first the biopsy
next, the diagnosis
18 months
life expectancy
now what...
using a patient’s routine tumor biopsy
tumor DNA and RNA is sequenced and analyzed by
Gritstone EDGETM to identify relevant
tumor-specific neoantigens (TSNA)
EDGE IS A LEADING, PATENTED,
ARTIFICIAL INTELLIGENCE PLATFORM
Its novel integrated neural network model
architecture was trained on millions of datapoints
from hundreds of tumor and normal tissue
samples from patients with a variety of cancers
and ancestries, with diverse human leukocyte
antigen (HLA) types. Data validating its capabilities
were published in Nature Biotechnology, and
today, its positive predictive value for HLA
class I peptide presentation is nearly 75%,
which is an estimated 10-fold improvement
over common public tools.
a personalized treatment is created that
educates and expands the patient’s T cells
resulting in an attack on
cancer cells displaying TSNA
POWERFUL APPROACH TO GENERATING
CANCER-SPECIFIC IMMUNE ATTACK
Neoantigens represent a new class of targets
for advancing cancer immunotherapy and have
been validated in cancer patients as critical
T cell targets. However, a robust immune response
requires that T cells recognize the tumor and
proliferate in sufficient quantities to drive a
potent anti-cancer effect. In contrast to some
complex therapies which artificially reproduce
T cells ex vivo, Gritstone’s platform seeks to
induce the physiological in vivo generation
and expansion of neoantigen-specific T cells
by the patient’s own body.
GRITSTONE’S NOVEL
IMMUNOTHERAPY PLATFORM
Leveraging expertise established by traditional
infectious disease vaccine
immunology,
Gritstone has developed a therapeutic platform
utilizing a virus-based prime and a self-amplifying
mRNA boost to elicit a strong immune response.
By engineering EDGE-identified TSNA onto
this platform, Gritstone’s immunotherapies are
designed to educate the patient’s T cells to
recognize and attack tumors displaying the
encoded TSNA. Due to their tumor specificity,
these therapies are designed to stimulate a
strong response against cancer cells while
having little to no effect on normal cells.
through a simple intramuscular vaccine
easily administered in a community clinic
patients with advanced cancers are
receiving investigational SLATE or GRANITE
S L A T E
S L A T E
G R A N I T E
SLATE: “OFF-THE-SHELF”
TARGETED IMMUNOTHERAPY
SLATE targets neoantigens that are shared
among patients with particular tumor types
due to common tumor driver mutations.
SLATE is being evaluated in combination
with immune checkpoint blockade in a
Phase 1 clinical study for the treatment
of patients with advanced solid tumors,
including metastatic non-small cell lung
cancer, pancreatic ductal adenocarcinoma
and microsatellite-stable colorectal cancer, as
well as in patients with other solid tumor types
who have relevant mutation/HLA combinations.
GRANITE:
INDIVIDUALIZED IMMUNOTHERAPHY
GRANITE targets neoantigens that are uniquely
identified on an individual patient’s tumor.
GRANITE is being studied in a Phase 1
clinical study in combination with immune
checkpoint blockade for the treatment of
patients with metastatic non-small cell lung
cancer, microsatellite-stable colorectal cancer
(MSS-CRC), gastroesophageal cancer and
bladder cancer. GRANITE was granted Fast
Track designation by the U.S. Food and Drug
Administration for MSS-CRC.
accumsan et iusto odio dignissim qui blandit INNOVATING FOR A CURE
Gritstone’s goal is to eradicate cancer through
the development of potent immunotherapies.
The company is making progress against
this goal by first completing and reporting
data from its Phase 1 trials of SLATE and
GRANITE in advanced cancers this year. The
company also recognizes the potential of
these immunotherapies in the adjuvant setting
where new therapies to prevent cancer
recurrence following tumor resection are needed.
Additionally, with access to tumor-specific
antigens, Gritstone is advancing and expanding
its pipeline, including a bispecific antibody
program that is in lead optimization.
accumsan et iusto odio dignissim qui blandit To our stockholders,
collaborators and
colleagues,
Cancer continues to cause immense suffering across the world, and we
need better answers. Immunotherapy has demonstrated the ability to
induce long-term remissions, perhaps even cures, in selected patients,
and enormous research efforts continue to explore the mechanisms
underlying such dramatic responses. Gritstone Oncology is at the forefront
of these efforts and is testing novel immunotherapy product candidates
and combinations in an attempt to broaden the benefits of immunotherapy.
A central mechanism behind successful immunotherapy is cytotoxic T
cell recognition of mutant peptides presented on the surface of tumor
cells. Some patients appear to have pre-existing immune responses to
their own tumor’s mutant peptides (termed neoantigens), which are
inactivated by tumors that stimulate the PD-1 receptor on threatening
T cells. This inhibitory signaling can be blocked with an anti-PD-1
antibody, and the tumor-specific T cells can reactivate and kill the target
tumor cell. Unfortunately, most solid tumor patients do not have a large
population of pre-existing neoantigen-specific T cells, and this deficiency
likely renders many patients unresponsive to anti-PD-1 (checkpoint
inhibitor) therapy.
Gritstone has established an artificial
intelligence-enabled
process whereby a cancer patient can be assessed to determine
which neoantigens are presented by their tumor. A few patients
may have a shared neoantigen, but the majority will have
neoantigens unique to their own tumor. To address these two
populations in a personalized fashion, Gritstone has developed
two distinct, but related, products. Both products use the
same virus-derived vectors to deliver neoantigens to the patient’s
immune system and drive a strong T cell response to those
neoantigens. The SLATE program is an off-the-shelf product which is
pre-made and may ultimately be given to the approximately 10-15%
of colorectal and lung cancer patients (and approximately 25% of
pancreatic cancer patients) whose tumors possess a suitable neoantigen
contained within the SLATE product. Most solid tumor patients do not
possess a shared neoantigen, however, and for those patients who
are predicted to have neoantigens, we design and manufacture an
individualized product, called GRANITE. Both SLATE and GRANITE are
administered by simple intramuscular injection and are co-administered
with FDA-approved checkpoint inhibitors.
These two programs are in Phase 1 testing in cancer patients currently,
and we have recently shown early data which are very encouraging.
The products appear safe at doses tested to date, and strong neoantigen-
specific T cell responses have been demonstrated across multiple
patients, even at the first, low, doses tested. There is evidence of anti-tumor
activity with prolonged stable disease and reductions in the amount of
tumor-derived mutant DNA found in the blood of several patients. We
continue to increase the doses administered in the expectation that this
will drive a stronger immune response, with potentially even greater
anti-tumor activity. Once we have determined the optimal dose and
schedule of these therapeutics, we will then expand into Phase 2
efficacy testing in larger numbers of patients in the second half of
2020. We are also very excited to move these experimental
approaches to the early treatment of patients who receive adjuvant
therapy after surgical removal of tumors. This is a context in which
immunotherapy likely has the greatest effect, and new diagnostic
blood tests are enabling us to identify patients at high risk of cancer
recurrence after surgery, such that we expect to run small, short,
focused trials in patients who need help.
Biomanufacturing remains a core component of the Gritstone
model, and we have been progressively bringing in-house
the entire set of capabilities required to successfully make our
products. At this point, we only out-source a few elements on the
product release-testing checklist. This independence positions us
well to continue optimizing our manufacturing process and make
everything simpler, faster and cheaper – a key attribute for
commercialization of an individualized therapy. This independence
positions us well to continue optimizing our manufacturing process
and make everything simpler, faster and cheaper – a key attribute for
commercialization of an individualized therapy upon product approval.
And finally, to capitalize upon our industry-leading tumor-specific
antigen discovery capabilities, we are working hard on developing
bispecific antibodies which, at one end, recognize tumor antigens
(such as neoantigens), and on the other end recruit and activate
T cells, thus enabling tumor destruction. We expect this program
to deliver a clinical development candidate by the end of this year.
Gritstone is poised to demonstrate exciting anti-tumor activity of its
novel neoantigen-directed immunotherapy programs this year. We are
thrilled to see if we can really help cancer patients win their battle.
Sincerely,
Andrew Allen, M.D., Ph.D.
Co-founder, President and Chief Executive Officer
April 15, 2020
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 001-38663
Gritstone Oncology, Inc.
(Exact name of Registrant as specified in its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
5959 Horton Street, Suite 300
Emeryville, CA
(Address of principal executive offices)
47-4859534
(I.R.S. Employer
Identification No.)
94608
(Zip Code)
(510) 871-6100
Registrant’s telephone number, including area code
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)
GRTS
Name of each exchange on which registered
The Nasdaq Global Select Market
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES NO
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES NO
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES NO
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such
files). YES NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO
The aggregate market value of the common stock held by non-affiliates of the registrant as of June 28, 2019 (the last business day of the registrant’s most
recently completed second fiscal quarter) was approximately $277.1 million, based on the closing price of the registrant’s common stock, as reported by the
NASDAQ Global Select Market on June 28, 2019 of $11.14 per share. Shares of the registrant’s common stock held by each executive officer, director, and
holder of 5% or more of the outstanding common stock have been excluded in that such persons may deemed to be affiliates. This calculation does not reflect
a determination that certain persons are affiliates of the registrant for any other purpose.
The number of shares of Registrant’s Common Stock outstanding as of March 6, 2020 was 36,976,352.
Portions of the Registrant’s Definitive Proxy Statement relating to the Annual Meeting of Shareholders, scheduled to be held on June 18, 2020, are
incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. Such Definitive Proxy Statement will be filed with the Securities
and Exchange Commission within 120 days after the fiscal year to which this report relates.
DOCUMENTS INCORPORATED BY REFERENCE
[THIS PAGE INTENTIONALLY LEFT BLANK]
Table of Contents
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16 Form 10-K Summary
SIGNATURES
Page
2
45
87
87
87
88
89
91
91
105
107
138
138
138
139
139
139
139
139
140
142
143
i
[THIS PAGE INTENTIONALLY LEFT BLANK]
PART I
Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K, including "Business" in Part I Item I and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Part II Item 7, contains "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of
historical fact are statements that could be deemed forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,”
“expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,”
“would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms
or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:
our expectations regarding the potential market size and size of the potential patient populations for SLATE,
GRANITE and any future product candidates, if approved for commercial use;
our clinical and regulatory development plans for our product candidates;
our expectations with regard to our Gritstone EDGETM platform, including our ability to utilize the platform to predict
the TSNA that will be presented on a patient’s tumor cells and identify shared antigens for other therapeutic classes;
our expectations with regard to the data to be derived in our Phase 1/2 clinical trials or any clinical trials for other
product candidates;
the timing of commencement of future nonclinical studies and clinical trials and research and development programs;
our ability to acquire, discover, develop and advance product candidates into, and successfully complete, clinical
trials;
our intentions and our ability to establish collaborations and/or partnerships;
the timing or likelihood of regulatory filings and approvals for our product candidates;
our commercialization, marketing and manufacturing capabilities and expectations;
our intentions with respect to the commercialization of our product candidates;
the pricing and reimbursement of our product candidates, if approved;
the implementation of our business model and strategic plans for our business, product candidates and technology
platforms, including additional indications for which we may pursue;
the scope of protection we are able to establish and maintain for intellectual property rights covering our product
candidates, including the projected terms of patent protection;
estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to
obtain additional capital;
our future financial performance; and
developments and projections relating to our competitors and our industry, including competing therapies and
procedures.
These statements relate to future events or to our future financial performance and involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual
results to differ materially from current expectations include, among other things, those listed under “Item 1A. Risk Factors” and
elsewhere in this Annual Report on Form 10-K. Any forward-looking statement in this Annual Report on Form 10-K reflects our
current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our
operations, results of operations, industry and future growth. Given these uncertainties, you should not place undue reliance on these
forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements
for any reason, even if new information becomes available in the future.
1
This Annual Report on Form 10-K also contains estimates, projections and other information concerning our industry, our
business, and the markets for our product candidates, including data regarding the estimated patient population and market size for our
product candidates, as well as data regarding market research, estimates and forecasts prepared by our management. Information that
is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties and actual events or
circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated,
we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by third
parties, industry, medical and general publications, government data and similar sources. In some cases, we do not expressly refer to
the sources from which 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.
Item 1. Business.
Overview and Strategy
We are an immuno-oncology company developing tumor-specific cancer immunotherapies to fight multiple cancer types. Our
approach harnesses the natural power of a patient’s own immune system to recognize short tumor-specific peptide sequences
presented on cancer cells, referred to as tumor-specific neoantigens, or TSNA, in order to destroy tumor cells. Our programs are built
on two key pillars—first, our proprietary Gritstone EDGE artificial intelligence platform which enables us to identify TSNA with high
accuracy; and second, a potent immunotherapy platform which we have engineered to deliver the selected TSNA and drive the
patient’s immune system to attack and destroy tumors. Our product candidates are designed to fit easily into a community oncology
setting and to be administered in earlier lines of treatment, in combination with checkpoint inhibitors to further drive a robust T cell
response, rather than only in refractory or relapsed cancers. This is important because there is growing evidence that immunotherapy
is more effective when deployed early in a cancer patient’s disease course.
We initiated a Phase 1/2 first-in-human clinical trial of our personalized immunotherapy product candidate, GRANITE, in the
fourth quarter of 2018, and a Phase 1/2 clinical trial of our “off-the-shelf” immunotherapy product candidate, SLATE (also targeting
TSNA), in the third quarter of 2019, both for the treatment of several common solid tumors. In these studies, patients have received
our immunotherapy product candidates with acceptable tolerability at doses tested to date, and, importantly, we have observed
substantial cytotoxic T cell responses to multiple administered TSNA. We expect to present preliminary clinical data in the first half
of 2020. Patient selection for the two programs is distinct. SLATE patients must carry both a particular tissue type human leukocyte
antigen, or HLA, which is similar to the ABO blood type, but with more variants, and at least one of twenty specific gene mutations,
with a particular focus upon common KRAS gene mutations, to be eligible for this “off-the-shelf” therapy. In contrast, GRANITE
patients have an immunotherapy made specifically for them, based upon their tumor DNA/RNA sequence. Separately, we have also
recently initiated lead optimization of a separate product class of bispecific antibodies, or BiSAb, which are designed to offer an
alternative form of off-the-shelf therapy against our EDGE - identified novel tumor-specific antigens. We expect to file an IND for
this program in the second half of 2021.
Immuno-oncology represents one of the most significant advances in the history of cancer treatment. In 2014, the first
checkpoint inhibitor was approved and today, despite only a modest breadth of efficacy across patients, this class of therapies is
predicted to reach over $32.0 billion in combined global sales by 2022. However, because checkpoint inhibitors work through
relatively non-specific stimulation of occasional, pre-existing, tumor-specific (typically TSNA-specific) T cells, they are effective in
only a subset of patients, with objective responses (substantial tumor shrinkage) observed in 0-20% of all patients with cancer of the
lung, breast, prostate, colon/rectum and ovary (the major lethal solid tumor types). Many patients appear not to possess meaningful
numbers of T cells that recognize their tumor (so-called “cold” tumors). We believe the path to broader immuno-oncology efficacy
and more meaningful clinical responses resides in the de novo generation of new, potent, tumor-specific T cell responses.
The first pillar of our tumor-specific cancer immunotherapy approach is our understanding of TSNA and the application of our
artificial intelligence-based, proprietary Gritstone EDGE platform to predict (and for SLATE, to help validate) often novel or unique
TSNA on tumor cells. EDGE is a proprietary machine learning model that uses DNA/RNA sequence data derived from a patient’s
tumor biopsy to predict which mutations will generate TSNA most likely to be presented on the tumor cell surface. While there are
frequently hundreds of mutations in the DNA of a tumor cell, only approximately 1% of these mutations are actually transcribed,
translated and processed into a unique “non-self” peptide sequence that is presented on the surface of tumor cells and can therefore be
recognized by the patient’s own T cells. Some TSNA arise in classical oncogenes, the growth-related genes which are recurrently
mutated across cancer patients because the mutations promote the formation and progression of cancer-like behavior. These are
referred to as driver gene mutations, and such mutations that form TSNA are the basis of the SLATE product concept. Few driver
gene (or “shared”) TSNA are described in the scientific literature, and Gritstone uses EDGE to predict new shared TSNA, and then
validate them by directly observing them on the surface of human tumor cells from cancer patients. Some of these data were presented
at the Society for Immunotherapy of Cancer (SITC) conference in November 2019. However, shared TSNA are relatively rare (found
2
in approximately 10-15% of patients with lung or colorectal cancer), and most TSNA are unique to each individual patient’s tumor
(termed “private”), arising as mutations in random genes, that are thought to be neutral for the cell’s growth. Previously available
technologies cannot predict the presence of TSNA with sufficient accuracy to design a therapy that is likely to be effective, and so
Gritstone built the EDGE platform. Applying this platform to sequence data from human tumors, we have shown a 9-10 fold
improvement in prediction performance with our platform compared to traditional approaches. These data were published in Nature
Biotechnology in December 2018 (Bulik-Sullivan, et al, Nature (2018)), and a US patent covering the concept issued to Gritstone in
2018. Of note, a large academic study published in Nature Biotechnology has recently confirmed the utility of this class of machine
learning approaches for the prediction of HLA presented peptides and TSNA (Sarkizova, et al, Nature (2019)). We continue to
identify novel shared TSNA and improve the performance of the EDGE model.
The second pillar of our tumor-specific cancer immunotherapy approach is our potent antigen delivery system which delivers
TSNA to patients in order to direct a robust T cell response to those TSNA predicted to be presented on the patient’s tumor. Grounded
in traditional infectious disease vaccinology, this two-step immunization utilizes prime and separate boosts to educate and expand the
patient’s T cells to detect TSNA and destroy tumor cells. In non-human primate models, we have demonstrated a profound and
specific CD8+ and CD4+ T cell response to antigens administered in this way. Similarly, our tumor-specific immunotherapy
candidates, SLATE and GRANITE, comprise a sequential immunization of a viral-vector based prime and boosts with self-amplifying
RNA (SAM) delivered by intramuscular injection, which we refer to as heterologous prime-boost. In our SLATE product candidate
series, the viral-vector prime and RNA boosts both contain the same fixed TSNA cassette that is designed for the subset of patients
who carry these antigens, whereas for our GRANITE product candidate, each of the viral-vector prime and RNA boost immunizations
contain a patient-specific set of predicted TSNA. Importantly, we also have the capability to manufacture these products at our own
fully integrated GMP biomanufacturing facilities. The ability to control the manufacturing of high-quality tumor-specific
immunotherapy products, and scale production, if early data are positive, is critical for efficient clinical development and
commercialization. We have invested significant resources in our Cambridge, Massachusetts sequencing lab and our Pleasanton,
California biomanufacturing facility to address these needs and position ourselves to control the critical steps in the production of our
tumor-specific immunotherapy candidates.
Our off-the-shelf, TSNA-directed immunotherapy product candidate, SLATE platform, entered a Phase 1/2 clinical trial in the
third quarter of 2019. SLATE and GRANITE utilize the same heterologous prime-boost approach, but SLATE contains a fixed
cassette with TSNA that are shared across a subset of cancer patients rather than a cassette unique to an individual patient, which
distinguishes it as an off-the-shelf alternative to our personalized manufactured product candidate, GRANITE. SLATE is therefore
designed to be readily available for rapid initiation of therapy and is less expensive to manufacture than a personalized product. Our
data suggest that while each such shared neoantigen may only be found in less than 5% of patients with a particular tumor type, our
heterologous prime-boost can contain at least 20 of these TSNA, which we believe will result in the off-the-shelf product having an
addressable population of approximately 10-15% of patients within common solid tumor types such as colorectal cancer and lung
cancer. Our off-the-shelf product candidates are specific to a particular tumor type, and the TSNA module is fixed for each product.
Consequently, it is critically important to be able to accurately identify patients whose tumors contain at least one of the TSNA
represented within the off-the-shelf product candidate. Today, this can be simply achieved by screening the patient’s tumor for driver
mutations using commercially-available genomic screens and identifying the patient’s HLA type from blood with a standard clinical
assay. The SLATE and GRANITE clinical trials involve the combined use of our heterologous prime-boost system together with
checkpoint inhibitor therapy. Additionally, we have entered into a clinical trial collaboration and supply agreement with Bristol-Myers
Squibb Company to evaluate the safety and tolerability of SLATE and GRANITE in combination with OPDIVO (nivolumab) and in
combination with OPDIVO plus YERVOY (ipilimumab), in patients with advanced solid tumors. The Phase 1 portion of our SLATE
Phase 1/2 trial, initiated in August 2019, seeks to establish a dose for further investigation in Phase 2 and to evaluate safety,
tolerability and, importantly, immunogenicity of our lead product candidate, in suitable patients with colorectal cancer, lung cancer
and pancreatic cancer, together with a tumor-type agnostic cohort in patients with other tumor types who possess appropriate shared
TSNA. We will seek to further evaluate efficacy and safety in the Phase 2 cohort expansion portion in several common solid tumor
types.
Our personalized immunotherapy product candidate, GRANITE, has two potential benefits in comparison with SLATE – (1)
the potential for a larger addressable patient population, since many patients with common solid tumors such as NSCLC will have
sufficient private TSNA to merit use of our immunotherapy; and (2) a greater chance that patients will mount an immune response to
multiple TSNA in parallel, which may reduce the chances of a tumor developing acquired resistance by altering a particular
neoantigen or its cell-surface presentation. The GRANITE process begins with receipt of a routine tumor biopsy from the patient. We
utilize our in-house sequencing capabilities on the tumor sample and then apply our proprietary EDGE platform to derive a set of
predicted TSNA likely to be presented on the patient’s tumor. Using these TSNA, we design a highly potent personalized
immunotherapy candidate containing the relevant neoantigens to be administered by simple intramuscular injection. We have designed
each of our tumor-specific immunotherapy candidates such that oncologists will not have to alter their treatment practices, and we
believe this would extend the utility of our medicines into the community oncology setting and not limit their use to scarce centers of
3
excellence. We believe that as a result of its design, our tumor-specific immunotherapy candidate has the potential to expand the
efficacy of immunotherapy into broader patient populations.
We initiated a first-in-human Phase 1/2 clinical trial of our first personalized immunotherapy product candidate, GRANITE, in
the fourth quarter of 2018, evaluating it in the treatment of common solid tumors, including metastatic non-small cell lung cancer, or
NSCLC, and gastroesophageal, bladder and microsatellite stable, or MSS, colorectal cancers, in each case in combination with
checkpoint inhibitors. We dosed our first patient in the first quarter of 2019. Similar to SLATE, the Phase 1 portion of our Phase 1/2
trial will seek to establish a dose for further investigation in Phase 2 and to evaluate safety, tolerability and, importantly,
immunogenicity of our lead product candidate. We will seek to further evaluate efficacy and safety in the Phase 2 cohort expansion
portion in several common solid tumor types.
We presented early immunogenicity data from both the GRANITE and SLATE Phase 1 clinical trials at the European Society
of Medical Oncology Immuno-Oncology meeting (ESMO-IO) in December 2019. We showed that our immunotherapy product
candidates could be administered safely to cancer patients at the doses studied to date, with typical adverse events expected with
potent viral-vector based immunizations, such as fever and injection site reactions that were self-limiting, but with no dose-limiting
toxicities. No other toxicity patterns have emerged to date. Despite the low doses deployed, and absence of ipilimumab (which will be
included in later cohorts), potent immune responses were observed in GRANITE patients, with very strong CD8+ T cell responses to
TSNA measurable in all patients, as assessed using a standard overnight (“ex vivo”) ELISpot assay. (There was an insufficient number
of SLATE patients available for analysis at that time.) Responses to multiple neoantigens were detected, and in one patient who
provided large numbers of T cells for analysis (by voluntary leukapheresis), specific responses to 12 of 20 administered neoantigens
were measured. In addition to being large in number (over 1,000 TSNA-specific CD8+ T cells per 106 peripheral blood mononuclear
cells in 2 of 3 patients), the elicited T cells were also cytotoxic in phenotype, with Granzyme B production demonstrated for multiple
patients. We also demonstrated that some of the TSNA specific T cells were de novo primed by the heterologous prime boost
immunotherapy versus others, which were preexistent at low frequency before vaccination. Early efficacy data will be presented in
the first half of 2020.
We are also leveraging our expertise in cancer genomics and our tumor antigen discovery platform to go beyond shared TSNA
and identify novel peptide sequences (not mutated) that may be shared across common tumor types (tumor-specific shared antigens),
which we believe are likely to have value as targets to direct T cells onto tumors specifically. Shared antigen targets enable us to
develop additional therapeutic approaches to redirect T cells to tumors using these highly specific targets, such as our bispecific
antibody (BiSAb) platform. Redirecting T cells to tumors using BiSAb has been validated in the treatment of B cell malignancies with
compelling data generated using CD19-CD3, CD20-CD3 and BCMA-CD3 bispecific antibodies. The CD3 binding domain recruits
and activates T cells, and the CD19, CD20 or BCMA binding domains ensure recognition and killing of the B cells by the activated T
cells. While these approaches do not distinguish between normal and malignant B cells, which leads to the killing of normal B cells,
human survival in the absence of normal B cells is feasible (intravenous immunoglobulin infusions can be administered as needed).
We believe the strategy is viable given the existence of absolute B cell lineage specific markers (such as CD19, CD20, CD22, and
BCMA) which are not found on any other normal tissues. Applying this concept to the treatment of solid tumors has proven to be
challenging because most solid tumor cell-surface markers are also expressed on vital normal tissues, that will result in on-target, off-
tumor toxicities. Gritstone’s proposed solution to this problem is to develop BiSAb that bind to HLA-peptide complexes on the
surface of tumor cells where the peptide is either a mutant peptide (derived from a shared neoantigen such as KRAS) or a peptide from
a cancer testis antigen (a family of intracellular proteins, some of which are only expressed on normal testis tissue and tumors).
Identifying antibody fragments that only bind to the specific HLA-peptide complex is challenging but achievable (so-called TCR-
mimetic antibodies) and these can be combined with traditional CD3 binding domains to generate BiSAb which we have shown have
the potential to kill tumor cells potently and specifically in vitro and in vivo. Gritstone has elected to focus its efforts on a KRAS
mutation and a cancer-testis antigen as lead clinical candidates, and the nomination of the final sequences (development candidate
nomination) is expected in the second half of 2020, with an IND filing expected in the second half of 2021.
An additional therapeutic approach that uses shared tumor-specific antigens is the modification of the receptors of the patient’s
own T cells to redirect them to recognize tumor targets (adoptive T cell therapy). In August 2018, we announced our first
collaboration supporting this strategy with bluebird bio, Inc., or bluebird, whereby we will identify up to ten tumor-specific targets and
associated T cell receptors for some of the selected targets for therapeutic application within bluebird’s cell therapy platform.
To deliver on the promise of our novel therapeutic approach, we have assembled a highly experienced management team with
focused expertise in each of our core disciplines of cancer genomics, immunology and vaccinology, clinical development, regulatory,
and biomanufacturing from several leading biotechnology companies, including Clovis Oncology, Inc., Pfizer Inc., Genentech, Inc.
and Foundation Medicine, Inc. Our co-founder Dr. Andrew Allen brings experience as a co-founder and Chief Medical Officer of
Clovis Oncology, Inc., with prior experience in various leadership roles at Pharmion Corporation and Chiron Corporation, where he
worked on Proleukin (IL-2), the first cancer immunotherapy. The scientific advisory board includes selected experts in relevant
disciplines, including Dr. Timothy Chan (Memorial Sloan Kettering Cancer Center) and Dr. Naiyer Rizvi (Columbia University
4
Medical Center) who together first demonstrated that TSNA are key T cell targets in cancer patients responding to checkpoint
inhibitor therapy, as well as Dr. James Gulley (National Cancer Institute) who is an international expert in cancer immunotherapy with
a focus on vaccines.
We have assembled a team of industry leaders, each possessing specific expertise that we believe will allow us to build and
deploy our proprietary EDGE platform to predict tumor-specific T cell targets and deliver personalized cancer immunotherapies to
patients. Our goal is to eradicate cancer by initially developing personalized immunotherapies that focus on the unique and individual
nature of a patient’s tumor. Our strategy to achieve this includes the following key components:
• Drive the SLATE clinical program into Phase 2 testing, including adjuvant indications, and expand into multiple tumor
types which may require different TSNA cassettes. The first version of SLATE is largely focused on KRAS mutations and
is thus has potential for use in patients with lung, colorectal and pancreatic cancer in whom such mutations are common.
Driving this program forwards is a priority, and Phase 1 dose escalation is moving quickly since the product is “off-the-
shelf.” Once a recommended Phase 2 dose (RP2D) has been identified, Phase 2 expansion (single-arm cohorts) into
microsatellite-stable (MSS) colorectal cancer (3rd line), NSCLC (2nd line after prior immunotherapy) and pancreatic cancer
(1st line maintenance) is planned, where efficacy signals may be discernable, notwithstanding combination therapy with
checkpoint inhibitors (CPI), since CPI have very modest efficacy in these contexts. Furthermore, if we observe durable and
frequent objective responses in the first two of these settings (excluding maintenance), then we may pursue development
under the accelerated approval pathway in the US with single-arm pivotal trials given low efficacy of typical treatment
options. The discovery of novel shared TSNA is ongoing at Gritstone, and successive SLATE product candidates focused
on different mutations (from KRAS) are expected.
Rapidly advance the GRANITE clinical program into Phase 2 testing, including an adjuvant indication. GRANITE
clinical data has already demonstrated initial positive safety results and an ability to induce substantial neoantigen-specific
CD8+ T cell responses in cancer patients. Once RP2D has been established, we intend to move into Phase 2 (single-arm)
expansion cohorts in patients with advanced gastric (2nd line) and MSS-colorectal cancer (3rd line) with a similar approach
as the SLATE program, where efficacy signals may be discerned given low CPI activity, and the possibility of pursuing an
accelerated approval strategy with objective response rate/duration data from single-arm trials.
Invest in our Gritstone EDGE platform and maximize its utility across modalities. Using contemporary DNA/RNA
sequencing, mass spectrometry and machine learning approaches, we have developed our EDGE platform, which is
designed to predict the antigenic landscape of a tumor that allows for select targeting with personalized immunotherapy.
We have analyzed surface HLA-peptide presentation of over 1,000 human tumor and normal tissue samples from a variety
of ethnicities, together with multiple cell lines, and this enormous dataset comprising >3 million tumor-presented peptides
has been used to advance our detailed understanding of tumor antigens (both neoantigens and other non-mutated shared
tumor-specific antigens). We have trained the EDGE model to predict class I HLA-presented neoantigens on human tumors
(as used in our clinical SLATE and GRANITE programs), and we have extended the model to include class II HLA-
presented neoantigens which we anticipate will also be deployed clinically during 2020. We have predicted and then
validated multiple novel shared TSNA, and this has enabled development of the SLATE program. We are now using EDGE
to identify novel classes of neoantigens, and are investigating the inclusion of T cell responses to peptides into the
prediction model to further drive predictive performance for the development and application of our personalized
immunotherapies.
• Develop novel bispecific antibodies (BiSAb) with solid tumor-specific targets. We are focused on optimizing a BiSAb that
is specific to (a) CD3 (T cell activation) and (b) a solid tumor-specific HLA-peptide complex. We expect to nominate a
development candidate in the second half of 2020 and file an investigational new drug application, or IND, in the second
half of 2021. We may seek to partner within this program for solid tumor-specific targets.
• Continue to build our in-house biomanufacturing capabilities to maintain the highest controls on quality and capacity.
We believe the speed, quality, reliability and scalability of our manufacturing capabilities will be a core competitive
advantage to our clinical development and commercial success, and we have invested extensively in building our own
manufacturing facilities for the GRANITE and SLATE programs. While we initially outsourced all of our manufacturing,
over the past three years we have successfully internalized all of the biomanufacturing steps to drive down both cost and
production time, as well as establish full control over intellectual property and product quality. We do still outsource some
quality control testing, although we have internalized many of these elements as well, where prudent and feasible. We
believe that operating our own manufacturing facility will provide us with enhanced control of material supply for both
clinical trials and the commercial market, will enable the more rapid implementation of process changes, and will allow for
better long-term manufacturing cost control. We may elect to outsource certain aspects of product manufacturing (such as
lipid nanoparticle encapsulation of our RNA) for convenience, but importantly, we have the capability to manufacture every
element of our heterologous prime-boost immunotherapy candidates.
5
• Move tumor-specific immunotherapy into community oncology settings and earlier lines of treatment. We are designing
our tumor-specific immunotherapy product candidates to fit into a community oncology setting, where the vast majority of
cancer patients are treated. For SLATE, patient identification simply requires a routine tumor mutation test (such as those
performed by Foundation Medicine, Guardant and Tempus) plus HLA typing (a routine blood test performed on 3-5 ml
peripheral blood at most academic medical centers). For GRANITE, we assess program eligibility and design product using
a routine tumor needle biopsy. This approach is designed to enable oncologists to integrate our tumor-specific
immunotherapy product candidates into their treatment practices without requiring a change in the current treatment
paradigm. We believe this strategy has the potential to extend the use of our medicines into the community setting,
potentially enabling rapid trial execution, and potentially allowing for commercial use beyond limited centers of research
excellence. This is key since we intend to develop our tumor-specific immunotherapy product candidates in earlier lines of
treatment (adjuvant, neo-adjuvant, front-line treatment of advanced disease), where recent clinical data with other forms of
immunotherapy suggest efficacy is likely to be stronger, versus being only used in highly refractory or late-stage cancer
patients. This intention is enabled by new liquid biopsy techniques whereby the reliable detection of minute amounts of
tumor-derived DNA in blood may be used both to stratify patients (identify those at high risk of disease recurrence or
progression even if imaging data suggests eradication of disease) and may potentially offer a surrogate endpoint for more
rapid assessment of therapeutic efficacy versus traditional clinical endpoints.
• Enter into collaborations to realize the full potential of our platform. The breadth of our EDGE platform enables its
application to a variety of therapeutic formats, including cell therapy, bispecific antibodies and other areas where shared
tumor (neo)antigens could be impactful to cancer treatment. We intend to form collaborations around certain aspects of our
platform, such as shared tumor antigens, as we believe we will benefit from the resources and capabilities of other
organizations in the manufacture, development and commercialization of such diverse immunotherapies. Aligned with this
strategy, our strategic collaboration with bluebird involves use of our EDGE platform to identify tumor-specific targets and
associated T cell receptors for clinical application within bluebird’s cell therapy platform.
Our Immuno-Oncology Based Approach to Cancer Therapy
Immuno-Oncology and Tumor-Specific Neoantigens
Immuno-oncology is an emerging field of cancer therapy that aims to activate the immune system to enhance and/or create
anti-cancer immune responses, as well as to overcome the immuno-suppressive mechanisms that cancer cells have developed against
the immune system. It is now well established that the immune system can, on occasion, successfully eliminate all tumor cells, leading
to long-term benefit, even cures, in some patients with solid tumors. The primary challenge in immuno-oncology is to extend this
useful biology to many more cancer patients, and to do so earlier in the treatment paradigm. Understanding which cells of the immune
system are critical, what they recognize on tumor cells, and why they are typically absent or ineffective in cancer patients is core to
overcoming this challenge. T cells are the vital foot soldiers in the immune attack upon cancer cells. T cells have evolved to recognize
“foreign” markers on cells infected by viruses, and DNA mutations, which are a hallmark of cancer, often lead to the generation of
such “foreign” markers, which are different from normal or “wild-type” proteins. Exploitation of this cancer cell vulnerability using
new biological and computational tools lies at the heart of our programs.
Critical Importance of T Cells
The most critical components of the immune response to tumors are T cells, white blood cells which mature in the thymus
gland. T cells can be classified into two major subsets, CD4+ T cells and CD8+ T cells, based on expression of CD4 or CD8 markers
on the surface of the T cell. CD4+ T cells (also referred to as helper T cells) provide help to the immune response by secreting
cytokines that enhance the activation, expansion, migration and effector functions of other types of immune cells. CD8+ T cells (also
referred to as cytotoxic or “killer” T cells) can directly attack and kill cells they recognize as abnormal. An activated CD8+ T cell
attacks and kills a target cell when the T cell encounters its target and the T cell receptor, or TCR, recognizes and binds to a specific
protein complex on the target cell. This protein complex is comprised of a short peptide (fragment of a protein) bound to a platform
molecule called, in humans, the human leukocyte antigen, or HLA, complex. This HLA/peptide complex is the antigen recognized by
a T cell receptor. The peptides recognized by typical CD8+ T cells are quite short (8-12 amino acids long) and are presented on so-
called Class I HLA molecules (such as HLA-A, -B or -C). The peptides recognized by typical CD4+ T cells are longer (15-25 amino
acids) and are presented on Class II HLA molecules (such as HLA-DP, -DQ and -DR).
One of the primary functions of T cells is to detect and eliminate normal cells that have been infected by a virus to prevent
virus spread and limit harm to the host. To accomplish this, T cells are “trained” in the thymus early in life to differentiate between
HLA/peptide complexes that are “self” derived (an HLA presenting a peptide derived from a normal self-protein) and those that are
“foreign” or “non-self” (an HLA presenting a peptide derived from a non-self-protein such as a viral protein). When the immune
system develops early in life, T cells that recognize self peptides are eliminated in the thymus to avoid the risk of an auto-immune
6
reaction, in a process called central tolerance. T cells that recognize a non-self peptide are nurtured and sent from the thymus to patrol
the body, looking for evidence of non-self markers on cells, such as virally infected cells. Because cancer cells carry DNA mutations,
which may alter protein/peptide sequences, tumor cells can also present non-self peptides bound to HLA platforms on the cell surface
and, as a result, can be recognized as non-self and destroyed by T cells. In this case, the DNA mutation in a tumor creates a novel non-
self peptide sequence, which, if it can be recognized by a TCR, is called a tumor-specific neoantigen, or TSNA.
Tumor-Specific Neoantigens
The notion that T cells can recognize TSNA on the surface of tumor cells is well established. It is only recently, however, that
tools and techniques have been developed to test this idea in humans. Two advances proved critical. First, the advent of checkpoint
inhibitors provided cohorts of cancer patients who developed immune responses that destroyed their tumors, leading to clinical
responses that could be studied at a molecular level. Second, the development of fast, inexpensive DNA and RNA sequencing
techniques provided the ability to sequence and catalog tumor DNA mutations that might give rise to neoantigens. T cells from cancer
patients who had responded well to checkpoint inhibitors could then be screened against candidate neoantigens to see if the patient
data supported the hypothesis that T cell recognition of TSNA could kill tumor cells effectively.
In 2014 and 2015, two of our co-founders, Dr. Timothy Chan and Dr. Naiyer Rizvi, brought these two concepts together in
papers demonstrating that melanoma and lung cancer patients who responded to checkpoint inhibitor therapies had developed T cells
that recognized TSNA (Snyder et al., The New England Journal of Medicine (2014); Rizvi et al., Science (2015)). Further evidence
from Dr. Steven Rosenberg (Center for Cancer Research) and Dr. Ton Schumacher (Netherlands Cancer Institute) demonstrated that
in patients with solid tumors, T cells could be found infiltrating tumors which were specific for TSNA, and could be expanded and
used therapeutically to kill tumor cells (Stevanovic et al., Science (2017); Schumacher and Schreiber, Science (2015)). Together, this
body of research suggests that in patients with common solid tumors, T cells can selectively destroy tumor cells through recognition of
TSNA.
Immune Evasion
While some patients do respond to checkpoint inhibitor therapy with the mobilization of T cells that recognize TSNA and kill
tumor cells, such patients are in the minority (0-20% for most common solid tumors (Kiy et al., Febs Letters (2013)). Research into
this clinical observation has shown that patients who respond to checkpoint inhibitors typically have, prior to therapy, inflamed tumors
that contain infiltrating T cells (particularly cytotoxic CD8+ T cells) and that express markers of immune activation.
Figure 1. Response in Melanoma Patients Treated with Anti-PD-1 Antibody
(Pembrolizumab) is Associated with Anti-Tumor T Cell Infiltration of the Tumor at
Baseline*
* Adapted from Tumeh et al., Nature (2014)
While the immune systems of these patients have recognized their tumors through the recognition of TSNA, the tumor-specific
T cells have been shut down or inactivated in the tumor. Checkpoint inhibitors are capable of “re-activating” these T cells, but most
patients fail to respond to checkpoint inhibitor treatment because tumor-specific T cells are absent from the tumor due to tumor
“evasion” of the patient’s immune response. We believe it is highly likely these patients have so-called “naïve” T cells in their bodies
7
that have the ability to recognize the TSNA on tumor cells but that have not yet been activated. As a result, immune recognition, or the
activation of the naïve T cells to the tumor antigen, and the generation of a large memory tumor-specific T cell response has not (yet)
taken place.
Our Therapeutic Hypothesis
TSNA offer extremely attractive therapeutic targets for T cell-directed therapy because they are non-self and tumor-specific,
and have been shown to function as the key T cell targets in humans responding to immune checkpoint inhibitor therapies. The fact
that TSNA are non-self has several key implications:
• Every person’s existing, internal TCR repertoire of naïve T cells should be able to recognize TSNA presented by any tumor
that arises within the body.
• A potent, focused T cell response against TSNA should be limited to an attack on the tumor, with minimal destruction of
normal cells (off-tumor toxicity).
• TSNA are key targets for an effective human anti-tumor immune response, which means TSNA can be used
therapeutically.
Our fundamental therapeutic hypothesis is that patients with common solid tumors often have TSNA, but the tumors have
successfully evaded the patient’s immune system. Our goal is simple—to activate a potent TSNA-targeted T cell response using
routine therapeutic interventions.
Design of Our EDGE Platform
Our Gritstone EDGE Platform
Neoantigens in tumors are created via a multi-step process starting with mutation in the cancer DNA, and leading to mutated
peptides presented by the HLA on the surface of tumor cells. To select neoantigens for immunotherapy for cancer patients, we created
our EDGE platform, which captures the essential elements of neoantigen biology via a combination of laboratory assays and
computational analyses. The two steps of our EDGE platform prediction process are shown in Figure 2 below.
Figure 2. EDGE Platform
EDGE Step 1—Mutation Identification
Identification of neoantigens requires accurate identification of tumor mutations and measurement of their expression levels in
patient cancer specimens. To achieve this, we have built an in-house next-generation sequencing laboratory to perform deep
sequencing of tumor DNA and RNA, as well as sequencing of the patient’s normal DNA. This first step in the EDGE process analyzes
routine, core needle, formalin-fixed paraffin embedded tumor biopsies and identifies tens to hundreds of tumor mutated sequences.
8
EDGE Step 2—Neoantigen Prediction
Only a small fraction of tumor mutated sequences are expected to result in actual neoantigens presented on the surface of
tumor cells. This fraction may be as low as approximately 1% of all mutations. To accurately predict which neoantigens will be
presented on the surface of tumor cells, we have generated a large dataset of HLA/peptides from human tumor and matched normal
tissue specimens. Our process isolates and sequences HLA/peptides, using the immunopeptidomics mass spectrometry approach. We
also analyze tumors for level of RNA expression of all genes. Our dataset now comprises more than 600 tumor, normal tissue, and
cell-line specimens subjected to broad (DDA) immunopeptidomics for Class I or Class II HLA. These samples span a variety of solid
cancers from patients of several ancestries to ensure broad coverage of diverse patient HLA types. Each tumor specimen can yield
thousands of HLA/peptides and the total dataset has now grown to >3 million (>1.5 million unique) HLA-presented peptides.
We use a subset of these and selected published peptide datasets to train a machine-learning model for Class I neoantigen
prediction in our EDGE platform. The model learns the critical DNA/RNA sequence features and other factors like RNA expression
that lead to a greater likelihood of peptide presentation by the HLA. Our EDGE model analyzes mutated peptides in turn and
calculates the probability that the peptide will be presented by the patient’s HLA on the surface of the tumor cell, or HLA-presented
peptides. We prioritize mutations with the highest probability of presentation for inclusion in that patient’s personalized
immunotherapy. A schema of EDGE model training and clinical application are illustrated in Figure 3 below. Given that HLA Class I
presentation is most common in solid tumors, we initially focused on collecting data and training EDGE to predict HLA Class I
peptides. Recently, EDGE was extended to also predict HLA Class II peptides and thus allow identification of neoantigens presented
by the patient’s professional antigen presenting cells (APCs), which we believe may strengthen the anti-tumor immune response
further.
Figure 3. EDGE Model Training and Application
EDGE Neoantigen Prediction Performance
Accurate TSNA prediction is critical for our personalized immunotherapy, and we have evaluated the prediction performance
of our EDGE model in two ways. First, we assessed the ability of the EDGE model to predict HLA presented peptides. We then tested
whether the ability to predict HLA presented peptides translated into the ability to predict which mutations give rise to neoantigens
with tumor-relevant T cell responses in patients. These results were initially published in Nature Biotechnology (Bulik-Sullivan et al.,
Nature Biotech., (2018)) and updated in follow-on internal analyses throughout 2019.
9
Prediction of HLA-Presented Peptides
To assess EDGE model performance for prediction of HLA presented peptides, we used five tumor samples with
HLA/peptides measured by mass-spectrometry that were not included in model training. For these test specimens, we predicted which
peptides are likely to be presented on the tumor cell surface. We evaluated the quality of our predictions by calculating the positive
predictive value, or PPV, which is the fraction of predicted peptides that were detected on the tumor HLA. As a benchmark, we
compared performance of our prediction to that of a leading open source tool. Averaged over the test samples, our EDGE platform
achieved a PPV of greater than 70%, representing an approximately 9-10-fold improvement over standard methods, as shown in
Figure 4 below. We believe that TSNA selected by our EDGE platform have a much higher likelihood of being useful targets for
immunization than those selected using previous methods.
Figure 4. Performance of EDGE Model for HLA/Peptide Prediction
Prediction of TSNA with T Cell Responses in Patients
To show that our prediction of HLA/peptide presentation enables prediction of tumor-specific neoantigens that can be targeted
by T cells in patients, we assembled a large test set of independently validated, published neoantigens. The dataset comprised five
studies from the literature, including 45 patients with melanoma, gastro-intestinal cancers and breast cancer who had CD8 responses
against one or more neoantigens in their tumor. In these patients, over 5,000 mutations were comprehensively analyzed for anti-tumor
immune response using either tumor-infiltrating lymphocytes (TIL) or activated T cells from the blood. 71 mutations were
demonstrated to result in neoantigens. Applying our EDGE model to select the top mutations for each patient from DNA/RNA
sequence alone to simulate GRANITE production, we found that EDGE was able to prioritize the majority of these validated
neoantigens and outperformed the public approach.
10
These results are illustrated in Figure 5 below.
Figure 5. EDGE Platform Identification of TSNA for Immunization in 45 Patients
Ongoing EDGE Platform Validation
To further validate our EDGE platform’s ability to identify TSNA in patients, we also analyzed peripheral blood obtained from
NSCLC and prostate cancer patients receiving PD-(L)1 checkpoint inhibitors, wherein T cell recognition of predicted TSNA is
assessed. This process is shown in Figure 6 below.
Figure 6. Gritstone Analysis of Neoantigen T Cell Responses in NSCLC Patients
Data from this study have shown that our EDGE platform identified TSNA-specific T cells in a majority (9/13, 69%) of
patients tested, with an average of two peptides recognized per patient in patients with detectable TSNA-specific T cells.
Genomic and immune response data from our clinical trials will serve to further validate and refine our EDGE platform.
Our Personalized Tumor-Specific Neoantigen Therapy
Overview
Our therapeutic hypothesis is that treatment with personalized TSNA-containing vectors combined with immune checkpoint
inhibitor therapy will generate de novo, or augment existing, selective, TSNA-specific T cell response, unleashing the natural power of
the immune system on tumor cells, potentially improving efficacy without a substantial increase in off-tumor toxicity. Our
personalized immunotherapy candidates are designed to fit easily into a community oncology setting and to be administered in earlier
11
lines of treatment rather than only in refractory or relapsed cancers. We have designed our personalized immunotherapy candidates
such that oncologists will not have to alter their treatment practices, and we believe that this will extend the utility of our product
candidates, if approved, into the community setting and not limit their use to scarce centers of excellence. We believe that as a result
of its design, our personalized immunotherapy candidate has the potential to expand the efficacy of immunotherapy into broader
patient populations.
Gritstone is developing two forms of personalized immunotherapy, both of which are in clinical testing. The first, represented
by the SLATE product class, involves the administration of a neoantigen therapy containing shared neoantigens derived from common
driver mutations such as in KRAS and TP53. To be a candidate for SLATE, a patient must first be assessed by asking two questions:
(1) does their tumor genome contain a DNA mutation represented within the SLATE cassette; and (2) do their cells express a specific
HLA molecule that can present a particular mutated peptide as a neoantigen on the tumor cell surface? The tumor genome is routinely
studied in contemporary oncology clinical practice either using a tumor DNA gene panel test (as offered by Foundation Medicine,
Tempus, Personalis, etc.) or using a peripheral blood gene panel that probes blood for the presence of mutant tumor-derived DNA (as
offered by Guardant, etc.). HLA typing is routinely performed by most academic centers on a 3-5 ml peripheral blood sample.
Consequently, screening patients takes approximately one week, and SLATE is designed to start very soon after a mutation/HLA
match has been identified.
The second personalized immunotherapy from Gritstone is the GRANITE product candidate. This requires a routine tumor
biopsy sample to be sent to Gritstone for sequencing, followed by personalized product manufacturing, with a neoantigen cassette
designed uniquely for that patient. This process is described in more detail below.
Our Portfolio
We are developing a portfolio of cancer immunotherapy product candidates aimed at the highly targeted activation of tumor-
specific T cells in solid tumors. Our leading two clinical-stage programs aim to induce a substantial neoantigen-specific CD8+ T cell
response using neoantigen-containing immunotherapies. Earlier in development is our bispecific antibody program which aims to
redirect and activate the patients’ own T cells adjacent to tumors using tumor-specific HLA-peptide complexes as targets. Multiple
HLA-peptide targets are under consideration for this program. T cell receptors, or TCRs, against such HLA-peptide complex targets
also have potential therapeutic value if deployed in a cell therapy platform. We have elected not to develop an in-house cell therapy
platform at this point, and instead we are using this approach in partnership with bluebird and their adoptive cell therapy platform. The
internal programs are described in more detail below.
“Off-The-Shelf” Neoantigen-Directed Immunotherapy Product (SLATE) Product Concept
Using our EDGE platform, we are identifying novel neoantigens arising from genes which are recurrently mutated in cancer
because their function is altered in a cancer-promoting manner. Such mutations are termed driver mutations, and they are well
characterized given their importance as functional drug targets. Examples include activating mutations in KRAS or EGFR genes
which drive cell proliferation and/or growth, and inactivating mutations in genes such as TP53 and APC which normally limit DNA
damage or cell proliferation, respectively. As noted above, the existence of a neoantigen is determined by the combination of a
mutated peptide and the presenting HLA molecule. It has been demonstrated that a common KRAS mutation (G12D), often found in
colorectal cancer, could be processed by tumor cells and presented as a functional neoantigen by tumor cells carrying the HLA-
C*08:02 protein. This combination of KRAS mutation and HLA is estimated to be found in 1-2% of colorectal cancer patients. KRAS
mutations are also common in lung and pancreatic cancers.
12
Building on this observation, we have applied our EDGE antigen prediction model to common tumor driver mutations and
common Class I HLA alleles, and predicted a large set of candidate shared neoantigens. We have validated several of these predicted
candidate neoantigens using mass spectrometry analysis of patient-derived human tumor samples wherein we directly detect a
predicted HLA-peptide complex. We have also developed a cell-line system to more efficiently assess predicted shared neoantigens
and determine their validity. These data were presented publicly at the SITC conference in November 2019 and Table 1 shows the
shared neoantigens, many novel, validated in clinical samples at that point and included in SLATE.
Table 1
Population genetic analyses suggest that while each such shared neoantigen may only be found in less than 5% of patients with
a particular tumor type, our heterologous prime-boost can deliver at least 20 of these TSNA, which we believe has the potential to
result in the off-the-shelf product having an addressable population of approximately 10-15% of patients within common solid tumor
types such as colorectal cancer and lung cancer. Our off-the-shelf product candidates, the first of which in development is SLATE-,
13
are designed to be specific to a particular tumor type(s), and the TSNA cassette is fixed for each product. The process for determining
which patients are eligible for SLATE therapy is illustrated below in Figure 7.
Figure 7. Gritstone’s Prime/Boost Platform Enables Multiple Product Options Including Gritstone’s Off-The-Shelf
Immunotherapy Platform, SLATE
Both of our personalized immunotherapy product candidates, SLATE and GRANITE, use a 20-neoantigen (TSNA) cassette
within the same heterologous prime-boost system comprising a viral-vector based prime and SAM boosts. The vector system and its
associated pre-clinical data are described below. SLATE entered Phase 1 clinical testing in August 2019 and early clinical data are
presented below.
14
Our “N of 1” Neoantigen-Directed Immunotherapy Product (GRANITE) Product Concept
Our GRANITE personalized immunotherapy process leverages our proprietary EDGE platform to predict the TSNA that will
be presented on a patient’s tumor, allowing us to create a patient-specific (termed “N of 1”) heterologous prime-boost immunotherapy
candidate that is designed to elicit a potent anti-tumor T cell response. This process is outlined in Figure 8 below.
Figure 8. Gritstone’s GRANITE Personalized Immunotherapy Process
Step 1—Routine Biopsy
Most cancer care takes place in a community oncologist’s office rather than an academic center, and we believe products
should ideally be designed to be usable in these settings. We are designing and developing our product candidate for administration
early in the cancer treatment paradigm, particularly where disease burden is low and a cure is perceived to be more likely. Such early
care is also heavily weighted to the community oncologist setting. Consequently, our product development process necessarily begins
with a routine biopsy to obtain a specimen of the tumor with a standard needle biopsy performed by an oncologist or radiologist.
Step 2—Sequencing
We then apply customized deep-sequencing and bioinformatic processes in-house to the patient’s tumor biopsy specimen and
blood to derive high-quality DNA and RNA sequence information and identify tens to hundreds of tumor mutations.
Step 3—Neoantigen Prediction
This tumor mutation sequence data is then entered into our proprietary EDGE platform. Our evolving artificial intelligence
platform then predicts the TSNA most likely to be presented on the tumor cell surface.
Step 4—Personalized Immunotherapy
We assemble the predicted TSNA into a patient-specific “cassette.” The cassette is incorporated into our heterologous prime-
boost personalized immunotherapy candidate, which is manufactured and filled into a vial.
Step 5—Simple Injection
The vial is then shipped to the oncologist’s office where it is delivered to the patient by simple intramuscular injection. Our
personalized immunotherapy candidate is designed to be administered in combination with standard checkpoint inhibitors to drive
large numbers of TSNA-specific T cells to the tumor site, where they remain active.
15
Antigen Delivery System for SLATE and GRANITE – Heterologous Prime-Boost
Our therapeutic goal with both SLATE and GRANITE is to drive a large and sustained T cell response against all TSNA
presented on a patient’s tumor. Cancer patients may have pre-existing memory T cells directed against some of the TSNA delivered
within the neoantigen cassette in their personalized immunotherapy. Boosting such pre-activated TSNA-specific T cells requires less
antigen-specific stimulation than priming naïve T cells that have not yet been activated against their respective neoantigen.
Importantly, early clinical data in the field suggest that for the majority of TSNA within the immunotherapy cassette, priming naïve T
cells will be required to mount a large and broad immune response. Priming naïve T cells is a multi-step process that requires a potent
antigen delivery platform able to deliver cassette neoantigens in a highly immunogenic manner.
Human infectious disease vaccine experience has taught us that delivering antigens within an adenoviral vector can prime a
substantial T cell response consisting of cytotoxic CD8+ T cells and CD4+ T-helper cells. We believe an adenoviral vector is one of
the most potent antigen-delivery platforms to prime naïve T cells. Peptide vaccination has not been able to accomplish this goal.
We believe that continued strong immune pressure upon the tumor is likely necessary to prevent immune escape by the tumor
and drive a durable clinical response. To sustain high numbers of tumor-specific T cells, the same tumor-specific antigen can be given
in a different vector from that used to prime, as a boost immunization. This heterologous prime-boost concept has been shown to
activate and sustain high antigen-specific T cell responses, as shown in Figure 9 below.
Figure 9. Comparison of Heterologous Prime-Boost with Homologous Prime-Boost and Prime Alone
Our Construct
Our personalized immunotherapy candidates consist of (1) a prime vector and (2) a boost vector, both of which contain (3) a
20-neoantigen cassette:
1. Prime Vector. The prime vector is a chimpanzee adenovirus, or ChAdV. There is extensive clinical experience with the
ChAdV vector platform in infectious disease studies over the last 20 years demonstrating that ChAdV vectors are well
tolerated and consistently generate rapid and substantial CD4+ and CD8+ T cell responses that have been shown, in a Phase
2b randomized controlled trial, to protect humans against infections such as malaria.
2. Boost Vector. The boost is a self-amplifying mRNA, or SAM, formulated in a lipid nanoparticle, or LNP. A SAM vector
comprises RNA that encodes the selected target antigens, such as TSNA, plus an RNA polymerase. After injection into
muscle and uptake into host cells, the RNA is translated into protein, and the RNA polymerase starts to replicate the
originally injected source RNA, amplifying the number of copies within the cells dramatically. This leads to production of
large amounts of the delivered target antigens. During the RNA replication, RNA structures that are foreign to a normal cell
are generated, which drives a strong danger signal to surrounding immune cells, triggering an early immune reaction (innate
immune response). The presence of large quantities of antigen in an immune-stimulating environment drives profound
antigen-specific T cell responses (adaptive immune responses). This approach is fundamentally distinct from using mRNA,
which does not possess these attractive properties.
16
3. Neoantigen Cassette. Within each of the two vectors used for the prime and boost immunizations, we include a cassette that
contains 20 neoantigens. We have designed the cassette to contain 20 TSNA based on several considerations, including
TSNA prediction performance, breadth of the tumor-specific immune response but potential immune competition and
manufacturing factors. For SLATE, the cassette is fixed for all patients, and contains common driver mutations which are
known to be processed and presented by certain HLA molecules as neoantigens which are shared between some patients.
For GRANITE, the cassette is designed and made uniquely for each patient based upon their tumor sequence data and
EDGE-based TSNA predictions. Most SLATE patients’ tumors will only present a single neoantigen contained within the
shared cassette. In contrast, although all of the mutations in a GRANITE cassette are contained within the patient’s own
tumor and can activate T cell responses post immunizations, it is expected that some of the delivered mutations, while
present in the tumor genome, will not be processed and presented as a tumor cell surface neoantigenic HLA-peptide
complex. We expect this to be acceptable since these sequences are not wild-type (found in normal cells) and therefore only
an irrelevant mutated peptide-specific immune response is expected to be elicited.
The prime and boost immunotherapy construction is depicted in Figure 10 below.
Figure 10. Prime and Boost Immunotherapy Construction
Our current manufacturing process includes Gritstone and qualified third-party contract manufacturing organization, or CMO,
sites that are designed to operate under cGMP requirements. In 2019, we continued to build the internal capability to manufacture our
products entirely using internal facilities and staff for reasons of process improvement, intellectual property development, economic
advantage, logistical flexibility, control of drug quality and security of drug supply. In brief, this manufacturing process includes
tumor sequencing and TSNA prediction (for GRANITE), TSNA cassette design and synthesis, production of TSNA cassette plasmid
and subsequently ChAdV and SAM manufacture containing the TSNA cassette, lipid nanoparticle encapsulation of the SAM, and
some elements of release testing. Although we have developed these capabilities, we will assess on an ongoing basis which aspects
will continue to be outsourced, and these may change over time. SLATE manufacturing, as a fixed, “off-the-shelf” product, is not
time-sensitive and is relatively straightforward operationally. GRANITE, on the other hand, is an “N of 1” product and is
manufactured in real-time for each patient, which involves a greater logistical burden. The GRANITE manufacturing process starts
when tumor samples are received by our sequencing lab in Cambridge, Massachusetts. Our EDGE platform is used to select 20
appropriate genetic sequences for neoantigen manufacturing, and these genetic sequence cassettes are inserted into plasmid
backbones. The ChAdV vector, which encodes the genetic sequence in the cassette, is sent to our Pleasanton, California facility for
manufacturing the prime immunotherapy, and the SAM vector, which encodes the genetic sequence in the cassette, is used for
manufacturing the boost immunotherapy. This end-to-end process, from biopsy receipt to shipment of the personalized heterologous
prime-boost immunotherapy to the clinical site for patient administration, initially takes approximately 16-20 weeks. This period is
broadly consistent with the stated production and release times for other personalized immunotherapy approaches (mRNA or peptide)
described in the literature and, importantly, acceptable for deployment in early treatment of cancer patients in the adjuvant setting
where clinical urgency is lower as compared to the relapsed or refractory late stage setting in which adoptive T cell therapy may be
utilized.
17
Our Preclinical Non-Human Primate Data
Our goal is to drive a large and sustained TSNA-specific T cell response to control tumor growth and/or eradicate the tumor.
Published data from adoptive T cell therapies provide preliminary guidance on clinically efficacious T cell levels in patients. These
studies suggest that T cell levels of approximately 10,000 antigen-specific T cells per milliliter of blood measured in patients four
weeks post-infusion indicate clinical benefit.
We have focused our preclinical program on assessing the potency of our immunotherapy candidate in non-human primates, or
NHPs, because published data suggests that NHPs’ immune responses to our immunotherapy candidate will better predict human data
than murine models due to the comparative similarities between NHP and human immune systems. Preclinical and clinical studies
have shown that T cell responses induced in NHPs were predictive of responses in human clinical trials—the same relative potency
was observed for different vaccinations in NHPs and humans. In these studies, a small 1.5- to three-fold decrease in absolute T cell
response was measured when comparing NHPs to humans. By contrast, murine models, while simple, have been shown to be less
likely to predict outcomes of cancer immunotherapy in humans, believed to be due to the many differences in immune system
components between humans and mice.
We have completed two preclinical studies in NHPs to demonstrate the ability of our heterologous prime-boost
immunotherapy approach to prime a potent immune response against the non-self model antigens delivered within the cassette. We
constructed ChAdV and SAM vectors encoding viral, non-self model antigens because NHPs do not have tumors or TSNA. These
antigens are derived from Simian Immunodeficiency Virus (SIV) which is the monkey-tropic version of Human Immunodeficiency
Virus (HIV). We collected blood samples, which include T cells, throughout the studies pre- and post-immunization to measure the
kinetics and level of T cell responses specifically directed against the model antigens. T cells were isolated from the blood and the
number of antigen-specific T cells are reported as spot forming cells, or SFCs, per 106 peripheral blood mononuclear cells, or PBMCs,
which is a measure of the number of antigen-specific cytokine secreting cells (typically T cells) in an NHP. CD8+ T cells comprise
one of the critical fractions of T cells quantified with this T cell assay.
In our experiments, the NHPs immunized with ChAdV showed a rapid priming of T cell responses that peaked 14-21 days
after immunization with combined immune responses to all six non-self model antigens of approximately 2,000 spot-forming cells, or
SFCs, per 106 PBMCs. These data are consistent with immune responses reported in the literature for adenoviral vectors.
Administration of a SAM boost, four weeks after the ChAdV prime, increased T cell responses approximately two-fold, with
combined immune responses to all six non-self model antigens of approximately 4,000 SFCs per 106 PBMCs measured seven days
after the SAM boost, as shown in Figure 10 below. These T cell responses increased further after a second SAM boost at week 12, to
around 5,000 SFCs per 106 PBMCs and were maintained at these levels for four weeks without further boosts. T cell responses to each
individual antigen were broadly comparable in magnitude for four of the six antigens administered. We anticipate that this breadth of
T cell response against multiple antigens delivered within the cassette will be essential for the control of tumors within a patient.
Figure 11. Immune Response in NHPs to Heterologous Prime-Boost Immunotherapy Without Co-Administration of
Checkpoint Inhibitors
18
The literature suggests that the addition of immune checkpoint inhibitors increases T cell expansion when combined with a
vaccine. To study this concept, we administered our immunization to NHPs in combination with the checkpoint inhibitor anti-CTLA-
4. Co-administration of anti-CTLA-4 monoclonal antibodies, or mAb, with the ChAdV immunotherapy significantly increased
ChAdV priming with a combined T cell response of approximately 7,500 SFCs per 106 PBMCs observed four weeks after
immunization, as shown in Figure 12 below. The SAM boost administered four weeks after the prime immunization with anti-CTLA-
4, increased the antigen specific T cell response further, reaching T cell levels greater than 10,000 SFCs per 106 PBMCs. A second
SAM boost in combination with the anti-CTLA-4 antibody given eight weeks after the first boost immunization expanded the antigen-
specific T cells further to peak levels reaching greater than 14,000 SFCs per 106 PBMCs one week after the boost which were
maintained at levels between 9,000-10,000 SFCs per 106 PBMCs for several weeks. Thus, our heterologous prime-boost
immunotherapy approach induced T cell numbers between 5,000-14,000 SFC per 106 PBMCs that were sustained over 16 weeks.
Figure 12. Immune Response in NHPs to Heterologous Prime-Boost Immunotherapy in Combination with Checkpoint
Inhibitor Anti-CTLA-4
In order to compare the number of robust antigen-specific T cells induced by our heterologous prime-boost approach in NHPs
directly to the literature data from adoptive T cell therapies, we converted our units of SFCs per 106 PBMCs to units of CD8+ T cells
per milliliter of blood and plotted them against the T cell data from various clinical studies (which we also converted, where
necessary, to T cells per milliliter of blood). One milliliter of blood is estimated to contain around three million PBMCs. The
comparative data suggest that the antigen-specific CD8+ T cell numbers reached with our immunotherapy in NHPs (shown in the
leftmost bar of Figure 13 below) is in the range of the T cell levels achieved in cancer patient clinical responders to adoptive T cell
therapies (shown in the three rightmost bars in Figure 13 below), even when anticipating a 1.5- to three-fold decrease in the number of
T cells induced in humans versus NHPs (as noted in the literature). Such substantial T cell numbers have not, to our knowledge, been
reached with a therapeutic cancer vaccine in clinical studies to date. Furthermore, in addition to priming numerically substantial T cell
responses against the cassette neoantigens, our immunotherapy regimen has been shown to induce T cells of high functional quality in
NHPs, with a cytokine secretion profile seen in highly functional and cytotoxic T cells.
19
Figure 13. Comparison of Number of T Cells Induced by Our Immunotherapy in NHPs to Number of T Cells Observed in
Clinical Responders to Adoptive T Cell Therapies
We believe that continued immune pressure upon the tumor is likely necessary to prevent immune escape by the tumor and
consequently drive a durable clinical response. High T cell titers persisting for at least six months were induced by the heterologous
prime-boost immunotherapy approach in combination with anti-CTLA-4, as shown in Figure 14 below.
Figure 14. Gritstone’s Immunotherapy Platform ChAdV + SAM + anti-CTLA-4
A subset of these same monkeys was studied two years after their first priming injection, to determine persistence of antigen-
specific T cells and presence of T cell memory. A strong memory population of T cells was detected (Figure 15) and when the
monkeys were re-boosted with SAM and ipilimumab, a very strong CD8+ SIV antigen-specific T cell boost response was elicited,
such that an average of approximately 12% of peripheral CD8+ T cells were specific to our six administered antigens (Figure 16).
The boosted antigen-specific CD8+ T cells demonstrated strong cytolytic activity as shown in a killing assay two weeks after the boost
(Figure 17).
Figure 15. Antigen-specific T cell response in NHP 2-years post vaccination demonstrates large T cell memory population
20
(Left) IFN ELISpot (spots per million PBMCs) for six SIV antigens for each animal two-years post-immunization. (Right)
Percentage of each T cell population out of all antigen-specific T cells (as measured by tetramer staining) at two-years post-
immunization (average of six animals). Naïve (CD45RA+CCR7+), Teff (CD45RA+CCR7-), Tem (CD45RA-CCR7-), Tcm
(CD45RA-CCR7+)
Figure 16. Re-immunization of NHP 2-years post-prime results in strong increase in antigen-specific T cell response
IFN ELISpot (spots per million PBMCs) for six SIV antigens for each animal two-years post immunization (Left) and one-
week post re-immunization with SAM and ipilimumab (Right). Red stars represent antigens that were too numerous to count and were
set to the maximum detectable value.
Figure 17. Re-immunization of NHP, 2-years post-prime, expands antigen-specific T cells with cytolytic activity
Effector T cells enriched from PBMCs 2 weeks post immunization were combined at the specified ratio with peptide loaded
CFSE stained PBMCs, for each animal, and incubated for six hours. Target cell death was measured by 7-AAD staining. SIV-Target
cells loaded with six SIV antigens encoded by the immunotherapy, WLS - target cells loaded with negative control peptides, not
encoded by the immunotherapy.
21
Safety
We have performed a ten-week toxicity study governed by Good Laboratory Practice, or GLP, regulations of the ChAdV and
the SAM prime-boost in NHPs to assess safety. The heterologous prime-boost immunotherapy, when administered intramuscularly,
was well tolerated at the clinical maximal dose of each therapy.
Clinical Development and Early Data
We are employing an innovative and flexible clinical study design which is similar for both SLATE and GRANITE in an
effort to execute a potentially faster-to-market strategy in a rapidly evolving and competitive treatment landscape. In order to
accelerate the execution of our Phase 1 and Phase 2 program, we are using a seamless Phase 1/2 trial design. A seamless design refers
to an integrated Phase 1 and Phase 2 trial protocol that allows rapid transition following dosing and tolerability confirmation during
the Phase 1 portion to establishing proof-of-concept in the Phase 2 cohort expansion portion without compromising patients’ safety or
incurring delay for analysis or approval. Data obtained from the Phase 1/2 trials will inform the design and initiation of Phase 2/3
studies with registrational intent in the metastatic and adjuvant settings in specific tumor types, for both programs. Advanced
pancreatic cancer, NSCLC and MSS-colorectal cancer are the initial target indications for SLATE, since KRAS mutations are
common in these tumor types, and the SLATE cassette contains a large number of KRAS mutations. There is also a cohort for patients
with other solid tumor types who possess the appropriate combination of tumor mutations and HLA type. Advanced NSCLC and
gastroesophageal, bladder and MSS-colorectal cancers are the initial target indications for the Phase 1 portion of our GRANITE
clinical trial. These indications have been selected for several reasons, including high mutational load, response to checkpoint
inhibitors, large patient populations, manufacturing time, emerging treatment landscape, regulatory pathway, the ability to combine
personalized immunotherapies with immune checkpoint inhibitors and the potential opportunity to generate de novo immune
responses and/or amplify existing anti-tumor T cell responses in order to improve the depth and durability of clinical responses.
Our Phase 1/2 Trial of “Off-the-Shelf”, Shared Neoantigen Immunotherapy Candidate, SLATE (GO-005)
The IND for SLATE was cleared by the FDA in August 2019. GO-005, a Phase 1/2 trial, began enrolling patients in August
2019. Based on the importance of KRAS as a shared neoantigen, GO-005 is focused on enrolling patients with advanced MSS
colorectal cancer, lung adenocarcinoma and pancreatic ductal adenocarcinoma in whom KRAS mutations are common. A fourth
cohort of potentially eligible patients consists of those with any type of tumor that harbors one of the 20 driver mutations encoded in
the SLATE cassette. The key to appropriate utilization of the “off-the-shelf” product candidate is to accurately identify patients whose
tumors contain at least one of the TSNA represented within the SLATE neoantigen cassette. The widespread use of tumor mutation
panel sequencing in advanced cancer has enabled the routine identification of such patients, and complementary assessment of a
patient’s HLA type is a standard clinical test, performed using a simple blood draw, and completed within 7-10 days by a clinical
immunology laboratory. Our preliminary estimates of the addressable patient population in these diseases range from 10 to 15% of
the population and above (Figure 18).
22
Figure 18. Examples of SLATE patient selection for KRAS mutations
The Phase 1 portion of our Phase 1/2 trial seeks to establish a dose for further investigation in the Phase 2 portion and to
evaluate safety, tolerability and, importantly, immunogenicity of our lead product candidate. Efficacy signals may not be interpretable
during the Phase 1 portion. Thus, we will seek to further evaluate efficacy and safety in the Phase 2 cohort expansion portion in
several common solid tumor types. Like the Phase 1 portion of GO-004 (GRANITE), patients receive an initial administration of
ChAdV as a prime at a fixed dose of 1012 viral particles throughout the study, succeeded by multiple dose levels of SAM boosts
(heterologous prime-boost). Dose levels of SAM start at 30 g (Dose Levels 1 and 2) and are escalated to 100 g (Dose Level 3) and
to 300 g (Dose Level 4), safety permitting. All patients receive anti-PD-1 intravenously throughout the study at the approved label
dose (480 mg every 4 weeks). Co-administration of a fixed, low dose of 30 mg of subcutaneous anti-CTLA-4 with ChAdV prime and
SAM boosts is initiated once Dose Level 1 has been cleared. The rationale for earlier introduction of ipilimumab in SLATE’s dose-
escalation scheme is to optimize T cell activation and proliferation at the lowest dose of SAM and account for the fact that only one
TSNA may give rise to CD8 T cells in SLATE patients compared to GRANITE’s multiple, personalized TSNAs.
The manufacturing of the SLATE product is carried out using our current supply chain. The “off-the-shelf” design of the
SLATE product allows us to leverage our processes developed for personalized products.
As of January 14, 2020, 4 patients have been enrolled at Dose Levels 1 and 2. Patients are aged 33 to 83 years (mean 62
years). The first three patients have NSCLC harboring the KRAS G12C mutation. The fourth patient has MSS-CRC with a KRAS
Q61-H mutation. Three patients have previously been exposed to an anti PD-1 mAb. Cumulated doses across patients are four doses
of ChAdV, six doses of SAM, ten doses of nivolumab and four doses of ipilimumab. Overall, the safety findings to date have been
consistent with reversible, acute phase immune reaction including fever and injection site reactions. No dose-limiting toxicities have
been observed to date. A summary of demographics and safety observations are presented in Table 2.
23
Table 2. Interim Phase 1 data showed SLATE prime/boost immunotherapy in combination with nivolumab has been well
tolerated to date with adverse events indicative of an inflammatory response
Contingent upon enrollment rate and safety findings, we expect to complete the Phase 1 portion of GO-005 in mid-2020 and
initiate the Phase 2 portion in the second half of 2020, where we will administer the heterologous prime-boost regimen in combination
with intravenous anti-PD-1 mAb and subcutaneous anti-CTLA-4 at the recommended Phase 2 dose established during Phase 1. The
Phase 2 portion of GO-005 will consist of single-arm Phase 2 cohorts in three advanced tumor types including “cold” tumors where
checkpoint inhibitors alone have trivial efficacy (such as 3d line MSS colorectal cancer), advanced pancreatic ductal adenocarcinoma
in maintenance following 1st line chemotherapy and NSCLC progressing after immunotherapy with checkpoint inhibitors with
stratification between primary refractory and secondary resistant patients. An interim analysis with go/no-go decision based on
response rate compared to historical controls will guide further expansion in single-arm cohorts designed to support further
development under the accelerated approval pathway.
We believe that neoantigen-based immunotherapy should ideally be administered in earlier lines of treatment, in the context of
minimal residual disease and an optimal immune system. Depending on the safety profile observed during the Phase 1 portion of GO-
005 and in parallel to single-arm cohort expansions in the Phase 2 portion of GO-005, we are considering options to conduct
randomized Phase 2 trials in the (neo)adjuvant setting of unresectable or resectable lung, pancreas or colorectal (MSS) tumors at high-
risk of relapse. We expect to initiate randomized Phase 2 trials in the (neo)adjuvant setting in the first half of 2021 pending
authorization from health authorities after discussion of our Phase 1 data.
Of note, SLATE is designed to offer the additional opportunity to isolate tumor infiltrating CD8+ T cells from patients with
objective tumor responses. One or several TCRs with demonstrated efficacy and safety in vivo against the driver mutation contained
in our SLATE product candidate may be isolated and characterized. In turn, these TCRs could be used to engineer T cells from other
patients whose tumor harbors the same driver mutation and HLA Class I allele, in an effort to expand the specificity of these effectors
beyond our active SLATE immunotherapy approach.
Our Phase 1/2 Trial of Personalized Immunotherapy candidate, GRANITE (GO-004)
In September 2018, our IND for our “N of 1” product candidate, GRANITE, was cleared by the U.S. Food and Drug
Administration, or FDA, and in December 2018, the FDA granted Fast Track designation to GRANITE for the treatment of colorectal
cancer. In the fourth quarter of 2018, we initiated our first-in-human, Phase 1/2 trial, which we refer to as GO-004, with investigation
of intramuscular heterologous prime-boost immunization with ChAdV and SAM in combination with mAb to PD-1 and CTLA-4. Our
Phase 1/2 trial is actively enrolling newly diagnosed, advanced lung, gastroesophageal and bladder cancer patients who are receiving
first-line chemotherapy treatment. Production of the immunotherapy takes place while patients are receiving their initial
chemotherapy. Patients subsequently receive our experimental, personalized immunotherapy candidate in combination with
checkpoint inhibitors as either maintenance therapy or second-line therapy. Patients with relapsed colorectal cancer patients with MSS
tumors have trivial responses to current immunotherapies (Le at al., New England Journal of Medicine (2015)) and are also eligible
for GO-004 if their tumor has been predicted to have adequate TSNA to merit inclusion in our program using our EDGE model. We
24
exclude patients who have large mutational loads and are well served by currently approved immunotherapy, such as melanoma
patients and those with colorectal cancer with microsatellite instability. The Phase 1 portion of our Phase 1/2 trial seeks to establish a
dose for further investigation in the Phase 2 portion and to evaluate safety, tolerability and, importantly, immunogenicity of
GRANITE. Efficacy signals may not be interpretable during the Phase 1 portion of GO-004. Thus, we will seek to further evaluate
efficacy and safety in the Phase 2 cohort expansion portion of GO-004 in several common solid tumor types.
We believe co-administration of checkpoint inhibitors with personalized immunotherapy is a rational way to augment the T
cell response and potential efficacy of the therapeutic regimen. Use of mAb to PD-1 is believed to unleash T cells which have been
functionally silenced in tumor tissue by local PD-1 expression. Administration of antagonistic mAb to CTLA-4, an early inhibitory
marker of T cell activation, has been shown to broaden the T cell response. Local subcutaneous administration of anti-CTLA-4
provides high drug concentration in the vaccination site-draining lymph node while minimizing systemic exposure, which we believe
will optimize the benefit-risk ratio of our experimental regimen. Nivolumab, an anti PD-1 mAb, and ipilimumab, an anti CTLA-4
mAb, are provided by our collaborator, BMS.
Patients in this trial receive an initial administration of ChAdV as a prime at a fixed dose of 1012 viral particles throughout the
study, succeeded by multiple dose levels of SAM boosts (heterologous prime-boost). Dose levels of SAM start at 30 g (Dose Level
1) and are escalated to 100 g (Dose Levels 2 and 3) and to 300 g (Dose Level 4), safety signals permitting. All patients receive anti-
PD-1 intravenously throughout the study at the approved label dose of 480 mg every 4 weeks. Co-administration of a fixed, low dose
of 30 mg of subcutaneous anti-CTLA-4 with ChAdV prime and SAM boosts is initiated once Dose Level 2 has been cleared. A total
of 8 boosts are planned.
Figure 19 below illustrates the Phase 1 portion of our Phase 1/2 trial design (GO-004).
Figure 19. Phase 1 Portion of Phase 1/2 Design (GO-004)
The ongoing Phase 1 portion of GO-004 examines the safety, tolerability, dose, immunogenicity and early efficacy of the
combination of the immune checkpoint inhibitors nivolumab and ipilimumab with GRANITE
As of January 6, 2020, six patients have been enrolled at Dose Levels 1 and 2. Patients are aged 50 to 76 years (mean 66
years). Tumor types include NSCLC (one patient), MSS-CRC (two patients) and GEA (three patients). One patient has previously
been exposed to an anti PD-1 mAb. Cumulated doses across patients are six doses of ChAdV, 20 doses of SAM, 24 doses of
nivolumab (one patient skipped two doses due to skin toxicity) and 1 dose of ipilimumab. Overall, the safety profile to date is
consistent with reversible, acute phase immune reaction encompassing fever (including one patient with two transient Grade 2 severe
adverse events), injection site reactions and skin rashes. One patient presented with self-limiting asymptomatic Grade 3 creatinine
kinase elevation of unknown etiology. No dose-limiting toxicities have been observed to date. Summary of demographics and safety
observations are presented in Table 3.
25
Table 3. Interim Phase 1 data showed GRANITE prime/boost immunotherapy in combination with nivolumab has been well
tolerated to date with adverse events indicative of an inflammatory response
As of January 2020, immunogenicity data is available for four of the six patients treated at Dose-Levels 1 and 2. Overnight
IFN ELISpot assays against each patient’s own 20 TSNA shows neoantigen-specific CD8 T cell responses two to four weeks after
priming that are further enhanced with subsequent boosts to levels ranging from 100 to 3,000 spots/106 PBMCs. Broad polyfunctional
CD8 T cell responses to multiple neoantigens are observed including de novo priming of T cells.
Depending upon enrollment rate and safety signals, we expect to complete the Phase 1 portion of GO-004 during the third
quarter of 2020. Additional immunogenicity, safety and preliminary efficacy data will be presented at a conference in 2020.
Upon completion of the Phase 1 portion of GO-004, we will aim to demonstrate proof-of-concept in the Phase 2 portion where
we will administer the heterologous prime-boost regimen in combination with intravenous anti-PD-1 mAb and subcutaneous anti-
CTLA-4 at the recommended Phase 2 dose established during Phase 1. The Phase 2 portion of GO-004 is expected to begin in the
second half of 2020 and will consist of single-arm Phase 2 cohorts in at least two advanced tumor types including “cold” tumors
where checkpoint inhibitors alone have low (such as 2d line gastroesophageal cancer) to no (such as 3d line MSS colorectal cancer)
efficacy. An interim analysis with go/no-go decision based on response rate compared to historical controls will guide further
expansion in single-arm cohorts, which we believe may support further development under the accelerated approval pathway.
We hypothesize that personalized immunotherapy should ideally be administered in earlier lines of treatment, in the context of
minimal residual disease and an optimal immune system. Depending on the safety profile observed during the Phase 1 portion of GO-
004 and in parallel to single-arm cohort expansions in the Phase 2 portion of GO-004, we are considering options to conduct Phase 2
trials in stage III unresectable tumors, such as lung cancer and/or gastroesophageal cancer, where our personalized immunotherapy
candidates would be used as consolidation following first-line chemo-radiotherapy. Likewise, in patients with tumors at very high risk
of relapse following complete surgical resection, such as patients with colorectal cancer or non-squamous cell carcinoma of the lung,
we may use our personalized immunotherapy candidate in the adjuvant setting with the goal of preventing recurrence of their disease.
In this particularly challenging setting, we plan to use circulating tumor DNA, or ctDNA, to detect the presence of remaining tumor
cells following surgery and during adjuvant immunotherapy. We believe ctDNA technology will soon be accepted by investigators
and health authorities as a validated surrogate endpoint of efficacy alongside well-established clinical endpoints, such as metastasis-
free survival, recurrence/progression-free survival and overall survival. The specific risk-benefit profile of patients with localized,
high-risk disease will likely require discussion with health authorities based on the outcome of the Phase 1 portion of our GO-004
study. Therefore, we expect to initiate our randomized Phase 2 adjuvant study in the first half of 2021.
26
Figure 20. Potential GRANITE Phase II Design
Bispecific antibodies
Monoclonal antibodies are an important component of immune defense against disease. The most common antibody type in
humans, immunoglobulin G, or IgG, evolves within a human/patient and bears two identical arms to recognize its specific target. In
contrast to monoclonal antibodies, bispecific antibodies employ different antigen specificities within the two arms—one arm
recognizes a tumor antigen and the other recognizes immune-effector cells. We are developing bispecific antibodies using an anti-
tumor TCR-mimetic antibody arm in the form of a Fab or a single chain antibody fragment, or scFv, as the tumor-binding domain of a
bispecific antibody, thus generating a suite of bispecific antibodies capable of engaging our novel targets identified by the EDGE
platform, as illustrated by Figure 21 below.
Figure 21. Schematic representation of monoclonal antibodies and two exemplary bispecific formats.
In the above figure, variable domains are indicated as well as constant domains. Heavy chain and light chain variable domains
come together to form the antigen binding fragment. A schematic of an alternative engineered version of this single-chain variable
fragment, or scFv, is shown. BiSpecific molecules are shown comprised of normal antibody polypeptide chain pairing as well as an
example incorporating a scFv for one specificity. All of our peptide-HLA TCR-mimetic antibodies were initially identified as scFv
fragments, and they can be readily formatted as these modular binding domains or as normal antibody binding arms.
While many different bispecific antibody formats have been described, no single platform has emerged as an optimal solution
for all targets or therapeutic applications. Rather, “rules” governing optimal activity are determined empirically for a given target pair.
27
We are working to determine whether this target class has shared rules for optimal formatting and we are converging on a favored
format. Critical parameters include number of binding sites for each target, spacing among the binding sites, and engineered or
inherent properties to drive optimal serum half-life. Affinity for each target, as well as where specifically the bispecific antibody binds
each target (epitope) are also important characteristics. We have built the capability to generate large numbers of lead candidate
combinations employing our TCR mimetic antibodies formatted as scFv or as traditional antibody arms and combined with a variety
of distinct targeting arms. Additionally, we are developing critical assays to evaluate the safety and potency of novel candidates.
Finally, we are deploying state of the art development and formulation techniques to ensure selection of candidates with robust drug-
like properties for investigation. We believe these capabilities will allow efficient selection of candidates to move forward through the
optimization process.
We have generated a variety of TCR-mimetic antibodies as bispecifics with different TCR-targeting arms and have promising
in vitro proof of concept data, including binding and killing of cells displaying the peptide-HLA target.
Figure 22. Cytotoxic activity of TCR-mimetic bispecifics in vitro and in vivo.
Spheroid Cytotoxicity Assay
BiSAb Eliminates Tumor In Vivo
y
t
i
c
i
x
o
t
o
t
y
C
%
150
100
50
0
-50
0.0001
0.001
0.01
0.1
1
10
Antibody (ug/mL)
BiSAb + Target Cell
BiSAb + Negative Cell
Complete Lysis
No Lysis
)
3
m
m
l
(
e
m
u
o
v
r
o
m
u
T
200
150
100
50
0
0
10
20
30
Day
Tumor
+
PBMC
20 ug BiSAb
Single Dose
Tumor + PBS
Tumor + PBMC
Tumor+PBMC+BiSAb
The above figure illustrates in vitro and in vivo proof of concept for an exemplary BiSAb directed against a peptide-HLA
target. The left panel depicts a cytoxicity assay using an in vitro spheroid 3D tumor model. The BiSAb specifically directs T cells
from the added PBMCs to the tumor cells, which are killed by the recruited T cells. The right panel shows killing of tumors in vivo in
mice by primary human immune cells recruited to the tumor by the BiSAb. The tumor cells bear the target peptide-HLA complex. A
single dose of 20 ug of BiSAb was sufficient to eradicate tumor cells from all animals in the presence of human PBMC.
28
While we rapidly advance our internal candidates to manufacturing and ultimately the clinic, we also consider partnering. We
recognize several advantages to partnering, including experience with proprietary effector targeting arms, experience with CMC, and
assays for selection of ideal candidates. By pursuing both internal and external paths, we intend to maximize opportunities to rapidly
advance to the clinic as well as to retain internal value and position for Gritstone.
Our EDGE Antigen Identification Engine—Beyond Tumor-Specific Neoantigens
Our EDGE antigen discovery platform has also identified novel, functionally tumor-specific antigens which, as opposed to
most TSNA, are commonly shared between patients. A leading set of shared tumor antigens derives from cancer testis antigens, or
CTA, genes that are non-mutated and normally only expressed in the testis, but which can also be expressed by some tumor tissue.
The testis is an immune privileged site such that it is able to express antigens without eliciting an immune response. CTA are well
established in the literature and our approach has identified many genes, and antigens from within those genes, that may represent
novel shared-tumor antigens. Currently, tumor-specific CTA targets are limited; known HLA/peptide CTA are present in only a
fraction of patients within any given tumor type, with some tumor types exhibiting essentially no HLA/peptide targets available in the
public domain. We believe our EDGE platform has the potential to unlock these tumor types for therapeutic development by providing
novel cancer immunotherapy targets that may be exploited via several therapeutic modalities.
We are developing TCRs and antibodies that specifically recognize these novel shared tumor-specific antigens and their
corresponding HLA surface proteins. These targets can be addressed therapeutically using several different formats, such as adoptive
T cell therapy, bispecific antibody approaches and vaccination. These programs are in early development. Our TSNA and shared
tumor antigen discovery programs are shown in Figure 23 below.
Figure 23. Our TSNA and Shared Tumor Antigen Discovery Programs
TCR-Mimetic Antibodies
While TCRs are the natural biological recognition elements on T cells for a particular HLA/peptide complex, it is possible to
identify antibodies that bind with high affinity and selectivity to a particular HLA/peptide complex (Dubrovsky et al,
Oncolmmunology (2016)). These have been termed TCR-mimetic antibodies. Working with a third-party contract research
organization, or CRO, we have screened a highly diverse bacteriophage display library, and identified TCR-mimetic antibodies
against several novel CTA HLA/peptide complexes that were identified by our proprietary EDGE platform.
During the isolation process, the library was negatively selected against a panel of closely-related peptide-HLA complexes.
We identify closely-related peptides, then use EDGE to predict those potential off-target liabilities that are most likely to be displayed.
As a result, we identify highly specific leads without cross-reactivity to closely related structures. The candidate antibodies identified
bear many properties that make them attractive entities to move forward as components of lead biologic drugs. First, they are directed
against highly tumor-specific targets, allowing development of selective drugs designed to bind only to tumor, leaving normal tissues
untouched. Second, the leads exhibit good affinity, which we have further improved by directed evolution approaches as part of lead
optimization. The library was comprised of single-chain versions of antibody variable domains (scFv), responsible for antigen
binding. scFvs are ideal modular building blocks for combining multiple specificities into a single molecule.
29
Figure 24. Comparison of one of Gritstone’s proprietary TCR-mimetic antibody in complex with peptide-HLA with a
published TCR in complex with its cognate peptide-HLA (same HLA haplotype).
As indicated in the above figure, there are many striking similarities between the TCR-mimetic antibody and the TCR
recognizing their MHC/peptide complexes, including footprint, angle of interaction, and overall surface area covered.
We have carefully defined the exact nature of TCR-mimetic antibody binding to peptide-HLA target antigens. We have
individually altered each amino acid in the peptide (in the peptide-HLA complex) to establish the specificity of TCR-mimetic binding.
We have also defined the footprint of TCR-mimetic antibody binding on its target using both (a) X-ray crystallography (direct
visualization of binding) and (b) a “protection” assay whereby antibody binding to its target physically protects target structures from
chemical modification. Figure 24 shows the high-resolution structure of one target peptide-HLA molecule in complex with one of our
lead antibodies. The footprint and angle of interaction are strikingly similar between the TCR mimetic antibody and a published
structure of a typical TCR bound to its cognate HLA/peptide complex. To date, multiple TCR-mimetic leads have been identified
against a set of target HLA/peptide complexes for tumor-specific targets identified by our proprietary EDGE platform, that bind,
similarly to the natural TCR interaction, with high affinity and specificity. We believe these candidates are an ideal starting point for
building a portfolio of bispecific antibody leads.
T Cell Receptors
TCRs recognize HLA/peptides, and once we have identified CTA-derived peptides plus their HLA binding partner as tumor-
specific antigens, we can proceed to the identification of matched TCRs. This is performed using healthy HLA-matched donors as a
source of diverse T cells and screening these T cells against the target HLA/peptides. T cells that activate and expand in response to a
target HLA/peptide will express relevant TCRs, and these can be characterized by isolation of the relevant T cells and sequencing of
their TCR genes. These natural TCRs may offer advantages over alternative TCR identification approaches. We possess the internal
expertise to identify HLA/peptide specific TCRs from HLA-matched donor blood, and we may partner those TCRs with established
adoptive T cell therapy companies.
Strategic Collaboration with bluebird bio
License and Collaborations
In August 2018, we entered into a research collaboration and license agreement with bluebird bio, Inc., or bluebird, to utilize
our EDGE platform to identify and validate tumor-specific targets and provide TCRs directed to ten selected targets for use in
bluebird’s cell therapy platform. Under the collaboration, we received a non-refundable up-front cash payment of $20.0 million and an
additional $10.0 million in equity investment in our Series C convertible preferred stock. We are also eligible to receive up to an
30
aggregate of $1.2 billion in development, regulatory and commercial milestones associated with bluebird bio’s resulting cell therapy
products, as well as tiered, single-digit royalties on sales of the TCR immunotherapy products that utilize the TCRs discovered by us.
The royalty term for each TCR immunotherapy product shall be determined on a product-by-product and country-by-country basis
and will commence on the first commercial sale of each product in a country and end on the latest of: (i) expiration or termination of
the last to expire valid claim of the last licensed patent that covers the product pursuant to the agreement; (ii) expiration of all periods
of regulatory exclusivity for the product in such country (in respect of sales in that country); and (iii) ten years after the first
commercial sale of such product in such country (in respect of sales in that country). bluebird will be solely responsible for all costs
and expenses of its development, manufacturing, and commercial activities for resulting therapies.
The identification, validation, selection and development of the TCRs will be conducted during an estimated five-year research
term and may be extended by an additional year under certain conditions. The collaboration will be governed by a joint steering
committee with representatives from us and bluebird. We and bluebird have exchanged non-exclusive licenses to carry out the
research program, and, on a selected target-by-selected target basis, we have granted bluebird an exclusive worldwide license to
research, develop, and commercialize resulting cell therapy products directed to such targets, including rights to utilize TCRs
discovered by us. The collaboration term ends on a country-by-country and product candidate-by-product candidate basis based on
completion of all payments owed to us by bluebird thereon. Either party may terminate the agreement upon written notice to the other
party in the event of the other party’s uncured material breach, subject to a dispute resolution process. In addition, bluebird may
terminate the agreement for convenience upon prior written notice to us.
License Agreement with Arbutus Biopharma Corporation
On October 16, 2017, we executed a license agreement with Arbutus Biopharma Corporation, or Arbutus. Certain terms of the
agreement were modified by amendment in July 2018. Arbutus is a leader in LNP technology with a broad intellectual property estate
and a large library of LNPs, including multiple LNPs being used in clinical development by its partners, as well as the chemistry
expertise to synthesize novel LNPs with properties optimal for SAM.
Under the agreement, Arbutus grants us a worldwide, exclusive (even as to Arbutus, subject to certain limited exceptions),
sublicensable, transferable license, to research, develop, manufacture, and commercialize our novel RNA-based platform for
intracellular delivery of SAM encoding TSNA in combination with one or more of Arbutus’ proprietary LNPs. The licensed
technology includes Arbutus’ portfolio of proprietary and clinically validated LNP products and associated intellectual property, and
includes technology transfer of Arbutus’ manufacturing know-how.
As part of our collaboration, we have identified an LNP formulation that we believe will be optimal for use in our Phase 1/2
clinical trial of GRANITE and SLATE. This LNP formulation is currently being used by third parties in human clinical trials in the
United States. We have also initiated an effort to screen Arbutus’ library of LNPs and evaluate novel LNPs to potentially identify an
LNP that increases the potency of our SAM platform further. Our goal is to deliver a second-generation SAM immunotherapy that has
the potential to serve as a homologous prime-boost immunotherapy.
Under the license agreement, we paid Arbutus an upfront payment of $5.0 million. We have also agreed to make aggregate
payments of up to $73.5 million upon the achievement of specified development milestones for up to three products, and an aggregate
$50.0 million in commercial milestone payments, as well as royalty payments in the low single-digits on net sales of licensed products
for a royalty term lasting until the expiration of the last patent covered under the license. The last-to-expire patent is currently
scheduled to expire on November 10, 2030. Pending applications will nominally expire 20 years after the filing date of the first utility
application to which they claim priority. Following acceptance of our first IND in September 2018, we made the first milestone
payment of $2.5 million to Arbutus. In August 2019, a milestone was met following the initial patient treatment of SLATE in our GO-
005 clinical trial. We recorded $3.0 million as research and development expense in connection with the milestone. The milestone
payment was made in October 2019. Further milestone payments are not expected to occur before 2021. In addition, we will
reimburse Arbutus for conducting technology development and providing manufacturing and regulatory support for our product
candidates.
The Arbutus license continues in effect until the last to expire royalty payment or early termination. The license is terminable
by us for convenience with 60 days prior written notice, upon payment of a no-cause termination sum. We may also terminate in the
event of material adverse safety data for a product, failure to achieve a primary or secondary efficacy endpoint, or if a regulatory
authority takes action that prevents us from commercializing any product. Either party may terminate the agreement for material
breach, and Arbutus may terminate the agreement for abandonment or if we challenge Arbutus patents.
31
Manufacturing
Manufacturing is a vital component of our personalized immunotherapy platform, and we are devoting significant resources to
manufacturing and process development in an effort to optimize the safety and efficacy of our product candidates, as well as to reduce
our per-unit manufacturing costs and time to market. The production of our personalized immunotherapy candidates requires two
distinct elements for each patient: tumor biopsy analysis to determine candidate neoantigens, followed by manufacture of vectors
containing a personalized cassette encoding the selected neoantigens. SLATE contains a fixed cassette with TSNA that is shared
across a subset of cancer patients rather than a cassette unique to an individual patient, which is designed to provide an off-the-shelf
alternative to our personalized manufactured product candidate, GRANITE. The manufacture of these vectors involves complex
processes, including per-patient plasmid production, mammalian cell production of virus and RNA synthesis and lipid encapsulation.
SLATE manufacturing, as a fixed, “off-the-shelf” product candidate, is not time-sensitive and is relatively straightforward
operationally. GRANITE, on the other hand, is an “N of 1” product candidate and is manufactured in real-time for each patient, which
involves a greater logistical burden.
Our near-term goal is to carefully manage our fixed-cost structure, maximize optionality, and drive long-term cost of goods as
low as possible. We have used a hybrid approach to manufacturing our personalized immunotherapy candidates whereby certain
elements of our product candidates are manufactured on an outsourced basis at CMOs, and other elements of our product candidates
are manufactured internally at the 42,600 square foot manufacturing facility we established in 2017 in Pleasanton, California, all
designed in compliance with cGMP. To date, we have leveraged our relationships with CMOs for preclinical studies and Phase 1/2
clinical trial supply. Doing so has significantly accelerated our ability to advance clinical trials, gain insights into the multiple
manufacturing processes and establish an infrastructure for future trials.
Our manufacturing process begins with receipt of a patient’s routine biopsy and blood sample at our Cambridge,
Massachusetts facility, where TSNA identification is performed using the EDGE platform. The TSNA sequences generated by our
platform are sent electronically to a synthetic biology CMO to generate the patient-specific TSNA cassette, which is then cloned into
each of the ChAdV and SAM vectors, and amplified. Following amplification, the ChAdV vector containing the cassette is sent to our
Pleasanton, California facility for ChAdV manufacture and production into vials. In parallel, the SAM vector until recently was sent to
another CMO for RNA manufacture and then to a final CMO for formulation into LNP and production into vials. Currently, the entire
manufacturing process, from biopsy receipt at Gritstone to the release and shipment of the personalized immunotherapy candidate to
the clinical site for patient administration, takes approximately 16-20 weeks in principle. We expect this production and release
timeline (and associated cost) will diminish over time due to process scaling, potential improvements in production and testing
technologies and internal process expertise, internalizing production as well as potential reductions in regulatory testing requirements
based on clinical experience.
To achieve this, our process development group is focused on several key initiatives. The first is investigating novel
approaches to manufacturing our products, including process optimization and quality by design of each intermediate, drug substance
and drug product. Additionally, we are systematically characterizing our manufacturing processes, including product intermediates
and manufacturing unit operations. This characterization effort will allow us to implement process changes over the entire product
lifecycle and to quickly react to evolving process technologies that can lead to reductions in per-unit manufacturing costs and shorter
process cycle times. In addition, we plan to establish automated, closed-platform manufacturing processes. Such processes should give
us the ability to conduct manufacturing in a lower-classified, lower cost manufacturing environment for multiple steps of our drug
product manufacturing.
Our medium-term goal is to internalize the majority of the manufacturing steps to drive down both cost and production time,
as well as establish full control over intellectual property and product quality. In 2019, we continued to build the internal capability to
manufacture our products entirely using internal facilities and staff. We continue efforts toward the phased integration of all
manufacturing into our Pleasanton, California biomanufacturing facility. The ChAdV prime production is already fully integrated into
the Pleasanton facility and we have largely completed integrating the plasmid and the SAM boost production in-house. We believe
that operating our own manufacturing facility will provide us with enhanced control of material supply for both clinical trials and the
commercial market, will enable the more rapid implementation of process changes, and will allow for better long-term margins.
Although we have developed these capabilities, we will assess which aspects will continue to be outsourced, and these may change
over time.
Our manufacturing strategy is currently structured to support our U.S., E.U. and Australian development plans. We believe this
manufacturing strategy developed for global distribution will enable use in other geographies. Specific supply strategies for other
geographies will be developed as part of our clinical and commercial plans for such other geographies.
32
Commercialization Plan
Gritstone does not currently have any approved drugs, and we do not anticipate receiving marketing authorization for our early
development candidates in either the United States or other worldwide regions in the near future. An internal expansion of sales,
marketing, and commercial distribution capabilities would be developed once Gritstone has obtained clinical data that can support
licensure following discussions with the FDA or other worldwide health authorities. If and when any of our development candidates
are approved for commercialization, an infrastructure to support ongoing sales in the United States and possibly in some other regions
will be created.
Competition
The biotechnology and pharmaceutical industries put significant emphasis and resources into the development of novel and
proprietary therapies for cancer treatment. We face substantial competition from many different sources, including large and specialty
pharmaceutical and biotechnology companies, academic research institutions and governmental agencies and public and private
research institutions. We anticipate that we will continue to face increasing competition in the field of cancer therapy as new therapies,
technologies, and data emerge from the field.
In addition to the current standard of care for patients, commercial and academic clinical trials are being pursued by a number
of parties in the field of immunotherapy. Results from these trials have fueled continued interest in immunotherapy and our
competitors include:
• In the neoantigen space, Agenus Inc., BioNTech AG in collaboration with Genentech Inc. (BioNTech announced the
intended acquisition of Neon Therapeutics, a former competitor, in January 2020), Moderna Therapeutics, Inc. in
collaboration with Merck & Co. Inc., Advaxis Immunotherapies, Achilles Therapeutics, NousCom AG, ISA
Pharmaceuticals BV, CureVac AG in collaboration with Eli Lilly and Company, Genocea Biosciences Inc., Vaccibody AS
and PACT Pharma, Inc., or PACT.
• In the bispecific antibody space, Amgen, Roche, Regeneron Pharmaceuticals, inc., MacroGenics, Inc., Xencor Inc.,
Zymeworks Inc., F-Star Biotechnology Ltd., Novimmune SA, Genmab A/S, Five Prime Therapeutics, Inc., Merus N.V.,
Immunocore Ltd, Eureka Therapeutics and Immatics Biotechnologies GmbH.
• In the engineered cell therapy and TCR space, Novartis, Juno Therapeutics (acquired by Celgene Corporation), Kite
Pharma (acquired by Gilead Sciences, Inc.), bluebird bio, Inc., Medigene AG, Adaptimmune Therapeutics plc, Amgen Inc.,
Atara Biotherapeutics, Inc., Autolus Limited, Cellectis S.A., PACT, Neon, Mustang Bio, Inc., Iovance Biotherapeutics,
Inc., TCR2 Therapeutics Inc., Editas Medicine, Inc., Unum Therapeutics Inc., Intrexon Corporation, CRISPR Therapeutics
AG and Bellicum Pharmaceuticals, Inc.
Many of our competitors, either alone or with their strategic partners, have significantly greater financial resources and
expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, and marketing approved products
than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and gene therapy industries may result in even more
resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be
significant competitors, particularly through collaborative arrangements with established companies. These competitors also compete
with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient
registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
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, are more convenient or are less expensive than any products that we may
develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain
approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.
The key competitive factors affecting the success of all of our programs are likely to be their efficacy, safety, cost and convenience.
Intellectual Property
Our commercial success depends in part on our ability to obtain and maintain proprietary protection for our products and
services, to operate without infringing the proprietary rights of others, and to prevent others from infringing our proprietary rights. We
rely on a combination of patents and trade secrets, as well as contractual protections, to establish and protect our intellectual property
rights. We seek to protect our proprietary position by, among other things, filing patent applications in the United States and
internationally. Our patent estate includes patent applications with claims relating to our products, methods, and manufacturing
processes, and broader claims for potential future products and developments. As of December 31, 2019, our solely-owned patent
portfolio includes, on a worldwide basis, 134 pending patent applications and one issued patent relating to our products, methods, and
33
manufacturing processes, including 23 pending patent applications in the United States, 111 pending patent applications filed
internationally, and one issued U.S. patent relating to the use of a predictive model to identify neoantigens, particularly where the
predictive model was trained using mass spectrometry data.
As of December 31, 2019, our solely-owned patent estate includes a portfolio of pending patent applications related to our
neoantigen-based platform; a portfolio of pending patent applications related to our shared antigen-based platform, including our
bispecific antibody platform and TCRs. Details regarding these portfolios are provided below.
As of December 31, 2019, our solely-owned patent portfolio related to our neoantigen-based platform includes 18 pending
U.S. patent applications and 107 ex-U.S. patent applications pending in countries including Australia, Brazil, Canada, China,
Colombia, the European Patent Office, Hong Kong, India, Indonesia, Israel, , Japan, , Malaysia, Mexico, , New Zealand, Peru,
Philippines, Russia, Singapore, South Africa, South Korea and Taiwan with claims related to neoantigen identification and related
uses and manufacture. Any patents that may issue from these pending patent applications are expected to expire between 2036 and
2040, absent any patent term adjustments or extensions.
As of December 31, 2019, our solely-owned patent portfolio related to our shared antigen-based platform, including our
bispecific antibody platform and TCRs, includes five pending U.S. patent applications and four pending foreign patent applications
with claims related to shared antigens, shared antigen-binding proteins, and their related uses and manufacture. Any patents that may
issue from these pending patent applications are expected to expire between 2038 and 2040, absent any patent term adjustments or
extensions. In addition, in the ordinary course of our business, we also enter into agreements with other third parties for non-exclusive
rights to intellectual property directed to other technologies that are ancillary to our business, including laboratory information
management software and research and development tools.
In addition to patents, we have filed for trademark registration with the United States Patent and Trademark Office, or the
USPTO, as well as certain other international trademark agencies, for “Gritstone,” “Granite”, “Slate” and our logo. Furthermore, we
rely upon trade secrets, know-how and continuing technological innovation to develop and maintain our competitive position.
In some instances, we submit patent applications directly with the USPTO as provisional patent applications. Provisional
applications for patents were designed to provide a lower-cost first patent filing in the United States. Corresponding non-provisional
patent applications must be filed not later than 12 months after the provisional application filing date. The corresponding non-
provisional application benefits in that the priority date(s) of the patent application is/are the earlier provisional application filing
date(s), and the patent term of the finally issued patent is calculated from the later non-provisional application filing date. This system
allows us to obtain an early priority date, add material to the patent application(s) during the priority year, obtain a later start to the
patent term and to delay prosecution costs, which may be useful in the event that we decide not to pursue examination in an
application. We file U.S. non-provisional applications and Patent Cooperation Treaty, or PCT, applications that claim the benefit of
the priority date of earlier filed provisional applications, when applicable. The PCT system allows a single application to be filed
within 12 months of the original priority date of the patent application, and to designate all of the 152 PCT member states in which
national patent applications can later be pursued based on the international patent application filed under the PCT. The PCT searching
authority performs a patentability search and issues a non-binding patentability opinion which can be used to evaluate the chances of
success for the national applications in foreign countries prior to having to incur the filing fees. Although a PCT application does not
issue as a patent, it allows the applicant to seek protection in any of the member states through national-phase applications.
At the end of the period of two and a half years from the first priority date of the patent application, separate patent
applications can be pursued in any of the PCT member states either by direct national filing or, in some cases by filing through a
regional patent organization, such as the European Patent Organization. The PCT system delays expenses, allows a limited evaluation
of the chances of success for national/regional patent applications and enables substantial savings where applications are abandoned
within the first two and a half years of filing.
For all patent applications, we determine claiming strategy on a case-by-case basis. Advice of counsel and our business model
and needs are always considered. We file patents containing claims for protection of all useful applications of our proprietary
technologies and any products, as well as all new applications and/or uses we discover for existing technologies and products,
assuming these are strategically valuable. We continuously reassess the number and type of patent applications, as well as the pending
and issued patent claims to ensure that maximum coverage and value are obtained for our processes, and compositions, given existing
patent office rules and regulations. Further, claims may be modified during patent prosecution to meet our intellectual property and
business needs.
We recognize that the ability to obtain patent protection and the degree of such protection depends on a number of factors,
including the extent of the prior art, the novelty and non-obviousness of the invention, and the ability to satisfy the enablement
requirement of the patent laws. The patent positions of biotechnology companies like ours are generally uncertain and involve
34
complex legal, scientific and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced
before the patent is issued, and its scope can be reinterpreted or further altered even after patent issuance. Consequently, we may not
obtain or maintain adequate patent protection for any of our product candidates or for our technology platform. We cannot predict
whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of
any issued patents will provide sufficient proprietary protection from competitors. Any patents that we hold may be challenged,
circumvented or invalidated by third parties.
Our commercial success will also depend in part on not infringing the proprietary rights of third parties. In addition, we have
licensed rights under proprietary technologies of third parties to develop, manufacture and commercialize specific aspects of our
products. It is uncertain whether the issuance of any third party patent would require us to alter our development or commercial
strategies, alter our processes, obtain licenses or cease certain activities. The expiration of patents or patent applications licensed from
third parties or our breach of any license agreements or failure to obtain a license to proprietary rights that we may require to develop
or commercialize our future technology may have a material adverse impact on us. If third parties prepare and file patent applications
in the United States that also claim technology to which we have rights, we may have to participate in interference proceedings in the
USPTO to determine priority of invention.
We further own trade secrets relating to our technology, and we maintain the confidentiality of proprietary information to
protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. We seek to
protect our trade secrets and know-how by entering into confidentiality agreements with third parties, consultants and employees who
have access to such trade secrets and know-how. These agreements provide that all confidential information concerning our business
or financial affairs developed or made known to the individual during the course of the individual’s relationship with us are to be kept
confidential and not disclosed to third parties except in specific circumstances. In addition, we enter into employment agreements that
require employees to assign to us any inventions, trade secrets or know-how that they develop while employed by us. Although we
take steps to protect our proprietary information and trade secrets, including through agreements with our employees and consultants,
these agreements may be breached, or third parties may independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets or disclose our technology. Thus, we may not be able to meaningfully protect
our trade secrets. To the extent that our employees, consultants, scientific advisors or other contractors use intellectual property owned
by others in their work for us, disputes may arise as to the rights in related or resulting know how and inventions.
For a more comprehensive discussion of the risks related to our intellectual property, please see “Risk Factors—Risks Related
to Intellectual Property.”
Government Regulation
The FDA and other regulatory authorities at federal, state, and local levels, as well as in foreign countries, extensively
regulate, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness,
labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring, and
post-approval reporting of biologics such as those we are developing. We, along with third-party contractors, will be required to
navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries
in which we wish to conduct studies or seek approval or licensure of our product candidates.
In the United States, the FDA regulates biologic products under both the Federal Food, Drug and Cosmetic Act and the Public
Health Service Act and their respective implementing regulations. Our product candidates are subject to regulation by the FDA as
biologics. Biologics require the submission of a biologics license application, or BLA, and licensure, which constitutes approval, by
the FDA before being marketed in the United States. None of our product candidates has been approved by the FDA for marketing in
the United States, and we currently have no BLAs pending. Failure to comply with applicable FDA or other requirements at any time
during product development, clinical testing, the approval process or after approval may result in administrative or judicial sanctions.
These sanctions could include the FDA’s refusal to approve pending applications, suspension or revocation of approved applications,
warning letters, product recalls, product seizures, total or partial suspensions of manufacturing or distribution, injunctions, fines, civil
penalties or criminal prosecution.
The process required by the FDA before biologic product candidates may be marketed in the United States generally involves
the following:
• completion of preclinical laboratory tests and animal studies performed in accordance with the FDA’s GLP regulations;
• submission to the FDA of an IND, which must become effective before clinical trials may begin;
• approval by an independent Institutional Review Board, or IRB, or ethics committee at each clinical site before the trial is
commenced;
35
• performance of adequate and well-controlled human clinical trials in accordance with FDA’s good clinical practice, or
GCP, regulations to establish the safety, purity and potency of the proposed biologic product candidate for its intended
purpose;
• preparation of and submission to the FDA of a BLA after completion of all pivotal clinical trials;
• satisfactory completion of an FDA Advisory Committee review, if applicable;
• a determination by the FDA within 60 days of its receipt of a BLA to file the application for review;
• satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the proposed
product is produced to assess compliance with cGMP and to assure that the facilities, methods and controls are adequate to
preserve the biological product’s continued safety, purity and potency, and of selected clinical investigation sites to assess
compliance with GCP regulations; and
• FDA review and approval of the BLA to permit commercial marketing of the product for particular indications for use in
the United States.
Preclinical and Clinical Development
Prior to beginning the first clinical trial with a product candidate, we must submit an IND to the FDA. An IND is a request for
authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is
on the general investigational plan and the protocol(s) for clinical studies. The IND also includes results of animal and in vitro studies
assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic characteristics of the product; chemistry,
manufacturing, and controls information; and any available human data or literature to support the use of the investigational product.
An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt
by the FDA, unless the FDA, within the 30-day time period, raises safety concerns or questions about the proposed clinical trial. In
such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or
questions before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a
clinical trial.
In addition to the submission of an IND to the FDA before initiation of a clinical trial in the United States, certain human
clinical trials involving recombinant or synthetic nucleic acid molecules had historically been subject to review by the Recombinant
DNA Advisory Committee, or RAC, of the National institutes of Health, or NIH, Office of Biotechnology Activities, pursuant to the
NIH Guidelines for Research Involving Recombinant or Synthetic Nucleic Acid Molecules, or NIH Guidelines. On April 25, 2019, the
NIH revised the NIH Guidelines to remove protocol submission and reporting requirements and to eliminate the role of the RAC in
human gene transfer research. The previous RAC has been renamed the Novel and Exceptional Technology and Research Advisory
Committee (NExTRAC), which will advise the NIH Director on the scientific, safety, ethical and social issues associated with
emerging biotechnologies. These trials will remain subject to the FDA’s oversight and other clinical trial regulations, and oversight at
the local level will continue as otherwise set forth in the NIH Guidelines. Specifically, under the NIH Guidelines, supervision of
human gene transfer trials includes evaluation and assessment by an institutional biosafety committee, or IBC, a local institutional
committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC
assesses the safety of the research and identifies any potential risk to public health or the environment, and such review may result in
some delay before initiation of a clinical trial. While the NIH Guidelines are not mandatory unless the research in question is being
conducted at or sponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule research, many
companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. Thus, companies are still
subject to significant regulatory oversight by the FDA, IRBs and, if applicable, the IBC of each institution at which it conducts clinical
trials.
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified
investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for
their participation in any clinical study. Clinical trials are conducted under protocols detailing, among other things, the objectives of
the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Generally, a separate
submission to the existing IND must be made for each successive clinical trial conducted during product development and for any
subsequent protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review
and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site, and must monitor
the study until completed. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds,
including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated
objectives. Some studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor,
known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated
check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable
36
safety risk for subjects or other grounds, such as no demonstration of efficacy. There are also requirements governing the reporting of
ongoing clinical studies and clinical study results to public registries.
For purposes of BLA approval, human clinical trials are typically conducted in three sequential phases that may overlap.
• Phase 1—The investigational product is initially introduced into healthy human subjects or patients with the target disease
or condition. These studies are designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the
investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence
on effectiveness.
• Phase 2—The investigational product is administered to a limited patient population with a specified disease or condition to
evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and
safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more
expensive Phase 3 clinical trials.
• Phase 3—The investigational product is administered to an expanded patient population to further evaluate dosage, to
provide statistically significant evidence of clinical efficacy and to further test for safety, generally at multiple
geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the
investigational product and to provide an adequate basis for product approval.
In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved
to gain more information about the product. These so-called Phase 4 studies may be made a condition to approval of the BLA.
Concurrent with clinical trials, companies may complete additional animal studies and develop additional information about the
biological characteristics of the product candidate, and must 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, must develop methods for testing the safety, purity and potency. Additionally, appropriate
packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not
undergo unacceptable deterioration over its shelf life.
BLA Submission and Review
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of
product development, nonclinical studies and clinical trials are submitted to the FDA as part of a BLA requesting approval to market
the product for one or more indications. The BLA must include all relevant data available from pertinent preclinical and clinical
studies, including negative or ambiguous results as well as positive findings, together with detailed information relating to the
product’s chemistry, manufacturing, controls, and proposed labeling, among other things. The submission of a BLA requires payment
of a substantial application user fee to FDA, unless a waiver or exemption applies.
Once a BLA has been submitted, the FDA’s goal is to review standard applications within ten months after it accepts the
application for filing, or, if the application qualifies for priority review, six months after the FDA accepts the application for filing. In
both standard and priority reviews, the review process is often significantly extended by FDA requests for additional information or
clarification. The FDA reviews a BLA to determine, among other things, whether a product is safe, pure and potent and the facility in
which it is manufactured, processed, packed, or held meets standards designed to assure the product’s continued safety, purity and
potency. The FDA may convene an advisory committee to provide clinical insight on application review questions. Before approving
a BLA, the FDA will typically 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 a BLA, the FDA
will typically inspect one or more clinical sites to assure compliance with GCP. If the FDA determines that the application,
manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will
request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately
may decide that the application does not satisfy the regulatory criteria for approval.
After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the investigational product will be
produced, the FDA may issue an approval letter or a Complete Response letter. An approval letter authorizes commercial marketing of
the product with specific prescribing information for specific indications. A Complete Response letter will describe all of the
deficiencies that the FDA has identified in the BLA, except that where the FDA determines that the data supporting the application are
inadequate to support approval, the FDA may issue the Complete Response letter without first conducting required inspections, testing
submitted product lots, and/or reviewing proposed labeling. In issuing the Complete Response letter, the FDA may recommend
actions that the applicant might take to place the BLA in condition for approval, including requests for additional information or
37
clarification. The FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied, require additional
testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.
If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail
limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the BLA with a Risk
Evaluation and Mitigation Strategy, or REMS, to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to
manage a known or potential serious risk associated with a product and to enable patients to have continued access to such medicines
by managing their safe use. A REMS program may be required to include various elements, such as a medication guide or patient
package insert, a communication plan to educate healthcare providers of the drug’s risks, or other elements to assure safe use, such as
limitations on who may prescribe or dispense the drug, dispensing only under certain circumstances, special monitoring and the use of
patient registries. The FDA also may condition approval on, among other things, changes to proposed labeling or the development of
adequate controls and specifications. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-
marketing requirements is not maintained or if problems occur after the product reaches the marketplace. The FDA may require one or
more Phase 4 post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after
commercialization, and may limit further marketing of the product based on the results of these post-marketing studies.
Expedited Development and Review Programs
The FDA offers a number of expedited development and review programs for qualifying product candidates. For example, the
FDA granted GRANITE fast track designation for treatment of colorectal cancer in December 2018. The fast track program is
intended to expedite or facilitate the process for reviewing new products that meet certain criteria. Specifically, new products are
eligible for fast track designation if they are 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
and the specific indication for which it is being studied. The sponsor of a fast track product has opportunities for frequent interactions
with the review team during product development and, once a BLA is submitted, the product may be eligible for priority review. A
fast track product may also be eligible for rolling review, where the FDA may consider for review sections of the BLA on a rolling
basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the BLA,
the FDA agrees to accept sections of the BLA and determines that the schedule is acceptable, and the sponsor pays any required user
fees upon submission of the first section of the BLA.
A product intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy
designation to expedite its development and review. A product can receive breakthrough therapy designation if preliminary clinical
evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically
significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the
fast track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an
organizational commitment to expedite the development and review of the product, including involvement of senior managers.
Any marketing application for a biologic submitted to the FDA for approval, including a product with a fast track designation
and/or breakthrough therapy designation, may be eligible for other types of FDA programs intended to expedite the FDA review and
approval process, such as priority review and accelerated approval. A product is eligible for priority review if it has the potential to
provide a significant improvement in the treatment, diagnosis or prevention of a serious disease or condition compared to marketed
products. For products containing new molecular entities, priority review designation means the FDA’s goal is to take action on the
marketing application within six months of the 60-day filing date, compared with ten months under standard review.
Additionally, products studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions
may receive accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely
to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is
reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity,
rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the
FDA will generally require the sponsor to perform adequate and well-controlled post-marketing clinical studies to verify and describe
the anticipated effect on irreversible morbidity or mortality or other clinical benefit. In addition, the FDA currently requires as a
condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial
launch of the product.
In 2017, FDA established a new regenerative medicine advanced therapy, or RMAT, designation as part of its implementation
of the 21st Century Cures Act, which was signed into law in December 2016. To qualify for RMAT designation, the product candidate
must meet the following criteria: (1) it qualifies as a RMAT, which is defined as a cell therapy, therapeutic tissue engineering product,
human cell and tissue product, or any combination product using such therapies or products, with limited exceptions; (2) it is intended
38
to treat, modify, reverse, or cure a serious or life-threatening disease or condition; and (3) preliminary clinical evidence indicates that
the drug has the potential to address unmet medical needs for such a disease or condition. Like fast track and breakthrough therapy
designation, RMAT designation provides potential benefits that include more frequent meetings with FDA to discuss the development
plan for the product candidate and eligibility for rolling review and priority review. Products granted RMAT designation may also be
eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical
benefit, or reliance upon data obtained from a meaningful number of sites, including through expansion to additional sites. Once
approved, when appropriate, the FDA can permit fulfillment of post-approval requirements under accelerated approval through the
submission of clinical evidence, clinical studies, patient registries, or other sources of real world evidence such as electronic health
records; through the collection of larger confirmatory datasets; or through post-approval monitoring of all patients treated with the
therapy prior to approval.
Fast track designation, breakthrough therapy designation, priority review, accelerated approval, and RMAT designation do not
change the standards for approval but may expedite the development or approval process.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or
condition, which is a disease or condition that affects fewer than 200,000 individuals in the United States, or if it affects more than
200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making available a drug or
biologic for this type of disease or condition will be recovered from sales in the United States for that drug or biologic. Orphan drug
designation must be requested before submitting a BLA. After the FDA grants orphan drug designation, the generic identity of the
therapeutic agent and its potential orphan use are disclosed publicly by the FDA. The orphan drug designation does not convey any
advantage in, or shorten the duration of, the regulatory review or approval process.
If a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such
designation, the product is entitled to orphan drug exclusive approval (or exclusivity), which means that the FDA may not approve any
other applications, including a full BLA, to market the same biologic for the same indication for seven years, except in limited
circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. Orphan drug exclusivity does not
prevent FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different
disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the BLA
application fee.
A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication
for which it received orphan designation. In addition, exclusive marketing rights in the United States may be lost if the FDA later
determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of
the product to meet the needs of patients with the rare disease or condition.
Post-Approval Requirements
Any products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation
by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic
reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the
approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also
are continuing user fee requirements, under which FDA assesses an annual program fee for each product identified in an approved
BLA. Biologic manufacturers and their subcontractors 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,
which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the
manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before
being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting
requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to
expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of
regulatory compliance.
The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems
occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events
of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result
in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new
39
safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences
include, among other things:
• restrictions on the marketing or manufacturing of a product, complete withdrawal of the product from the market or product
recalls;
• fines, warning letters or holds on post-approval clinical studies;
• refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of
existing product approvals;
• product seizure or detention, or refusal of the FDA to permit the import or export of products; or
•
injunctions or the imposition of civil or criminal penalties.
The FDA closely regulates the marketing, labeling, advertising and promotion of biologics. A company can make only those
claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the
approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.
Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising
and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the
product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical
specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA
does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s
communications on the subject of off-label use of their products.
Biosimilars and Reference Product Exclusivity
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or
collectively, the ACA, signed into law in 2010, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009,
or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an
FDA-approved reference biological product. To date, a number of biosimilars have been licensed under the BPCIA, and numerous
biosimilars have been approved in Europe. The FDA has issued several guidance documents outlining an approach to review and
approval of biosimilars.
Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the
reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical study
or studies. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can
be expected to produce the same clinical results as the reference product in any given patient and, for products that are administered to
a patient more than once, the biologic and the reference biologic may be alternated or switched after one has been previously
administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.
Complexities associated with the larger, and often more complex, structures of biological products, as well as the processes by which
such products are manufactured, pose significant hurdles to implementation of the abbreviated approval pathway that are still being
worked out by the FDA.
Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date
that the reference product was first licensed by the FDA. In addition, the FDA may not approve a biosimilar product until 12 years
from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still
market a competing version of the reference product if the FDA approves a full BLA containing that applicant’s own preclinical data
and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of the competing product. The
BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. At this juncture, it is unclear
whether products deemed “interchangeable” by the FDA will, in fact, be readily substituted by pharmacies, which are governed by
state pharmacy law.
The BPCIA is complex and continues to be interpreted and implemented by the FDA. In addition, government proposals have
sought to reduce the 12-year reference product exclusivity period. Other aspects of the BPCIA, some of which may impact the BPCIA
exclusivity provisions, have also been the subject of recent litigation. As a result, the ultimate implementation and impact of the
BPCIA is subject to significant uncertainty.
40
Other Healthcare Laws and Compliance Requirements
Pharmaceutical companies are subject to additional healthcare regulation and enforcement by the federal government and by
authorities in the states and foreign jurisdictions in which they conduct their business. Such laws include, without limitation: the U.S.
federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting,
receiving, offering or paying remuneration, to induce, or in return for, either the referral of an individual, or the purchase or
recommendation of an item or service for which payment may be made under any federal healthcare program; federal civil and
criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly
presenting, or causing to be presented, claims for payment to the federal government, including federal healthcare programs, that are
false or fraudulent; HIPAA, which created additional federal criminal statutes which prohibit, among other things, executing a scheme
to defraud any healthcare benefit program and making false statements relating to healthcare matters, and which, as amended by
HITECH, also imposes certain requirements on HIPAA covered entities and their business associates relating to the privacy, security
and transmission of individually identifiable health information; the U.S. 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 specific exceptions, to annually report to the federal government, information related to
payments or other transfers of value made to physicians, certain other health care professionals beginning in 2022, and teaching
hospitals, as well as ownership and investment interests held by physicians and their immediate family members; and U.S. state and
foreign law equivalents of each of the above federal laws, which, in some cases, differ from each other in significant ways, and may
not have the same effect, thus complicating compliance efforts. If their operations are found to be in violation of any of such laws or
any other governmental regulations that apply, they may be subject to penalties, including, without limitation, civil, criminal and
administrative penalties, damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid or
similar programs in other countries or jurisdictions, integrity oversight and reporting obligations to resolve allegations of non-
compliance, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits and the curtailment
or restructuring of our operations.
Coverage and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical or biological product for
which we obtain regulatory approval. Sales of any product depend, in part, on the extent to which such product will be covered by
third-party payors, such as federal, state, and foreign government healthcare programs, commercial insurance and managed healthcare
organizations, and the level of reimbursement for such product by third-party payors. Decisions regarding the extent of coverage and
amount of reimbursement to be provided are made on a plan-by-plan basis. For products administered under the supervision of a
physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated
with such drugs. Additionally, separate reimbursement for the product itself or the treatment or procedure in which the product is used
may not be available, which may impact physician utilization.
In addition, the U.S. government, state legislatures and foreign governments have continued implementing cost-containment
programs, including price controls, restrictions on coverage and reimbursement and requirements for substitution of generic products.
Third-party payors are increasingly challenging the prices charged for medical products and services, examining the medical necessity
and reviewing the cost effectiveness of pharmaceutical or biological products, medical devices and medical services, in addition to
questioning safety and efficacy. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies
in jurisdictions with existing controls and measures, could further limit sales of any product. Decreases in third-party reimbursement
for any product or a decision by a third-party payor not to cover a product could reduce physician usage and patient demand for the
product. No regulatory authority has granted approval for a personalized cancer immunotherapy based on a vaccine approach, and
there is no model for reimbursement of this type of product.
Healthcare Reform
The United States and some foreign jurisdictions are considering or have enacted a number of reform proposals to change the
healthcare system. There is significant interest in promoting changes in healthcare systems with the stated goals of containing
healthcare costs, improving quality or expanding access. In the United States, the pharmaceutical industry has been a particular focus
of these efforts and has been significantly affected by federal and state legislative initiatives, including those designed to limit the
pricing, coverage, and reimbursement of pharmaceutical and biopharmaceutical products, especially under government-funded health
care programs, and increased governmental control of drug pricing.
In March 2010, the ACA was signed into law, which substantially changed the way healthcare is financed by both
governmental and private insurers in the United States, and significantly affected the pharmaceutical industry. The ACA contains a
number of provisions of particular import to the pharmaceutical and biotechnology industries, including, but not limited to, those
41
governing enrollment in federal healthcare programs, a new methodology by which rebates owed by manufacturers under the
Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, and annual fees
based on pharmaceutical companies’ share of sales to federal health care programs. Since its enactment, there have been judicial,
Congressional, and executive branch challenges to certain aspects of the ACA, and we expect there will be additional challenges and
amendments to the ACA in the future. For example, the Tax Act was enacted, which, among other things, removes penalties for not
complying with ACA’s individual mandate to carry health insurance. Since the enactment of the Tax Act, there have been additional
amendments to certain provisions of the ACA. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas,
ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the
Tax Act, the remaining provisions of the ACA are invalid as well. On December 18, 2019, the U.S. Court of Appeals for the 5th
Circuit upheld the District Court's decision that the individual mandate was unconstitutional but remanded the case back to the District
Court to determine whether the remaining provisions of the ACA are invalid as well. It is unclear how these decisions, subsequent
appeals, if any, and other efforts to challenge, repeal or replace the ACA will impact the ACA.
Other legislative changes have been proposed and adopted since the ACA was enacted, including aggregate reductions of
Medicare payments to providers of 2% per fiscal year and reduced payments to several types of Medicare providers. These reductions
went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute will remain in effect through 2029
unless additional Congressional action is taken.
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. While some
proposed measures will require authorization through additional legislation to become effective, Congress and the Trump
administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs 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.
Additionally, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act
of 2017, or the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients
to access certain investigational new drug products that have completed a Phase I clinical trial and that are undergoing investigation
for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without
obtaining FDA permission under the FDA expanded access program. There is no obligation for a pharmaceutical manufacturer to
make its drug products available to eligible patients as a result of the Right to Try Act.
EDGE Medical Device Development
Our Interactions with the FDA
In two separate FDA interactions, the FDA advised us that our machine learning software will not be subject to medical device
diagnostic regulations. In August 2016, the FDA’s Center for Devices and Radiological Health, or CDRH, determined that the TSNA
prediction software is a Non-Significant Risk, or NSR, device, and that an investigational device exemption, or IDE, submission is not
required to conduct clinical studies with our product candidate. In April 2017, the FDA’s Center for Biologics Evaluation and
Research, or CBER, confirmed that medical device diagnostic regulations do not apply to our testing and processing of the patient-
specific TSNA, and that quality requirements could be met through compliance with biologic cGMPs. Based on these interactions, we
believe no additional device-related regulatory submissions (such as an IDE or pre-market approval application (PMA)) or device
development activities are required and our TSNA prediction software procedure will be regulated as part of our cGMP manufacturing
process.
GRANITE Development Program
Preclinical Safety
To address the personalized nature of our therapy in a Pre-Pre-IND interaction with the FDA’s CBER Office of Tissues and
Advanced Therapies, or OTAT, the FDA advised us that a single toxicological animal study with a representative vector could be able
to support preclinical safety for purposes of IND submission. Subsequent to this discussion, we submitted proposed protocols for GLP
42
toxicology and biodistribution studies for OTAT’s review in connection with a Pre-IND meeting, and OTAT agreed that a single GLP
toxicology study could support IND submission. In this GLP toxicology study, we administered our ChAdV and the SAM vectors to
Indian Rhesus macaques. The heterologous prime-boost immunotherapy approach when administered intramuscularly was well
tolerated at the clinical maximal dose of each platform, with some animals presenting flu-like symptoms. Preclinical chemistry
findings include a transient increase in select cytokines, which resolved rapidly.
Clinical Regulatory
In our GRANITE Pre-IND meeting with OTAT, the FDA previewed Clinical Protocol GO-004 and confirmed that the overall
design appeared reasonable, while providing comments on the study populations and dose determination which we have incorporated
into the protocol. OTAT also agreed with our dose limiting toxicity assessment criteria, while reserving comment on the starting dose
and dose escalation pending the completion of planned preclinical studies. We intend to include these elements in the protocol, which
may permit a faster progression and fewer patients to reach the clinical protocol’s combination cohort (Phase 1, Part C).
Regulatory Chemistry, Manufacturing & Controls
In a Type-C Facilities meeting with the FDA’s CBER Division of Manufacturing and Product Quality, or DMPQ, we obtained
FDA feedback on our proposed design for the multi-use clinical manufacturing facility in Pleasanton, California. Importantly, the
FDA concurred with our plan to build a facility designed to accommodate manufacture of multiple patient-specific lots in parallel
within the same manufacturing suite, which we expect will provide a substantial increase in scalability within a smaller allocation of
cleanrooms.
At our subsequent GRANITE Pre-IND meeting with OTAT, the FDA concurred with our proposed use of select rapid release
testing methods in which we proposed replacing standard cell-culture based tests with faster polymerase chain reaction methods. As
discussed with the FDA, we submitted qualification of these methods in our IND submission for GRANITE. The FDA also found our
proposed stability program to be generally acceptable to support the proposed Phase 1 clinical study of GRANITE, where only one
representative patient lot per year will be placed on product stability during conduct of the clinical program.
In support of transitioning the GRANITE manufacturing process from external contract manufacturing organizations to
Gritstone’s Pleasanton manufacturing facility, an IND amendment has been submitted to the FDA outlining the Chemistry,
Manufacturing, and Controls documentation changes for the ChAdV and SAM products. These revisions include a plasmid backbone
change for the SAM vector and a process improvement for the SAM drug substance. These updates have been implemented and are
currently being utilized in Gritstone’s Pleasanton manufacturing facility.
GRANITE Regulatory Milestones
The FDA cleared our IND for GRANITE in September 2018. In December 2018, the FDA granted Fast Track designation to
GRANITE for the treatment of colorectal cancer.
SLATE Development Program
Preclinical Safety
In pre-IND communications with the FDA, following a justification of comparability of ChAdV and SAM products, Gritstone
received feedback that pre-clinical pharmacology, pharmacokinetic, and toxicology studies conducted in support of the GRANITE
IND, could be used to support the safety of the clinical study proposed under the SLATE IND. In follow-up, the Agency requested
additional safety pharmacology information on the general anticipated immunogenicity and auto-reactivity elicited with each of the 20
neoantigens expressed in the SLATE cassette, as well as the impact of order and orientation of the neoantigens within the expression
cassette.
Clinical Regulatory
In our SLATE Pre-IND communication with OTAT, the FDA previewed Clinical Protocol GO-005 and confirmed that the
overall design appeared reasonable and requested we add language to clarify our proposed dose escalation and stopping rules. The
FDA had additional questions on our proposed Next Generation Sequencing method to screen patients for their human leukocyte
antigen (HLA) type and communicated that this novel method may be viewed as a companion diagnostic.
43
Regulatory Chemistry, Manufacturing & Controls
In review of the SLATE IND, much of the manufacturing process is similar to that used in the GRANITE IND, therefore, the
Agency feedback focused primarily on the quality of the reagents, drug product characterization and release, and ongoing stability
requests. The FDA inquired on the status of certain research-grade reagents and reminded Gritstone of the need to progress to GMP
grade materials in the manufacture drug product by the time of BLA approval and commercial licensure. In order to retain consistency
in the manufactured drug product across SLATE batches, we were asked to amend the specification of certain release assays’ criteria
and continue the development of quantitative potency assays for the ChAdV and SAM products prior to approval, and we were asked
to summarize our QC plan to prevent, detect, and correct deficiencies that may compromise product integrity or function, or that may
lead to the possible transmission of adventitious infectious agents. Additionally, the Agency provided guidance on the proposed
method for qualifying Gritstone’s proposed accelerated adventitious agent release assay.
SLATE Regulatory Milestones
The FDA cleared our IND for SLATE in June 2019.
Financial Information About Segments
We manage our operations as a single reportable segment for the purposes of assessing performance and making operating
decisions. See "Note 2. Summary of Significant Accounting Policies" in the notes to the financial statements included elsewhere in
this Annual Report on Form 10-K.
Employees
As of December 31, 2019, we had 174 full-time employees, including a total of 39 employees with M.D. or Ph.D. degrees.
Within our workforce, 147 employees are engaged in research and development, 64 in manufacturing and quality, and 27 are engaged
in business development, finance, legal, human resources, facilities, information technology and general management and
administration. 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 founded in August 2015 as a Delaware corporation. Our principal executive offices are located at 5959 Horton Street,
Suite 300, Emeryville, California 94608, and our telephone number is (510) 871-6100. Our website address is
www.gritstoneoncology.com. The information on, or that can be accessed through, our website is not part of this report and is not
incorporated by reference herein. We have included our website address as an inactive textual reference only. We also use our website
as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD.
We file electronically with the SEC our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We make
available on our website at www.gritstoneoncology.com, free of charge, copies of these reports, as soon as reasonably practicable after
we electronically file such material with, or furnish it to, the SEC. The public may read or copy any materials we file with the SEC at
the SEC's Public Reference Room at 100 F Street NE, Washington, D.C. 20549. The public may obtain information on the operation
of the Public Reference Room by calling the SEC at 1- 800-SEC-0330. The SEC maintains a website that contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is
www.sec.gov. The information in or accessible through the SEC and our website or social media sites does not constitute part of this
Annual Report on Form 10-K or any other report or document we file with the SEC, and any references to our website and social
media sites are intended to be inactive textual references only.
We use Gritstone Oncology, Inc.®, the Gritstone Oncology logo, and other marks as trademarks in the United States and other
countries. This Annual Report on Form 10-K contains references to our trademarks and service marks and to those belonging to other
entities. Solely for convenience, trademarks and trade names referred to in this Annual Report on Form 10-K, including logos, artwork
and other visual displays, may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that we
will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and
trade names. We do not intend our use or display of other entities’ trade names, trademarks or service marks to imply a relationship
with, or endorsement or sponsorship of us by any other entity.
44
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well
as the other information in this Annual Report on Form 10-K, including our financial statements and the related notes and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our
common stock. The occurrence of any of the events or developments described below could have a material adverse effect on our
business, results of operations, financial condition, prospects and stock price. In such an event, the market price of our common stock
could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business operations.
Risks Related to Our Limited Operating History, Financial Condition and Capital Requirements
We are an early-stage biopharmaceutical company with a limited operating history and no products approved for commercial sale.
We have incurred significant losses since our inception, and we anticipate that we will continue to incur significant losses for the
foreseeable future, which, together with our limited operating history, makes it difficult to assess our future viability.
Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are
an early-stage biopharmaceutical company, and we have only a limited operating history upon which you can evaluate our business
and prospects. We have no products approved for commercial sale, have not generated any revenue from product sales and have
incurred losses in each year since our inception in August 2015. In addition, we have limited experience and 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. We initiated our Phase 1/2 clinical trials, GO-004 for our first
personalized cancer immunotherapy candidate, GRANITE, in the fourth quarter of 2018 and GO-005 for our off-the-shelf cancer
immunotherapy candidate, SLATE, in the third quarter of 2019.
We have had significant operating losses since our inception. Our net losses for the years ended December 31, 2019, 2018 and
2017 were approximately $94.4 million, $64.8 million and $41.4 million, respectively. As of December 31, 2019, we had an
accumulated deficit of $221.0 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. Our SLATE,
GRANITE, and BiSAb programs 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. In addition, we expect to incur additional costs
associated with operating as a public company. We also do not yet have a sales organization or commercial infrastructure and,
accordingly, if our product candidates are approved, we will incur significant expenses to develop a sales organization or commercial
infrastructure in advance of generating any commercial product sales. We expect to continue to incur losses for the foreseeable future,
and we anticipate these losses will increase as we continue to develop SLATE, GRANITE, the BiSAb program and any future product
candidates, conduct clinical trials and pursue research and development activities. Even if we achieve profitability in the future, we
may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, have had and
will continue to have an adverse effect on our stockholders’ equity and working capital.
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.
Since our inception, we have invested a significant portion of our efforts and financial resources in research and development
activities for tumor-specific cancer immunotherapies, and working to establish our in-house manufacturing capabilities. Preclinical
studies and clinical trials and additional research and development activities will require substantial funds to complete. As of
December 31, 2019, we had capital resources consisting of cash, cash equivalents and marketable securities of $127.8 million. We
believe that we will continue to expend substantial resources for the foreseeable future in connection with the development of SLATE,
GRANITE, our BiSAb program, and any other future cancer immunotherapy candidates we may choose to pursue, as well as the
continued development of our manufacturing capabilities and other corporate uses. Specifically, in the near term, we expect to incur
substantial expenses as we advance SLATE and GRANITE through clinical development, seek regulatory approval, prepare for and, if
approved, proceed to commercialization, continue our research and development efforts and invest in our manufacturing facility.
These expenditures will include costs associated with conducting preclinical studies and clinical trials, obtaining regulatory approvals,
and manufacturing and supply, as well as marketing and selling any products approved for sale. In addition, other unanticipated costs
may arise. Because the outcome of any preclinical study or clinical trial is highly uncertain, we cannot reasonably estimate the actual
amounts necessary to successfully complete the development and commercialization of SLATE, GRANITE or any future
immunotherapy product candidates.
45
We believe that our existing cash, cash equivalents and marketable securities will be sufficient to fund our planned operations
for at least 12 months and through preliminary safety and efficacy data for both Phase 1/2 clinical trials for SLATE and GRANITE.
However, our operating plans and other demands on our capital 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
sources, such as strategic collaborations. Such financing may result in dilution to stockholders, imposition of burdensome debt
covenants and repayment obligations, or other restrictions that may affect our business. If we raise additional funds through licensing
or collaboration arrangements with third parties, we may have to relinquish valuable rights to our product candidates, or grant licenses
on terms that are not favorable to us. 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. 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. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us,
if at all.
Our future capital requirements depend on many factors, including:
•
•
•
•
•
•
•
•
•
the scope, progress, results and costs of conducting studies and clinical trials for our SLATE product candidate series,
including the Phase 1/2 clinical trial for SLATE, which we initiated in the third quarter of 2019;
the scope, progress, results and costs of developing our tumor-specific immunotherapy product candidates, and conducting
preclinical studies and clinical trials, including our Phase 1/2 clinical trial for GRANITE, which we initiated in the fourth
quarter of 2018;
the scope, progress, results and costs of conducting drug discovery, preclinical studies and clinical trials for our BiSAb
program, for which we expect to select a product candidate in the second half of 2020;
the timing of, and the costs involved in, obtaining regulatory approvals for our tumor-specific immunotherapy candidates;
the number and characteristics of any additional product candidates we develop or acquire;
the timing and amount of any milestone, royalty or other payments we are required to make pursuant to any current or
future collaboration or license agreement;
the cost of manufacturing our tumor-specific immunotherapies we successfully commercialize, including the cost of scaling
up our internal manufacturing operations;
the cost of building a sales force in anticipation of product commercialization;
the cost of commercialization activities, including legal, compliance, marketing, sales and distribution costs;
• our ability to maintain existing, and establish new, strategic collaborations, licensing or other arrangements and the
financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments
due under any such agreement;
• any product liability or other lawsuits related to our products;
•
•
•
the expenses needed to attract, hire and retain skilled personnel;
the costs associated with being a public company;
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our intellectual property portfolio;
and
•
the timing, receipt and amount of sales of any future approved products, if any.
• Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds
are not available to us on a timely basis, we may be required to:
• delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities or eliminate
one or more of our development programs altogether; or
• delay, limit, reduce or terminate our efforts to establish manufacturing and sales and marketing capabilities or other
activities that may be necessary to commercialize our tumor-specific immunotherapy candidates, or reduce our flexibility in
developing or maintaining our sales and marketing strategy.
We also could be required to seek funds through arrangements with collaborators or others that may require us to relinquish
rights or jointly own some aspects of our technologies or product candidates that we would otherwise pursue on our own. We do not
expect to realize revenue from sales of products or royalties from licensed products in the foreseeable future, if at all, and unless and
until a product candidate is clinically tested, approved for commercialization and successfully marketed. To date, we have primarily
46
financed our operations through the sale of equity securities. We will be required to seek additional funding in the future and currently
intend to do so through collaborations, public or private equity offerings or debt financings, credit or loan facilities or a combination
of one or more of these funding sources. Our ability to raise additional funds will depend on financial, economic and other factors,
many of which are beyond our control. Additional funds may not be available to us on acceptable terms or at all. If we raise additional
funds by issuing equity securities, our stockholders will suffer dilution and the terms of any financing may adversely affect the rights
of our stockholders. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted,
rights superior to those of existing stockholders. Debt financing, if available, is likely to involve restrictive covenants limiting our
flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our
equity securities received any distribution of our corporate assets.
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our
operating results to fall below expectations.
Our quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future
operating results. These fluctuations may occur due to a variety of factors, many of which are outside of our control and may be
difficult to predict, including:
•
•
•
•
•
the timing and cost of, and level of investment in, research, development and commercialization activities, which may
change from time to time;
the timing of receipt of approvals from regulatory authorities in the United States and internationally;
the timing and status of enrollment for our clinical trials;
the cost of manufacturing, as well as building out our supply chain, which may vary depending on the quantity of
production, the cost of continuing to establish and scale up our internal manufacturing capabilities, and the terms of any
agreements we enter into with third-party suppliers;
timing and amount of any milestone, royalty or other payments due under any current or future collaboration or license
agreement;
• coverage and reimbursement policies with respect to our tumor-specific immunotherapy product candidates, if approved,
and potential future drugs that compete with our products;
• expenditures that we may incur to acquire, develop or commercialize additional products and technologies;
•
•
the level of demand for our cancer immunotherapy products, if approved, which may vary significantly over time;
the timing and success or failure of preclinical studies and 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; and
• future accounting pronouncements or changes in our accounting policies.
The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual
operating results. As a result, comparing our operating results 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 operating results 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.
Risks Related to Our Business
Our business is dependent on the successful development, regulatory approval and commercialization of our “off-the-shelf”
immunotherapy product candidate, SLATE, and our personalized immunotherapy product candidate, GRANITE, both of which
are in early stage clinical trials.
We have no products approved for sale. Both SLATE and GRANITE are in the early stages of clinical trials. As such, we face
significant translational risk with SLATE and GRANITE specifically and our tumor-specific immunotherapy approach generally. 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 SLATE and GRANITE, as well as other product candidates
47
derived from our tumor-specific immunotherapy approach, which may never occur. In the future, we may also become dependent on
other product candidates that we may develop or acquire; however, our product candidates based on our tumor-specific
immunotherapy approach have only been tested in a small number of humans and given our early stage of development, it may be
many years, if at all, before we have demonstrated the safety and efficacy of a personalized immunotherapy treatment sufficient to
warrant approval for commercialization.
We have not previously submitted a biologics license application, or BLA, to the FDA or similar regulatory approval filings to
comparable foreign authorities, for any product candidate, and we cannot be certain that our product candidates will be successful in
clinical trials or receive regulatory approval. Further, SLATE, GRANITE or any future product candidates may not receive regulatory
approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not
be able to continue our operations. Even if we successfully obtain regulatory approvals to market a product candidate, our revenue will
be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval and have commercial rights.
If the markets or patient subsets that we are targeting are not as significant as we estimate, we may not generate significant revenues
from sales of such products, if approved.
We plan to seek regulatory approval to commercialize our product candidates both in the United States and in selected foreign
countries. While the scope of regulatory approval generally is similar in other countries, in order to obtain separate regulatory
approval in other countries we must comply with numerous and varying regulatory requirements of such countries regarding safety
and efficacy. Other countries also have their own regulations governing, among other things, clinical trials and commercial sales, as
well as pricing and distribution of our product candidates, and we may be required to expend significant resources to obtain regulatory
approval and to comply with ongoing regulations in these jurisdictions.
The clinical and commercial success of our current and any future product candidates will depend on a number of factors,
including the following:
• our ability to raise any additional required capital on acceptable terms, or at all;
• our ability to complete IND-enabling studies and successfully submit an IND for future product candidates;
•
timely completion of our preclinical studies and clinical trials, which may be significantly slower, or cost more, than we
currently anticipate and will depend substantially upon the performance of third-party contractors;
• whether we are required by the FDA or similar foreign regulatory agencies to conduct additional clinical trials or other
studies beyond those planned to support approval of our product candidates;
• acceptance of our proposed indications and primary endpoint assessments relating to the proposed indications of our
product candidates by the FDA and similar foreign regulatory authorities;
• our ability to consistently manufacture on a timely basis our personalized and “off-the-shelf” immunotherapy candidates;
• our ability, and the ability of any third parties with whom we contract, to remain in good standing with regulatory agencies
and develop, validate and maintain commercially viable manufacturing processes that are compliant with current good
manufacturing practices, or cGMPs;
• our ability to demonstrate to the satisfaction of the FDA and similar foreign regulatory authorities the safety, efficacy and
acceptable risk-benefit profile of our product candidates;
•
the prevalence, duration and severity of potential side effects or other safety issues experienced with our product candidates
or future approved products, if any;
•
the timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities;
• achieving and maintaining, and, where applicable, ensuring that our third-party contractors achieve and maintain,
compliance with our contractual obligations and with all regulatory requirements applicable to our lead product candidates
or any future product candidates or approved products, if any;
•
the willingness of physicians, operators of hospitals and clinics and patients to utilize or adopt our personalized cancer
immunotherapy approach;
• our ability to successfully develop a commercial strategy and thereafter commercialize SLATE, GRANITE or any future
product candidates in the United States and internationally, if approved for marketing, sale and distribution in such
countries and territories, whether alone or in collaboration with others;
•
the availability of coverage and adequate reimbursement from managed care plans, private insurers, government payors
(such as Medicare and Medicaid) and other third-party payors for any of our product candidates that may be approved;
48
•
the convenience of our treatment or dosing regimen;
• acceptance by physicians, payors and patients of the benefits, safety and efficacy of our product candidates or any future
product candidates, if approved, including relative to alternative and competing treatments;
• patient demand for our current or future product candidates, if approved;
• our ability to establish and enforce intellectual property rights in and to our product candidates; and
• our ability to avoid third-party patent interference, intellectual property challenges or intellectual property infringement
claims.
These factors, many of which are beyond our control, could cause us to experience significant delays or an inability to obtain
regulatory approvals or commercialize our current or future product candidates. Even if regulatory approvals are obtained, we may
never be able to successfully commercialize any product candidates. Accordingly, we cannot provide assurances that we will be able
to generate sufficient revenue through the sale of our product candidates or any future product candidates to continue our business or
achieve profitability.
Our tumor-specific cancer immunotherapy approach is based on novel ideas and technologies that are unproven and may not
result in marketable products, which exposes us to unforeseen risks and makes it difficult for us to predict the time and cost of
product development and potential for regulatory approval.
We are using our proprietary EDGE tumor-antigen prediction platform to develop tumor-specific immunotherapy product
candidates to treat cancer. Our foundational science and product development approach are based on our ability to predict the presence
of a patient’s tumor-specific neoantigens, or TSNA, and develop a TSNA-directed therapy that will elicit a meaningful T cell
response. We believe that this approach may offer an improved therapeutic effect by driving an intense, focused T cell attack
selectively upon a patient’s tumor. However, this approach to treating cancer is novel and the scientific research that forms the basis of
our efforts to predict the presence of TSNA and to develop TSNA-directed cancer immunotherapy candidates is both preliminary and
limited. The results of our preclinical animal studies may not translate into humans. For example, our prediction model may fail to
accurately predict the presence of TSNA, resulting in little or no T cell activity, or our therapy may fail to elicit a significant or
durable enough T cell response to effectively destroy a tumor. As such, we cannot assure you that even if we are able to develop
personalized cancer immunotherapy candidates capable of recognizing TSNA and eliciting a T cell response, that such therapy would
safely and effectively treat cancers. We may spend substantial funds attempting to develop this approach and never succeed in
developing a marketable therapeutic.
No regulatory authority has granted approval for a cancer immunotherapy based on a heterologous prime-boost approach. As
such, we believe the FDA has limited experience with evaluating our approach, which may increase the complexity, uncertainty and
length of the regulatory approval process for our product candidates. We may never receive approval to market and commercialize any
product candidate. Even if we obtain regulatory approval, the approval may be for targets, disease indications, lines of therapy or
patient populations that are not as broad as we intended or desired or may require labeling that includes significant use or distribution
restrictions or safety warnings. We may be required to perform additional or unanticipated clinical trials to obtain approval or be
subject to post-marketing testing requirements to maintain regulatory approval. If our personalized immunotherapy candidates prove
to be ineffective, unsafe or commercially unviable, our entire technology platform and pipeline would have little, if any, value, which
would have a material and adverse effect on our business, financial condition, results of operations and prospects.
In addition, the regulatory approval process and clinical trial requirements for novel product candidates can be more expensive
and take longer than for other, better known or more extensively studied product candidates. For example, regulatory requirements
governing cell therapy and gene therapy products have changed frequently and may continue to change in the future. In addition to the
submission of an IND to the FDA, before initiation of a clinical trial in the United States, certain human clinical trials subject to the
National Institutes of Health, or NIH, Guidelines for Research Involving Recombinant DNA Molecules, or NIH Guidelines were
historically subject to review by the Recombinant DNA Advisory Committee, or RAC. On April 25, 2019, the NIH revised the NIH
Guidelines to remove protocol submission and reporting requirements and to eliminate the role of the RAC in human gene transfer
research. The previous RAC has been renamed the Novel and Exceptional Technology and Research Advisory Committee
(NExTRAC), which will advise the NIH Director on the scientific, safety, ethical, and social issues associated with emerging
biotechnologies. These trials will remain subject to the FDA’s oversight and other clinical trial regulations, and oversight at the local
level will continue as otherwise set forth in the NIH Guidelines. Specifically, under the NIH Guidelines, supervision of human gene
transfer trials includes evaluation and assessment by an institutional biosafety committee, or IBC, a local institutional committee that
reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety
of the research and identifies any potential risk to public health or the environment, and such review may result in some delay before
initiation of a clinical trial. While the NIH Guidelines are not mandatory unless the research in question is being conducted at or
sponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule research, many companies and
49
other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. Thus, even though we are no longer required to
submit a protocol for our product candidates to NIH, we will still be subject to significant regulatory oversight by the FDA and the
applicable IBC and institutional review board, or IRB, of each institution at which we or our collaborators conduct clinical trials of our
product candidates, and changes in applicable regulatory guidelines may lengthen the regulatory review process for our product
candidates, require additional studies or trials, increase development costs, lead to changes in regulatory positions and interpretations
or delay or prevent approval and commercialization of such product candidates.
Results of earlier studies and trials of our product candidates may not be predictive of future trial results.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure or delay can
occur at any time during the clinical trial process. Success in preclinical studies and early clinical trials does not ensure that later
clinical trials will be successful. A number of companies in the biotechnology and pharmaceutical industries have suffered significant
setbacks in clinical trials, even after positive results in earlier preclinical studies or clinical trials. These setbacks have been caused by,
among other things, preclinical findings made while clinical trials were underway and safety or efficacy observations made in clinical
trials, including previously unreported adverse events. Notwithstanding any potential promising results in earlier studies and trials, we
cannot be certain that we will not face similar setbacks. Even if our clinical trials are completed, the results may not be sufficient to
obtain regulatory approval for our product candidates. In addition, the results of our preclinical animal studies, including our non-
human primate studies, may not be predictive of the results of outcomes in human clinical trials. For example, our tumor-specific
cancer immunotherapy candidates and any future product candidates may demonstrate different chemical, biological and
pharmacological properties in patients than they do in laboratory studies or may interact with human biological systems in unforeseen
or harmful ways. Product candidates in later stages of clinical trials may fail to show the desired pharmacological properties or safety
and efficacy traits despite having progressed through preclinical studies and initial clinical trials. Even if we are able to initiate and
complete clinical trials, the results may not be sufficient to obtain regulatory approval for our product candidates.
Clinical development involves a lengthy and expensive process with an uncertain outcome, and delays can occur for a variety of
reasons outside of our control.
Clinical development is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can
occur at any time during the clinical trial process. Although we initiated our Phase 1/2 clinical trials, GO-004 in the fourth quarter of
2018 and GO-005 in the third quarter of 2019, we may experience delays in enrolling or completing those trials. Additionally, we
cannot be certain that studies or trials for SLATE, GRANITE or any future product candidates will begin on time, not require
redesign, enroll an adequate number of subjects on time or be completed on schedule, if at all. Clinical trials can be delayed or
terminated for a variety of reasons, including delays or failures related to:
•
the FDA or comparable foreign regulatory authorities disagreeing as to the design or implementation of our clinical trials;
• delays in obtaining regulatory authorization to commence a trial;
• reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites,
the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
• obtaining IRB, and, where required, IBC approval at each trial site;
• recruiting an adequate number of suitable patients to participate in a trial;
• having subjects complete a trial or return for post-treatment follow-up;
• clinical sites deviating from trial protocol or dropping out of a trial;
• addressing subject safety concerns that arise during the course of a trial;
• adding a sufficient number of clinical trial sites;
• obtaining sufficient quantities of product candidates for use in preclinical studies or clinical trials from third-party suppliers;
or
• accessing checkpoint inhibitors for use in combination with our product candidates in preclinical studies or clinical trials,
including checkpoint inhibitors that have not been approved by the FDA for such use.
We may experience numerous adverse or unforeseen events during, or as a result of, preclinical studies and clinical trials that
could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:
• we may receive feedback from regulatory authorities that requires us to modify the design of our clinical trials;
50
• clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may
require us, to conduct additional clinical trials or abandon our development programs, including our personalized cancer
immunotherapy program;
•
the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in
these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than
we anticipate;
• we or our third-party contractors may fail to comply with regulatory requirements, fail to maintain adequate quality
controls, or be unable to produce sufficient product supply to conduct and complete preclinical studies or clinical trials of
our product candidates in a timely manner, or at all;
• we or our investigators might have to suspend or terminate clinical trials of our product candidates for various reasons,
including non-compliance with regulatory requirements, a finding that our product candidates have undesirable side effects
or other unexpected characteristics, or a finding that the participants are being exposed to unacceptable health risks;
•
•
the cost of clinical trials of our product candidates may be greater than we anticipate;
the quality of our product candidates or other materials necessary to conduct preclinical studies or clinical trials of our
product candidates may be insufficient or inadequate;
• regulators may revise the requirements for approving our product candidates, or such requirements may not be as we
anticipate; and
• future collaborators may conduct clinical trials in ways they view as advantageous to them but that are suboptimal for us.
If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently
contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these
trials or tests are not positive or are only moderately positive or if there are safety concerns, we may:
•
incur unplanned costs;
• be delayed in obtaining marketing approval for our product candidates or not obtain marketing approval at all;
• obtain marketing approval in some countries and not in others;
• obtain marketing approval for indications or patient populations that are not as broad as intended or desired;
• obtain marketing approval with labeling that includes significant use or distribution restrictions or safety warnings,
including boxed warnings;
• be subject to additional post-marketing testing requirements, which could be expensive and time consuming; or
• have the treatment removed from the market after obtaining marketing approval.
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 the Data Safety Monitoring Board, or DSMB, for such trial or by the FDA or other regulatory
authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the
clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site
by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side
effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions
or lack of adequate funding to continue the clinical trial.
Further, conducting clinical trials in foreign countries, as we may do for certain of our product candidates, presents additional
risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere
to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens
associated with foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries.
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 a regulatory authority concludes that the financial relationship may have affected the
interpretation of the trial, 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 the marketing application we submit. Any such
delay or rejection could prevent or delay us from commercializing our current or future product candidates.
51
If any of our preclinical studies or clinical trials of our product candidates are delayed or terminated, the commercial prospects
of our product candidates may be harmed, and our ability to generate revenues from any of these product candidates will be delayed or
not realized at all. In addition, any delays in completing our clinical trials may increase our costs, slow down our product candidate
development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these
occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead
to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our
product candidates. If SLATE, GRANITE, any future product candidates or our TSNA prediction platform generally prove to be
ineffective, unsafe or commercially unviable, our entire platform and approach would have little, if any, value, which would have a
material and adverse effect on our business, financial condition, results of operations and prospects.
As a result of our trial design for GO-004 and GO-005, the Phase 1 portion of the trials will provide little evidence of the efficacy of
our personalized immunotherapy product candidate, GRANITE and the off-the-shelf immunotherapy candidate, SLATE,
respectively.
Scientific principles and preclinical data suggest that combination treatment of cancer patients with our TSNA-directed
immunotherapy product candidates plus checkpoint inhibitors is likely to be most effective for our target indications. The Phase 1
portion of both of our Phase 1/2 clinical trials, GO-004 and GO-005, will, consequently, involve administration of a combination
therapy with GRANITE and SLATE, respectively. Notably, all patients in the Phase 1 portion of these trials will receive anti-PD-1
monoclonal antibodies, or mAb, as background therapy. Some patients in both trials will additionally receive anti-CTLA-4 mAb.
Checkpoint inhibitors such as anti-PD-1 and anti-CTLA-4 mAb are known to be effective treatments in many cancer patients and
elicit objective responses in some patients. Any objective responses observed in our Phase 1 trials will thus be in patients receiving our
experimental therapy together with a checkpoint inhibitor and attribution of objective responses to the effects of GRANITE or SLATE
alone will not be possible. We expect that efficacy will be studied carefully in the respective programs’ Phase 2 cohorts, in which the
relative contributions of our personalized and off-the-shelf immunotherapy candidates and the checkpoint inhibitors will be dissected
and quantified to some degree. Of note, patient eligibility for our clinical trials is determined based, in part, upon predicted
immunogenicity of the patient’s tumor. In particular, we only accept patients predicted to have a neoantigenic burden above a certain
threshold. Selection of high-immunogenicity tumors is relevant to interpretation of clinical data, since high immunogenicity (which is
related to high tumor mutational burden) may be a positive prognostic factor that means our selected patients would have a clinical
outcome upon standard therapy which is superior to unselected case controls. As a result, interpretation of “time-to-event” endpoints
such as progression-free survival or overall survival will be challenging without a contemporaneous, randomized control group. As a
result, the Phase 1 portions of our respective Phase 1/2 clinical trials will provide little evidence of the efficacy of GRANITE or
SLATE, which may not be fully understood by investors or market participants, potentially leading to negative effects on our stock
price.
We may be unable to obtain regulatory approval for our tumor-specific immunotherapy product candidates under applicable
regulatory requirements. The denial or delay of any such approval would delay or prevent commercialization of our product
candidates and adversely impact our potential to generate revenue, our business and our results of operations.
To gain approval to market our tumor-specific immunotherapy product candidates, we must provide the FDA and foreign
regulatory authorities with clinical data that adequately demonstrate the safety and efficacy of the product candidate for the intended
indication applied for in the applicable regulatory filing. Product development is a long, expensive and uncertain process, and delay or
failure can occur at any stage of any of our clinical development programs. A number of companies in the biotechnology and
pharmaceutical industries have suffered significant setbacks in clinical trials, even after promising results in earlier preclinical or
clinical trials. These setbacks have been caused by, among other things, preclinical findings made while clinical studies were
underway and safety or efficacy observations made in clinical trials, including previously unreported adverse events. Success in
preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the results of clinical trials by
other parties may not be indicative of the results in trials we may conduct.
52
We have not previously submitted a BLA or any other marketing application to the FDA or similar filings to comparable
foreign regulatory authorities. A BLA or other similar regulatory filing requesting approval to market a product candidate must
include extensive preclinical and clinical data and supporting information to establish that the product candidate is safe, pure and
potent for each desired indication. The BLA or other similar regulatory filing must also include significant information regarding the
chemistry, manufacturing and controls for the product.
The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of biologic products are subject to
extensive regulation by the FDA and other regulatory authorities in the United States and other countries, and such regulations differ
from country to country. We are not permitted to market our product candidates in the United States or in any foreign countries until
they receive the requisite approval from the applicable regulatory authorities of such jurisdictions.
The FDA or any foreign regulatory bodies can delay, limit or deny approval of our product candidates for many reasons,
including:
• our inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory body that any of our product
candidates are safe and effective for the requested indication;
•
the FDA’s or the applicable foreign regulatory agency’s disagreement with our trial protocols or the interpretation of data
from preclinical studies or clinical trials;
• our inability to demonstrate that the clinical and other benefits of any of our product candidates outweigh any safety or
other perceived risks;
•
•
•
•
the FDA’s or the applicable foreign regulatory agency’s requirement for additional preclinical studies or clinical trials;
the FDA’s or the applicable foreign regulatory agency’s non-approval of the formulation, labeling or specifications of
SLATE, GRANITE or any of our future product candidates;
the FDA’s or the applicable foreign regulatory agency’s failure to approve our manufacturing processes and facilities or the
facilities of third-party manufacturers upon which we rely; or
the potential for approval policies or regulations of the FDA or the applicable foreign regulatory agencies to significantly
change in a manner rendering our clinical data insufficient for approval.
Of the large number of biopharmaceutical products in development, only a small percentage successfully complete the FDA or
other regulatory bodies’ approval processes and are commercialized.
Even if we eventually complete clinical testing and receive approval from the FDA or applicable foreign agencies for any of
our product candidates, the FDA or the applicable foreign regulatory agency may grant approval contingent on the performance of
costly additional clinical trials which may be required after approval. The FDA or the applicable foreign regulatory agency also may
approve our lead product candidate for a more limited indication or a narrower patient population than we originally requested, and
the FDA, or applicable foreign regulatory agency, may not approve our product candidates with the labeling that we believe is
necessary or desirable for the successful commercialization of such product candidates.
Any delay in obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of our
product candidates and would materially adversely impact our business and prospects.
We have chosen to prioritize development of our off-the-shelf immunotherapy candidate, SLATE, and our personalized
immunotherapy candidate, GRANITE. We may expend our limited resources on candidates or indications that do not yield a
successful product and fail to capitalize on other product candidates or indications for which there may be a greater likelihood of
success or may be more profitable.
We are currently developing our personalized cancer immunotherapy candidates based on the prediction of a patient’s TSNA,
in order to address a variety of cancers, including metastatic non-small cell lung cancer, or NSCLC, and gastroesophageal, bladder and
colorectal cancers. Our off-the-shelf product candidate clinical trial will address mutation positive and metastatic and advanced solid
tumors, including NSCLC, colorectal and pancreatic cancers. We have strategically determined to initially focus solely on the
development of personalized cancer immunotherapy candidates (including our “off-the-shelf” immunotherapy candidate) rather than
pursue other types of immunotherapies based, in part, on the significant resources required to develop and manufacture
immunotherapies. As a result, we may initially be foregoing other potentially more profitable therapy indications or those with a
greater likelihood of success.
53
Our decisions concerning the allocation of research, development, collaboration, management and financial resources toward
particular product candidates or therapeutic areas may not lead to the development of any viable commercial product and may divert
resources away from better opportunities. Similarly, our potential decisions to delay, terminate or collaborate with third parties in
respect of certain programs may subsequently also prove to be suboptimal and could cause us to miss valuable opportunities. If we
make incorrect determinations regarding the viability or market potential of any of our programs or product candidates or misread
trends in the oncology or biopharmaceutical industry, our business, financial condition and results of operations could be materially
adversely affected. As a result, we may fail to capitalize on viable commercial products or profitable market opportunities, be required
to forego or delay pursuit of opportunities with other product candidates or other diseases and disease pathways that may later prove to
have greater commercial potential than those we choose to pursue, or relinquish valuable rights to such product candidates through
collaboration, licensing or other royalty arrangements in cases in which it would have been advantageous for us to invest additional
resources to retain development and commercialization rights.
If we are unable to obtain regulatory approval for use of our tumor-specific immunotherapy candidates, SLATE and GRANITE,
as a first- and second-line therapy, our commercial opportunity and profitability may be limited.
Cancer therapies for advanced/metastatic cancers are sometimes characterized as first line, second line or third line, and the
FDA often approves new systemic therapies initially only for third line use. When cancer is detected early enough, surgery plus first-
line systemic therapy is sometimes adequate to cure the cancer. Whenever first-line therapy, usually chemotherapy, hormone therapy,
radiotherapy, surgery or a combination of these, proves unsuccessful, second line therapy may be administered. Second-line therapies
often consist of more chemotherapy, radiation, antibody drugs, tumor targeted small molecules or a combination of these. Third-line
therapies can include bone marrow transplantation, antibody and small molecule targeted therapies and new technologies such as
adoptive cell therapies.
Traditionally, novel therapeutics are developed and approved in late (third) line therapy of cancer patients. Such clinical
programs carry risk of failure because patients are often quite frail, with effects of multiple rounds of prior therapy weakening bone
marrow, immune systems and general fitness. Immunotherapy, such as checkpoint inhibitors, has generally been shown to be more
effective when used in earlier lines of therapy, with prospect of very durable responses in some patients and there is a trend towards
earlier use of these agents, avoiding in particular cytotoxic chemotherapy agents which carry substantial toxicity and very little
prospect of long-term responses. “Off-the-shelf” product candidates such as SLATE and tumor-specific immunotherapy product
candidates such as GRANITE, are expected to be administered in combination with checkpoint inhibitors and can, in principle, be
safely used in early lines of therapy. Our clinical development program also aims to study our products in early stages of cancer
treatment (referred to as, adjuvant therapy), which carry a higher safety bar, and often a greater expectation of efficacy over control
arms. Such studies may thus be relatively large and slow to achieve maturity. There are new tools available to stratify cancer patients
for risk of recurrence or progression, such as liquid biopsies that measure the amount of circulating tumor-derived DNA. We will
utilize these tools to attempt to expedite clinical trials in early-stage cancer patients by focusing upon patients at above-average risk of
disease recurrence or progression, which events are typical endpoints in clinical trials. The development of liquid biopsies is at an
early stage, however, and these tools may prove to carry low utility and thus render early-stage cancer trials slow, necessarily large
and expensive. The safety of our product candidates in combination with checkpoint inhibitors in early lines of therapy may also prove
to be unacceptable.
We expect to seek approval of our product candidates both as late-line therapy where appropriate, but also as a second line and
first line therapy wherever possible and potentially as adjuvant therapy. There is no guarantee that our product candidates, even if
approved in late-line therapy, would be approved for second-line or first-line or adjuvant therapy. In addition, we may have to conduct
additional clinical trials prior to gaining approval for second-line or first-line or adjuvant therapy.
While our SLATE product is designed to be readily available (off-the-shelf), GRANITE will initially take approximately 16-
20 weeks to be manufactured and released for human use, and this long timeline demands that either patients are consented and
entered into our trials when they start a prior line of therapy, and start our therapy upon disease progression, or we initiate treatment in
patients who have entered the maintenance phase of their original line of treatment. For example, we might enroll newly diagnosed
patients who are due to receive front-line chemotherapy and then start their therapy with our immunotherapy product candidate as
second-line treatment when they progress upon front-line chemotherapy or fail to tolerate it. This carries the risk of time delays or
drop-out, i.e. patients may not progress after first-line chemotherapy for a long time, or they may decide not to receive an
immunotherapy product candidate we have manufactured for them, at our expense. Alternatively we may treat first-line patients once
they have completed their initial treatment and have not progressed (called maintenance therapy)—this renders efficacy harder to
interpret versus simple treatment studies (any objective response cannot clearly be attributed to our products) and may be complicated
by standard of care treatments which may necessarily be continued alongside our immunotherapy candidates, further confounding
interpretation of efficacy.
54
Our projections of both the number of people who have the cancers we are targeting, as well as the subset of people with these
cancers in a position to receive third-line therapy and who have the potential to benefit from treatment with our product candidates, are
based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys
of clinics, patient foundations, and market research and may prove to be incorrect. Regulatory authorities also may establish narrower
definitions around when a patient is ineligible for other treatments than we have used in our projections, and that would reduce the
size of the patient population eligible for our product candidates. Further, new studies may change the estimated incidence or
prevalence of these cancers. The number of patients may turn out to be lower than expected. Additionally, the potentially addressable
patient population for our product candidates may be limited or may not be amenable to treatment with our product candidates. For
instance, we anticipate that only a fraction of colorectal cancer patients will be predicted to have a high enough probability of TSNA
presence to merit their inclusion into our program. Even if we obtain significant market share for our product candidates, because the
potential target populations are small, we may never achieve profitability without obtaining regulatory approval for additional
indications, including use as a first-line or second-line therapy.
We may not be successful in our efforts to create a pipeline of immunotherapy candidates or to develop commercially successful
products. If we fail to successfully develop additional product candidates, our commercial opportunity may be limited.
We are committed to developing personalized cancer immunotherapies to fight multiple cancer types and are currently
advancing multiple product candidates to address a variety of cancers, including metastatic NSCLC and colorectal, gastroesophageal,
pancreatic, and bladder cancers as well as other mutation-positive cancers in our SLATE program. Utilizing our EDGE platform, we
believe we can develop multiple therapeutic classes of products that will generate a T cell immune response unleashing the natural
power of the immune system on the tumor cells. However, one or more of these alternative therapeutic products may never be
successfully validated in a human. In addition, identifying, developing, obtaining regulatory approval for and commercializing
therapies for the treatment of cancer will require substantial additional funding and is prone to the risks of failure inherent in
therapeutic product development. Research programs to identify product candidates also require substantial technical, financial and
human resources, regardless of whether or not any product candidates are ultimately identified, and, even if our research programs
initially show promise in identifying potential product candidates, they may fail to yield product candidates for clinical development.
We therefore cannot provide any assurance that we will be able to successfully identify additional product candidates, advance
any of these additional product candidates through the development process, successfully commercialize any such additional product
candidates, if approved, or assemble sufficient resources to identify, acquire, develop or, if approved, commercialize additional
product candidates. If we are unable to successfully identify, acquire, develop and commercialize additional product candidates, our
commercial opportunity may be limited.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or
otherwise adversely affected.
The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll
a sufficient number of patients who remain in the study until its conclusion. We may experience difficulties in patient enrollment in
our clinical trials for a variety of reasons. The enrollment of patients depends on many factors, including:
•
•
•
•
the patient eligibility criteria defined in the protocol;
the size of the patient population required for analysis of the trial’s primary endpoints;
the proximity of patients to trial sites;
the design of the trial;
• our ability to recruit clinical trial investigators with the appropriate competencies and experience;
• clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other
available therapies, including any new therapies that may be approved for the indications we are investigating; and
• our ability to obtain and maintain patient consents.
In addition, our clinical trials may compete with other clinical trials for product candidates that are in the same therapeutic
areas as our product candidates, and this competition will reduce the number and types of patients available to us, because some
patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors.
Since the number of qualified clinical investigators is limited, we may conduct some of our clinical trials at the same clinical trial sites
that some of our competitors use, which will reduce the number of patients who are available for our clinical trials in such clinical trial
site.
55
Further, the targeting of TSNA may result in unforeseen events, including harming healthy tissues in humans. As a result, it is
possible that safety concerns could negatively affect patient enrollment among the patient populations that we intend to treat. Delays
in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could
prevent completion of these trials and adversely affect our ability to advance the development of our product candidates.
Our tumor-specific immunotherapy product candidates may cause undesirable side effects or have other properties that could
delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative
consequences following marketing approval, if any.
As with most biological products, use of our product candidates could be associated with side effects or adverse events which
can vary in severity from minor reactions to death and in frequency from infrequent to prevalent. Undesirable side effects or
unacceptable toxicities 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. While we have only just initiated patient dosing in our clinical trials of GRANITE and SLATE and do not have
a comprehensive understanding of its risks, it is likely that there will be side effects associated with their use. Results of our trials
could reveal a high and unacceptable severity and prevalence of these or other side effects.
If unacceptable side effects arise in the development of our product candidates, we, the FDA, the IRBs at the institutions in
which our studies are conducted, or the DSMB could suspend or terminate our clinical trials or the FDA or comparable foreign
regulatory authorities could order us to cease clinical trials or deny approval of our product candidates for any or all targeted
indications. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete any of
our clinical trials or result in potential product liability claims. In addition, these side effects may not be appropriately recognized or
managed by the treating medical staff. We expect to have to train medical personnel using our product candidates to understand the
side effect profiles for our clinical trials and upon any commercialization of any of our product candidates. Inadequate training in
recognizing or managing the potential side effects of our product candidates could result in patient injury or death. Any of these
occurrences may harm our business, financial condition and prospects significantly.
In addition, even if we successfully advance one of our tumor-specific immunotherapy product candidates through clinical
trials, such trials will likely only include a limited number of subjects and limited duration of exposure to our product candidates. As a
result, we cannot be assured that adverse effects of our product candidates will not be uncovered when a significantly larger number of
patients are exposed to the product candidate. Further, any clinical trials may not be sufficient to determine the effect and safety
consequences of taking our product candidates over a multi-year period.
If any 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:
• regulatory authorities may withdraw their approval of the product;
• we may be required to recall a product or change the way such product is administered to patients;
• additional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the
product or any component thereof;
• regulatory authorities may require the addition of labeling statements, 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;
• we could be sued and held liable for harm caused to patients;
•
the product may become less competitive; and
• our reputation may suffer.
Any of the foregoing events could prevent us from achieving or maintaining market acceptance of the particular product
candidate, if approved, and result in the loss of significant revenues to us, which would materially and adversely affect our results of
operations and business. In addition, if one or more of our product candidates or our TSNA-directed immunotherapy approach
generally prove to be unsafe, our entire technology platform and pipeline could be affected, which would have a material and adverse
effect on our business, financial condition, results of operations and prospects.
56
Even if one of our tumor-specific immunotherapy product candidates obtains regulatory approval, it may fail to achieve the broad
degree of physician and patient adoption and use necessary for commercial success.
Even if one of our tumor-specific immunotherapy product candidates receives FDA or other regulatory approvals, 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 and rate of physician and patient adoption of our
current or future product candidates, if approved, will depend on a number of factors, including:
•
•
•
•
the clinical indications for which the product is approved and patient demand for approved products that treat those
indications;
the safety and efficacy of our product as compared to other available therapies;
the time required for manufacture and release of our personalized immunotherapy products;
the availability of coverage and adequate reimbursement from managed care plans, private insurers, government payors
(such as Medicare and Medicaid) and other third-party payors for any of our product candidates that may be approved;
• acceptance by physicians, operators of hospitals and clinics and patients of the product as a safe and effective treatment;
• physician and patient willingness to adopt a new therapy over other available therapies for a particular indication;
• proper training and administration of our product candidates by physicians and medical staff;
• patient satisfaction with the results and administration of our product candidates and overall treatment experience,
including, for example, the convenience of any dosing regimen;
•
•
•
•
the cost of treatment with our product candidates in relation to alternative treatments and reimbursement levels, if any, and
willingness to pay for the product, if approved, on the part of insurance companies and other third-party payers, physicians
and patients;
the prevalence and severity of side effects;
limitations or warnings contained in the FDA-approved labeling for our products;
the willingness of physicians, operators of hospitals and clinics and patients to utilize or adopt our products as a solution;
• any FDA requirement for a REMS;
•
the effectiveness of our sales, marketing and distribution efforts;
• adverse publicity about our products or favorable publicity about competitive products; and
• potential product liability claims.
We cannot assure you that our current or future product candidates, if approved, will achieve broad market acceptance among
physicians and patients. Any failure by our product candidates that obtain regulatory approval to achieve market acceptance or
commercial success would adversely affect our results of operations.
We currently manufacture a portion of our initial product candidates internally and rely on qualified third parties to supply
components of our initial product candidates. Our inability to manufacture sufficient quantities of SLATE, GRANITE or any
future product candidates, or the loss of our third-party suppliers, or our or their failure to comply with applicable regulatory
requirements or to supply sufficient quantities at acceptable quality levels or prices, or at all, would materially and adversely affect
our business.
Manufacturing is a vital component of our tumor-specific immunotherapy approach and we have invested significantly in our
manufacturing facility. To ensure timely and consistent product supply assurance to our patients we currently use a hybrid product
supply approach whereby certain elements of our initial product candidates are manufactured internally at our manufacturing facilities
in Pleasanton, California, and other elements are manufactured at qualified third-party contract manufacturing organizations, or
CMOs. All internal and third-party contract manufacturing is performed under cGMP guidelines. We plan to internalize a majority of
the manufacturing steps in the supply chain to optimize cost and production time, as well as establish full control over intellectual
property and product quality. To do so, we will need to continue to scale up our manufacturing operations, as we do not currently have
the infrastructure or capability internally to manufacture all supplies needed for our product candidates or the materials necessary to
produce our product candidates for use in the conduct of our preclinical studies or clinical trials, and we currently lack the internal
resources and the capability to manufacture certain elements of our product candidates on a clinical scale. Accordingly, we have made,
and will be required to continue to make, significant investments in our manufacturing facility and processing in the future, and our
efforts to scale our manufacturing operations may not succeed.
57
In addition, our facilities and the facilities used by our CMOs to manufacture our product candidates are subject to various
regulatory requirements and may be subject to the inspection of the FDA or other regulatory authorities. We do not control the
manufacturing process at our CMOs, and are completely dependent on them for compliance with current regulatory requirements. If
we or our CMOs cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements
of the FDA or comparable regulatory authorities in foreign jurisdictions, we may not be able to rely on our or their manufacturing
facilities for the manufacture of elements of our product candidates. In addition, we have limited control over the ability of our CMOs
to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory
authority finds our facilities or those of our CMOs inadequate for the manufacture of our product candidates or if such facilities are
subject to enforcement action in the future or are otherwise inadequate, 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.
Additionally, we and our CMOs may experience manufacturing difficulties due to resource constraints or as a result of labor
disputes or unstable political environments. If we or our CMOs were to encounter any of these difficulties, our ability to provide our
product candidates to patients in clinical trials, or to provide product for the treatment of patients once approved, would be
jeopardized.
Our tumor-specific product candidates are biologics with complex and time-consuming manufacturing processes and we may
encounter difficulties in production, particularly with respect to process development or scaling-out of our manufacturing
capabilities. If we or any of our third-party manufacturers encounter such difficulties, our ability to provide supply of our product
candidates for clinical trials or our products for patients, if approved, could be delayed or stopped, or we may be unable to
maintain a commercially viable cost structure.
Our tumor-specific immunotherapy product candidates, SLATE and GRANITE, are considered to be biologics and the
manufacturing processes are complex, time-consuming, highly-regulated and subject to multiple risks. SLATE is designed using
known genetic sequences available from public databases, while the manufacture of our product candidate GRANITE involves
extraction of genetic material from patient tumor samples. Both SLATE and GRANITE require genetic manipulations at the gene
sequence level, live cell culture operations, specialized formulations and aseptic fill finish operations. As a result of these
complexities, the cost to manufacture biologics in general, and our personalized immunotherapy GRANITE, in particular, is generally
higher than traditional small molecule chemical compounds, and the manufacturing process is less reliable and more difficult and
time-consuming to reproduce. For example, the entire cGMP manufacturing process from biopsy receipt to the release and shipment
of GRANITE to the clinical site for patient administration will initially take approximately 16-20 weeks. In addition, our
manufacturing process for both SLATE and GRANITE are in their early stages of development and will be susceptible to product loss
or failure, or product variation that may adversely impact patient outcomes. Our supply chain may not function efficiently due to
logistical issues associated with but not limited to the collection of a tumor biopsy from the patient, shipping such material to the
manufacturing site, sequencing the biopsy specimen, manufacturing the immunotherapy components, shipping the final
immunotherapy back to the patient, and injecting the patient with the immunotherapy. Manufacturing issues or different product
characteristics resulting from process development activities or even minor deviations during normal manufacturing processes could
result in reduced production yields, product defects and other supply disruptions. If for any reason we lose a patient’s biopsy or an in-
process product at any point in the process, the manufacturing process for that patient will need to be restarted and the resulting delay
may adversely affect that patient’s outcome. Because GRANITE is manufactured specifically for an individual patient, we will be
required to maintain a chain of identity and chain of custody with respect to materials as they move from the patient to the
manufacturing facility, through the manufacturing process, and back to the patient. Maintaining such a chain of identity and chain of
custody is difficult and complex, and the failure to do so could result in adverse patient outcomes, loss of product or regulatory action
including withdrawal of our products from the market, if licensed.
As part of our process development efforts for SLATE and GRANITE, we also may make changes to our manufacturing
processes at various points during development, for various reasons, such as controlling costs, achieving scale, decreasing processing
time, increasing manufacturing success rate, or other reasons. Such changes carry the risk that they will not achieve their intended
objectives, and any of these changes could cause our product candidates to perform differently and affect the results of our ongoing
clinical trials or future clinical trials. In some circumstances, changes in the manufacturing process may require us to perform ex vivo
comparability studies and to collect additional data from patients prior to undertaking more advanced clinical trials. For instance,
changes in our process during the course of clinical development may require us to show the comparability of the product used in
earlier clinical phases or at earlier portions of a trial to the product used in later clinical phases or later portions of the trial.
Furthermore, if microbial, viral or other contaminations are discovered in our supply of our product candidates or in our
manufacturing facilities or those of our CMOs, such manufacturing facilities may need to be closed for an extended period of time to
investigate and remedy the contamination. We cannot assure you that any such contaminations or stability failures or other issues
relating to the manufacture of our product candidates will not occur in the future.
58
We depend on third-party suppliers for key materials used in our manufacturing processes, and the loss of these third-party
suppliers or their inability to supply us with adequate materials could harm our business.
We rely on third-party suppliers for certain materials required for the production of our personalized immunotherapy
candidate. Our dependence on these third-party suppliers and the challenges we may face in obtaining adequate supplies of materials
involve several risks, including limited control over pricing, availability, quality and delivery schedules. As a small company, our
negotiation leverage is limited and we are likely to get lower priority than our competitors that are larger than we are. We cannot be
certain that our suppliers will continue to provide us with the quantities of these raw materials that we require or satisfy our anticipated
specifications and quality requirements. Any supply interruption in limited or sole sourced raw materials could materially harm our
ability to manufacture our product candidates until a new source of supply, if any, could be identified and qualified. We may be
unable to find a sufficient alternative supply channel in a reasonable time or on commercially reasonable terms. Any performance
failure on the part of our suppliers could delay the development and potential commercialization of our product candidates, including
limiting supplies necessary for clinical trials and regulatory approvals, which would have a material adverse effect on our business.
We rely on third parties in the conduct of all of our preclinical studies and intend to rely on third parties in the conduct of all of
our future clinical trials. If these third parties do not successfully carry out their contractual duties, fail to comply with applicable
regulatory requirements or meet expected deadlines, we may be unable to obtain regulatory approval for our tumor-specific
immunotherapy product candidates.
We currently do not have the ability to independently conduct preclinical studies that comply with the regulatory requirements
known as good laboratory practice, or GLP, requirements. We also do not currently have the ability to independently conduct any
clinical trials. The FDA and regulatory authorities in other jurisdictions require us to comply with regulations and standards,
commonly referred to as good clinical practice, or GCP, requirements for conducting, monitoring, recording and reporting the results
of clinical trials, in order to ensure that the data and results are scientifically credible and accurate and that the trial subjects are
adequately informed of the potential risks of participating in clinical trials. We rely on medical institutions, clinical investigators,
contract laboratories and other third parties, such as CROs, to conduct GLP-compliant preclinical studies and GCP-compliant clinical
trials on our product candidates properly and on time. While we have agreements governing their activities, we control only certain
aspects of their activities and have limited influence over their actual performance. The third parties with whom we contract for
execution of our GLP-compliant preclinical studies and our GCP-compliant clinical trials play a significant role in the conduct of
these studies and trials and the subsequent collection and analysis of data. These third parties are not our employees and, except for
restrictions imposed by our contracts with such third parties, we have limited ability to control the amount or timing of resources that
they devote to our programs. Although we rely on these third parties to conduct our GLP-compliant preclinical studies and GCP-
compliant clinical trials, we remain responsible for ensuring that each of our preclinical studies and clinical trials is conducted in
accordance with its investigational plan and protocol and applicable laws and regulations, and our reliance on the CROs does not
relieve us of our regulatory responsibilities.
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. Further, under certain circumstances, these third parties may terminate their agreements with us upon as little as
10 days’ prior written notice. Some of these agreements may also be terminated by such third parties under certain other
circumstances, including our insolvency. If the third parties conducting our preclinical studies or our clinical trials do not adequately
perform their contractual duties or obligations, experience significant business challenges, disruptions or failures, do not meet
expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the data they obtain is
compromised due to their failure to adhere to our protocols or to GLPs/GCPs, or for any other reason, we may need to enter into new
arrangements with alternative third parties. This could be difficult, costly or impossible, and our preclinical studies or clinical trials
may need to be extended, delayed, terminated or repeated. As a result, we may not be able to obtain regulatory approval in a timely
fashion, or at all, for the applicable product candidate, our financial results and the commercial prospects for our product candidates
would be harmed, our costs could increase, and our ability to generate revenues could be delayed.
Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key
leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or
otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely,
which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government
budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and
policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the
SEC and other government agencies on which our operations may rely, including those that fund research and development activities
is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by
necessary government agencies, which would adversely affect our business. For example, over the last several years, including for
59
thirty five days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies,
such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If
a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our
regulatory submissions, which could have a material adverse effect on our business.
We face significant competition in an environment of rapid technological and scientific change, and we will face significant
competition and our failure to effectively compete may prevent us from achieving significant market penetration. Most of our
competitors have significantly greater resources than we do, and we may not be able to successfully compete.
The biotechnology and pharmaceutical industries in particular are characterized by rapidly advancing technologies, intense
competition and a strong emphasis on developing proprietary therapeutics. We compete with a variety of multinational
biopharmaceutical companies and specialized biotechnology companies, as well as technology being developed at universities and
other research institutions. Our competitors have developed, are developing or will develop product candidates and processes
competitive with our product candidates. Competitive therapeutic treatments include those that have already been approved and
accepted by the medical community and any new treatments that enter the market. We believe that a significant number of product
candidates are currently under development, and may become commercially available in the future, for the treatment of diseases and
other conditions for which we may try to develop product candidates. There is intense and rapidly evolving competition in the
biotechnology, biopharmaceutical and antibody and immunoregulatory therapeutics fields. We believe that while our discovery
platform, its associated intellectual property and our scientific and technical know-how give us a competitive advantage in this space,
competition from many sources remains. Our competitors include larger and better funded biopharmaceutical, biotechnological and
therapeutics companies. Moreover, we also compete with current and future therapeutics developed at universities and other research
institutions.
Our success will partially depend on our ability to develop and protect therapeutics that are safer and more effective than
competing products. Our commercial opportunity and success will be reduced or eliminated if competing products that are safer, more
effective, or less expensive than the therapeutics we develop.
If either of SLATE and GRANITE is approved, it will compete with a range of therapeutic treatments that are either in
development or currently marketed. Indeed, a variety of oncology drugs and therapeutic biologics are on the market or in clinical
development. Such marketed therapies range from immune checkpoint inhibitors such as Bristol-Myers Squibb Company’s OPDIVO
and YERVOY, Merck & Co., Inc.’s KEYTRUDA and Genentech, Inc.’s TECENTRIQ, and T cell engager immunotherapies such as
Amgen, Inc.’s BLINCYTO. The most common therapeutic treatments for common solid tumors are chemotherapeutic compounds,
radiation therapy, targeted therapies and now immunotherapies.
In addition, numerous compounds are in clinical development for cancer treatment. The clinical development pipeline for
cancer includes small molecules, antibodies and immunotherapies from a variety of groups, including in the neoantigen space, the
bispecific antibody space and engineered cell therapy and T cell receptor, or TCR, space. Many of these companies are well-
capitalized and, in contrast to us, have significant clinical experience.
Many of our competitors have significantly greater financial, technical, manufacturing, marketing, sales and supply resources
or experience than we do. If we successfully obtain approval for any product candidate, we will face competition based on many
different factors, including the safety and effectiveness of our products, the ease with which our products can be administered and the
extent to which patients accept relatively new routes of administration, the timing and scope of regulatory approvals for these
products, the availability and cost of manufacturing, marketing and sales capabilities, price, reimbursement coverage and patent
position. Competing products could present superior treatment alternatives, including by being more effective, safer, less expensive or
marketed and sold more effectively than any products we may develop. Competitive products may make any products we develop
obsolete or noncompetitive before we recover the expense of developing and commercializing our product candidates. Such
competitors could also recruit our employees, which could negatively impact our level of expertise and our ability to execute our
business plan.
The successful commercialization of our product candidates will depend in part on the extent to which governmental authorities,
private health insurers, and other third-party payors provide coverage, adequate reimbursement levels and implement pricing
policies favorable for our product candidates. Failure to obtain or maintain coverage and adequate reimbursement for our product
candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue.
The availability of coverage and adequacy of reimbursement by managed care plans, 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
medical services and pharmaceutical products such as our product candidates that receive FDA approval. Our ability to achieve
acceptable levels of coverage and reimbursement for our products or procedures using our products by third-party payors will have an
60
effect on our ability to successfully commercialize our product candidates. Obtaining coverage and adequate reimbursement for our
products may be particularly difficult because of the higher prices often associated with drugs administered under the supervision of a
physician. Separate reimbursement for the product itself or the treatment or procedure in which our product is used may not be
available. A decision by a third-party payor not to cover or separately reimburse for our products or procedures using our products,
could reduce physician utilization of our products once approved. Assuming there is coverage for our product candidates, or
procedures using our product candidates 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 European Union or elsewhere will be available for our product candidates or procedures using our product candidates, or
any product that we may develop, and any reimbursement that may become available may not be adequate or 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 or biologics when an equivalent generic drug,
biosimilar or a less expensive therapy is available. It is possible that a third-party payor may consider our product candidates as
substitutable and only offer to reimburse patients for the less expensive product. Even if we show improved efficacy or improved
convenience of administration with our product candidates, pricing of existing third-party therapeutics may limit the amount we will
be able to charge for our product candidates. These third-party payors may deny or revoke the reimbursement status of our product
candidates, if approved, or establish prices for our product candidates at levels that are too low to enable us to realize an appropriate
return on our investment. If reimbursement is not available or is available only at limited levels, we may not be able to successfully
commercialize our product candidates, and may not be able to obtain a satisfactory financial return on our product candidates.
There is significant uncertainty related to the insurance coverage and reimbursement of newly-approved products, especially
novel products like our immunotherapy product candidates. No regulatory authority has granted approval for a tumor-specific cancer
immunotherapy based on a vaccine approach, and there is no model for reimbursement of this type of product. The Medicare and
Medicaid programs increasingly are used as models in the United States for how private payors and other governmental payors
develop their coverage and reimbursement policies for drugs and biologics. 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. We
cannot predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our product
candidates.
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 may require us to provide scientific and clinical support for
the use of our product candidates 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 on 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 have and
will continue to put pressure on the pricing and usage of our product candidates. 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 product candidates. Accordingly, in markets outside the United
States, the reimbursement for our product candidates 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 product candidates. We expect to experience pricing pressures in
connection with the sale of our product candidates due to the trend toward managed health care, the increasing influence of health
maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly
prescription drugs and biologics and surgical procedures and other treatments, has become intense. As a result, increasingly high
barriers are being erected to the entry of new products.
61
If we are unable to support demand for our existing or future services, including ensuring that we have adequate capacity to meet
increased demand, or we are unable to successfully manage the evolution of our EDGE platform, our business could suffer.
As the demand for our personalized and off-the-shelf immunotherapy candidates increases with our clinical trial needs, we will
need to continue to increase our workflow capacity for sample intake and general process improvements, expand our internal quality
assurance program, and extend our EDGE platform based on additional tumor data collected from our clinical trials at a larger scale
within expected turnaround times. We will need additional certified laboratory scientists and technicians and other scientific and
technical personnel to process higher volumes of tumor biopsies. Portions of our process are not automated and will require additional
personnel to scale. We will also need to purchase additional equipment, some of which can take several months or more to procure, set
up, and validate, and increase our software and computing capacity to meet increased volume. There is no assurance that any of these
increases in scale, expansion of personnel, equipment, software and computing capacities, or process enhancements will be
successfully implemented, or that we will have adequate space in our laboratory facilities to accommodate such required expansion.
As we progress into clinical development and expand our manufacturing capabilities, we will need to incorporate new
equipment, implement new technology systems and laboratory processes, and hire new personnel with different qualifications. Failure
to manage this growth or transition could result in turnaround time delays, higher service costs, declining service quality, deteriorating
customer service, and slower responses to competitive challenges. A failure in any one of these areas could make it difficult for us to
meet market expectations for our services and could damage our reputation and the prospects for our business.
We currently have no sales organization. If we are unable to establish sales capabilities on our own or through third parties, we
may not be able to market and sell our product candidates effectively in the United States and foreign jurisdictions, if approved, or
generate product revenue.
We currently do not have a marketing or sales organization. In order to commercialize our product candidates, if approved, in
the United States and foreign jurisdictions, we must build our marketing, sales, distribution, managerial and other non-technical
capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. If any of our
product candidates receive regulatory approval, we expect to establish a sales organization with technical expertise and supporting
distribution capabilities to commercialize each such product candidate, which will be expensive and time consuming. We have no
prior experience in the marketing, sale and distribution of pharmaceutical 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 choose to 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. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully
commercialize our product candidates. If we are not successful in commercializing our product candidates or any future product
candidates, 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.
We will need to increase the size of our organization, and we may experience difficulties in managing growth.
As of December 31, 2019, we had 174 full-time employees. We will need to continue to expand our managerial, operational,
finance and other resources in order to manage our operations and clinical trials, continue our development activities and
commercialize our lead product candidate or any future product candidates. Our management and personnel, systems and facilities
currently in place may not be adequate to support this future growth. Our need to effectively execute our growth strategy requires that
we:
• manage our preclinical studies and clinical trials effectively;
•
identify, recruit, retain, incentivize and integrate additional employees, including sales personnel;
• manage our internal development and operational efforts effectively while carrying out our contractual obligations to third
parties; and
• continue to improve our operational, financial and management controls, reports systems and procedures.
62
If we fail to attract and retain senior management and key scientific personnel, our business may be materially and adversely
affected.
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 President and 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 products, initiation or completion of our planned clinical trials or the
commercialization of our lead product candidate or any future product candidates.
Competition for qualified personnel in the biotechnology and biopharmaceutical fields is intense due to the limited number of
individuals who possess the skills and experience required by our industry. We will need to hire additional personnel as we expand our
clinical development and if we initiate commercial activities. We may not be able to attract and retain quality personnel on acceptable
terms, or at all. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they have been
improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their
research output.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit
commercialization of our current or future product candidates.
We face an inherent risk of product liability as a result of the planned clinical testing of our product candidates and will face an
even greater risk if we commercialize any products. For example, we may be sued if any product we develop allegedly causes injury
or is 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, negligence,
strict liability, and a breach of warranty. Claims could also be asserted under state consumer protection acts. If we cannot successfully
defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our
product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits
or eventual outcome, liability claims may result in:
• decreased demand for our current or future product candidates;
•
injury to our reputation;
• 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;
• regulatory investigations, product recalls, withdrawals or labeling, marketing or promotional restrictions;
•
•
loss of revenue; and
the inability to commercialize our current or any future product candidates.
Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect
against potential product liability claims could prevent or inhibit the commercialization of our current or any future product candidates
we develop. We currently carry product liability insurance covering our clinical trials in the amount of $10.0 million in the aggregate.
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 also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have
no coverage. We will 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 funds to pay such amounts. Moreover,
in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against
losses. If and when we obtain approval for marketing any of our product candidates, we intend to expand our insurance coverage to
include the sale of such product candidate; however, we may be unable to obtain this liability insurance on commercially reasonable
terms or at all.
63
Our strategic collaboration with bluebird, or any future collaboration arrangements that we may enter into, may not be successful,
which could significantly limit the likelihood of receiving the potential economic benefits of the collaboration and adversely affect
our ability to develop and commercialize our product candidates.
In August 2018, we entered into a strategic collaboration with bluebird to utilize our EDGE platform to identify and validate
tumor-specific targets and provide TCRs directed to ten selected targets for use in bluebird bio’s cell therapy products. Under the
collaboration, we are entitled to receive up to an aggregate of $1.2 billion in development, regulatory and commercial milestones and
tiered single digit royalties on sales of bluebird’s cell therapy products utilizing the TCRs we develop directed at the targets we
discovered. In addition, in the future we may seek to enter into additional collaboration arrangements for the development or
commercialization of certain of our product candidates depending on the merits of retaining commercialization rights for ourselves as
compared to entering into collaboration arrangements. To the extent that we decide to enter into collaboration agreements in the
future, we may face significant competition in seeking appropriate collaborators. Moreover, any collaboration arrangements are
complex and time-consuming to negotiate, document, implement and maintain and challenging to manage. We may not be successful
in our efforts with bluebird and we may never receive any milestone or royalty payments. Further, we may be unable to prudently
manage our existing collaboration or to enter new ones should we chose to do so. The terms of new collaborations or other
arrangements that we may establish may not be favorable to us.
The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators.
Collaborations are subject to numerous risks, which may include risks that:
• collaborators have significant discretion in determining the efforts and resources that they will apply to collaborations;
• collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or
renew development or commercialization programs based on clinical trial results, changes in their strategic focus due to
their acquisition of competitive products or their internal development of competitive products, availability of funding or
other external factors, such as a business combination that diverts resources or creates competing priorities;
• collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial, abandon
a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical
testing;
• collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with
our products or product candidates;
• a collaborator with marketing, manufacturing and distribution rights to one or more products may not commit sufficient
resources to or otherwise not perform satisfactorily in carrying out these activities;
• we could grant exclusive rights to our collaborators that would prevent us from collaborating with others;
• collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or
proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our
intellectual property or proprietary information or expose us to potential liability;
• disputes may arise between us and a collaborator that causes the delay or termination of the research, development or
commercialization of our current or future product candidates or that results in costly litigation or arbitration that diverts
management attention and resources;
• collaborations may be terminated, and, if terminated, this may result in a need for additional capital to pursue further
development or commercialization of the applicable current or future product candidates;
• collaborators may own or co-own intellectual property covering products that result from our collaboration with them, and
in such cases, we would not have the exclusive right to develop or commercialize such intellectual property;
• disputes may arise with respect to the ownership of any intellectual property developed pursuant to our collaborations; and
• a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws resulting
in civil or criminal proceedings.
If we engage in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our stockholders,
cause us to incur debt or assume contingent liabilities, and subject us to other risks.
We may evaluate various acquisitions and strategic partnerships, including licensing or acquiring complementary products,
intellectual property rights, technologies, or businesses. Any potential acquisition or strategic partnership may entail numerous risks,
including:
•
increased operating expenses and cash requirements;
64
•
•
the assumption of additional indebtedness or contingent liabilities;
the issuance of our equity securities;
• assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with
integrating new personnel;
•
the diversion of our management’s attention from our existing product programs and initiatives in pursuing such a strategic
merger or acquisition;
• retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business
relationships;
• risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their
existing products or product candidates and regulatory approvals; and
• our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking
the acquisition or even to offset the associated acquisition and maintenance costs.
In addition, if we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-
time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able
to locate suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or
products that may be important to the development of our business.
We or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters and our
business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Our corporate headquarters and certain of our other facilities, including our manufacturing facility, are located in the San
Francisco Bay Area, which in the past has experienced both severe earthquakes and wildfires. We do not carry earthquake insurance.
Earthquakes, wildfires or other natural disasters could severely disrupt our operations, and have a material adverse effect on our
business, results of operations, financial condition and prospects.
If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our
headquarters or other facilities, that damaged critical infrastructure, such as our enterprise financial systems or manufacturing resource
planning and enterprise quality systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible, for
us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place
currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial
expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly when taken
together with our lack of earthquake insurance, could have a material adverse effect on our business.
Furthermore, integral parties in our supply chain are similarly vulnerable to natural disasters or other sudden, unforeseen and
severe adverse events. If such an event were to affect our supply chain, it could have a material adverse effect on our business.
We depend on our information technology systems, and any failure of these systems could harm our business. Security breaches,
loss of data, and other disruptions could compromise sensitive information related to our business or prevent us from accessing
critical information and expose us to liability, which could adversely affect our business, results of operations and financial
condition.
We collect and maintain information in digital form that is necessary to conduct our business, and we are increasingly
dependent on information technology systems and infrastructure to operate our business, including our laboratory information
management system and our EDGE platform. In the ordinary course of our business, we collect, store and transmit large amounts of
confidential information, including intellectual property, proprietary business information and personal information. It is critical that
we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. We have established
physical, electronic and organizational measures to safeguard and secure our systems to prevent a data compromise, and rely on
commercially available systems, software, tools, and monitoring to provide security for our information technology systems and the
processing, transmission and storage of digital information. We have also outsourced elements of our information technology
infrastructure, and as a result a number of third-party vendors may or could have access to our confidential information. Our internal
information technology systems and infrastructure, and those of our current and any future collaborators, contractors and consultants
and other third parties on which we rely, are vulnerable to damage from computer viruses, malware, natural disasters, terrorism, war,
telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our
organization, or persons with access to systems inside our organization.
65
The risk of a security breach or disruption or data loss, particularly through cyber-attacks or cyber intrusion, including by
computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of
attempted attacks and intrusions from around the world have increased. In addition, the prevalent use of mobile devices that access
confidential information increases the risk of data security breaches, which could lead to the loss of confidential information or other
intellectual property. For example, we have experienced phishing attacks in the past resulting in a security breach of our information
technology systems, and we may be a target of phishing attacks or other cyber-attacks in the future. Any significant system failure,
accident or security breach could have a material adverse effect on our business, financial condition and results of operations. The
costs to us to mitigate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities
could be significant, and while we have implemented security measures to protect our data security and information technology
systems, our efforts to address these problems may not be successful, and these problems could result in unexpected interruptions,
delays, cessation of service and other harm to our business and our competitive position. If such an event were to occur and cause
interruptions in our operations, it could result in a material disruption of our product development programs. For example, the loss of
clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and
significantly increase our costs to recover or reproduce the data. Moreover, if a computer security breach affects our systems or results
in the unauthorized release of personally identifiable information, our reputation could be materially damaged. In addition, such a
breach may require notification to governmental agencies, the media or individuals pursuant to various federal and state privacy and
security laws, if applicable, including the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the
Health Information Technology for Clinical Health Act of 2009, or HITECH, and its implementing rules and regulations, as well as
regulations promulgated by the Federal Trade Commission and state breach notification laws. We would also be exposed to a risk of
loss or litigation and potential liability, which could materially adversely affect our business, results of operations and financial
condition.
Our business is subject to complex and evolving laws and regulations regarding privacy, data protection and other matters relating
to information collection.
There are numerous state, federal and foreign laws, regulations, decisions, and directives regarding privacy and the
collection, storage, transmission, use, processing, disclosure and protection of different types of personal data and personal
information (“Personal Information”) and other personal, customer, or other data, the scope of which is continually evolving and
subject to differing interpretations. We may be subject to significant consequences, including penalties and fines, for any failure to
comply with such laws, regulations and directives.
California has also recently passed the California Consumer Privacy Act (the “CCPA”), which is the most far-reaching data
privacy law introduced in the United States to date, and introduces new compliance burdens on organizations doing business in
California who collect Personal Information about California residents. The CCPA’s definition of Personal Information is very broad
and specifically includes biometric information. It went into effect in 2020 and allows for fines on a dramatic scale, as well as a private
right of action from individuals in relation to certain security breaches. The CCPA is also prompting a wave of similar legislative
developments in other U.S. states and creating the potential for a patchwork of overlapping but different laws. These developments are
increasing our compliance burden and our risk, including risks of regulatory fines, litigation and associated reputational harm.
Furthermore, any failure, or perceived failure, by us to comply with or make effective modifications to our policies, or to
comply with any federal, state or international privacy, data-retention or data-protection-related laws, regulations, orders or industry
self-regulatory principles could result in proceedings or actions against us by governmental entities or others, a loss of customer
confidence, damage to our brand and reputation and a loss of customers, any of which could have an adverse effect on our business. In
addition, various federal, state and foreign legislative or regulatory bodies may enact new or additional laws and regulations
concerning privacy, data-retention and data-protection issues, including laws or regulations mandating disclosure to domestic or
international law enforcement bodies, which could adversely impact our business or our reputation with customers. For example, some
countries have adopted laws mandating that some Personal Information regarding customers in their country be maintained solely in
their country. Having to maintain local data centers and redesign product, service and business operations to limit Personal
Information processing to within individual countries could increase our operating costs significantly.
Our employees and independent contractors, including principal investigators, consultants, commercial collaborators, service
providers and other vendors may engage in misconduct or other improper activities, including noncompliance with regulatory
standards and requirements, which could have an adverse effect on our results of operations.
We are exposed to the risk that our employees and independent contractors, including principal investigators, consultants, any
future commercial collaborators, service providers and other vendors may engage in misconduct or other illegal activity. Misconduct
by these parties could include intentional, reckless and/or negligent conduct or other unauthorized activities that violate the laws and
regulations of the FDA and other similar regulatory bodies, including those laws that require the reporting of true, complete and
accurate information to such regulatory bodies; manufacturing standards; U.S. federal and state healthcare fraud and abuse, data
66
privacy laws and other similar non-U.S. laws; or 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 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, disgorgement, possible exclusion from participation in Medicare, Medicaid and other U.S. federal healthcare programs or
healthcare programs in other jurisdictions, integrity oversight and reporting obligations to resolve allegations of non-compliance,
individual imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings and
curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Our business involves the use of hazardous materials and we and our third-party manufacturers and suppliers must comply with
environmental laws and regulations, which can be expensive and restrict how we do business.
Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled
storage, use and disposal of hazardous materials owned by us, including the components of our product and product candidates and
other hazardous compounds. We and any third-party manufacturers and suppliers we engage are subject to numerous federal, state and
local environmental, health and safety laws, regulations and permitting requirements, including those governing laboratory
procedures; the generation, handling, use, storage, treatment, and disposal of hazardous and regulated materials and wastes; the
emission and discharge of hazardous materials into the ground, air and water; and employee health and safety. Our operations involve
the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Our operations also
produce hazardous waste. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and
our third-party manufacturers’ facilities pending their use and disposal. We generally contract with third parties for the disposal of
these materials and wastes. We cannot eliminate the risk of contamination, which could cause an interruption of our
commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean-
up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and
specified waste products.
Although we believe that the safety procedures utilized by us and our third-party manufacturers for handling and disposing of
these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case
or eliminate the risk of accidental contamination or injury from these materials. Under certain environmental laws, we could be held
responsible for costs relating to any contamination at our current or past facilities and at third-party facilities. In such an event, we
may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable
authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and
regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes
and cannot be certain of our future compliance.
Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws
and regulations may impair our research, product development and manufacturing efforts. In addition, we cannot entirely eliminate the
risk of accidental injury or contamination from these materials or wastes. Although we maintain workers’ compensation insurance to
cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this
insurance may not provide adequate coverage against potential liabilities. We do not 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. Accordingly, in 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, which could have a material adverse effect on our business, results of operations and financial
condition.
Epidemic diseases, or the perception of their effects, could have a material adverse effect on our business, financial condition,
results of operations or cash flows.
Outbreaks of epidemic, pandemic, or contagious diseases, such as the recent novel coronavirus or, historically, the Ebola virus,
Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, or the H1N1 virus, could disrupt our business. Business
disruptions could include disruptions or restrictions on our ability to travel, as well as temporary closures of the facilities of our
suppliers. Any disruption of our suppliers could impact our operating results. For example, a supplier of our lipid nanoparticle
67
formulation, is located in China, which has recently experienced an outbreak of the novel coronavirus. While at this point, the extent
to which the coronavirus outbreak may impact our results is uncertain, it could result in delays in delivery of our lipid nanoparticle
formulation from our supplier, which could delay our product development activities. In addition, a significant outbreak of epidemic,
pandemic, or contagious diseases in the human population could result in a widespread health crisis that could adversely affect the
economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our current or
future products. Any of these events could have a material adverse effect on our business, financial condition, results of operations, or
cash flows.
Risks Related to 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. 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 or those of our licensors will result in additional patents being issued or that issued patents will afford sufficient
protection against competitors with similar technology, nor can there be any assurance that the patents 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. If we do not adequately protect our intellectual property and proprietary technology, competitors
may be able to use our product candidates and proprietary technologies and erode or negate any competitive advantage we may have,
which could have a material adverse effect on our financial condition and results of operations.
We have applied, and we intend to continue applying, for patents covering aspects of our product candidates, proprietary
technologies and their uses that we deem appropriate. However, we may not be able to apply for patents on certain aspects of our
current or future product candidates, proprietary technologies and their uses in a timely fashion, at a reasonable cost, in all
jurisdictions, or at all, and any potential patent coverage we obtain may not be sufficient to prevent substantial competition. As of
December 31, 2019, our solely owned patent portfolio includes 23 pending U.S. patent applications and 111 pending foreign patent
applications and one issued U.S. patent relating to the use of a predictive model to identify neoantigens, particularly where the
predictive model was trained using mass spectrometry data. We cannot be certain that the claims in any of our patent applications 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 actual or potential future collaborators will be successful in protecting our product candidates, proprietary technologies and their
uses by obtaining and defending patents. These risks and uncertainties include the following:
•
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 that may be issued or in-licensed may be challenged, invalidated, modified, revoked, circumvented, found to be
unenforceable or otherwise may not provide any competitive advantage;
• our competitors, many of whom have substantially greater resources 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
eliminate our ability to make, use and sell our potential product candidates;
• other parties may have designed around our claims or developed technologies that may be related or competitive to our
platform, may have filed or may file patent applications and may have received or may receive patents that overlap or
conflict with our patent applications, either by claiming the same methods or devices or by claiming subject matter that
could dominate our patent position;
68
• any successful opposition to any patents owned by or licensed to us could deprive us of rights necessary for the practice of
our technologies or the successful commercialization of any products or product candidates that we may develop;
• because patent applications in the United States and most other countries are confidential for a period of time after filing,
we cannot be certain that we or our licensors were the first to file any patent application related to our product candidates,
proprietary technologies and their uses;
• an interference proceeding can be provoked by a third party or instituted by the USPTO to determine who was the first to
invent any of the subject matter covered by the patent claims of our applications for any application with an effective filing
date before March 16, 2013;
•
there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent
protection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy
regarding worldwide health concerns; and
• countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts,
allowing foreign competitors a better opportunity to create, develop and market competing product candidates.
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. Moreover, 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. 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. 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, corporate collaborators, outside scientific
collaborators, CROs, contract 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.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents, if issued, or
the patent rights that we license from others, may be challenged in the courts or patent offices in the United States and abroad. Once
granted, patents may remain open to opposition, interference, re-examination, post-grant review, inter partes review, nullification or
derivation action in court or before patent offices or similar proceedings for a given period after allowance or grant, during which time
third parties can raise objections against such initial grant. Such challenges may result in loss of exclusivity or in patent claims being
narrowed, invalidated or held unenforceable, which could limit our ability to stop others from using or commercializing similar or
identical products, or limit the duration of the patent protection of our products and product candidates. Given the amount of time
required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might
expire before or shortly after such candidates are commercialized. As a result, our intellectual property may not provide us with
sufficient rights to exclude others from commercializing products similar or identical to ours.
Our ability to enforce our patent rights depends on our ability to detect infringement. It may be difficult to detect infringers
who do not advertise the components or methods that are used in connection with their products and services. Moreover, it may be
difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product or service. We may not
prevail in any lawsuits that we initiate, and the damages or other remedies awarded if we were to prevail may not be commercially
meaningful.
In addition, proceedings to enforce or defend our patents could put our patents at risk of being invalidated, held unenforceable
or interpreted narrowly. Such proceedings could also provoke third parties to assert claims against us, including that some or all of the
claims in one or more of our patents are invalid or otherwise unenforceable. If any of our patents covering our products are invalidated
or found unenforceable, or if a court found that valid, enforceable patents held by third parties covered one or more of our products,
our competitive position could be harmed or we could be required to incur significant expenses to enforce or defend our rights. If we
initiate lawsuits to protect or enforce our patents, or litigate against third-party claims, such proceedings would be expensive and
would divert the attention of our management and technical personnel.
The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:
• any of our patents, or any of our pending patent applications, if issued, or those of our licensors, will include claims having
a scope sufficient to protect our products;
• any of our pending patent applications or those of our licensors may issue as patents;
• others will not or may not be able to make, use, offer to sell, or sell products that are the same as or similar to our own but
that are not covered by the claims of the patents that we own or license;
• we will be able to successfully commercialize our products on a substantial scale, if approved, before the relevant patents
that we own or license expire;
69
• we were the first to make the inventions covered by each of the patents and pending patent applications that we own or
license;
• we or our licensors were the first to file patent applications for these inventions;
• others will not develop similar or alternative technologies that do not infringe the patents we own or license;
• any of the patents we own or license will be found to ultimately be valid and enforceable;
• any patents issued to us or our licensors will provide a basis for an exclusive market for our commercially viable products
or will provide us with any competitive advantages;
• a third party may not challenge the patents we own or license and, if challenged, a court would hold that such patents are
valid, enforceable and infringed;
• we may develop or in-license additional proprietary technologies that are patentable;
•
the patents of others will not have an adverse effect on our business;
• our competitors do not conduct research and development activities in countries where we do not have enforceable patent
rights and then use the information learned from such activities to develop competitive products for sale in our major
commercial markets;
• we will develop additional proprietary technologies or products that are separately patentable; or
• our commercial activities or products will not infringe upon the patents of others.
Where we obtain licenses from or collaborate with third parties, in some circumstances, we may not have the right to control
the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from
third parties, or such activities, if controlled by us, may require the input of such third parties. We may also require the cooperation of
our licensors and collaborators to enforce any 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. Moreover,
if we do obtain necessary licenses, we will likely have obligations under those licenses, and any failure to satisfy those obligations
could give our licensor the right to terminate the license. Termination of a necessary license, or expiration of licensed patents or patent
applications, could have a material adverse impact on our business.
The lives of our patents may not be sufficient to effectively protect our products and business.
Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after its first
effective non-provisional filing date. Although various extensions may be available, the life of a patent, and the protection it affords, is
limited. Even if patents covering our product candidates, proprietary technologies and their uses are obtained, once the patent life has
expired, we may be open to competition. In addition, although upon issuance in the United States a patent’s life can be increased
based on certain delays caused by the USPTO, this increase can be reduced or eliminated based on certain delays caused by the patent
applicant during patent prosecution. Given the amount of time required for the development, testing and regulatory review of new
product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. If we
do not have sufficient patent life to protect our product candidates, proprietary technologies and their uses, our business and results of
operations will be adversely affected.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
We rely on the protection of our trade secrets, including unpatented know-how, technology and other proprietary information.
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. In addition to
contractual measures, we try to protect the confidential nature of our proprietary information using commonly accepted physical and
technological security measures. Despite these efforts, 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. In addition, such security measures may not provide adequate
protection for our proprietary information, for example, in the case of misappropriation of a trade secret by an employee, consultant,
customer or third party with authorized access. Our security measures may not prevent an employee, consultant or customer from
misappropriating our trade secrets and providing them to a competitor, and recourse we take against such misconduct may not provide
an adequate remedy to protect our interests fully. Monitoring unauthorized uses and disclosures is difficult, and we do not know
whether the steps we have taken to protect our proprietary technologies will be effective. Unauthorized parties may also attempt to
copy or reverse engineer certain aspects of our products that we consider proprietary. Enforcing a claim that a party illegally disclosed
or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable. Even though we
use commonly accepted security measures, the criteria for protection of trade secrets can vary among different jurisdictions.
70
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming,
and the outcome is unpredictable. In addition, some courts 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. Trade secrets will over
time be disseminated within the industry through independent development, the publication of journal articles and the movement of
personnel skilled in the art from company to company or academic to industry scientific positions. Though our agreements with third
parties typically restrict the ability of our advisors, employees, collaborators, licensors, suppliers, third-party contractors and
consultants to publish data potentially relating to our trade secrets, our agreements may contain certain limited publication rights. If
any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent
such competitor from using that technology or information to compete with us, which could harm our competitive position. Because
from time to time we expect to rely on third parties in the development, manufacture, and distribution of our products and provision of
our services, we must, at times, share trade secrets with them. Despite employing the contractual and other security precautions
described above, the need to share trade secrets increases the risk that such trade secrets become known by our competitors, are
inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. 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.
Our rights to develop and commercialize our product candidates are subject in part to the terms and conditions of licenses granted
to us by other companies. The patent protection, prosecution and enforcement for some of our product candidates may be
dependent on third parties.
We currently are reliant upon licenses of certain patent rights and proprietary technology from third parties that is important or
necessary to the development of our technology and products, including technology related to our product candidates. For example,
we rely on our license agreement with Arbutus Biopharma Corporation for certain lipid nanoparticle-based delivery technologies. This
and other licenses we may enter into in the future may not provide adequate rights to use such intellectual property and technology in
all relevant fields of use or in all territories in which we may wish to develop or commercialize our technology and products in the
future. As a result, we may not be able to develop and commercialize our technology and products in fields of use and territories for
which we are not granted rights pursuant to such licenses.
Licenses to additional third-party technology that may be required for our development programs may not be available in the
future or may not be available on commercially reasonable terms, which could have a material adverse effect on our business and
financial condition.
In some circumstances, we may not have the right to control the preparation, filing, prosecution and enforcement of patent
applications, or to maintain the patents, covering technology that we license from third parties. In addition, some of our agreements
with our licensors require us to obtain consent from the licensor before we can enforce patent rights, and our licensor may withhold
such consent or may not provide it on a timely basis. Therefore, we cannot be certain that our licensors or collaborators will prosecute,
maintain, enforce and defend such intellectual property rights in a manner consistent with the best interests of our business, including
by taking reasonable measures to protect the confidentiality of know-how and trade secrets, or by paying all applicable prosecution
and maintenance fees related to intellectual property registrations for any of our product candidates. We also cannot be certain that our
licensors have drafted or prosecuted the patents and patent applications licensed to us 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.
Our current licenses, and our future licenses likely will, impose various royalty payments, milestones, and other obligations on
us. If we fail to comply with any of these obligations, we may be required to pay damages and the licensor may have the right to
terminate the license. Termination by the licensor would cause us to lose valuable rights, and could prevent us from developing and
commercializing our product candidates and proprietary technologies. Our business would suffer if any current or future licenses
terminate, if the licensors fail to abide by the terms of the license, if the licensors fail to enforce licensed patents against infringing
third parties, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary
licenses on acceptable terms. Furthermore, if any current or future licenses terminate, or if the underlying patents fail to provide the
intended exclusivity, competitors or other third parties may gain the freedom to seek regulatory approval of, and to market, products
identical to ours. Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we
may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights. In addition, while
we cannot currently determine the amount of the royalty obligations we would be required to pay on sales of future products, if any,
the amounts may be significant. The amount of our future royalty obligations will depend on the technology and intellectual property
71
we use in products that we successfully develop and commercialize, if any. Therefore, even if we successfully develop and
commercialize products, we may be unable to achieve or maintain profitability.
Litigation or other proceedings or third-party claims of intellectual property infringement could require us to spend significant
time and money and could prevent us from selling our products.
Our commercial success depends significantly on our ability to operate without infringing the patents and other 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. 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. We cannot assure you that our operations do not, or will not in the future, infringe existing or future patents.
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 future approved products 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 biotechnology and
pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions, reexaminations, inter partes review
proceedings and post-grant review proceedings before the USPTO and/or corresponding 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. For example, we are aware of U.S. Serial Nos. 15/187,174 and
14/794,449, expiring in May 2031 (absent any patent term adjustments or extensions), directed to certain methods of identifying and
using neoantigens. If a patent issues from such patent applications with claims similar to those that are currently pending, our ability to
commercialize GRANITE in the United States may be adversely affected if we do not obtain a license under such patent. In addition,
we are aware of and have timely opposed EP Patent 2569633, expiring in May 2031 (absent any patent term adjustments or
extensions), directed to certain methods of identifying and using neoantigens. EP Patent 2569633 is currently validated in Great
Britain, France, Germany, Netherlands, Italy, Ireland, Spain and Switzerland. Our opposition was filed in the company’s name on
November 7, 2016 by Vossius & Partner. Four other parties also filed oppositions to the patent within the required timeframe. The
Opposition Division of the European Patent Office, or EPO, held opposition hearings on October 15 and 16, 2018, and determined that
EP Patent 2569633 does not meet the requirements of the European Patent Convention, or EPC, and consequently, revoked the patent.
We received notice in April 2019 that EP Patent 2569633 patentees and licensors filed their appeal to the Opposition Division’s
decision, and we, along with other opposers, filed responses in August 2019. If, after appeal, EP Patent 2569633 is ultimately
maintained by the EPO with claims similar to those that are currently opposed, our ability to commercialize GRANITE in certain
European countries may be adversely affected if we do not obtain a license under the patent.
Furthermore, the scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the
patent’s prosecution history and can involve other factors such as expert opinion. Our interpretation of the relevance or the scope of
claims in a patent or a pending application may be incorrect, which may negatively impact our ability to market our products. Further,
we may incorrectly determine that our technologies, products, or product candidates are not covered by a third-party patent or may
incorrectly predict whether a third party’s pending patent application will issue with claims of relevant scope. Our determination of the
expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact
our ability to develop and market our products or product candidates.
As the biotechnology 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. Our competitors in both the United States and abroad, many of
which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies,
may have applied for or obtained or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with
our ability to make, use and sell our product candidates. We do not always conduct independent reviews of pending patent
applications of and patents issued to third parties.
Patent applications in the United States and elsewhere are typically published approximately 18 months after the earliest filing
for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Certain U.S. applications
that will not be filed outside the United States can remain confidential until patents issue. In addition, patent applications in the United
States and elsewhere can be pending for many years before issuance, or unintentionally abandoned patents or applications can be
revived. Furthermore, pending patent applications that have been published can, subject to certain limitations, be later amended in a
manner that could cover our technologies, our product candidates or the use of our product candidates. As such, there may be
applications of others now pending or recently revived patents of which we are unaware. These applications may later result in issued
patents, or the revival of previously abandoned patents, that will prevent, limit or otherwise interfere with our ability to make, use or
sell our products. 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 SLATE, GRANITE or our
72
other product candidates, and 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. Any claims of patent infringement asserted
by third parties would be time consuming and could:
• result in costly litigation;
• divert the time and attention of our technical personnel and management;
• cause development delays;
• prevent us from commercializing SLATE, GRANITE or our other 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;
• require us to pay damages to the party whose intellectual property rights we may be found to be infringing, which may
include treble damages if we are found to have been willfully infringing such intellectual property;
• require us to pay the attorney’s fees and costs of litigation to the party whose intellectual property rights we may be found
to be infringing; and/or
• require us to enter into royalty or licensing agreements, which may not be available on commercially reasonable terms, or at
all.
Although no third party has asserted a claim of patent infringement against us as of the date of this report, others may hold
proprietary rights that could prevent SLATE, GRANITE or any future immunotherapy candidates from being marketed. Any patent-
related legal action against us claiming damages and seeking to enjoin commercial 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 market SLATE, GRANITE or any future immunotherapy 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. Even if such licenses are available, we could
incur substantial costs related to royalty payments for licenses obtained from third parties, which could negatively affect our gross
margins, and the rights may be non-exclusive, which could give our competitors access to the same technology or intellectual property
rights licensed to us. 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 SLATE, GRANITE or any future immunotherapy
candidates, which could harm our business, financial condition and operating results. In addition, intellectual property litigation,
regardless of its outcome, may cause negative publicity and could prohibit us from marketing or otherwise commercializing our
product candidates and technology.
If we collaborate with third parties in the development of technology in the future, our collaborators may not properly maintain
or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could
jeopardize or invalidate our intellectual property or proprietary information or expose us to litigation or potential liability. Further,
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability.
Also, we may be obligated under our agreements with our collaborators, licensors, suppliers and others to indemnify and hold them
harmless for damages arising from intellectual property infringement by us.
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 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 in-license is not valid, is unenforceable and/or is not infringed. If
we or any of our 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 in the United States, 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
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. Third parties may also
raise similar claims before the USPTO, even outside the context of litigation. For example, third parties may petition the USPTO for
73
post-grant review within nine months of our patent’s issuance date. Further, after the USPTO period for filing post-grant review has
expired, third parties may file a petition for inter partes review on certain grounds. Similar mechanisms for challenging the validity
and enforceability of a patent exist in ex-U.S. patent offices and may result in the revocation, cancellation, or amendment of any ex-
U.S. patents we hold in the future. The outcome following legal assertions of invalidity and unenforceability is unpredictable, and
prior art could render our patents or those of our licensors invalid. 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. Such a loss of
patent protection would have a material adverse impact on our business.
Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary
to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. 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 or at all, or if a non-
exclusive license is offered and our competitors gain access to the same technology. Our defense of litigation or interference
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 litigation 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.
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. In addition,
there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities
analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.
Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development
activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to 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, there
is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also
be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or
investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock.
We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-
licenses.
We currently have rights to the intellectual property, through licenses from third parties and under patents that we own, to
develop our product candidates. Because our programs may require the use of proprietary rights held by third parties, the growth of
our business will depend in part on our ability to acquire, in-license or use these proprietary rights. We may be unable to acquire or in-
license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify
as necessary for our product candidates. The licensing and acquisition of third-party intellectual property rights is a competitive area,
and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights
that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash
resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a
competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual
property rights on terms that would allow us to make an appropriate return on our investment.
We have collaborated with U.S. academic institutions and may in the future collaborate with U.S. and foreign academic
institutions to accelerate our preclinical research or development under written agreements with these institutions. These institutions
may provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration.
Regardless of such option, we may be unable to negotiate a license within the specified timeframe or under terms that are acceptable
to us. If we are unable to do so, the institution may offer the intellectual property rights to other parties, potentially blocking our ability
to pursue our program.
If we are unable to successfully obtain rights to required third-party intellectual property rights or maintain the existing
intellectual property rights we have, we may have to abandon development of that program and our business and financial condition
could suffer.
74
We may fail to comply with any of our obligations under existing or future agreements pursuant to which we license or have
otherwise acquired intellectual property rights or technology, which could result in the loss of rights or technology that are
material to our business.
We are party to various agreements that we depend on to operate our business, including intellectual property rights relating to
SLATE and GRANITE, in particular, our agreement with Arbutus. Our rights to use currently licensed intellectual property or
intellectual property to be licensed in the future are subject to the continuation of and our compliance with the terms of these
agreements. Disputes may arise regarding our rights to intellectual property licensed to us from a third party, including but not limited
to:
•
•
the scope of rights granted under the license agreement and other interpretation-related issues;
the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the
licensing agreement;
•
the sublicensing of patent and other rights;
• our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
•
the ownership of inventions and know-how resulting from the creation or use of intellectual property by us, alone or with
our licensors and collaborators;
•
the scope and duration of our payment obligations;
• our rights upon termination of such agreement; and
•
the scope and duration of exclusivity obligations of each party to the agreement.
If disputes over intellectual property and other rights that we have licensed or acquired from third parties prevent or impair our
ability to maintain our current license agreements on acceptable terms, we may be unable to successfully develop and commercialize
the affected product candidates. If we fail to comply with our obligations under current or future license agreements, these agreements
may be terminated or the scope of our rights under them may be reduced and we might be unable to develop, manufacture or market
any product that is licensed under these agreements.
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 biotechnology and biopharmaceutical industries, 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 biotechnology or
biopharmaceutical companies including our competitors or potential competitors. Although we try to ensure that our employees and
consultants do not use the proprietary information or know-how of others in their work for us, 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, 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.
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, collaborators or other third parties have an ownership interest in our
patents or other intellectual property. In addition, we may face claims by third parties that our agreements with employees, contractors
or consultants obligating them to assign intellectual property to us are ineffective or in conflict with prior or competing contractual
obligations of assignment, which could result in ownership disputes regarding intellectual property we have developed or will develop
and interfere with our ability to capture the commercial value of such 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.
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 SLATE, GRANITE or any future
immunotherapy 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, also known as the Hatch-Waxman Amendments. The Hatch-Waxman
75
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. The Hatch-Waxman Act allows a maximum of one patent to 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, 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.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets
of interest and our business may be adversely affected.
Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or
determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we
need to build name recognition among potential partners or customers in our markets of interest. At times, competitors may adopt
trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market
confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other trademarks or
trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are
unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and
our business may be adversely affected. We may license our trademarks and trade names to third parties, such as distributors. Though
these license agreements may provide guidelines for how our trademarks and trade names may be used, a breach of these agreements
or misuse of our trademarks and tradenames by our licensees may jeopardize our rights in or diminish the goodwill associated with
our trademarks and trade names. Our efforts to enforce or protect our proprietary rights related to trademarks, trade names, trade
secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion
of resources and could adversely affect our financial condition or results of operations.
Changes in patent law in the U.S. or in other countries could diminish the value of patents in general, thereby impairing our
ability to protect our product candidates.
Our patent rights may be affected by developments or uncertainty in U.S. or ex-U.S. patent statutes, patent case laws in
USPTO rules and regulations or in the rules and regulations of ex-U.S. patent offices. There are a number of recent changes to the
U.S. patent laws that may have a significant impact on our ability to protect our technology and enforce our intellectual property
rights. For example, 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 to file” system in which the first inventor to file a patent application will be entitled to the patent.
Third parties are allowed to submit prior art before the issuance of a patent by the USPTO, and may become involved in post-grant
proceedings including opposition, derivation, reexamination, inter partes review or interference proceedings challenging our patent
rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope
or enforceability of, or invalidate, our patent rights, which could adversely affect our competitive position. This could have a negative
impact on some of our intellectual property and could increase uncertainties surrounding obtaining and enforcement or defense of our
issued patents. In addition, Congress may pass patent reform legislation that is unfavorable to us. The 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 Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that
would weaken our ability to obtain new patents or to enforce our existing patents and patents we might obtain in the future.
Similarly, statutory or judicial changes to the patent laws of other countries may increase the uncertainties and costs
surrounding the prosecution of patent applications and the enforcement or defense of issued patents.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending all current and future 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
76
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.
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. For example, some foreign countries have compulsory licensing laws under which a patent owner must grant
licenses to third parties. In addition, some countries limit the enforceability of patents against third parties, including government
agencies or government contractors. In these countries, patents may provide limited or no benefit. 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.
Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment
and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for
non-compliance with these requirements.
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. Periodic maintenance fees, renewal fees, annuity fees and various other
governmental fees on patents and/or applications will be due to be paid to the USPTO and various governmental patent agencies
outside of the US in several stages over the lifetime of the patents and/or applications. We employ reputable professionals and rely on
such third parties to help us comply with these requirements and effect payment of these fees with respect to the patents and patent
applications that we own, and if we license intellectual property we may have to rely upon our licensors to comply with these
requirements and effect payment of these fees with respect to any patents and patent applications that we license. In many cases, an
inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are
situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete
loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would
otherwise have been the case.
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:
• others may be able to make personalized cancer immunotherapies that are similar to ours but that are not covered by the
claims of the patents that we own or have exclusively licensed;
• we or our licensors or future collaborators might not have been the first to make the inventions covered by the issued
patents or pending patent applications that we own or have exclusively licensed;
• we or our licensors or future collaborators 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 have exclusively licensed 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.
77
Should any of these events occur, they could significantly harm our business, results of operations and prospects.
Risks Related to Government Regulation
Even if we obtain regulatory approval for a product candidate, our products will remain subject to regulatory scrutiny.
If one or more of our product candidates is approved, each will be subject to ongoing regulatory requirements for
manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and
submission of safety, efficacy, and other post- market information, including both federal and state requirements in the United States
and requirements of comparable foreign regulatory authorities.
Manufacturers and manufacturers’ facilities are required to comply with extensive FDA and comparable foreign regulatory
authority requirements, including ensuring that quality control and manufacturing procedures conform to cGMP regulations. As such,
we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence
to commitments made in any approved marketing application. Accordingly, we and others with whom we work must continue to
expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production, and quality control.
We will have to comply with requirements concerning advertising and promotion for our products. Promotional
communications with respect to prescription drugs and biologics are subject to a variety of legal and regulatory restrictions and must
be consistent with the information in the product’s approved label. As such, we may not promote our products “off-label” for
indications or uses for which they do not have approval. The holder of an approved application must submit new or supplemental
applications and obtain approval for certain changes to the approved product, product labeling, or manufacturing process. We could
also be asked to conduct post-marketing clinical studies to verify the safety and efficacy of our products in general or in specific
patient subsets. An unsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of marketing
approval.
If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity
or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling
of a product, such regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from
the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among
other things:
•
•
issue warning letters;
impose civil or criminal penalties;
• suspend or withdraw regulatory approval;
• suspend any of our clinical studies;
• refuse to approve pending applications or supplements to approved applications submitted by us;
•
impose restrictions on our operations, including closing our contract manufacturers’ facilities; or
• seize or detain products, or require a product recall.
Any government investigation of alleged violations of law could require us to expend significant time and resources in
response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and
adversely affect our ability to commercialize and generate revenue from our products. If regulatory sanctions are applied or if
regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected.
Moreover, the policies of the FDA and of other regulatory authorities may change and additional government regulations may
be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or
extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States
or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump
administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose
significant burdens on, or otherwise materially delay, FDA’s ability to engage in routine oversight activities such as implementing
statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. It is difficult to predict how
these orders will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If
these executive actions impose restrictions on FDA’s ability to engage in oversight and implementation activities in the normal course,
our business may be negatively impacted. In addition, if we are slow or unable to adapt to changes in existing requirements or the
adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing
approval that we may have obtained and we may not achieve or sustain profitability.
78
We may seek orphan drug designation for certain future product candidates, but we may be unable to obtain such designations or
to maintain the benefits associated with orphan drug designation, including market exclusivity, which may cause our revenue, if
any, to be reduced.
We may pursue orphan drug designation for certain of our future product candidates. Under the Orphan Drug Act, the FDA
may designate a drug or biologic product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient
population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is
no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the European
Union, the EMA’s Committee for Orphan Medicinal Products, or COMP, grants orphan drug designation to promote the development
of products that are intended for the diagnosis, prevention, or treatment of a life-threatening or chronically debilitating condition
affecting not more than five in 10,000 persons in the European Union. Additionally, designation is granted for products intended for
the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and chronic condition when, without
incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in
developing the drug or biological product or where there is no satisfactory method of diagnosis, prevention, or treatment, or, if such a
method exists, the medicine must be of significant benefit to those affected by the condition.
In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding
towards clinical trial costs, tax credits for certain clinical trial costs, and application fee waivers. In addition, if a product receives the
first FDA approval for the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which
means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years,
except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the
manufacturer is unable to assure sufficient product quantity the orphan patient population. In the European Union, orphan drug
designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity
following drug or biological product approval. This period may be reduced to six years if the orphan drug designation criteria are no
longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.
Even if we obtain orphan drug designation for a product candidate, we may not be the first to obtain marketing approval for
the product candidate for any particular orphan indication due to the uncertainties associated with developing novel biologic products.
Further, even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product
from competition because different drugs with different active moieties can be approved for the same condition. Even after an orphan
drug is approved, the FDA or EMA can subsequently approve the same drug with the same active moiety for the same condition if the
FDA or EMA concludes that the later drug is clinically superior in that it is safer, more effective, or makes a major contribution to
patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug or biologic nor gives
the drug or biologic any advantage in the regulatory review or approval process.
Enacted and future healthcare legislation may increase the difficulty and cost for us to obtain marketing approval of and
commercialize our product candidates and may affect the prices we may set.
In the United States, the European Union and other jurisdictions, there have been, and we expect there will continue to be, a
number of legislative and regulatory changes and proposed changes to the healthcare system that could affect our future results of
operations. 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 Patient Protection and Affordable Care
Act, as amended by the Health Care and Education Reconciliation Act, or collectively the ACA, was enacted, which substantially
changed the way healthcare is financed by both governmental and private payors. Among the provisions of the ACA, those of greatest
importance to the pharmaceutical and biotechnology industries include the following:
• an annual, non-deductible fee payable by any entity that manufactures or imports certain branded prescription drugs and
biologic agents (other than those designated as orphan drugs), which is apportioned among these entities according to their
market share in certain government healthcare programs;
• a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for
drugs that are inhaled, infused, instilled, implanted or injected;
• expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage
to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a
manufacturer’s Medicaid rebate liability;
• a licensure framework for follow on biologic products;
• 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
• establishment of 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 drug spending.
79
Since its enactment, there have been judicial, Congressional, and executive branch challenges to certain aspects of the ACA,
and we expect there will be additional challenges and amendments to the ACA in the future. For example, the Tax Cuts and Jobs Act
of 2017, or Tax Act, was enacted, which includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility
payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is
commonly referred to as the “individual mandate”. On December 14, 2018, a U.S. District Court Judge in the Northern District of
Texas, ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part
of the Tax Act, the remaining provisions of the ACA are invalid as well. On December 18, 2019, the U.S. Court of Appeals for the 5th
Circuit upheld the District Court's decision that the individual mandate was unconstitutional but remanded the case back to the District Court
to determine whether the remaining provisions of the ACA are invalid as well. It is unclear how these decisions, subsequent appeals, if
any, and other efforts to challenge, repeal or replace the ACA will impact the ACA and our business.
In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In
August 2011, the Budget Control Act of 2011, among other things, led to aggregate reductions of Medicare payments to providers of
2% per fiscal year. These reductions went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will
remain in effect through 2029 unless additional action is taken by Congress. In January 2013, the American Taxpayer Relief Act of
2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including
hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover
overpayments to providers from three to five years. These new laws or any other similar laws introduced in the future may result in
additional reductions in Medicare and other health care funding, which could negatively affect our customers and accordingly, our
financial operations.
Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example,
CMS may develop new payment and delivery models, such as bundled payment models. In addition, recently there has been
heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted
in several U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring
more transparency to drug pricing, reduce the cost of prescription drugs under government payor programs, and review the
relationship between pricing and manufacturer patient programs. While some proposed measures will require authorization through
additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek
new legislative and/or administrative measures to control drug costs. We expect that additional U.S. federal healthcare reform
measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare
products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
Individual states in the United States have also 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 or
put pressure on our product pricing.
Additionally, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act
of 2017, or the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients
to access certain investigational new drug products that have completed a Phase I clinical trial and that are undergoing investigation
for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without
obtaining FDA permission under the FDA expanded access program. There is no obligation for a pharmaceutical manufacturer to
make its drug products available to eligible patients as a result of the Right to Try Act.
In the European Union, similar political, economic and regulatory developments may affect our ability to profitably
commercialize our product candidates, if approved. In addition to continuing pressure on prices and cost containment measures,
legislative developments at the European Union or member state level may result in significant additional requirements or obstacles
that may increase our operating costs. The delivery of healthcare in the European Union, including the establishment and operation of
health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than European
Union, law and policy. National governments and health service providers have different priorities and approaches to the delivery of
health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in
most European Union member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health
service providers. Coupled with ever-increasing European Union and national regulatory burdens on those wishing to develop and
market products, this could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities
and affect our ability to commercialize our product candidates, if approved. In markets outside of the United States and European
Union, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price
ceilings on specific products and therapies.
80
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or
administrative action in the United States, the European Union or any other jurisdiction. If we or any third parties we may engage are
slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or such third
parties are not able to maintain regulatory compliance, our product candidates may lose any regulatory approval that may have been
obtained and we may not achieve or sustain profitability.
Our business operations and current and future relationships with investigators, healthcare professionals, consultants, third-party
payors, patient organizations and customers will be subject to applicable healthcare regulatory laws, which could expose us to
penalties.
Our business operations and current and future arrangements with investigators, healthcare professionals, consultants, third-
party payors, patient organizations and customers, may expose us to broadly applicable 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 our product candidates, if approved. Such laws include:
•
•
the U.S. 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 rebate),
directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an
individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment
may be made, in whole or in part, under any U.S. federal healthcare program, such as Medicare and Medicaid. A person or
entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a
violation;
the U.S. federal civil and criminal false claims and civil monetary penalties laws, including the civil False Claims Act,
which prohibit, among other things, including through civil whistleblower or qui tam actions, individuals or entities from
knowingly presenting, or causing to be presented, to the U.S. 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 a false statement to avoid, decrease or conceal an obligation to pay money
to the U.S. federal government. Pharmaceutical manufacturers can cause false claims to be presented to the U.S. federal
government by engaging in impermissible marketing practices, such as the off-label promotion of a product for an
indication for which it has not received FDA approval. In addition, the government may assert that a claim including items
and services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for
purposes of the civil False Claims Act;
• 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 U.S. federal Anti-Kickback Statute, a person or entity
does not need to have actual knowledge of the healthcare fraud statute implemented under HIPAA or specific intent to
violate it in order to have committed a violation;
• HIPAA, as amended by HITECH, and its implementing regulations, which also imposes certain obligations, including
mandatory contractual terms, with respect to safeguarding the privacy and security of individually identifiable health
information of covered entities subject to the rule, such as health plans, healthcare clearinghouses and certain healthcare
providers as well as their business associates, independent contractors of a covered entity that perform certain services
involving the use or disclosure of individually identifiable health information on their behalf;
•
•
•
the Food, Drug, and Cosmetic Act, which prohibits, among other things, the adulteration or misbranding of drugs, biologics
and medical devices;
the U.S. Public Health Service Act, which prohibits, among other things, the introduction into interstate commerce of a
biological product unless a biologics license is in effect for that product;
the U.S. Physician Payments Sunshine Act and its implementing regulations, which requires certain manufacturers of drugs,
devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance
Program, with specific exceptions, to report annually to the government information related to certain payments and other
transfers of value to physicians, certain other health care professionals beginning in 2022, and teaching hospitals, as well as
ownership and investment interests held by physicians and their immediate family members;
81
• analogous U.S. state laws and regulations, including: 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 any third-party payor, including private insurers; state laws that
require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the
relevant compliance guidance promulgated by the U.S. 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, which requires tracking gifts and other remuneration and items
of value provided to healthcare professionals and entities; state and local laws requiring the registration of pharmaceutical
sales representatives; and state laws governing the privacy and security of health information in certain circumstances,
many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating
compliance efforts;
•
the U.S. Foreign Corrupt Practices Act of 1977, as amended, which prohibits, among other things, U.S. companies and their
employees and agents from authorizing, promising, offering, or providing, directly or indirectly, corrupt or improper
payments or anything else of value to foreign government officials, employees of public international organizations and
foreign government owned or affiliated entities, candidates for foreign political office, and foreign political parties or
officials thereof; and
• similar healthcare laws and regulations in the European Union and other jurisdictions, including reporting requirements
detailing interactions with and payments to healthcare providers.
Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare
laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business
practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse
or other healthcare laws and regulations. If our operations are found to be in violation of any 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 government-funded healthcare programs, such as Medicare and Medicaid or
similar programs in other countries or jurisdictions, integrity oversight and reporting obligations to resolve allegations of non-
compliance, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits and the curtailment
or restructuring of our operations. 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 exclusions
from government funded healthcare programs and imprisonment, which could affect our ability to operate our business. Further,
defending against any such actions can be costly, time-consuming and may require significant 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.
Risks Related to Our Common Stock
Our stock price is volatile and you may not be able to resell shares of our common stock at or above the price you paid.
The trading price of our common stock is highly volatile and could be subject to wide fluctuations in response to various
factors, some of which are beyond our control. These factors include those discussed in this “Risk Factors” section of this report and
others such as:
• results from, and any delays in, our clinical trials for SLATE, GRANITE or any other future clinical development
programs, including public misperception of the results of our trials;
• announcements by academic or other third parties challenging the fundamental premises underlying our approach to
treating cancer and/or biopharmaceutical product development;
• announcements of regulatory approval or disapproval of our current or any future product candidates;
• failure or discontinuation of any of our research and development programs;
• manufacturing setbacks or delays of or issues with the supply of the materials for our personalized immunotherapy
candidate;
• announcements relating to future licensing, collaboration or development agreements, including the early termination or
failure of an existing strategic collaboration;
• delays in the commercialization of our current or any future product candidates;
• public misperception regarding the use of our therapies;
• acquisitions and sales of new products, technologies or businesses;
82
• quarterly variations in our results of operations or those of our future competitors;
• changes in earnings estimates or recommendations by securities analysts;
• announcements by us or our competitors of new products, significant contracts, commercial relationships, acquisitions or
capital commitments;
• developments with respect to intellectual property rights;
• our commencement of, or involvement in, litigation;
• changes in financial estimates or guidance, including our ability to meet our future revenue and operating profit or loss
estimates or guidance;
• any major changes in our board of directors or management;
• new legislation in the United States relating to the sale or pricing of pharmaceuticals;
• FDA or other U.S. or foreign regulatory actions affecting us or our industry;
• product liability claims or other litigation or public concern about the safety of our product candidates;
• market conditions in the biopharmaceutical and biotechnology sectors; and
• general economic conditions in the United States and abroad.
In addition, the stock markets in general, and the markets for biopharmaceutical and biotechnology stocks in particular, have
experienced extreme volatility that may have been unrelated to the operating performance of the issuer. These broad market
fluctuations may adversely affect the trading price or liquidity of our common stock. In the past, when the market price of a stock has
been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of our
stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our
management would be diverted from the operation of our business.
An active, liquid and orderly market for our common stock may not develop, and you may not be able to resell your common stock.
Prior to our initial public offering in September 2018, there was no public market for shares of our common stock. Our stock
recently began trading on the Nasdaq Global Select Market, but we can provide no assurance that we will be able to maintain an active
trading market on the Nasdaq Global Select Market or any other exchange in the future. 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, applications, or technologies
using our shares as consideration.
If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading
opinion regarding our stock, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts
publish about us or our business. If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business
model, our intellectual property or our stock performance, or if our clinical trials and operating results fail to meet the expectations of
analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us
regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
We incur significant costs as a result of operating as a public company, and our management devotes substantial time to new
compliance initiatives. We may fail to comply with the rules that apply to public companies, including Section 404 of the Sarbanes-
Oxley Act of 2002, which could result in sanctions or other penalties that would harm our business.
We incur significant legal, accounting and other expenses as a public company, including costs resulting from public company
reporting obligations under the Exchange Act and regulations regarding corporate governance practices. The listing requirements of
the Nasdaq Global Select Market and the rules of the Securities and Exchange Commission, or SEC, require that we satisfy certain
corporate governance requirements relating to director independence, filing annual and interim reports, stockholder meetings,
approvals and voting, soliciting proxies, conflicts of interest and a code of conduct. Our management and other personnel devote a
substantial amount of time to ensure that we comply with all of these requirements. Moreover, the reporting requirements, rules and
regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. Any
changes we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on
a timely basis, or at all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure
83
associated with being a public company, could also make it more difficult for us to attract and retain qualified persons to serve on our
board of directors or board committees or to serve as executive officers, or to obtain certain types of insurance, including directors’
and officers’ insurance, on acceptable terms or at all.
As a public company, we are subject to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, and the related rules of
the SEC, which generally require our management and independent registered public accounting firm to report on the effectiveness of
our internal control over financial reporting. However, for so long as we remain an emerging growth company as defined in the JOBS
Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to public companies
that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation
requirements of Section 404. Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take
advantage of the applicable exemption, we will be required to include an opinion from our independent registered public accounting
firm on the effectiveness of our internal controls over financial reporting. We will remain an emerging growth company until the
earlier of (1) December 31, 2023, (2) the last day of the fiscal year in which we have total annual gross revenue of at least
$1.07 billion, (3) the last day of the fiscal year in which we are deemed to be a large accelerated filer, which means the market value
of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th or (4) the date on which we have
issued more than $1.0 billion in non-convertible debt during the prior three-year period.
In order to provide the reports required by these rules we must conduct reviews and testing of our internal controls. During the
course of our review and testing, we may identify deficiencies and be unable to remediate them before we must provide the required
reports. Furthermore, if we have a material weakness in our internal controls over financial reporting, we may not detect errors on a
timely basis and our financial statements may be materially misstated. We or our independent registered public accounting firm may
not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our
operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our stock to
fall. In addition, as a public company we are required to file accurate and timely quarterly and annual reports with the SEC under the
Exchange Act. In order to report our results of operations and financial statements on an accurate and timely basis, we will depend on
third party vendors to provide timely and accurate notice of their costs to us. Any failure to report our financial results on an accurate
and timely basis could result in sanctions, lawsuits, delisting of our shares from the Nasdaq Global Select Market or other adverse
consequences that would materially harm to our business.
The future issuance of equity or of debt securities that are convertible into equity will dilute our share capital.
We may choose to raise additional capital in the future, depending on market conditions, strategic considerations and
operational requirements. For example, in October 2019, we filed a shelf registration statement on Form S-3 with the SEC covering
the offering of up to $250.0 million of common stock, preferred stock, debt securities, warrants and units, including the sale and
issuance of up to $75.0 million in shares of our common stock to be issued from time to time in an “at the market offering” program
pursuant to a Sales Agreement that we have entered into with Cowen and Company, LLC. We have issued and may continue to issue
shares in our “at the market offering” program or other registered offerings under the shelf registration statement. To the extent that
additional capital is raised through the issuance of shares of common stock or other securities convertible into shares of common
stock, our stockholders will be diluted. In addition, future issuances of our common stock or other equity securities (or securities
convertible into our common stock or other equity securities), or the perception that such sales may occur, could adversely affect the
trading price of our common stock and impair our ability to raise capital through future offerings of shares or other securities.
Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant
control over matters subject to stockholder approval.
As of December 31, 2019, our executive officers, directors and their respective affiliates held over a majority of our
outstanding voting stock. Therefore, these stockholders will have the ability to influence us through this ownership position. These
stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to
control elections of directors, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or
discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our
stockholders.
Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market,
the trading price of our common stock could decline. As of December 31, 2019, we have outstanding a total of 36,363,830 shares of
common stock, of which the holders of approximately 5.7 million shares of our common stock 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 purchased by affiliates. Any sales of securities
by these stockholders could have a material adverse effect on the trading price of our common stock. In addition, as of December 31,
84
2019, approximately 6.0 million shares of common stock that are either subject to outstanding options or reserved for future issuance
under our existing equity incentive plan will become eligible for sale in the public market to the extent permitted by the provisions of
various vesting schedules, Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it
is perceived that they will be sold, in the public market, the trading price of our common stock could decline.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
We have incurred substantial losses during our history and do not expect to become profitable in the near future, and we may
never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset a
portion of future taxable income, if any, until such unused losses expire, if ever. Under Sections 382 and 383 of the Internal Revenue
Code of 1986, as amended, or the IRC, if a corporation undergoes an “ownership change,” generally defined as a greater than 50
percentage point change (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to
use its pre-change net operating loss carryforwards, or NOLs, and other pre-change tax attributes (such as research and development
tax credits) to offset its post-change income or taxes may be limited. In connection with our initial public offering which closed in
October 2018, we performed an IRC Section 382 and 383 analysis and determined we had an ownership change. There was no
reduction in federal or California net operating loss carryforwards or research and development income tax credits as a result of this
ownership change. Any equity financing transactions, private placements, and other transactions that may occur within the specified
three-year period may trigger additional ownership changes, which could further limit our use of such tax attributes. Any such
limitations, whether as a result of prior or future offerings of our common stock or sales of common stock by existing stockholders,
could have an adverse effect on our results of operations in our future years. Furthermore, under recently enacted U.S. tax legislation,
although the treatment of tax losses generated before December 31, 2017 has generally not changed, tax losses generated in calendar
year 2018 and beyond may only offset 80% of our taxable income. This change may require us to pay federal income taxes in future
years despite generating a loss for federal income tax purposes in prior years.
Recent U.S. tax legislation and future changes to applicable U.S. tax laws and regulations may have a material adverse effect on
our business, financial condition and results of operations.
Changes in laws and policy relating to taxes may have an adverse effect on our business, financial condition and results of
operations. For example, the U.S. government recently enacted significant tax reform legislation, and certain provisions of the new
law may adversely affect us. Changes include, but are not limited to, a federal corporate income tax rate decrease to 21% for tax years
beginning after December 31, 2017, a reduction to the maximum deduction allowed for net operating losses generated in tax years
after December 31, 2017, eliminating carrybacks of net operating losses, and providing for indefinite carryforwards for losses
generated in tax years after December 31, 2017. The legislation is unclear in many respects and could be subject to potential
amendments and technical corrections, and will be subject to interpretations and implementing regulations by the Treasury and
Internal Revenue Service, any of which could mitigate or increase certain adverse effects of the legislation. In addition, it is unclear
how these U.S. federal income tax changes will affect state and local taxation. Generally, future changes in applicable U.S. tax laws
and regulations, or their interpretation and application could have an adverse effect on our business, financial condition and results of
operations.
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 delay or
prevent changes in control or changes in our management without the consent of our board of directors. These provisions include the
following:
• 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 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 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;
85
•
the required approval of at least 66 2/3% of the shares entitled to vote at an election of directors 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;
•
the requirement that a special meeting of stockholders may be called only by our chief executive officer or president or 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
• 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.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims
against us and may reduce the amount of money available to us.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our
directors and officers, in each case to the fullest extent permitted by Delaware law.
In addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws and our
indemnification agreements that we have entered into with our directors and officers provide that:
• We will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at
our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such
person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the
best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such
person’s conduct was unlawful.
• We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by
applicable law.
• We are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding,
except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is
not entitled to indemnification.
• We will not be obligated pursuant to our amended and restated bylaws to indemnify a person with respect to proceedings
initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of
directors or brought to enforce a right to indemnification.
• The rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into
indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such
persons.
• We may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to
directors, officers, employees and agents.
Our amended and restated certificate of incorporation and our amended and restated bylaws provide for an exclusive forum in the
Court of Chancery of the State of Delaware and in the U.S. federal district courts for certain disputes between us and our
stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors,
officers or employees.
Our amended and restated certificate of incorporation and our amended and restated bylaws provide that, unless we consent in
writing to the selection of an alternative forum, 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. The exclusive
86
forum provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for
which the federal courts have exclusive jurisdiction. In addition, our amended and restated certificate of incorporation provides that
the U.S. federal district courts are the exclusive forum for the resolution of any complaint asserting a cause of action arising under the
Securities Act. Our exclusive forum provision will not relieve us of our duties to comply with the federal securities laws and the rules
and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and
regulations.
The enforceability of similar federal court 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 this type of provision to be inapplicable or
unenforceable. If a court were to find either of the choice of forum provisions contained 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.
The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for
disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors,
officers and other employees and result in increased costs for investors to bring a claim.
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 in the price of our common stock.
We do not currently intend to pay any cash dividends on our common stock for the foreseeable future. We currently intend to
invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common stock for
the foreseeable future. Since we do not intend to pay dividends, your ability to receive a return on your investment will depend on any
future appreciation in the market value of our common stock. There is no guarantee that our common stock will appreciate or even
maintain the price at which our holders have purchased it.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters are currently located at 5959 Horton Street, Emeryville, California, comprising approximately
34,569 square feet of office and laboratory space. We terminated our 5858 Horton Street lease in Emeryville, California, where we
leased and occupied approximately 13,100 square feet of office and laboratory space concurrently with the commencement of the new
5959 Horton Street lease in late 2019. The initial lease term for the 5959 Horton lease expires on November 30, 2029 and we have an
option to extend the lease term for two consecutive additional terms of 5 years. We also lease an aggregate of 28,600 square feet of
space in two Cambridge, Massachusetts facilities, including (i) the lease of approximately 13,900 square feet of office and laboratory
space, the current term of which expires in April 2022, with an option to extend the term through April 2025, and (ii) the lease of
approximately 14,700 square feet of office and laboratory space, the current term of which expires in August 2021. The lease of the
facility under (ii) above includes an early termination provision whereby upon 6 month’s written notice to the Landlord, we have the
right to terminate the lease with no penalty.
We lease a manufacturing facility in Pleasanton, California, where we occupy approximately 42,600 square feet of space. The
current term of our lease expires in November 2024, with an option to extend the term through November 2029. We also lease an
additional space in Pleasanton, California where we occupy approximately 3,223 square feet of general office space. The current term
of the lease expires in November 2024.
We believe our existing facilities are sufficient for our needs for the immediate future. To meet the future needs of our
business, we may lease additional or alternate space, and we believe suitable additional or alternative space will be available in the
future on commercially reasonable terms.
Item 3. Legal Proceedings.
From time to time, we may become involved in litigation or other legal proceedings. We are not currently a party to any
litigation or legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business.
Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management
resources and other factors.
87
Item 4. Mine Safety Disclosures.
Not applicable.
88
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock has been listed on the Nasdaq Global Select Market under the symbol “GRTS” since September 28, 2018.
Prior to that date, there was no public trading market for our common stock. The following table sets forth for the periods indicated
the high and low intraperiod sales price per share of our common stock as reported on the Nasdaq Global Select Market for the periods
indicated:
Year ended December 31, 2019:
First quarter
Second quarter
Third quarter
Fourth quarter
Year ended December 31, 2018:
Fourth quarter (from September 28, 2018)
Holders of Common Stock
$
High
Low
18.96 $
15.70
12.28
11.61
9.97
9.20
8.45
7.07
$
31.10
$
11.61
As of March 6, 2020, there were 39 holders of record of our common stock. Because many of our shares of common stock are
held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners of our
common stock represented by these record holders.
Dividend Policy
We have never declared or paid any cash dividends on our common stock or any other securities. We anticipate that we will
retain all available funds and any future earnings, if any, for use in the operation of our business and do not anticipate paying cash
dividends in the foreseeable future. In addition, future debt instruments may materially restrict our ability to pay dividends on our
common stock. Payment of future cash dividends, if any, will be at the discretion of the board of directors after taking into account
various factors, including our financial condition, operating results, current and anticipated cash needs, the requirements of current or
then-existing debt instruments and other factors the board of directors deems relevant.
Performance Graph
This graph is not “soliciting material” or deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or
otherwise subject to liabilities under that Section, and shall not be deemed incorporated by reference into any filing of Gritstone
Oncology, Inc. under the Securities Act of 1933, as amended (the “Securities Act”), whether made before or after the date hereof and
irrespective of any general incorporation language in any such filing.
The following graph compares the cumulative total return to stockholder return on our common stock relative to the
cumulative total returns of the Nasdaq Composite Index and the Nasdaq Biotechnology Index. An investment of $100 is assumed to
have been made in our common stock and each index on September 28, 2018 (the first day of trading of our common stock) and its
relative performance is tracked through December 31, 2019. Pursuant to applicable Securities and Exchange Commission rules, all
values assume reinvestment of the full amount of all dividends, however no dividends have been declared on our common stock to
89
date. The stockholder returns shown on the graph below are based on historical results and are not necessarily indicative of future
performance, and we do not make or endorse any predictions as to future stockholder returns.
Gritstone Oncology, Inc.
Nasdaq Composite Index
Nasdaq Biotechnology Index
$
100.00 $
100.00
100.00
108.50 $
82.46
79.46
93.40 $
96.06
91.82
78.23 $
99.50
89.75
60.64 $
99.42
82.01
62.99
111.51
99.42
9/28/2018
12/31/2018
3/31/2019
6/30/2019
9/30/2019
12/31/2019
Recent Sales of Unregistered Securities
There were no unregistered sales of equity securities by us during the period covered by this Annual Report on Form 10-K,
other than those previously reported in a Quarterly Report on Form 10-Q or in a current Report on Form 8-K.
Use of Proceeds from Registered Securities
On September 27, 2018, the U.S. Securities and Exchange Commission declared effective our registration statement on Form
S-1 (File Nos. 333-226976), as amended, filed in connection with our IPO. The IPO closed on October 2, 2018 and we issued and sold
6,666,667 shares of our common stock at a price to the public of $15.00 per share. On October 31, 2018, the underwriters exercised
their option to purchase additional shares with respect to 187,535 shares of our common stock, at a price to the public of $15.00 per
share. We received gross proceeds from the IPO, including from the exercise of the underwriters’ option to purchase additional shares,
of approximately $102.8 million, before deducting underwriting discounts and commissions of approximately $7.2 million. The
managing underwriters of the offering were Goldman Sachs & Co. LLC, Cowen and Company, LLC, Barclays Capital Inc. and BTIG,
LLC. No offering expenses were paid or are payable, directly or indirectly, to our directors or officers, to persons owning 10% or
more of any class of our equity securities or to any of our affiliates.
The net proceeds from the IPO have been invested in short-term, interest-bearing, investment-grade securities and government
securities. There has been no material change in the expected use of the net proceeds from our IPO as described in our registration
statement on Form S-1.
Issuer Purchases of Equity Securities
Not applicable.
90
Item 6. Selected Financial Data.
The following tables present our selected financial data. We have derived the following selected statements of operations and
comprehensive loss data for the years ended December 31, 2019, 2018, and 2017, and the balance sheet data as of December 31, 2019,
2018, and 2017, from our audited financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Our
historical results are not necessarily indicative of the results that may be expected in the future. You should read the financial data
below in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
Statements of Operations and Comprehensive Loss Data:
Collaboration revenue
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Interest income, net
Net loss
Unrealized gain (loss) on marketable securities
Net and comprehensive loss
Net loss per share, basic and diluted (1)
Weighted-average number of shares outstanding, basic and diluted (1)
$
$
Year Ended December 31,
2018
(in thousands, except share and per share amounts)
2017
2019
$
4,365 $
1,187 $
—
82,896
19,409
102,305
(97,940 )
3,507
(94,433 )
109
(94,324 ) $
(2.81 ) $
33,554,823
54,965
11,806
66,771
(65,584 )
809
(64,775 )
(11 )
(64,786 ) $
(7.26 ) $
8,919,281
35,691
6,072
41,763
(41,763 )
386
(41,377 )
(71 )
(41,448 )
(20.70 )
1,999,044
(1)
See Notes 2 and 12 to our financial statements for further details on the calculations of our basic and diluted net loss per share and the
weighted-average number of shares used in the computation of the per share amounts.
Balance Sheets Data:
Cash, cash equivalents and marketable securities
Working capital (1)
Total assets
Total liabilities
Accumulated deficit
Total stockholders’ equity
December 31,
2019
2018
(in thousands)
$
127,776 $
111,773
184,389
50,045
(220,988 )
134,344
153,110
142,528
189,558
40,436
(126,402 )
149,122
(1)
We define working capital as current assets less current liabilities. See our financial statements and related notes for details regarding our
current assets and current liabilities.
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 the
section titled “Selected Financial Data” and our audited financial statements and the related notes to those included elsewhere in this
Annual Report on Form 10-K. This discussion and analysis and other parts of this report contain forward-looking statements that
involve risks and uncertainties, such as our plans, objectives, expectations, intentions and beliefs. Our actual results could differ
materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences
91
include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included elsewhere in
this Annual Report on Form 10-K.
Overview
We are an immuno-oncology company developing tumor-specific cancer immunotherapies to fight multiple cancer types. Our
approach harnesses the natural power of a patient’s own immune system to recognize short tumor-specific peptide sequences
presented on cancer cells, referred to as tumor-specific neoantigens, or TSNA, in order to destroy tumor cells. Our tumor-specific
immunotherapy programs are built on two key pillars—first, our proprietary Gritstone EDGE artificial intelligence platform which
enables us to identify TSNA with high accuracy; and second, a potent immunotherapy platform which we have engineered to deliver
the selected TSNA and drive the patient’s immune system to attack and destroy tumors.
We initiated a first-in-human Phase 1/2 clinical trial of GRANITE, our first personalized immunotherapy product candidate, in
the fourth quarter of 2018, evaluating it in the treatment of multiple common solid tumors, , in each case in combination with
checkpoint inhibitors provided by our collaborator, Bristol-Myers Squibb Company, or BMS. We dosed our first patient in this trial,
GO-004, in the first quarter of 2019. The Phase 1 portion of the GO-004 Phase 1/2 trial will seek to establish a dose for further
investigation in Phase 2 and to evaluate safety, tolerability and, importantly, immunogenicity of our product candidate. We will seek
to further evaluate efficacy and safety in the Phase 2 cohort expansion portion in several common solid tumor types.
Our second tumor-specific product candidate series, SLATE, utilizes the same antigen delivery system as GRANITE but
contains a fixed cassette with TSNA that are shared across a subset of cancer patients rather than a cassette unique to an individual
patient, providing us with an off-the-shelf alternative to our personalized manufactured product candidate, GRANITE. The U.S. Food
and Drug Administration, or FDA, allowed the Investigational New Drug application, or IND, for SLATE to proceed in June 2019 and
we have initiated a Phase 1/2 clinical trial of SLATE, GO-005, in combination with immune checkpoint inhibitors for the treatment of
patients with advanced solid tumors, including metastatic non-small cell lung cancer, pancreatic cancer and colorectal cancer. We
dosed our first patient in this trial, GO-005, in the third quarter of 2019.
We are developing a second immunotherapy platform targeting shared tumor antigens, including shared TSNA, which relies
upon bispecific antibodies, or BiSAb, targeting solid tumors. BiSAb have been shown by others to exhibit early evidence of efficacy
in B cell malignancies, using B cell-specific targets such as CD19, CD20, CD22 and BCMA, and our goal is to extend this concept
into the treatment of solid tumors using our novel approach to identify tumor-specific antigens and antibody fragments against such
targets. Our BiSAb approach uses an antibody fragment to recognize a tumor antigen and, in the same molecule, a different antibody
fragment to recognize immune effector cells such as CD3+ T cells. These therapeutics aim to refocus immune effector cells
specifically upon the tumor through antibody-driven recognition of tumor-specific antigens. We use our EDGE platform to identify
novel solid tumor-specific antigens and develop antibody fragments that bind tightly and with high specificity to these targets. These
antibody fragments are deployed within a bispecific antibody framework to form novel “drug-in-a-bottle” therapeutic candidates. We
expect this program to generate a development candidate in the second half of 2020.
We have funded our operations to date primarily from private placements of our convertible preferred stock, the net proceeds
from our initial public offering, or IPO, which we completed in October 2018, from our follow-on public offering, which we
completed in April 2019, and from our at the marketing offering, as well as cash proceeds from bluebird under the collaboration
agreement we entered into in August 2018, or the bluebird Bio, Inc., or bluebird, Collaboration Agreement. We do not expect to
generate revenue from any product candidates that we develop until we obtain regulatory approval for one or more of such product
candidates and commercialize our products or enter into collaboration agreements with third parties. Substantially all of our net losses
have resulted from costs incurred in connection with our research and development programs and from general and administrative
costs associated with our operations. Our SLATE, GRANITE and BiSAb programs 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. In addition, we expect to incur additional costs associated with operating as a public company. We also do not yet have a sales
organization or commercial infrastructure and, accordingly, we will incur significant expenses to develop a sales organization or
commercial infrastructure in advance of generating any commercial product sales. As a result, we will need substantial additional
capital to support our operating activities.
We currently anticipate that we will seek to fund our operations through equity or debt financings or other sources, such as
potential collaboration agreements with third parties. Adequate funding may not be available to us on acceptable terms, or at all. If
sufficient funds on acceptable terms are not available when needed, we will be required to significantly reduce our operating expenses
and delay, reduce the scope of, or eliminate one or more of our development programs.
92
Manufacturing is a vital component of personalized immunotherapy, and we have invested significantly in our manufacturing
facility, which opened in November 2017. We currently use a hybrid approach to manufacturing our personalized immunotherapy
wherein certain elements of our product candidates are manufactured on an outsourced basis at qualified third-party contract
manufacturing organizations, or CMOs, and other elements of our product candidates are manufactured internally. Our goal is to
internalize the majority of the manufacturing steps to drive down both cost and production time, as well as establish full control over
intellectual property and product quality, which will require significant investments in our manufacturing facility and processes.
Since we commenced operations in August 2015, we have invested a significant portion of our efforts and financial resources
in research and development activities and establishing our manufacturing facility. We have incurred net losses each year since
inception. Our net losses were $94.4 million, $64.8 million and $41.4 million for the years ended December 31, 2019, 2018 and 2017,
respectively. As of December 31, 2019, we had an accumulated deficit of $221.0 million, and we do not expect positive cash flows
from operations in the foreseeable future. We do not have any products approved for sale. We expect to continue to incur net operating
losses for at least the next several years as we advance our personalized cancer immunotherapy through clinical development, seek
regulatory approval, prepare for and, if approved, proceed to commercialization, continue our research and development efforts and
invest in our manufacturing facility.
In October 2018, we completed our IPO and sold and issued an aggregate of 6,854,202 shares of our common stock, including
187,535 shares sold pursuant to the underwriters’ partial exercise of their option to purchase additional shares, at a price to the public
of $15.00 per share. We received aggregate net proceeds from the offering of $92.5 million, after deducting underwriting discounts
and commissions and offering costs.
In April 2019, we completed an underwritten public offering and sold and issued an aggregate of 6,500,000 shares of common
stock at a price to the public of $11.50 per share. We received aggregate net proceeds from the offering of approximately $69.7
million, after deducting underwriting discounts and commissions and offering costs.
In October 2019, we filed a shelf registration statement on Form S-3, or the “Shelf Registration Statement”, with the SEC
covering the offering of up to $250.0 million of common stock, preferred stock, debt securities, warrants and units, including the sale
and issuance of up to $75.0 million in shares of our common stock to be issued from time to time in an “at the market offering”
program pursuant to a Sales Agreement, or the “Sales Agreement”, that we have entered into with Cowen and Company, LLC, or
“Cowen”. The Shelf Registration Statement was declared effective by the SEC on November 8, 2019. Through December 31, 2019,
we have received aggregate proceeds from our at the market offering of $3.8 million, net of commissions and offering costs, and have
$70.8 million remaining to raise.
Collaboration Revenue
Components of Our Operating Results
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales
for the foreseeable future. For the years ended December 31, 2019 and 2018, we recognized $4.3 million and $1.2 million,
respectively, of revenue from the bluebird Collaboration Agreement. No revenue was recognized for the year ended December 31,
2017.
In the future, we will continue to recognize revenue from the bluebird Collaboration Agreement and may generate revenue
from product sales or other collaboration agreements, strategic alliances and licensing arrangements. We expect that our revenue will
fluctuate from quarter-to-quarter and year-to-year as a result of the timing and amount of license fees, milestones, reimbursement of
costs incurred and other payments and product sales, to the extent that any are successfully commercialized. If we fail to complete the
development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future
revenue, and our results of operations and financial position, would be materially adversely affected.
93
Operating Expenses
Research and Development Expenses
Since our inception, we have focused significant resources on our research and development activities, including conducting
preclinical studies, manufacturing development efforts and related development activities for our product candidates.
Research and development activities account for a significant portion of our operating expenses. Research and development
costs are expensed as incurred. These costs include:
• External research and development expenses, including:
• Expenses incurred under arrangement with third parties, including clinical research organizations, or CROs,
preclinical testing organizations, CMOs, academic and non-profit institutions and consultants;
• Fees related to our license agreements;
• Internal research and development expenses, including:
• Headcount related expenses, including salaries, payroll taxes, benefits, non-cash stock-based compensation
and travel, for employees contributing to research and development activities, including the costs associated
with the development of our EDGE platform; and
• Other expenses, which include direct and allocated expenses for laboratories, facilities and other costs.
In October 2017, we entered into a license agreement with Arbutus Biopharma Corporation, or Arbutus. Certain terms of the
agreement were modified by amendment in July 2018. Under the agreement, Arbutus grants us a worldwide, exclusive license to
certain technology of Arbutus, including Arbutus’ portfolio of proprietary and clinically validated LNP products and associated
intellectual property, as well as technology transfer of Arbutus’ manufacturing know-how. Under this agreement, we made an upfront
payment of $5.0 million, which was included in research and development expenses during the year ended December 31, 2017.
Following the acceptance of our investigational new drug application for GRANITE by the U.S. Food and Drug Administration, we
made a $2.5 million development milestone payment to Arbutus in September 2018 that was recorded as research and development
expense. During the years ended December 31, 2019 and 2018, we reimbursed Arbutus for materials and personnel costs totaling $0.4
million and $0.4 million, respectively. In August 2019, a milestone was met following the initial patient treatment of SLATE in our
GO-005 clinical trial. We recorded $3.0 million as research and development expense in connection with the milestone. The milestone
payment was made in October 2019. See “Business—License and Collaborations—License Agreement with Arbutus Biopharma
Corporation” for additional information.
We expect our research and development expenses to increase substantially in the future as we advance our cancer
immunotherapy candidates into and through clinical studies and pursue regulatory approval. Conducting the necessary clinical studies
to obtain regulatory approval is costly and time-consuming and such clinical studies generally become larger and more costly to
conduct as they advance into later stages. The successful development of our product candidates is highly uncertain. The actual
probability of success for our product candidates may be affected by a variety of risks and uncertainties associated with drug
development, including those set forth in the section entitled “Risk Factors” included in Part I, Section 1A and elsewhere in this
report.
Due to the early-stage nature of our cancer immunotherapy programs, we do not track costs on a project-by-project basis.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries and related costs, including payroll taxes, benefits, non-
cash stock-based compensation and travel. Other general and administrative expenses include legal costs of pursuing patent protection
of our intellectual property, and professional service fees for auditing, tax and general legal services. We expect our general and
administrative expenses to continue to increase in the future as we expand our operating activities and prepare for potential
commercialization of our current and future product candidates, increase our headcount and support our operations as a public
company, including increased expenses related to legal, accounting, regulatory and tax-related services associated with maintaining
compliance with requirements of the Nasdaq Global Select Market and the SEC, directors and officers liability insurance premiums
94
and investor relations activities. Allocated expenses consist of rent expenses related to our office and research and development
facilities, depreciation and other allocated costs not otherwise included in research and development expenses.
Interest Income, Net
Interest income, net, consists primarily of interest income and investment income earned on our cash, cash equivalents and
marketable securities, and for 2018, interest expense on our lease financing obligation, which was derecognized on January 1, 2019 in
connection with our adoption of Accounting Standards Update No. 2016-02, Leases (“Topic 842”).
Comparison of the Years Ended December 31, 2019 and 2018
Results of Operations
The following table sets forth the significant components of our results of operations (in thousands):
Collaboration revenue
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Interest income, net
Net loss
Collaboration Revenue
Year Ended
December 31,
2019
2018
Change
$
4,365 $
1,187 $
3,178
82,896
19,409
102,305
(97,940 )
3,507
(94,433 ) $
54,965
11,806
66,771
(65,584 )
809
(64,775 ) $
27,931
7,603
35,534
(32,356 )
2,698
(29,658 )
$
Collaboration revenue was $4.4 million and $1.2 million for the years ended December 31, 2019 and 2018, respectively. The
$3.2 million increase was due to an entire year of revenue recognized in 2019 pursuant to the bluebird Collaboration Agreement which
we entered into in August 2018.
Research and Development Expenses
Research and development expenses were $82.9 million for the year ended December 31, 2019 compared to $55.0 million for
the year ended December 31, 2018.
The increase of $27.9 million for the year ended December 31, 2019 was primarily due to increases in personnel related
expenses, expenses related to outside services and consultants, in-house laboratory supplies and consumables and facilities expenses.
Personnel related costs increased by $7.9 million, as a direct result of our increased research and development headcount. Outside
services and consultants increased by $7.5 million for clinical trials, preclinical testing and contract manufacturing expansion. In-
house expenses for laboratory supplies and consumables increased by $6.0 million, and reflect our increased research and
development personnel. Facility related expenses increased by $6.0 million to accommodate our manufacturing expansion and
increased research and development personnel. Milestone and license payments increased by $0.5 million reflecting a $2.5 million
payment made in 2018 and a $3.0 million payment made in 2019 under a certain agreement upon the achievement of certain
milestones.
General and Administrative Expenses
General and administrative expenses were $19.4 million for the year ended December 31, 2019 compared to $11.8 million for
the year ended December 31, 2018. The increase of $7.6 million was primarily attributable to a $2.6 million increase in personnel
related costs as we expanded our headcount, and a $4.2 million increase in outside services for legal, finance, recruiting and other
professional services to support our ongoing operations and operate as a public company. Facility related expenses increased by
$0.8 million to accommodate our increased general and administrative personnel.
95
Interest Income, Net
Interest income, net was $3.5 million for the year ended December 31, 2019 compared to $0.8 million for the year ended
December 31, 2018. The income for both years represents interest and investment income from cash, cash equivalents and marketable
securities. The increase of $2.7 million was due to a higher average cash, cash equivalents and marketable securities balance in 2019
than in 2018 and decreased interest expense incurred on our lease financing obligation due to our adoption of Topic 842, and the
change in accounting treatment related to the Pleasanton lease, which was derecognized on January 1, 2019 in connection with our
adoption of Topic 842.
Comparison of the Years Ended December 31, 2018 and 2017
The following table sets forth the significant components of our results of operations (in thousands):
Collaboration revenue
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Interest income, net
Net loss
Collaboration Revenue
Year Ended
December 31,
2018
2017
Change
$
1,187 $
— $
1,187
54,965
11,806
66,771
(65,584 )
809
(64,775 ) $
35,691
6,072
41,763
(41,763 )
386
(41,377 ) $
19,274
5,734
25,008
(23,821 )
423
(23,398 )
$
Collaboration revenue was $1.2 million for the year ended December 31, 2018. No collaboration revenue was recognized for
the year ended December 31, 2017. The increase was due to recognition of revenue during the period pursuant to the bluebird
Collaboration Agreement which we entered into in August 2018.
Research and Development Expenses
Research and development expenses were $55.0 million for the year ended December 31, 2018 compared to $35.7 million for
the year ended December 31, 2017.
The increase of $19.3 million for the year ended December 31, 2018 was primarily due to increases in personnel related
expenses, expenses related to outside services and consultants, in-house laboratory supplies and consumables and facilities expenses.
Personnel related costs increased by $7.7 million, as a direct result of our increased research and development headcount. Outside
services and consultants increased by $5.4 million for clinical trials, preclinical testing and contract manufacturing expansion. In-
house expenses for laboratory supplies and consumables increased by $3.3 million, and reflect our increased research and
development headcount. Facility related expenses increased by $4.9 million to accommodate our manufacturing expansion and
increased research and development headcount. These increases in research and development expenses were partially offset by a $2.0
million decrease in milestone and license payments reflecting lower payments made under certain agreements upon the achievement
of certain milestones.
General and Administrative Expenses
General and administrative expenses were $11.8 million for the year ended December 31, 2018 compared to $6.1 million for
the year ended December 31, 2017. The increase of $5.7 million was primarily attributable to a $2.7 million increase in personnel
related costs as we expanded our headcount, and a $2.3 million increase in outside services for legal, finance, recruiting and other
professional services to support our ongoing operations. Facility related expenses increased by $0.7 million to accommodate our
increased general and administrative headcount.
96
Interest Income, Net
Interest income was $0.8 million for the year ended December 31, 2018 compared to interest income of $0.4 million for the
year ended December 31, 2017. The increase of $0.4 million was due to a higher average cash, cash equivalents and marketable
securities balance in 2018 than in 2017, partially offset by increased interest expense incurred on our lease financing obligation.
Sources of Liquidity
Liquidity and Capital Resources
From our inception through December 31, 2019, we have funded our operations primarily through private placements of our
convertible preferred stock, our Collaboration Agreement with bluebird, and the proceeds from the sale of our common stock in our
IPO, follow on public offering, and at the market offering. We have raised net cash proceeds of $177.9 million from the issuance of
our convertible preferred stock and a non-refundable upfront payment of $20.0 million from bluebird.
In October 2018, we completed our initial public offering by issuing 6,854,202 shares of our common stock, including
187,535 shares sold pursuant to the underwriters’ partial exercise of their option to purchase additional shares, at an offering price of
$15.00 per share, for net proceeds of approximately $92.5 million, after deducting underwriting discounts and commissions and
offering costs.
In April 2019, we completed an underwritten public offering and sold and issued an aggregate of 6,500,000 shares of common
stock at a price to the public of $11.50 per share. We received aggregate net proceeds from the offering of approximately $69.7
million, after deducting underwriting discounts and commissions and offering costs.
In October 2019, we filed the Shelf Registration Statement, covering the offering of up to $250.0 million of common stock,
preferred stock, debt securities, warrants and units, including the sale and issuance of up to $75.0 million in shares of our common
stock to be issued from time to time in an “at the market offering” program pursuant to the Sales Agreement with Cowen. The Shelf
Registration Statement was declared effective by the SEC on November 8, 2019. Through December 31, 2019, we have received
aggregate proceeds from our at the market offering of $3.8 million, net of commissions and offering costs, and have $70.8 million
remaining to raise.
As of December 31, 2019, we had cash, cash equivalents, and marketable securities of $127.8 million and an accumulated
deficit of $221.0 million, compared to cash, cash equivalents, and marketable securities of $153.1 million and an accumulated deficit
of $126.4 million as of December 31, 2018.
Additionally, we do not expect positive cash flows from operations in the foreseeable future. Historically, we have incurred
operating losses as a result of ongoing efforts to develop our cancer immunotherapy candidates, including conducting ongoing
research and development, clinical and preclinical studies and providing general and administrative support for these operations. We
expect to continue to incur net operating losses for at least the next several years as we advance SLATE, GRANITE, the BiSAb
program and any future product candidates through clinical development, seek regulatory approval, prepare for and, if approved,
proceed to commercialization, continue our research and development efforts and invest in our manufacturing facility.
Future Funding Requirements
We do not have any products approved for sale, and we do not expect to generate any meaningful revenue unless and until we
obtain regulatory approval of and commercialize any of our current and future product candidates and/or enter into additional
significant collaboration agreements with third parties, and we do not know when, or if, either will occur. We expect to continue to
incur significant losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek
regulatory approvals for, our current and future product candidates, and begin to commercialize any approved products. We are
subject to all the risks typically related to the development of new product candidates, and we may encounter unforeseen expenses,
difficulties, complications, delays and other unknown factors that may adversely affect our business. Moreover, we expect to incur
additional costs associated with operating as a public company. We anticipate that we will need substantial additional funding in
connection with our continuing operations.
Until we can generate a sufficient amount of revenue from the commercialization of our tumor-specific immunotherapy
product candidates or from additional significant collaboration or license agreements with third parties, if ever, we expect to finance
our future cash needs through public or private equity offerings or debt financings. Additional capital may not be available on
reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have
to significantly delay, scale back or discontinue the development or commercialization of one or more of our current or future product
candidates. If we raise additional funds by issuing equity or convertible debt securities, it could result in dilution to our existing
stockholders and increased fixed payment obligations. In addition, as a condition to providing additional funds to us, future investors
97
may demand, and may be granted, rights superior to those of existing stockholders. If we incur indebtedness, we could become subject
to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur
additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that
could adversely impact our ability to conduct our business. Additionally, any future collaborations we enter into with third parties may
provide capital in the near term but we may have to relinquish valuable rights to our product candidates or grant licenses on terms that
are not favorable to us. Any of the foregoing could significantly harm our business, financial condition and prospects.
Since our inception, we have incurred significant losses and negative cash flows from operations. We have an accumulated
deficit of $221.0 million through December 31, 2019. We expect to incur substantial additional losses in the future as we conduct and
expand our research and development activities. We believe that our existing cash, cash equivalents and marketable securities will be
sufficient to enable us to fund our projected operations through at least the next 12 months from the date of this Annual Report on
Form 10-K. We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we
may use all our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with
research, development and commercialization of product candidates, we are unable to estimate the exact amount of our operating
capital requirements. Our future capital requirements depend on many factors, including:
•
•
•
•
•
•
•
•
•
the scope, progress, results and costs of developing our tumor-specific immunotherapy product candidates, and conducting
preclinical studies and clinical trials, including our Phase 1/2 clinical trial of GRANITE, which we initiated in the fourth
quarter of 2018;
the scope, progress, results and costs of conducting studies and clinical trials for our SLATE product candidate series,
including the Phase 1/2 clinical trial for SLATE, which we initiated in the third quarter of 2019;
the scope, progress, results and costs of conducting drug discovery, preclinical studies and clinical trials for our BiSAb
program, for which we expect to select a product candidate in the second half of 2020;
the timing of, and the costs involved in, obtaining regulatory approvals for our tumor-specific immunotherapy product
candidates;
the number and characteristics of any additional product candidates we develop or acquire;
the timing and amount of any milestone, royalty or other payments we are required to make pursuant to any current or
future collaboration or license agreements;
the cost of manufacturing our tumor-specific immunotherapy product candidates we successfully commercialize, including
the cost of scaling up our internal manufacturing operations;
the cost of building a sales force in anticipation of product commercialization;
the cost of commercialization activities, including building a commercial infrastructure, marketing, sales and distribution
costs;
• our ability to maintain existing, and establish new, strategic collaborations, licensing or other arrangements and the
financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments
due under any such agreement;
• any product liability or other lawsuits related to our products;
•
•
•
the expenses needed to attract, hire and retain skilled personnel;
the costs associated with being a public company;
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our intellectual property portfolio;
and
•
the timing, receipt and amount of sales of any future approved products, if any.
A change in the outcome of any of these or other variables with respect to the development of any of our current and future
product candidates could significantly change the costs and timing associated with the development of that product candidate.
Furthermore, our operating plans may change in the future, and we will need additional funds to meet operational needs and capital
requirements associated with such operating plans.
98
Cash Flows
The following table sets forth a summary of the primary sources and uses of cash (in thousands):
Cash used in operating activities
Cash provided by (used in) investing activities
Cash provided by financing activities
Net increase in cash and cash equivalents
Cash Used in Operating Activities
2019
Year Ended December 31,
2018
2017
$
$
(85,011 ) $
15,841
74,395
5,225 $
(38,162 ) $
(59,103 )
110,441
13,176 $
(34,971 )
(33,252 )
95,812
27,589
During the year ended December 31, 2019, cash used in operating activities was $85.0 million, which consisted of a net loss of
$94.4 million, adjusted by non-cash charges of $15.1 million and cash used due to changes in our operating assets and liabilities of
$5.7 million. The non-cash charges consisted primarily of depreciation and amortization expense of $3.4 million, stock-based
compensation of $5.3 million, and non-cash operating lease expense of $6.4 million. The change in our operating assets and liabilities
was primarily due to a decrease of $4.3 million as a result of the deferred revenue recorded in connection with our Collaboration
Agreement with bluebird, a decrease of $3.3 million due to pre-payments made per our lease agreements, and a decrease of $0.3
million in deposits and other long-term assets, offset by increases of $1.5 million in accrued research and development expenses and
$0.7 million in accrued compensation.
During the year ended December 31, 2018, cash used in operating activities was $38.2 million, which consisted of a net loss of
$64.8 million, adjusted by non-cash charges of $6.4 million and cash used due to changes in our operating assets and liabilities of
$20.2 million. The non-cash charges consisted primarily of depreciation and amortization expense of $3.4 million and stock-based
compensation of $3.0 million. The change in our operating assets and liabilities was primarily due to an increase of $18.8 million as a
result of the deferred revenue recorded in connection with our Collaboration Agreement with bluebird, an increase of $3.3 million in
accounts payable, and $1.7 million in accrued compensation, offset by a decrease of $1.8 million in prepaid expenses and other assets,
and an increase of $1.0 million in accrued and other liabilities and deferred rent, and $0.8 million in deposits and other long-term
assets.
During the year ended December 31, 2017, cash used in operating activities was $35.0 million, which consisted of a net loss of
$41.4 million, adjusted by non-cash charges of $2.9 million and cash provided by changes in our operating assets and liabilities of
$3.5 million. The non-cash charges consisted primarily of depreciation and amortization expense of $1.8 million and stock-based
compensation of $1.1 million. The change in our operating assets and liabilities was primarily due to an increase of $4.3 million in
accounts payable and accrued liabilities. Our accrued liabilities increased due to employee bonuses and general business expenses,
reflective of our increased headcount and expenses. This was partially offset by an increase of $0.4 million in prepaid expenses and
other current assets for prepaid research and development being conducted by third-party service providers.
Cash Provided by (Used in) Investing Activities
During the year ended December 31, 2019, cash provided by investing activities was $15.8 million, which consisted of $113.0
million in proceeds from the maturity of marketable securities, offset by $81.0 million of purchases of marketable securities and $16.2
million of capital expenditures to purchase property and equipment.
During the year ended December 31, 2018, cash used in investing activities was $59.1 million, which consisted of $102.1
million of purchases of marketable securities, $5.7 million of capital expenditures to purchase property and equipment, offset by $48.7
million in proceeds from the maturity of marketable securities.
During the year ended December 31, 2017, cash used in investing activities was $33.3 million, which consisted of
$63.2 million of purchases of marketable securities, $11.5 million of capital expenditures to purchase property and equipment, offset
by $41.5 million in proceeds from the maturity of marketable securities.
Cash Provided by Financing Activities
During the year ended December 31, 2019, cash provided by financing activities was $74.4 million, which primarily consisted
of $70.3 million in proceeds from the issuance of common stock in a public offering, $4.0 million in proceeds from the issuance of
common stock related to our at the market offering, $0.4 million in proceeds from the issuance of common stock from the purchase of
99
shares under our employee stock purchase plan, and $0.5 million of proceeds from the exercise of stock options, offset by $0.8 million
of payments of deferred financing costs.
During the year ended December 31, 2018, cash provided by financing activities was $110.4 million, which primarily
consisted of $20.9 million in net proceeds from the issuances of shares of our Series C convertible preferred stock and $92.5 million in
net proceeds from our IPO, offset by $3.1 million paid for deferred offering costs associated with preparation for our initial public
offering.
During the year ended December 31, 2017, cash provided by financing activities was $95.8 million, which primarily consisted
of net proceeds from the issuances of shares of our convertible preferred stock.
Since our inception through December 31, 2019, we have raised an aggregate of approximately $177.9 million through the
issuance and sale of shares of our convertible preferred stock, net of $0.4 million in issuance costs, which we have used to fund our
operations. During 2018, aggregate net proceeds from our sale of Series C convertible preferred stock were $20.9 million. During
2017, net proceeds from our sale of Series B convertible preferred stock were $95.8 million. During 2016, net proceeds from our sale
of Series A convertible preferred stock were $35.7 million.
We have not entered into any off-balance sheet arrangements, as defined under SEC rules.
Off-Balance Sheet Arrangements
The following table summarizes our contractual obligations as of December 31, 2019 (in thousands):
Contractual Obligations and Commitments
Operating leases (1)
Total obligations
(1)
See Note 6 to our financial statements.
Less than
1 Year
Payments Due by Period
1-3
Years
3-5
Years
More than
5 Years
Total
$
$
34,905 $
34,905 $
5,366 $
5,366 $
10,101 $
10,101 $
6,908 $
6,908 $
12,530
12,530
We are party to license agreements pursuant to which we have in-licensed various intellectual property rights. The license
agreements obligate us to make certain milestone payments related to achievement of specified events, as well as royalties in the low-
single digits based on sales of licensed products. In September 2018, we made a milestone payment of $2.5 million pursuant to a
license agreement. In August 2019, following the initial patient treatment of SLATE, we recorded $3.0 million as research and
development expense in connection with the milestone. During the years ended December 31, 2019 and 2018, no royalties were due
from the sales of licensed products. The table above does not include any milestone or royalty payments to the counterparties to these
agreements as the amounts, timing and likelihood of such payments are not known. See Note 7 to our financial statements.
In September 2017, we entered into a contract research and development agreement with a third party contract research
organization (CRO) to provide research, analysis and antibody samples to further the development of our personalized immunotherapy
candidate in the treatment of cancer. During the year ended December 31, 2018, we recognized a total of $1.0 million of research and
development expense under the agreement. During the year ended December 31, 2019, we recognized an insignificant amount of
research and development expense under the agreement. We are also obligated to pay the CRO certain milestone payments of up to
$36.4 million on achievement of specified events. None of these events had occurred as of December 31, 2019 or 2018. However, we
are unable to estimate the timing or likelihood of achieving the milestones and, therefore, any related payments are not included in the
table above.
In May 2019, we entered into a contract research and testing agreement with a third party CRO to provide antibody discovery
related services. During the year ended December 31, 2019, we recognized a total of $1.0 million of research and development
expense under the agreement. We are also obligated to pay the CRO certain milestone payments of up to $34.8 million on
100
achievement of specified events. None of these events had occurred as of December 31, 2019. However, we are unable to estimate the
timing or likelihood of achieving the milestones and, therefore, any related payments are not included in the table above.
We enter into contracts in the normal course of business with CROs for clinical trials and CMOs for clinical supply
manufacturing and with vendors for preclinical research studies and other services and products for operating purposes, which
generally provide for termination within 30 days of notice, and therefore are cancelable contracts and not included in the table above.
Critical Accounting Policies and Use of Estimates
This discussion and analysis of financial condition and results of operation is based on our financial statements, which have
been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of
financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses
during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to preclinical and
clinical study trial accruals, fair value of assets and liabilities, the fair value of right-of-use assets (“ROU Assets”) and lease liabilities,
revenue recognition, and the fair value of stock-based compensation. Management bases its estimates on historical experience and on
various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual
results could differ from those estimates.
While our significant accounting policies are more fully described in the notes to our financial statements, we believe that the
following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our
financial statements and understanding and evaluating our reported financial results.
Revenue Recognition
We analyze our collaboration agreements to assess whether such arrangements involve joint operating activities performed by
parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial
success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities
of all parties in the arrangement. For collaboration arrangements that are considered to be in the scope of the collaboration guidance
and that contain multiple elements, we first determine which elements of the collaboration are deemed to be within the scope of the
collaboration guidance and those that are more reflective of a vendor-customer relationship and, therefore, within the scope of the
revenue with contracts with customer guidance. For elements of collaboration arrangements that are accounted for pursuant to the
revenue from contracts with customer guidance, an appropriate recognition method is determined and applied consistently, generally
by analogy to the revenue from contracts with customers guidance.
The terms of the collaboration and license agreements entered into typically include payment of one or more of the following:
non-refundable, up-front fees; development, regulatory, and commercial milestone payments; payments for manufacturing supply
services; and royalties on net sales of licensed products. Each of these payments results in license, collaboration, and other revenues,
except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues. The core principle of the
accounting for revenue from contracts with customers guidance is to recognize revenues when promised goods or services are
transferred to customers in an amount that reflects the consideration that is expected to be received in exchange for those goods or
services.
In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under each of our agreements,
we perform the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the
promised goods or services are performance obligations including whether they are distinct in the context of the contract;
(iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to
the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) we satisfy each
performance obligation.
Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in our balance sheets. If
the related performance obligation is expected to be satisfied within the next twelve months this will be classified in current liabilities.
Amounts recognized as revenue prior to receipt are recorded as contract assets in our balance sheets. If we expect to have an
unconditional right to receive consideration in the next twelve months, this will be classified in current assets. A net contract asset or
liability is presented for each contract with a customer.
At contract inception, we assess the goods or services promised in a contract with a customer and identify those distinct goods
and services that represent a performance obligation. A promised good or service may not be identified as a performance obligation if
101
it is immaterial in the context of the contract with the customer, if it is not separately identifiable from other promises in the contract
(either because it is not capable of being separated or because it is not separable in the context of the contract), or if the performance
obligation does not provide the customer with a material right.
We consider the terms of the contract and our customary business practices to determine the transaction price. The transaction
price is the amount of consideration to which we expect to be entitled in exchange for transferring promised goods or services to a
customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Variable
consideration will only be included in the transaction price when it is not considered constrained, which is when it is probable that a
significant reversal in the amount of cumulative revenue recognized will not occur.
If it is determined that multiple performance obligations exist, the transaction price is allocated at the inception of the
agreement to all identified performance obligations based on the relative standalone selling prices. The relative selling price for each
deliverable is estimated using objective evidence if it is available. If objective evidence is not available, we use our best estimate of
the selling price for the deliverable.
Revenue is recognized when, or as, we satisfy a performance obligation by transferring a promised good or service to a
customer. An asset is transferred when, or as, the customer obtains control of that asset, which for a service, is considered to be as the
services are received and used. We recognize revenue over time by measuring the progress toward complete satisfaction of the
relevant performance obligation using an appropriate input or output method based on the nature of the good or service promised to
the customer.
After contract inception, the transaction price is reassessed at every period end and updated for changes such as resolution of
uncertain events. Any change in the transaction price is allocated to the performance obligations on the same basis as at contract
inception.
Management may be required to exercise considerable judgment in estimating revenue to be recognized. Judgment is required
in identifying performance obligations, estimating the transaction price, estimating the stand-alone selling prices of identified
performance obligations, which may include forecasted revenue, development timelines, reimbursement rates for personnel costs,
discount rates and probabilities of technical and regulatory success, and estimating the progress towards satisfaction of performance
obligations.
Research and Development Expenses
We record research and development expenses to operations as incurred. Research and development expenses represent costs
incurred by us for the discovery and development of our product candidates and the development of our technology and include:
internal research and development expense, including employee-related expenses, including salaries, benefits, travel and non-cash
stock-based compensation expense; external research and development expenses incurred under arrangements with third parties, such
as CROs, preclinical testing organizations, contract manufacturing organizations (CMOs), academic and non-profit institutions and
consultants; license fees; other expenses, which include direct and allocated expenses for laboratory, facilities and other costs; and
costs incurred related to our Collaboration Agreements. Costs to develop our technologies are recorded as research and development
expense unless the criteria to be capitalized as internal-use software costs is met.
As part of the process of preparing financial statements, we are required to estimate and accrue expenses. We record the
estimated expenses of research and development activities conducted by third-party service providers based upon the estimated
amount of services provided within research and development expense in the statements of operations and comprehensive loss. These
services include the conduct of clinical and preclinical studies, contract manufacturing activities and consulting services. Payments
made prior to the receipt of goods or services to be used in research and development are deferred and recognized as expense in the
period in which the related goods are received or services are realized or consumed. If the costs have been prepaid, this expense
reduces the prepaid expenses in the balance sheet, and if not yet invoiced, the costs are included in accrued liabilities in the balance
sheet. These costs are a significant component of our research and development expenses. We record amortization of prepaid expenses
or accrued expenses for these costs based on the estimated amount of work completed and in accordance with agreements established
with these third parties. Such payments are evaluated for current or long-term classification based on when they will be realized.
Costs for certain research and development activities are recognized based on an evaluation of the progress to completion of
specific tasks. We estimate the amount of work completed through discussions with internal personnel and external service providers
as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make judgments and
estimates in determining the accrued balance in each reporting period. As actual costs become known, we adjust our accrued
estimates. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the
status and timing of services performed may vary from our estimates and could result in us reporting amounts that are too high or too
102
low in any particular period. Our accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from
external CROs, CMOs, and other third-party service providers. To date, we have not experienced material differences between our
accrued expenses and actual expenses.
We have and may continue to enter into license agreements to access and utilize certain technology. We evaluate if the license
agreement is an acquisition of an asset or a business. To date none of our license agreements have been considered to be an acquisition
of a business. For asset acquisitions, the upfront payments to acquire such licenses, as well as any future milestone payments made
before product approval, are immediately recognized as research and development expense when due, provided there is no alternative
future use of the rights in other research and development projects. These license agreements may also include contingent
consideration in the form of cash. We assess whether such contingent consideration meets the definition of a derivative.
Stock-Based Compensation
We measure stock-based compensation expense for stock options granted to our employees, directors, and non-employees on
the date of grant and recognize the corresponding compensation expense of those awards over the requisite service period, which is
generally the vesting period of the respective award. We account for stock-based compensation arrangements with non-employee
consultants using a fair value approach. Forfeitures of awards are estimated based on historical forfeiture experience and the
experience of other companies in the same industry. The estimate of forfeitures will be adjusted over the service period to the extent
that actual forfeitures differ, or are expected to differ, from prior estimates.
Prior to our IPO, the fair value of our shares of common stock underlying the stock options was the responsibility of and
determined by our Board. Because there was no public market for our common stock, the Board determined the fair value of common
stock at the time of grant of the option by considering a number of objective and subjective factors, including, among others: the
prices at which we sold shares of our convertible preferred stock to outside investors in arms-length transactions; the rights,
preferences and privileges of our convertible preferred stock relative to those of our common stock; our results of operations, financial
position and capital resources; current business conditions and projections; the lack of marketability of our common stock; the hiring
of key personnel and the experience of management; progress of our research and development activities; our stage of development
and material risks related to its business; the fact that the option grants involve illiquid securities in a private company; and the
likelihood of achieving a liquidity event, such as an initial public offering or sale, in light of prevailing market conditions.
Following the IPO, the market traded price of the shares of common stock underlying the stock options is the fair value of our
stock as reported on The Nasdaq Global Select Market on the grant date.
We estimate the fair value of stock options granted to our employees, directors, and non-employees on the grant date and the
resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model
requires the use of subjective assumptions which determine the fair value of stock-based awards. These assumptions include:
Expected Term. Our expected term represents the period that our stock options are expected to be outstanding and is
determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term), as we
do not have sufficient historical data to use any other method to estimate expected term.
Expected Volatility. Due to our limited trading history for our common stock, expected volatility is estimated based on the
average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock
option grants. The comparable companies are chosen based on their similar size, stage in the life cycle or area of specialty.
Risk-Free Interest Rate. The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of
grant for periods corresponding with the expected term of the stock option grants.
Expected Dividend Yield. We have never paid dividends on our common stock and have no plans to pay dividends on our
common stock. Therefore, we use an expected dividend yield of zero.
If any of the assumptions used in the Black-Scholes option pricing model change significantly, stock-based compensation
expense may differ materially in the future from that recorded in the current period. We expect to continue to grant stock options and
awards in the future, and to the extent that we do, our actual stock-based compensation expense recognized in future periods will
likely increase.
As of December 31, 2019, we had $11.5 million of total unrecognized stock-based compensation expense which we expect to
recognize over a weighted-average period of 2.76 years.
103
We have not recognized, and we do not expect to recognize in the near future, any tax benefit related to employee stock-based
compensation expense as a result of the full valuation allowance on our deferred tax assets including deferred tax assets related to our
net operating loss carryforwards.
Leases
Prior to January 1, 2019, we assessed agreements to determine whether the arrangement was or contained a lease at the
inception of the arrangement and if such a lease is classified as a financing or operating lease. For all of our leases accounted for as
operating leases, the lease expense was expensed on a straight-line basis over the term of the lease. Our lease agreements contained
rent holidays, scheduled rent increases and renewal options. Rent holidays and scheduled rent increases were included in the
determination of rent expense and recorded ratably over the lease term. We did not assume renewals in its determination of the lease
term unless they were deemed to be reasonably assured at the inception of the lease. We begin recognizing rent expense on the date
that we obtain the legal right to use and control the leased space. Deferred rent consisted of the difference between cash payments and
the recognition of rent expense on a straight-line basis for the buildings we occupied.
Funding of leasehold improvements by our landlord was accounted for as a tenant improvement allowance and recorded as
current and non-current deferred rent liabilities and amortized on a straight-line basis as a reduction of rent expense over the term of
the lease.
In certain arrangements, we were involved in the construction of improvements to buildings we are leasing. To the extent we
were involved with the structural improvements of the construction project or took construction risk, we were considered to be the
owner of the building and related improvements for accounting purposes during the construction period. Therefore, we recorded the
fair value of the building subject to the lease within property and equipment on the balance sheet, plus the amount of building
improvements incurred and funded by us and/or the landlord as of the balance sheet date. We also recorded a corresponding lease
financing obligation on our balance sheet representing the amounts financed by the lessor for the building and lessor financed
improvements. Lessor financed improvement incentives due but not yet received were recorded as prepaid expense and other current
assets on the balance sheet.
Once construction was completed, we considered the requirements for sale-leaseback accounting treatment, including
evaluating whether all risks of ownership had been transferred back to the landlord, as evidenced by a lack of our continuing
involvement in the leased property. If we concluded the arrangement did not qualify for sale-leaseback accounting treatment, the
building and improvements remained on our balance sheet and were subject to depreciation and assessment of impairment. We
bifurcated our lease payments into a portion allocated to the lease financing obligation and a portion allocated to the parcel of land on
which the building had been built. The portion of the lease payments allocated to the land was treated for accounting purposes as
operating lease payments, and therefore was recorded as rent expense in the statements of operations and comprehensive loss. The
portion of the lease payments allocated to the lease financing obligation was further bifurcated into a portion allocated to interest
expense and a portion allocated to reduce the lease financing obligation.
The interest rate used for the lease financing obligation represented our estimated incremental borrowing rate at the inception
of the lease, adjusted to reduce any built-in loss. The initial recording of these assets and liabilities was classified as non-cash
investing and financing items, respectively, for purpose of the statements of cash flows.
The most significant estimates used by management in accounting for the lease financing transaction and the impact of these
estimates are as follows:
• Incremental borrowing rate. We estimate our incremental borrowing rate as the rate we would have incurred to borrow,
based on our credit quality at the inception of the lease over a similar term, the funds necessary to purchase the leased
building subject to the financing lease transaction. The incremental borrowing rate is used in determining allocating our
rental payments between interest expense and a reduction of the outstanding lease financing obligation.
• Land capitalization rate. The land capitalization rate is the rate of return on the land underlying the lease properly
considering expected income that the land would be expected to generate. The land lease capitalization rate is estimated
using comparable market data for land capitalization rates for similar properties. The land capitalization rate is used in
determining allocating our rental payments between interest expense and a reduction of the outstanding lease financing
obligation.
• Fair value of leased building and underlying land. The fair value of a leased building and underlying land subject to the
lease financing transaction is based on comparable market data for similar properties as of the lease inception date. The fair
value of the underlying land is used in determining allocating our rental payments between interest expense and a reduction
of the outstanding lease financing obligation.
104
In March 2017, we entered into a non-cancelable lease for 42,620 square feet of office, cleanroom, and laboratory support
manufacturing space in Pleasanton, California. Subsequently, in April 2017, we took possession of the space. The scope of the tenant
improvements did not qualify under the lease accounting guidance as “normal tenant improvements” and we were the deemed owner
of the leased building during the construction period for accounting purposes. In November 2017, construction on the facility was
substantially completed and the leased property was placed into service. We determined that the completed construction project did
not qualify for sale-leaseback accounting due to the collateral held by the landlord in the form of a letter of credit and will instead be
accounted for as a financing transaction. The leased building for the Pleasanton facility and related improvements remained on our
balance sheet as of December 31, 2018 and rental payments associated with the lease were allocated to operating lease expense for the
ground underlying the leased building and principal and interest payments on the lease financing obligation.
Subsequent to adoption of Topic 842 on January 1, 2019, we determine whether the arrangement is or contains a lease at the
inception of the arrangement and if such a lease is classified as a financing lease or operating lease. Leases with a term greater than
one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. We
have elected not to recognize on the balance sheet leases with terms of one year or less. Lease liabilities and their corresponding right-
of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease
contracts is typically not readily determinable. As such, we utilize the appropriate incremental borrowing rate, which is the rate
incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic
environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives
received and impairment charges if we determine the right-of-use asset is impaired.
We consider a lease term to be the noncancelable period that it has the right to use the underlying asset, including any periods
where it is reasonably assured we will exercise the option to extend the contract. Periods covered by an option to extend are included
in the lease term if the lessor controls the exercise of that option.
We recognize lease expense on a straight-line basis over the expected lease term.
Our facilities operating leases have lease and non-lease components which we have elected to account for as one single lease
component. The lease components resulting in a right-of-use asset have been recorded on the balance sheet and amortized as lease
expense on a straight-line basis over the lease term.
JOBS Act
We are an emerging growth company under the JOBS Act. As an emerging growth company, we may delay the adoption of
certain accounting standards until those standards would otherwise apply to private companies. We have nonetheless irrevocably
elected not to avail ourselves of this exemption and, as a result, we will adopt new or revised accounting standards on the relevant
dates on which adoption of such standards is required for other public companies.
We will remain an emerging growth company until the earliest of (1) December 31, 2023, (2) the last day of the fiscal year in
which we have total annual gross revenue of at least $1.07 billion, (3) the last day of the fiscal year in which we are deemed to be a
“large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common
stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year or (4) the date
on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
Refer to “Note 2. Summary of Significant Accounting Policies” to our audited financial statements for a discussion of recent
accounting pronouncements.
Recent Accounting Pronouncements
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Sensitivity
We are exposed to market risk related to changes in interest rates. We had cash, cash equivalents and marketable securities of
$127.8 million as of December 31, 2019, which consisted primarily of money market funds and marketable securities, largely
composed of investment grade, short-term fixed income securities.
105
The primary objective of our investment activities is to preserve capital to fund our operations. We also seek to maximize
income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of investments in a
variety of securities of high credit quality and short-term duration, according to our board-approved investment charter.
Our investments are subject to interest rate risk and could fall in value if market interest rates increase. A hypothetical 10%
relative change in interest rates during any of the periods presented would not have had a material impact on our financial statements.
106
Item 8. Financial Statements and Supplementary Data
Gritstone Oncology, Inc.
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations and Comprehensive Loss
Statements of Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
Pages
108
109
110
111
112
113
107
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Gritstone Oncology, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Gritstone Oncology, Inc. (“the Company”) as of December 31, 2019 and
2018, the related statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the three years in
the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and
the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with
U.S. generally accepted accounting principles.
Adoption of New Accounting Standard
As discussed in Note 2 to the financial statements, the Company changed its method of accounting for leases in 2019 due to
the adoption of Accounting Standard Updated (“ASU”) No. 2016-02, Leases (“Topic 842”), effective January 1, 2019, using the
modified retrospective approach.
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 Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the 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.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2016.
Redwood City, California
March 11, 2020
108
Gritstone Oncology, Inc.
Balance Sheets
(In thousands, except share amounts and par value)
Assets
Current assets:
Cash and cash equivalents
Marketable securities
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Deposits and other long-term assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Accrued compensation
Accrued liabilities
Accrued research and development expenses
Lease liabilities, current portion
Deferred revenue, current portion
Total current liabilities
Deferred rent, net of current portion
Other non-current liabilities
Lease financing obligation, net of current portion
Lease liabilities, net of current portion
Deferred revenue, net of current portion
Total liabilities
Commitments and contingencies (Notes 6 and 7)
Stockholders’ equity:
$
$
$
December 31,
2019
2018
57,408 $
70,368
3,497
131,273
26,911
23,427
2,778
184,389 $
4,621 $
4,598
1,041
1,779
2,505
4,956
19,500
—
—
—
20,985
9,560
50,045
52,183
100,927
4,526
157,636
29,494
—
2,428
189,558
4,825
3,951
740
252
—
5,340
15,108
1,353
12
10,490
—
13,473
40,436
Convertible preferred stock, $0.0001 par value; 10,000,000 shares authorized; no
shares issued and outstanding
Common stock, $0.0001 par value; 300,000,000 shares authorized at December 31,
2019 and 2018; 36,332,956 and 28,823,130 shares issued and outstanding at
December 31, 2019 and 2018, respectively
Additional paid-in capital
Accumulated other comprehensive gain (loss)
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
—
—
17
355,291
24
(220,988 )
134,344
184,389 $
16
275,593
(85 )
(126,402 )
149,122
189,558
See accompanying notes to financial statements.
109
Gritstone Oncology, Inc.
Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
Collaboration revenue
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Interest income, net
Net loss
Other comprehensive gain (loss):
Unrealized gain (loss) on marketable securities, net of tax
Net and comprehensive loss
Net loss per share, basic and diluted
Weighted-average number of shares used in computing net loss per share,
basic and diluted
2019
Year Ended December 31,
2018
2017
$
4,365 $
1,187 $
—
82,896
19,409
102,305
(97,940 )
3,507
(94,433 )
54,965
11,806
66,771
(65,584 )
809
(64,775 )
$
$
109
(94,324 ) $
(2.81 ) $
(11 )
(64,786 ) $
(7.26 ) $
35,691
6,072
41,763
(41,763 )
386
(41,377 )
(71 )
(41,448 )
(20.70 )
33,554,823
8,919,281
1,999,044
See accompanying notes to financial statements.
110
Balance at December 31, 2016
Issuance of Series B convertible preferred stock
at $10.76 per share for cash, net of issuance
costs of $210
Unrealized loss on marketable securities,
net of tax
Lapse of repurchase rights related to common
stock issued pursuant to early exercises
Issuance of common stock upon exercise of
stock options
Stock-based compensation
Net loss
Balance at December 31, 2017
Issuance of Series C convertible preferred stock
at $13.04 per share for cash, net of issuance
costs of $81
Issuance of common stock upon initial public
offering at $15.00 per share for cash, net
of issuance costs of $10,276
Conversion of Series A, B, and C convertible
preferred stock into common stock upon
initial public offering
Unrealized loss on marketable securities,
net of tax
Lapse of repurchase rights related to common
stock issued pursuant to early exercises
Issuance of common stock upon exercise of
stock options
Issuance of common stock for
consulting services
Exercise of common stock warrants
Stock-based compensation
Net loss
Balance at December 31, 2018
Cumulative effect of adoption of Topic 842
Issuance of common stock upon public offering
at $11.50 per share for cash, net of issuance
costs of $556
Issuance of common stock under at the market
("ATM") equity offering program, net of
issuance costs of $301
Issuance of common stock under employee
stock purchase plan (“ESPP”)
Unrealized gain on marketable securities,
net of tax
Lapse of repurchase rights related to common
stock issued pursuant to early exercises
Issuance of common stock upon exercise of
stock options
Stock-based compensation
Net loss
Balance at December 31, 2019
Gritstone Oncology, Inc.
Statements of Stockholders’ Equity
(In thousands, except share amounts)
Convertible
Preferred Stock
Common Stock
Additional
Paid-In
Shares
Amount Shares
8,878,227 $ 61,139 1,811,790 $
Amount Capital
1 $
802 $
Accumulated
Other
Comprehensive Accumulated
Gain (Loss)
Deficit
Equity
Total
Stockholders
(3 ) $
(20,250 ) $
41,689
8,919,302 95,798
—
—
—
—
—
95,798
—
—
—
—
—
(71 )
—
(71 )
—
—
338,924
—
117
—
—
117
1,811
—
—
17,797,529 156,937 2,152,525
—
—
—
—
—
—
—
—
—
1
—
1,126
—
2,045
—
—
—
(74 )
—
—
(41,377 )
(61,627 )
—
1,126
(41,377 )
97,282
1,611,603 20,935
—
—
—
—
—
20,935
—
— 6,854,202
1
92,536
—
—
92,537
(19,409,132 ) (177,872 ) 19,409,132
14 177,858
—
—
—
—
—
—
—
282,204
—
97
—
—
80,463
—
49
—
—
—
—
—
—
4,347
—
40,257
—
—
—
—
—
— 28,823,130
—
—
36
—
13
—
2,959
—
—
—
16 275,593
—
—
—
(11 )
—
—
—
—
—
—
(85 )
—
—
—
—
—
—
(11 )
97
49
—
—
—
(64,775 )
(126,402 )
(153 )
36
13
2,959
(64,775 )
149,122
(153 )
—
— 6,500,000
1
69,708
—
—
69,709
—
—
490,880
—
3,763
—
—
55,727
—
413
—
—
—
—
—
—
—
109
—
—
182,195
—
63
—
—
—
— $
281,024
—
—
—
—
—
— 36,332,956 $
452
—
5,299
—
—
—
17 $ 355,291 $
—
—
—
—
24 $
—
3,763
—
—
—
413
109
63
—
—
(94,433 )
(220,988 ) $
452
5,299
(94,433 )
134,344
See accompanying notes to financial statements.
111
Gritstone Oncology, Inc.
Statements of Cash Flows
(In thousands)
2019
Year Ended December 31,
2018
2017
$
(94,433 ) $
(64,775 ) $
(41,377 )
Operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Net amortization of premiums and discounts on marketable securities
Stock-based compensation
Non-cash operating lease expense
Changes in operating assets and liabilities:
Prepaid expenses and other current assets
Operating lease right-of-use assets
Deposits and other long-term assets
Accounts payable
Accrued compensation
Accrued and other non-current liabilities
Accrued research and development expenses
Deferred rent
Lease liability
Deferred revenue
Net cash used in operating activities
Investing activities
Purchase of marketable securities
Maturities of marketable securities
Purchase of property and equipment
Disposition of property and equipment
Net cash provided by (used in) investing activities
Financing activities
Proceeds from issuance of common stock, net of issuance costs
Payments of deferred financing costs
Proceeds from issuance of convertible preferred stock, net of issuance costs
Net cash provided by financing activities
Net increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
Supplemental disclosures of non-cash investing and financing
information
Property and equipment purchases accrued but not yet paid
Remeasurement of operating lease right-of-use asset for lease modification
Assets acquired under leasing obligations
Receivable from lessor funded financing
$
$
$
$
$
4,745
(1,349 )
5,299
6,382
37
(3,328 )
(351 )
45
650
9
1,526
—
54
(4,297 )
(85,011 )
(80,979 )
112,993
(16,173 )
—
15,841
75,202
(807 )
—
74,395
5,225
53,175
58,400 $
3,961
(552 )
2,995
—
(1,781 )
—
(818 )
3,249
1,724
(582 )
—
(396 )
—
18,813
(38,162 )
(102,160 )
48,720
(5,663 )
—
(59,103 )
92,586
(3,080 )
20,935
110,441
13,176
39,999
53,175 $
1,232 $
1,878 $
— $
— $
1,482 $
— $
— $
— $
1,970
(158 )
1,126
—
(416 )
—
(78 )
2,273
1,190
810
—
(311 )
—
—
(34,971 )
(63,228 )
41,467
(11,522 )
31
(33,252 )
14
—
95,798
95,812
27,589
12,410
39,999
900
—
9,300
1,226
See accompanying notes to financial statements.
112
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
1.
Organization
Description of Business
Gritstone Oncology, Inc. (“Gritstone” or “the Company”) is an immuno-oncology company developing personalized cancer
immunotherapies to fight multiple cancer types. The Company was incorporated in the state of Delaware in August 2015, and is based
in Emeryville, California and Cambridge, Massachusetts, with a manufacturing facility in Pleasanton, California. The Company
operates in one segment.
2.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance with United States generally accepted accounting
principles (“U.S. GAAP”) and the rules and regulations of Securities and Exchange Commission (“SEC”) for reporting.
Need for Additional Capital
The Company has incurred operating losses and has an accumulated deficit as a result of ongoing efforts to develop drug
product candidates, including conducting preclinical and clinical trials and providing general and administrative support for these
operations. The Company had an accumulated deficit of $221.0 million and $126.4 million as of December 31, 2019 and 2018,
respectively. The Company had net losses of $94.4 million, $64.8 million, and $41.4 million for the years ended December 31, 2019,
2018, and 2017, respectively, and net cash used in operating activities of $85.0 million, $38.2 million, and $35.0 million for years
ended December 31, 2019, 2018, and 2017, respectively. To date, none of the Company’s drug candidates have been approved for
sale. The Company has evaluated and concluded there are no conditions or events, considered in the aggregate, that raise substantial
doubt about the Company’s ability to continue as a going concern for a period of one year following the date that these financial
statements are issued. Management expects operating losses to continue for the foreseeable future. As a result, the Company will need
to raise additional capital. If sufficient funds on acceptable terms are not available when needed, the Company could be required to
significantly reduce its operating expenses and delay, reduce the scope of, or eliminate one or more of its development programs.
Failure to manage discretionary spending or raise additional financing, as needed, may adversely impact the Company’s ability to
achieve its intended business objectives.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments
that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, management evaluates its
estimates, including those related to preclinical and clinical study trial accruals, fair value of assets and liabilities, the fair value of
right-of-use assets (“ROU Assets”) and lease liabilities, revenue recognition, and the fair value of stock-based compensation.
Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that
management believes to be reasonable under the circumstances. Actual results could differ from those estimates.
Fair Value of Financial Instruments
U.S. GAAP establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions
based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs
that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the
Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use
in pricing the asset or liability, and are developed based on the best information available in the circumstances.
113
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
Fair value is established as the exchange price, or 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 a basis for considering market participant
assumptions in fair value measurements, an established three-tier fair value hierarchy distinguishes between the following:
Level 1 inputs are quoted prices in active markets that are accessible at the market date for identical assets or liabilities.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly.
Level 3 inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants
would use in pricing the assets or liability. Financial assets and liabilities are classified in their entirety based on the lowest level
of input that is significant to the fair value measurement.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the
determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining
fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on
the lowest level of any input that is significant to the fair value instrument.
The carrying amounts reflected on the balance sheets for cash and cash equivalents, prepaid expenses and other current assets,
accounts payable, accrued compensation and accrued liabilities approximate their fair values due to their short-term nature.
Cash, Cash Equivalents and Restricted Cash
Cash equivalents, which consist primarily of highly liquid investments with original maturities of three months or less when
purchased, are stated at cost which approximates fair value. These assets include investments in money market funds that invest in
U.S. Treasury obligations and certificates of deposit which are stated at fair value.
The Company has issued a letter of credit under a lease agreement which has been collateralized by a cash deposit for an equal
amount and is recorded within deposits and other long-term assets on the balance sheet based on the term of the underlying lease. The
following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to
the total of the same amounts shown in the statements of cash flows (in thousands).
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
Marketable Securities
December 31,
2019
2018
$
$
57,408
992
58,400
$
$
52,183
992
53,175
The Company invests its excess cash in investment grade short-term fixed income securities. Such investments in marketable
securities are considered available for sale, and reported at fair value with unrealized gains and losses included as a component of
accumulated other comprehensive income (loss). Marketable securities with maturities of greater than three months from the date of
purchase but less than one year from the balance sheet date are classified as short-term, while marketable securities with maturities in
one year or beyond one year from the balances sheet date are classified as long term. The amortized cost of debt securities is adjusted
for amortization of premiums and accretion of discounts to maturity, which is included in interest income on the statements of
operations and comprehensive loss. Realized gains and losses and declines in value judged to be other than temporary, if any, on
available-for-sale securities are included in interest income, net. The cost of securities sold is determined using specific identification
method.
The Company periodically evaluates whether declines in fair values of its marketable securities below their book value are
other than temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the
unrealized loss as well as the Company’s ability and intent to hold the marketable security until a forecasted recovery occurs.
Additionally, the Company assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any
marketable securities before recovery of its amortized cost basis. Factors considered include quoted market prices, recent financial
114
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
results and operating trends, implied values from any recent transactions or offers of investee securities, credit quality of debt
instrument issuers, other publicly available information that may affect the value of the marketable security, duration and severity of
the decline in value, and the Company’s strategy and intentions for holding the marketable security. To date the Company has not
recorded any impairment charges on its marketable securities related to other-than-temporary declines in market value.
Concentrations of Credit Risk and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents,
and marketable securities. Cash, cash equivalents and marketable securities are invested through banks and other financial institutions
in the United States. Such deposits may be in excess of federally insured limits. The Company maintains cash equivalents and
marketable securities with various high-credit-quality and capitalized financial institutions. The Company has not experienced any
credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds.
The Company’s investment policy limits investments to certain types of securities issued by the U.S. government, its agencies,
and institutions with investment-grade credit ratings and places restrictions on maturities and concentration by type and issuer. The
Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents, and
marketable securities and issuers of marketable securities to the extent recorded on the balance sheets. Through December 31, 2019,
the Company has no off-balance sheet concentrations of credit risk.
The Company is subject to a number of risks similar to those of other clinical-stage immunotherapy companies, including
dependence on key individuals; the need to develop commercially viable therapeutics; competition from other companies, many of
which are larger and better capitalized; and the need to obtain adequate additional financing to fund the development of its products.
The Company currently depends on third-party suppliers for key materials and services used in its research and development
manufacturing process, and is subject to certain risks related to the loss of these third-party suppliers or their inability to supply the
Company with adequate materials and services.
Property and Equipment, Net
Property and equipment are stated at cost, less accumulated depreciation and amortization. Maintenance and repairs that do not
improve or extend the lives of the respective assets are expensed to operations as incurred.
Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, which are as
follows:
Asset
Computer equipment and software
Furniture and fixtures
Laboratory equipment
Leasehold improvements
Estimated Useful Life
3 to 5 years
5 years
5 to 7 years
Shorter of useful life or lease term
Property and equipment for 2018 includes a leased building which did not meet the sale-leaseback criteria and was recorded at
its fair value plus the cost of improvements made during the constriction period. The leased building was being depreciated over the
lease term to a residual value that will approximate the remaining lease financing obligation at the end of the lease, and was
derecognized on January 1, 2019 upon the Company’s adoption of Topic 842 (see Note 6).
Long-Lived Assets
The Company evaluates long-lived assets, including property and equipment and right-of-use operating lease assets, for
impairment whenever events or changes in business circumstances indicate that the carrying amount of the asset may not be fully
recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use
of the asset and its eventual disposition are less than its carrying amount. Impairment, if any, is measured as the amount by which the
carrying amount of a long-lived asset exceeds its fair value. There were no indicators of impairment of long-lived assets and no
impairment losses have been recorded for the periods presented.
115
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
Revenue Recognition
The Company analyzes its collaboration agreements to assess whether such arrangements involve joint operating activities
performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the
commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the
responsibilities of all parties in the arrangement. For collaboration arrangements that are considered to be in the scope of the
collaboration guidance and that contain multiple elements, the Company first determines which elements of the collaboration are
deemed to be within the scope of the collaboration guidance and those that are more reflective of a vendor-customer relationship and,
therefore, within the scope of the revenue with contracts with customer guidance. For elements of collaboration arrangements that are
accounted for pursuant to the revenue from contracts with customer guidance, an appropriate recognition method is determined and
applied consistently, generally by analogy to the revenue from contracts with customers guidance.
The terms of the licensing and collaboration agreements entered into typically include payment of one or more of the
following: non-refundable, up-front fees; development, regulatory, and commercial milestone payments; payments for manufacturing
supply services; and royalties on net sales of licensed products. Each of these payments results in license, collaboration, and other
revenues, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues. The core
principle of the accounting for revenue from contracts with customers guidance is to recognize revenues when promised goods or
services are transferred to customers in an amount that reflects the consideration that is expected to be received in exchange for those
goods or services.
In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under each of its
agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract;
(ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the
context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of
the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) the
Company satisfies each performance obligation.
Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s
balance sheets. If the related performance obligation is expected to be satisfied within the next twelve months this will be classified in
current liabilities. Amounts recognized as revenue prior to receipt are recorded as contract assets in the Company’s balance sheets. If
the Company expects to have an unconditional right to receive consideration in the next twelve months, this will be classified in
current assets. A net contract asset or liability is presented for each contract with a customer.
At contract inception, the Company assesses the goods or services promised in a contract with a customer and identifies those
distinct goods and services that represent a performance obligation. A promised good or service may not be identified as a
performance obligation if it is immaterial in the context of the contract with the customer, if it is not separately identifiable from other
promises in the contract (either because it is not capable of being separated or because it is not separable in the context of the
contract), or if the performance obligation does not provide the customer with a material right.
The Company considers the terms of the contract and its customary business practices to determine the transaction price. The
transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised
goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable
amounts, or both. Variable consideration will only be included in the transaction price when it is not considered constrained, which is
when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.
If it is determined that multiple performance obligations exist, the transaction price is allocated at the inception of the
agreement to all identified performance obligations based on the relative standalone selling prices. The relative selling price for each
deliverable is estimated using objective evidence if it is available. If objective evidence is not available, the Company uses its best
estimate of the selling price for the deliverable.
Revenue is recognized when, or as, the Company satisfies a performance obligation by transferring a promised good or service
to a customer. An asset is transferred when, or as, the customer obtains control of that asset, which for a service, is considered to be as
the services are received and used. The Company recognizes revenue over time by measuring the progress toward complete
satisfaction of the relevant performance obligation using an appropriate input or output method based on the nature of the good or
service promised to the customer.
116
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
After contract inception, the transaction price is reassessed at every period end and updated for changes such as resolution of
uncertain events. Any change in the transaction price is allocated to the performance obligations on the same basis as at contract
inception.
Management may be required to exercise considerable judgment in estimating revenue to be recognized. Judgment is required
in identifying performance obligations, estimating the transaction price, estimating the stand-alone selling prices of identified
performance obligations, which may include forecasted revenue, development timelines, reimbursement rates for personnel costs,
discount rates and probabilities of technical and regulatory success, and estimating the progress towards satisfaction of performance
obligations.
Stock-Based Compensation
The Company measures and recognizes compensation expense for all stock-based awards made to employees, directors, and
non-employees based on the grant date estimated fair value of each award. Such expense is recognized on a straight-line basis over the
requisite service period which is generally the vesting period for the entire award. Expense is adjusted for estimated forfeitures.
Forfeitures of awards are estimated based on historical forfeiture experience and the experience of other companies in the same
industry. The estimate of forfeitures will be adjusted over the service period to the extent that actual forfeitures differ, or are expected
to differ, from prior estimates.
The Company estimates the fair value of stock option grants using the Black-Scholes option-pricing model (“the Black-
Scholes model”). The Black-Scholes model requires management to make assumptions and judgments about the variables used in the
calculation, including the expected term (weighted-average period of time that the options granted are expected to be outstanding), the
expected volatility of common stock, an assumed risk-free interest rate, and expected dividends the Company may pay. Management
uses the simplified calculation of the expected term. Volatility is based on an average of the historical volatilities of the common stock
of entities with characteristics similar to the Company’s. The risk-free rate is based on the U.S. Treasury yield curve in effect at the
time of grant for periods corresponding with the expected life of the option. The Company uses an assumed dividend yield of zero as
the Company has never paid dividends and has no current plans to pay any dividends on its common stock.
Research and Development Expenses
All research and development costs, including work performed by third parties, are expensed as incurred. Research and
development costs consist of salaries and other personnel-related expenses, including associated non-cash stock-based compensation,
consulting fees, laboratory supplies, and facility costs, as well as external research and development expenses incurred under
arrangements with third parties, fees paid to other entities that conduct certain research and development activities on behalf of the
Company, and costs incurred related to our Collaboration Agreement. Costs to develop the Company’s technologies are recorded as
research and development expense unless certain costs which meet the criteria to be capitalized as internal-use software costs is met.
Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods are
received or services are realized or consumed. Such payments are evaluated for current or long-term classification based on when they
will be realized.
The Company has and may continue to enter into license agreements to access and utilize certain technology. In each case, the
Company evaluates of the license agreement results in the acquisition of an asset or a business. To date, none of the Company’s
license agreements have been considered to be acquisitions of businesses. For asset acquisitions, the upfront payments to acquire such
licenses, as well as any future milestone payments, are immediately recognized as research and development expense when paid,
provided that there is no alternative future use of the rights in other research and development projects. These license agreements may
also include contingent consideration in the form of cash payments to be made for future milestone events. The Company assess
whether such contingent consideration meets the definition of a derivative and to date the Company has determined that such
contingent consideration are not derivatives.
Clinical and pre-clinical costs are a component of research and development expense. The Company accrues and expenses
clinical and pre-clinical trial activities performed by third parties based upon actual work completed in accordance with agreements
established with its service providers. The Company determines the actual costs through discussions with internal personnel and
external service providers as to the progress or stage of completion of services and the agreed-upon fee to be paid for such services.
117
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
Leases
Prior to January 1, 2019, the Company rented its office space and facilities under non-cancelable operating lease agreements
and recognizes related rent expense on a straight-line basis over the term of the lease. The Company’s lease agreements contained rent
holidays, scheduled rent increases, and renewal options. Rent holidays and scheduled rent increases were included in the
determination of rent expense to be recorded ratably over the lease term. The Company did not assume renewals in its determination
of the lease term unless they were deemed to be reasonably assured at the inception of the lease. The Company began recognizing rent
expense on the date that it obtained the legal right to use and control the leased space. Deferred rent consisted of the difference
between cash payments and the recognition of rent expense on a straight-line basis for the buildings the Company occupied.
Funding of leasehold improvements by the Company’s landlord was accounted for as a tenant improvement allowance and
recorded as current and non-current deferred rent liabilities and amortized on a straight-line basis as a reduction of rent expense over
the term of the lease.
In certain arrangements, the Company was involved in the construction of improvements to buildings it is leasing. To the
extent the Company was involved with the structural improvements of the construction project or takes construction risk, the
Company was considered to be the owner of the building and related improvements for accounting purposes during the construction
period. The Company recorded the fair value of the building and related improvements subject to the lease within property and
equipment on the balance sheet. The Company also recorded a corresponding lease financing obligation on its balance sheet
representing the amounts financed by the lessor for the building and lessor financed improvements. Lessor financed improvement
incentives due but not yet received of $1.2 million at December 31, 2017 were recorded as prepaid expense and other current assets on
the balance sheet. Such amounts were fully collected in April 2018. Once a construction project was complete, the Company
considered the requirements for sale-leaseback accounting treatment. If the Company concludes the arrangement does not qualify for
sale-leaseback accounting treatment, the building and related improvements remained on the Company’s balance sheet and were
subject to depreciation and assessment of impairment.
For such arrangements, at both pre and post the construction period, the Company bifurcated its lease payments into a portion
allocated to the building and a portion allocated to the parcel of land on which the building had been built. The portion of the lease
payments allocated to the land was treated for accounting purposes as operating lease payments, and therefore was recorded as rent
expense in the statements of operations and comprehensive loss. The portion of the lease payments allocated to the building was
further bifurcated into a portion allocated to interest expense and a portion allocated to reduce the lease financing obligation. The
interest rate used for the lease financing obligation represents the Company’s estimated incremental borrowing rate at the inception of
the lease, adjusted to reduce any built in loss.
Subsequent to January 1, 2019, the Company determines whether the arrangement is or contains a lease at the inception of
the arrangement and if such a lease is classified as a financing lease or operating lease. All of the Company’s leases are classified as
operating leases. Leases with a term greater than one year are included in operating lease ROU assets, lease liabilities, current portion,
and lease liabilities, net of current portion in our balance sheet at December 31, 2019. The Company has elected not to recognize on
the balance sheet leases with terms of one year or less. Lease liabilities and their corresponding ROU assets are recorded based on the
present value of lease payments over the expected lease term. In determining the net present value of lease payments, the interest rate
implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing
rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a
similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid
or incentives received and impairment charges if we determine the ROU asset is impaired.
The Company considers a lease term to be the noncancelable period that it has the right to use the underlying asset, including
any periods where it is reasonably assured the Company will exercise the option to extend the contract. Periods covered by an option
to extend are included in the lease term if the lessor controls the exercise of that option.
The Company recognizes lease expense on a straight-line basis over the expected lease term.
The Company has elected to not separate lease and non-lease components for its leased assets and accounts for all lease and
non-lease components of its agreements as a single lease component. The lease components resulting in a ROU asset have been
recorded on the balance sheet and amortized as lease expense on a straight-line basis over the lease term.
118
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
Income Taxes
The Company accounts for income taxes under the liability method. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates that will be in effect when the differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized.
The Company recognizes and measures uncertain tax positions using a two—step approach set forth in authoritative guidance.
The first step is to evaluate the tax position taken or expected to be taken by determining whether the weight of available evidence
indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or
litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized
upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates uncertain tax
positions on a regular basis. The evaluations are based on a number of factors, including changes in facts and circumstances, changes
in tax law, correspondence with tax authorities during the course of the audit, and effective settlement of audit issues. The provision
for income taxes includes the effects of any accruals that the Company believes are appropriate. It is the Company’s policy to
recognize interest and penalties related to income tax matters in income tax expense. Through December 31, 2019, the Company had
not accrued interest or penalties related to uncertain tax positions.
Comprehensive Loss
Comprehensive loss includes net (loss) and certain changes in stockholders’ equity that are excluded from net loss, primarily
unrealized losses on the Company’s marketable securities.
Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock
outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is the same as basic net
loss per share, since the effects of potentially dilutive securities are antidilutive given the net loss for each period presented.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on
Financial Instruments (“ASU No. 2016-13”), which requires that expected credit losses relating to financial assets measured on an
amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU No. 2016-13
revises the measurement of credit losses for most financial instruments measured at amortized cost, including trade receivables, from
an incurred loss methodology to an expected loss methodology which results in earlier recognition of credit losses. Under the incurred
loss model, a loss is not recognized until it is probable that the loss-causing event has already occurred. The new standard introduces a
forward-looking expected credit loss model that requires an estimate of the expected credit losses over the life of the instrument by
considering all relevant information including historical experience, current conditions, and reasonable and supportable forecasts that
affect collectability. In addition, this standard also modifies the impairment model for available-for-sale debt securities, which are
measured at fair value, by eliminating the consideration for the length of time fair value has been less than amortized cost when
assessing credit loss for a debt security and provides for reversals of credit losses through income upon credit improvement. The
standard is effective for interim and annual periods beginning after December 15, 2019. We will apply the standard’s provisions as a
cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted
(modified-retrospective approach). A prospective transition approach is required for debt securities for which an other-than-temporary
impairment had been recognized before the effective date. Based on the composition of our investment portfolio, which reflects our
primary investment objective of capital preservation, current market conditions and historical credit loss activity, the adoption of this
new standard is not expected to have a material impact on our financial statements or disclosures.
119
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
In August 2018, the FASB issued ASU No. 2018-15, Intangibles (Topic 350): Customer’s Accounting for Implementation
Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use software. This new standard also requires customers to expense the
capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. This
standard is effective for the Company for annual reporting periods beginning after December 15, 2019, and interim periods within that
year. This new standard can be applied either retrospectively or prospectively to all implementation costs incurred after the date of
adoption. The adoption of this standard is not expected to have a material impact on the Company’s financial statements and related
disclosures.
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-13, Fair Value Measurement
(Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU No. 2018-13”).
ASU No. 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurements and requires companies
to disclose certain information. The new standard will be effective for fiscal years, and interim periods within those year, beginning
after December 15, 2019. The adoption of this standard is not expected to have a material impact on the Company’s financial
statements and related disclosures.
In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction
between Topic 808 and Topic 606, which clarifies that certain transactions between collaborative arrangement participants should be
accounted for as revenue under the contract with customers guidance (“Topic 606”) when the collaborative arrangement participant is
a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including
recognition, measurement, presentation, and disclosure requirements. The standard adds unit-of-account guidance in Topic 808 to
align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative
arrangement or a part of the arrangement is within the scope of Topic 606, and requires that in a transaction with a collaborative
arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized
under Topic 606 is precluded if the collaborative arrangement participant is not a customer. The standard is effective for interim and
annual periods beginning after December 15, 2019, with early adoption permitted, including adoption in any interim period for public
business entities for periods in which financial statements have not been issued. Amendments in the standard should be applied
retrospectively to the date of initial application of Topic 606, but entities may elect to apply the amendments in this Update
retrospectively either to all contracts or only to contracts that are not completed at the date of initial application of Topic 606, and
should disclose the election. An entity may also elect to apply the practical expedient for contract modifications that is permitted for
entities using the modified retrospective transition method in Topic 606. The Company is currently assessing the impact of this
standard on its financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
(“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes by removing certain
exceptions to the general principles in Topic 740. The pronouncement is effective for the Company for fiscal years beginning after
December 15, 2021, and for interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The
Company is currently in the process of evaluating the effects of the provisions of ASU 2019-12 on our financial statements.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires the recognition of lease
liabilities and ROU assets on the balance sheet arising from lease transactions at the lease commencement date and the disclosure of
key information about leasing arrangements. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted
Improvements, which provides an additional transition method in which the new lease standard is applied at the adoption date and
recognized as a cumulative-effect adjustment to retained earnings without adjustment to comparative periods (collectively
“Topic 842”). The amendment has the same effective date and transition requirements as the new lease standard.
The Company adopted this standard on January 1, 2019 using the modified retrospective approach and elected the package of
practical expedients permitted under transition guidance, which allowed the Company to carry forward its historical assessments of: 1)
whether contracts are or contain leases, 2) lease classification and 3) initial direct costs, where applicable. The Company did not elect
the practical expedient allowing the use-of-hindsight which would require the Company to reassess the lease term of its leases based
on all facts and circumstances through the effective date and did not elect the practical expedient pertaining to land easements as this
is not applicable to the current contract portfolio. The Company elected the post-transition practical expedient to not separate lease
120
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
components from non-lease components for all existing lease classes. The Company also elected a policy of not recording leases on its
balance sheets when the leases have a term of 12 months or less and the Company is not reasonably certain to elect an option to
purchase the leased asset.
The impact of the adoption of Topic 842 on the balance sheet as of January 1, 2019 was as follows (in thousands):
Property and equipment, net
Operating lease right-of-use assets
Operating liabilities:
Lease liabilities, current portion
Accrued liabilities
Deferred rent, net of current portion
Lease financing obligation, net of current portion
Lease liabilities, net of current portion
Accumulated deficit
December 31,
2018
Adjustments due
to Adoption of
Topic 842
$
29,494
—
$
(14,524 ) $
14,224
January 1, 2019
14,970
14,224
—
740
1,353
10,490
—
(126,402 )
2,200
(475 )
(1,353 )
(10,490 )
8,980
(153 )
2,200
265
—
—
8,980
(126,555 )
The adjustments due to the adoption of Topic 842 primarily related to the recognition of operating lease ROU assets and lease
liabilities for the Company’s operating leases. In addition, the adoption of Topic 842 resulted in a change in classification of build-to-
suit component of our lease in Pleasanton, California to an operating lease and resulted in the derecognition of the $15.4 million
capitalized building and related accumulated depreciation of $0.9 million and $10.5 million financing lease obligation, as the
Company had been deemed to own the building under legacy GAAP (Note 6). The Company also recorded an insignificant reduction
to opening accumulated deficit as of January 1, 2019 as a result of the adoption of Topic 842.
The impact of the adoption of Topic 842 on the statements of operations and comprehensive loss was not material.
In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to
Nonemployee Share-Based Payment Accounting (“ASU No. 2018-07”). ASU No. 2018-07 is intended to reduce cost and complexity
and to improve financial reporting for share-based payments issued to non-employees (for example, service providers, external legal
counsel, suppliers, etc.). The ASU expands the scope of Topic 718, Compensation—Stock Compensation, which currently only
includes share-based payments issued to employees, to also include share-based payments issued to non-employees for goods and
services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. ASU
No. 2018-07 is effective for annual and interim periods beginning after December 15, 2018. Early adoption of the standard is
permitted. The standard will be applied in a retrospective approach for each period presented. The Company adopted the standard on
January 1, 2019, which did not have a material impact on its financial statements and related disclosures.
121
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
3.
Cash Equivalents and Marketable Securities
The amortized cost, unrealized gains and losses and fair values of cash equivalents and marketable securities were as follows
(in thousands):
Description
Cash equivalents:
Money market funds
Commercial paper
Corporate debt securities
Total cash equivalents
Short-term marketable securities:
Certificates of deposit
Commercial paper
Corporate debt securities
Total short-term marketable securities
Total
Description
Cash equivalents:
Money market funds
Commercial paper
Corporate debt securities
Total cash equivalents
Short-term marketable securities:
Commercial paper
Corporate debt securities
Total short-term marketable securities
Total
December 31, 2019
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
42,133 $
1,749
2,500
46,382
631
31,476
38,237
70,344
116,726 $
— $
—
—
—
—
15
15
30
30 $
— $
—
—
—
—
—
(6 )
(6 )
(6 ) $
42,133
1,749
2,500
46,382
631
31,491
38,246
70,368
116,750
December 31, 2018
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
36,148 $
—
12,047
48,195
45,244
55,768
101,012
149,207 $
— $
—
—
—
—
1
1
1 $
— $
—
—
—
(40 )
(46 )
(86 )
(86 ) $
36,148
—
12,047
48,195
45,204
55,723
100,927
149,122
$
$
$
$
As of December 31, 2019 and 2018, the Company had a total of $127.8 million and $153.1 million in cash, cash equivalents
and marketable securities, which includes $57.4 million and $52.2 million in cash and cash equivalents and $70.4 million and $100.9
million in marketable securities, respectively.
All marketable securities held as of December 31, 2019, had contractual maturities of less than one year. There have been no
realized gains or losses on marketable securities for the periods presented. None of the Company’s investments in marketable
securities has been in an unrealized loss position for more than one year. The Company determined that it did have the ability and
intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery, thus there has been no
recognition of any other-than-temporary impairment in the year ended December 31, 2019, 2018, or 2017.
See Note 4 for further information regarding the fair value of the Company's financial instruments.
122
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
4.
Fair Value Measurements
The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs
used in such measurements were as follows (in thousands):
Description
Cash equivalents:
Money market funds
Commercial paper
Corporate debt securities
Total cash equivalents
Short-term marketable securities:
Certificates of deposit
Commercial paper
Corporate debt securities
Total short-term marketable securities
Total
Description
Cash equivalents:
Money market funds
Commercial paper
Corporate debt securities
Total cash equivalents
Short-term marketable securities:
Commercial paper
Corporate debt securities
Total short-term marketable securities
Total
Total
Level 1
Level 2
Level 3
December 31, 2019
42,133 $
1,749
2,500
46,382
631
31,491
38,246
70,368
116,750 $
42,133
—
—
42,133
—
—
—
—
42,133
$
$
$
—
1,749
2,500
4,249
631
31,491
38,246
70,368
74,617
$
Total
Level 1
Level 2
Level 3
December 31, 2018
36,148 $
—
12,047
48,195
45,204
55,723
100,927
149,122 $
36,148
—
—
36,148
—
—
—
36,148
$
$
$
—
—
12,047
12,047
45,204
55,723
100,927
112,974
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
The Company measures the fair value of money market funds based on quoted prices in active markets for identical securities.
Commercial paper, certificates of deposit, and corporate debt securities are valued taking into consideration valuations obtained from
third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based
approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include
reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads; benchmark securities;
prepayment/default projections based on historical data; and other observable inputs.
There were no transfers between Level 1 and Level 2 during the periods presented.
123
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
5.
Property and Equipment, Net
Property and equipment and related accumulated depreciation and amortization are as follows (in thousands):
Computer equipment and software
Furniture and fixtures
Laboratory equipment
Leasehold improvements
Construction-in-progress
Buildings and related improvements capitalized under a lease financing
transaction
Less accumulated depreciation and amortization
Total property and equipment, net
December 31,
2019
2018
$
$
$
863
2,007
21,025
11,102
2,224
—
37,221
(10,310 )
26,911
$
470
935
16,406
3,063
—
15,371
36,245
(6,751 )
29,494
Depreciation and amortization expense was $4.7 million, $4.0 million, and $2.0 million for the periods ended December 31,
2019, 2018, and 2017, respectively.
6.
Commitments and Contingencies
Leases
In November 2015, the Company entered into an 84-month non-cancelable operating lease, effective March 2016, for a new
facility in Emeryville, California, with laboratory and office space. In conjunction with signing the lease, the Company paid a cash
security deposit of $50,000. The lease agreement includes an escalation clause for increased rent and a renewal provision allowing the
Company to extend this lease for an additional three years at the prevailing rental rate. In September 2018, the Emeryville lease was
amended whereby the Company entered into a 12-month operating lease for additional temporary space. The Company may terminate
the temporary space lease agreement with 30 days advanced written notice to the Landlord.
In January 2019, the Company entered into a 120-month operating lease for a new facility in Emeryville, California with
office and laboratory space for the Company’s new principal executive offices. In conjunction with signing the lease, the Company
paid a cash security deposit of $0.6 million, which is recorded as a deposit on the Company’s balance sheet as of December 31, 2019.
The lease agreement includes a free rent period, an escalation clause for increased rent and a renewal provision allowing the Company
to extend this lease for an additional two five-year periods at the then market rental rate. The lessor provided the Company a tenant
improvement allowance for a total of $4.0 million to complete the laboratory and office renovation. The Company’s obligation to pay
rent commenced on November 1, 2019. The Company has determined the tenant improvements to be lessee owned and therefore has
recorded a $9.8 million ROU Asset and a $13.9 million lease liability on the balance sheet as of December 31, 2019.
In connection with the new lease agreement, the Company also entered into an agreement (the “Lease Termination
Agreement”) to early terminate the Company’s existing lease dated November 2015, for its current premises. The current lease will
terminate effective no later than 60 days after the rent commencement date under the new lease, which is October 2019. The Company
accounted for the Lease Termination Agreement as a separate contract and recorded an adjustment of $1.8 million, which is included
within the December 31, 2019 balance sheet, to the ROU Asset and lease liability to reflect the remaining term of the modified
agreement through October 2019.
In February 2016, the Company entered into a 67-month non-cancellable operating lease effective October 2016 for a new
facility in Cambridge, Massachusetts, with laboratory and office space. In conjunction with signing the lease, the Company paid a
cash security deposit of $0.3 million. The lease agreement includes an escalation clause for increased rent and a renewal provision
allowing the Company to extend this lease for an additional three years at the prevailing rental rate. The lessor provided the Company
a tenant improvement allowance for a total of $2.1 million to complete laboratory and office renovations. The scope of these tenant
improvements were considered to be “normal tenant improvements” under the lease accounting guidance. The Company recorded the
124
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
tenant allowance received as leasehold improvements under the property and equipment account and deferred rent liability on the
accompanying balance sheets. Upon adoption of Topic 842, the deferred rent liability was reclassified against the ROU Asset on the
balance sheet as of January 1, 2019.
In March 2017, the Company entered into a noncancelable lease (the Pleasanton Lease) to lease 42,620 square feet of office,
cleanroom, and laboratory support manufacturing space in Pleasanton, California (the Pleasanton Facility). Subsequently, in April
2017, the Company took possession of the space. The Pleasanton Lease includes a free rent period, escalating rent payments and a
term that expires on November 30, 2024. The Company has the option to extend the lease term for a period of five years at the then
market rental rate. The Company’s obligation to pay rent commenced on December 1, 2017. The Company obtained an irrevocable
letter of credit in March 2017 in the initial amount of $1.0 million as a security deposit to the Pleasanton Lease, which may be drawn
down by the landlord in the event the Company fails to fully and faithfully perform all of its obligations. The letter of credit may be
reduced based on certain levels of cash and cash equivalents the Company holds. As of December 31, 2019, none of the irrevocable
letter of credit amount has been drawn. The Pleasanton Lease further provides that the Company is obligated to pay to the landlord its
proportionate share of certain basic operating costs, including taxes and operating expenses.
In connection with the Pleasanton Lease, the Company received a tenant improvement allowance of $1.2 million from the
landlord for the costs associated with the design, development and construction of tenant improvements for the Pleasanton Facility
building. The scope of the tenant improvements did not qualify under the lease accounting guidance as “normal tenant improvements”
and the Company was deemed owner of the leased building during the construction period for accounting purposes. The Company had
therefore capitalized the $9.3 million fair value of the leased building within property and equipment, net, and recognized a
corresponding non-current lease financing obligation in the balance sheet as of December 31, 2018. The fair value of the leased
building was estimated using a market approach that utilized comparable observable sales for similar assets (Level 2 inputs). The
Company had also recognized building improvements totaling $6.1 million for additions to the leased building incurred by the
Company during the construction period, of which $1.2 million were due but had not yet been received from the landlord as of
December 31, 2017 and were recorded as an increase to the lease financing obligation and prepaid and other current assets on the
balance sheet. Such amounts were subsequently reimbursed by the landlord in April 2018. In November 2017, construction on the
Pleasanton Facility was substantially completed and the leased property was placed into service. The Company determined the
completed construction project did not qualify for sale-leaseback accounting due to the collateral held by the landlord in the form of a
letter of credit and instead was accounted for as a financing lease transaction. The leased building for the Pleasanton Facility and
related improvements remain on the Company’s balance sheet as of December 31, 2018 and rental payments associated with the
Pleasanton Lease were allocated to operating lease expense for the ground underlying the leased building and principal and interest
payments on the lease financing obligation.
Upon adoption of Topic 842, the Company analyzed the Pleasanton lease under the new guidance and determined that the
lease would be classified as an operating lease under legacy GAAP. Additionally, given the Company had previously recognized the
building and financing lease obligation solely as a result of the transactions build to suit designation under legacy GAAP, the
Company derecognized the $14.5 million leased building and $10.5 million lease financing obligation from the balance sheet on
January 1, 2019. The unamortized tenant improvement allowance of $4.0 million and was recognized as a component of ROU Assets
on January 1, 2019. The Company also recorded a $0.2 million reduction to opening accumulated deficit as of January 1, 2019.
In September 2018, the Company entered into a 24-month non-cancellable operating lease for an additional facility in
Cambridge, Massachusetts with laboratory and office space. In conjunction with signing the lease, the Company prepaid the first
twelve months base rent in the amount of $1.3 million of which $0.9 million as of January 1, 2019 was reclassified to the ROU Asset
on the balance sheet upon adoption of Topic 842. The Company also paid a cash security deposit of $0.3 million, which included $0.1
million for the last month’s rent and was reclassified to the ROU Assets on the balance sheet upon adoption of Topic 842 on January
1, 2019. The remaining security deposit is recorded in deposits and other long-term assets on the Company’s balance sheet as of
December 31, 2019.
In July 2019, the Company amended its Cambridge, Massachusetts laboratory and office space facility lease. The amendment
extended the original 24-month lease term ending in August 2020 by another 12 months through August 2021 and added additional
leased laboratory and office space. Upon six months written notice, the Company has the right to terminate the amended lease
agreement. The amendment provides for annual base rent of approximately $3.4 million, effective July 2019. In conjunction with
signing the lease amendment, the Company prepaid an additional twelve months base rent for both the original leased space and the
additional leased space in the amount of $3.2 million, which was reclassified to the ROU Asset on the balance sheet. The Company
also paid a cash security deposit of $0.3 million, which included $0.1 million for the last month’s rent and was reclassified to the ROU
125
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
Assets on the balance sheet. The remaining security deposit is recorded in deposits and other long-term assets on the Company’s
balance sheet as of December 31, 2019.
In May 2019, the Company entered into a 64-month non-cancellable operating lease for additional office space in Pleasanton,
California. The lessor provided the Company a tenant improvement allowance for a total of $0.1 million to complete the office
renovation. The Company’s obligation to pay rent commenced on August 1, 2019. The Company has determined the tenant
improvements to be lessee owned and therefore has recorded a $0.3 million ROU Asset and a $0.5 million lease liability on the
balance sheet as of December 31, 2019.
The Company’s operating leases include various covenants, indemnities, defaults, termination rights, security deposits and
other provisions customary for lease transactions of this nature.
The components of lease costs, which were included in our statements of operations and comprehensive loss, were as follows
(in thousands):
Lease cost
Operating lease cost
Short-term lease cost
Total lease cost
Supplemental information related to leases was as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities (in thousands):
Operating cash flows from operating leases
New right-of-use assets obtained in exchange for lease obligations (in thousands):
Operating leases
Weighted average remaining lease term (years):
Operating leases
Weighted average discount rate:
Operating leases
$
$
$
$
Year ended
December 31, 2019
6,382
271
6,653
Year ended
December 31, 2019
2,495
12,331
7.20
9.0 %
As of December 31, 2019, minimum annual payments under the Company’s operating lease agreements are as follows (in
thousands):
Year ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total minimum payments
Less: Amounts representing interest expense
Less: Amounts representing tenant improvement allowance
Present value of future minimum lease payments
Less: Current portion of lease liability
Noncurrent portion of lease liability
126
Lease Financing
Obligation
$
$
5,366
6,359
3,742
3,459
3,449
12,530
34,905
(9,827 )
(1,588 )
23,490
(2,505 )
20,985
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
The amounts representing the tenant improvement allowance are expected to be received by the Company in early 2020.
Rent expense was $6.7 million, $1.8 million, and $1.2 million for the years ended December 31, 2019, 2018, and 2017,
respectively.
Agreements with CROs
In September 2017, the Company entered into a contract research and development agreement with a third-party contract
research organization (“CRO”) to provide research, analysis and antibody samples to further the Company’s development of its drug
candidates. The Company is obligated to pay the CRO certain milestone payments of up to $36.4 million on achievement of specified
events. None of these events had occurred as of December 31, 2019. During the year ended December 31, 2019, the Company
recognized an insignificant amount of research and development expense under the agreement. During 2018 and 2017, the Company
recognized a total of $1.0 million and $0.1 million, respectively, of research and development expense under the agreement.
In May 2019, the Company entered into a contract research and testing agreement with a third-party contract research
organization to provide antibody discovery related services. The Company is obligated to pay the CRO certain milestone payments of
up to $34.8 million on achievement of specified events. None of these events had occurred as of December 31, 2019. The Company
recognized a total of $1.0 million in research and development expense under the agreement during the year ended December 31,
2019.
Guarantees and Indemnifications
The Company, as permitted under Delaware law and in accordance with its certification of incorporation and bylaws, and
pursuant to indemnification agreements with certain of its officers and directors, indemnifies its officers and directors for certain
events or occurrences, subject to certain limits, which the officer or director is or was serving at the Company’s request in such
capacity. The term of the indemnification period lasts as long as an officer or director may be subject to any proceeding arising out of
acts or omissions of such officer or director in such capacity. The maximum amount of potential future indemnification is unlimited;
however, the Company currently holds director and officer liability insurance. This insurance limits the Company’s exposure and may
enable it to recover a portion of any future amounts paid. The Company believes that the fair value of these indemnification
obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to these obligations for any period
presented.
7.
Collaboration and License Agreements
bluebird bio, Inc.
In August 2018, the Company entered into a Research Collaboration and License Agreement (“Collaboration Agreement”)
with bluebird bio, Inc. (“bluebird”). Under the terms of the Collaboration Agreement, the Company will provide to bluebird tumor-
specific targets across several tumor types and, in certain cases, T-cell receptors (“TCR”) directed to those targets. The Company
received a non-refundable upfront payment of $20.0 million and bluebird also concurrently acquired 768,115 shares of the Company’s
Series C convertible preferred stock for $10.0 million at $13.04 per share. Per the Collaboration Agreement, bluebird was also
provided an option to acquire shares of the Company’s common stock at the same price as all other investors in connection with the
IPO. In October 2018, bluebird purchased 666,667 shares of the Company’s common stock at the price to the public of $15.00 per
share for a total of $10.0 million. Under the terms of the Collaboration Agreement, the Company is eligible to earn development,
regulatory, and sales-based milestones in an amount of up to $1.2 billion, and single-digit royalties on sales of products that utilize the
technology subject to the Collaboration Agreement. None of these events had occurred as of December 31, 2019 and no royalties were
due from the sale of licensed products.
In August 2019, the Company entered into a First Amendment to the Research Collaboration and License Agreement which
extended the timeline for the Company and bluebird to execute a Patient Selection Services Agreement from within one year to within
two years after the Effective Date of the Research Collaboration and License Agreement. The amendment was entered into for
administrative purposes and the Company determined the amendment was not a modification of contract under ASC 606.
127
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
bluebird may terminate the Collaboration Agreement by giving a 120 day prior written notice to the Company at any time after
the effective date of the agreement. Unless terminated early the agreement has a term that ends upon the last payment owed by
Gritstone on a licensed product. The Collaboration Agreement may be terminated for cause by either party based on uncured material
breach by the other party or bankruptcy of the other party. Upon early termination, all ongoing activities under the agreement and all
mutual collaboration, development and commercialization licenses and sublicenses will terminate. The licenses granted by the
Company to bluebird under the licensed intellectual property will remain in effect in accordance with their respective terms.
Additionally, all of bluebird’s payment obligations that have not yet accrued related to future milestone and royalty payments will be
reduced by fifty percent for the remainder of the agreement term.
The Company concluded that bluebird is a customer, and the contract is not subject to guidance on collaborative arrangements.
This is because the Company granted to bluebird a license to its intellectual property, and provided research and development
services, all of which are outputs of the Company’s ongoing activities, in exchange for consideration.
The Company identified the following three material promises under the Collaboration Agreement: 1) transfer of a license to
intellectual property and related technology know-how (“License and Know-How”); 2) the obligation to perform target selection and
TCR generation services (“Research and Development Services”); and 3) participation on the Joint Steering Committee (“JSC”). The
Company provided to bluebird standard indemnification and protection of licensed intellectual property, which is part of assurance
that the license meets the contract’s specifications and is not an obligation to provide goods or services.
The Company considered that the License and Know-How has standalone functionality, was considered to be functional
intellectual property, and is capable of being distinct. However, the Company determined that the License and Know-How is not
distinct from the Research and Development Services or participation on the JSC within the context of the agreement because bluebird
is dependent on the Company to execute the Research and Development Services and participate on the JSC in order for bluebird to
benefit from the License and Know-How. As such, the License and Know-How is combined with the Research and Development
Services and participation on the JSC into a single performance obligation. As such, the transaction price under this arrangement will
be allocated to this single performance obligation.
The Company has also determined that all other goods or services which are contingent upon bluebird reaching various
milestones are not considered performance obligations at the inception of the arrangement.
The transaction price at the inception of the Collaboration Agreement consisted of the upfront payment of $20.0 million and
the $10.0 million received from bluebird for the purchase of the Company’s Series C convertible preferred stock. The sale of the
Series C convertible preferred stock was not considered to be a performance obligation as it was a separate financing component of
the transaction. Accordingly, $10.0 million of the transaction price was allocated to the issuance of 768,115 shares of Series C
convertible preferred stock at fair value of $13.04 per share and recorded in stockholders’ equity.
The variable consideration related to the remaining development, regulatory, and sales-based milestones payments has not
been included in the initial transaction price and continues to be fully constrained as of December 31, 2019. As part of its evaluation
of the constraint, the Company considered numerous factors, including that receipt of the milestones is outside the control of the
Company and contingent upon initiation of clinical trials for early stage targets and bluebird’s development efforts. Any variable
consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as they were
determined to relate predominantly to the License and Know-How granted to bluebird. The Company will re-evaluate the transaction
price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
For revenue recognition purposes, the Company determined that the duration of the contract began on the effective date in
August 2018 and ends upon completion of the Research and Development Services which is also when the participation on the JSC is
no longer an obligation. The contract duration is defined as the period in which parties to the contract have present enforceable rights
and obligations. The Company also analyzed the impact of bluebird terminating the agreement prior to August 2023 and determined,
considering both quantitative and qualitative factors, that there were substantive non-monetary penalties to bluebird for doing so. We
considered quantitative and qualitative factors to reach this conclusion.
Revenue is recognized when, or as, the Company satisfies its performance obligation by transferring the promised services to
bluebird. Revenue will be recognized over time using a cost-based input method, based on internal labor cost effort to perform the
research services, since the internal labor cost incurred over time is thought to best reflect the transfer of services to bluebird. In
applying a cost-based input method of revenue recognition, we use actual costs incurred relative to budgeted costs to fulfill the
128
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
combined performance obligation. A cost-based input method of revenue recognition requires us to make estimates of costs to
complete the performance obligation. The cumulative effect of any revisions to estimated costs to complete the performance
obligation will be recorded in the period in which changes are identified and amounts can be reasonably estimated. A significant
change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future
periods.
For the year ended December 31, 2019, the Company recognized $4.3 million as collaboration revenue as a result of satisfying
its performance obligation by transferring the promised services estimated by the labor cost incurred. A deferred revenue balance of
$14.5 million is recorded on the balance sheet in both current and long-term liabilities as of December 31, 2019, which relates to the
performance obligation identified, with such amounts to be recognized over the period the performance obligation is expected to be
satisfied, which is currently expected to be through mid-2023.
Changes in the deferred revenue balance during the year ended December 31, 2019 are as follows (in thousands):
Balance at December 31, 2018
Additions
Deductions
Balance at December 31, 2019
Deferred Revenue
$
$
18,813
—
(4,297 )
14,516
There were no receivables or net contract assets recorded as of December 31, 2019 associated with the Collaboration
Agreement.
The Company expensed all incremental costs of obtaining the Collaboration Agreement in 2018 as such amounts were
insignificant.
Arbutus Biopharma Corporation
In October 2017, the Company entered into an Exclusive License Agreement with Arbutus Biopharma Corporation
(“Arbutus”) and Protiva Biotherapeutics Inc. a wholly owned subsidiary of Arbutus. Certain terms of the agreement were modified by
amendment in July 2018. Under the license agreement, the Company has an exclusive license to utilize certain Arbutus intellectual
property including patents and know-how relating to immunotherapy. Under this license agreement, the Company paid an upfront
payment of $5.0 million which was included in research and development expenses during 2017. The Company also reimbursed
Arbutus for materials and personnel costs totaling $0.2 million, which were included in research and development expenses during
2017. During 2019 and 2018, the Company reimbursed Arbutus for materials and personnel costs totaling $0.4 million and $0.4
million, respectively. The Company is obligated to pay Arbutus for services rendered and certain milestone payments up to an
aggregate of $123.5 million on achievement of specified events, and royalties on sales of its licensed products. Following the
acceptance of our investigational new drug application for GRANITE by the U.S. Food and Drug Administration, the Company made
a $2.5 million development milestone payment to Arbutus in September 2018 that was recorded as research and development expense.
In August 2019, a milestone was met following the initial patient treatment of SLATE in the Company’s GO-005 clinical trial. In
2019, the Company recorded $3.0 million as research and development expense in connection with the milestone. None of the other
events had occurred as of December 31, 2019, and no royalties were due from the sale of licensed products.
Non-Profit Hospital Cancer Center
In January 2016, the Company entered into an Exclusive License Agreement with a non-profit hospital cancer center. Under
the license agreement, the Company has an exclusive license to utilize certain patents and know-how relating to immunotherapy for an
insignificant upfront payment, cash milestone payments on achievement of specified events, and a low single digit royalty on sales of
licensed products. The achievement of the milestones and payment of royalties is dependent upon obtaining regulatory approval. Upon
achievement of a milestone related to the Company’s Phase 1 clinical trial for GRANITE, GO-004, in December 2018 the Company
recorded an insignificant amount to research and development expense for amounts owed to the Hospital Cancer Center, which was
paid to the hospital in February 2019. None of the other events had occurred as of December 31, 2019 and no royalties were due from
the sales of licensed products.
129
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
8.
Balance Sheet Components
Prepaid Expenses and Other Assets
Prepaid expenses and other current assets consist of the following (in thousands):
Prepaid insurance
Interest and other receivables
Prepaid research and development-related expenses
Prepaid rent
Other
Total prepaid expenses and other current assets
Deposits and Other Long-Term Assets
Deposits and other long-term assets consist of the following (in thousands):
Lease security deposit
Prepaid research and development-related expenses
Restricted cash
Other
Total deposits and other long-term assets
Accrued Liabilities
Accrued current liabilities consist of the following (in thousands):
Deferred rent
Property and equipment
Other
Total accrued current liabilities
9.
Stockholders’ Equity
December 31,
2019
2018
1,252 $
482
1,473
—
290
3,497 $
December 31,
2019
2018
1,201 $
585
992
—
2,778 $
966
462
1,789
860
449
4,526
632
554
992
250
2,428
December 31,
2019
2018
— $
761
280
1,041 $
445
—
295
740
$
$
$
$
$
$
In connection with the completion of its IPO, on October 2, 2018, the Company’s certificate of incorporation was amended and
restated to provide for 300,000,000 authorized shares of common stock with a par value of $0.0001 per share and 10,000,000
authorized shares of preferred stock with a par value of $0.0001 per share.
The Company has 10,000,000 shares of preferred stock authorized for issuance, par value of $0.0001 per share. As of
December 31, 2019 and 2018, no shares of preferred stock were issued and outstanding.
130
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
The Company has 300,000,000 shares of common stock authorized for issuance, par value of $0.0001 per share. Holders of the
Company’s common stock are entitled to one vote per share. As of December 31, 2019 and 2018, there were 36,332,956 and
28,823,130 shares of common stock issued and outstanding.
Sale of Common and Preferred Stock
The Company entered into a Series B preferred stock purchase agreement with certain investors in September 2017 and
October 20, 2017, and upon approval by the Company’s Board of Directors, the Company completed a Series B convertible preferred
stock financing (“Series B”) at a price per share of $10.76. The net cash proceeds totaled $95.8 million and 8,919,302 shares of Series
B convertible preferred stock were issued. Issuance costs totaled $0.2 million and were recorded as a reduction of the proceeds.
The Company entered into a Series C preferred stock purchase agreement, with certain investors in June 2018, and upon approval
by the Company’s Board of Directors, the Company completed a Series C convertible preferred stock financing (“Series C”) at a price
per share of $13.04. The net cash proceeds totaled $8.9 million and 690,128 shares of Series C convertible preferred stock were issued.
Issuance costs totaled $0.1 million and were recorded as a reduction of the proceeds. In July 2018, the Company sold an additional
153,360 shares of Series C convertible preferred stock at a price of $13.04 per share for net cash proceeds of $2.0 million. In August
2018, in conjunction with the Collaboration Agreement entered into with bluebird, the Company sold bluebird 768,115 shares of Series
C convertible preferred stock at a price of $13.04 per share for gross proceeds of $10.0 million.
In October 2018, the Company closed its initial public offering (“IPO”), of 6,854,202 shares of common stock, including
187,535 shares sold pursuant to the underwriters’ partial exercise of their option to purchase additional shares, at an offering price to
the public of $15.00 per share. The Company received net proceeds of approximately $92.5 million, after deducting underwriting
discounts and commissions and offering costs. In connection with the IPO, all of the Company’s outstanding shares of convertible
preferred stock were automatically converted into 19,409,132 shares of common stock. The related carrying value of $177.9 million
was reclassified to common stock and additional paid-in capital.
In April 2019, the Company completed an underwritten public offering and sold and issued an aggregate of 6,500,000 shares
of common stock at a price to the public of $11.50 per share. The Company received aggregate net proceeds from the offering of
approximately $69.7 million, after deducting underwriting discounts and commissions and offering costs.
In October 2019, the Company filed a Registration Statement on Form S-3 (the “Shelf Registration Statement”) with the SEC,
covering the offering of up to $250.0 million of common stock, preferred stock, debt securities, warrants and units. The Shelf
Registration Statement included a prospectus covering the offering, issuance and sale of up to $75.0 million of the Company’s common
stock from time to time through an at the market offering under the Securities Act of 1933, as amended (the “ATM Offering Program”).
The SEC declared the Shelf Registration Statement effective on November 8, 2019.
In October 2019, the Company also entered into a sales agreement (the “Sales Agreement”) with Cowen and Company, LLC
(“Cowen”) to sell shares of the Company’s common stock, from time to time, with aggregate gross sales proceeds of up to $75.0 million,
through an at the market offering under which Cowen will act as its sales agent Cowen is entitled to compensation for its services equal
to up to 3.0% of the gross proceeds of any shares of common stock sold through Cowen under the Sales Agreement. In addition, the
Company has agreed to reimburse a portion of the expenses of Cowen in connection with the offering up to a maximum of $50,000.
During the year ended December 31, 2019, the Company issued and sold 490,880 shares of its common stock through its at the market
offering and received net proceeds of approximately $3.8 million, after deducting commissions of $0.1 million and other offering
expenses of $0.3 million.
10.
Stock-Based Compensation
Award Incentive Plans
In August 2015, the Board of Directors approved the 2015 Equity Incentive Plan (“2015 Plan”). In February 2018, the
Company’s Board of Directors approved a 507,246 share increase in the number of shares to be reserved under the Company’s 2015
Equity Incentive Plan. In connection with the Company’s IPO and the effectiveness of the 2018 Award Incentive Plan (“2018 Plan”),
the 2015 Plan terminated and no further awards will be granted under the 2015 Plan. The 92,815 shares of common stock shares that
were then unissued and available for future issuance under the 2015 Plan became available under the 2018 Plan. The 2015 Plan will
continue to govern all outstanding awards by their existing terms.
131
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
In September 2018, the Company’s Board of Directors approved the 2018 Plan. Under the 2018 Plan, the Company may grant
stock options, stock appreciation rights, restricted stock, restricted stock units and other certain awards to individuals who are
employees, officers, directors or consultants of the Company. A total of 2,690,000 shares of our common stock are initially reserved
for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation rights, or SARs,
restricted stock awards, restricted stock unit awards and other stock-based awards, plus the number of shares remaining available for
future awards under the 2015 Plan, as of the effective date of the 2018 Plan. The number of shares of common stock reserved for
issuance under the 2018 Plan will automatically increase on January 1 of each year, beginning on January 1, 2019 and continuing
through and including January 1, 2028, by 4% of the total number of shares of our stock outstanding on December 31 of the preceding
calendar year, or a lesser number of shares determined by the Company’s Board of Directors. The maximum number of shares that
may be issued upon the exercise of ISOs under the 2018 Plan is 45,000,000.
Prior to the Company’s IPO, the grant date fair value of the Company’s common stock was determined by the Company’s
Board of Directors with the assistance of management and an independent third-party valuation specialist.
Subsequent to the Company’s IPO, the grant date fair value of each share of common stock underlying stock option awards is
based on the closing price of our common stock as reported by the Nasdaq Select Global Market on the date of grant of the award.
The Company’s Board of Directors has the authority to determine to whom options will be granted, the number of shares, the
term, and the exercise price. If an individual owns stock representing 10% or more of the outstanding shares, the price of each share
shall be at least 110% of the fair market value, as determined by the board of directors. Options granted have a term of up to 10 years
and generally vest over a 4-year period with a straight-line vesting.
2018 Employee Stock Purchase Plan
In September 2018, the Company’s Board of Directors approved the 2018 Employee Stock Purchase Plan (“2018 ESPP”).
The 2018 ESPP also became effective in September 2018. A total of 282,334 shares were initially reserved for issuance under the
2018 ESPP. Additionally, the number of shares of common stock reserved for issuance under the 2018 ESPP will increase
automatically each year, beginning on January 1, 2019 and continuing through and including January 1, 2028, by the lesser of (1) 1%
of the shares of common stock outstanding on December 31 of the preceding calendar year or (2) such lesser number of shares
determined by the Company’s Board of Directors. The maximum number of shares that may be issued under the 2018 ESPP is
5,000,000. The offering periods are scheduled to start on the first trading day on or after June 1 or December 1 of each year.
Contributions under the 2018 ESPP are limited to a maximum of 15% of an employee’s eligible compensation.
The estimated fair value of stock purchase rights granted under the ESPP were calculated using the Black-Scholes option-
pricing model using the following assumptions:
Expected dividend yield
Expected term
Risk-free interest rate
Expected volatility
Valuation of Stock Options
Year ended
December 31, 2019
— %
0.50 year
2.2 %
74.0 %
The fair value of each stock option granted to an employee or a director was estimated as of the date of grant using the Black-
Scholes model with the following weighted-average assumptions:
Expected dividend yield
Expected term
Risk-free interest rate
Expected volatility
2019
Year Ended December 31,
2018
2017
— %
— %
— %
6.01 years
6.04 years
6.04 years
2.3 %
83.0 %
2.8 %
88.0 %
2.0 %
94.0 %
132
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
Management’s calculations are based on a grant date valuation approach. Using the Black-Scholes model, the weighted-
average grant-date fair value of employee stock options granted was $8.08, $6.59, and $2.00 per share during the years ended
December 31, 2019, 2018, and 2017, respectively.
Stock Option Activity
A summary of the 2015 Plan and 2018 Plan activity is as follows:
Options Outstanding
Number of
Shares
Available
for
Issuance
Number
of Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (in
years)
Aggregate
Intrinsic
Value
(in
thousands)
25,646
8.86 $
Balance at December 31, 2018
Authorized
Granted
Exercised
Cancelled
Repurchased
Balance at December 31, 2019
Vested and exercisable – December 31, 2019
Vested and expected to vest – December 31, 2019
2,695,110 2,429,859 $
1,160,000
(1,312,610 ) 1,312,610 $
(281,024 ) $
(295,484 ) $
— $
2,851,883 3,165,961 $
1,124,222 $
2,939,089 $
—
295,484
13,899
5.31
11.30
1.61
8.46
0.35
7.83
5.16
7.54
8.45 $
7.88 $
8.38 $
8,875
5,433
8,864
For the years ended December 31, 2019, 2018, and 2017, the total intrinsic value of stock option awards exercised was $2.97
million, $0.75 million, and $0.08 million, respectively, determined at the date of option exercise, and the total cash received upon
exercise of stock options was not significant for either period. The aggregate intrinsic value was calculated as the difference between
the exercise prices of the underlying stock option awards and the estimated fair value of the common stock on the date of exercise.
As of December 31, 2019, $11.5 million of total unrecognized compensation cost related to non-vested employee and
consultant options is expected to be recognized over a weighted-average period of 2.76 years. The total fair value of shares vested
during the year ended December 31, 2019 was $5.0 million.
Stock-based compensation expense and awards granted to non-employees was insignificant for the years ended December 31,
2019, 2018, and December 31, 2017.
Stock-Based Compensation Expense
Total stock-based compensation for all awards granted to employees and consultants and our 2018 ESPP Plan, before taxes, is
as follows (in thousands):
Research and development expenses
General and administrative expenses
Total
2019
Year Ended December 31,
2018
2017
$
$
3,437
1,862
5,299
$
$
2,081
914
2,995
$
$
888
238
1,126
133
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
11.
Income Taxes
The effective tax rate for the years ended December 31, 2019, 2018 and 2017 is different from the federal statutory rate
primarily due to the valuation allowance against deferred tax assets as a result of insufficient sources of income. The effective tax rate
of the of the Company’s provision for income taxes differs from the federal statutory rate as follows:
Statutory federal income tax rate
State tax, net of federal benefit
Permanent differences
Effective change in enacted tax rate
Research and development tax credits
Other
Change in valuation allowance
Total provision for income taxes
2019
Year Ended December 31,
2018
2017
21.0 %
4.2
(0.8 )
—
2.6
(0.8 )
(26.3 )
— %
21.0 %
4.3
(1.0 )
—
4.4
(0.2 )
(28.5 )
— %
34.0 %
2.2
(2.3 )
(17.3 )
4.1
—
(20.7 )
— %
On December 22, 2017, the U.S. federal government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act
contains, among other things, significant changes to corporate taxation, including reduction of the corporate tax rate from a top
marginal rate of 35% to a flat rate of 21% for tax years beginning after December 31, 2017, limitation of the deduction for net
operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, implementing a territorial tax
system.
Pursuant to SAB 118, an entity may select between one of three scenarios to determine a reasonable estimate arising from the
Tax Act. The scenarios are (i) a final estimate which effectively closes the measurement window; (ii) a reasonable estimate leaving the
measurement window open for future revisions; and (iii) no estimate as the law is still being analyzed. The Company was able to
provide a reasonable estimate for the revaluation of deferred taxes. As such, the Company recorded a $7.1 million reduction in
deferred tax assets for the revaluation of deferred taxes in 2017 which was offset by a corresponding decrease to the Company’s full
valuation allowance. The ultimate impact of the Act did not differ materially from provision amounts recorded. Adjustments, if any,
would not have impacted the statement of operations and comprehensive loss due to the full valuation allowance on the Company’s
deferred tax assets.
The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities
are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company assesses the
likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that
some portion or all of a deferred tax asset will not be realized.
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which the temporary differences representing net future deductible amounts become
deductible. Due to the Company’s history of losses, and lack of other positive evidence, the Company has determined that it is more
likely than not that its net deferred tax assets will not be realized, and therefore, the net deferred tax assets are fully offset by a
valuation allowance at December 31, 2019 and 2018. The deferred tax assets were primarily comprised of federal and state tax net
operating losses and tax credit carryforwards. Utilization of the net operating loss and tax credit carryforwards may be subject to an
annual limitation due to historical or future ownership percentage change rules provided by the Internal Review Code of 1986, and
similar state provisions. The annual limitation may result in the expiration of certain net operating loss and tax credit carryforwards
before their utilization. The valuation allowance increased by $24.9 million during 2019 and increased by $18.4 million during 2018.
134
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
The components of the net deferred tax assets/liabilities are as follows (in thousands):
Deferred tax assets:
Federal and state net operating loss carryforwards
Research and development tax credits
Lease financing obligation
Lease liabilities
Accruals and other
Amortization
Deferred Revenue
Deferred tax liabilities:
Other depreciation
Leased building depreciation
Operating lease right-of-use assets
Total net deferred tax assets
Less valuation allowance
Deferred tax assets, net of allowance
December 31,
2019
2018
$
$
45,228 $
6,205
—
5,920
2,172
2,700
3,659
(638 )
—
(5,904 )
59,342
(59,342 )
—
$
27,311
4,503
2,658
—
1,387
1,726
—
(655 )
(2,446 )
—
34,484
(34,484 )
—
At December 31, 2019, the Company’s federal and state income tax net operating loss carryforwards were approximately
$180.8 million and $113.3 million, respectively, which may be subject to limitations as described below. If not utilized, the federal tax
loss carryforwards will begin to expire in 2035 and the state tax loss carryforwards will begin to expire in 2035. Under the Tax Act,
federal net operating losses generated after 2017 and in future years may be carried forward indefinitely, but the deductibility of such
federal net operating losses is limited. The federal net operating losses generated after December 31, 2017 of $130.2 million are
carried forward indefinitely. In addition, the Company has federal and certain California and Massachusetts research and development
income tax credit carryforwards of $5.6 million, $3.4 million and $0.3 million, respectively. If not utilized, the federal research and
development income tax credit carryforwards will begin to expire in 2035. The California research and development income tax credit
carryforwards do not expire and can be carried forward indefinitely. The Massachusetts research and development income tax credit
carryforwards will begin to expire in 2032.
The net operating loss (“NOL”) and tax credit carryforwards are subject to review and possible adjustment by the Internal
Revenue Service and state tax authorities and may become subject to an annual limitation in the event of certain cumulative changes
in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383
of the Internal Revenue Code (“IRC”) of 1986. This could limit the amount of tax attributes that can be utilized annually to offset
future taxable income or tax liabilities. Subsequent ownership changes may further affect the limitation in future years. The Company
completed an analysis through December 31, 2019 under IRC Sections 382 and 383 to determine if the Company’s net operating loss
carryforwards and research and development credits are limited due to a change in ownership. In connection with the Company’s IPO
which closed in October 2018, the Company did experience an ownership change pursuant to Section 382. There was no reduction in
federal or California net operating loss carryforwards or research and development income tax credits as a result of this ownership
change. Other than the change identified in connection with the Company’s IPO, through December 31, 2019, the Company did not
experience any other ownership change pursuant to Section 382.
The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands):
Beginning of year—unrecognized tax benefits
Decrease for tax positions taken during prior periods
Increases for tax positions taken during current period
End of year—unrecognized tax benefits
2019
December 31,
2018
2017
$
$
2,077
$
(711 )
1,244
2,610
$
1,089
$
(453 )
1,441
2,077
$
230
(47 )
906
1,089
135
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
If recognized, none of the unrecognized tax benefits as of December 31, 2019 and 2018 would reduce the annual effective tax
rate, primarily due to corresponding adjustments to the valuation allowance. The Company does not expect any material changes to
the estimated amount of liability associated with its uncertain tax positions within the next 12 months.
During the years ended December 31, 2019, 2018, and 2017, the Company did not recognize accrued interest and penalties
related to unrecognized tax benefits.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is not
currently under audit by the Internal Revenue Service or other similar state or local authorities. Due to the net operating loss
carryforwards, all years remain open for income tax examination by tax authorities in the United States, various states and foreign tax
jurisdictions in which the Company files tax returns.
12.
Net Loss Per Common Share
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock
outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is the same as basic net
loss per share, since the effects of potentially dilutive securities are antidilutive given the net loss for each period presented.
The following table sets forth the computation of the basic and diluted net loss per share (in thousands, except for share and
per share amounts):
Numerator:
Net loss
Denominator:
2019
Year Ended December 31,
2018
2017
$
(94,433 ) $
(64,775 ) $
(41,377 )
Weighted-average common shares outstanding, basic and diluted
33,554,823
8,919,281
Net loss per share, basic and diluted
$
(2.81 ) $
(7.26 ) $
1,999,044
(20.70 )
Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per
share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive
securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:
Convertible preferred stock
Options issued and outstanding and ESPP shares issuable and outstanding
Early exercised common stock subject to future vesting
Warrants to purchase common stock
Total
2019
December 31,
2018
—
—
3,179,041
30,874
—
3,209,915
2,429,859
226,967
—
2,656,826
2017
17,797,529
1,351,840
539,289
40,257
19,728,915
13.
Related-Party Transactions
During the year ended December 31, 2018, the Company issued 333,333 shares of common stock for total net proceeds of
$5.0 million to certain stockholders considered to be related parties.
14.
Defined Contribution Plan
The Company began sponsoring a 401(k) Plan in 2017 which provides that eligible employees can elect to contribute to the
401(k) Plan, subject to certain limitations, on a pretax basis. The Company matches up to 50% of the first 4% of each employee’s
contribution. During the years ended December 31, 2019 and 2018, expenses recognized for the 401(k) Plan were insignificant.
136
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
15.
Subsequent Event
Subsequent to December 31, 2019, the Company issued an additional 568,369 shares of common stock through its ATM
Offering Program resulting in net proceeds to the Company of approximately $5.6 million.
16.
Selected Quarterly Financial Data (Unaudited)
The following tables show a summary of the Company’s quarterly financial information for each of the four quarters of 2019
and 2018 and has been prepared in accordance with GAAP for interim financial reporting (in thousands, except per share amounts). In
the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have
been included.
Quarter Ended
Collaboration revenue
Loss from operations
Net loss
Net loss per share, basic and diluted
Collaboration revenue
Loss from operations
Net loss
Net loss per share, basic and diluted
December 31, 2019 September 30, 2019
$
$
$
$
984 $
(28,484 ) $
(27,548 ) $
(0.77 ) $
884
(28,313 )
(27,704 )
(0.77 )
$
$
$
$
June 30, 2019
March 31, 2019
1,150 $
(22,214 ) $
(21,172 ) $
(0.63 ) $
1,347
(18,929 )
(18,009 )
(0.62 )
Quarter Ended
December 31, 2018 September 30, 2018
$
$
$
$
96 $
(18,614 ) $
(18,588 ) $
(7.60 ) $
1,091
(18,027 )
(17,338 )
(0.61 )
$
$
$
$
June 30, 2018
March 31, 2018
— $
(15,504 ) $
(15,473 ) $
(6.57 ) $
—
(13,439 )
(13,376 )
(6.03 )
137
Gritstone Oncology, Inc.
Notes to Financial Statements
December 31, 2019
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
As of December 31, 2019, management, with the participation of our Chief Executive Officer and Chief Financial Officer,
performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required
to be disclosed in the reports we file or submit under the Exchange Act 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 the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.
Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving
the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of
December 31, 2019, the design and operation of our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by
Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the year ended December 31, 2019 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting, other than the implementation of a
new General Ledger (GL) system for financial accounting and reporting to replace our legacy GL system. The implementation of this
new system was not in response to any identified deficiency or material weakness in our internal control over financial reporting. The
system implementation was designed, in part, to enhance the overall system of internal control over financial reporting through further
automation of various business processes.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined
in Rule 13a-15(f) under the Exchange Act). Under the supervision of and with the participation of our Principal Executive Officer and
Principal Financial Officer, our management assessed the effectiveness of our internal control over financial report as of December 31,
2019 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control-
Integrated Framework” (2013). Based on this assessment, management concluded that our internal control over financial reporting
was effective as of December 31, 2019.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm
on our internal control over financial reporting due to an exemption established by the JOBS Act for “emerging growth companies.”
Item 9B. Other Information.
None.
138
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
Information required by this item will be contained in our definitive proxy statement to be filed with the SEC on Schedule 14A
in connection with our 2020 Annual Meeting of Stockholders (the “Proxy Statement”), which is expected to be filed not later than 120
days after December 31, 2019, and is incorporated herein by reference.
Item 11. Executive Compensation.
Information required by this item will be contained in the Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information required by this item will be contained in the Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information required by this item will be contained in the Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
Information required by this item will be contained in the Proxy Statement and is incorporated herein by reference.
139
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this report:
1. Financial Statements
See Index to Financial Statements in Part II Item 8 of this Annual Report on Form 10-K.
2. Financial Statement Schedules
All schedules are omitted because they are not applicable or the required information is shown in the financial statements or
notes thereto.
3. Exhibits
The documents listed in the Exhibit Index are incorporated by reference or are filed with this report, in each case as indicated
therein (numbered in accordance with Item 601 of Regulation S-K).
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
Exhibit Description
Incorporated by Reference
Date
Number
Form
Amended and Restated Certificate of Incorporation, as amended.
Amended and Restated Bylaws.
Reference is made to exhibits 3.1 through 3.2.
Form of Common Stock Certificate.
8-K 10/02/2018
8-K 10/02/2018
S-1/A
09/17/18
3.1
3.2
4.2
Description of Common Stock.
Filed
Herewith
X
10.1(a)† License Agreement, dated as of October 16, 2017, by and among
Gritstone Oncology, Inc., Arbutus Biopharma Corporation and its
subsidiary Protiva Biotherapeutics Inc.
S-1
08/23/18
10.1 (a)
10.1(b)† Amendment Number One to License Agreement, dated as of July 20,
2018, by and among Gritstone Oncology, Inc., Arbutus Biopharma
Corporation and its subsidiary Protiva Biotherapeutics Inc.
10.2(a)# 2018 Incentive Award Plan.
10.2(b)# Form of Stock Option Grant Notice and Stock Option Agreement
under the 2018 Incentive Award Plan.
10.2(c)# Form of Restricted Stock Award Grant Notice under the 2018
Incentive Award Plan.
10.2(d)# Form of Restricted Stock Unit Award Grant Notice under the 2018
Incentive Award Plan.
10.3#
10.4#
10.5#
10.6#
Employment Agreement by and between Gritstone Oncology, Inc.
and Andrew Allen, M.D., Ph.D., effective as of September 27, 2018.
Employment Agreement by and between Gritstone Oncology, Inc.
and Matthew Hawryluk, Ph.D., effective as of September 27, 2018.
Employment Agreement by and between Gritstone Oncology, Inc.
and Karin Jooss, Ph.D., effective as of September 27, 2018.
Employment Agreement by and between Gritstone Oncology, Inc.
and Raphaël Rousseau, M.D., Ph.D., effective as of September 27,
2018.
140
S-1
08/23/18
10.1 (b)
S-8
10/02/18
S-1/A
09/17/18
99.2 (A)
10.7 (b)
S-1/A
09/17/18
10.7 (c)
S-1/A
09/17/18
10.7 (d)
S-1/A
09/17/18
10.9
S-1/A
09/17/18
10.10
S-1/A
09/17/18
10.11
S-1/A
09/17/18
10.12
10.7#
10.8#
10.9#
Employment Agreement by and between Gritstone Oncology, Inc.
and Roman Yelensky, Ph.D., effective as of September 27, 2018.
Employment Agreement by and between Gritstone Oncology, Inc.
and Jean-Marc Bellemin, effective as of September 27, 2018.
Employment Agreement by and between Gritstone Oncology, Inc.
and Jayant Aphale, Ph.D., effective as of September 27, 2018.
S-1/A
09/17/18
10.13
S-1/A
09/17/18
10.14
S-1/A
09/17/18
10.15
10.10#
Employment Agreement by and between Gritstone Oncology, Inc.
S-1/A
09/17/18
10.16
and Erin Jones, effective as of September 27, 2018.
10.11#
Employment Agreement by and between Gritstone Oncology, Inc.
10-Q
11/12/19
10.1
and Vijay Yabannavar, Ph.D., effective as of July 2, 2019.
10.12#
Non-Employee Director Compensation Program.
S-1/A
09/17/18
10.17
10.13#
2018 Employee Stock Purchase Plan.
10.14
10.15
Lease, dated as of February 11, 2016, by and between Gritstone
Oncology, Inc. and BMR-Sidney Research Campus LLC.
Office Building Net Lease, dated as of March 24, 2017, by and
between Gritstone Oncology, Inc. and Hacienda Portfolio Venture,
LLC.
S-8
10/02/18
S-1
08/23/18
99.3
10.4
S-1
08/23/18
10.5
10.16
Office/Laboratory Lease, by and between Gritstone Oncology, Inc.
and Emery Station West, LLC, effective as of January 28, 2019.
8-K
02/05/19
10.1
10.17
Office/Laboratory Lease, by and between Gritstone Oncology, Inc.
10-Q
11/20/19
10.2
and MIL 21E, LLC, effective as of September 6, 2018.
10.18
First Amendment to Office/Laboratory Lease, by and between
10-Q
11/20/19
10.3
Gritstone Oncology, Inc. and MIL 21E, LLC, effective as of July 11,
2019.
10.19
Amended and Restated Investors’ Rights Agreement dated as of June
29, 2018, by and among Gritstone Oncology, Inc. and the investors
listed therein.
S-1
08/23/18
10.2
10.20
Sales Agreement, dated October 15, 2019, by and between Gritstone
S-3
10/15/19
1.2
Oncology, Inc. and Cowen and Company, LLC.
10.21
Form of Indemnification Agreement.
S-1/A
09/17/18
10.18
23.1
31.1
31.2
Consent of Independent Registered Public Accounting Firm
Certification of Chief Executive Officer of Gritstone Oncology, 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 Gritstone Oncology, Inc.,
as required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities
Exchange Act of 1934, as amended.
32.1*
Certification by the Chief Executive Officer and Chief Financial
Officer, as required by Rule 13a-14(b) or Rule 15d-14(b) under the
Securities Exchange Act of 1934, as amended, and Section 1350 of
Chapter 36 of Title 18 of the United States Code (18 U.S.C. §1350).
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
141
X
X
X
X
X
X
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Labels Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
X
X
X
X
†
#
*
Confidential treatment has been granted for certain information contained in this exhibit. Such information has been omitted
and filed separately with the SEC.
Indicates management contract or compensatory plan.
The certification attached as Exhibit 32.1 that accompanies this Annual Report on Form 10-K is not deemed filed with the
SEC and is not to be incorporated by reference into any filing of Gritstone Oncology, Inc. under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on
Form 10-K, irrespective of any general incorporation language contained in such filing.
Item 16. Form 10-K Summary
None.
142
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 11, 2020
GRITSTONE ONCOLOGY, INC.
By: /s/ Andrew Allen
Andrew Allen, M.D., Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name
Title
Date
/s/ Andrew Allen
Andrew Allen, M.D., Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Jean-Marc Bellemin
Jean-Marc Bellemin
Chief Financial Officer
(Principal Financial Officer)
/s/ Richard Heyman
Richard A. Heyman, Ph.D.
/s/ Judith Li
Judith J. Li
/s/ Steve Krognes
Steve Krognes
/s/ Nicholas Simon
Nicholas Simon
/s/ Elaine Jones
Elaine Jones
/s/ Tom Woiwode
Tom Woiwode
Director
Director
Director
Director
Director
Director
March 11, 2020
March 11, 2020
March 11, 2020
March 11, 2020
March 11, 2020
March 11, 2020
March 11, 2020
March 11, 2020
143
[THIS PAGE INTENTIONALLY LEFT BLANK]
BOARD OF DIRECTORS
Andrew Allen, M.D., Ph.D.
Co-founder, President and
Chief Executive Officer
Gritstone Oncology, Inc.
Richard A. Heyman, Ph.D.
Executive Chairman and
Co-founder of Metacrine
Elaine V. Jones, Ph.D.
Former Vice President and Senior Partner
Pfizer Ventures
Steve Krognes
Chief Financial Officer
Denali Therapeutics
Judith J. Li
Partner
Lilly Asia Ventures (LAV)
Nicholas Simon
Senior Managing Director
Blackstone Life Sciences
Tom Woiwode, Ph.D.
Managing Director
Versant Ventures
SCIENTIFIC ADVISORY BOARD
Timothy A. Chan, M.D., Ph.D.
James L. Gulley, M.D., Ph.D.
Graham Lord, M.D., Ph.D.
Naiyer A. Rizvi, M.D.
Alessandro Sette, Dr. Biol. Sci.
Jean-Charles Soria, M.D., Ph.D.
Eugene Zhukovsky, Ph.D.
EXECUTIVE MANAGEMENT
Andrew Allen, M.D., Ph.D.
Co-founder, President and
Chief Executive Officer
Jean-Marc Bellemin, M.B.A.
Executive Vice President and
Chief Financial Officer
Mike Forcht, Ed.D., M.B.A.
Senior Vice President,
People and Corporate Services
Matthew Hawryluk, Ph.D., M.B.A.
Executive Vice President and
Chief Business Officer
Erin E. Jones, M.S.
Executive Vice President,
Global Regulatory Affairs and Quality
Karin Jooss, Ph.D.
Executive Vice President, Research
and Chief Scientific Officer
Raphaël F. Rousseau, M.D., Ph.D.
Executive Vice President and
Chief Medical Officer
Rahsaan Thompson, J.D.
Executive Vice President and
General Counsel
Vijay Yabannavar, Ph.D.
Executive Vice President,
Manufacturing and Technical Operations
Roman Yelensky, Ph.D.
Executive Vice President and
Chief Technology Officer
OBTAINING FINANCIAL STATEMENTS
A copy of our Annual Report on Form 10-K is
posted to our website. You may also obtain a
copy by written or email request to:
Gritstone Oncology, Inc.
5959 Horton Street, Suite 300
Emeryville, CA 94608
Attn: Investor Relations
Email: ir@gritstone.com
ANNUAL MEETING
June 18, 2020 at 9:00am PT
Our virtual shareholder meeting may be accessed
at www.virtualshareholdermeeting.com/GRTS2020
using the 16-digit control number which is included
on the Notice of Internet Availability of Proxy
Materials and your proxy card.
TRADING INFORMATION
The common stock of Gritstone Oncology, Inc. is
traded on the Nasdaq Global Select Market under
the symbol GRTS.
TRANSFER AGENT
Information regarding stock certificates, change of
address, ownership transfer or other stock matters
can be obtained from:
American Stock Transfer & Trust LLC
6201 15th Avenue
Brooklyn, NY 11219
www.astfinancial.com
Email: help@astfinancial.com
Phone: (800) 937-5449 or (718) 921-8124
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Ernst & Young LLP
275 Shoreline Drive, Suite 600
Redwood City, CA 94065
Phone: (650) 802-4500
About Gritstone Oncology:
Gritstone Oncology (Nasdaq: GRTS), a clinical-stage biotechnology company, is developing the next generation of cancer immunotherapies to fight multiple cancer types. Gritstone
develops its products by leveraging two key pillars—first, a proprietary machine learning-based platform, Gritstone EDGETM, which is designed to predict, from a routine tumor
biopsy, the tumor-specific neoantigens (TSNA) that are presented on a patient’s tumor cells; and second, the ability to develop and manufacture potent immunotherapies
utilizing patients’ TSNA to potentially drive the patient’s immune system to specifically attack and destroy tumors. The company’s “off the shelf” shared neoantigen-based
immunotherapy, SLATE, and its individualized neoantigen-based immunotherapy, GRANITE, are being evaluated in Phase 1 clinical studies. Novel tumor-specific antigens can
also provide targets for bispecific antibody (BiSAb) therapeutics for solid tumors, and Gritstone’s BiSAb program is currently in lead optimization. For more information, please
visit gritstoneoncology.com.
Forward-Looking Statements:
This report contains forward-looking statements including, but not limited to, statements related to our preclinical and clinical product candidates, GRANITE, SLATE, and our
bispecific antibody program. All statements other than statements of historical facts contained in this report, including statements regarding the timing of immunogenicity and
clinical data for GRANITE and SLATE, identification of a development candidate for our bispecific antibody program, our future results of operations and financial position, business
strategy, prospective products, availability of funding, clinical trial results, product approvals and regulatory pathways, timing and likelihood of success, plans and objectives of
management for future operations, future results of current and anticipated products, and our ability to create value are forward-looking statements. Because forward-looking
statements are inherently subject to 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. 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.
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. For a further description of the risks and uncertainties that could cause actual results to differ from those expressed in these
forward-looking statements, as well as risks relating to the business of the company in general, see Gritstone’s periodic filings with the Securities and Exchange Commission (the
“SEC”), including its Annual Report filed on March 11, 2020 and any current and periodic reports filed thereafter.
DESIGN: HANE CHOW, INC.
5959 Horton Street
Suite 300
Emeryville, CA 94608
(510) 871-6100
www.gritstoneoncology.com