles. The Credit Parties hereby represent and warrant that at the time the Merger is consummated, the GB1275 Assets (as defined in the
149 Bio Merger Agreement) are the only assets owned, licensed or held by GB006.
4.
Conditions to Effectiveness. This Agreement shall become effective as of the date on which each of the following
conditions has been satisfied, as determined by Agent in its reasonable discretion:
(a) Agent shall have received (including by way of facsimile or other electronic transmission) a duly authorized, executed
and delivered counterpart of the signature page to this Agreement, from Borrower, each Guarantor, Agent and the Lenders;
(b) Agent shall have received a fully executed copy of the 149 Bio Merger Agreement and all other documents, agreements
or instruments executed in connection therewith;
(c) all representations and warranties of the Credit Parties contained herein shall be true and correct in all material respects
(without duplication of any materiality qualifier in the text of such representation or warranty) as of the date hereof, except to the
extent that any such representation or warranty relates to a specific date in which case such representation or warranty shall be true
and correct in all material respects as of such earlier date (without duplication of any materiality qualifier in the text of such
representation or warranty) (and such parties’ delivery of their respective signatures hereto shall be deemed to be its certification
thereof);
(d) both immediately before and after giving effect to this Agreement, no Default or Event of Default shall have occurred and
be continuing or result therefrom; and
(e) the Credit Parties shall have delivered such other documents, information, certificates, records, permits, and filings as
the Agent may reasonably request.
5.
Release. In consideration of the agreements of Agent and Lenders contained herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, each Credit Party, voluntarily, knowingly, unconditionally and
irrevocably, with specific and express
MidCap / Gossamer / Consent and Release
intent, for and on behalf of itself and all of its respective parents, subsidiaries, affiliates, members, managers, predecessors, successors, and
assigns, and each of their respective current and former directors, officers, shareholders, agents, and employees, and each of their respective
predecessors, successors, heirs, and assigns (individually and collectively, the “Releasing Parties”) does hereby fully and completely release,
acquit and forever discharge each of Agent, Lenders, and each their respective parents, subsidiaries, affiliates, members, managers,
shareholders, directors, officers and employees, and each of their respective predecessors, successors, heirs, and assigns (individually and
collectively, the “Released Parties”), of and from any and all actions, causes of action, suits, debts, disputes, damages, claims, obligations,
liabilities, costs, expenses and demands of any kind whatsoever, at law or in equity, whether matured or unmatured, liquidated or
unliquidated, vested or contingent, choate or inchoate, known or unknown that the Releasing Parties (or any of them) has against the
Released Parties or any of them (whether directly or indirectly), based in whole or in part on facts, whether or not now known, existing on or
before the Effective Date. Each Credit Party acknowledges that the foregoing release is a material inducement to Agent’s and each Lender’s
decision to enter into this Agreement and agree to the modifications contemplated hereunder, and has been relied upon by Agent and Lenders
in connection therewith.
6.
No Waiver or Novation. The execution, delivery and effectiveness of this Agreement shall not operate as a waiver of any
right, power or remedy of Agent, nor constitute a waiver of any provision of the Credit Agreement, the Financing Documents or any other
documents, instruments and agreements executed or delivered in connection with any of the foregoing. Nothing herein is intended or shall be
construed as a waiver of any existing Defaults or Events of Default under the Credit Agreement or other Financing Documents or any of
Agent’s rights and remedies in respect of such Defaults or Events of Default. This Agreement (together with any other document executed in
connection herewith) is not intended to be, nor shall it be construed as, a novation of the Credit Agreement.
7.
Release of GB006. Effective automatically upon the execution, delivery and effectiveness of this Agreement and the
consummation of the Merger, Agent and the Lenders hereby (i) release GB006 as a Guarantor under the Credit Agreement and any other
Financing Documents, (ii) release all security interests, mortgages and other Liens granted to or held by the Agent under the Credit
Agreement and any other Security Document in and to the right, title and interests of GB006, including the UCC-1 financing statement with
Delaware file number 20193074528, and deem all such security interest to be hereby satisfied, release and discharged without further action
of any party, and (iii) agree to take such actions and execute such documents and instruments as reasonably requested by Borrower (at
Borrower’s sole expense) to effect such release.
8.
Affirmation. Except as specifically amended pursuant to the terms hereof, each Credit Party hereby acknowledges and
agrees that the Credit Agreement and all other Financing Documents (and all covenants, terms, conditions and agreements therein) shall
remain in full force and effect, and are hereby ratified and confirmed in all respects by such Credit Party, including without limitation the
granting of Liens in the Collateral to secure the Obligations and other Financing Documents. Each Credit Party covenants and agrees to
comply with all of the terms, covenants and conditions of the Credit Agreement and the Financing Documents, notwithstanding any prior
course of conduct, waivers, releases or other actions or inactions on Agent’s or any Lender’s part which might otherwise constitute or be
construed as a waiver of or amendment to such terms, covenants and conditions. Each Credit Party confirms and agrees that all security
interests and Liens granted to Agent pursuant to the Financing Documents continue in full force and effect, and all Collateral remains free
and clear of any Liens, other than those granted to Agent and Permitted Liens.
9.
Miscellaneous.
(a)
Reference to the Effect on the Credit Agreement. Upon the effectiveness of this Agreement, each reference in the
Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein,” or words of similar import shall mean and be a reference to the
Credit Agreement, as modified by this Agreement. Except as specifically set forth above, the Credit Agreement, and all other Financing
Documents (and all covenants, terms, conditions and agreements therein), shall remain in full force and effect, and are hereby ratified and
confirmed in all respects by each Credit Party.
MidCap / Gossamer / Consent and Release
1
Execution Version
(b)
THIS AGREEMENT AND THE RIGHTS, REMEDIES AND OBLIGATIONS OF THE PARTIES HERETO, AND
ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS AGREEMENT, THE RELATIONSHIP OF
THE PARTIES, AND/OR THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES AND
ALL OTHER MATTERS RELATING HERETO OR ARISING THEREFROM (WHETHER SOUNDING IN CONTRACT LAW, TORT
LAW OR OTHERWISE), SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS (OTHER THAN
SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW). NOTWITHSTANDING THE FOREGOING, AGENT AND LENDERS
SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST EACH CREDIT PARTY OR ITS PROPERTY IN
THE COURTS OF ANY OTHER JURISDICTION WHICH AGENT AND LENDERS (IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 12.1 OF THE CREDIT AGREEMENT) DEEM NECESSARY OR APPROPRIATE TO REALIZE ON THE COLLATERAL OR
TO OTHERWISE ENFORCE AGENT’S AND LENDERS’ RIGHTS AGAINST SUCH CREDIT PARTY OR ITS PROPERTY. EACH
CREDIT PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND EACH CREDIT PARTY HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE, OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.
EACH CREDIT PARTY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINTS, AND OTHER PROCESS
ISSUED IN SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS, AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE APPLICABLE CREDIT PARTY AT THE
ADDRESS SET FORTH IN ARTICLE 11 OF THE CREDIT AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER TO OCCUR OF SUCH CREDIT PARTY’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS
AFTER DEPOSIT IN THE U.S. MAIL, PROPER POSTAGE PREPAID.
(c)
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH CREDIT PARTY, AGENT AND
LENDERS EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR
BASED UPON THIS AGREEMENT OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF
DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
Credit Agreement are incorporated herein by reference to the same extent as if reproduced herein in their entirety.
(d)
Incorporation of Credit Agreement Provisions. The provisions contained in Section 13.2 (Indemnification) of the
a part of this Agreement for any other purpose.
(e)
Headings. Section headings in this Agreement are included for convenience of reference only and shall not constitute
(f)
Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be deemed an
original and all of which when taken together shall constitute one and the same instrument. Delivery of an executed counterpart of this
Agreement by facsimile or by electronic mail delivery of an electronic version (e.g., .pdf or .tif file) of an executed signature page shall be
effective as delivery of an original executed counterpart hereof and shall bind the parties hereto.
supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.
(g)
Entire Agreement. This Agreement constitutes the entire agreement and understanding among the parties hereto and
Severability. In case any provision of or obligation under this Agreement shall be invalid, illegal or unenforceable in
any applicable jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or
obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
(h)
MidCap / Gossamer / Consent and Release
Execution Version
assigns of the parties hereto, subject to the provisions of the Credit Agreement and the other Financing Documents.
(i)
Successors/Assigns. This Agreement shall bind, and the rights hereunder shall inure to, the respective successors and
[SIGNATURES APPEAR ON FOLLOWING PAGES]
MidCap / Gossamer / Consent and Release
IN WITNESS WHEREOF, intending to be legally bound, the undersigned have executed this Agreement as of the day and year first
hereinabove set forth.
MidCap / Gossamer / Consent and Release
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List of Subsidiaries of
Gossamer Bio, Inc.
Exhibit 21.1
Name
GB002, Inc.
GB005, Inc.
Gossamer Bio Services, Inc.
Jurisdic on of Incorpora on or Organiza on
Delaware
Delaware
Delaware
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-229586) pertaining to the Gossamer Bio, Inc. 2017 Equity
Incentive Plan, Gossamer Bio, Inc. 2019 Incentive Award Plan, and Gossamer Bio, Inc. 2019 Employee Stock Purchase Plan of our report dated March 17,
2023, with respect to the consolidated financial statements of Gossamer Bio, Inc. included in this Annual Report (Form 10-K) for the year ended December
31, 2022.
Exhibit 23.1
San Diego, California
March 17, 2023
/s/ Ernst & Young LLP
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Faheem Hasnain, certify that:
1. I have reviewed this annual report on Form 10-K of Gossamer Bio, Inc.;
Exhibit 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 17, 2023
/s/ Faheem Hasnain
Faheem Hasnain
President and Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Bryan Giraudo, certify that:
1. I have reviewed this annual report on Form 10-K of Gossamer Bio, Inc.;
Exhibit 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 17, 2023
/s/ Bryan Giraudo
Bryan Giraudo
Chief Operating Officer and Chief Financial
Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Gossamer Bio,
Inc. (the “Company”) hereby certifies, to his knowledge, that:
(i) the accompanying Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2022 (the “Report”) fully complies
with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Exhibit 32.1
Company.
Date: March 17, 2023
/s/ Faheem Hasnain
Faheem Hasnain
President and Chief Executive Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate
disclosure document.
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Gossamer Bio,
Inc. (the “Company”) hereby certifies, to his knowledge, that:
(i) the accompanying Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2022 (the “Report”) fully complies
with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Exhibit 32.2
Company.
Date: March 17, 2023
/s/ Bryan Giraudo
Bryan Giraudo
Chief Operating Officer and Chief
Financial Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate
disclosure document.