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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-31918
IDERA PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
505 Eagleview Blvd., Suite 212
Exton, Pennsylvania
(Address of principal executive offices)
04-3072298
(I.R.S. Employer
Identification No.)
19341
(Zip Code)
(484) 348-1600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class:
Common Stock, $.001 par value
Trading Symbol
IDRA
Name of Each Exchange on Which Registered
Nasdaq Capital 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 Securities Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $52.7 million based on the last sale
price of the registrant’s common stock as reported on the Nasdaq Capital Market on June 30, 2020 (the last business day of the registrant’s most recently
completed second fiscal quarter).
As of February 28, 2021, the registrant had 42,257,456 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its 2021 annual meeting of stockholders are incorporated by reference into Part III of this Form
10-K where indicated. Such definitive proxy statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the year ended
December 31, 2020.
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IDERA PHARMACEUTICALS, INC.
FORM 10-K
TABLE OF CONTENTS
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Properties
Item 2.
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART I.
PART II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Item 6.
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
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 Accountant Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
__________________________________
PART IV.
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Unless the context otherwise indicates, references in this Annual Report on Form 10-K to “Idera,” “the Company,”
“we,” “us” and “our” refer to Idera Pharmaceuticals, Inc.
IMO® and Idera® are our trademarks. All other trademarks and service marks appearing in this Annual Report on
Form 10-K are the property of their respective owners.
All share and per share amounts, including the exercise or conversion price of any of our securities, reflect, as
applicable, the occurrence of a 1-for-8 reverse split of our common stock that occurred on July 27, 2018.
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (“Form 10-K”) and the documents we incorporate by reference contain forward-
looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than
statements of historical fact, included or incorporated in this report regarding our strategy, future operations, clinical trials,
collaborations, intellectual property, cash resources, financial position, future revenues, projected costs, prospects, plans
and objectives of management are forward-looking statements. The words “believes,” “anticipates,” “estimates,” “plans,”
“expects,” “intends,” “may,” “could,” “should,” “potential,” “likely,” “projects,” “continue,” “will,” “schedule,” “would”
and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements
contain these identifying words. We cannot guarantee that we actually will achieve the plans, intentions or expectations
disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements.
These forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may be
beyond our control, and which may cause the actual results, performance, or achievements of the Company to be materially
different from future results, performance, or achievements expressed or implied by such forward-looking statements.
There are a number of important factors that could cause our actual results to differ materially from those indicated
or implied by forward-looking statements. These important factors include those set forth below under Part I, Item 1A
“Risk Factors” and in our other disclosures and filings with the Securities and Exchange Commission (“SEC”). These
factors and the other cautionary statements made in this Annual Report on Form 10-K and the documents we incorporate
by reference should be read as being applicable to all related forward-looking statements whenever they appear in this
Annual Report on Form 10-K and the documents we incorporate by reference.
In addition, any forward-looking statements represent our estimates only as of the date that this Annual Report on
Form 10-K is filed with the SEC and should not be relied upon as representing our estimates as of any subsequent date. All
forward-looking statements included in this Annual Report on Form 10-K are made as of the date hereof, and are expressly
qualified in their entirety by this cautionary notice. We do not assume any obligation to update any forward-looking
statements. We disclaim any intention or obligation to update or revise any forward-looking statement, whether as a result
of new information, future events or otherwise, except as may be required by law.
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Item 1. Business.
Overview
PART I.
We are a clinical-stage biopharmaceutical company with a business strategy focused on the clinical development,
and ultimately the commercialization, of drug candidates for both oncology and rare disease indications characterized by
small, well-defined patient populations with serious unmet medical needs. Our current focus is on our Toll-like receptor
(“TLR”) agonist, tilsotolimod (IMO-2125), for oncology. We believe we can develop and commercialize targeted therapies
on our own. To the extent we seek to develop drug candidates for broader disease indications, we have entered into and
may explore additional collaborative alliances to support development and commercialization.
TLRs are key receptors of the immune system and play a role in innate and adaptive immunity. As a result, we
believe TLRs are potential therapeutic targets for the treatment of a broad range of diseases. Using our chemistry-based
platform, we designed both TLR agonists and antagonists to act by modulating the activity of targeted TLRs. A TLR
agonist is a compound that stimulates an immune response through the targeted TLR. A TLR antagonist is a compound that
inhibits an immune response by blocking the targeted TLR.
Our current TLR-targeted clinical-stage drug candidate, tilsotolimod, is an agonist of TLR9. We are currently
developing tilsotolimod, via intratumoral injection, for the treatment of anti-PD1 refractory metastatic melanoma in
combination with ipilimumab, an anti-CTLA4 antibody marketed as Yervoy® by Bristol Myers Squibb Company (“BMS”)
in a Phase 3 registration trial. We are also evaluating intratumoral tilsotolimod in combination with nivolumab, an anti-PD1
antibody marketed as Opdivo® by BMS, and ipilimumab for the treatment of multiple solid tumors in a multicohort Phase
2 trial.
Key Business Developments
The following is a summary of key developments affecting our business since the beginning of 2020.
Clinical Development
● In March 2020, completed enrollment in ILLUMINATE-301.
● In April 2020, reported final clinical safety and efficacy data from ILLUMINATE-204.
● In June 2020, announced preliminary data from and planned continuation of ILLUMINATE-206, and reopened
enrollment in the fourth quarter of 2020.
Financings and Capital Resources
As further discussed in Note 8 of the Notes to Financial statements in this Annual Report on Form 10-K, during
2020, we:
● Entered into two private placement financing transactions, collectively providing for up to an aggregate of
$40.7 million in potential gross proceeds, of which $15.1 million was received during 2020.
● Received $12.3 million and $1.7 million in net proceeds pursuant to the ATM Agreement and LPC Purchase
Agreement, respectively.
Intellectual Property
As further discussed under the caption “Patents, Proprietary Rights and Trade Secrets” below:
● In September 2020, we obtained new patent coverage for tilsotolimod through September 2037 directed to
methods of treating colorectal cancer.
● In November 2020, we obtained new patent coverage for tilsotolimod through September 2037 directed to
methods of treating head and neck squamous cell carcinoma.
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Clinical Development
Tilsotolimod (IMO-2125)
Tilsotolimod is a synthetic phosphorothioate oligonucleotide that acts as a direct agonist of TLR9 to stimulate the
innate and adaptive immune systems. Tilsotolimod is being developed for administration via intratumoral injection in
combination with systemically administered checkpoint inhibitors and costimulation therapies for the treatment of various
solid tumors, including (i) anti-PD1 refractory metastatic melanoma in combination with ipilimumab, (ii) microsatellite
stable (“MSS”) colorectal cancer (“CRC”) in combination with nivolumab and ipilimumab, and (iii) squamous cell
carcinoma of the head and neck (“HNSCC”) in combination with ABBV-368 and other combinations. We refer to our
tilsotolimod development program as the ILLUMINATE development program. See additional information under the
heading “Collaborative Alliances” for information on the development of tilsotolimod in collaboration with AbbVie Inc.
(“AbbVie”) for patients with HNSCC.
Advancements in cancer immunotherapy have included the approval of multiple checkpoint inhibitors, which are
therapies that target mechanisms by which tumor cells evade detection by the immune system. Despite these
advancements, many patients fail to respond to these therapies. Published data suggests the lack of response to checkpoint
inhibition is related to a non-immunogenic tumor microenvironment. We believe TLR9 agonists may be useful in
melanoma and other solid tumor types that are refractory to anti-PD1 treatment due, in part, to low mutation load and low
dendritic cell infiltration. Because TLR9 agonists, such as tilsotolimod, stimulate the immune system, we believe the
intratumoral injection of tilsotolimod activates a local immune response in the injected tumor, which may complement the
effect of the systemically administered checkpoint inhibitors.
Melanoma
Melanoma is a cancer that begins in a type of skin cell called melanocytes. While melanoma is one of the least
common types of skin cancer, it has a poor prognosis when not detected and treated early. As is the case in many forms of
cancer, melanoma becomes more difficult to treat once the disease has spread, or metastasized, beyond the skin to other
parts of the body. According to the American Cancer Society, approximately 106,000 people in the United States will be
diagnosed with invasive melanoma in 2021. Immunotherapies known as checkpoint inhibitors have changed the treatment
of advanced melanoma and have become the standard of care, with anti-PD-1 agents being the most commonly used
immunotherapy in the first-line setting. These agents work by increasing the ability of the body’s immune system to help
detect and fight cancer cells. However, due to primary or acquired resistance mechanisms that exclude or inhibit anti-tumor
immune cells, as many as 60% of patients do not benefit from this type of therapy, and up to one-third of initial responders
develop resistance to the therapy and ultimately experience disease progression. Today, these refractory patients are left
with few options for further treatment, paving the way for novel investigational therapies such as tilsotolimod.
We are currently developing tilsotolimod for use in combination with checkpoint inhibitors for the treatment
of patients with anti-PD1 refractory metastatic melanoma. Tilsotolimod has received Orphan Drug Designation for the
treatment of melanoma Stages IIb to IV and Fast Track designation for the treatment of anti-PD1 refractory metastatic
melanoma in combination with ipilimumab therapy from the U.S. Food and Drug Administration (“FDA”).
ILLUMINATE-301 - Phase 3 Trial of Tilsotolimod (IMO-2125) in Combination with Ipilimumab in Patients with
Anti-PD1 Refractory Metastatic Melanoma
In the first quarter of 2018, we initiated a Phase 3 trial of the tilsotolimod–ipilimumab combination in patients with
anti-PD-1 refractory metastatic melanoma, which we refer to as ILLUMINATE-301. This trial, which completed target
enrollment of 454 patients in March 2020, will compare the results of the tilsotolimod–ipilimumab combination to those of
ipilimumab alone in a 1:1 randomization. The family of primary endpoints of the trial consists of objective response rate
(“ORR”) by blinded independent central review using Response Evaluation Criteria in Solid Tumors (“RECIST v1.1”) and
median overall survival (“OS”). We believe positive results in either of the primary endpoints could lead to approval in the
United States. Key secondary endpoints include
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durable response rate, duration of response, median time to response, median progression free survival (“PFS”) and
patient-reported outcomes using a validated scale. ILLUMINATE-301 is being monitored by an Independent Data
Monitoring Committee.
As further discussed below under the heading “Collaborative Alliances,” in May 2018, we entered into a clinical
trial collaboration and supply agreement with BMS under which BMS has agreed to supply YERVOY® (ipilimumab), at
its cost and for no charge to us, for use in ILLUMINATE-301.
ILLUMINATE-204 - Phase 1/2 Trial of Tilsotolimod (IMO-2125) in Combination with Ipilimumab or
Pembrolizumab in Patients with Anti-PD1 Refractory Metastatic Melanoma
In December 2015, we initiated a Phase 1/2 clinical trial to assess the safety and efficacy of intratumoral
tilsotolimod in combination with ipilimumab in patients with anti-PD-1 refractory metastatic melanoma, which we refer to
as ILLUMINATE-204. We subsequently amended the trial protocol to include an additional treatment arm to study the
combination of tilsotolimod with pembrolizumab, an anti-PD1 antibody marketed as Keytruda® by Merck & Co., Inc., in
the same patient population.
The primary objectives of the Phase 1 portion of the trial included characterizing the safety of the combinations and
determining the recommended Phase 2 dose. A secondary objective of the Phase 1 portion of the trial was to describe the
antitumor activity of tilsotolimod when administered intratumorally in combination with ipilimumab or pembrolizumab.
Objectives of the Phase 2 portion of the trial included evaluation of the ORR of the tilsotolimod-ipilimumab combination
using RECIST v1.1 criteria and immune-related response criteria (“irRC”), median OS, other efficacy measures, and to
continue to characterize the safety of the combination.
Final topline data from the trial was reported in April 2020. A total of 52 subjects were treated with the tilsotolimod-
ipilimumab combination at the recommended Phase 2 dose of 8 mg tilsotolimod. Of the 49 subjects evaluable for efficacy,
11 had a confirmed response per RECIST v1.1, representing an ORR of 22.4%. Additionally, 35 of the 49 patients achieved
stable disease or better, representing a disease control rate of 71.4%. Durable responses (>6 months) were observed in 7 of
11 confirmed responses per RECIST v1.1. Median OS was 21.0 months. The combination regimen was generally well-
tolerated among the 62 ILLUMINATE-204 patients receiving tilsotolimod at any dose in combination with ipilimumab.
Other Solid Tumors
Advancements in cancer immunotherapy have included the approval and late-stage development of multiple
checkpoint inhibitors, as single agents or in combination, for other solid tumors including, among others, microsatellite
instability high/deficient mismatch repair (“MSI-H/dMMR”) CRC and HNSCC.
In patients with CRC, nivolumab administered as monotherapy or in combination with ipilimumab has demonstrated
benefit and is approved for the treatment of MSI-H/dMMR mCRC. However, in a previously treated microsatellite stable
(“MSS”) CRC patient population, nivolumab + ipilimumab combination therapy did not produce objective responses.
MSS-CRC has been shown to be highly immunosuppressive. Moreover, the tumor microenvironment in MSS-CRC has
been shown to keep dendritic cells in an immature state. Given tilsotolimod’s mechanism of action of activating dendritic
cells, it may serve a complementary function to nivolumab and ipilimumab within the immunosuppressive tumor
microenvironment (“TME”) of MSS-CRC patients.
In patients with relapsed or metastatic HNSCC (“RM-HNSCC”), results from prospectively conducted trials
employing the immune-modulating antibodies nivolumab and pembrolizumab following chemotherapy heralded a new era
of treatment for patients with RM-HNSCC. Patients responding to these agents have seen durable responses, and in
controlled studies, an overall survival benefit has been demonstrated for the anti-PD-1 antibodies versus standard of care
chemotherapy. The challenge remains to increase the percentage of patients responding to these treatments, which currently
ranges from 13% to 23%, depending on the line of therapy.
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We believe, based on internally conducted commercial research and information published by the American Cancer
Society and other references, that annually in the United States, approximately 149,500 people are diagnosed with CRC, of
which 85% are MSS, and that approximately 53,000 deaths are attributed to CRC. Additionally, we believe that annually in
the United States, approximately 66,000 people are diagnosed with HNSCC and there are approximately 14,500 deaths
attributed to HNSCC. We also believe that, in 2018, approximately 212,000 patients in the United States with various
tumor types have been treated with an anti-PD-1/anti-PD-L1 therapy. Approximately 87% of these patients may progress
after treatment and therefore may benefit from alternative therapies.
ILLUMINATE-206 - Phase 2 Trial of Tilsotolimod (IMO-2125) in Combination with Nivolumab and Ipilimumab
for the treatment of Solid Tumors
In September 2019, we initiated a Phase 2, open-label, global, multicohort study to evaluate tilsotolimod
administered intratumorally in combination with nivolumab and ipilimumab for the treatment of solid tumors. The basis for
this study is supported by data generated from our ILLUMINATE-101 and ILLUMINATE-204 trials, which suggest the
mechanism of action for tilsotolimod may be tumor-type agnostic and potentially beneficial in combination with
checkpoint modulation in a variety of tumor types. We refer to this study as ILLUMINATE-206.
The objectives of ILLUMINATE-206 are to test the safety and effectiveness of intratumoral tilsotolimod in
combination with nivolumab and ipilimumab for the treatment of solid tumors.
Currently, we are evaluating relapsed/refractory MSS-CRC in immunotherapy-naïve patients treated with
tilsotolimod in combination with nivolumab and ipilimumab (the “MSS-CRC Study”). An initial group of ten patients was
enrolled to evaluate the safety of administering the combination of tilsotolimod, nivolumab and ipilimumab. To investigate
the safety profile of this triplet combination, ILLUMINATE-206 was designed with a stepwise approach to Yervoy®
dosage. Patients in this initial safety cohort of the MSS-CRC Study, many of whom were heavily pre-treated and rapidly
progressing, received 8 mg of intratumoral tilsotolimod and 3 mg/kg of intravenous (IV) Opdivo® every two weeks, along
with 1 mg/kg of IV Yervoy® every eight weeks (the “Low-Dose, Low-Frequency Cohort”). This regimen was generally
well tolerated; no patients discontinued treatment due to adverse events (AEs) and none experienced Grade 4 or 5 AEs.
One patient experienced stable disease per RECIST v1.1 criteria and nine patients progressed as defined by RECIST v1.1.
Investigators reported that six of the progressing patients had stability or reduction in size of injected lesions and six had
stability or reduction in overall size of uninjected lesions.
Based on these results, we are actively enrolling patients in a second MSS-CRC Study cohort. Changes in the study
design intended to improve potential outcomes in the targeted patient population included increasing the frequency of
Yervoy® dosing to every three weeks and limiting the number of allowed prior lines of treatment to two. Accordingly,
patients in the second group of 10 enrolled in the MSS-CRC Study will receive 8 mg of intratumoral tilsotolimod (total of
9 doses over approximately 28 weeks) and 3 mg/kg of intravenous (IV) Opdivo® every three weeks followed by 480 mg of
IV Opdivo® every four weeks, along with 1 mg/kg of IV Yervoy® every three weeks for four doses (the “Low-Dose,
High-Frequency Cohort”). Based on data from these patients, the MSS-CRC Study may be expanded further and/or
provide rationale to explore additional tumor types.
As further discussed below under the heading “Collaborative Alliances,” in March 2019, we entered into a clinical
trial collaboration and supply agreement with BMS, under which BMS has agreed to manufacture and supply YERVOY®
(ipilimumab) and OPDIVO® (nivolumab), at its cost and for no charge to us, for use in ILLUMINATE-206.
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ILLUMINATE-101 - Phase 1b Trial of Intratumoral Tilsotolimod (IMO-2125) Monotherapy in Patients with
Refractory Solid Tumors
In March 2017, we initiated a Phase 1b dose escalation trial of intratumoral tilsotolimod as a single agent in multiple
tumor types, which we refer to as ILLUMINATE-101. We completed enrollment of a total of 38 patients in four dose-
escalation cohorts at doses of 8mg (cohort 1, n=11), 16mg (cohort 2, n=8), 23mg (cohort 3, n=10) and 32mg (cohort 4,
n=9). There were no dose-limiting toxicities observed and tilsotolimod appeared to be generally well-tolerated at each of
the dose levels tested. We also completed enrollment of 16 patients in a melanoma expansion cohort, which utilized a
Simon’s optimal two-stage design, to assess whether tilsotolimod as a single agent (8mg dose) has any statistically relevant
clinical activity, as demonstrated for objective response according to RECIST v1.1 criteria, in patients with metastatic
melanoma who have progressed on or after treatment with a PD-(L)1 inhibitor. The study was completed in October 2019.
At the American Association for Cancer Research Annual Meeting in April 2020, we provided final results of
ILLUMINATE-101, noting that a total of 54 patients had been dosed, including 38 patients in the dose-evaluation portion
of the trial and 16 patients in the melanoma dose-expansion cohort. Of the 51 evaluable patients, 29% (n=15) had a best
response of stable disease. Duration of stable disease ranged from 1.5 to 12+ months from the start of treatment, with stable
disease ongoing beyond 12 months for one patient as of the close of the study. There were no correlations between dose
and efficacy observed.
An additional purpose of this study was to obtain tumor biopsies to assess the effect of tilsotolimod on the tumor
microenvironment in multiple types of solid tumors and inform the expansion of the development program beyond
melanoma. Translational research in ILLUMINATE-101 demonstrated that tilsotolimod increased dendritic cell activation
and upregulated MHC class II and IFN-α signaling, which suggests improved antigen presentation, and is similar to that
observed and previously reported in the tumor biopsies from the ILLUMINATE-204 melanoma subjects. This observation
provided additional rationale to expand the tilsotolimod clinical development program to additional solid tumors.
Discontinued Programs
In July 2018, following an analysis of our gene-silencing technology platform and our research portfolio, we
decided to suspend our rare disease and discovery programs as part of our overall strategy to more narrowly focus our
capital resources on the development and commercialization of tilsotolimod. Please refer to our Annual Report on Form
10-K for the fiscal year ended December 31, 2019, which was filed with the SEC on March 11, 2020, for further details on
our discontinued programs.
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Collaborative Alliances
Our current alliances include collaborations with AbbVie and BMS. In addition to our current alliances, we may
seek to enter into additional collaborative alliances to support development and commercialization of our TLR agonists and
antagonists.
Collaboration with AbbVie
Effective August 27, 2019, we entered into a clinical trial collaboration and supply agreement with AbbVie, a
global, research-based biopharmaceutical company, to conduct a clinical study to evaluate the efficacy and safety of
combinations of an OX40 agonist (ABBV-368), tilsotolimod, nab-paclitaxel and/or an anti-programmed cell death 1 (PD-
1) antagonist (ABBV-181), which we refer to as the AbbVie Agreement. Under the AbbVie Agreement, we will provide a
clinical trial supply of tilsotolimod to AbbVie and AbbVie will sponsor, fund and conduct the study entitled “A Phase 1b,
Multicenter, Open-Label Study to Determine the Safety, Tolerability, Pharmacokinetics, and Preliminary Efficacy of
ABBV-368 plus Tilsotolimod and Other Therapy Combinations in Subjects with Recurrent/Metastatic Head and Neck
Squamous Cell Carcinoma” (the, “AbbVie Study”). We have agreed to manufacture and supply tilsotolimod at its cost and
for no charge to AbbVie, for use in the AbbVie Study.
Collaboration with Bristol-Meyers Squibb
Effective May 18, 2018, we entered into a clinical trial collaboration and supply agreement with BMS (the “May
2018 BMS Agreement”) to clinically evaluate the combination of tilsotolimod with BMS’s therapy YERVOY®
(ipilimumab). Under the May 2018 BMS Agreement, we will sponsor, fund and conduct our ongoing global, open-label,
multicenter Phase 3 clinical trial of tilsotolimod in combination with YERVOY® entitled “A Randomized Phase 3
Comparison of IMO-2125 with Ipilimumab versus Ipilimumab Alone in Patients with Anti-PD-1 Refractory Melanoma” in
accordance with an agreed-upon protocol, which we refer to as ILLUMINATE-301. Under the May 2018 BMS
Agreement, BMS granted us a non-exclusive, non-transferrable, royalty-free license (with a right to sublicense) under its
intellectual property to use YERVOY® in ILLUMINATE-301 and has agreed to manufacture and supply YERVOY®, at
its cost and for no charge to us, for use in ILLUMINATE-301.
Effective March 11, 2019, we entered into a second clinical trial collaboration and supply agreement with BMS (the
“March 2019 BMS Agreement”) to clinically evaluate the combination of tilsotolimod with BMS’s therapy YERVOY®
(ipilimumab) and OPDIVO® (nivolumab). Under the March 2019 BMS Agreement, we will sponsor, fund and conduct a
Phase 2, open-label, global, multicenter, multicohort study of intratumoral tilsotolimod in combination with YERVOY®
and OPDIVO® entitled “Study of Tilsotolimod in Combination with Nivolumab and Ipilimumab For the Treatment of
Solid Tumors” in accordance with an agreed-upon protocol, which we refer to as ILLUMINATE-206. Under the March
2019 BMS Agreement, BMS granted us a non-exclusive, non-transferrable, royalty-free license (with a right to sublicense)
under its intellectual property to use YERVOY® and OPDIVO® in ILLUMINATE-206 and has agreed to manufacture and
supply YERVOY® and OPDIVO®, at its cost and for no charge to us, for use in ILLUMINATE-206.
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Academic and Research Collaborations
We have entered into research collaborations with scientists at leading academic research institutions. These
research collaborations allow us to augment our internal research capabilities and obtain access to specialized knowledge
and expertise. In general, our research collaborations may require us to supply compounds and pay various amounts to
support the research. Under these research agreements, if a collaborator, solely or jointly with us, creates any invention, we
may own exclusively such invention, have an automatic paid-up, royalty-free non-exclusive license or have an option to
negotiate an exclusive, worldwide, royalty-bearing license to such invention. Inventions developed solely by our scientists
in connection with research collaborations are owned exclusively by us. These collaborative agreements are non-exclusive
and may be terminated with limited notice.
Research and Development Expenses
We are committed to redefining the treatment of certain cancers and rare diseases and have historically dedicated a
significant portion of our resources to our efforts on the discovery and development of our drug candidates. For the years
ended December 31, 2020, 2019 and 2018, we spent approximately $24.8 million, $34.9 million, and $41.8 million,
respectively, on research and development activities. We plan to continue to invest in research and development, primarily
with respect to our clinical trials of tilsotolimod. Accordingly, we anticipate a significant portion of our operating expenses
will continue to be related to clinical development in 2021 and beyond.
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Patents, Proprietary Rights and Trade Secrets
Our success depends in part on our ability to obtain and maintain proprietary protection for our drug candidates,
technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from
infringing our proprietary rights. We use a variety of methods to seek to protect our proprietary position, including filing
U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important
to the development of our business. We also rely on trade secrets, know-how, continuing technological innovation, and in-
licensing opportunities to develop and maintain our proprietary position.
We have devoted and continue to devote a substantial amount of our resources into establishing intellectual property
protection for:
● Novel chemical entities that function as agonists of TLR3, TLR7, TLR8 or TLR9;
● Novel chemical entities that function as antagonists of TLR7, TLR8 or TLR9; and
● Composition and use of our nucleic acid chemistry compounds to treat and prevent a variety of diseases.
On November 5, 2019, the U.S. Patent and Trademark Office issued to us U.S. Patent No. 10,463,686 entitled
“Immune Modulation With TLR9 Agonists For Cancer Treatment,” which includes tilsotolimod. The patent includes 24
claims directed to methods of treating melanoma with intratumoral administration of tilsotolimod in combination with
certain immune checkpoint inhibitor therapies, including inhibitors of the CTLA-4 and PD-1/PD-L1 pathways. The patent
is expected to expire in September 2037.
On September 15, 2020, the U.S. Patent and Trademark Office issued U.S. Patent No. 10,772,907 (the ‘907 Patent)
to us, entitled “Immune Modulation with TLR9 Agonists for Cancer Treatment,” which includes our investigational
therapy tilsotolimod. The ‘907 Patent includes 26 claims directed to methods of treating colorectal cancer (“CRC”) with
intratumoral administration of tilsotolimod in combination with certain immune checkpoint inhibitor therapies, including
CTLA-4, PD-1 or PD-L1 proteins.
On November 17, 2020, the U.S. Patent and Trademark Office issued U.S. Patent No. 10,835,550 (the ‘550 Patent)
to us, entitled “immune Modulation with TLR9 Agonists for Cancer Treatment,” which includes our investigational
therapy tilsotolimod. The ‘550 Patent includes 26 claims directed to methods of treating head and neck squamous cell
carcinoma (“HNSCC”) with intratumoral administration of tilsotolimod in combination with certain immune checkpoint
inhibitor therapies, including CTLA-4, PD-1 or PD-L1 proteins.
These new patents (the ‘907 Patent and the ‘550 Patent) expand protection of the first tilsotolimod method-of-use
patent, which was directed to methods of treating metastatic melanoma and was issued in November 2019. The ’907 Patent
and the ‘550 Patent provide exclusivity for certain uses of tilsotolimod through September 2037.
As of February 15, 2021, we owned approximately 57 U.S. patents and patent applications and about 184 patents
and patent applications throughout the rest of the world for our TLR-targeted immune modulation technologies. These
patents and patent applications include claims covering the chemical compositions of matter and methods of use of our
IMO compounds, such as IMO-8400, IMO-9200 and tilsotolimod (IMO-2125), as well as other compounds. These patents
and patent applications (if granted) expire at various dates ranging from 2020 to 2041. With respect to IMO-8400, we have
six issued U.S. patents that cover the chemical composition of matter of IMO-8400 and certain methods of its use, the
latest of which expires in 2031. With respect to IMO-9200, we have nine issued U.S. patents that cover the chemical
composition for IMO-9200 and methods of its use, the latest of which expires in 2034. With respect to tilsotolimod, we
have an issued U.S. patent that covers the chemical composition of matter of tilsotolimod that will expire in 2024 and
additional patents that cover methods of its use, the latest of which will expire in 2037. We have pending applications in the
United States and outside of the United States that cover methods of treatment or use of tilsotolimod, which, if granted,
will expire between 2035 and 2041.
Because patent applications in the United States and many foreign jurisdictions are typically not published until 18
months after filing, or in some cases not at all, and because publications of discoveries in the scientific
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literature often lag behind actual discoveries, neither we nor our licensors can be certain that we or they were the first to
make the inventions claimed in issued patents or pending patent applications, or that we or they were the first to file for
protection of the inventions set forth in these patent applications.
Litigation may be necessary to defend against or assert claims of infringement, to enforce patents issued to us, to
protect trade secrets or know-how owned by us, or to determine the scope and validity of the proprietary rights of others or
to determine the appropriate term for an issued patent. In addition, the United States Patent and Trademark Office
(“USPTO”) may declare interference proceedings to determine the priority of inventions with respect to our patent
applications or reexamination or reissue proceedings to determine if the scope of a patent should be narrowed. Litigation or
any of these other proceedings could result in substantial costs to and diversion of effort by us, even if the eventual
outcome is favorable to us, and could have a material adverse effect on our business, financial condition and results of
operations. These efforts by us may not be successful.
The term of individual patents depends upon the legal term for patents in the countries in which they are obtained. In
most countries, including the United States, the patent term is 20 years from the earliest filing date of a non-provisional
patent application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a
patentee for administrative delays by the USPTO in examining and granting a patent, or may be shortened if a patent is
terminally disclaimed over an earlier filed patent. The term of a patent that covers a drug, biological product or medical
device approved pursuant to a pre-market approval may also be eligible for patent term extension when FDA approval is
granted, provided statutory and regulatory requirements are met. The length of the patent term extension is related to the
length of time the drug is under regulatory review while the patent is in force. The Drug Price Competition and Patent
Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the
expiration date set for the patent. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years
from the date of product approval, only one patent applicable to each regulatory review period may be granted an extension
and only those claims reading on the approved drug are extended. Similar provisions are available in Europe and other
foreign jurisdictions to extend the term of a patent that covers an approved drug.
We may rely, in some circumstances, on trade secrets and confidentiality agreements to protect our technology.
Although trade secrets are difficult to protect, wherever possible, we use confidential disclosure agreements to protect the
proprietary nature of our technology. We regularly implement confidentiality agreements with our employees, consultants,
scientific advisors, and other contractors and collaborators. However, there can be no assurance that these agreements will
not be breached, that we will have adequate remedies for any breach, or that our trade secrets and/or proprietary
information will not otherwise become known or be independently discovered by competitors. To the extent that our
employees, consultants or contractors use intellectual property owned by others in their work for us, disputes may also
arise as to the rights in related or resulting know-how and inventions.
Manufacturing
We do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities
of any of our drug candidates. We currently rely and expect to continue to rely on other companies for the manufacture of
our drug candidates for preclinical and clinical development. We source our bulk drug manufacturing requirements from a
limited number of contract manufacturers through the issuance of work orders on an as-needed basis. We currently do not
have any long-term supply contracts. We depend and will continue to depend on our contract manufacturers to manufacture
our drug candidates in accordance with current Good Manufacturing Practices (“cGMP”) regulations for use in clinical
trials. We will ultimately depend on contract manufacturers for the manufacture of our products for commercial sale, if and
when our drug candidates are approved. Contract manufacturers are subject to extensive governmental regulation.
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Competition
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense
competition and a strong emphasis on proprietary products. We are currently developing tilsotolimod (IMO-2125), our
TLR agonist drug candidate, for the treatment by intratumoral injection of multiple oncology indications in combination
with checkpoint inhibitors. There are many other companies, both public and private, that are actively engaged in
discovery, development, and commercializing products and technologies that may compete with our drug candidate,
tilsotolimod, including TLR-targeted compounds as well as non-TLR-targeted therapeutics.
Immuno-oncology, which utilizes a patient’s own immune system to combat cancer, is currently an active area of
research for biotechnology and pharmaceutical companies. Interest in immuno-oncology is driven by efficacy data in
cancers with historically bleak outcomes and the potential to achieve a cure or functional cure for some patients. As such,
we expect that our efforts in this field will be competitive with a wide variety of different approaches. Any one of these
competitive approaches may result in the development of novel technologies that are more effective, safer or less costly
than any that we are developing.
We recognize that other companies, including large pharmaceutical companies, may be developing or have plans to
develop products and technologies that may compete with ours. Many of our competitors have substantially greater
financial, technical, and human resources than we have. In addition, many of our competitors have significantly greater
experience than we have in undertaking preclinical studies and human clinical trials of new pharmaceutical products,
obtaining FDA and other regulatory approvals of products for use in health care and manufacturing, and marketing and
selling approved products. Our competitors may discover, develop or commercialize products or other novel technologies
that are more effective, safer or less costly than any that we are developing. Our competitors may also obtain FDA or other
regulatory approval for their products more rapidly than we may obtain approval for ours.
We anticipate that the competition with our drug candidate, tilsotolimod, and technologies will be based on a
number of factors including product efficacy, safety, availability, and price. The timing of market introduction of
tilsotolimod and competitive products will also affect competition among products. We expect the relative speed with
which we can develop tilsotolimod, complete the clinical trials and approval processes, and supply commercial quantities
of the products to the market to be important competitive factors. Our competitive position will also depend upon our
ability to attract and retain qualified personnel, to obtain patent protection or otherwise develop proprietary products or
processes, protect our intellectual property, and to secure sufficient capital resources for the period between technological
conception and commercial sales.
Risks related to our competitors and our competitive position are discussed in further detail in the section entitled
“Risk Factors” of this Annual Report on Form 10-K.
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Government Regulation
Government authorities in the United States, at the federal, state and local level, and in other countries and
jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing,
manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution,
marketing, pricing, post-approval monitoring and reporting, and import and export of pharmaceutical products. The
processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with
subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of
substantial time and financial resources.
Review and Approval of Drugs in the United States
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and
associated implementing regulations. The failure to comply with the FDCA and other applicable U.S. requirements at any
time during the product development process, approval process or after approval may subject an applicant and/or sponsor
to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending applications,
withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product
recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government
contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA and the
Department of Justice, or the DOJ, or other governmental entities, including state agencies.
An applicant seeking approval to market and distribute a new drug product in the United States must typically
undertake the following:
● completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s
good laboratory practice (“GLP”) regulations;
● submission to the FDA of an IND, which must take effect before human clinical trials may begin in the United
States;
● approval by an independent institutional review board (“IRB”), representing each clinical site before each clinical
trial may be initiated;
● performance of adequate and well-controlled human clinical trials in accordance with good clinical practices
(“GCP”) to establish the safety and efficacy of the proposed drug product for each indication;
● preparation and submission to the FDA of a new drug application (“NDA”);
● review of the product candidate by an FDA advisory committee, where appropriate or if applicable;
● satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the
product, or components thereof, are produced to assess compliance with cGMP requirements and to assure that
the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;
● satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of
the clinical data;
● payment of user fees and securing FDA approval of the NDA; and
● compliance with any post-approval requirements, including Risk Evaluation and Mitigation Strategies (“REMS”)
where applicable, and post-approval studies required by the FDA.
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Preclinical Studies
Before an applicant begins testing a product candidate with potential therapeutic value in humans, the product
candidate enters the preclinical testing stage. Preclinical studies include laboratory evaluation of the purity and stability of
the manufactured drug substance or active pharmaceutical ingredient and the formulated drug or drug product, as well as in
vitro and animal studies to assess the safety and activity of the drug for initial testing in humans and to establish a rationale
for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP
regulations. The results of the preclinical tests, together with manufacturing information, analytical data, any available
clinical data or literature and plans for clinical studies, among other things, are submitted to the FDA as part of an IND.
Additional preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after
the IND is submitted.
Human Clinical Studies in Support of an NDA
Clinical trials involve the administration of the investigational product to human subjects under the supervision of
qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all
research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are
conducted under written study protocols detailing, among other things, the objectives of the study, inclusion and exclusion
criteria, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each
clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. An IND is an
exemption from the FDCA that allows an unapproved product candidate to be shipped in interstate commerce for use in an
investigational clinical trial and a request for FDA authorization to administer such investigational product to humans. An
IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or
questions related to a proposed clinical trial and places the trial on clinical hold or partial clinical hold. In such a case, the
IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin.
Typically, the FDA will require one IND for early development studies where the sponsor is uncertain of the
indication or dosage form of the proposed product, where the drug is being developed for closely related indications within
a single review division at FDA, or where there are multiple closely-related routes of administration using the same dosage
formulation. On the other hand, multiple INDs may be required where there are two or more unrelated conditions being
developed or where multiple dosage forms are being extensively investigated or where multiple routes of administration
are being evaluated.
In addition to the foregoing IND requirements, an IRB representing each institution participating in the clinical trial
must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct
continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the
study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance
with FDA regulations. Information about certain clinical trials must be submitted within specific timeframes to the
National Institutes of Health for public dissemination on their ClinicalTrials.gov website.
Additionally, some trials are overseen by an independent group of qualified experts organized by the trial sponsor,
known as a data monitoring committee (“DMC”). This group provides recommendations as to whether a trial should move
forward at designated check points based on access that only the group maintains to available data from the study.
Suspension or termination of development during any phase of clinical trials can occur if it is determined that the
participants or patients are being exposed to an unacceptable health risk. Other reasons for suspension or termination may
be made by us based on evolving business objectives and/or competitive climate.
Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:
Phase 1: The drug is initially introduced into healthy human subjects or patients with the target disease (e.g.
cancer) or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible,
to gain an early indication of its effectiveness and to determine optimal dosage.
Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and safety
risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance
and optimal dosage.
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Phase 3: The drug is administered to an expanded patient population, generally at geographically dispersed
clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of
the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for
the labeling of the product.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more
frequently if serious adverse events occur. In addition, IND safety reports must be submitted to the FDA for any of the
following: serious and unexpected suspected adverse reactions; findings from other studies or animal or in vitro testing that
suggest a significant risk in humans exposed to the drug; and any clinically important increase in the case of a serious
suspected adverse reaction over that listed in the protocol or investigator brochure. Phase 1, Phase 2 and Phase 3 clinical
trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA, the sponsor or the
data monitoring committee for a clinical trial may suspend or terminate the clinical trial at any time on various grounds,
including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can
suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not
being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious
harm to patients. The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity
of the clinical data submitted.
Section 505(b)(2) NDAs
NDAs for most new drug products are based on two full clinical studies which must contain substantial evidence of
the safety and efficacy of the proposed new product. These applications are submitted under Section 505(b)(1) of the
FDCA. The FDA is, however, authorized to approve an alternative type of NDA under Section 505(b)(2) of the FDCA.
This type of application allows the applicant to rely, in part, on the FDA’s previous findings of safety and efficacy for a
similar product, or published literature. Specifically, Section 505(b)(2) applies to NDAs for a drug for which the
investigations made to show whether or not the drug is safe for use and effective in use and relied upon by the applicant for
approval of the application “were not conducted by or for the applicant and for which the applicant has not obtained a right
of reference or use from the person by or for whom the investigations were conducted.”
Thus, Section 505(b)(2) authorizes the FDA to approve an NDA based on safety and effectiveness data that were not
developed by the applicant. NDAs filed under Section 505(b)(2) may provide an alternate and potentially more expeditious
pathway to FDA approval for new or improved formulations or new uses of previously approved products. If the
Section 505(b)(2) applicant can establish that reliance on the FDA’s previous approval is scientifically appropriate, the
applicant may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also
require companies to perform additional studies or measurements to support the change from the approved product. The
FDA may then approve the new drug candidate for all or some of the label indications for which the referenced product has
been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.
Submission of an NDA to the FDA
Assuming successful completion of required clinical testing and other requirements, the results of the preclinical and
clinical studies, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed
labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the drug product
for one or more indications. Under federal law, the submission of most NDAs is subject to an application user fee, which
for federal fiscal year 2021 is $2,875,842 for an application requiring clinical data. The sponsor of an approved NDA is
also subject to an annual program fee, which for fiscal year 2021 is $336,432. Exceptions or waivers for these fees exist for
a small company (fewer than 500 employees, including employees and affiliates) satisfying certain requirements and
products with orphan drug designation for a particular indication are not subject to a fee provided there are no other
intended uses in the NDA.
The FDA conducts a preliminary review of an NDA within 60 calendar days of its receipt and strives to inform the
sponsor by the 74th day after the FDA’s receipt of the submission to determine whether the application is sufficiently
complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing.
In this event, the application must be resubmitted with the additional information. The resubmitted application is also
subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-
depth substantive review.
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The FDA has agreed to specified performance goals in the review process of NDAs. Under the agreement, 90% of
applications seeking approval of New Molecular Entities (“NMEs”), are meant to be reviewed within ten months from the
date on which the FDA accepts the NDA for filing, and 90% of applications for NMEs that have been designated for
“priority review” are meant to be reviewed within six months of the filing date. For applications seeking approval of drugs
that are not NMEs, the ten-month and six-month review periods run from the date that the FDA receives the application.
The review process may be extended by the FDA for three additional months to consider new information or clarification
provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.
Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is or will be
manufactured. These pre-approval inspections cover all facilities associated with an NDA submission, including drug
component manufacturing (such as active pharmaceutical ingredients), finished drug product manufacturing, and control
testing laboratories. The FDA will not approve an application unless it determines that the manufacturing processes and
facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within
required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to
assure compliance with GCP.
In addition, as a condition of approval, the FDA may require an applicant to develop a REMS. REMS use risk
minimization strategies beyond the professional labeling to ensure that the benefits of the product outweigh the potential
risks. To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the product,
seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness of known or
potential adverse events, and whether the product is a new molecular entity. REMS can include medication guides,
physician communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU may
include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain
circumstances, special monitoring, and the use of patient registries. The FDA may require a REMS before approval or post-
approval if it becomes aware of a serious risk associated with use of the product. The requirement for a REMS can
materially affect the potential market and profitability of a product.
The FDA is required to refer an application for a novel drug to an advisory committee or explain why such referral
was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific
experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and
under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such
recommendations carefully when making decisions.
Fast Track, Breakthrough Therapy and Priority Review Designations
The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet
medical need in the treatment of a serious or life-threatening disease or condition. These programs are fast track
designation, breakthrough therapy designation and priority review designation.
Specifically, the FDA may designate a product for fast track review if it is intended, whether alone or in combination
with one or more other drugs, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the
potential to address unmet medical needs for such a disease or condition. For fast track products, sponsors may have
greater interactions with the FDA and the FDA may initiate review of sections of a fast track product’s NDA before the
application is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of
clinical data submitted by the sponsor, that a fast track product may be effective. The sponsor must also provide, and the
FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user
fees. However, the FDA’s time period goal for reviewing a fast track application does not begin until the last section of the
NDA is submitted. In addition, the fast track designation may be withdrawn by the FDA if the FDA believes that the
designation is no longer supported by data emerging in the clinical trial process.
In 2012, Congress enacted the Food and Drug Administration Safety and Innovation Act (“FDASIA”). This law
established a new regulatory scheme allowing for expedited review of products designated as “breakthrough therapies.” A
product may be designated as a breakthrough therapy if it is intended, either alone or in combination with one or more
other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the
product may demonstrate substantial improvement over existing therapies on one or
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more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The
FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor
throughout the development process; providing timely advice to the product sponsor regarding development and approval;
involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and
taking other steps to design the clinical trials in an efficient manner.
Third, the FDA may designate a product for priority review if it is a drug that treats a serious condition and, if
approved, would provide a significant improvement in safety or effectiveness. The FDA determines, on a case-by-case
basis, whether the proposed drug represents a significant improvement when compared with other available therapies.
Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a condition,
elimination or substantial reduction of a treatment-limiting drug reaction, documented enhancement of patient compliance
that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new subpopulation. A
priority designation is intended to direct overall attention and resources to the evaluation of such applications, and to
shorten the FDA’s goal for taking action on a marketing application from ten months to six months.
Accelerated Approval Pathway
The FDA may grant accelerated approval to a drug for a serious or life-threatening condition that provides
meaningful therapeutic advantage to patients over existing treatments based upon a determination that the drug has an
effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated
approval for such a condition when the product has an effect on an intermediate clinical endpoint that can be measured
earlier than an effect on irreversible morbidity or mortality (“IMM”), and 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. Drugs granted accelerated approval must meet the same
statutory standards for safety and effectiveness as those granted traditional approval.
For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement,
radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of
clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. An
intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict the
clinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with accelerated approvals based on
intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval where the
therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a
basis for concluding that the therapeutic effect is reasonably likely to predict the ultimate clinical benefit of a drug.
The accelerated approval pathway is most often used in settings in which the course of a disease is long and an
extended period of time is required to measure the intended clinical benefit of a drug, even if the effect on the surrogate or
intermediate clinical endpoint occurs rapidly. Thus, accelerated approval has been used extensively in the development and
approval of drugs for treatment of a variety of cancers in which the goal of therapy is generally to improve survival or
decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large trials to demonstrate
a clinical or survival benefit.
The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner,
additional post-approval confirmatory studies to verify and describe the drug’s clinical benefit. As a result, a drug candidate
approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4
or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval
studies, or confirm a clinical benefit during post-marketing studies, would allow the FDA to withdraw the drug from the
market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are
subject to prior review by the FDA.
The FDA’s Decision on an NDA
On the basis of the FDA’s evaluation of the NDA and accompanying information, including the results of the
inspection of the manufacturing facilities, 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
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indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial
additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have
been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA
has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even
with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the
regulatory criteria for approval.
If the FDA approves a product, it may limit the approved indications for use for the product, require that
contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including
Phase 4 clinical trials, be conducted to further assess the drug’s safety after approval, require testing and surveillance
programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or
other risk management mechanisms, including REMS, which can materially affect the potential market and profitability of
the product. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or
surveillance programs. After approval, many types of changes to the approved product, such as adding new indications,
manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and
approval.
Post-Approval Requirements
Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by
the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and
distribution, advertising and promotion and reporting of adverse experiences with 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, annual user fee requirements for any marketed products and the establishments at
which such products are manufactured, as well as new application fees for supplemental applications with clinical data.
In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs
are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced
inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing
process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also
require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements
upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must
continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and
standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously
unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing
processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new
safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of
distribution or other restrictions under a REMS program. Other potential consequences include, among other things:
● restrictions on the marketing or manufacturing of the product, suspension of the approval, complete withdrawal of
the product from the market or product recalls;
● fines, warning letters or holds on post-approval clinical trials;
● refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of
product license approvals;
● product seizure or detention, or refusal to permit the import or export of products; or
● injunctions or the imposition of civil or criminal penalties.
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The FDA strictly regulates the marketing, labeling, advertising and promotion of prescription drug products placed
on the market. This regulation includes, among other things, standards and regulations for direct-to-consumer advertising,
communications regarding unapproved uses, industry-sponsored scientific and educational activities, and promotional
activities involving the Internet and social media. Promotional claims about a drug’s safety or effectiveness are prohibited
before the drug is approved. After approval, a drug product generally may not be promoted for uses that are not approved
by the FDA, as reflected in the product’s prescribing information. In the United States, health care professionals are
generally permitted to prescribe drugs for such uses not described in the drug’s labeling, known as off-label uses, because
the FDA does not regulate the practice of medicine. However, FDA regulations impose rigorous restrictions on
manufacturers’ communications, prohibiting the promotion of off-label uses. It may be permissible, under very specific,
narrow conditions, for a manufacturer to engage in nonpromotional, non-misleading communication regarding off-label
information, such as distributing scientific or medical journal information.
If a company is found to have promoted off-label uses, it may become subject to adverse public relations and
administrative and judicial enforcement by the FDA, the DOJ, or the Office of the Inspector General of the Department of
Health and Human Services, as well as state authorities. This could subject a company to a range of penalties that could
have a significant commercial impact, including civil and criminal fines and agreements that materially restrict the manner
in which a company promotes or distributes drug products. The federal government has levied large civil and criminal fines
against companies for alleged improper promotion, and has also requested that companies enter into consent decrees or
permanent injunctions under which specified promotional conduct is changed or curtailed.
In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing
Act (“PDMA”), and its implementing regulations, as well as the Drug Supply Chain Security Act (“DSCA”), which
regulate the distribution and tracing of prescription drug samples at the federal level, and set minimum standards for the
regulation of drug distributors by the states. The PDMA, its implementing regulations and state laws limit the distribution
of prescription pharmaceutical product samples and the DSCA imposes requirements to ensure accountability in
distribution and to identify and remove counterfeit and other illegitimate products from the market.
Abbreviated New Drug Applications for Generic Drugs
In 1984, with passage of the Hatch-Waxman Amendments to the FDCA, Congress authorized the FDA to approve
generic drugs that are the same as drugs previously approved by the FDA under the NDA provisions of the statute. To
obtain approval of a generic drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency.
In support of such applications, a generic manufacturer may rely on the preclinical and clinical testing previously
conducted for a drug product previously approved under an NDA, known as the reference listed drug (“RLD”).
Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the
RLD with respect to the active ingredients, the route of administration, the dosage form, and the strength of the drug. At
the same time, the FDA must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the
statute, a generic drug is bioequivalent to a RLD if “the rate and extent of absorption of the drug do not show a significant
difference from the rate and extent of absorption of the listed drug.”
Upon approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the
RLD in its publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the
“Orange Book.” Physicians and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the
RLD. In addition, by operation of certain state laws and numerous health insurance programs, the FDA’s designation of
therapeutic equivalence often results in substitution of the generic drug without the knowledge or consent of either the
prescribing physician or patient.
Under the Hatch-Waxman Amendments, the FDA may not approve an ANDA until any applicable period of non-
patent exclusivity for the RLD has expired. The FDCA provides a period of five years of non-patent data exclusivity for a
new drug containing a new chemical entity. For the purposes of this provision, a new chemical entity (“NCE”), is a drug
that contains no active moiety that has previously been approved by the FDA in any other NDA. An active moiety is the
molecule or ion responsible for the physiological or pharmacological action of the drug substance. In cases where such
exclusivity has been granted, an ANDA may not be filed with the FDA until the
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expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the applicant
may submit its application four years following the original product approval. The FDCA also provides for a period of
three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability
or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the application.
This three-year exclusivity period often protects changes to a previously approved drug product, such as a new dosage
form, route of administration, combination or indication.
The FDA must establish a priority review track for certain generic drugs, requiring the FDA to review a drug
application within eight (8) months for a drug that has three (3) or fewer approved drugs listed in the Orange Book and is
no longer protected by any patent or regulatory exclusivities, or is on the FDA’s drug shortage list. The new legislation also
authorizes FDA to expedite review of ‘‘competitor generic therapies’’ or drugs with inadequate generic competition,
including holding meetings with or providing advice to the drug sponsor prior to submission of the application.
Hatch-Waxman Patent Certification and the 30-Month Stay
Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent
with claims that cover the applicant’s product or an approved method of using the product. Each of the patents listed by the
NDA sponsor is published in the Orange Book. When an Abbreviated New Drug Application (“ANDA”), or 505(b)(2)
applicant files its application with the FDA, the applicant is required to certify to the FDA concerning any patents listed for
the reference product in the Orange Book, except for patents covering methods of use for which the ANDA applicant is not
seeking approval.
Specifically, the applicant must certify with respect to each patent that:
● the required patent information has not been filed;
● the listed patent has expired;
● the listed patent has not expired, but will expire on a particular date and approval is sought after patent
expiration; or
● the listed patent is invalid, unenforceable or will not be infringed by the new product.
A certification that the new product will not infringe the already approved product’s listed patents or that such
patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed
patents or indicates that it is not seeking approval of a patented method of use, the application will not be approved until all
the listed patents claiming the referenced product have expired (other than method of use patents involving indications for
which the ANDA applicant is not seeking approval).
If the ANDA or 505(b)(2) applicant has provided a Paragraph IV certification to the FDA, the applicant must also
send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA or 505(b)(2) application has
been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in
response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the
receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA or 505(b)(2) application
until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent, or a decision in the
infringement case that is favorable to the ANDA applicant.
Pediatric Studies and Exclusivity
Under the Pediatric Research Equity Act of 2003, an NDA or supplement thereto must contain data that are adequate
to assess the safety and effectiveness of the drug product for the claimed indications in all relevant pediatric
subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and
effective. With enactment of the FDASIA in 2012, sponsors must also submit pediatric study plans prior to the assessment
data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct,
including study objectives and design, any deferral or waiver requests, and other information required by regulation. The
applicant, the FDA, and the FDA’s internal review committee must then
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review the information submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may
request an amendment to the plan at any time.
For drugs intended to treat a serious or life-threatening disease or condition, the FDA must, upon the request of an
applicant, meet to discuss preparation of the initial pediatric study plan or to discuss deferral or waiver of pediatric
assessments. In addition, FDA will meet early in the development process to discuss pediatric study plans with sponsors
and FDA must meet with sponsors by no later than the end-of-phase 1 meeting for serious or life-threatening diseases and
by no later than ninety (90) days after FDA’s receipt of the study plan.
The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all
pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data
requirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals
are contained in the FDASIA. Unless otherwise required by regulation, the pediatric data requirements do not apply to
products with orphan designation.
Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted,
provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory
exclusivity, including the non-patent and orphan exclusivity. This six-month exclusivity may be granted if an NDA sponsor
submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the
product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the
FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted
by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection
cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory
period during which the FDA cannot approve another application.
Orphan Drug Designation and Exclusivity
Under the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug” if it is intended to treat a
rare disease or condition (generally meaning that it affects fewer than 200,000 individuals in the United States, or more in
cases in which there is no reasonable expectation that the cost of developing and making a drug product available in the
United States for treatment of the disease or condition will be recovered from sales of the product). A company must
request orphan product designation before submitting an NDA. If the request is granted, the FDA will disclose the identity
of the therapeutic agent and its potential use. Orphan product designation does not convey any advantage in or shorten the
duration of the regulatory review and approval process, although it does convey certain advantages such as tax benefits and
exemption from PDUFA fees.
If a product with orphan status receives the first FDA approval for the disease or condition for which it has such
designation or for a select indication or use within the rare disease or condition for which it was designated, the product
generally will receive orphan product exclusivity. Orphan product exclusivity means that the FDA may not approve any
other applications for the same product for the same indication for seven years, except in certain limited circumstances.
Competitors may receive approval of different products for the indication for which the orphan product has exclusivity and
may obtain approval for the same product but for a different indication. If a drug or drug product designated as an orphan
product ultimately receives marketing approval for an indication broader than what was designated in its orphan product
application, it may not be entitled to exclusivity.
Orphan drug exclusivity will not bar approval of another product under certain circumstances, including if a
subsequent product with the same drug for the same condition is shown to be clinically superior to the approved product on
the basis of greater efficacy or safety, or providing a major contribution to patient care, or if the company with orphan drug
exclusivity is not able to meet market demand. This is the case despite an earlier court opinion holding that the Orphan
Drug Act unambiguously required the FDA to recognize orphan exclusivity regardless of a showing of clinical superiority.
Patent Term Restoration and Extension
A patent claiming a new drug product may be eligible for a limited patent term extension under the Drug Price
Competition and Patent Term Restoration Act of 1984, which permits a patent restoration of up to five years for patent term
lost during product development and the FDA regulatory review. The restoration period granted is typically one-half the
time between the effective date of an IND and the submission date of an NDA, plus the time
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between the submission date of an NDA and the ultimate approval date. Patent term restoration cannot be used to extend
the remaining term of a patent past a total of 14 years from the product’s approval date. Only one patent applicable to an
approved drug product is eligible for the extension, and the application for the extension must be submitted prior to the
expiration of the patent in question. A patent that covers multiple drugs for which approval is sought can only be extended
in connection with one of the approvals. The USPTO reviews and approves the application for any patent term extension or
restoration in consultation with the FDA.
The 21st Century Cures Act
On December 13, 2016, President Obama signed the 21st Century Cures Act (the “Cures Act”) into law. The Cures
Act is designed to modernize and personalize healthcare, spur innovation and research, and streamline the discovery and
development of new therapies through increased federal funding of particular programs. It authorizes increasing funding
for FDA to spend on innovation projects. The new law also amends the Public Health Service Act to reauthorize and
expand funding for the National Institutes of Health. The Act establishes the NIH Innovation Fund to pay for the cost of
development and implementation of a strategic plan, early stage investigators and research. It also charges NIH with
leading and coordinating expanded pediatric research. Further, the Cures Act directs the Centers for Disease Control and
Prevention to expand surveillance of neurological diseases.
With amendments to the FDCA and the Public Health Service Act, Title III of the Cures Act seeks to accelerate the
discovery, development, and delivery of new medicines and medical technologies. To that end, and among other
provisions, the Cures Act reauthorizes the priority review voucher program for certain drugs intended to treat rare pediatric
diseases; creates a new priority review voucher program for drug applications determined to be material threat medical
countermeasure applications; revises the FDCA to streamline review of combination product applications; requires FDA to
evaluate the potential use of “real world evidence” to help support approval of new indications for approved drugs;
provides a new “limited population” approval pathway for antibiotic and antifungal drugs intended to treat serious or life-
threatening infections; and authorizes FDA to designate a drug as a “regenerative advanced therapy,” thereby making it
eligible for certain expedited review and approval designations.
Review and Approval of Drug Products in the European Union
In order to market any product outside of the United States, a company must also comply with numerous and
varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing,
among other things, clinical trials, marketing authorization, commercial sales and distribution of drug products. Whether or
not it obtains FDA approval for a product, the company would need to obtain the necessary approvals by the comparable
foreign regulatory authorities before it can commence clinical trials or marketing of the product in those countries or
jurisdictions. The approval process ultimately varies between countries and jurisdictions and can involve additional product
testing and additional administrative review periods. The time required to obtain approval in other countries and
jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one
country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory
approval in one country or jurisdiction may negatively impact the regulatory process in others.
Clinical Trial Approval in the EU
Pursuant to the European Clinical Trials Directive, a system for the approval of clinical trials in the European Union
has been implemented through national legislation of the member states. Under this system, an applicant must obtain
approval from the competent national authority of a European Union member state in which the clinical trial is to be
conducted. Furthermore, the applicant may only start a clinical trial after a competent ethics committee has issued a
favorable opinion. Clinical trial application must be accompanied by an investigational medicinal product dossier with
supporting information prescribed by the European Clinical Trials Directive and corresponding national laws of the
member states and further detailed in applicable guidance documents. In April 2014, the EU adopted a new Clinical Trials
Regulation, which will be directly applicable to and binding without the need for any national implementing legislation.
Under the new coordinated procedure for the approval of clinical trials, the sponsor of a clinical trial will be required to
submit a single application for approval of a clinical trial to a reporting EU Member State (RMS) through an EU Portal.
The submission procedure will be the same irrespective of whether the clinical trial is to be conducted in a single EU
Member State or in more than one EU Member State.
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The Clinical Trials Regulation also aims to streamline and simplify the rules on safety reporting for clinical trials. The
Regulation was published on June 16, 2014 but is not expected to apply until 2020.
Orphan Drug Designation and Exclusivity
Regulation 141/2000 provides that a drug shall be designated as an orphan drug if its sponsor can establish: that the
product is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition
affecting not more than five in ten thousand persons in the European Community when the application is made, or that the
product is intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and
chronic condition in the European Community and that without incentives it is unlikely that the marketing of the drug in
the European Community would generate sufficient return to justify the necessary investment. For either of these
conditions, the applicant must demonstrate that there exists no satisfactory method of diagnosis, prevention or treatment of
the condition in question that has been authorized in the European Community or, if such method exists, the drug will be of
significant benefit to those affected by that condition.
Regulation 847/2000 sets out criteria and procedures governing designation of orphan drugs in the EU. Specifically,
an application for designation as an orphan product can be made any time prior to the filing of an application for approval
to market the product. Marketing authorization for an orphan drug leads to a ten-year period of market exclusivity. This
period may, however, be reduced to six years if, at the end of the fifth year, it is established that the product no longer
meets the criteria for orphan drug designation, for example because the product is sufficiently profitable not to justify
market exclusivity. Market exclusivity can be revoked only in very selected cases, such as consent from the marketing
authorization holder, inability to supply sufficient quantities of the product, demonstration of “clinically relevant
superiority” by a similar medicinal product, or, after a review by the Committee for Orphan Medicinal Products, requested
by a member state in the fifth year of the marketing exclusivity period (if the designation criteria are believed to no longer
apply). Medicinal products designated as orphan drugs pursuant to Regulation 141/2000 shall be eligible for incentives
made available by the European Community and by the member states to support research into, and the development and
availability of, orphan drugs.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and
other government authorities. Sales of products will depend, in part, on the extent to which the costs of the products will be
covered by third-party payors, including government health programs in the United States such as Medicare and Medicaid,
commercial health insurers and managed care organizations. The process for determining whether a payor will provide
coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay
for the product once coverage is approved. Third-party payors are increasingly challenging the prices charged, examining
the medical necessity, and reviewing the cost-effectiveness of medical products and services and imposing controls to
manage costs. Third-party payors may also limit coverage to specific products on an approved list, or formulary, which
might not include all of the approved products for a particular indication.
In order to secure coverage and reimbursement for any product that might be approved for sale, a company may
need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness
of the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. A payor’s
decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved.
Third-party reimbursement may not be sufficient to maintain price levels high enough to realize an appropriate return on
investment in product development.
The containment of healthcare costs also has become a priority of federal, state and foreign governments and the
prices of drugs have been a focus in this effort. Governments have shown significant interest in implementing cost-
containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic
products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in
jurisdictions with existing controls and measures, could further limit a company’s revenue generated from the sale of any
approved products. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable
coverage and reimbursement status is attained for one or more products for which a company or its collaborators receive
marketing approval, less favorable coverage
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policies and reimbursement rates may be implemented in the future. In the European Union, pricing and reimbursement
schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a
reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the
cost-effectiveness of a particular drug candidate to currently available therapies, or so-called health technology
assessments, in order to obtain reimbursement or pricing approval. For example, the European Union provides options for
its member states to restrict the range of drug products for which their national health insurance systems provide
reimbursement and to control the prices of medicinal products for human use. European Union member states may approve
a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the
company placing the drug product on the market. Other member states allow companies to fix their own prices for drug
products, but monitor and control company profits. The downward pressure on health care costs in general, particularly
prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry of new
products. In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may
reduce pricing within a country. Any country that has price controls or reimbursement limitations for drug products may
not allow favorable reimbursement and pricing arrangements.
Healthcare Law and Regulation
Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription
of drug products that are granted marketing approval. Arrangements with providers, consultants, third-party payors and
customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations. Such restrictions
under applicable federal and state healthcare laws and regulations, include the following:
● the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully
soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or
reward either the referral of an individual for, or the purchase, order or recommendation of, any good or
service, for which payment may be made, in whole or in part, under a federal healthcare program such as
Medicare and Medicaid;
● the federal False Claims Act imposes civil penalties, and provides for civil whistleblower or qui tam actions,
against individuals or entities for knowingly presenting, or causing to be presented, to the federal government,
claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an
obligation to pay money to the federal government, with potential liability including mandatory treble damages
and significant per-claim penalties, currently set at $5,500 to $11,000 per false claim;
● the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), imposes criminal and civil
liability for executing a scheme to defraud any healthcare benefit program or making false statements relating
to healthcare matters;
● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and their
respective implementing regulations, including the Final Omnibus Rule published in January 2013, also
imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security
and transmission of individually identifiable health information;
● the federal false statements statute prohibits 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;
● the federal transparency requirements under the Health Care Reform Law, known as the federal Physician
Payments Sunshine Act, require manufacturers of drugs, devices, biologics and medical supplies to report to
the Centers for Medicare & Medicaid Services (“CMS”) within the Department of Health and Human Services
information related to payments and other transfers of value to physicians and teaching hospitals and physician
ownership and investment interests held by physicians and their immediate family members; and
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● analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply
to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-
governmental third-party payors, including private insurers.
Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary
compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to
requiring drug manufacturers to report information related to payments to physicians and other health care providers or
marketing expenditures. State and foreign laws also govern the privacy and security of health information in some
circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus
complicating compliance efforts.
Healthcare Reform in the United States
A primary trend in the United States healthcare industry and elsewhere is cost containment. There have been a
number of federal and state proposals during the last several years regarding the pricing of pharmaceutical and
biopharmaceutical products, limiting coverage and reimbursement for drugs and other medical products, government
control and other changes to the healthcare system in the United States.
By way of example, the United States and state governments continue to propose and pass legislation designed to
reduce the cost of healthcare. In March 2010, the United States Congress enacted the Patient Protection and Affordable
Care Act (the “PPACA”) which, among other things, includes changes to the coverage and payment for products under
government health care programs. Among the provisions of the PPACA of importance to potential drug candidates are:
● an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs
and biologic agents, apportioned among these entities according to their market share in certain government
healthcare programs, although this fee would not apply to sales of certain products approved exclusively for
orphan indications;
● 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;
● expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum
rebate for both branded and generic drugs and revising the definition of “average manufacturer price” (“AMP”)
for calculating and reporting Medicaid drug rebates on outpatient prescription drug prices and extending rebate
liability to prescriptions for individuals enrolled in Medicare Advantage plans;
● addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate
Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;
● expanded the types of entities eligible for the 340B drug discount program;
● established the Medicare Part D coverage gap discount program by requiring manufacturers to provide a point-
of-sale-discount off the negotiated price of applicable brand drugs to eligible beneficiaries during their
coverage gap period as a condition for the manufacturers’ outpatient drugs to be covered under Medicare
Part D;
● established a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct
comparative clinical effectiveness research, along with funding for such research;
● established the Independent Payment Advisory Board (“IPAB”) which has authority to recommend certain
changes to the Medicare program to reduce expenditures by the program that could result in reduced payments
for prescription drugs. However, the IPAB implementation has been not been clearly defined. The PPACA
provided that under certain circumstances, IPAB recommendations will become law unless Congress enacts
legislation that will achieve the same or greater Medicare cost savings; and
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● established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and
service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug
spending. Funding has been allocated to support the mission of the Center for Medicare and Medicaid
Innovation from 2011 to 2019. Other legislative changes have been proposed and adopted since the PPACA
was enacted. These changes include the Budget Control Act of 2011, which, among other things, led to
aggregate reductions to Medicare payments to providers of up to 2% per fiscal year that started in 2013 and will
stay in effect through 2024 unless additional Congressional action is taken, and the American Taxpayer Relief
Act of 2012, which, among other things, reduced Medicare payments to several types of providers and
increased the statute of limitations period for the government to recover overpayments to providers from three
to five years. These new laws may result in additional reductions in Medicare and other healthcare funding and
otherwise affect the prices we may obtain for any of our product candidates for which we may obtain
regulatory approval or the frequency with which any such product candidate is prescribed or used. Further,
there have been several recent U.S. congressional inquiries and proposed state and federal legislation designed
to, among other things, bring more transparency to drug pricing, review the relationship between pricing and
manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program
reimbursement methodologies for drug products.
These healthcare reforms, as well as other healthcare reform measures that may be adopted in the future, may result
in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment
methodologies and additional downward pressure on the price for any approved product and/or the level of reimbursement
physicians receive for administering any approved product. Reductions in reimbursement levels may negatively impact the
prices or the frequency with which products are prescribed or administered. Any reduction in reimbursement from
Medicare or other government programs may result in a similar reduction in payments from private payors. Since
enactment of the PPACA, there have been numerous legal challenges and Congressional actions to repeal and replace
provisions of the law.
Further, there have been several recent U.S. congressional inquiries and proposed federal and proposed and enacted
state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between
pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program
reimbursement methodologies for drug products. At the federal level, 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, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control
pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions
on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to
encourage importation from other countries and bulk purchasing. In addition, regional health care authorities and
individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which
suppliers will be included in their prescription drug and other health care programs. These measures could reduce the
ultimate demand for our products, once approved, or put pressure on our product pricing.
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Human Capital Resources
Our vision is to translate scientific breakthroughs into important new medicine. We have a culture where patients are
at the center of all we do, with core values that connect us to each other and our stakeholders and define who we are, what
we stand for, and how we work.
We are focused on effective attraction, development, and retention of, and compensation and benefits to, human
resource talent, including workforce and management development, diversity and inclusion initiatives, succession
planning, and corporate culture and leadership quality, which are vital to our success. At December 31, 2020, our total
workforce consisted of 32 employees. We consider our relations with our employees to be good.
During 2020, as we worked to manage through the effects of the human capital aspects of the pandemic, all
employees were provided the option of working remotely or at our Exton office with appropriate safeguards.
Information About Our Executive Officers
See Part III, Item 10 “Directors, Executive Officers and Corporate Governance” for information relating to our
executive officers.
Corporate Information
We were incorporated in Delaware in 1989 and our office headquarters is located at 505 Eagleview Boulevard, Suite
212, Exton, Pennsylvania 19341.
Information Available on the Internet
Our internet address is www.iderapharma.com. The contents of our website are not part of this Annual Report on
Form 10-K and our internet address is included in this document as an inactive textual reference. We make available free of
charge through our web site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as
soon as reasonably practicable after we electronically file or furnish such materials to the SEC. The SEC maintains an
internet site at www.sec.gov containing reports, proxies and information statements and other information regarding issuers
that file electronically with the SEC.
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Item 1A. Risk Factors.
RISK FACTORS
Investing in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties
described below in addition to the other information included or incorporated by reference in this Annual Report on Form
10-K before purchasing our common stock. Our business, financial condition and results of operations could be materially
and adversely affected by any of these and currently unknown risks or uncertainties. In that case, the market price of our
common stock could decline, and you may lose all or part of your investment in our securities.
Risks Relating to Our Financial Position and Need for Additional Capital
We will need additional financing, which may be difficult to obtain on terms attractive to us or at all.
We expect that we will need to raise additional funds in order to complete the development of, seek regulatory approvals
for and commercialization of tilsotolimod and to continue to fund our operations. We are seeking and expect to continue to
seek additional funding through financings of equity or debt securities, collaborations, or the sale or license of assets. We
believe the key factors that will affect our ability to obtain funding are: (i) the results of our clinical development activities
in our tilsotolimod program or any other drug candidates we develop on the timelines anticipated; (ii) the time and expense
required to submit an NDA for tilsotolimod; (iii) the cost, timing, and outcome of regulatory reviews; (iv) the receptivity of
the capital markets to financings by biotechnology companies generally and companies with drug candidates and
technologies similar to ours specifically; (v) receptivity of the capital markets to any in-licensing, product acquisition or
other transaction we may enter into; and (vi) ability to enter into additional collaborations and the success of such
collaborations.
Financing may not be available to us when we need it, or on favorable or acceptable terms, or at all. We could be required
to seek funds through collaborative alliances or through other means that may require us to relinquish rights to some of our
technologies, drug candidates or drugs that we would otherwise pursue on our own. In addition, if we raise additional funds
by issuing equity securities, our existing stockholders may experience dilution, or an equity financing that involves existing
stockholders may cause a concentration of ownership. Debt financing, if available, may involve agreements that include
covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital
expenditures or declaring dividends, and are likely to include rights that are senior to the holders of our common stock.
Any additional debt or equity financing may contain terms which are not favorable to us or to our stockholders, such as
liquidation and other preferences, or liens or other restrictions on our assets. As discussed in Note 14 to the financial
statements appearing elsewhere in this Annual Report on Form 10-K, additional equity financings may also result in
cumulative changes in ownership over a three-year period in excess of 50% which would limit the amount of net operating
loss and tax credit carryforwards that we may utilize in any one year. If we are unable to obtain adequate funding on a
timely basis or at all, we will be required to terminate, modify or delay clinical trials of tilsotolimod, delay the NDA
submission of tilsotolimod, or relinquish rights to portions of our technology, drug candidates and/or products.
We expect that we will continue to incur substantial and increasing net losses in the foreseeable future.
From January 1, 2001 to December 31, 2020, we incurred losses of $573.4 million. These losses, among other things, have
had and will continue to have an adverse effect on our stockholders' equity, total assets and working capital. Additionally,
we have never had any products of our own available for commercial sale and have received no revenues from the sale of
drugs. Substantially all of our revenues have been from collaborative and license agreements. We have devoted
substantially all of our efforts to research and development, including clinical trials, and have not completed development
of any drug candidates. Due to the numerous risks and uncertainties associated with developing drugs, we are unable to
predict the extent of any future losses, whether or when any of our drug candidates will become commercially available, or
when we will become profitable, if at all. We expect to incur substantial operating losses in future periods.
Even if we succeed in receiving marketing approval for and commercializing tilsotolimod or any other product candidate,
we will continue to incur substantial research and development and other expenditures to develop and market additional
potential indications or products. The size of our future net losses will depend, in part, on the rate of future growth of our
expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to
have an adverse effect on our stockholders’ equity and working capital.
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Risks Relating to Our Business, Strategy, and Industry
We are depending heavily on the development, regulatory approval and commercialization of our lead TLR-targeted
drug candidate, tilsotolimod. If we are unable to successfully develop and commercialize tilsotolimod or any other drug
candidate, or experience significant delays in doing so, our business may be materially harmed.
We have made and intend to continue to make a significant investment of our time and financial resources in the
development and commercialization of tilsotolimod. Our ability to generate product revenues will depend heavily on our
ability to successfully develop, obtain regulatory approval for and commercialize tilsotolimod. If we fail to obtain
regulatory approval and successfully commercialize tilsotolimod, our business would be materially and adversely
impacted. Even if tilsotolimod receives regulatory approval, we will incur significant expenses to support its
commercialization and launch, which investment may never be realized if sales are insufficient.
We are developing tilsotolimod in combination with other immuno-modulatory compounds and chemotherapeutic
agents and our efforts may not be successful or result in any approved and marketable products.
Tilsotolimod is being developed for administration via intratumoral injection in combination with systemically
administered checkpoint inhibitors for the treatment of various solid tumors, including (i) anti-PD1 refractory metastatic
melanoma in combination with ipilimumab, (ii) microsatellite stable colorectal cancer in combination with nivolumab and
ipilimumab, and (iii) squamous cell carcinoma of the head and neck in combination with other oncology products. While
we have evaluated the safety profile of tilsotolimod as a single agent via intratumoral injection in previous trials, and as
marketed products the safety profiles of ipilimumab and nivolumab are each known, the safety profile of the combination
of tilsotolimod with ipilimumab and/or nivolumab is still being evaluated. Further, under the AbbVie Agreement, AbbVie
is conducting a clinical study to evaluate the efficacy and safety of tilsotolimod with other products. These factors may
result in participating subjects experiencing serious adverse events or undesirable side effects or exposure to unacceptable
health risks requiring us or AbbVie to suspend or terminate any clinical trials which are being conducted with tilsotolimod
and other therapeutic agents.
If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory
approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for our drug candidates if we are unable to locate and enroll a
sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities
outside the U.S.
In addition, some of our competitors have ongoing clinical trials for drug candidates that treat the same indications as our
drug candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of
our competitors' drug candidates. Our inability to enroll a sufficient number of patients for our clinical trials could also
require us to abandon one or more clinical trials altogether. Enrollment delays may result in increased development costs
for our drug candidates, which would cause the value of our company to decline and limit our ability to obtain additional
financing.
If our clinical trials are unsuccessful, delayed or terminated, we may not be able to develop and commercialize our drug
candidates.
Clinical trials are lengthy, complex, and expensive processes with uncertain results. We may not be able to complete any
clinical trial of an investigational product within any specified time period. Moreover, clinical trials may not show our
investigational products to have an acceptable safety and efficacy profile. The FDA or other equivalent foreign regulatory
agencies may not allow us to complete these trials or commence and complete any other clinical trials.
Numerous unforeseen events may occur during, or as a result of, preclinical testing, nonclinical testing or the clinical trial
process that could delay or inhibit the ability to receive regulatory approval or to commercialize drug products. For
example, setbacks in clinical trials may result in enhanced scrutiny by regulators or institutional review boards (“IRBs”) of
clinical trials of our drug candidates, including our TLR-targeted drug candidates, which could result in regulators or IRBs
prohibiting the commencement of clinical trials, requiring additional nonclinical studies as a precondition to commencing
clinical trials or imposing restrictions on the design or scope of clinical trials that could slow enrollment of trials, increase
the costs of trials or limit the significance of the results of trials. Such setbacks could also adversely impact the desire of
investigators to enroll patients in, and the desire of patients to enroll in, clinical trials of our drug candidates.
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Other events that could delay or inhibit conduct of our clinical trials include: (i) nonclinical or clinical data may not be
readily interpreted, which may lead to delays and/or misinterpretation; (ii) our nonclinical tests, including toxicology
studies, or clinical trials may produce negative or inconclusive results; (iii) we might have to suspend or terminate our
clinical trials if the participating subjects experience serious adverse events or undesirable side effects or are exposed to
unacceptable health risks; (iv) regulators or IRBs may hold, suspend or terminate clinical research for various reasons,
including noncompliance with regulatory requirements, issues identified through inspections of manufacturing or clinical
trial operations or clinical trial sites; (v) we, along with our collaborators and subcontractors, may not employ, in any
capacity, persons who have been debarred under the FDA's Application Integrity Policy, or similar policy under foreign
regulatory authorities; (vi) we or our contract manufacturers may be unable to manufacture sufficient quantities of our drug
candidates for use in clinical trials; (vii) the cost of our clinical trials may be greater than we currently anticipate making
continuation and/or completion improbable; and (viii) our drug candidates may not cause the desired effects or may cause
undesirable side effects or our drug candidates may have other unexpected characteristics.
In conducting clinical trials, we cannot be certain that any planned clinical trial will begin on time, if at all. Delays in
commencing clinical trials of potential products could increase our drug candidate development costs, delay any potential
revenues, reduce the potential length of patent exclusivity and reduce the probability that a potential product will receive
regulatory approval. Significant clinical trial delays also could allow our competitors to bring products to market before
we do and impair our ability to commercialize our drug candidates.
Interim, “top-line,” and preliminary data from our clinical trials that we announce or publish from time to time may
materially differ, including as a result of audit and verification procedures, from final data.
From time to time, we may publicly disclose preliminary or top-line data from our preclinical studies and clinical trials,
based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to
change following a more comprehensive review of the data related to the particular study or trial. We also make
assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or
had the opportunity to fully and carefully evaluate all data. Top-line or preliminary results that we report may differ from
future results of the same studies, or different conclusions or considerations may qualify such results, once additional data
have been received and fully evaluated. Top-line data also remain subject to audit and verification procedures that may
result in the final data being materially different from the preliminary data we previously published. As a result, top-
line data should be viewed with caution until the final data are available.
From time to time, we may also disclose interim data from our preclinical studies and clinical trials. Interim data from
clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change
as patient enrollment continues and more patient data become available or as patients from our clinical trials continue other
treatments for their disease. Differences between preliminary or interim data and final data could significantly harm our
business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of
our common stock. In addition, others, including regulatory agencies, may not accept or agree with our assumptions,
estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could
impact the value of the particular program, the approvability or commercialization of the particular product candidate or
product and our company in general. In addition, the information we choose to publicly disclose regarding a particular
study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we
determine is material or otherwise appropriate information to include in our disclosure.
The technologies on which we rely are unproven and may not result in any approved and marketable products.
Our technologies or therapeutic approaches are relatively new and unproven. We have focused our efforts on the research
and development of RNA- and DNA-based compounds, or oligonucleotides, targeted to TLRs. The results of preclinical
studies with TLR-targeted compounds may not be indicative of results that may be obtained in clinical trials, and results we
have obtained in the clinical trials we have conducted to date may not be predictive of results in subsequent clinical trials.
Further, the chemical and pharmacological properties of TLR-targeted compounds may not be fully recognized in
preclinical studies and small-scale clinical trials, and such compounds may interact with human biological systems in
unforeseen, ineffective or harmful ways that we have not yet identified. As a result of these factors, we may never succeed
in obtaining regulatory approval to market any product.
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We face substantial competition, which may result in others discovering, developing or commercializing drugs before or
more successfully than us.
There are many other companies, public and private, actively engaged in discovery, development, and commercializing
products and technologies that may compete with our drug candidate and program, including TLR-targeted compounds as
well as non-TLR-targeted therapeutics. Some potentially competitive products have been in development or
commercialized for years. Many of the marketed products have been accepted by the medical community, patients, and
third-party payors. Our ability to compete may be affected by the previous adoption of such products by the medical
community, patients, and third-party payors.
We recognize that other companies, including large pharmaceutical companies, may be developing or have plans to
develop products and technologies that may compete with ours. Many of our competitors have substantially greater
financial, technical, and human resources than we have and/or may have significantly greater experience than we have in
undertaking preclinical studies and human clinical trials of new pharmaceutical products, obtaining FDA and other
regulatory approvals of products for use in health care and manufacturing, and marketing and selling approved products.
We anticipate that the competition with our drug candidates and technologies will be based on a number of factors
including product efficacy, safety, availability, and price. The timing of market introduction of our drug candidates and
competitive products will also affect competition among products. We expect the relative speed with which we can develop
products, complete the clinical trials and approval processes, and supply commercial quantities of the products to the
market to be important competitive factors.
Our business could be adversely affected by the effects of health epidemics, such as the recent COVID-19 global
pandemic, including disruptions to our clinical trials or the delay of regulatory approvals.
Our business may be adversely affected by the effects of health epidemics, including the ongoing worldwide COVID-19
pandemic. In December 2019, COVID-19 emerged and in March 2020, the World Health Organization declared the
coronavirus outbreak a pandemic. The spread of this pandemic has caused significant volatility and uncertainty globally.
This has resulted in an economic downturn and may disrupt our business and delay our clinical trials and regulatory
approvals. Quarantines and similar government orders have been enacted in each of the geographies in which we are
conducting our clinical trials. The patient populations that are eligible for our clinical trials are immune-compromised and
are at higher risk for becoming infected with COVID-19. As COVID-19 affects the parts of the world where we are
conducting our clinical trials, and the patients involved with these clinical trials become infected with COVID-19, we may
have more adverse events and deaths in our clinical trials as a result. Additionally, if global health concerns continue to
prevent the FDA from conducting its regular inspections, reviews, or other regulatory activities, 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. Such concerns could also affect the ability of our personnel to perform their normal
responsibilities and could result in temporary closures of our facilities.
The global pandemic of COVID-19 continues to evolve. The ultimate impact of the COVID-19 pandemic is highly
uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our
clinical trials, healthcare systems or the global economy as a whole. However, any one or a combination of these events
could have an adverse effect on the operation of and results from our clinical trials, which could prevent or delay us from
obtaining approval for tilsotolimod, or on our employee resources.
As a small biopharmaceutical-focused company with limited resources, we may be unable to attract and retain qualified
personnel.
We are a small company with 32 full-time employees as of December 31, 2020. Any future growth will require hiring a
number of qualified personnel. Also, because of the specialized scientific nature of our business, we face intense
competition for qualified employees and consultants from biopharmaceutical companies, research organizations and
academic institutions. Failure to attract and retain qualified personnel would materially harm our ability to compete
effectively and grow our business.
If we lose any of our officers or key employees, our management and technical expertise could be weakened
significantly.
Our success largely depends on the skills, experience, and efforts of our executive officers, especially our President and
Chief Executive Officer, Mr. Vincent Milano. We do not maintain key person life insurance policies covering any
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of our employees. The loss of any of our executive officers could weaken our management and technical expertise
significantly and harm our business.
Risks Related to Regulatory Approval and Marketing and Other Compliance Matters
Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive,
time-consuming and uncertain and may prevent us from obtaining approvals for the commercialization of some or all
of our drug candidates.
We are not permitted to market our drug candidates in the U.S. or in other countries until we, or any future collaborators,
receive approval of an NDA from the FDA or marketing approval from applicable regulatory authorities outside of the U.S.
The approval process is lengthy, often taking a number of years, is uncertain, and is expensive. Securing marketing
approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory
authorities for each therapeutic indication to establish the drug candidate's safety and efficacy. Information about the
product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities is also required.
Any delay in obtaining or failure to obtain required approvals could materially adversely affect our ability or that of any
collaborators we may have to generate revenue from the particular drug candidate, which likely would result in significant
harm to our financial position and adversely impact our stock price.
Our failure to obtain marketing approval in foreign jurisdictions would prevent our drug candidates from being
marketed abroad.
We, and any future collaborators, must obtain separate marketing approvals and comply with numerous and varying
regulatory requirements in foreign jurisdictions. The approval procedure varies among countries and can involve additional
studies. The time required to obtain approval may differ substantially from that required to obtain FDA approval. In
addition, in many countries outside of the U.S., it is required that the drug be approved for reimbursement before the drug
can be approved for sale in that country. We, and any future collaborators, may not obtain approvals from regulatory
authorities outside of the U.S. on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory
authorities in foreign jurisdictions, and approval by one regulatory authority outside of the U.S. does not ensure approval
by regulatory authorities in other jurisdictions or by the FDA.
Additionally, on January 31, 2020, the United Kingdom (“U.K.”) withdrew from the E.U. (Brexit), thereby triggering a
transition period that ended December 31, 2020. There is currently considerable uncertainty on regulatory processes in
Europe and the European Economic Area. The lack of clarity about which E.U. rules and regulations the U.K. would
replace or replicate, such as rules and regulations relating to trade (including the importation and exportation of
pharmaceuticals), clinical research, and intellectual property, could negatively impact our business, including by restricting
our ability to generate revenue in these jurisdictions.
Even if we, or any future collaborators, obtain marketing approvals for our drug candidates, the terms of approvals and
ongoing regulation of our drugs may limit how we, or they, manufacture and market our drugs, which could materially
impair our ability to generate revenue.
We, and any future collaborators, must comply with requirements concerning advertising and promotion for any of our
drug candidates for which we or they obtain marketing approval. Such promotional communications are subject to a variety
of legal and regulatory restrictions and must be consistent with the information in the drug’s approved labeling. Thus, we,
and any future collaborators, may not be able to promote any drugs we develop for indications or uses for which they are
not approved.
In addition, manufacturers of approved drugs and those manufacturers’ facilities are required to comply with extensive
FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs, which
include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records
and documentation and reporting requirements. We, our contract manufacturers, our future collaborators and their contract
manufacturers could be subject to periodic unannounced inspections by the FDA, and other regulatory authorities to
monitor and ensure compliance with cGMPs.
Accordingly, assuming we, or our future collaborators, receive marketing approval for one or more of our drug candidates,
we, and our future collaborators, and our and their contract manufacturers will continue to expend time, money and effort
in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control.
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If we, and our future collaborators, are not able to comply with post-approval regulatory requirements, we, and our future
collaborators, could have the marketing approvals for our drugs withdrawn by regulatory authorities and our, or our future
collaborators’, ability to market any future drugs could be limited, which could adversely affect our ability to achieve or
sustain profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our
operating results and financial condition.
Moreover, legislative and regulatory proposals have been made to expand post-approval requirements and restrict
promotional activities relating to our drugs. We cannot be sure whether additional legislative changes will be enacted, or
whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the
marketing approvals of our drug candidates, if any, may be. In addition, increased scrutiny by Congress of the FDA's
approval process may significantly delay or prevent marketing approval, as well as subject us and any collaborators to
more stringent product labeling and post-marketing testing and other requirements.
Any of our drug candidates for which we, or our future collaborators, obtain marketing approval in the future could be
subject to post-approval restrictions or withdrawal from the market and we, and our future collaborators, may be
subject to substantial penalties if we, or they, fail to comply with regulatory requirements or if we, or they, experience
unanticipated problems with our drugs following approval.
Any of our drug candidates for which we, or our future collaborators, obtain marketing approval in the future, as well as
the manufacturing processes, post-approval studies and measures, labeling, advertising and promotional activities for such
drug, among other things, will be subject to continual requirements of and review by the FDA and other regulatory
authorities. These requirements include submissions of safety and other post-marketing information and reports,
registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and
corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and
recordkeeping. Even if marketing approval of a drug candidate is granted, the approval may be subject to limitations on the
indicated uses for which the drug may be marketed or to the conditions of approval, including the requirement to
implement a Risk Evaluation and Mitigation Strategy, which could include requirements for a restricted distribution
system.
The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the
safety or efficacy of a drug. The FDA and other agencies, including the DOJ, closely regulate and monitor the post-
approval marketing and promotion of drugs to ensure that they are manufactured, marketed and distributed only for the
approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent
restrictions on manufacturers’ communications regarding off-label use and if we, or our future collaborators, do not market
any of our drug candidates for which we, or they, receive marketing approval for only their approved indications, we, or
they, may be subject to warnings or enforcement action for off-label promotion.
In addition, later discovery of previously unknown adverse events or other problems with our drugs or their manufacturers
or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including: (i)
litigation involving patients taking our drug; (ii) restrictions on such drugs, manufacturers or manufacturing processes; (iii)
restrictions on the labeling or marketing of a drug; (iv) restrictions on drug distribution or use; (v) requirements to conduct
post-marketing studies or clinical trials; (vi) warning letters or untitled letters; (vii) withdrawal of the drugs from the
market; (viii) refusal to approve pending applications or supplements to approved applications that we submit; (ix) recall of
drugs; (x) fines, restitution or disgorgement of profits or revenues; (xi) suspension or withdrawal of marketing approvals;
(xii) damage to relationships with any potential collaborators; (xiii) unfavorable press coverage and damage to our
reputation; (xiv) refusal to permit the import or export of drugs; (xv) drug seizure; or (xvi) injunctions or the imposition of
civil or criminal penalties.
We may not be able to obtain or maintain orphan drug exclusivity for applications of our TLR drug candidates.
The FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is
generally defined as a patient population of fewer than 200,000 individuals in the U.S. Generally, if a product with an
orphan drug designation subsequently receives the first marketing approval for the indication for which it has such
designation, the product is entitled to a period of seven years of marketing exclusivity. Orphan drug exclusivity may be lost
if the FDA determines that the request for designation was materially defective or if the manufacturer is unable to assure
sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.
In June 2017, the FDA granted us orphan drug designation for tilsotolimod for the treatment of melanoma Stages IIb to IV.
However, there can be no assurance that we will obtain orphan drug designation or exclusivity for any other
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disease indications for which we develop tilsotolimod, or for our other drug candidates. Even if we obtain orphan drug
exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs
can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the
same drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be
safer, more effective or makes a major contribution to patient care.
A fast track designation by the FDA may not actually lead to a faster development or regulatory review or approval
process, and does not increase the likelihood that drug candidates will receive marketing approval.
In November 2017, the FDA granted us fast track designation for tilsotolimod for the treatment of anti-PD1 refractory
metastatic melanoma in combination with ipilimumab therapy. However, even with fast track designation, we may not
experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may
withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical
development program. Additionally, we intend to seek fast track designation for other applications of our drug candidates.
The FDA has broad discretion whether to grant this designation, so even if we believe a particular drug candidate is
eligible for this designation, we cannot assure you that the FDA would decide to grant it.
A breakthrough therapy designation by the FDA for any application of our drug candidates may not lead to a faster
development or regulatory review or approval process, and it does not increase the likelihood that those drug candidates
will receive marketing approval.
We may seek a breakthrough therapy designation for some applications of our drug candidates. Designation as a
breakthrough therapy is within the discretion of the FDA. The receipt of a breakthrough therapy designation for a drug
candidate may not result in a faster development process, review or approval compared to drugs considered for approval
under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of
our drug candidates qualify as breakthrough therapies, the FDA may later decide that the products no longer meet the
conditions for qualification or decide that the time period for FDA review or approval will not be shortened.
We have only limited experience in regulatory affairs and our drug candidates are based on new technologies; these
factors may affect our ability or the time we require to obtain necessary regulatory approvals.
We have never obtained regulatory approval for, or commercialized, a drug. It is possible that the FDA may refuse to
accept any or all of our planned NDAs for substantive review or may conclude, after review of our data, that our
applications are insufficient to obtain regulatory approval of any of our drug candidates. The FDA may also require that we
conduct additional clinical or manufacturing validation studies, which may be costly and time-consuming, and submit that
data before it will reconsider our applications. Depending on the extent of these or any other FDA required studies,
approval of any NDA that we submit may be significantly delayed, possibly for years, or may require us to expend more
resources than we have available or can secure.
We are subject to extensive and costly governmental regulation, the violation of which could expose us to criminal
sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Our product candidates are subject and any future commercial products will be subject to costly, extensive and rigorous
domestic and foreign government regulation, as discussed under the caption “Government Regulation” within Item 1 of
this Annual Report on Form 10-K.
In addition, our future arrangements with third party payors, healthcare providers and physicians may expose us to broadly
applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial
arrangements and relationships through which we market, sell and distribute any drugs for which we obtain marketing
approval. These include, but are not limited to, the following: the Anti-Kickback Statute; the Foreign Corrupt Practices
Act; the False Claims Act; privacy laws such as HIPAA; transparency requirements; and analogous state and foreign laws.
Additionally, some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary
compliance guidelines and the relevant compliance guidance promulgated by the federal government and require drug
manufacturers to report information related to payments and other transfers of value to physicians and other healthcare
providers or marketing expenditures.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and
regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business
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practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or
other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other
governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative
penalties, damages, fines, imprisonment, exclusion of products from government funded healthcare programs, such as
Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare
providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may
be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare
programs.
We depend on information technology, infrastructure and data to conduct our business. Any significant disruption, or
cyber-attacks, could have a material adverse effect on our business.
We are dependent upon information technology, infrastructure and data. Computer systems, including ours and those of our
suppliers, partners and service providers, contain sensitive confidential information or intellectual property, and are
vulnerable to service interruption or destruction, cyber-attacks (both malicious and random) and other natural or man-made
incidents or disasters, which may be prolonged or go undetected. Such events are increasing in their frequency,
sophistication and intensity, and have become increasingly difficult to detect. A significant interruption of our information
technology could adversely affect our ability to manage and keep our operations running efficiently and effectively. An
incident that results in a wider or sustained disruption to our business or products could have a material adverse effect on
our business, financial condition and results of operations.
Likewise, data privacy or security breaches by employees or others may pose a risk that sensitive data, including our
intellectual property, trade secrets or personal information of our employees, patients or other business partners may be
exposed to unauthorized persons or to the public. There can be no assurance that our efforts, or the efforts of our partners
and vendors, will prevent service interruptions, or identify breaches in our systems, that could adversely affect our business
and operations and/or result in the loss of critical or sensitive information, which could result in financial, legal, business or
reputational harm to us. In addition, our liability insurance may not be sufficient in type or amount to cover us against
claims related to security breaches, cyberattacks and other related breaches.
Risks Relating to Collaborators
Our existing collaborations and any collaborations we enter into in the future may not be successful.
We rely in part on our collaborative alliances with AbbVie and BMS for the development of tilsotolimod. Our current
collaboration agreements, as more fully described within Item 1 of this Annual Report on Form 10-K, or any collaborations
we may enter into in the future, may not be successful. The success of our collaborative alliances, if any, will depend
heavily on the efforts and activities of our collaborators. Our existing collaborations and any potential future collaborations
have risks, including the following: (i) our collaborators may control the development (and timing thereof) of the drug
candidates being developed with our technologies and compounds and/or the companion diagnostic to be developed for use
in conjunction with our drug candidates; (ii) our collaborators may control the public release of information regarding the
developments; (iii) disputes may arise in the future with respect to the ownership of or right to use technology and
intellectual property developed with our collaborators; (iv) disagreements with our collaborators could delay or terminate
the development of our products, or result in litigation or arbitration; (v) we may have difficulty enforcing the contracts if
any of our collaborators fail to perform; (vi) our collaborators may terminate their collaborations with us, which could
make it difficult for us to attract new collaborators or adversely affect the perception of us in the business or financial
communities; (vii) our collaboration agreements are likely to be for fixed terms and subject to termination by our
collaborators in the event of a material breach or lack of scientific progress by us; (viii) our collaborators may challenge
our intellectual property rights or utilize our intellectual property rights in such a way as to invite litigation that could
jeopardize or invalidate our intellectual property rights or expose us to potential liability; (ix) our collaborators may not
comply with all applicable regulatory requirements; (x) our collaborators may under fund or not commit sufficient
resources to the testing or development of our drug candidates; and (xi) our collaborators may develop alternative products
either on their own or in collaboration with others, or encounter conflicts of interest or changes in business strategy or other
business issues. Given these risks, it is possible that any collaborative alliance into which we enter may not be successful.
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If we are unable to establish additional collaborative alliances, our business may be materially harmed.
Collaborators provide the necessary resources and drug development experience to advance our compounds in their
programs. We have entered into and expect to continue to seek to enter into collaborative alliances with pharmaceutical
companies to advance our TLR agonist and antagonist candidates and with respect to additional applications of our nucleic
acid chemistry technology research program. Upfront payments and milestone payments received from collaborations help
to provide us with the financial resources for our internal research and development programs. Our internal programs are
focused on developing TLR-targeted drug candidates for the potential treatment of certain rare diseases and in our
immuno-oncology program and on nucleic acid chemistry drug candidates. We believe that additional resources will be
required to advance compounds in all of these areas. If we do not reach agreements with additional collaborators in the
future or if the terms of such a collaborative alliance on are not favorable to us, we may not be able to obtain the expertise
and resources necessary to achieve our business objectives, our ability to advance our compounds will be jeopardized and
we may fail to meet our business objectives. Moreover, collaborations are complex and time consuming to negotiate,
document, and implement. We may not be successful in our efforts to establish and implement collaborations on a timely
basis.
Risks Relating to Intellectual Property
If we are unable to obtain and maintain patent protection for our discoveries, the value of our technology and products
will be adversely affected.
Our ability to develop and commercialize drugs depends in significant part on our ability to: (i) obtain and maintain valid
and enforceable patents; (ii) obtain licenses to the proprietary rights of others on commercially reasonably terms; (iii)
operate without infringing upon the proprietary rights of others; (iv) prevent others from infringing on our proprietary
rights; and (v) protect our trade secrets.
We do not know whether any of our currently pending patent applications or those patent applications that we license will
result in the issuance of any patents. Our issued patents and those that may be issued in the future, or those licensed to us,
may be challenged, invalidated, held unenforceable, narrowed in the course of a post-issuance proceeding or circumvented,
and the rights granted thereunder may not provide us proprietary protection or competitive advantages against competitors
with similar technology. Moreover, intellectual property laws may change and negatively impact our ability to obtain
issued patents covering our technologies or to enforce any patents that issue. Because of the extensive time required for
development, testing, and regulatory review of a potential product, it is possible that, before any of our products can be
commercialized, any related patent may expire or remain in force for only a short period following commercialization, thus
reducing any advantage provided by the patent.
Because patent applications in the U.S. and many foreign jurisdictions are typically not published until 18 months after
filing, or in some cases not at all, and because publications of discoveries in the scientific literature often lag behind actual
discoveries, neither we nor our licensors can be certain that we or they were the first to make the inventions claimed in
issued patents or pending patent applications, or that we or they were the first to file for protection of the inventions set
forth in these patent applications.
Third parties may own or control patents or patent applications and require us to seek licenses, which could increase
our development and commercialization costs, or prevent us from developing or marketing products.
Although we have many issued patents and pending patent applications in the U.S. and other countries, we may not have
rights under certain third-party patents or patent applications related to our compounds under development. Third parties
may own or control these patents and patent applications in the U.S. and abroad. In particular, we are aware of certain
third-party U.S. patents that contain claims related to immunostimulatory polynucleotides and their use to stimulate an
immune response, as well as to antisense technology. Although we do not believe any of our TLR or antisense compounds
under development infringe any valid claim of these patents, we cannot be assured that the holder of such patents would
not seek to assert such patents against us or, if the holder did, that the courts would not interpret the claims of such patents
more broadly than we believe appropriate and determine that we are in infringement of such patents. In addition, there may
be other patents and patent applications related to our current or future drug candidates of which we are not aware.
Therefore, in some cases, in order to develop, manufacture, sell or import some of our drug candidates, we or our
collaborators may choose to seek, or be required to seek, licenses under third-party patents issued in the U.S. and abroad or
under third-party patents that might issue from U.S. and foreign patent applications. In such an event, we would be
required to pay license fees or royalties or both
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to the licensor. If licenses are not available to us on acceptable terms, we or our collaborators may not be able to develop,
manufacture, sell or import these products, or may be delayed in doing so. Either of these results could have a material
adverse effect on our business.
We may become involved in expensive patent litigation or other proceedings, which could result in our incurring
substantial costs and expenses or substantial liability for damages, require us to stop our development and
commercialization efforts or result in our patents being invalidated, interpreted narrowly or limited.
There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the
biotechnology industry. We may become a party to various types of patent litigation or other proceedings regarding
intellectual property rights from time to time even under circumstances where we are not practicing and do not intend to
practice any of the intellectual property involved in the proceedings. In addition to litigation, we may become involved in
patent office proceedings, including oppositions, reexaminations, supplemental examinations and inter partes reviews
involving our patents or the patents of third parties. We may initiate such proceedings or have such proceedings brought
against us. An adverse determination in any such proceeding, or in litigation, could reduce the scope of, or invalidate, our
patent rights, allow third parties to commercialize our technology or products and compete directly with us, without
payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent
rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it
could dissuade companies from collaborating with us to license, develop or commercialize current or future drug
candidates. An adverse determination in a proceeding involving a patent in our portfolio could result in the loss of
protection or a narrowing in the scope of protection provided by that patent.
The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our
competitors may be able to sustain the cost of such litigation or proceedings more effectively than we can because of their
substantially greater financial resources. If any patent litigation or other proceeding is resolved against us, we or our
collaborators may be enjoined from developing, manufacturing, selling or importing our drugs without a license from the
other party and we may be held liable for significant damages. We may not be able to obtain any required license on
commercially acceptable terms or at all. In a patent office proceeding, such as an opposition, reexamination or inter partes
review, our patents may be narrowed or invalidated. Uncertainties resulting from the initiation and continuation of patent
litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent
litigation and other proceedings may also absorb significant management time.
Our intellectual property may be infringed by a third party.
Third parties may infringe one or more of our issued patents or trademarks. We cannot predict if, when or where a third
party may infringe one or more of our issued patents or trademarks. To counter infringement, we may be required to file
infringement claims, which can be expensive and time-consuming. Moreover, there is no assurance that we would be
successful in proving that a third party is infringing one or more of our issued patents or trademarks. Any claims we assert
against perceived infringers could also provoke these parties to assert counterclaims against us, alleging that we infringe
their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is
invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly and/or refuse to stop the other party
from using the technology at issue on the grounds that our patents do not cover the technology in question, any of which
may adversely affect our business. Even if we are successful in proving in a court of law that a third party is infringing one
or more of our issued patents or trademarks there can be no assurance that we would be successful in halting their
infringing activities.
Risks Relating to Product Manufacturing, Marketing and Sales, and Reliance on Third Parties
Even if tilsotolimod or other compounds we may develop are successful in clinical trials and receive regulatory
approvals, we or our collaboration partners may not be able to successfully commercialize them.
Even if tilsotolimod were successful in clinical development and receive regulatory approvals, it may never reach or
remain on the market, be successfully developed into commercial products or gain market acceptance among physicians,
patients, healthcare payors or the medical community for a number of reasons including: (i) it may be found ineffective or
cause harmful side effects; (ii) it may be difficult to manufacture on a scale necessary for commercialization; (iii) it may
experience excessive product loss due to contamination, equipment failure, inadequate transportation or storage, improper
installation or operation of equipment, vendor or operator error,
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natural disasters or other catastrophic events, inconsistency in yields or variability in product characteristics; (iv) it may be
uneconomical to produce; (v) the timing of market introduction of tilsotolimod and other compounds we may develop and
competitive products may be inopportune; (vi) political and legislative changes may make the commercialization of
tilsotolimod, or any other product candidates we may develop in the future, more difficult; (vii) we may fail to obtain
reimbursement approvals or pricing that is cost effective for patients as compared to other available forms of treatment or
that covers the cost of production and other expenses; (viii) they may not compete effectively with existing or future
alternatives; (ix) we may be unable to develop commercial operations and to sell marketing rights; (x) it may fail to achieve
market acceptance; or (xi) we may be precluded from commercialization of a product due to proprietary rights of third
parties.
Because we have limited manufacturing experience, and no manufacturing facilities or infrastructure, we are
dependent on third-party manufacturers to manufacture drug candidates for us.
We have limited manufacturing experience and no manufacturing facilities, infrastructure or clinical or commercial scale
manufacturing capabilities. In order to continue to develop our drug candidates, apply for regulatory approvals, and
ultimately commercialize products, we need to develop, contract for or otherwise arrange for the necessary manufacturing
capabilities. We currently rely upon third parties to produce material for nonclinical and clinical testing purposes and
expect to continue to do so in the future. We also expect to rely upon third parties to produce materials that may be required
for the commercial production of our drug candidates, if approved. Our current and anticipated future dependence upon
others for the manufacture of our drug candidates may adversely affect our future profit margins and our ability to develop
drug candidates and commercialize any drug candidates on a timely and competitive basis. We currently do not have any
long-term supply contracts.
There are a limited number of manufacturers that operate under the FDA's cGMP regulations capable of manufacturing our
drug candidates. As a result, we may have difficulty finding manufacturers for our drug candidates suitable for our needs.
If we are unable to arrange for third-party manufacturing of our drug candidates on a timely basis, or on acceptable terms,
we may not be able to complete development of our drug candidates or market them.
Any contract manufacturers with which we enter into manufacturing arrangements will be subject to ongoing periodic,
unannounced inspections by the FDA, or foreign equivalent, and corresponding state and foreign agencies or their
designees to ensure compliance with cGMP requirements and other governmental regulations and corresponding foreign
standards. Any failure by our third-party manufacturers to comply with such requirements, regulations or standards could
lead to a delay in the conduct of our clinical trials, or a delay in, or failure to obtain, regulatory approval of any of our drug
candidates. Such failure could also result in sanctions being imposed, including fines, injunctions, civil penalties, delays,
suspension or withdrawal of approvals, product seizures or recalls, imposition of operating restrictions, total or partial
suspension of production or distribution, or criminal prosecution.
Additionally, contract manufacturers may not be able to manufacture our drug candidates at a cost or in quantities
necessary to make them commercially viable. Furthermore, changes in the manufacturing process or procedure, including a
change in the location where the drug substance or drug product is manufactured or a change of a third-party manufacturer,
may require prior FDA review and approval in accordance with the FDA's cGMP and NDA/BLA regulations. Contract
manufacturers may also be subject to comparable foreign requirements. This review may be costly and time-consuming
and could delay or prevent the launch of a drug candidate. The FDA or similar foreign regulatory agencies at any time may
also implement new standards, or change their interpretation and enforcement of existing standards for manufacture,
packaging or testing of products. If we or our contract manufacturers are unable to comply, we or they may be subject to
regulatory action, civil actions or penalties.
We have no experience selling, marketing or distributing oncology products and no internal capability to do so.
We currently have no commercialization expertise in oncology, including sales, marketing or distribution capabilities.
Advancing tilsotolimod through Phase 3 development and regulatory approval will require us to begin commercialization
preparation activities and incur related expenses. These activities will include, among other things, the development of an
in-house marketing organization and sales force, a market access and payor reimbursement strategy and a distribution
function, which will require significant capital expenditures, management resources and time. If we are unable to
adequately prepare the market for the potential future commercialization of tilsotolimod, we may not be able to generate
product revenue once marketing authorization is obtained.
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If we are unable or decide not to establish internal sales, marketing and distribution capabilities, we will pursue
collaborative arrangements regarding the sales and marketing of our products; however, there can be no assurance that we
will be able to establish or maintain such collaborative arrangements on commercially reasonable terms, or if we are able to
do so, that they will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties,
which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties and
our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also
face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates.
If third parties on whom we rely for clinical trials do not perform as contractually required or as we expect, we may not
be able to obtain regulatory approval for or commercialize our drug candidates and our business may suffer.
We do not have the ability to independently conduct the clinical trials required to obtain regulatory approval for our drug
candidates. We depend on independent clinical investigators, contract research organizations (CROs), and other third-party
service providers in the conduct of the clinical trials of our drug candidates and expect to continue to do so. We expect to
contract with CROs for future clinical trials. We rely heavily on these parties for successful execution of our clinical trials,
but do not control many aspects of their activities. We are responsible for ensuring that each of our clinical trials is
conducted in accordance with the applicable regulations and protocols for the trial. Third parties may not complete
activities on schedule, or at all, or may not conduct our clinical trials in accordance with regulatory requirements or our
protocols. If these third parties fail to carry out their obligations, we may need to enter into new arrangements with
alternative third parties. This could be difficult, costly or impossible, and our preclinical or clinical trials may need to be
extended, delayed, terminated or repeated, and we may not be able to obtain regulatory approval in a timely fashion, or at
all, for the applicable drug candidate, or to commercialize such drug candidate being tested in such trials. If we seek to
conduct any of these activities ourselves in the future, we will need to recruit appropriately trained personnel and add to
our research, clinical, quality and corporate infrastructure.
The commercial success of any drug candidates that we may develop will depend upon the degree of market acceptance
by physicians, patients, third-party payors, and others in the medical community.
Any products that we ultimately bring to the market, if they receive marketing approval, may not gain market acceptance
by physicians, patients, third-party payors or others in the medical community. For example, current cancer treatments,
including chemotherapy and radiation therapy are well-established in the medical community, and doctors may continue to
rely on these treatments. If our products do not achieve an adequate level of acceptance, we may not generate product
revenue and we may not become profitable. The degree of market acceptance of our products, if approved for commercial
sale, will depend on a number of factors, including: (i) the prevalence and severity of any side effects; (ii) the efficacy and
potential advantages over alternative treatments; (iii) the ability to offer our drug candidates for sale at competitive prices;
(iv) relative convenience and ease of administration; (v) the willingness of the target patient population to try new therapies
and of physicians to prescribe these therapies; (vi) the strength of marketing and distribution support and the timing of
market introduction of competitive products; and (vii) publicity concerning our products or competing products and
treatments.
Even if a potential product displays a favorable efficacy and safety profile, market acceptance of the product will not be
known until after it is launched. Our efforts to educate patients, the medical community, and third-party payors about our
drug candidates may require significant resources and may never be successful. Such efforts to educate the marketplace
may require more resources than are required by conventional methods used by our competitors.
If we are unable to obtain adequate reimbursement from third-party payors for any products that we may develop or
acceptable prices for those products, our revenues and prospects for profitability will suffer.
Most patients rely on Medicare, Medicaid, private health insurers, and other third-party payors to pay for their medical
needs, including any drugs we may market. If third-party payors do not provide adequate coverage or reimbursement for
any products that we may develop, our revenues and prospects for profitability will suffer.
Third-party payors are challenging the prices charged for medical products and services, and many third-party payors limit
reimbursement for newly-approved products. These third-party payors may base their coverage and reimbursement on the
coverage and reimbursement rate paid by carriers for Medicare beneficiaries. Furthermore, many such payors are
investigating or implementing methods for reducing health care costs, such as the establishment of capitated or prospective
payment systems. Cost containment pressures have led to an increased emphasis on the use of cost-effective products by
health care providers, which could limit the price we might
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establish for products that we or our current or future collaborators may develop or sell, which would result in lower
product revenues or royalties payable to us. In particular, third-party payors may limit the indications for which they will
reimburse patients who use any products that we may develop.
We face a risk of product liability claims and may not be able to obtain insurance.
Our business exposes us to the risk of product liability claims that is inherent in the manufacturing, testing, and marketing
of prescription drugs. We face a risk of product liability exposure related to the testing of our drug candidates in clinical
trials and will face an even greater risk if we commercially sell any products. Regardless of merit or eventual outcome,
liability claims and product recalls may result in: (i) decreased demand for our drug candidates and products; (ii) damage to
our reputation; (iii) regulatory investigations that could require costly recalls or product modifications; (iv) withdrawal of
clinical trial participants; (v) costs to defend related ligation; (vi) substantial monetary awards to clinical trial participants
or patients; (vii) loss of revenue; (viii) the diversion of management's attention away from managing our business; and (ix)
the inability to commercialize any products that we may develop.
Although we have product liability and clinical trial liability insurance that we believe is adequate, this insurance is subject
to deductibles and coverage limitations. We may not be able to obtain or maintain adequate protection against potential
liabilities. If we are unable to obtain insurance at acceptable cost or otherwise protect against potential product liability
claims, we will be exposed to significant liabilities, which may materially and adversely affect our business and financial
position. These liabilities could also prevent or interfere with our commercialization efforts.
Risks Relating to Ownership of Our Common Stock
Provisions in our certificate of incorporation and by-laws and Delaware law, may prevent a change in control that
stockholders may consider desirable.
Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”) and our certificate of incorporation
and by-laws contain provisions that might enable our management to resist a takeover of our company or discourage a third
party from attempting to take over our company. These provisions include: (i) a classified board of directors; (ii) limitations
on the removal of directors; (iii) limitations on stockholder proposals at meetings of stockholders; (iv) the inability of
stockholders to act by written consent or to call special meetings; and (v) the ability of our board of directors to designate
the terms of and issue new series of preferred stock without stockholder approval. These provisions could: (i) have the
effect of delay, defer or prevent a change in control of us or a change in our management that stockholders may consider
favorable or beneficial or (ii) discourage proxy contests and make it more difficult for stockholders to elect directors and
take other corporate actions.
The Company’s amended and restated bylaws (“Bylaws”) provide, to the fullest extent permitted by law, that the Court
of Chancery of the State of Delaware will be the exclusive forum for certain legal actions between the Company and its
stockholders, which could increase costs to bring a claim, discourage claims or limit the ability of the Company’s
stockholders to bring a claim in a judicial forum viewed by the stockholders as more favorable for disputes with the
Company or the Company’s directors, officers or other employees.
Our Bylaws provide to the fullest extent permitted by law that unless the Company consents in writing to the selection of
an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any (i)
derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary
duty owed by any director, officer, other employee or stockholder of the Company to the Company or its stockholders, (iii)
any action arising pursuant to any provision of the DGCL, the Company’s Certificate of Incorporation or the Bylaws, (iv)
any action to interpret, apply, enforce or determine the validity of the Certificate of Incorporation or the Bylaws, (v) or any
action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may increase costs to
bring a claim, discourage claims or limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable
for disputes with the Company or its directors, officers or other employees, which may discourage such lawsuits against the
Company or its directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision
contained in the Company’s amended and restated bylaws to be inapplicable or unenforceable in an action, the Company
may incur additional costs associated with resolving such action in other jurisdictions. The exclusive forum provision in
our Bylaws would not apply to claims brought under the Securities Exchange Act or the Securities Act, or any other claim
for which the federal courts have exclusive jurisdiction. Additionally, such provision will not relieve us of our duty to
comply with the federal securities laws and
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the rules and regulations thereunder, and stockholders will not be deemed to have waived our compliance with these laws,
rules and regulations.
Approximately 35% of our outstanding common stock is held (36% beneficially owned) by three stockholders. If these
significant stockholders choose to act together, they could exert substantial influence over our business, and the
interests of these stockholders may conflict with those of other stockholders.
There is a concentration of ownership of our outstanding common stock because approximately 35% of our outstanding
common stock is owned by three stockholders. As of February 15, 2021: (i) Baker Bros. Advisors LP, and certain of its
affiliated funds (collectively, “Baker Brothers”) beneficially owned 11.1% of our outstanding common stock, which
excludes all convertible securities as a result of certain beneficial ownership limitations as discussed on page F-36 of this
Annual Report on Form 10-K; (ii) entities affiliated with Pillar Invest Corporation (the “Pillar Investment Entities”)
beneficially owned 19.9% of our outstanding common stock; and (iii) Castellina Ventures Ltd. (“Castellina” and, together
with Baker Brothers and Pillar Investment Entities, the “Significant Securityholders”) beneficially owned 5.3% of our
outstanding common stock. If any of our Significant Securityholders acted together, they could be able to exert substantial
influence over our business. Additionally, the interests of the Significant Securityholders may be different from or conflict
with the interests of our other stockholders. This concentration of voting power with the Significant Securityholders could
delay, defer or prevent a change of control, entrench our management and the board of directors or delay or prevent a
merger, consolidation, takeover or other business combination involving us on terms that other stockholders may desire. In
addition, conflicts of interest could arise in the future between us, on the one hand, and either of our Significant
Securityholders on the other hand, concerning potential competitive business activities, business opportunities, the issuance
of additional securities and other matters.
Our financial statements, including our balance sheets and statements of operations, are subject to quarterly changes
related to the revaluation our warrant and future tranche right liabilities.
In accordance with ASC Topic 480, Liabilities-Distinguishing from Equity and/or ASC Topic 815, Accounting for
Derivative Instruments and Hedging Activities, our outstanding Series B1 convertible preferred shares are accounted for as
temporary equity and related warrants and future tranche rights issued in connection with our December 2019 Private
Placement are accounted for as liabilities at fair value. Accordingly, the associated warrant and future tranche right
liabilities are re-measured at each reporting period with changes in fair value recorded in earnings. The process of
determining the fair value of the warrants and future tranche rights requires complex models and the development of
significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related
changes in internal and external market factors. As a result, our financial statements and results of operations may fluctuate
quarterly, based on factors, such as the trading value of our common stock and certain assumptions, which are outside of
our control. The liabilities and accounting line items associated with our warrant and future tranche right liabilities on our
balance sheet and statement of operations are non-cash items, and the inclusion of such items in our financial statements
may materially affect the outcome of our quarterly and annual results, even though such items are non-cash and do not
affect the cash we have available for operations. Investors should take such accounting matters and other non-cash items
into account when comparing our quarter-to-quarter and year-to-year operating results and financial statements.
If we are required to redeem shares of Series B1 preferred stock, or, if issued, Series B2, Series B3 or Series B4
preferred stock, our cash position will be negatively impacted.
Pursuant to the December 2019 Securities Purchase Agreement, we issued 23,684 shares of Series B1 preferred stock and
are contingently obligated to issue 98,685 shares of Series B2 preferred stock, 82,418 shares of Series B3 preferred stock
and 82,418 shares of Series B4 preferred stock and accompanying warrants exercisable for either common stock or Series
B1 preferred stock, to the extent Baker Brothers exercise its option to purchase these securities. Subject to the terms of the
Certificate of Designations, Preferences and Rights of Series B1 Convertible Preferred Stock, Series B2 Convertible
Preferred Stock, Series B3 Convertible Preferred Stock and Series B4 Convertible Preferred Stock of the Company, on or
after the five-year anniversary of the applicable initial issuance date of each such series of preferred stock, and to the extent
that the holder’s redemption rights with regard to such series of preferred stock are not lost upon our achievement of
certain criteria regarding our stock price and ILLUMINATE-301 on or before the two-year anniversary date of the
applicable initial issuance date, some or all of our outstanding shares of such series of preferred stock may be redeemable
at the option of the holder at a redemption price of $152.00 per share of Series B1 and Series B2 preferred stock and
$182.00 per share of Series B3 and Series B4 preferred stock. If a holder of preferred stock requests redemption, we will be
required to redeem such
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shares of preferred stock, subject to certain provisions regarding insufficient funds. We may be unable to redeem such
preferred stock if restrictions under applicable law or contractual obligations prohibit such redemption. Unless we operate
profitably, our ability to redeem the preferred stock would require the availability of adequate “surplus,” which is defined
as the excess, if any, of our net assets (total assets less total liabilities) over our capital. To date, we have operated at a loss.
To the extent a Series B preferred stockholder exercises its redemption rights when it is eligible to do so, and if we do not
have sufficient “surplus” under Delaware law at that time, we would be unable to effect such redemption. If we do have
sufficient “surplus” to effect such redemption at that time, our available cash will be negatively impacted and our ability to
use the net proceeds from this offering could be substantially limited. In addition, such reduction in our available cash
could decrease the trading price of our common stock.
The issuance or sale of shares of our common stock, including the issuance of our securities pursuant to the December
2019 Securities Purchase Agreement, could depress the trading price of our common stock.
The December 2019 Securities Purchase Agreement transaction consists of four separate tranches. The terms of the
tranches, including the number of shares issued or to be issued, the purchase prices, and the conversion prices and the
number of warrants and exercise prices, are set forth beginning on page F-20 of this Annual Report on Form 10-K. If (i) we
issue shares of common stock pursuant to the conversion or exercise of the securities issuable under the December 2019
Securities Purchase Agreement, (ii) we issue additional shares of our common stock or rights to acquire shares of our
common stock in other future transactions, (iii) any of our existing stockholders sells a substantial amount of our common
stock, or (iv) the market perceives that such issuances or sales may occur, then the trading price of our common stock may
significantly decrease. In addition, our issuance of additional shares of common stock will dilute the ownership interests of
our existing common stockholders.
Certain investors in the December 2019 private placement will have the ability to control or significantly influence
certain business decisions.
Pursuant to the terms of the December 2019 Securities Purchase Agreement, subject to certain conditions, Baker Brothers
have consent rights over certain significant matters of the Company’s business. These include decisions to (i) issue or
authorize equity securities that rank equal or senior to the Series B1, Series B2, Series B3 and Series B4 preferred stock
with respect to liquidation preference, (ii) incur any indebtedness in excess of $1,000,000, in the aggregate, outside the
ordinary course of business (other than the refinancing of the Company’s term debt, if any), (iii) sell, transfer or otherwise
dispose of tilsotolimod (such approval not to be reasonably withheld), (iv) license tilsotolimod in the U.S. or the E.U. (in
each case such approval not to be unreasonably withheld), or (v) pay any dividends. As a result, Baker Brothers will have
significant influence over certain matters affecting our business.
Because we do not intend to pay dividends on our common stock, investor returns will be limited to any increase in the
value of our stock.
We have never declared or paid any cash dividends on our common stock. We currently intend to retain all available funds
and any future earnings to support our operations and finance the growth and development of our business and do not
anticipate declaring or paying any cash dividends on our common stock for the foreseeable future. Additionally, the
December 2019 Securities Purchase Agreement, more fully described below, contains negative covenants which restricts
our ability to pay dividends on our equity securities. Any return to stockholders will therefore be limited to the appreciation
of their stock, if any.
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Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We lease approximately 11,000 square feet of office space located in Exton, Pennsylvania. The lease expires on May
31, 2025. We may terminate the lease at any point as long as we remain a member of the landlord’s group and require a
space with more square footage. We have specified rights to sublease this facility.
Item 3. Legal Proceedings.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
PART II.
Market Information
Our common stock is listed under the symbol “IDRA” on the Nasdaq.
Holders of Record
As of February 15, 2021, we had approximately 55 common stockholders of record registered on our books,
excluding shares held through banks and brokers.
Dividends
We have never declared or paid cash dividends on our common stock, and we do not expect to pay any cash
dividends on our common stock in the foreseeable future. The declaration and payment of dividends in the future, of which
there can be no assurance, will be determined by our board of directors in light of conditions then existing, including
earnings, financial condition, capital requirements and other factors. In addition, the December 2019 Securities Purchase
Agreement, more fully described below, contains negative covenants which restricts our ability to pay dividends on our
equity securities.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of December 31, 2020 regarding total shares subject to outstanding
stock options, warrants and rights and total additional shares available for issuance under our existing equity incentive and
employee stock purchase plans. In addition, from time to time, we may grant “inducement grants” pursuant to Nasdaq
Listing Rule 5635(c)(4).
Plan Category
Equity compensation plans approved by
stockholders (1)
Equity compensation plans not approved by
stockholders (2)
Total
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
(a)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
(c)
5,158,269
359,375
5,517,644
$
$
$
8.38
26.35
9.78
1,084,142
—
1,084,142
(1) Consists of our: 2008 Stock Incentive Plan; 2013 Stock Incentive Plan and 2017 Employee Stock Purchase Plan. Amounts in
column (a) include stock options and unvested restricted stock units outstanding. Shares are available for future issuance only
under our 2013 Stock Incentive Plan and 2017 Employee Stock Purchase Plan.
(2) Consists of stock options issued as inducement grants (issued prior to 2017) as of December 31, 2020. These stock options are
generally subject to the same terms and conditions as those awarded pursuant to the plans approved by our stockholders.
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Recent Sales of Unregistered Securities
The following is a summary of transactions by us involving sales of our securities that were not registered under the
Securities Act during the year ended December 31, 2020.
April 2020 Private Placement
As reported in our Current Report on Form 8-K filed with the SEC on April 7, 2020, we sold shares of the
Company’s common stock and warrants to purchase shares of common stock pursuant to the April 2020 Securities
Purchase Agreement. These securities were issued in a private placement in reliance on Section 4(a)(2) of the Securities
Act. Please refer to Note 8 of the Notes to Financial Statements in this Annual Report on Form 10-K for additional details.
July 2020 Private Placement
As reported in our Current Report on Form 8-K filed with the SEC on July 15, 2020, we sold shares of the
Company’s common stock, pre-funded warrants and warrants to purchase shares of common stock pursuant to the July
2020 Securities Purchase Agreement. These securities were issued in a private placement in reliance on Section 4(a)(2) of
the Securities Act. Please refer to Note 8 of the Notes to Financial Statements in this Annual Report on Form 10-K for
additional details.
Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during the year ended December 31, 2020.
Item 6.
Selected Financial Data.
Not applicable.
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Item 7.
Operations.
Management’s Discussion and Analysis of Financial Condition and Results of
The following discussion and analysis of our financial condition and results of operations should be read in conjunction
with our audited financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K.
Overview
We are a clinical-stage biopharmaceutical company with a business strategy focused on the clinical development,
and ultimately the commercialization, of drug candidates for both oncology and rare disease indications characterized by
small, well-defined patient populations with serious unmet medical needs. Our current focus is on our Toll-like receptor
(“TLR”) agonist, tilsotolimod (IMO-2125), for oncology. We believe we can develop and commercialize targeted therapies
on our own. To the extent we seek to develop drug candidates for broader disease indications, we have entered into and
may explore additional collaborative alliances to support development and commercialization.
TLRs are key receptors of the immune system and play a role in innate and adaptive immunity. As a result, we
believe TLRs are potential therapeutic targets for the treatment of a broad range of diseases. Using our chemistry-based
platform, we designed both TLR agonists and antagonists to act by modulating the activity of targeted TLRs. A TLR
agonist is a compound that stimulates an immune response through the targeted TLR. A TLR antagonist is a compound that
inhibits an immune response by blocking the targeted TLR.
Our current TLR-targeted clinical-stage drug candidate, tilsotolimod, is an agonist of TLR9. We are currently
developing tilsotolimod, via intratumoral injection, for the treatment of anti-PD1 refractory metastatic melanoma in
combination with ipilimumab, an anti-CTLA4 antibody marketed as Yervoy® by Bristol Myers Squibb Company (“BMS”)
in a Phase 3 registration trial. We are also evaluating intratumoral tilsotolimod in combination with nivolumab, an anti-PD1
antibody marketed as Opdivo® by BMS, and ipilimumab for the treatment of multiple solid tumors in a multicohort Phase
2 trial.
Historically, substantially all of our revenues have been from collaboration and license agreements, although we did
not generate any such revenue in 2020, and we have received no revenues from the sale of commercial products. Going
forward, we expect ongoing tilsotolimod (IMO-2125) external development expenses to be significant as our focus in 2021
continues to be on the clinical development of tilsotolimod, including preparing for an NDA submission with the FDA. See
additional information below under the headings “Results of Operations” regarding research and development expenses to
date and “Financial Condition, Liquidity and Capital Resources” regarding our future funding requirements.
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Results of Operations
The following is a discussion of results of operations for fiscal 2020 compared to fiscal 2019. For a discussion of results of
operations for fiscal 2019 compared to fiscal 2018, please refer to Item 7—Management’s Discussion and Analysis of
Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2019, filed with the SEC on March 12, 2020.
Years ended December 31, 2020 and 2019
Alliance Revenue
Historically, substantially all of our revenues have been from collaboration and license agreements, which we refer to
as “alliance revenue.” Alliance revenues consist of revenue generated through collaborative research, development and/or
commercialization agreements and other out-licensing arrangements. The terms of these agreements may include payment
to us of one or more of the following: nonrefundable, up-front license fees; research, development and commercial
milestone payments; and other contingent payments due based on the activities of the counterparty or the reimbursement
by licensees of costs associated with patent maintenance.
We did not generate any alliance revenue for the fiscal year ended December 31, 2020. Alliance revenue for the year
ended December 31, 2019 totaled $1.4 million and primarily related to the out-licensing of certain non-core technology
to Licensee during the second quarter of 2019. See Note 9 of the Notes to Financial Statements included elsewhere in this
Annual Report on Form 10-K for additional information.
Research and Development Expenses
For each of our research and development programs, we incur both direct and indirect expenses. We track direct
research and development expenses by program, which include third party costs such as contract research, consulting and
clinical trial and manufacturing costs. We do not allocate indirect research and development expenses, which may include
regulatory, laboratory (equipment and supplies), personnel, facility and other overhead costs (including depreciation and
amortization), to specific programs.
During the fiscal year ended December 31, 2020, our overall research and development expenses declined by 29%
as compared to 2019, primarily due to decreases in external development costs associated with tilsotolimod (IMO-2125).
Specifically, this decrease is related to costs incurred with contract research organizations during the fiscal year 2020 to
support: (i) our ongoing ILLUMINATE-301 trial, which we initiated in the first quarter of 2018 and completed enrollment
in the first quarter of 2020, primarily due to decreased levels of clinical site activity following full enrollment; (ii) our
ongoing ILLUMINATE-206 trial, which we initiated in the second quarter of 2019, primarily due to upfront start-up costs
incurred during the 2019 period that were not incurred during 2020; (iii) our ILLUMINATE-204 trial, which was
substantially completed by the end of the first quarter of 2020; and (iv) our ILLUMINATE-101 trial, which was completed
by the end of 2019, all contributed to the decrease in costs incurred during the fiscal year ended December 31, 2020. The
decrease in other drug development expenses in 2020, as compared to 2019, was primarily due to decreases in internal
employee and facility overhead related costs.
We anticipate that tilsotolimod (IMO-2125) external development expenses will continue to be significant, as we
expect to continue the clinical development of tilsotolimod, including preparing for an NDA submission with the FDA.
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In the table below, research and development expenses are set forth in the following categories: Tilsotolimod (IMO-
2125), IMO-8400 (rare diseases, which has been discontinued), and other drug development expenses.
($ in thousands)
Tilsotolimod (IMO-2125) external development expense
IMO-8400 external development expense
Other drug development expense
Total research and development expenses
$
$
Year Ended December 31,
2020
2019
% Change
2020 vs 2019
16,707
—
8,065
24,772
$
$
25,494
45
9,314
34,853
(34)%
(100)%
(13)%
(29)%
Tilsotolimod (IMO-2125) External Development Expenses.
These expenses include external expenses that we have incurred in connection with the development of tilsotolimod
as part of our immuno-oncology program. These external expenses include payments to independent contractors and
vendors for drug development activities conducted after the initiation of tilsotolimod clinical development in immuno-
oncology, but exclude internal costs such as payroll and overhead expenses.
We commenced clinical development of tilsotolimod as part of our immuno-oncology program in July 2015, and from
July 2015 through December 31, 2020, we incurred approximately $81.9 million in tilsotolimod external development
expenses, including costs associated with the preparation for and conduct of ILLUMINATE-204, ILLUMINATE-101,
ILLUMINATE-301, ILLUMINATE-206, and the manufacture of additional drug substance for use in our clinical trials and
additional nonclinical studies.
IMO-8400 External Development Expenses.
We discontinued development of IMO-8400 in July 2018, and incurred no such expenses during 2020. During the
fiscal year ended December 31, 2019, these expenses included payments to independent contractors and vendors for drug
development activities conducted after the initiation of IMO-8400 clinical development. Such expenses excluded internal
costs such as payroll and overhead expenses.
Other Drug Development Expenses.
These expenses include internal costs, such as payroll and overhead expenses, associated with all of our clinical
development programs. In addition, these expenses include external expenses, such as payments to contract vendors,
associated with compounds that were previously being developed but are not currently being developed.
General and Administrative Expenses
General and administrative expenses consist primarily of payroll, stock-based compensation expense, consulting
fees and professional legal fees associated with our patent applications and maintenance, our corporate regulatory filing
requirements, our corporate legal matters, and our business development initiatives. For the years ended December 31,
2020 and 2019, general and administrative expenses totaled $11.9 million and $12.5 million, respectively.
General and administrative expenses decreased by approximately $0.6 million, or 4.5%, in 2020 as compared to
2019, primarily due to lower employee related costs and legal fees, partially offset by increased commercial costs.
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Restructuring Costs
Restructuring costs consist primarily of severance and related benefit costs related to workforce reductions, contract
termination and wind-down costs and asset impairments.
We did not incur any restructuring costs during the fiscal year ended December 31, 2020. Restructuring costs for the
year ended December 31, 2019 totaled $0.2 million and resulted from our decision in July 2018 to wind-down our
discovery operations, reduce the workforce in Cambridge, Massachusetts that supported such operations, and close our
Cambridge facility.
Interest Income
Interest income for the years ended December 31, 2020 and 2019 totaled $0.2 million and $1.2 million, respectively.
The decrease in 2020, as compared to 2019, was primarily due to lower interest rates.
Amounts may fluctuate from period to period due to changes in average investment balances, including money
market funds classified as cash equivalents, and composition of investments.
Warrant Revaluation Loss
During the years ended December 31, 2020 and 2019, we recorded a non-cash warrant revaluation loss of
approximately $3.7 million and $0.6 million, respectively. The non-cash charges relate to the revaluation of our liability-
classified warrants issued in connection with the December 2019 Private Placement, as more fully described in Note 7 of
the Notes to Financial Statements appearing elsewhere in this Form 10-K. Due to the nature of and inputs in the model
used to assess the fair value of our outstanding warrants, it is not abnormal to experience significant fluctuations during
each remeasurement period. These fluctuations may be due to a variety of factors, including changes in our stock price and
changes in estimated stock price volatility over the remaining life of the warrants. Warrant revaluation loss for 2020 and
2019 was driven primarily by an increase in our stock price during each period. More specifically, the significant warrant
revaluation loss for the 2020 period was primarily due to the approximate 102% increase in our stock price during the
period January 1, 2020 to December 31, 2020. Warrant revaluation loss was much more modest during the 2019 period as
the change in our stock price from December 22, 2019 (issuance date of securities) to December 31, 2019 was only
approximately 19%.
Future Tranche Right Revaluation Loss
During the years ended December 31, 2020 and 2019, we recorded a non-cash future tranche right revaluation loss
of approximately $72.4 million and $11.0 million, respectively. The non-cash charges relate to the change in fair value
during the respective period of the future tranche right liability (right to purchase preferred stock and warrants to an
investor at future dates), associated with the Future Tranche Rights issued in connection with the December 2019
Securities Purchase Agreement, as more fully described in Note 7 of the Notes to Financial Statements appearing
elsewhere in this Form 10-K. Due to the nature of and inputs in the model used to assess the fair value of the future tranche
rights, it is not abnormal to experience significant fluctuations during each remeasurement period. These fluctuations may
be due to a variety of factors, including changes in our stock price and changes in estimated stock price volatility over the
remaining estimated lives of the future tranche rights. Changes in the fair value of the future tranche right liability and
resulting future tranche right revaluation loss for 2020 and 2019 was driven primarily by an increase in our stock price
during the periods. More specifically, the significant future tranche right revaluation loss for the 2020 period was primarily
due to the approximate 102% increase in our stock price during the period January 1, 2020 to December 31, 2020. Future
tranche right revaluation loss was much more modest during the 2019 period as the change in our stock price from
December 22, 2019 (issuance date of securities) to December 31, 2019 was only approximately 19%.
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Net Loss and Net Loss Attributable to Common Stockholders
As a result of the factors discussed above, our net loss was $112.7 million and $56.5 million for the years ended
December 31, 2020 and 2019, respectively. For the year ended December 31, 2019, net loss attributable to common
stockholders was $84.6 million, a difference of $28.0 million compared to net loss for the same period due to a deemed
dividend related to the excess fair value provided to Baker Brothers in connection with the December 2019 Private
Placement. See Note 7 of the Notes to Financial Statements appearing elsewhere in this Annual Report on Form 10-K for
additional details.
Net Operating Loss Carryforwards
We have completed several financings since the effective date of the Tax Reform Act of 1986, which as of
December 31, 2020, have resulted in ownership changes that will significantly limit our ability to utilize our net operating
loss carryforwards (“NOLs”) and tax credit carryforwards. In December 2017, we completed a study which determined
that ownership changes had occurred. The federal and state net operating loss and tax credit carryforwards and related
deferred tax assets discussed below and included in Note 14 to the financial statements appearing elsewhere in this Annual
Report on Form 10-K have been adjusted to reflect the limitations that resulted from this study. The Company continues to
monitor equity activity and potential ownership changes.
As of December 31, 2020, the Company had cumulative federal and state NOLs of approximately $328.7 million
and $323.2 million available to reduce federal and state taxable income, respectively. As a result of the Tax Cuts and Jobs
Act of 2017, federal net operating losses incurred for taxable years beginning after January 1, 2018 have an unlimited
carryforward period, but can only be utilized to offset 80% of taxable income in future taxable periods. Of the $328.7
million of federal NOLs, $131.3 million have an unlimited carryforward and the remaining NOLs are still subject to
expiration through 2037. State NOLs are still subject to expiration according to the laws of each respective jurisdiction.
The Company files state tax returns in Massachusetts and Pennsylvania whereby both jurisdictions impose a 20-year
carryforward period. All $323.2 million of state NOLs expire through 2040, with the first year of expiration being 2032 for
$23.4 million of Massachusetts NOLs. In addition, at December 31, 2020, the Company had cumulative federal and state
tax credit carryforwards of $25.0 million and $1.9 million, respectively, available to reduce federal and state income taxes,
respectively, which expire through 2040 and 2033, respectively, for federal and state purposes, other than those that have
an unlimited carryforward period.
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Financial Condition, Liquidity and Capital Resources
Financial Condition
As of December 31, 2020, we had an accumulated deficit of $833.6 million. To date, substantially all of our
revenues have been from collaboration and license agreements and we have received no revenues from the sale of
commercial products. We generated no revenue for the fiscal year ended December 31, 2020.
We have devoted substantially all of our efforts to research and development, including clinical trials, and we have
not completed development of any commercial products. Our research and development activities, together with our
general and administrative expenses, are expected to continue to result in substantial operating losses for the foreseeable
future. These losses, among other things, have had and will continue to have an adverse effect on our stockholders’ equity,
total assets and working capital. Because of the numerous risks and uncertainties associated with developing drug
candidates, and if approved, commercial products, we are unable to predict the extent of any future losses, whether or when
any of our drug candidates will become commercially available or when we will become profitable, if at all.
Specifically, we have invested and intend to continue to invest a significant portion of our time and financial
resources in the development and commercialization of tilsotolimod. Accordingly, our ability to generate product revenues
will depend heavily on our ability to successfully develop, obtain regulatory approval for and commercialize tilsotolimod.
Developing, obtaining regulatory approval, and commercializing a drug candidate requires substantial time, effort and
financial resources and is uncertain. Even if tilsotolimod receives approval from the FDA, European Medicines Agency
(“EMA”) or other regulatory authorities for one or more indications, we will incur significant expenses to support the
commercialization and launch of tilsotolimod, which investment may never be realized if sales are insufficient.
Liquidity and Capital Resources
Overview
We require cash to fund our operating expenses and to make capital expenditures. Historically, we have funded our
cash requirements primarily through the following:
(i)
sale of common stock, preferred stock and warrants;
(ii) exercise of warrants;
(iii) debt financing, including capital leases;
(iv) license fees, research funding and milestone payments under collaborative and license agreements; and
(v) interest income.
We filed a shelf registration statement on Form S-3 on August 4, 2020, which was declared effective on September
2, 2020, relating to the sale, from time to time, in one or more transactions, up to $150.0 million of common stock,
preferred stock, depository shares and warrants. As of February 15, 2021, approximately $73.2 million remained available
for issuance under this registration statement, assuming the full contractual amounts provided for under the LPC Purchase
Agreement and the ATM Agreement (each as defined below) were to be sold.
LPC Purchase Agreement
On March 4, 2019, the Company entered into a Purchase Agreement with Lincoln Park Capital Fund, LLC
(“Lincoln Park”), pursuant to which, upon the terms and subject to the conditions and limitations set forth therein, Lincoln
Park has committed to purchase an aggregate of $35.0 million of shares of Company common stock from time to time at
the Company’s sole discretion (the “LPC Purchase Agreement”).
During the years ended December 31, 2020 and 2019, the Company sold 750,000 and 1,535,848 shares,
respectively, pursuant to the LPC Purchase Agreement, resulting in net proceeds of $1.7 million and $3.7 million,
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respectively. Additionally, during the period January 1, 2021 through February 28, 2021, the Company sold 800,000 shares
of its common stock pursuant to the LPC Purchase Agreement, resulting in net proceeds of $4.2 million. As of February
28, 2021, the Company may sell up to an additional $25.3 million of shares under the LPC Purchase Agreement, subject to
certain limitations.
ATM Agreement
In November 2018, the Company entered into an Equity Distribution Agreement (the “ATM Agreement”) with JMP
Securities LLC (“JMP”) pursuant to which the Company may issue and sell shares of its common stock having an
aggregate offering price of up to $50.0 million through JMP as its agent.
During the years ended December 31, 2020 and 2019, the Company sold 3,608,713 and 532,700 shares,
respectively, pursuant to the ATM Agreement, resulting in net proceeds, after deduction of commissions and other offering
expenses, of $12.3 million and $1.6 million, respectively. Additionally, during the period January 1, 2021 through February
28, 2021, the Company sold 2,394,956 shares of its common stock pursuant to the ATM Agreement resulting in net
proceeds, after deduction of commissions, of $12.1 million. As of February 28, 2021, the Company may sell up to an
additional $22.9 million of shares under the ATM Agreement.
The LPC Purchase Agreement and ATM Agreement are more fully described in Note 8 of the notes to our financial
statements included elsewhere in this Annual Report on Form 10-K.
Private Placements
As more fully described in Notes 7 and 8 to the financial statements appearing elsewhere in this Annual Report on
Form 10-K, between December 2019 and July 2020, the Company entered into three private placement financings with
certain investors, which, collectively, may provide the Company with funding of up to $138.4 million, of which $25.2
million has been received through December 31, 2020. This funding is solely at the discretion of the investors and consists
of:
(i)
the December 2019 Securities Purchase Agreement, under which we received $10.1 million in gross proceeds
in December 2019 and provides for up to $87.6 million additional aggregate gross proceeds at the sole
discretion of Baker Brothers in connection with additional sales of securities and warrant exercises;
(ii) the April 2020 Securities Purchase Agreement, under which we received $5.0 million gross proceeds in April
2020 and $5.0 million gross proceeds in December 2020 and provides for up to $10.7 million additional
aggregate gross proceeds at the sole discretion of entities affiliated with Pillar in connection with the exercise
of outstanding warrants; and
(iii) the July 2020 Securities Purchase Agreement, under which we received $5.1 million gross proceeds in July
2020 and provides for up to $14.9 million additional aggregate gross proceeds at the sole discretion of entities
affiliated with Pillar in connection with sales of additional securities and warrant exercises.
Funding Requirements
We had cash, cash equivalents and investments of approximately $37.7 million at December 31, 2020. We believe
based on our current operating plan, our existing cash, cash equivalents and investments on hand as of December 31, 2020,
plus cash received through February 2021 from the ATM Agreement and LPC Purchase Agreement, will enable us to fund
our operations into the second quarter of 2022. Specifically, we believe our available funds will be sufficient to enable us to
perform the following:
(i) continue to execute on our ongoing Phase 3 clinical trial of tilsotolimod in combination with ipilimumab for the
treatment of anti-PD1 refractory metastatic melanoma (ILLUMINATE-301), including announcing key topline
data and beginning the filing of a New Drug Application with the FDA;
(ii) continue enrollment in the current Low-Dose, High-Frequency Cohort of our Phase 2 study of tilsotolimod in
combination with nivolumab and ipilimumab for the treatment of MSS-CRC (ILLUMINATE-206);
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(iii) fund certain investigator initiated clinical trials of tilsotolimod; and
(iv) maintain our current level of general and administrative expenses in order to support the business.
Assuming Baker Brothers and Pillar exercise their rights under their respective securities purchase agreement and no
other forms of external funding, we expect the proceeds could fund operations beyond an NDA filing for tilsotolimod and
into the second quarter of 2023. In addition, we are seeking and expect to continue to seek additional funding through
collaborations, the sale or license of assets or financings of equity or debt securities. We believe that the key factors that
will affect our ability to obtain funding are:
(i)
the results of our clinical development activities in our tilsotolimod program or any other drug candidates we
develop on the timelines anticipated;
(ii) the cost, timing, and outcome of regulatory reviews;
(iii) competitive and potentially competitive products and technologies and investors' receptivity to tilsotolimod or
any other drug candidates we develop and the technology underlying them in light of competitive products and
technologies;
(iv) the receptivity of the capital markets to financings by biotechnology companies generally and companies with
drug candidates and technologies similar to ours specifically;
(v) the receptivity of the capital markets to any in-licensing, product acquisition or other transaction we may enter
into;
(vi) our ability to enter into additional collaborations with biotechnology and pharmaceutical companies and the
success of such collaborations; and
(vii)the impact of the novel coronavirus disease, COVID-19, to global economy and capital markets, and to our
business and our financial results.
In addition, increases in expenses or delays in clinical development may adversely impact our cash position and
require additional funds or cost reductions.
Financing may not be available to us when we need it or may not be available to us on favorable or acceptable terms
or at all. Additionally, Baker Brothers may not exercise their right to purchase convertible preferred stock or exercise
warrants in connection with the December 2019 Securities Purchase Agreement and the Pillar Investment Entities may not
exercise their right to purchase shares of common stock (or pre-funded warrants) and common warrants, or exercise
common warrants in connection with the April 2020 Securities Purchase Agreement or the July 2020 Securities Purchase
Agreement. We could be required to seek funds through collaborative alliances or through other means that may require us
to relinquish rights to some of our technologies, drug candidates or drugs that we would otherwise pursue on our own. In
addition, if we raise additional funds by issuing equity securities, our then existing stockholders may experience dilution.
The terms of any financing may adversely affect the holdings or the rights of existing stockholders. An equity financing
that involves existing stockholders may cause a concentration of ownership. Debt financing, if available, may involve
agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional
debt, making capital expenditures or declaring dividends, and are likely to include rights that are senior to the holders of
our common stock. Any additional debt or equity financing may contain terms which are not favorable to us or to our
stockholders, such as liquidation and other preferences, or liens or other restrictions on our assets. As discussed in Note 14
to the financial statements appearing elsewhere in this Annual Report on Form 10-K, additional equity financings may also
result in cumulative changes in ownership over a three-year period in excess of 50% which would limit the amount of net
operating loss and tax credit carryforwards that we may utilize in any one year.
If we are unable to obtain adequate funding on a timely basis or at all, we will be required to terminate, modify or
delay our clinical trials of tilsotolimod, or relinquish rights to portions of our technology, drug candidates and/or products.
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Cash Flows
The following table presents a summary of the primary sources and uses of cash for the years ended December 31,
2020 and 2019:
(in thousands)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Decrease in cash and cash equivalents
Year Ended December 31,
2020
2019
$
$
(33,772)
(1,687)
28,669
(6,790)
$
$
(44,498)
(2,402)
15,488
(31,412)
Operating Activities. The net cash used in operating activities for all periods presented consists primarily of our net
losses adjusted for non-cash charges and changes in components of working capital. The decrease in cash outflow for the
year ended December 31, 2020, as compared to 2019, related to lower costs for our tilsotolimod development program.
Investing Activities. Net cash (used in) provided by investing activities primarily consisted of the following amounts
relating to our investments in available-for-sale securities and purchases and disposals of property and equipment:
● for the year ended December 31, 2020, proceeds from the maturity of available-for-sale securities of $10.5
million, substantially offset by the purchase of $12.2 million of available-for-sale securities; and
● for the year ended December 31, 2019, proceeds from the maturity of available-for-sale securities of $42.1
million, substantially offset by the purchase of $44.5 million of available-for-sale securities.
Financing Activities. Net cash provided by financing activities primarily consisted of the following amounts raised
in connection with the following transactions:
● for the year ended December 31, 2020, aggregate net proceeds of $28.8 million from financing arrangements
consisting of $14.8 million received pursuant to the April 2020 and July 2020 Securities Purchase Agreements,
$1.7 million received pursuant to the LPC Purchase Agreement and $12.3 million received under the ATM
Agreement, plus an additional $0.1 million in proceeds from employee stock purchases under our 2017
Employee Stock Purchase Plan (“2017 ESPP”), partially offset by $0.2 million in payments related to our
short-term insurance premium financing arrangement; and
● for the year ended December 31, 2019, $15.5 million in aggregate net proceeds from financing arrangements
consisting of $10.1 million received pursuant to the December 2019 Securities Purchase Agreement, $3.7
million received pursuant to the LPC Purchase Agreement and $1.6 million received under the ATM
Agreement, plus an additional $0.1 million in proceeds from employee stock purchases under our 2017 ESPP.
Material Cash Requirements
As of December 31, 2020, we had a material lease commitment in an aggregate amount of $1.1 million relating to
our facility in Exton, Pennsylvania. This lease expires on May 31, 2025. See Note 13 of the Notes to Financial Statements
in this Annual Report on Form 10-K for additional information.
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Table of Contents
Critical Accounting Policies and Estimates
This management’s discussion and analysis of financial condition and results of operations is based on our financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis,
management evaluates its estimates and judgments, including those related to warrant and future tranche right liabilities
and related revaluation gains (losses), research and development prepayments, accruals and related expenses, stock-based
compensation, and revenue recognition. Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.
We regard an accounting estimate or assumption underlying our financial statements as a “critical accounting
estimate” where:
● the nature of the estimate or assumption is material due to the level of subjectivity and judgment necessary to
account for highly uncertain matters or the susceptibility of such matters to change; and
● the impact of the estimates and assumptions on financial condition or operating performance is material.
While our significant accounting policies are described in more detail in Note 2 to our financial statements appearing
elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be most critical to the
judgments and estimates used in the preparation of our financial statements.
Warrant and Future Tranche Right Liabilities and Related Revaluation Gain (Loss)
We entered into the December 2019 Securities Purchase Agreement, as more fully described in Note 7 of the Notes
to Financial Statements appearing elsewhere in this Annual Report on Form 10-K, pursuant to which we issued shares of
convertible preferred stock with detachable warrants. Additionally, the December 2019 Securities Purchase Agreement
contains call options on redeemable preferred shares with warrants (conditionally exercisable for shares that are puttable),
which we refer to as future tranche rights.
We determined that these warrants and future tranche rights represent freestanding financial instruments and account
for both the warrants and future tranche rights as liabilities, which requires the measurement of the fair value of the liability
at the time of issuance and recording changes as a charge to current earnings at each reporting period, which is included in
Warrant Liability Revaluation Expense and/or Future Tranche Right Liability Revaluation Expense in the Company’s
statements of operations.
Warrant Liability. We use an option pricing model to value our liability-classified warrants. Inherent in the valuation
model are assumptions related to volatility, risk-free interest rate, expected term, dividend rate, and other scenarios (i.e.
probability of complex features of the warrants being triggered). Due to the nature of and inputs in the model used to assess
the fair value of the warrants, it is not abnormal to experience significant fluctuations during each remeasurement period.
Future Tranche Right Liability. We use both a lattice model and a Monte Carlo simulation to value the future tranche
rights. We selected these models as we believe they are reflective of all significant assumptions that market participants
would likely consider in negotiating the transfer of the future tranche rights. Such assumptions include, among other inputs,
stock price volatility, risk-free rates, and expected terms inclusive of early exercise and cancellation assumptions. Due to
the nature of and inputs in the model used to assess the fair value of the future tranche rights, it is not abnormal to
experience significant fluctuations during each remeasurement period.
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Table of Contents
Research and Development Prepayments, Accruals and Related Expenses
As part of the process of preparing our financial statements, we are required to estimate our accrued and prepaid
expenses for research and development activities performed by third parties, including Clinical Research Organizations
(“CROs”) and clinical investigators. These estimates are made as of the reporting date of the work completed over the life
of the individual study in accordance with agreements established with CROs and clinical trial sites. Some CROs invoice
us on a monthly basis, while others invoice upon achievement of milestones and the expense is recorded as services are
rendered. We determine the estimates of research and development activities incurred at the end of each reporting period
through discussion with internal personnel and outside service providers as to the progress or stage of completion of trials
or services, as of the end of each reporting period, pursuant to contracts with clinical trial centers and CROs and the agreed
upon fee to be paid for such services. We periodically confirm the accuracy of our estimates with the service providers and
make adjustments if necessary. Clinical trial site costs related to patient enrollments are recorded as patients are entered
into the trial.
Stock-Based Compensation
We recognize all share-based payments to employees and directors as expense in our statements of operations based
on their fair values. We record compensation expense over an award’s requisite service period, or vesting period, based on
the award’s fair value at the date of grant. Our policy is to charge the fair value of stock options as an expense, adjusted for
forfeitures, on a straight-line basis over the vesting period, which is generally four years for employees and one year for
directors.
We use the Black-Scholes option pricing model to estimate the fair value of stock option grants. The Black-Scholes
option pricing model relies on a number of key assumptions to calculate estimated fair values, including assumptions as to
average risk-free interest rate, expected dividend yield, expected life and expected volatility. For the assumed risk-free
interest rate, we use the U.S. Treasury security rate with a term equal to the expected life of the option. Our assumed
dividend yield of zero is based on the fact that we have never paid cash dividends to common stockholders and have no
present intention to pay cash dividends. We use an expected option life based on actual experience. Our assumption for
expected volatility is based on the actual stock-price volatility over a period equal to the expected life of the option.
If factors change and we employ different assumptions for estimating stock-based compensation expense in future
periods, or if we decide to use a different valuation model, the stock-based compensation expense we recognize in future
periods may differ significantly from what we have recorded in the current period and could materially affect our operating
income (loss), net income (loss) and earnings (loss) per share. It may also result in a lack of comparability with other
companies that use different models, methods and assumptions. The Black-Scholes option pricing model was developed for
use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. These
characteristics are not present in our option grants. Although the Black-Scholes option pricing model is widely used,
existing valuation models, including the Black-Scholes option pricing model, may not provide reliable measures of the fair
values of our stock-based compensation.
New Accounting Pronouncements
New accounting pronouncements are discussed in Note 2 of the Notes to Financial Statements in this Annual Report
on Form 10-K.
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Table of Contents
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
As of December 31, 2020, all material assets and liabilities are in U.S. dollars, which is our functional currency.
We maintain investments in accordance with our investment policy. The primary objectives of our investment
activities are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. Although our
investments are subject to credit risk, our investment policy specifies credit quality standards for our investments and limits
the amount of credit exposure from any single issue, issuer or type of investment. We regularly review our investment
holdings in light of the then current economic environment. At December 31, 2020, all of our invested funds were invested
in (i) money market funds classified in cash and cash equivalents on the accompanying balance sheet and (ii) U.S. treasury
bills and commercial paper classified in short-term investments on the accompanying balance sheet.
Based on a hypothetical ten percent adverse movement in interest rates, the potential losses in future earnings, fair
value of risk sensitive financial instruments, and cash flows are immaterial to our earnings, although the actual effects may
differ materially from the hypothetical analysis.
Item 8.
Financial Statements and Supplementary Data.
All financial statements required to be filed hereunder are filed as listed under Item 15(a) of this Annual Report on
Form 10-K and are incorporated herein by this reference.
There have been no retrospective changes to our statements of operations for any of the quarters within the two years
in the period ended December 31, 2020.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated
the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) as of December 31, 2020. In designing and evaluating our disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving their objectives and our management necessarily applied its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on this evaluation, our principal executive officer and principal
financial officer concluded that as of December 31, 2020, our disclosure controls and procedures were (1) designed to
ensure that material information relating to us is made known to our principal executive officer and principal financial
officer by others, particularly during the period in which this report was prepared, and (2) effective, in that they provide
reasonable assurance that information required to be disclosed by us 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.
Internal Control over Financial Reporting
a) Management’s Annual Report on Internal Control over Financial Reporting
Our management, with the participation of our principal executive officer and principal financial officer, is
responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over
financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed
by, or under the supervision of, the Company’s principal executive and principal financial officers
55
Table of Contents
and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and includes those policies and procedures that:
● Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and directors of the
Company; and
● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In
making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control — Integrated Framework (2013).
Based on its assessment, management believes that, as of December 31, 2020, the Company’s internal control over
financial reporting is effective based on those criteria.
b)
Attestation Report of the Registered Public Accounting Firm
Not Applicable.
c)
Changes in Internal Control over Financial Reporting.
No change in our internal control over financial reporting occurred during the fourth quarter of the fiscal year ended
December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information.
None.
56
Table of Contents
Item 10. Directors, Executive Officers, and Corporate Governance.
PART III.
The information required by this item is incorporated by reference to our Proxy Statement for the 2021 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended
December 31, 2020.
We have adopted a written code of business conduct and ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing similar functions. We have
posted a current copy of the Code of Business Conduct and Ethics in the “Investors — Corporate Governance” section of
our website, which is located at www.iderapharma.com. We intend to satisfy the disclosure requirements under Item 5.05
of Form 8-K regarding an amendment to, or waiver from, a provision of our code of business conduct and ethics by posting
such information on our website at www.iderapharma.com.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference to our Proxy Statement for the 2021 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended
December 31, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
The information required by this item is incorporated by reference to our Proxy Statement for the 2021 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended
December 31, 2020.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated by reference to our Proxy Statement for the 2021 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended
December 31, 2020.
Item 14. Principal Accountant Fees and Services.
The information required by this item is incorporated by reference to our Proxy Statement for the 2021 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended
December 31, 2020.
57
Table of Contents
PART IV.
Item 15. Exhibits and Financial Statement Schedules.
(a) (1) Financial Statements.
Report of Independent Registered Public Accounting Firm
Balance Sheets at December 31, 2020 and 2019
Statements of Operations for the years ended December 31, 2020, 2019 and
2018
Statements of Redeemable Preferred Stock and Stockholders’ Equity (Deficit)
for the years ended December 31, 2020, 2019 and 2018
Statements of Cash Flows for the years ended December 31, 2020, 2019 and
2018
Notes to Financial Statements
Page number in
this Report
F-2
F-4
F-5
F-5
F-7
F-8
(2) We are not filing any financial statement schedules as part of this Annual Report on Form 10-K
because they are not applicable or the required information is included in the financial statements or
notes thereto.
(3)
The list of Exhibits filed as a part of this Annual Report on Form 10-K is set forth on the Exhibit Index
below.
(b)
The list of Exhibits filed as a part of this Annual Report on Form 10-K is set forth on the Exhibit Index below.
(c) None.
58
Table of Contents
Exhibit Index
Exhibit
Number
1.1
2.1
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
4.5
4.6
Description
Equity Distribution Agreement, dated November
26, 2018, by and between Idera Pharmaceuticals,
Inc. and JMP Securities LLC
Agreement and Plan of Merger, dated as January
21, 2018, by and among Idera Pharmaceuticals,
Inc., BioCryst Pharmaceuticals, Inc., Nautilus
Holdco, Inc., Island Merger Sub, Inc. and Boat
Merger Sub, Inc.
Form SEC File No.
001-31918
8-K
1.1
Filing Date
November 26, 2018
Incorporated by Reference to
Exhibit(s)
8-K
001-31918
2.1
January 22, 2018
Restated Certificate of Incorporation of Idera
Pharmaceuticals, Inc., as amended.
10-Q
001-31918
8-K
001-31918
10-K
001-31918
8-K
001-31918
3.1
3.1
3.2
3.1
August 2, 2018
May 18, 2020
March 7, 2018
December 23, 2019
S-1
33-99024
4.1
December 8, 1995
10-K
000-27352
10.39
April 1, 2002
10-Q
001-31918
10.5
May 15, 2013
8-K
001-31918
4.1
September 26, 2013
8-K
001-31918
4.1
February 5, 2014
8-K
001-31918
4.1
December 23, 2019
Certificate of Amendment to the Restated
Certificate of Incorporation of Idera
Pharmaceuticals, Inc.
Amended and Restated Bylaws of Idera
Pharmaceuticals, Inc.
Certificate of Designations, Preferences and
Rights of Series B1 Convertible Preferred Stock,
Series B2 Convertible Preferred Stock, Series B3
Convertible Preferred Stock and Series B4
Convertible Preferred Stock of the Company
Specimen Certificate for shares of Common
Stock, $.001 par value, of Idera Pharmaceuticals,
Inc.
Unit Purchase Agreement by and among Idera
Pharmaceuticals, Inc. and certain persons and
entities listed therein, dated April 1, 1998
Form of Warrant issued in May 2013 to
purchasers in Idera Pharmaceuticals, Inc.’s
registered public offering on Idera
Pharmaceuticals, Inc.’s registration statement on
Form S-1 (File No. 333-187155)
Form of Warrant issued in September 2013 to
purchasers in Idera Pharmaceuticals, Inc.’s
registered public offering on Idera
Pharmaceuticals, Inc.’s registration statement on
Form S-3 (File No. 333-191073)
Form of Warrant issued in February 2014 to
purchasers in Idera Pharmaceuticals, Inc.’s
registered public offering on Idera
Pharmaceuticals, Inc.’s registration statement on
Form S-3 (File No. 333-191073)
Form of Warrant issued in December 2019 to
purchasers in Idera Pharmaceuticals, Inc. private
placement transaction
59
Table of Contents
Exhibit
Number
4.7
Description
Warrant Amendment Agreement, dated as of
December 23, 2019, by and among Idera
Pharmaceuticals, Inc. and certain holders of
warrants named therein
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
Form SEC File No.
001-31918
10-K
Incorporated by Reference to
Exhibit(s)
Filing Date
March 12, 2020
4.13
4.1
4.2
4.1
4.2
April 7, 2020
April 7, 2020
July 15, 2020
July 15, 2020
Form of Pre-Funded Warrant issuable pursuant to
the April 2020 Securities Purchase Agreement
8-K
001-31918
Form of Warrant issuable pursuant to the April
2020 Securities Purchase Agreement
8-K
001-31918
Form of Pre-Funded Warrant issuable pursuant to
the July 2020 Securities Purchase Agreement
8-K
001-31918
Form of Warrant issuable pursuant to the July
2020 Securities Purchase Agreement
8-K
001-31918
Registration Rights Agreement, dated March 24,
2006, by and among Idera Pharmaceuticals, Inc.
and the Investors named therein
Registration Rights Agreement, dated February
9, 2015, among Idera Pharmaceuticals, Inc. and
the Selling Stockholders named therein
Amendment to the Registration Rights
Agreement, dated January 21, 2018, by and
among Idera Pharmaceuticals, Inc., 667, L.P.,
Baker Brothers Life Sciences, L.P. and 14159,
L.P.
Registration Rights Agreement, dated as of
March 4, 2019, by and between Idera
Pharmaceuticals, Inc. and Lincoln Park Capital
Fund, LLC
Registration Rights Agreement, dated December
23, 2019, by and among Idera Pharmaceuticals,
Inc. and certain investors named therein
Voting Agreement, dated as of December 23,
2019, by and among Idera Pharmaceuticals, Inc.
and certain investors named therein
Registration Rights Agreement, dated April 7,
2020, by and among Idera Pharmaceuticals, Inc.
and Pillar Partners Foundation, L.P.
Voting Agreement, dated April 7, 2020, by and
among Idera Pharmaceuticals, Inc. and Pillar
Partners Foundation, L.P.
Registration Rights Agreement, dated July 13,
2020, by and among Idera Pharmaceuticals, Inc.
and Pillar Partners Foundation, L.P.
8-K
001-31918
10.2
March 29, 2006
8-K
001-31918
4.1
February 9, 2015
8-K
001-31918
10.1
January 22, 2018
10-K
001-31918
4.5
March 6, 2019
10-K
001-31918
4.11
March 12, 2020
10-K
001-31918
4.12
March 12, 2020
8-K
001-31918
4.4
April 7, 2020
8-K
001-31918
4.3
April 7, 2020
8-K
001-31918
4.3
July 15, 2020
60
Table of Contents
Exhibit
Number
4.21*
Description
Description of the Idera Pharmaceuticals, Inc.
Securities Registered Under Section 12 of the
Securities Exchange Act of 1934
10.1†
2008 Stock Incentive Plan, as amended
10.2†
2013 Stock Incentive Plan, as amended
Amendment to 2013 Stock Incentive Plan, as
amended
Amendment to 2013 Stock Incentive Plan, as
amended
10.3†
10.4†
10.5†
Form SEC File No.
Incorporated by Reference to
Exhibit(s)
Filing Date
8-K
8-K
8-K
001-31918
001-31918
001-31918
99.2
10.1
10.1
June 17, 2011
June 13, 2014
June 11, 2015
8-K
001-31918
10.1
June 9, 2017
Amendment to 2013 Stock Incentive Plan, as
amended
DEF14A 001-31918 Appendix
A
April 25, 2019
10.6†
2017 Employee Stock Purchase Plan
8-K
001-31918
10.2
June 9, 2017
10.7†
10.8
10.9†
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
Amendment to 2017 Employee Stock Purchase
Plan
DEF14A 001-31918 Appendix
C
April 25, 2019
Policy on Treatment of Stock Options in the
Event of Retirement, approved April 28, 2014
Form of Incentive Stock Option Agreement
Granted Under the 2008 Stock Incentive Plan
Form of Nonstatutory Stock Option Agreement
Granted Under the 2008 Stock Incentive Plan
Form of Nonstatutory Stock Option Agreement
(Non-Employee Directors) Granted Under the
2008 Stock Incentive Plan
Form of Restricted Stock Agreement Under the
2008 Stock Incentive Plan
Form of Incentive Stock Option Agreement
granted under the 2013 Stock Incentive Plan
Form of Nonstatutory Stock Option Agreement
granted under the 2013 Stock Incentive Plan
Form of Nonstatutory Stock Option Agreement
(Non-Employee Directors) granted under the
2013 Stock Incentive Plan
Form of Inducement Stock Option Award –
Nonstatutory Stock Option Agreement
Form of Restricted Stock Agreement under the
2013 Stock Incentive Plan
Form of Performance-Based Restricted Stock
Agreement under the 2013 Stock Incentive Plan
Employment Letter Agreement, dated December
1, 2014, by and between Idera Pharmaceuticals,
Inc. and Vincent Milano
10-Q
001-31918
10.1
August 12, 2014
8-K
001-31918
10.2
June 10, 2008
8-K
001-31918
10.3
June 10, 2008
8-K
001-31918
10.4
June 10, 2008
8-K
001-31918
10.5
June 10, 2008
8-K
001-31918
10.2
July 29, 2013
8-K
001-31918
10.3
July 29, 2013
8-K
001-31918
10.4
July 29, 2013
10-Q
001-31918
10.1
November 6, 2015
10-Q
001-31918
10.3
August 8, 2019
10-Q
001-31918
10.3
October 29, 2020
10-K
001-31918
10.24
March 12, 2015
10.20† Amendment to Employment Agreement, dated
January 10, 2020, by and between the Company
and Vincent J. Milano
8-K
001-31918
10.1
January 15, 2020
61
Table of Contents
Exhibit
Number
10.21†
Description
Form of Vincent J. Milano Restricted Stock Unit
Agreement
10.22†
Employment Letter, dated January 26, 2015, by
and between Idera Pharmaceuticals, Inc. and
Clayton Fletcher
10.23† Consulting Agreement, dated December 29,
2020, between the Company and R. Clayton
Fletcher
10.24†
Employment Offer Letter, dated October 15,
2015, by and between Idera Pharmaceuticals,
Inc. and John J. Kirby
10.25†* Employment Offer Letter, dated November 16,
2020, by and between Idera Pharmaceuticals,
Inc. and Daniel Soland
10.26†* Severance and Change of Control Agreement,
dated February 19, 2021, by and between the
Company and Daniel Soland
10.27†
10.28†
10.29†
10.30†
Employment Offer Letter, dated August 20,
2018, by and between Idera Pharmaceuticals,
Inc. and Bryant D. Lim
Employment Offer Letter, dated June 26, 2019,
by and between Idera Pharmaceuticals, Inc. and
Elizabeth Tarka
Form of Director and Officer Indemnification
Agreement
Form of Executive Severance and Change of
Control Agreement
10.31†† Development and Commercialization
Agreement, dated May 1, 2014, by and between
Abbott Molecular Inc. and Idera
Pharmaceuticals, Inc.
10.32†† License Agreement, dated November 28, 2016,
by and between Idera Pharmaceuticals, Inc. and
Vivelix Pharmaceuticals, Ltd.
10.33†† Clinical Trial Collaboration and Supply
Agreement, by and between Idera
Pharmaceuticals, Inc. and Bristol-Myers Squibb
Company, dated May 18, 2018
10.34†† Clinical Trial Collaboration and Supply
Agreement, by and between Idera
Pharmaceuticals, Inc. and Bristol-Myers Squibb
Company, dated March 11, 2019
10.35†† Clinical Trial Collaboration and Supply
Agreement, effective August 27, 2019, by and
between AbbVie Inc. and Idera Pharmaceuticals,
Inc.
10.36
Lease Agreement dated March 31, 2015, between
Idera Pharmaceuticals, Inc. and 505 Eagleview
Boulevard Associates, L.P.
62
Incorporated by Reference to
Exhibit(s)
Form SEC File No.
001-31918
8-K
10.2
Filing Date
January 15, 2020
10-Q
001-31918
10.1
May 11, 2015
8-K
001-31918
10.1
January 5, 2021
10-K
001-31918
10.26
March 6, 2019
10-Q
001-31918
10.1
November 6, 2018
10-Q
001-31918
10.4
August 8, 2019
10-Q
001-31918
10.1
May 4, 2017
10-Q
001-31918
10.2
May 4, 2017
10-Q
001-31918
10.3
August 12, 2014
10-K
001-31918
10.56
March 15, 2017
10-Q
001-31918
10.1
August 2, 2018
10-Q
001-31918
10.1
May 2, 2019
10-Q
001-31918
10.1
November 6, 2019
10-K
001-31918
10.45
March 7, 2018
Incorporated by Reference to
Exhibit(s)
Form SEC File No.
001-31918
10-K
10.46
Filing Date
March 7, 2018
10-K
001-31918
10.42
March 12, 2020
10-K
001-31918
10.37
March 6, 2019
8-K
001-31918
10.1
September 3, 2020
8-K
001-31918
10.1
December 23, 2019
8-K
001-31918
10.1
April 7, 2020
8-K
001-31918
10.1
July 15, 2020
8-K
001-31918
10.2
December 15, 2020
Table of Contents
Exhibit
Number
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
23.1*
31.1*
31.2*
32.1*
32.2*
Description
First Amendment dated September 23, 2015 to
Lease Agreement dated March 31, 2015 between
Idera Pharmaceuticals, Inc. and 505 Eagleview
Boulevard Associates, L.P.
Second Amendment dated January 13, 2020 to
Lease Agreement dated March 31, 2015 between
Idera Pharmaceuticals, Inc. and 505 Eagleview
Boulevard Associates, L.P.
Purchase Agreement, dated as of March 4, 2019,
by and between Idera Pharmaceuticals, Inc. and
Lincoln Park Capital Fund, LLC
First Amendment to Purchase Agreement, dated
as of September 2, 2020, by and between Idera
Pharmaceuticals, Inc. and Lincoln Park Capital
Fund, LLC
Securities Purchase Agreement, dated December
23, 2019, by and among the institutional
investors named therein
Securities Purchase Agreement, dated April 7,
2020, by and among Idera Pharmaceuticals, Inc.
and Pillar Partners Foundation, L.P.
Securities Purchase Agreement, dated July 13,
2020, by and among Idera Pharmaceuticals, Inc.
and Pillar Partners Foundation, L.P.
Amendment to the Securities Purchase
Agreement and Registration Rights Agreement,
dated December 11, 2020, by and among Idera
Pharmaceuticals, Inc., Pillar Partners
Foundation, L.P. and Pillar Pharmaceuticals 6,
L.P.
Consent of Independent Registered Public
Accounting Firm
Certification of Chief Executive Officer pursuant
to Exchange Act Rules 13a-14 and 15d-14, as
adopted pursuant to Section 302 of Sarbanes-
Oxley Act of 2002
Certification of Chief Financial Officer pursuant
to Exchange Act Rules 13a-14 and 15d-14, as
adopted pursuant to Section 302 of Sarbanes-
Oxley Act of 2002
Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002
Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002
63
Table of Contents
Exhibit
Number
101.INS Inline XBRL Instance Document
Description
Form SEC File No.
Incorporated by Reference to
Exhibit(s)
Filing Date
101.SCH Inline XBRL Taxonomy Extension Schema
Document
101.CAL Inline XBRL Taxonomy Extension Calculation
Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition
Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label
Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation
Linkbase Document
104
*
†
Cover Page Interactive Data File (formatted as
inline XBRL with applicable taxonomy
extension information contained in Exhibits 101)
Filed or furnished, as applicable, herewith.
Management contract or compensatory plan or arrangement required to be filed as an Exhibit to the Annual
Report on Form 10-K.
††
In accordance with Item 601(b)(10) of Regulation S-K, portions of this exhibit have been omitted in order
for them to remain confidential.
Item 16.
Form 10-K Summary.
Not applicable.
64
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 1st
day of March 2021.
Idera Pharmaceuticals, Inc.
By:
/S/ VINCENT J. MILANO
Vincent J. Milano
President and
Chief 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 and in the capacities and on the dates indicated.
Signature
Title
Date
/S/ VINCENT J. MILANO
Vincent J. Milano
President, Chief Executive Officer and
Director (Principal Executive Officer)
/S/ JOHN J. KIRBY
John J. Kirby
Chief Financial Officer (Principal
Financial and Accounting Officer)
March 1, 2021
March 1, 2021
/S/ JAMES A. GERAGHTY
James A. Geraghty
/S/ CRISTINA CSIMMA
Cristina Csimma, Pharm. D., M.H.P.
/S/ MICHAEL DOUGHERTY
Michael Dougherty
/S/ MARK GOLDBERG
Mark Goldberg, M.D.
/S/ MAXINE GOWEN
Maxine Gowen, Ph.D.
/S/ CAROL A. SCHAFER
Carol A. Schafer
Chairman of the Board of Directors
March 1, 2021
Director
Director
Director
Director
Director
65
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
Table of Contents
IDERA PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
December 31, 2020
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statements of Redeemable Preferred Stock and Stockholders’ Equity (Deficit)
Statements of Cash Flows
Notes to Financial Statements
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Idera Pharmaceuticals, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Idera Pharmaceuticals, Inc. (the Company) as of December 31, 2020
and 2019, and the related statements of operations, redeemable preferred stock and stockholders’ equity (deficit) and cash
flows for each of the three years in the period ended December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex
judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Future Tranche Right Liability
Description of the
Matter
As discussed in Notes 2, 3, and 7 to the financial statements, the Company entered into a Securities
Purchase Agreement in December of 2019 that contains call options on redeemable preferred shares
with warrants that represent freestanding financial instruments that are required to be accounted for
as liabilities (Future Tranche Right Liability) and measured at fair value each period. Subsequent
changes in the fair value of the Future Tranche Right Liability are recorded as a component of net
loss. As of December 31, 2020, the fair value of the Future Tranche Right Liability was $118.8
million and the Company recorded a total of $72.4 million of future tranche right revaluation loss
during the year.
F-2
Table of Contents
Auditing the Company's valuations of the Future Tranche Right Liability was complex and required
the involvement of specialists due to the nature of the estimation process and assumptions used by
management. The valuation models used by management to measure the fair value of the Future
Tranche Right Liability are complex and the respective fair values are sensitive to the significant
underlying assumptions. The Company used a binomial lattice model to value the Series B2 and
Series B3 components of the Future Tranche Right Liability and a Monte Carlo simulation to value
the Series B4 component of the Future Tranche Right Liability. The significant assumptions used in
the valuation models included stock price volatility and the expected term of the call options on the
preferred shares, which includes both cancellation and early exercise assumptions. These significant
assumptions are forward looking and could be affected by future economic and market conditions as
well as the outcome of ongoing clinical development activities.
How We
Addressed the
Matter in Our
Audit
To test the estimated fair value of the Future Tranche Right Liability, our audit procedures included,
among others, understanding the contractual terms of the Securities Purchase Agreement, and
evaluating the completeness and accuracy of the underlying data supporting the significant
assumptions and estimates. We also involved our valuation specialists to assist us in evaluating the
use of the binomial lattice model and Monte Carlo simulation, as well as testing the significant
assumptions used in these models. We evaluated the stock price volatility by independently
developing a range of volatilities based on historical, implied and peer group share price volatility
information. We also evaluated the expected term estimates used within the models by agreeing the
assumptions to the contractual terms and analyzing the effects of forecasted cancellation and early
exercise assumptions in the models.
We have served as the Company’s auditor since 2002.
Philadelphia, Pennsylvania
March 1, 2021
/s/ ERNST & YOUNG LLP
F-3
Table of Contents
IDERA PHARMACEUTICALS, INC.
BALANCE SHEETS
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable
Accrued expenses
Operating lease liability
Future tranche right liability
Other current liability
Total current liabilities
Warrant liability, long-term
Future tranche right liability, long-term
Operating lease liability, net of current portion
Total liabilities
Commitments and contingencies (Note 13)
Preferred stock, $0.01 par value, Authorized — 5,000 shares:
Series B1 redeemable convertible preferred stock (Note 7);
Designated — 278 shares, Issued and outstanding — 24 shares at
December 31, 2020 and December 31, 2019
Stockholders’ equity (deficit):
Preferred stock, $0.01 par value, Authorized — 5,000 shares:
Series A convertible preferred stock; Designated — 1,500 shares,
Issued and outstanding — 1 share
Common stock, $0.001 par value, Authorized — 140,000 shares; Issued
and outstanding — 38,291 and 29,672 at December 31, 2020 and
December 31, 2019, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ deficit
Total liabilities and stockholders’ deficit
December 31,
2020
December 31,
2019
33,229
4,499
3,627
41,355
44
930
70
42,399
$
$
$
329
6,072
191
—
435
7,027
6,983
118,803
758
133,571
—
—
40,019
2,774
3,475
46,268
97
1,054
70
47,489
457
7,461
163
46,436
—
54,517
3,241
—
899
58,657
—
—
38
742,342
(833,552)
(91,172)
42,399
$
30
709,692
(720,890)
(11,168)
47,489
$
$
$
$
The accompanying notes are an integral part of these financial statements.
F-4
Table of Contents
(In thousands, except per share amounts)
Alliance revenue
Operating expenses:
Research and development
General and administrative
Merger-related costs, net
Restructuring costs
Total operating expenses
Loss from operations
Other income (expense):
Interest income
Interest expense
Warrant revaluation loss
Future tranche right revaluation loss
Foreign currency exchange loss
IDERA PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
2020
Year Ended December 31,
2019
2018
$
— $
1,448 $
662
24,772
11,915
—
—
36,687
(36,687)
165
(3)
(3,742)
(72,367)
(28)
(112,662)
—
(112,662)
$
$
34,853
12,481
—
181
47,515
(46,067)
1,150
—
(598)
(10,964)
(36)
(56,515)
(28,043)
(84,558)
$
$
41,841
15,420
1,245
3,112
61,618
(60,956)
1,089
(11)
—
—
(3)
(59,881)
—
(59,881)
(3.33)
$
(2.96)
$
(2.25)
33,821
28,545
26,601
Net loss
Deemed dividend related to December 2019 Private Placement (see
Note 7)
Net loss applicable to common stockholders
Net loss per share applicable to common stockholders - basic and
diluted (Note 17)
Weighted-average number of common shares used in computing net
loss per share applicable to common stockholders - basic and diluted
$
$
$
The accompanying notes are an integral part of these financial statements.
F-5
Table of Contents
IDERA PHARMACEUTICALS, INC.
STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
Series B1 Preferred
Common Stock
Additional
Total
(In thousands)
Balance, December 31, 2017
Issuance of common stock under employee stock
purchase plan
Issuance of common stock upon exercise of
common stock options and warrants
Issuance of common stock for services rendered
Stock-based compensation
Net loss
Balance, December 31, 2018
Sale of common stock, net of issuance costs
Sale of redeemable convertible preferred stock
Deemed dividend related to December 2019
Private Placement (Note 7)
Issuance of commitment shares
Issuance of common stock under employee stock
purchase plan
Issuance of common stock upon exercise of
common stock options and warrants
Issuance of common stock for services rendered
Stock-based compensation
Net loss
Balance, December 31, 2019
Sale of common stock, net of issuance costs
Issuance of common stock under employee stock
purchase plan (vesting of restricted stock units)
Issuance of common stock under employee stock
purchase plan
Issuance of common stock upon exercise of stock
options
Issuance of common stock for services rendered
Stock-based compensation
Net loss
Balance, December 31, 2020
Number of
Shares
$0.01 Par
Value
— $
—
—
—
—
— $
—
24
—
—
—
—
—
—
—
24
—
$
—
—
—
—
—
—
24
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Number of
Shares
24,453
$0.001 Par
Value
Paid-In
Capital
$
24
$
712,165
Accumulated
Deficit
(604,494)
Stockholders’
Equity (Deficit)
107,695
$
$
25
—
243
—
243
2,702
8
—
—
$
27,188
2,068
—
3
—
—
—
27
$
3
—
10,163
97
5,674
—
—
—
—
$
728,342
5,295
—
(59,881)
(664,375)
—
—
$
—
270
61
38
47
—
—
29,672
8,218
177
76
5
143
—
—
38,291
$
$
—
—
—
—
—
—
—
30
8
(28,043)
—
121
3
129
3,845
—
709,692
28,638
$
—
—
—
—
—
—
(56,515)
(720,890)
—
$
$
—
—
—
113
—
—
—
—
—
—
38
15
243
3,641
—
742,342
—
—
—
(112,662)
(833,552)
$
15
243
3,641
(112,662)
(91,172)
$
$
10,166
97
5,674
(59,881)
63,994
5,298
—
(28,043)
—
121
3
129
3,845
(56,515)
(11,168)
28,646
—
113
The accompanying notes are an integral part of these financial statements.
F-6
Table of Contents
IDERA PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
Cash Flows from Operating Activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Year Ended December 31,
2019
2020
2018
$ (112,662)
$ (56,515)
$
(59,881)
Stock-based compensation
Warrant liability revaluation loss
Future tranche right liability revaluation loss
Issuance of common stock for services rendered
Accretion of discounts on short-term investments
Depreciation and amortization expense
(Gain) loss on disposal of property and equipment
Changes in operating assets and liabilities:
Prepaid expenses and other assets
Accounts payable, accrued expenses, and other liabilities
Deferred revenue
Other
Net cash used in operating activities
Cash Flows from Investing Activities:
Purchases of available-for-sale securities
Proceeds from maturity of available-for-sale securities
Proceeds from the sale of property and equipment
Purchases of property and equipment
Net cash (used in) provided by investing activities
Cash Flows from Financing Activities:
Proceeds from private placement
Proceeds from common stock financings, net
Proceeds from employee stock purchases
Proceeds from exercise of common stock options and warrants
Payments on note payable and seller-financed purchases
Other
Net cash provided by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalent, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash flow information:
Cash paid for interest
Increase to operating lease right-of-use asset upon adoption of ASC 842
Increase to operating lease right-of-use assets upon acquisition
Increase to operating lease liability upon adoption of ASC 842
Increase to operating lease liability upon acquisition
Supplemental disclosure of non-cash financing and investing activities:
Offering costs in accounts payable and accrued expenses
Non-cash seller-financed purchases
$
$
$
$
$
$
$
$
3,641
3,742
72,367
243
(46)
61
—
500
(1,629)
3,845
598
10,964
129
(372)
120
(10)
(2,160)
(1,105)
—
11
(33,772)
—
8
(44,498)
(12,178)
10,499
—
(8)
(1,687)
(44,502)
42,100
11
(11)
(2,402)
5,674
—
—
97
—
432
477
2,717
(866)
(566)
—
(51,916)
—
—
290
(75)
215
—
28,758
113
15
(217)
—
28,669
(6,790)
40,019
33,229
$
10,072
5,298
121
3
—
(6)
15,488
(31,412)
71,431
40,019
$
—
—
243
10,166
(209)
(8)
10,192
(41,509)
112,940
71,431
3
$
— $
$
54
— $
$
54
1,236
1,236
— $
$
— $
$
— $
112
652
$
$
$
165
— $
9
—
—
—
—
101
—
The accompanying notes are an integral part of these financial statements.
F-7
Table of Contents
Note 1. Business and Organization
Business Overview
IDERA PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2020
Idera Pharmaceuticals, Inc. (“Idera” or the “Company”), a Delaware corporation, is a clinical-stage
biopharmaceutical company with a business strategy focused on the clinical development, and ultimately the
commercialization, of drug candidates for both oncology and rare disease indications characterized by small, well-defined
patient populations with serious unmet medical needs. The Company’s current focus is on its Toll-like receptor (“TLR”)
agonist, tilsotolimod (IMO-2125), for oncology. The Company believes it can develop and commercialize targeted
therapies on its own. To the extent the Company seeks to develop drug candidates for broader disease indications, it has
entered into and may explore additional collaborative alliances to support development and commercialization.
Liquidity and Financial Condition
As of December 31, 2020, the Company had an accumulated deficit of $833.6 million and a cash, cash equivalents
and short-term investments balance of $37.7 million. The Company expects to incur substantial operating losses in future
periods and will require additional capital as it seeks to advance tilsotolimod and any future drug candidates through
development to commercialization. The Company does not expect to generate product revenue, sales-based milestones or
royalties until the Company successfully completes development of and obtains marketing approval for tilsotolimod or
other future drug candidates, either alone or in collaboration with third parties, which the Company expects will take a
number of years. In order to commercialize tilsotolimod and any future drug candidates, the Company needs to complete
clinical development and comply with comprehensive regulatory requirements. The Company is subject to a number of
risks and uncertainties similar to those of other companies of the same size within the biotechnology industry, such as
uncertainty of clinical trial outcomes, uncertainty of additional funding and history of operating losses.
The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 205-40, Presentation of Financial Statements—Going Concern, which requires management
to assess the Company’s ability to continue as a going concern within one year after the date the financial statements are
issued. Management currently anticipates that the Company’s balance of cash, cash equivalents, and short-term
investments on hand as of December 31, 2020, plus a total of $16.3 million of cash received in January and February 2021
from the ATM Agreement (Note 8) and the LPC Purchase Agreement (Note 8), is sufficient to enable the Company to
continue as a going concern through the one-year period subsequent to the filing date of this Annual Report on Form 10-K
and fund operations into the second quarter of 2022. The Company has and will continue to evaluate available alternatives
to extend its operations beyond this date, which include raising additional capital through the Company’s December 2019
Securities Purchase Agreement (Note 7), LPC Agreement (Note 8), ATM Agreement (Note 8), April 2020 Securities
Purchase Agreement (Note 8), July 2020 Securities Purchase Agreement (Note 8), or additional financing or strategic
transactions. Additionally, management’s plans may also include the possible deferral of certain operating expenses unless
additional capital is received. Management’s operating plan, which underlies the analysis of the Company’s ability to
continue as a going concern, involves the estimation of the amount and timing of future cash inflows and outflows. Actual
results could vary from the operating plan.
F-8
Table of Contents
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting
principles (“GAAP”).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates,
judgements, and assumptions that affect the reported amounts of assets, liabilities, equity, revenues and expenses, and
related disclosure of contingencies in the accompanying financial statements and these notes. In addition, management’s
assessment of the Company’s ability to continue as a going concern involves the estimation of the amount and timing of
future cash inflows and outflows. On an ongoing basis, the Company evaluates its estimates, judgments and
methodologies. The Company bases its estimates on historical experience and on various other assumptions that are
believed to be reasonable. Actual results could differ materially from those estimates.
Segment Information
Operating segments are defined as components of an enterprise in which separate discrete information is available
for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and
assessing performance. The Company views its operations and manages its business as one operating segment, which is the
business of developing novel therapeutics for oncology and rare diseases.
Financial Instruments
The fair value of the Company’s financial instruments is determined and disclosed in accordance with the three-tier
fair value hierarchy specified in Note 3. The Company is required to disclose the estimated fair values of its financial
instruments. As of December 31, 2020 and 2019, the Company’s financial instruments consisted of cash, cash equivalents,
short-term investments, receivables, and warrant and future tranche right liabilities. The estimated fair values of these
financial instruments approximate their carrying values as of December 31, 2020 and 2019. As of December 31, 2020, the
Company did not have any other derivatives, hedging instruments or other similar financial instruments.
Concentration of Credit Risk
Financial instruments that subject the Company to credit risk primarily consist of cash, cash equivalents and short-
term investments. The Company’s credit risk is managed by investing in highly rated money market instruments, U.S.
treasury bills, corporate bonds, commercial paper and/or other debt securities. Due to these factors, no significant
additional credit risk is believed by management to be inherent in the Company’s assets. As of December 31, 2020, all of
the Company’s cash and cash equivalents were held at two financial institutions.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of 90 days or less when purchased to be “cash
equivalents.” Cash and cash equivalents at December 31, 2020 and 2019 consisted of cash and money market funds.
F-9
Table of Contents
Note 2. Summary of Significant Accounting Policies (Continued)
Property and Equipment
Property and equipment is carried at acquisition cost less accumulated depreciation, subject to review for
impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be
recoverable as described further under the heading "Impairment of Long-Lived Assets" below. The cost of normal,
recurring, or periodic repairs and maintenance activities related to property and equipment are expensed as incurred. The
cost for planned major maintenance activities, including the related acquisition or construction of assets, is capitalized if
the repair will result in future economic benefits.
Depreciation and amortization are computed using the straight-line method based on the estimated useful lives of the
related assets. Leasehold improvements are amortized over the remaining lease term or the related useful life, if shorter.
Equipment and other long-lived assets are depreciated over three to five years.
When an asset is disposed of, the associated cost and accumulated depreciation is removed from the related accounts
on the Company's balance sheet with any resulting gain or loss included in the Company's statement of operations.
Operating Lease Right-of-use Asset and Lease Liability
The Company accounts for leases under ASC Topic 842, Leases. Operating leases are included in “Operating lease
right-of-use assets” within the Company’s balance sheets and represent the Company’s right to use an underlying asset for
the lease term. The Company’s related obligation to make lease payments are included in “Operating lease liability” and
“Operating lease liability, net of current portion” within the Company’s balance sheets. Operating lease right-of-use
(“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the
lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing
rates, which are the rates incurred to borrow on a collateralized basis over a similar term, an amount equal to the lease
payments in a similar economic environment. Lease expense for lease payments is recognized on a straight-line basis over
the lease term. The ROU assets are tested for impairment according to ASC Topic 360, Property, Plant, and Equipment
(“ASC 360”). Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized as
lease expense on a straight-line basis over the lease term.
As of December 31, 2020 and 2019, the Company’s operating lease ROU assets and corresponding short-term and
long-term lease liabilities primarily relate to its existing Exton, PA facility operating lease which expires on May 31, 2025.
Impairment of Long-Lived Assets
In accordance with ASC 360-10-35, Impairment or Disposal of Long-Lived Assets, the Company reviews its long-
lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable (i.e. impaired). Once an impairment is determined, the actual impairment recognized is the difference
between the carrying amount and the fair value (less costs to sell for assets to be disposed of) as estimated using one of the
following approaches: income, cost and/or market. Fair value using the income approach is determined primarily using a
discounted cash flow model that uses the estimated cash flows associated with the asset or asset group under review,
discounted at a rate commensurate with the risk involved. Fair value utilizing the cost approach is determined based on the
replacement cost of the asset reduced for, among other things, depreciation and obsolescence. Fair value, utilizing the
market approach, benchmarks the fair value against the carrying amount.
Other Current Liability
In October 2020, the Company entered into a short-term financing arrangement with a third-party vendor to finance
insurance premiums. The aggregate amount financed under this agreement was $0.6 million. As of December 31, 2020,
the balance of $0.4 million, which is included in “Other current liability’ in the Company’s balance sheets, is scheduled to
be paid in monthly installments through June 2021.
F-10
Table of Contents
Note 2. Summary of Significant Accounting Policies (Continued)
Warrant Liability
The Company accounts for stock warrants as either equity instruments, liabilities or derivative liabilities in
accordance with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and/or ASC 815, Derivatives and
Hedging (“ASC 815”), depending on the specific terms of the warrant agreement. Freestanding warrants for shares that are
potentially redeemable, whereby the Company may be required to transfer assets (e.g. cash or other assets) outside of its
control, are classified as liabilities. Liability-classified warrants are recorded at their estimated fair values at each reporting
period until they are exercised, terminated, reclassified or otherwise settled. Changes in the estimated fair value of liability-
classified warrants are recorded in Warrant Revaluation (Loss) Gain in the Company’s statements of operations. Equity
classified warrants are recorded within additional paid-in capital at the time of issuance and not subject to remeasurement.
For additional discussion on warrants, see Note 8.
Future Tranche Right Liability
On December 23, 2019, the Company entered into a Securities Purchase Agreement (the “December 2019 Securities
Purchase Agreement”) with institutional investors affiliated with Baker Brothers (the “Purchasers”), an existing
stockholder and related party (see Note 16). As more fully described in Note 7, the December 2019 Securities Purchase
Agreement contains call options on redeemable preferred shares with warrants (conditionally exercisable for shares that are
puttable). The Company determined that these call options represent freestanding financial instruments and accounts for
the options as liabilities (“Future Tranche Right Liability”) under ASC 480, which requires the measurement and
recognition of the fair value of the liability at the time of issuance and at each reporting period. Any change in fair value is
recognized in Future Tranche Right Liability Revaluation (Loss) Gain in the Company’s statements of operations.
As of December 31, 2020, the Future Tranche Right Liability is classified as a long-term liability in the Company’s
balance sheet as settlement is in the form of the applicable Series B convertible preferred stock and warrants exercisable
for shares of either Series B1 Preferred Stock or the Company’s common stock. As of December 31, 2019, the Future
Tranche Right Liability was classified as a current liability because the Future Tranche Rights and related Option Fee, each
defined in Note 7, were subject to the Company obtaining required shareholder approval, which was obtained in May 2020.
Preferred Stock
The Company applies ASC 480 when determining the classification and measurement of its preferred stock.
Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value.
Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within
the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s
control) are classified as temporary equity. At all other times, preferred shares are classified as stockholders’ equity.
Accretion of redeemable convertible preferred stock includes the accretion of the Company's Series B redeemable
convertible preferred stock to its stated value. The carrying value of the Series B redeemable convertible preferred stock is
being accreted to redemption value using the effective interest method, from the date of issuance to the earliest date the
holders can demand redemption.
Redeemable Preferred Stock Issued with Other Freestanding Instruments
The Company considers guidance within ASC 470-20, Debt (ASC 470), ASC 480, and ASC 815 when accounting
for a redeemable equity instrument issued with other freestanding instruments (e.g. detachable warrants and future tranche
right liabilities), such as in the December 2019 Private Placement (Note 7). In circumstances in which redeemable
convertible preferred stock is issued with freestanding liability-classified instruments, the proceeds from the issuance of the
convertible preferred stock are first allocated to those instruments at their full estimated fair value. The remaining
proceeds, as further reduced by discounts created by the bifurcation of embedded derivatives and/or beneficial conversion
features, if any, are allocated to the redeemable equity instrument.
F-11
Table of Contents
Note 2. Summary of Significant Accounting Policies (Continued)
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers
(“ASC 606’), which applies to all contracts with customers, except for contracts that are within the scope of other
standards, such as leases, insurance, collaboration arrangements and financial instruments. In accordance with ASC 606,
the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that
reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue
recognition for arrangements that the Company determines are within the scope of ASC Topic 606, it performs the
following five steps:
(i)
identify the contract(s) with a customer;
(ii) identify the performance obligations in the contract;
(iii) determine the transaction price;
(iv) allocate the transaction price to the performance obligations in the contract; and
(v) recognize revenue when (or as) the entity satisfies a performance obligation.
The Company only applies the five-step model to contracts when it determines that it is probable it will collect the
consideration to which it is entitled in exchange for the goods or services it transfers to the customer. At contract inception,
once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised
within each contract and determines those that are performance obligations, and assesses whether each promised good or
service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the
respective performance obligation when (or as) the performance obligation is satisfied.
Amounts received prior to satisfying the revenue recognition criteria are recognized as deferred revenue in the
Company’s balance sheet. Amounts expected to be recognized as revenue within the 12 months following the balance
sheet date are classified as current portion of deferred revenue. Amounts not expected to be recognized as revenue within
the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.
Alliance Revenues
The Company’s revenues have primarily been generated through collaborative research, development and/or
commercialization agreements. The terms of these agreements may include payment to the Company of one or more of the
following: nonrefundable, up-front license fees; research, development and commercial milestone payments; and other
contingent payments due based on the activities of the counterparty or the reimbursement by licensees of costs associated
with patent maintenance. Each of these types of revenue are recorded as Alliance revenues in the Company’s statements of
operations.
In determining the appropriate amount of revenue to be recognized as it 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; and
(v) recognition of revenue when (or as) the Company satisfies each performance obligation.
F-12
Table of Contents
Note 2. Summary of Significant Accounting Policies (Continued)
See Note 10, “Collaboration and License Agreements” for additional details regarding the Company’s collaboration
and out-licensing arrangements.
As part of the accounting for these arrangements, the Company allocates the transaction price to each performance
obligation on a relative stand-alone selling price basis. The stand-alone selling price may be, but is not presumed to be, the
contract price. In determining the allocation, the Company maximizes the use of observable inputs. When the stand-alone
selling price of a good or service is not directly observable, the Company estimates the stand-alone selling price for each
performance obligation using assumptions that require judgment. Acceptable estimation methods include, but are not
limited to: (i) the adjusted market assessment approach, (ii) the expected cost plus margin approach, and (iii) the residual
approach (when the stand-alone selling price is not directly observable and is either highly variable or uncertain). In order
for the residual approach to be used, the Company must demonstrate that (a) there are observable stand-alone selling prices
for one or more of the performance obligations and (b) one of the two criteria in ASC 606-10-32-34(c)(1) and (2) is met.
The residual approach cannot be used if it would result in a stand-alone selling price of zero for a performance obligation
as a performance obligation, by definition, has value on a stand-alone basis.
An option in a contract to acquire additional goods or services gives rise to a performance obligation only if the
option provides a material right to the customer that it would not receive without entering into that contract. Factors that
the Company considers in evaluating whether an option represents a material right include, but are not limited to: (i) the
overall objective of the arrangement, (ii) the benefit the collaborator might obtain from the arrangement without exercising
the option, (iii) the cost to exercise the option (e.g. priced at a significant and incremental discount) and (iv) the likelihood
that the option will be exercised. With respect to options determined to be performance obligations, the Company
recognizes revenue when those future goods or services are transferred or when the options expire.
The Company’s revenue arrangements may include the following:
Up-front License Fees: If a license is determined to be distinct from the other performance obligations identified in
the arrangement, the Company recognizes revenues from nonrefundable, up-front fees allocated to the license when the
license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are
bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation
to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the
appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The
Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance
and related revenue recognition.
Milestone Payments: At the inception of an agreement that includes research and development milestone payments,
the Company evaluates whether each milestone is considered probable of being achieved and estimates the amount to be
included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal
would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within
the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved
until those approvals are received. The transaction price is then allocated to each performance obligation on a relative
stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under
the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of
achievement of such milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction
price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect Alliance revenues and
earnings in the period of adjustment.
Research and Development Activities: If the Company is entitled to reimbursement from its collaborators for
specified research and development activities or the reimbursement of costs associated with patent maintenance, the
Company determines whether such funding would result in Alliance revenues or an offset to research and development
expenses. Reimbursement of patent maintenance costs are recognized during the period in which the related expenses are
incurred as Alliance revenues in the Company’s statements of operations.
F-13
Table of Contents
Note 2. Summary of Significant Accounting Policies (Continued)
Royalties: If the Company is entitled to receive sales-based royalties from its collaborator, including milestone
payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the
Company recognizes revenue at the later of (i) when the related sales occur, provided the reported sales are reliably
measurable, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been
satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its
collaboration and license arrangements.
Manufacturing Supply and Research Services: Arrangements that include a promise for future supply of drug
substance, drug product or research services at the licensee’s discretion are generally considered as options. The Company
assesses if these options provide a material right to the licensee and if so, they are accounted for as separate performance
obligations. If the Company is entitled to additional payments when the licensee exercises these options, any additional
payments are recorded in Alliance revenues when the licensee obtains control of the goods, which is upon delivery, or as
the services are performed.
The Company receives payments from its licensees based on schedules established in each contract. Upfront
payments and fees are recorded as deferred revenue upon receipt, and may require deferral of revenue recognition to a
future period until the Company performs its obligations under these arrangements. Amounts are recorded as accounts
receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract
has a significant financing component if the expectation at contract inception is such that the period between payment by
the licensees and the transfer of the promised goods or services to the licensees will be one year or less.
Research and Development Expenses
All research and development expenses are expensed as incurred. Research and development expenses are
comprised of costs incurred in performing research and development activities, including drug development trials and
studies, drug manufacturing, laboratory supplies, external research, payroll including stock-based compensation and
overhead. Nonrefundable advance payments for goods or services to be received in the future for use in research and
development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are accepted
by the Company or the services are performed. As of December 31, 2020 and 2019, the Company recorded approximately
$2.5 million and $2.8 million as prepaid research and development, respectively, which is included within prepaid expenses
and other current assets in the accompanying balance sheets.
Stock-Based Compensation
The Company accounts for stock-based compensation using ASC 718, Compensation – Stock Compensation (“ASC
718”), or ASC 505-50, Equity – Equity Based Payments to Non-Employees, as applicable. The Company accounts for
stock-based awards to employees and non-employee directors using the fair value based method to determine
compensation expense for all arrangements where shares of stock or equity instruments are issued for compensation. In
addition, the Company accounts for stock-based compensation to other non-employees in accordance with the accounting
guidance for equity instruments that are issued to entities or persons other than employees.
The Company recognizes all share-based payments to employees and directors as expense in the statements of
operations based on their fair values. The Company records compensation expense on a straight-line basis over an award’s
requisite service period, or vesting period, based on the award’s fair value at the date of grant. Vesting for time-based
options and restricted stock units is generally four years for employees and one year for directors. The Company uses a
Black-Scholes option-pricing model to determine the fair value of each option grant as of the date of grant for expense
incurred. The Black-Scholes option pricing model requires inputs for risk-free interest rate, dividend yield, expected stock
price volatility and expected term of the options. Forfeitures are accounted for as they occur. See Note 12, “Stock-based
Compensation” for additional details.
F-14
Table of Contents
Note 2. Summary of Significant Accounting Policies (Continued)
Merger-related Costs, net
On January 21, 2018, the Company, BioCryst Pharmaceuticals, Inc., a Delaware corporation (“BioCryst”), Nautilus
Holdco, Inc., a Delaware corporation and a direct, wholly owned subsidiary of BioCryst (“Holdco”), Island Merger
Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Holdco, and Boat Merger Sub, Inc., a Delaware
corporation and a direct, wholly owned subsidiary of Holdco, entered into an Agreement and Plan of Merger (the “Merger
Agreement”). The board of directors of each of Idera and BioCryst unanimously approved the Merger Agreement and the
transactions contemplated thereby and the required regulatory approvals were received. However, the proposed merger was
subject to approval by the stockholders of Idera and BioCryst, and satisfaction of other customary closing conditions, as
specified in the Merger Agreement. At a special meeting of BioCryst stockholders held on July 10, 2018, BioCryst’s
stockholders voted against the adoption of the Merger Agreement. Following such vote and in accordance with the terms of
the Merger Agreement, BioCryst terminated the Merger Agreement. In accordance with the Merger Agreement, BioCryst
paid the Company a fixed expense reimbursement amount of $6 million in July 2018 in connection with the termination of
the Merger Agreement. The fixed expense reimbursement amount is included in “Merger-related costs, net” in the
accompanying statements of operations.
Merger-related costs, net includes amounts related to the transactions contemplated under the Merger Agreement,
including charges incurred for transaction and integration-related professional fees, employee retention costs, and other
incremental costs directly related to the potential merger; less the $6 million fixed expense reimbursement termination fee,
which was received by the Company in July 2018.
Restructuring Costs
Restructuring charges are primarily comprised of severance costs related to workforce reductions, contract
termination and wind-down costs and asset impairments. In accordance with ASC 420, Exit or Disposal Cost Obligations,
the Company recognizes restructuring charges when the liability has been incurred, except for one-time employee
termination benefits that are incurred over time. Generally, one-time employee termination benefits (i.e. severance costs)
are accrued at the date management has committed to a plan of termination and employees have been notified of their
termination dates and expected severance payments. Other costs will be recorded as incurred. Asset impairment charges
have been, and will be, recognized when management has concluded that the assets have been impaired in accordance with
ASC 360-10-35, Impairment or Disposal of Long-Lived Assets, or other applicable authoritative guidance. See Note 11 for
additional details.
Income Taxes
An asset and liability approach is used for financial accounting and reporting for income taxes. Deferred income
taxes arise from temporary differences between income tax and financial reporting and principally relate to recognition of
revenue and expenses in different periods for financial and tax accounting purposes and are measured using currently
enacted tax rates and laws. In addition, a deferred tax asset can be generated by a net operating loss carryover. If it is more
likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.
In the event the Company is charged interest or penalties related to income tax matters, the Company would record
such interest as interest expense and would record such penalties as other expense in the Statements of Operations. No
such charges have been incurred by the Company. For each of the years ended December 31, 2020, 2019 and 2018, the
Company had no uncertain tax positions. See Note 14, “Income Taxes” for additional details.
F-15
Table of Contents
Note 2. Summary of Significant Accounting Policies (Continued)
Net Loss per Common Share applicable to Common Stockholders
Basic and diluted net loss per common share applicable to common stockholders is computed using the weighted
average number of shares of common stock outstanding during the period. The diluted loss per share calculation gives
effect to dilutive stock options, restricted stock units, warrants, convertible preferred stock and other potentially dilutive
common stock equivalents outstanding during the period. Diluted loss per share is based on the if-converted method or the
treasury stock method, as applicable, and includes the effect from the potential issuance of common stock, such as shares
issuable pursuant to the conversion of convertible preferred stock and the exercise of stock options and warrants, assuming
the exercise of all “in-the-money” common stock equivalents based on the average market price during the period.
Common stock equivalents have been excluded where their inclusion would be anti-dilutive. Diluted net loss per common
share applicable to common stockholders is the same as basic net loss per common share applicable to common
stockholders for each of the three years in the period ended December 31, 2020 as the effects of the Company’s potential
common stock equivalents are antidilutive (see Note 17).
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB and rules are issued by the SEC that
the Company has or will adopt as of a specified date. Unless otherwise noted, management does not believe that any other
recently issued accounting pronouncements issued by the FASB or guidance issued by the SEC had, or is expected to have,
a material impact on the Company’s present or future financial statements.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued Accounting Standard Update (“ASU”) No. 2016-13, Financial Instruments— Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This standard requires that
credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and
establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, this
standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. The Company
adopted ASU 2016-13 in the first quarter of 2020. The adoption of this ASU did not have a material effect on the
Company’s financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement (“ASU 2018-13”), which amends ASC 820, Fair Value Measurement. ASU
2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain
disclosures. The Company adopted ASU 2018-13 in the first quarter of 2020. The adoption of this ASU did not have a
material effect on the Company’s financial statements.
Recently Issued (Not Yet Adopted) Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible
Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the guidance on an issuer’s
accounting for convertible instruments and contracts in its own equity. The provisions of ASU 2020-06 are applicable for
fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after
December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its financial statements.
COVID-19
While the Company is not aware of a material impact from the novel coronavirus disease ("COVID-19") pandemic
through December 31, 2020, the full extent to which COVID-19 will directly or indirectly impact the Company’s business,
results of operations and financial condition, including expenses and manufacturing, clinical trials and research and
development costs, depends on future developments that are highly uncertain at this time.
F-16
Table of Contents
Note 3. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company applies the guidance in ASC 820, Fair Value Measurement, to account for financial assets and
liabilities measured on a recurring basis. Fair value is measured at the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a
market-based measurement that is determined based on assumptions that market participants would use in pricing an asset
or liability.
The Company uses a fair value hierarchy, which distinguishes between assumptions based on market data
(observable inputs) and an entity's own assumptions (unobservable inputs). The guidance requires that fair value
measurements be classified and disclosed in one of the following three categories:
● Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities;
● Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or
indirectly, for substantially the full term of the asset or liability;
● Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value
measurement and unobservable (i.e., supported by little or no market activity).
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The
Company evaluates its hierarchy disclosures each reporting period. There were no transfers between Level 1, 2 and 3
during the year ended December 31, 2020.
The table below presents the assets and liabilities measured and recorded in the financial statements at fair value on
a recurring basis at December 31, 2020 and 2019 categorized by the level of inputs used in the valuation of each asset and
liability.
(In thousands)
Assets
Cash
Cash equivalents – money market funds
Short-term investments – commercial paper
Short-term investments – US treasury bills
Total assets
Liabilities
Warrant liability
Future tranche right liability
Total liabilities
(In thousands)
Assets
Cash
Cash equivalents – money market funds
Short-term investments – commercial paper
Total assets
Liabilities
Warrant liability
Future tranche right liability
Total liabilities
Total
250
32,979
3,499
1,000
37,728
$
$
$
6,983
118,803
$ 125,786
$
$
$
$
December 31, 2020
Level 1
Level 2
Level 3
250
32,979
$
—
—
$
33,229
— $
—
3,499
1,000
4,499
$
—
—
—
—
—
— $
—
— $
— $
—
— $
6,983
118,803
125,786
December 31, 2019
Total
Level 1
Level 2
Level 3
$
$
$
$
250
39,769
2,774
42,793
3,241
46,436
49,677
$
$
$
$
250
39,769
$
—
$
40,019
— $
—
2,774
2,774
$
—
—
—
—
— $
—
— $
— $
—
— $
3,241
46,436
49,677
F-17
Table of Contents
Note 3. Fair Value Measurements (Continued)
The Level 1 assets consist of money market funds, which are actively traded daily. The Level 2 assets consist of
commercial paper and US treasury bills whose fair value may not represent actual transactions of identical securities. The
fair value of commercial paper is generally determined based on the relationship between the investment’s discount rate
and the discount rates of the same issuer’s commercial paper available in the market which may not be actively traded
daily. Since these fair values may not be based upon actual transactions of identical securities, they are classified as
Level 2.
Changes in Level 3 Liabilities Measured at Fair Value on a Recurring Basis
Warrant Liability and Future Tranche Right Liability
The reconciliation of the Company's warrant and future tranche right liability measured at fair value on a recurring
basis using unobservable inputs (Level 3) is as follows:
(In thousands)
Balance, December 31, 2019
Change in the fair value of liability
Balance, December 31, 2020
Warrant
Liability
Future
Tranche Right
Liability
$
$
3,241
3,742
6,983
$
$
46,436
72,367
118,803
Assumptions Used in Determining Fair Value of Liability-Classified Warrants
The Company utilizes an option pricing model to value its liability-classified warrants. Inherent in the valuation
model are assumptions related to volatility, risk-free interest rate, expected term, dividend rate, and other scenarios (i.e.
probability of complex features of the warrants being triggered).
The fair value of the warrants has been estimated with the following weighted-average assumptions:
Risk-free interest rate
Expected dividend yield
Expected term (years)
Expected volatility
Exercise price (per share)
December 31,
2020
December 31,
2019
0.50%
—
5.98
80%
1.52
$
1.79%
—
6.98
80%
1.52
$
Assumptions Used in Determining Fair Value of Future Tranche Rights
The Company utilizes a lattice model to value the Series B2 and B3 future tranche rights and a Monte Carlo
simulation to value the Series B4 future tranche rights. The Company selected these models as it believes they are
reflective of all significant assumptions that market participants would likely consider in negotiating the transfer of the
Future Tranche Rights (as defined in Note 7). Such assumptions include, among other inputs, stock price volatility, risk-
free rates, and expected terms inclusive of early exercise and cancellation assumptions.
The estimated fair value of the Future Tranche Rights is determined using Level 2 and Level 3 inputs. Significant
inputs and assumptions used in the valuation models are as follows:
Risk-free interest rate
Expected dividend yield
Expected term (years) of call options on preferred stock
Expected term (years) of warrants
Expected volatility
Exercise price (per share) for common stock equivalent for preferred stock and
warrant
December 31,
2020
0.64% - 0.73%
—
0.25 - 1.12
7.25 - 8.12
80%
December 31,
2019
1.84% - 1.88%
—
1.16 - 2.16
8.16 - 9.16
80%
$
1.52 - 1.82
$
1.52 - 1.82
F-18
Table of Contents
Note 4. Investments
The Company’s available-for-sale investments at fair value consisted of the following at December 31, 2020 and
2019:
(In thousands)
Short-term investments – commercial paper
Short-term investments – US treasury bills
Total short-term investments
(In thousands)
Short-term investments – commercial paper
Total short-term investments
December 31, 2020
Gross
Unrealized
(Losses)
Gross
Unrealized
Gains
Estimated
Fair
Value
— $
—
— $
— $
—
— $
3,499
1,000
4,499
December 31, 2019
Gross
Unrealized
(Losses)
Gross
Unrealized
Gains
Estimated
Fair
Value
— $
— $
— $
— $
2,774
2,774
Cost
3,499
1,000
4,499
Cost
2,774
2,774
$
$
$
$
$
$
$
$
The Company had no realized gains or losses from the sale of investments in available-for-sale securities during
each of the years ended December 31, 2020 and 2019. In accordance with ASU 2016-13, if the fair value of the Company’s
investments in available-for-sale debt securities is less than the amortized cost, the Company records (i) an allowance for
credit losses with a corresponding charge to net income (loss) for any credit-related impairment, with subsequent
improvements in expected credit losses recognized as a reversal of the allowance, and/or (ii) any non-credit impairment
loss to other comprehensive income (loss).
As of December 31, 2020 and 2019, the Company had no allowance for credit losses pertaining to the Company’s
investments in available-for-sale debt securities. Additionally, there were no impairment charges or recoveries recorded
during each of the years ended December 31, 2020 and 2019.
Note 5. Property and Equipment
At December 31, 2020 and 2019, net property and equipment at cost consisted of the following:
(In thousands)
Leasehold improvements
Equipment and other
Total property and equipment, at cost
Less: Accumulated depreciation and amortization
Property and equipment, net
December 31,
2020
December 31,
2019
$
$
$
107
770
877
833
44
$
$
$
107
764
871
774
97
Depreciation and amortization expense on property and equipment was approximately $0.1 million, $0.1 million,
and $0.4 million in 2020, 2019 and 2018, respectively.
No impairment charges were recognized during the years ended December 31, 2020 or 2019. During the year ended
December 31, 2018, the Company recorded asset impairments related to its property equipment in the amount of $0.5
million in connection with restructuring activities more fully described in Note 11.
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Note 6. Accrued Expenses
At December 31, 2020 and 2019, accrued expenses consisted of the following:
(In thousands)
Payroll and related costs
Clinical and nonclinical trial expenses
Professional and consulting fees
Restructuring expenses
Other
Total accrued expenses
Note 7. Redeemable Convertible Preferred Stock
December 2019 Private Placement
$
$
December 31,
2020
December 31,
2019
$
2,133
3,229
584
—
126
6,072
$
2,179
4,199
859
113
111
7,461
On December 23, 2019, the Company entered into the December 2019 Securities Purchase Agreement, under which
the Company sold 23,684 shares of Series B1 convertible preferred stock (“Series B1 Preferred Stock”) and warrants to
purchase 2,368,400 shares of the Company’s common stock at an exercise price of $1.52 per share (or, if the holder elects
to exercise the warrants for shares of Series B1 Preferred Stock, 23,684 shares of Series B1 Preferred Stock at an exercise
price of $152 per share) for aggregate gross proceeds of $3.9 million (the “Initial Closing”).
In addition, the Company has agreed to sell to the Purchasers, at their option and subject to certain conditions, shares
of Series B2 convertible preferred stock (“Series B2 Preferred Stock”), Series B3 convertible preferred stock (“Series B3
Preferred Stock”) and Series B4 convertible preferred stock (“Series B4 Preferred Stock) and accompanying warrants to
purchase common stock (or preferred stock at the election of the holder) over a 21-month period following stockholder
approval for the Charter Amendment, as defined below (the “Future Tranche Rights”). As of December 31, 2020, the
Company’s outstanding Future Tranche Rights are as follows:
Future Tranche Rights
Tranche 2 (Series B2) (1)
Tranche 3 (Series B3) (2)
Tranche 4 (Series B4) (2)
Total
Preferred Shares
Price Per
Share
Aggregate
Purchase Price
98,685
82,418
82,418
263,521
$
$
$
152
182
182
$
$
15,000,120
15,000,076
15,000,076
45,000,272
(1) Accompanied by related warrants to purchase up to 9,868,500 shares of the Company’s common stock (or, if the holder
elects to exercise the warrants for shares of Series B1 Preferred Stock, 98,685 shares of Series B1 Preferred Stock), at an
exercise price of $1.52 per share (or, if the holder elects to exercise the warrants for Series B1 Preferred Stock, $152 per
share of Series B1 Preferred Stock).
(2) Accompanied by related warrants to purchase up to 6,593,440 shares of the Company’s common stock (or, if the holder
elects to exercise the warrants for shares of Series B1 Preferred Stock, 65,934 shares of Series B1 Preferred Stock), at an
exercise price of $1.82 per share (or, if the holder elects to exercise the warrants for Series B1 Preferred Stock, $182 per
share of Series B1 Preferred Stock).
As consideration for the Future Tranche Rights, the Company received aggregate gross proceeds of $6.2 million (the
“Option Fee”) in December 2019. Following the Company’s 2020 Annual Meeting of Stockholders held on May 12, 2020,
where stockholders of the Company voted to approve an amendment to the Company’s Restated Certificate of
Incorporation to increase the authorized number of shares of the Company’s common stock to 140,000,000 (the “Charter
Amendment”), the Company is not required to return the Option Fee.
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Table of Contents
Note 7. Redeemable Convertible Preferred Stock
The purchase and sale of the securities issuable under tranches 2, 3 and 4 may occur in up to three separate closings,
each to be conducted at the Purchasers’ discretion. The right of the Purchasers to purchase Series B2, Series B3 and Series
B4 Preferred Stock will expire on the 10th business day following the Company’s ORR Data Announcement, as defined in
the December 2019 Securities Purchase Agreement, for its ILLUMINATE-301 study, August 12, 2021, and February 12,
2022, respectively. However, the Purchasers’ right to purchase securities under tranches 3 and 4 is contingent on the
purchase of all of the securities in each preceding tranche right. In the event the Purchasers do not purchase all of the
securities in a given tranche, their right to purchase shares in future tranches terminates and any outstanding warrants
issued under the December 2019 Securities Purchase Agreement would terminate. Additionally, the Company has the right
to decline the Series B4 Preferred Stock investment if its common stock trades at $7.60 for 20 days out of 30 days
subsequent to the closing of the Series B3 Preferred Stock investment.
In addition to the aggregate gross proceeds received from the Initial Closing and the Option Fee, the Company is
eligible to receive aggregate gross proceeds of up to an additional $87.6 million under the December 2019 Securities
Purchase Agreement.
Accounting Considerations
The Company determined that the Series B1 Preferred Stock, the accompanying Series B1 warrants, and each of the
Future Tranche Rights represent freestanding financial instruments. The warrants and the Future Tranche Rights are
liability classified as the underlying shares are potentially redeemable and such redemption is deemed to be outside of the
Company’s control. The $10.1 million in gross proceeds received in December 2019 was allocated to the Series B1
warrants and the Future Tranche Rights based on their estimated fair values of $2.6 million and $35.5 million, respectively.
The excess fair value of $28.0 million over the gross proceeds received of $10.1 million was recorded as a deemed
dividend to Baker Brothers, an existing significant shareholder. Costs incurred in connection with the December 2019
Securities Purchase Agreement were expensed as incurred.
Due to the redeemable nature of the Series B1 Preferred Stock, the Series B1 Preferred Stock has been classified as
temporary equity. While the Series B1 Preferred Stock is not currently redeemable, it will become redeemable either on (i)
the fifth anniversary of the initial issue date, or December 23, 2024, provided that certain events (the “Redemption Loss
Events”) do not occur first or (ii) upon a liquidation or deemed liquidation event, provided that certain events (the
“Liquidation Loss Events”) do not occur first. The Company cannot assess the probability of whether the Redemption Loss
Events will occur prior to the fifth anniversary of the initial issue date, if ever, as certain factors triggering such events are
outside the control of the Company. Accordingly, the carrying value of the Series B1 Preferred Stock is currently being
accreted to its redemption value. In the event the holders of the Series B1 Preferred Stock lose their right to request
redemption, the Series B Preferred Stock will no longer be accreted to its redemption value until redemption upon a
liquidation event is deemed probable. For the years ended December 31, 2020 and 2019, accretion was de minimis.
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Note 8. Stockholders’ Equity
Preferred Stock
The Restated Certificate of Incorporation, as amended, of the Company permits its board of directors to issue up to
5,000,000 shares of preferred stock, par value $0.01 per share, in one or more series, to designate the number of shares
constituting such series, and fix by resolution, the powers, privileges, preferences and relative, optional or special rights
thereof, including liquidation preferences and dividends, and conversion and redemption rights of each such series.
As of December 31, 2020, the Company has designated the following class of preferred stock:
● Series A:
1,500,000 authorized shares of Series A Convertible Preferred Stock
● Series B1:
277,921 authorized shares of Series B1 Redeemable Convertible Preferred Stock
● Series B2:
98,685 authorized shares of Series B2 Redeemable Convertible Preferred Stock
● Series B3:
82,814 authorized shares of Series B3 Redeemable Convertible Preferred Stock
● Series B4:
82,814 authorized shares of Series B4 Redeemable Convertible Preferred Stock
Series A Convertible Preferred Stock. The dividends on the Series A convertible preferred stock (“Series A Preferred
Stock”) are payable semi-annually in arrears at the rate of 1% per annum, at the election of the Company, either in cash or
additional duly designated, fully paid and nonassessable shares of Series A Preferred Stock. In the event of liquidation,
dissolution or winding up of the Company, after payment of debts and other liabilities of the Company, the holders of the
Series A Preferred Stock then outstanding will be entitled to a distribution of $1 per share out of any assets available to
shareholders. The Series A Preferred Stock is non-voting. All remaining shares of Series A Preferred Stock rank, as to
payment upon the occurrence of any liquidation event, senior to the Company’s common stock. Shares of Series A
Preferred Stock are convertible, in whole or in part, at the option of the holder into fully paid and nonassessable shares of
common stock at $272.00 per share, subject to adjustment. As of December 31, 2020 and 2019, there were 655 shares of
Series A Preferred Stock outstanding.
Series B1, B2, B3 and B4 Convertible Preferred Stock. Holders of Series B1 Preferred Stock, Series B2 Preferred
Stock, Series B3 Preferred Stock and Series B4 Preferred Stock (collectively, the “B1/B2/B3/B4 Preferred Stock”) are
entitled to the amount of dividends, if and when declared, as would be payable to holders of common stock on an “as
converted” basis (e.g. participating dividends). Until the applicable Transition Date (defined below), in the event of a
liquidation event or deemed liquidation event, after payment of debts and other liabilities of the Company, the holders of
the Series B1/B2/B3/B4 Preferred Stock then outstanding will be entitled to a distribution equal to the then applicable
stated value per share of the Series B1/B2/B3/B4 Preferred Stock. Additionally, until the applicable Transition Date
(defined below), at any time on or after the date that is the fifth (5th) anniversary of the initial issue date of the applicable
series of preferred stock, all or any portion of the preferred stock is redeemable at the option of the holder at a redemption
price of $152.00 per share (for Series B1 and Series B2 Preferred Stock) and $182.00 per share (for Series B3 and Series
B4 Preferred Stock). The “Transition Date” means:
a) With respect to the Series B1 Preferred Stock, the first date following December 23, 2021, on which each of the
Conditions (as defined below) is met (the “Series B1 Transition Date”); and
b) With respect to the Series B2 Preferred Stock, Series B3 Preferred Stock and Series B4 Preferred Stock, the
first date following the two-year anniversary of the applicable series of preferred stock’s initial issue date, on
which each of the Conditions (as defined below) is met (the “Series B2 Transition Date”).
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Table of Contents
Note 8. Stockholders’ Equity (Continued)
The “Conditions” shall mean: (a) the closing price of the Company’s common stock has been equal to or exceeded
the price that is equal to three times (3x) the applicable series of preferred stock’s conversion price ($1.52 for Series B1
Preferred Stock and B2 Preferred Stock; $1.82 for Series B3 Preferred Stock and Series B4 Preferred Stock) for 180
calendar days; (b) the 50-day average trading volume of the Company’s common stock is greater than 500,000 shares
(subject to adjustment for any stock dividend, stock split, stock combination or other similar transaction); and (c) the
presentation by the Company at an appropriate medical conference of the “Overall Survival” data as defined in its
ILLUMINATE-301 study protocol.
The Series B1/B2/B3/B4 Preferred Stock is non-voting and rank, as to payment upon the occurrence of any
liquidation event, senior to the Company’s common stock. Shares of Series B1 Preferred Stock and Series B2 Preferred
Stock are convertible, in whole or in part, at the option of the holder into fully paid and nonassessable shares of common
stock at $1.52 per share, subject to adjustment. Shares of Series B3 Preferred Stock and Series B4 Preferred Stock are
convertible, in whole or in part, at the option of the holder into fully paid and nonassessable shares of common stock at
$1.82 per share, subject to adjustment. As more fully described in Note 7, the Company’s outstanding Series B1 Preferred
Stock is classified in temporary equity, outside of stockholders’ equity as of December 31, 2020 and 2019. No shares of
Series B2 Preferred Stock, Series B3 Preferred Stock or Series B4 Preferred Stock were outstanding as of December 31,
2020 and 2019.
Common Stock
Common Stock Authorized
On May 12, 2020, the Company’s stockholders approved the Charter Amendment. Also, on May 12, 2020, following
stockholder approval, the Company filed the Charter Amendment with the Secretary of State of the State of Delaware
As of December 31, 2020, the Company had 140,000,000 shares of common stock authorized of which 35,750,149
shares of common stock were reserved for the issuance upon the exercise of outstanding warrants and options to purchase
common stock, outstanding restricted stock units, the conversion of Series A and Series B1 convertible preferred stock,
shares required to be reserved under the LPC Purchase Agreement (defined below), and shares available for grant under the
Company’s 2013 Stock Incentive Plan and shares available for purchase under the Company’s 2017 Employee Stock
Purchase Plan.
Put Shares
Pursuant to the terms of a unit purchase agreement dated as of May 5, 1998, the Company issued and sold a total of
149,960 shares of common stock (the “Put Shares”) at a price of $128.00 per share. Under the terms of the unit purchase
agreement, the initial purchasers (the “Put Holders”) of the Put Shares have the right (the “Put Right”) to require the
Company to repurchase the Put Shares. The Put Right may not be exercised by any Put Holder unless: (1) the Company
liquidates, dissolves or winds up its affairs pursuant to applicable bankruptcy law, whether voluntarily or involuntarily;
(2) all of the Company’s indebtedness and obligations, including without
limitation the indebtedness under the Company’s then outstanding notes, has been paid in full; and (3) all rights of the
holders of any series or class of capital stock ranking prior and senior to the common stock with respect to liquidation,
including without limitation the Series A convertible preferred stock, have been satisfied in full. The Company may
terminate the Put Right upon written notice to the Put Holders if the closing sales price of its common stock exceeds
$256.00 per share for the twenty consecutive trading days prior to the date of notice of termination. Because the Put Right
is not transferable, in the event that a Put Holder has transferred Put Shares since May 5, 1998, the Put Right with respect
to those shares has terminated. As a consequence of the Put Right, in the event the Company is liquidated, holders of shares
of common stock that do not have Put Rights with respect to such shares may receive smaller distributions per share upon
the liquidation than if there were no Put Rights outstanding.
As of December 31, 2020, the Company has repurchased or received documentation of the transfer of 49,993 Put
Shares and 4,472 of the Put Shares continued to be held in the name of Put Holders. The Company cannot determine at this
time what portion of the Put Rights of the remaining 95,494 Put Shares have terminated.
F-23
Table of Contents
Note 8. Stockholders’ Equity (Continued)
Equity Financings
April 2020 Private Placement
On April 7, 2020, the Company entered into a Securities Purchase Agreement (as amended to date, the “April 2020
Securities Purchase Agreement”) with Pillar Partners Foundation, L.P. (“Pillar Partners”), a related party as more fully
described in Note 16, providing for the sale of securities in two closings exempt from the registration requirements of the
Securities Act. Concurrent with the consummation of the April 2020 Securities Purchase Agreement, the Company issued
and sold to Pillar Partners, for $5.0 million of aggregate consideration (the “April 2020 Private Placement First Closing”),
(i) 3,039,514 shares of common stock and (ii) warrants to purchase 3,039,514 shares of the Company’s common stock with
an exercise price of $2.28 per share. Each share and the accompanying common warrant sold in the April 2020 Private
Placement First Closing had a combined purchase price of $1.645, which included $0.125 for each share of common stock
underlying each warrant.
On December 11, 2020, the Company entered into an amendment to the April 2020 Securities Purchase Agreement
with Pillar Partners and Pillar Pharmaceuticals 6, L.P., a related party (“Pillar 6” and, collectively with Pillar Partners, the
“April 2020 Purchasers”), principally to enable Pillar 6 to participate in the Second Closing (as defined below) pursuant to
the April 2020 Purchase Agreement. Also on December 11, 2020, the Company issued and sold to the April 2020
Purchasers, for $5.0 million of aggregate consideration (the “April 2020 Private Placement Second Closing”), (i) 69,941
shares of the Company’s common stock, (ii) pre-funded warrants to purchase up to 2,677,311 shares of the Company’s
common stock, at an exercise price of $0.01 per share, and (iii) warrants to purchase up to 1,373,626 shares of the
Company’s common stock with an exercise price of $2.71 per share. Each share and the accompanying 0.5 common
warrant sold in the April 2020 Private Placement Second Closing had a combined purchase price of $1.82 and each pre-
funded warrant and the accompanying 0.5 common warrant had a combined purchase price of $1.81.
Through December 31, 2020, net proceeds received pursuant to the April 2020 Securities Purchase Agreement, after
deduction of offering expenses, was $9.8 million. All proceeds have been recorded within the Company’s statements of
stockholders’ equity (deficit) as all securities issued pursuant to the April 2020 Securities Purchase Agreement were
determined to be freestanding equity-classified instruments.
July 2020 Private Placement
On July 13, 2020, the Company entered into a Securities Purchase Agreement (the “July 2020 Securities Purchase
Agreement”) with Pillar Partners, Pillar 6, and Pillar Pharmaceuticals 7 L.P. (“Pillar 7”) (collectively, the “July 2020
Purchasers”), each a related party as more fully described in Note 16, under which the Company issued and sold to the July
2020 Purchasers in a private placement transaction exempt from the registration requirements of the Securities Act, for
$5.1 million of aggregate consideration (the “July 2020 Private Placement First Closing”), (i) 749,993 shares of common
stock, (ii) pre-funded warrants to purchase up to 2,014,234 shares of common stock, at an exercise price of $0.01 per share,
and (iii) warrants to purchase 2,764,227 shares of the Company’s common stock with an exercise price of $2.58 per share.
Each share (or pre-funded warrant) and the accompanying common warrant sold in the July 2020 Private Placement First
Closing had a combined purchase price of $1.845, which included $0.125 for each share of common stock underlying each
accompanying warrant.
In addition, the Company has agreed to sell to the July 2020 Purchasers, at their option, pre-funded warrants to
purchase up to 784,615 shares of the Company’s common stock, at an exercise price of $0.01 per share, and warrants to
purchase up to 274,615 shares of the Company’s common stock, at an exercise price of $9.75, for aggregate gross proceeds
of $5.1 million (the “July 2020 Private Placement Second Closing”). Each pre-funded warrant and the 0.35 associated
common warrant will have a combined purchase price of $6.50 ($6.45625 per pre-funded warrant plus $0.04375 per 0.35
associated common warrant). The July 2020 Private Placement Second Closing can occur (at the option of the July 2020
Purchasers) on or before the tenth Business Day following the ORR Data Announcement (as defined in the July 2020
Securities Purchase Agreement) and will be held on or before the fifth day following delivery of written notice by the July
2020 Purchasers to the Company.
F-24
Table of Contents
Note 8. Stockholders’ Equity (Continued)
Through December 31, 2020, net proceeds received pursuant to the July 2020 Securities Purchase Agreement, after
deduction of offering expenses, was $5.0 million. All proceeds have been recorded within the Company’s statements of
stockholders’ equity (deficit) as the securities issued pursuant to the July 2020 Securities Purchase Agreement, including
the July 2020 Private Placement Second Closing option, were determined to be freestanding equity-classified instruments.
Common Stock Purchase Agreement
On March 4, 2019, the Company entered into a Purchase Agreement with Lincoln Park Capital Fund, LLC
(“Lincoln Park”), which was amended on September 2, 2020 (as amended to date, the “LPC Purchase Agreement”),
pursuant to which, upon the terms and subject to the conditions and limitations set forth therein, Lincoln Park has
committed to purchase an aggregate of $35.0 million of shares of Company common stock from time to time at the
Company’s sole discretion over a 36-month period. As consideration for entering into the LPC Purchase Agreement, the
Company issued 269,749 shares of Company common stock to Lincoln Park as a commitment fee (the “Commitment
Shares”). The closing price of the Company’s common stock on March 4, 2019 was $2.84 and the Company did not
receive any cash proceeds from the issuance of the Commitment Shares.
During the years ended December 31, 2020 and 2019, the Company sold 750,000 and 1,535,848 shares,
respectively, pursuant to the LPC Purchase Agreement, resulting in net proceeds of $1.7 million and $3.7 million,
respectively. As of December 31, 2020, the Company may sell up to an additional $29.5 million of shares under the LPC
Purchase Agreement, subject to certain limitations.
"At-The-Market" Equity Program
In November 2018, the Company entered into a Equity Distribution Agreement (the “ATM Agreement”) with JMP
Securities LLC (“JMP”) pursuant to which the Company may issue and sell shares of its common stock having an
aggregate offering price of up to $50.0 million (the “Shares”) through JMP as its agent. Subject to the terms and conditions
of the ATM Agreement, JMP will use its commercially reasonable efforts to sell the Shares from time to time, based upon
the Company’s instructions, by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated
under the Securities Act of 1933, as amended, or if specified by the Company, by any other method permitted by law,
including but not limited to in negotiated transactions. The Company has no obligation to sell any of the Shares, and the
Company or JMP may at any time suspend sales under the ATM Agreement or terminate the ATM Agreement. JMP is
entitled to a fixed commission of 3.0% of the gross proceeds from Shares sold.
During the years ended December 31, 2020 and 2019, the Company sold 3,608,713 and 532,700 Shares,
respectively, pursuant to the ATM Agreement resulting in net proceeds, after deduction of commissions and other offering
expenses, of $12.3 million and $1.6 million, respectively. No Shares were sold pursuant to the ATM Agreement during
2018. As of December 31, 2020, the Company may sell up to an additional $35.4 million of shares under the ATM
Agreement.
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Table of Contents
Note 8. Stockholders’ Equity (Continued)
Common Stock Warrants
In connection with various financing transactions, the Company has issued warrants to purchase shares of the
Company’s common stock and preferred stock. The Company accounts for common stock and preferred stock warrants as
equity instruments or liabilities, depending on the specific terms of the warrant agreement. See Note 2 for further details on
accounting policies related to the Company’s warrants.
The following table summarizes outstanding warrants to purchase shares of the Company’s common stock and/or
preferred stock as of December 31, 2020 and 2019:
Description
Liability-classified Warrants
December 2019 Series B1 warrants (1)
Equity-classified Warrants
May 2013 warrants
September 2013 warrants
February 2014 warrants
April 2020 Private Placement first closing warrants
April 2020 Private Placement second closing warrants
April 2020 Private Placement second closing warrants
July 2020 Private Placement first closing warrants
July 2020 Private Placement first closing warrants
Total outstanding
Number of Shares
December 31,
2020
December 31, Weighted-Average
2019
Exercise Price
Expiration Date
2,368,400
2,368,400
2,368,400
2,368,400
$ 1.52 Dec 2026
1,949,754
514,756
266,006
3,039,514
1,373,626
2,677,311
2,014,234
2,764,227
14,599,428
16,967,828
1,949,754
514,756
266,006
—
—
—
—
—
2,730,516
5,098,916
$ 0.08 None
$ 0.08 None
$ 0.08 None
$ 2.28 Apr 2023
$ 2.71 Dec 2023
$ 0.01 None
$ 0.01 None
$ 2.58 Jul 2023
(1) The Series B1 warrants are exercisable for either common stock (exercise price of $1.52) or Series B1 Convertible
Preferred Stock (exercise price of $152) at the discretion of the warrant holder.
The table below is a summary of the Company's warrant activity for the year ended December 31, 2020.
Outstanding at December 31, 2019
Issued (1)
Exercised
Expired
Outstanding at December 31, 2020
Number of
Warrants
Weighted-Average
Exercise Price
5,098,916
11,868,912
$
—
—
$
16,967,828
0.75
1.50
—
—
1.28
(1) During the year ended December 31, 2020, certain related parties were issued warrants as more fully described in Note 16.
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Note 9. Alliance Revenue
Alliance revenue for the years ended December 31, 2020, 2019 and 2018 represents revenue from contracts with
customers accounted for in accordance with ASC Topic 606.
For the year ended December 31, 2019, the Company recognized Alliance revenues totaling $1.4 million which
consistent primarily of revenues recognized under the Licensee Agreement, as more fully described in Note 10, primarily
related to the transfer of the IMO-8400 License and IMO-8400 drug product. For the year ended December 31, 2018, the
Company recognized Alliance revenues totaling $0.7 million which consisted of (i) $0.5 million pursuant to the GSK
Agreement, as more fully described in Note 10, and (ii) $0.2 million related to collaborations which have either been
terminated and/or are not material to the Company’s current operations nor expected to be material in the future, including
reimbursements by licensees of costs associated with research services and patent maintenance.
During the year ended December 31, 2018, the Company recognized Alliance revenues of $0.6 million as a result of
changes in the contract liability balances associated with its contracts with customers. Such revenue recognized was
included in the contract liability balance at the beginning of the period.
See Note 10 for additional details regarding the Company’s collaboration arrangements.
Note 10. Collaboration and License Agreements
Option and License Agreement with Licensee
In April 2019, the Company entered into an amended and restated option and license agreement with a privately-
held biopharmaceutical company (“Licensee”), pursuant to which the Company granted Licensee (i) exclusive worldwide
rights to develop and market IMO-8400 for the treatment, palliation and diagnosis of all diseases, conditions or indications
in humans (the “IMO-8400 License”), (ii) an exclusive right and license to develop IMO-9200 in accordance with certain
IMO-9200 pre-option exercise protocols (the “IMO-9200 Option Period License”), and (iii) an exclusive one-year option,
exercisable at Licensee’s discretion, to obtain the exclusive worldwide rights to develop and market IMO-9200 for the
treatment, palliation and diagnosis of all diseases, conditions or indications in humans (the “IMO-9200 Option”)
(collectively, the “Licensee Agreement”). In connection with the Licensee Agreement, the Company transferred certain
drug material to Licensee for Licensee’s use in development activities. Licensee is solely responsible for the development
and commercialization of IMO-8400 and, if Licensee exercises the IMO-9200 Option, Licensee would be solely
responsible for the development and commercialization of IMO-9200.
Under the terms of the Licensee Agreement, the Company received upfront, non-refundable fees totaling
approximately $1.4 million and ownership of 10% of Licensee’s outstanding common stock, subject to future adjustment,
for granting Licensee the IMO-8400 License, the IMO-9200 Option Period License and transfer of related drug materials.
In addition, following expiry of the IMO-9200 Option in 2020, the Company is now only eligible to receive certain
development and sales-based milestone payments and royalties on global net sales related to the IMO-8400 Compound and
potential future IMO-8400 Products, each as defined in the Licensee Agreement. The Company does not anticipate the
receipt of any of the future milestones or royalties in the short term, if ever.
The Company accounts for the Licensee Agreement in accordance with ASC 606. As of December 31, 2020, the
total transaction price of the contract was $1.4 million, which excluded the Option Fee and all development and sales
milestones as all such payments were fully constrained. Additionally, as of December 31, 2020, there were no remaining
performance obligations under the Licensee Agreement. The Company re-evaluates its performance obligations and
transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
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Note 10. Collaboration and License Agreements (Continued)
As disclosed above, in connection with the Licensee Agreement, the Company owns 10% of Licensee’s outstanding
common stock, subject to future adjustment. The Company evaluated the guidance in ASC Topic 321, Investments-Equity
Securities, and elected to account for the investment using the measurement alternative as the equity securities are without
a readily determinable fair value, and the arrangement does not result in Idera having control or significant influence over
Licensee. Accordingly, the securities are measured at cost, less any impairment, plus or minus changes resulting from
observable price changes and are recorded in Other assets at a value of less than $0.1 million in the accompanying balance
sheets. As of December 31, 2020, the Company considered the cost of the investment to not exceed the fair value of the
investment and did not identify any observable price changes.
Collaboration with GSK
In November 2015, the Company entered into a collaboration and license agreement with GSK to license, research,
develop and commercialize pharmaceutical compounds from the Company’s nucleic acid chemistry technology for the
treatment of selected targets in renal disease (the “GSK Agreement”). In connection with the GSK Agreement, GSK
identified an initial target for the Company to attempt to identify a potential population of development candidates to
address such target under a mutually agreed upon research plan. Prior to the wind-down of its discovery operations as more
fully described in Note 10, the Company created multiple development candidates to address the initial target designated
by GSK. Until November 2019, the expiration of the collaboration term, GSK had the right to designate one development
candidate in its sole discretion, from the population of identified candidates, to move forward into clinical development.
However, GSK did not designate any candidate for development during the collaboration term. If such designation had
occurred, GSK would have been solely responsible for the development and commercialization activities of that designated
development candidate.
The GSK Agreement also provided GSK with the option to select up to two additional targets at any time during the
first two years of the GSK agreement, for further research under mutually agreed upon research plans. Upon selecting
additional targets, GSK then had the option to designate one development candidate for each additional target, at which
time GSK would have sole responsibility to develop and commercialize each such designated development candidate. GSK
did not select any additional targets for research through expiry of the option period.
Under the terms of the GSK Agreement, the Company received a $2.5 million upfront, non-refundable, non-
creditable cash payment upon the execution of the GSK Agreement. Additionally, the Company was initially eligible to
receive a total of up to approximately $100 million in license, research, clinical development and commercialization
milestone payments, of which $9 million of these milestone payments would have been payable by GSK upon the
identification of the additional targets, the completion of current and future research plans and the designation of
development candidates and $89 million would have been payable by GSK upon the achievement of clinical milestones
and commercial milestones. As a result of GSK not designating a development candidate during the collaboration term, the
Company is no longer eligible to receive any additional license, research, clinical development and commercialization
milestone payments, or any royalty payments.
For the year ended December 31, 2018, the Company recognized Alliance revenues of $0.5 million pursuant to the
GSK Agreement primarily related to the amortization of the $2.5 million upfront, non-refundable, non-creditable cash
payment received upon the execution of the GSK Agreement, which was recognized as revenue on a straight-line basis
over the estimated 36-month research plan period, which approximated the timing in which performance obligations were
satisfied. No such revenues were recognized during 2020 or 2019.
F-28
Table of Contents
Note 11. Restructuring Costs
In July 2018, the Company determined to wind-down its discovery operations, reduce the workforce in Cambridge,
Massachusetts that supports such operations, and close its Cambridge facility (the “July 2018 Restructuring”). In
connection with the reduction-in-workforce, 18 positions were eliminated, primarily in the area of discovery, representing
approximately 40% of the Company’s employees. Of the 18 positions eliminated, 15 were effective July 31, 2018 with the
remaining effective during the first half of 2019. The Company completed the consolidation of its operations to its Exton,
Pennsylvania location in the third quarter of 2018.
Total restructuring-related charges incurred in connection with the July 2018 Restructuring was $3.3 million and
comprised of (i) one-time termination costs in connection with the reduction in workforce, including severance, benefits
and related costs, of approximately $2.8 million; (ii) contract termination costs of approximately $0.2 million in connection
with the early lease termination for the Cambridge facility; and (iii) non-cash asset impairments of approximately $0.7
million, inclusive of $0.5 million of fixed asset impairments and $0.2 million in write-offs of facility-related prepaid
expenses; offset by (iv) a non-cash gain of approximately $0.4 million related to the write-off of the remaining deferred
rent liability associated with the Cambridge facility lease.
The following summarizes restructuring-related activity for the years ended December 31, 2020, 2019 and 2018:
(in thousands)
Accrued restructuring balance as of December 31, 2017
Charges incurred (1)
Cash payments
Non-cash settlements
Adjustments
Accrued restructuring balance as of December 31, 2018
Charges incurred
Cash payments
$
Accrued restructuring balance as of December 31, 2019
$
Charges incurred
Cash payments
Accrued restructuring balance as of December 31, 2020
$
— $
Employee
Severance
and Benefits
Contract
Termination
Costs
Asset
Impairments
Total
$
— $
2,635
(1,380)
(24)
(84)
1,147
181
(1,215)
113
—
(113)
$
$
— $
225
(225)
—
—
— $
—
—
— $
—
—
— $
— $
674
—
(674)
—
— $
—
—
— $
—
—
— $
—
3,534
(1,605)
(698)
(84)
1,147
181
(1,215)
113
—
(113)
—
(1) Excludes $0.4 million gain due to the write-off of the remaining deferred rent liability associated with the termination of the
Cambridge, Massachusetts facility lease.
F-29
Table of Contents
Note 12. Stock-based Compensation
As of December 31, 2020, the only equity compensation plans from which the Company may currently issue new
awards are the Company’s 2013 Stock Incentive Plan (as amended to date, the “2013 Plan”) and 2017 Employee Stock
Purchase Plan (the “2017 ESPP”), each as more fully described below.
Equity Incentive and Employee Stock Purchase Plans
2013 Stock Incentive Plan
The Company's board of directors adopted the 2013 Plan, which was approved by the Company’s stockholders
effective July 26, 2013. Amendments to the 2013 Plan were approved by the Company’s stockholders in June 2014, June
2015, June 2017 and June 2019. The 2013 Plan is intended to further align the interests of the Company and its
stockholders with its employees, including its officers, non-employee directors, consultants and advisers by providing
equity-based incentives. The 2013 Plan allows for the issuance of incentive stock options intended to qualify under
Section 422 of the Internal Revenue Code, non-statutory stock options, stock appreciation rights, restricted stock awards,
restricted stock units (“RSUs”), other stock-based awards and performance awards. The total number of shares of common
stock authorized for issuance under the 2013 Plan is 5,653,057 shares of the Company’s common stock, plus such
additional number of shares of common stock (up to 868,372 shares) as is equal to the number of shares of common stock
subject to awards granted under the Company’s 2005 Stock Incentive Plan or 2008 Stock Incentive Plan (the “2008 Plan”),
to the extent such awards expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the
Company at their original issuance price pursuant to a contractual repurchase right.
As of December 31, 2020, options to purchase a total of 4,034,540 shares of common stock and 903,321 RSUs were
outstanding and up to 838,800 shares of common stock remained available for grant under the 2013 Plan.
Other Awards and Inducement Grants
The Company has not made any awards pursuant to other equity incentive plans, including the 2008 Plan, since the
Company’s stockholders approved the 2013 Plan. As of December 31, 2020, options to purchase a total of 220,408 shares
of common stock were outstanding under the 2008 Plan. In addition, as of December 31, 2020, non-statutory stock options
to purchase an aggregate of 359,375 shares of common stock were outstanding that were issued outside of the 2013 Plan to
certain employees in 2017, 2015 and 2014 pursuant to the Nasdaq inducement grant exception as a material component of
new hires’ employment compensation.
2017 Employee Stock Purchase Plan
The Company’s board of directors adopted the 2017 ESPP which was approved by the Company’s stockholders and
became effective June 7, 2017. An amendment to the 2017 ESPP was approved by the Company’s stockholders in June
2019. The 2017 ESPP is intended to qualify as an "employee stock purchase plan" as defined in Section 423 of the Internal
Revenue Code, and is intended to encourage our employees to become stockholders of ours, to stimulate increased interest
in our affairs and success, to afford employees the opportunity to share in our earnings and growth and to promote
systematic savings by them. The total number of shares of common stock authorized for issuance under the 2017 ESPP is
412,500 shares of common stock, subject to adjustment as described in the 2017 ESPP. Participation is limited to
employees that would not own 5% or more of the total combined voting power or value of the stock of the Company after
the grant. As of December 31, 2020, 245,342 shares remained available for issuance under the 2017 ESPP.
F-30
Table of Contents
Note 12. Stock-based Compensation (Continued)
Stock Purchase Plan Administration
The 2017 ESPP provides for offerings to employees to purchase common stock with offerings beginning on dates
determined by the compensation committee of the board of directors or on the first business day thereafter. Each offering
begins a “plan period” during which payroll deductions are to be made and held for the purchase of common stock at the
end of the plan period. The compensation committee may, at its discretion, choose a plan period of 12 months or less for
subsequent offerings and/or choose a different commencement date for offerings. During each plan period participating
employees may elect to have a portion of their compensation, ranging from 1% to 10% of compensation as defined by the
plan, withheld and used for the purchase of common stock at the end of each plan period. The purchase price is equal to
85% of the lower of the fair market value of a share of common stock on the first trading date of each plan period or the
fair market value of a share of common stock on the last trading day of the plan period, and is limited by participant to
$25,000 in fair value of common stock per year as well as other quarterly plan limitations as defined by each plan.
For the years ended December 31, 2020, 2019 and 2018, the Company issued 75,999, 60,953, and 24,824 shares of
common stock, in each year respectively, under the 2017 ESPP and received proceeds of $0.1 million, $0.1 million and
$0.2 million, in each year respectively, as a result of stock purchases.
Accounting for Stock-based Compensation
The Company recognizes non-cash compensation expense for stock-based awards under the Company’s equity
incentive plans and employee stock purchases under the Company’s 2017 ESPP as follows:
● Stock Options: Compensation cost is recognized over an award’s requisite service period, or vesting period,
using the straight-line attribution method, based on the grant date fair value determined using the Black-
Scholes option-pricing model.
● RSUs: Compensation cost for time-based RSUs, which vest over time based only on continued service, is
recognized on a straight-line basis over the requisite service period based on the fair value of the Company’s
common stock on the date of grant. Compensation cost for awards that are subject to market considerations is
recognized on a straight-line basis over the implied requisite service period, based on the grant date fair value
estimated using a Monte Carlo simulation. Compensation cost for awards that are subject to performance
conditions is recognized over the period of time commencing when the performance condition is deemed
probable of achievement based on the fair value of the Company’s common stock on the date of grant.
● Employee Stock Purchases: Compensation cost is recognized over each plan period based on the fair value of
the look-back provision, calculated using the Black-Scholes option-pricing model, considering
the 15% discount on shares purchased.
Total stock-based compensation expense attributable to stock-based payments made to employees and directors and
employee stock purchases included in operating expenses in the Company's statements of operations for the years ended
December 31, 2020, 2019 and 2018 was as follows:
(in thousands)
Stock-based compensation:
Research and development
Employee Stock Purchase Plan
Equity Incentive Plan
General and administrative
Employee Stock Purchase Plan
Equity Incentive Plan
Restructuring costs
Equity Incentive Plan
Total stock-based compensation expense
2020
2019
2018
$
$
$
$
$
$
$
88 $
673
761 $
9 $
2,871
2,880 $
— $
— $
3,641 $
36 $
1,312
1,348 $
20 $
2,477
2,497 $
— $
— $
3,845 $
71
1,780
1,851
48
3,751
3,799
24
24
5,674
F-31
Table of Contents
Note 12. Stock-based Compensation (Continued)
During the years ended December 31, 2020, 2019 and 2018, the weighted average fair market value of stock options
granted was $1.25, $1.64, and $7.00, respectively.
Assumptions Used in Determining Fair Value of Stock Options
Inherent in the Black-Scholes option-pricing model are the following assumptions:
Volatility. The Company estimates stock price volatility based on the Company’s historical stock price performance
over a period of time that matches the expected term of the stock options.
Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of
grant commensurate with the expected term assumption.
Expected term. The expected term of stock options granted is based on an estimate of when options will be exercised
or cancelled in the future.
Dividend rate. The dividend rate is based on the historical rate, which the Company anticipates will remain at zero.
Forfeitures. The Company accounts for forfeitures when they occur. Ultimately, the actual expense recognized over
the vesting period will be for only those shares that vest. See Note 2.
The fair value of each option award at the date of grant was estimated using the Black-Scholes option pricing model.
All options granted during the three years in the period ended December 31, 2020 were granted at exercise prices equal to
the fair market value of the common stock on the dates of grant.
The following weighted average assumptions apply to the options to purchase 1,215,382, 1,279,016, and 1,136,874
shares of common stock granted to employees and directors during the years ended December 31, 2020, 2019 and 2018,
respectively:
Average risk-free interest rate
Expected dividend yield
Expected lives (years)
Expected volatility
Weighted average exercise price (per share)
2020
2019
2018
1.0%
—
3.9
84%
2.08
$
2.1%
—
3.7
84%
2.75
$
2.5%
—
3.7
74%
12.63
$
All options granted during the years ended December 31, 2020, 2019 and 2018 were granted at exercise prices equal
to the fair market value of the common stock on the dates of grant.
Stock Option Activity
The following table summarizes stock option activity for the year ended December 31, 2020.
($ in thousands, except per share data)
Outstanding at December 31, 2019
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2020 (1)
Exercisable at December 31, 2020
Stock
Options
4,220,417
1,215,382
(5,265)
(206,323)
(609,888)
4,614,323
2,490,179
$
$
Weighted-
Average
Exercise Price
$
13.08
2.08
2.84
6.12
18.61
9.78
15.12
Weighted-
Average
Remaining
Contractual
Life
(in years)
Aggregate
Intrinsic
Value
6.6
$
—
6.8
5.2
$
$
2,949
455
(1)
Includes both vested stock options as well as unvested stock options for which the requisite service period has not been
rendered but that are expected to vest based on achievement of a service condition.
F-32
Table of Contents
Note 12. Stock-based Compensation (Continued)
The fair value of options that vested during the year ended December 31, 2020 was $2.9 million. As of December
31, 2020, there was $3.5 million of unrecognized compensation cost related to unvested options, which the Company
expects to recognize over a weighted average period of 2.2 years.
Restricted Stock Activity
The following table summarizes restricted stock activity for the year ended December 31, 2020:
($ in thousands, except per share data)
Nonvested shares at December 31, 2019
Granted
Cancelled
Vested
Nonvested shares at December 31, 2020
Time-based Restricted Stock Units
Time-based Awards
Market/Performance-based Awards
Number of
Shares
Weighted-Average
Grant Date
Fair Value
Number of
Shares
Weighted-Average
Grant Date
Fair Value
193,625
365,845
(28,895)
(176,572)
354,003
$
$
3.14
2.65
2.75
3.95
2.27
— $
556,888
(7,570)
—
$
549,318
—
1.54
1.54
—
1.54
In December 2020, the Company’s Chief Executive Officer was granted an award of 128,170 RSUs, pursuant to the
2013 Plan, in lieu of salary pursuant to a January 10, 2020 amendment to the officers’ employment agreement. The RSUs
were fully vested on the grant date.
As of December 31, 2020, there was $0.7 million of unrecognized compensation cost related to the Company’s time-
based RSUs, which is expected to be recognized over a weighted average period of 1.9 years.
Market/Performance-based Restricted Stock Units
In July 2020, the Company granted RSUs to certain employees, including executive officers, under the 2013 Plan,
with vesting that may occur upon a combination of specific performance and/or market conditions. Accordingly, the
Company views these RSUs as two separate awards: (i) an award that vests if the market condition is achieved, and (ii) an
award that vests whether or not the market condition is achieved, so long as the performance condition is achieved. The
Company is currently recognizing compensation expense for these awards over the estimated requisite service period of
2.36 years based on the estimated fair value when considering the market condition of the award, which was determined
using a Monte Carlo simulation. During the year ended December 31, 2020, the Company recognized $0.2 million of
compensation expense related to these awards. As of December 31, 2020, the remaining unrecognized compensation cost
for the market-based component of these awards, which is expected to be recognized over a weighted-average period of 1.5
years, is $0.7 million. In addition, should the performance condition be achieved, the Company would recognize an
additional $0.3 million of compensation expense.
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Table of Contents
Note 13. Commitments and Contingencies
Lease Commitments
As of December 31, 2020, the Company’s leased assets primarily consisted of its office headquarters in Exton,
Pennsylvania. Prior to the September 30, 2018 termination date, the Company also leased a facility in Cambridge,
Massachusetts. During 2020, 2019 and 2018, rent expense, including real estate taxes, was $0.4 million, $0.3 million, and
$1.7 million, respectively. The leases are classified as operating leases.
Future minimum commitments as of December 31, 2020 under the Company’s lease agreements are approximately:
December 31,
2021
2022
2023
2024
2025
Operating Leases
(in thousands)
244
249
250
240
101
1,084
$
The Company entered into the Exton, Pennsylvania facility lease on April 1, 2015, which was subsequently amended
on September 23, 2015 to include additional space. The Company currently leases approximately 11,000 square feet of
office space at our Exton facility. The lease expires on May 31, 2025.
Vendor Financing Arrangement
In October 2020, the Company entered into a short-term financing arrangement with a third-party vendor to finance
insurance premiums. As of December 31, 2020, the balance of $0.4 million, is scheduled to be paid in monthly installments
through June 2020.
Note 14. Income Taxes
As of December 31, 2020, the Company had cumulative federal and state net operating loss carryforwards (“NOLs”)
of approximately $328.7 million and $323.2 million available to reduce federal and state taxable income, respectively. As a
result of the Tax Cuts and Jobs Act of 2017, federal net operating losses incurred for taxable years beginning after January
1, 2018 have an unlimited carryforward period, but can only be utilized to offset 80% of taxable income in future taxable
periods. Of the $328.7 million of federal NOLs, $131.3 million have an unlimited carryforward and the remaining NOLs
are still subject to expiration through 2037. State NOLs are still subject to expiration according to the laws of each
respective jurisdiction. The Company files state tax returns in Massachusetts and Pennsylvania whereby both jurisdictions
impose a 20-year carryforward period. All $323.2 million of state NOLs expire through 2040, with the first year of
expiration being 2032 for $23.4 million of Massachusetts NOLs. In addition, at December 31, 2020, the Company had
cumulative federal and state tax credit carryforwards of $25.0 million and $1.9 million, respectively, available to reduce
federal and state income taxes, respectively, which expire through 2040 and 2033, respectively, for federal and state
purposes, other than those that have an unlimited carryforward period.
Sections 382 and 383 of the Internal Revenue Code prescribe limitations on the amount of NOLs and tax credit
carryforwards that may be utilized in any one year. The Company has completed several financings since the effective date
of the Tax Reform Act of 1986, which as of December 31, 2020, have resulted in ownership changes that will significantly
limit the Company’s ability to utilize its net operating loss and tax credit carryforwards. In December 2017, the Company
completed a study which determined that ownership changes had occurred. The federal and state net operating loss and tax
credit carryforwards and related deferred tax assets shown in the table below have been adjusted to reflect the limitations
that resulted from this study. As no study has been completed subsequent to 2017, additional ownership change limitations
may result from ownership changes that have occurred, or may occur in the future. The Company continues to monitor
equity activity and potential ownership changes.
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Table of Contents
Note 14. Income Taxes (Continued)
As of December 31, 2020 and 2019, the components of the deferred tax assets are approximately as follows:
(in thousands)
Operating loss carryforwards
Tax credit carryforwards
Stock-based compensation
Lease liabilities
Other
Total deferred tax assets
Right-of-use asset
Valuation allowance
Net deferred tax assets
$
$
2020
90,895
26,550
6,820
276
162
124,703
(270)
(124,433)
$
— $
2019
81,403
23,072
7,818
308
176
112,777
(306)
(112,471)
—
The Company has provided a full valuation allowance for its deferred tax asset due to the uncertainty surrounding
the ability to realize these assets.
The difference between the U.S. federal corporate tax rate and the Company’s effective tax rate for the years ended
December 31, 2020, 2019 and 2018 is as follows:
Expected federal income tax rate
Expiring credits and NOLs
Change in valuation allowance
Federal and state credits
State income taxes, net of federal benefit
Warrant and future tranche right revaluation loss
Stock-based compensation
Other
Effective tax rate
2020
(21.0)%
—
10.6
(3.1)
(1.9)
14.2
0.2
1.0
0.0 %
2019
(21.0)%
—
26.2
(8.1)
(4.7)
4.3
0.5
2.8
0.0 %
2018
(21.0)%
1.0
37.9
(7.4)
(9.7)
—
0.5
(1.3)
0.0 %
The Company applies ASC 740-10, Accounting for Uncertainty in Income Taxes, an interpretation of ASC 740.
ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in financial statements and requires the
impact of a tax position to be recognized in the financial statements if that position is more likely than not of being
sustained by the taxing authority. The Company had no unrecognized tax benefits resulting from uncertain tax positions at
December 31, 2020 and 2019.
The Company has not conducted a study of its research and development tax credit carryforwards. Such a study
might result in an adjustment to the Company’s research and development credit carryforwards, however, until a study is
completed and any adjustment is known, no amounts are being presented as an uncertain tax position under ASC 740-10. A
full valuation allowance has been provided against the Company’s research and development credits and, if an adjustment
is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to
the statements of operations if an adjustment was required.
The Company files income tax returns in the U.S. federal, Massachusetts and Pennsylvania jurisdictions. The
Company is no longer subject to tax examinations for years before 2017, except to the extent that it utilizes tax attributes
that originated before 2017. The Company does not believe there will be any material changes in its unrecognized tax
positions over the next 12 months. The Company has not incurred any interest or penalties. In the event that the Company
is assessed interest or penalties at some point in the future, they will be classified in the statements of operations as general
and administrative expense.
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Table of Contents
Note 15. Employee Benefit Plan
The Company has an employee benefit plan under Section 401(k) of the Internal Revenue Code. The plan allows
employees to make contributions up to a specified percentage of their compensation. Under the plan, the Company matches
a portion of the employees’ contributions up to a defined maximum. Prior to August 2018, the Company historically
contributed up to 3% of employee base salary, by matching 50% of the first 6% of annual base salary contributed by each
employee. Effective August 2018, the Company began contributing up to 5% of employee base salary, by matching 100%
of the first 5% of annual base salary contributed by each employee. Approximately $0.3 million, $0.3 million and $0.2
million of 401(k) benefits were charged to operating expenses for the years ended December 31, 2020, 2019 and 2018,
respectively.
Note 16. Related Party Transactions
Baker Brothers
Julian C. Baker, a member of the Company’s Board until his resignation in September 2018, is a principal of Baker
Bros. Advisors, LP. Additionally, Kelvin M. Neu, a member of Company’s Board until his resignation in June 2019, is an
employee of Baker Bros. Advisors, LP. As of December 31, 2020, Baker Bros. Advisors, LP and certain of its affiliated
funds (collectively, “Baker Brothers”) held sole voting power with respect to an aggregate of 4,608,786 shares of the
Company’s common stock, representing approximately 12% of the Company's outstanding common stock.
During 2019, Baker Brothers purchased shares of the Company’s Series B1 Preferred Stock and accompanying
warrants to purchase common stock in connection with the December 2019 Private Placement, as more fully described in
Note 7. Concurrent with the December 2019 Private Placement, the Company amended the warrants initially issued to
Baker Brothers and other holders on May 7, 2013, September 30, 2013 and February 10, 2014 to remove expiration date.
Under the terms of the warrants issued to Baker Brothers and the December 2019 Securities Purchase Agreement related to
the securities issued in connection with the 2019 Private Placement, Baker Brothers is not permitted to convert or exercise
any common stock equivalents to the extent that such conversion or exercise would result in Baker Brothers (and its
affiliates) beneficially owning more than 4.99% of the number of shares of our common stock outstanding immediately
after giving effect to the issuance of shares of common stock issuable upon conversion or exercise of such securities. Baker
Brothers has the right to increase this beneficial ownership limitation in its discretion on 61 days' prior written notice to us,
provided that in no event is Baker Brothers permitted to convert or exercise such securities to the extent that such exercise
would result in Baker Brothers (and its affiliates) beneficially owning more than 19.99% of the number of shares of our
common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon
conversion or exercise of such securities.
During 2018, Baker Brothers exercised warrants to purchase 2,700,791 shares of the Company’s common stock at an
exercise price of $3.76 per share for a total exercise price of approximately $9.5 million.
As of December 31, 2020, Baker Brothers held warrants to purchase up to 2,708,812 shares of the Company’s
common stock at an exercise price of $0.08 per share, warrants to purchase up to 2,368,400 shares of the Company’s
common stock (or, if Baker Brothers elects to exercise the warrants for shares of Series B1 Preferred Stock, 23,684 shares
of Series B1 Preferred Stock), at an exercise price of $1.52 per share (or, if Baker Brothers elects to exercise the warrants
for shares of Series B1 Preferred Stock, $152 per Series B1 Preferred Warrant Share).
Pillar Investment Entities
Youssef El Zein, a member of the Company’s board of directors until his resignation in October 2017, is a director
and controlling stockholder of Pillar Invest Corporation (“Pillar Invest”), which is the general partner of Pillar
Pharmaceuticals I, L.P., Pillar Pharmaceuticals II, L.P., Pillar Pharmaceuticals III, L.P., Pillar Pharmaceuticals IV, L.P.,
Pillar Pharmaceuticals V, L.P., Pillar 6 and Pillar Partners (collectively, the “Pillar Investment Entities”). As of December
31, 2020, the Pillar Investment Entities own approximately 18% of the Company's common stock.
F-36
Table of Contents
Note 16. Related Party Transactions (Continued)
During 2020, the Company sold shares of its common stock, prefunded warrants and common stock warrants to
entities affiliated with Pillar Invest Corporation in connection with private placement transactions, as more fully descried in
Note 8.
During 2018, Participations Besancon, an investment fund advised by Pillar Invest having no affiliation with Mr. El
Zein, exercised warrants to purchase 150,000 shares of the Company’s common stock at an exercise price of $3.76 per
share for a total exercise price of approximately $0.6 million.
As of December 31, 2020, the Pillar Investment Entities held (i) warrants to purchase up to 3,039,514 shares of the
Company’s common stock at an exercise price of $2.28 per share, (ii) warrants to purchase up to 2,764,227 shares of the
Company’s common stock at an exercise price of $2.58 per share, (iii) prefunded warrants to purchase up to 2,014,234
shares of the Company’s common stock at an exercise price of $0.01 per share, (iv) warrants to purchase up to 1,373,626
shares of the Company’s common stock at an exercise price of $2.71 per share, and (v) prefunded warrants to purchase up
to 2,677,311 shares of the Company’s common stock at an exercise price of $0.01 per share. Additionally, Pillar held
options to purchase Company securities in the April 2020 Private Placement Second Closing and July 2020 Private
Placement Second Closing, as more fully described in Note 8.
Subsequent to December 31, 2020, in January 2020, Pillar 6 exercised prefunded warrants to purchase 643,525
shares of the Company’s common stock at an exercise price of $0.01 per share.
Board Fees Paid in Stock
Pursuant to the Company’s director compensation program, in lieu of director board and committee fees of $0.3
million, $0.1 million, and $0.1 million, respectively, incurred during each of the years ended December 31, 2020, 2019 and
2018, respectively, the Company issued 145,392, 53,985, and 13,654 shares of common stock, respectively, to certain of
its directors. Director board and committee fees are paid in arrears and the number of shares issued was calculated based
on the market closing price of the Company’s common stock on the issuance date.
Officer Salary Paid in Stock
In December 2020, the Company’s Chief Executive Officer was granted an award of 128,170 RSUs, pursuant to the
2013 Plan, in lieu of salary of $0.6 million pursuant to a January 10, 2020 amendment to the officers’ employment
agreement. The RSUs were fully vested on the grant date.
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Table of Contents
Note 17. Net Loss per Common Share Applicable to Common Stockholders
Net loss applicable to common stockholders represents net loss adjusted for deemed dividends related to the
December 2019 Private Placement, as more fully described in Note 7.
The Company uses the two-class method to compute net income (loss) per common share during periods the
Company realizes net income and has securities outstanding (e.g. redeemable convertible preferred stock) that entitle the
holder to participate in dividends and earnings of the Company. In addition, the Company analyzes the potential dilutive
effect of outstanding redeemable convertible preferred stock under the "if-converted" method when calculating diluted
earnings per share and reports the more dilutive of the approaches (two class or "if-converted"). The two-class method is
not applicable during periods with a net loss, as the holders of the redeemable convertible preferred stock have no
obligation to fund losses. For all periods presented, the two-class method was not applicable. The Company also analyzes
the potential dilutive effect of outstanding stock options, unvested restricted stock units, warrants and shares underlying
future tranche rights under the treasury stock method (as applicable), during periods of income, or during periods in which
income is recognized related to changes in fair value of its liability-classified securities.
For the years ended December 31, 2020, 2019 and 2018, diluted net loss per common share applicable to common
stockholders was the same as basic net loss per common share applicable to common stockholders as the effects of the
Company’s potential common stock equivalents are antidilutive. Potentially dilutive securities, whose effect would have
been antidilutive, were excluded from the computation of diluted earnings per share for each of the years ended December
31, 2020, 2019 and 2018.
Total antidilutive securities excluded from the calculation of diluted net loss per share for the years ended December
31, 2020, 2019 and 2018, were as follows:
(in thousands)
Stock options
Restricted stock units
Common stock warrants
Convertible preferred stock
Future tranche rights
Total
Note 18. Subsequent Events
2020
2019
2018
4,614
903
16,968
2,369
50,467
75,321
4,220
194
5,099
2,369
49,407
61,289
3,305
—
2,769
1
—
6,075
The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the
financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional
disclosure.
Proceeds from Sale of Common Stock
"At-The-Market" Equity Program
During the period January 1, 2021 through February 28, 2021, the Company sold 2,394,956 shares of its common
stock pursuant to the ATM Agreement, as more fully described in Note 8, resulting in net proceeds, after deduction of
commissions, of $12.1 million. As of February 28, 2021, the Company may sell up to an additional $22.9 million of shares
under the ATM Agreement.
Common Stock Purchase Agreement
During the period January 1, 2020 through February 28, 2021, the Company sold 800,000 shares of its common
stock pursuant to the LPC Purchase Agreement, as more fully described in Note 8, resulting in net proceeds of $4.2
million. As of February 28, 2021, the Company may sell up to an additional $25.3 million of shares under the LPC
Purchase Agreement.
F-38
Exhibit 4.21
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
The following description sets forth certain material terms and provisions of Idera Pharmaceuticals,
Inc.’s (“Idera,” “we,” “us,” and “our”) securities that are registered under Section 12 of the Securities
Exchange Act of 1934, as amended.
The following description is a summary and does not purport to be complete. It is subject to, and
qualified in its entirety by reference to, Idera’s Restated Certificate of Incorporation, as amended (the
“Certificate of Incorporation”) and Idera’s Amended and Restated Bylaws (the “Bylaws”), each of which
are incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this Exhibit 4.21 is
a part. The terms of these securities also may be affected by the Delaware General Corporation Law.
Unless otherwise indicated, any share and per share amounts included in the description of our
securities, reflect, as applicable, the occurrence of a 1-for-8 reverse split of our common stock that occurred
on June 29, 2006 and a 1-for-8 reverse split of our common stock that occurred on July 27, 2018.
Authorized Capital Stock
We are authorized to issue a total of 145,000,000 shares of capital stock consisting of 140,000,000
shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value
$0.01. Our common stock is listed on the Nasdaq Capital Market under the trading symbol “IDRA.”
Description of Common Stock
Voting
Each outstanding share of common stock is entitled to one vote per share on all matters submitted to
a vote of our stockholders, except as set forth in the Certificate of Incorporation. Holders of common stock
do not have cumulative voting rights.
Dividends; Liquidation and Dissolution
Subject to the preferences that may be applicable to any then outstanding shares of preferred stock,
holders of common stock are entitled to receive ratably on a per share basis such dividends and other
distributions in cash, stock or property of Idera as may be declared by our Board of Directors (the “Board”)
from time to time out of the legally available assets or funds of Idera. Upon our voluntary or involuntary
liquidation, dissolution or winding up, holders of common stock are entitled to receive ratably all assets of
Idera available for distribution to its stockholders after payment of any amounts due to creditors and any
amounts due to the holders of our preferred stock.
Other Rights and Restrictions
Holders of our common stock have no preemptive rights and no right to convert their common
stock into any other securities. There are no redemption or sinking fund provisions applicable to our
common stock. The Certificate of Incorporation and Bylaws do not restrict the ability of holders of common
stock to transfer their shares of common stock. Our Board may authorize the issuance of preferred stock
with voting, conversion, dividend, liquidation and other rights that may adversely affect the rights of the
holder of our common stock.
Put Right
Pursuant to the terms of that certain Unit Purchase Agreement, dated May 5, 1998 (the “UPA”) we
issued and sold a total of 149,960 shares of common stock (the “Put Shares”) at a price of $128.00 per
share. Under the UPA, the initial purchasers of the Put Shares (the “Put Holders”) have the right to require
us to repurchase the put shares (the “Put Right”). In order for the Put Right to be exercised by any Put
Holder all of the following must occur: (1) we liquidate, dissolve or wind up our affairs pursuant to
applicable bankruptcy law, whether voluntarily or involuntarily; (2) all of our indebtedness and obligations,
including without limitation the indebtedness under our outstanding notes, has been paid in full; and (3) all
rights of the holders of any series or class of capital stick raking prior and senior to the common stock with
respect to liquidation have been satisfied in full. We may terminate the Put Right upon written notice to the
Put Holders if the closing sales price of our common stock exceeds $256.00 per share for the 20 consecutive
trading days prior to the date of notice of termination. Because the Put Right is not transferable, in the event
that a Put Holder has transferred Put Shares since May 5, 1998, the Put Right with respect to those Put
Shares has terminated. As a consequence of the Put Right, in the event we are liquidated, holders of shares
of common stock that do not have a Put Right with respect to such shares may receive smaller distributions
per share upon our liquidation than if there was no Put Right outstanding. As of the date of the Annual
Report on Form 10-K of which this Exhibit 4.21 is a part, we had repurchased or received documentation of
the transfer of 49,993 Put Shares and 4,472 of the Put Shares continued to be held in the name of the Put
Holders. We cannot determine at this time what portion of the Put Rights of the remaining 95,494 Put
Shares have terminated.
As of the date of the Annual Report on Form 10-K of which this Exhibit 4.21 is a part, 42,257,456
shares of common stock are issued and outstanding and 34,144,163 shares of common stock were reserved
for the issuance upon the exercise of outstanding warrants and options to purchase common stock,
outstanding restricted stock units, the conversion of Series A convertible preferred stock (“Series A”) and
Series B1 redeemable convertible preferred stock (“Series B1”), shares required to be reserved under the
Purchase Agreement with Lincoln Park Capital Fund, LLC, which was amended on September 2, 2020, and
shares available for grant under our 2013 Stock Incentive Plan and shares available for purchase under our
2017 Employee Stock Purchase Plan.
Preferred Stock Convertible Into Common Stock
We are authorized to issue 5,000,000 shares of preferred stock, of which 1,500,000 has been
designated Series A, 277,921 has been designated Series B1, 98,685 has been designated Series B2
redeemable convertible preferred stock (“Series B2”), 82,814 has been designated Series B3 redeemable
convertible preferred stock (“Series B3”), and 82,814 has been designated Series B4 redeemable convertible
preferred stock (“Series B4” and, together with Series B1, Series B2, and Series B3, “Series B Preferred
Stock”).
Shares of Series A, in whole or in part, at the option of the holder, are convertible into fully paid and
nonassessable shares of common stock at $272.00 per share, subject to adjustment. Each share of Series B
Preferred Stock is initially convertible into 100 shares of common stock. Shares of Series B1 and Series
B2 are convertible, in whole or in part, at the option of the holder into fully paid and nonassessable shares
of common stock at $1.52 per share, subject to adjustment. Shares of Series B3 and Series B4 are
convertible, in whole or in part, at the option of the holder into fully paid and nonassessable shares of
common stock at $1.82 per share, subject to adjustment.
As of the date of the Annual Report on Form 10-K of which this Exhibit 4.21 is a part, there were
655 shares of Series A outstanding and 23,684 shares of Series B1 outstanding. No other shares of preferred
stock were outstanding.
Common Stock Issuable Upon Exercise of Warrants
In connection with various financing transactions, we have issued warrants to purchase shares of
our common stock and preferred stock. As of the date of the Annual Report on Form 10-K of which this
Exhibit 4.21 is a part, there were 16,324,303 warrants outstanding, which includes 2,368,400 Series B1
warrants that are exercisable for either common stock (exercise price of $1.52) or Series B1 (exercise price
of $152) at the discretion of the warrant holder.
Certain Anti-Takeover Provisions of Our Certificate Incorporation and Bylaws
The following is a summary of certain provisions of our Certificate of Incorporation and Bylaws
that may have the effect of delaying, deterring or preventing hostile takeovers or changes in control or
management of Idera. Such provisions could deprive our stockholders of opportunities to realize a premium
on their stock. At the same time, these provisions may have the effect of inducing any persons seeking to
acquire or control us to negotiate terms acceptable to our Board.
Undesignated Preferred Stock
Our Certificate of Incorporation authorizes our Board to issue shares of preferred stock and set the
voting powers, designations, preferences, and other rights related to that preferred stock without stockholder
approval. Any such designation and issuance of shares of preferred stock could delay, defer or prevent any
attempt to acquire or control us.
Staggered Board
Our Certificate of Incorporation and Bylaws provide for the division of our Board into three classes
as nearly equal in size as possible with staggered three-year terms. The classification of the Board could
have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of us. Our Certificate of Incorporation and Bylaws require the affirmative vote of the
holders of at least 75% of the shares of our capital stock issued and outstanding and entitled to vote to
amend or repeal this provision.
Vacancies on the Board of Directors; Removal of Directors
Our Certificate of Incorporation and our Bylaws provide that, subject to any rights of holders of our
preferred stock, any vacancies in our Board for any reason will be filled only by a majority of our directors
remaining in office, and directors so elected will hold office until the next election of directors. The inability
of our stockholders to fill vacancies on the Board may make it more difficult to change the
composition of our Board. Additionally, our Certificate of Incorporation and Bylaws provide that a director
may be removed from office by our stockholders only for cause and by the affirmative vote of at least two-
thirds of our outstanding voting stock. Our Certificate of Incorporation and Bylaws require the affirmative
vote of the holders of at least 75% of the shares of our capital stock issued and outstanding and entitled to
vote to amend or repeal these provisions.
Cumulative Voting
Our Certificate of Incorporation and Bylaws do not provide for cumulative voting. Accordingly, the
holders of a majority of the shares of common stock entitled to vote in any election of directors may elect
all of the directors standing for election. As a result, subject to the voting rights, of which there currently are
none, of any outstanding preferred stock, persons who hold more than 50% of the outstanding common
stock entitled to elect members of our Board can elect all of the directors who are up for election in a
particular year.
Business Combinations
We are subject to Section 203 of the Delaware General Corporation Law. Subject to certain
exceptions, Section 203 prevents a publicly-held Delaware corporation from engaging in a “business
combination” with any “interested stockholder” for three years following the date that such person became
an interested stockholder, unless either the interested stockholder attained such status with the approval of
our Board, the business combination is approved by our Board and stockholders in a prescribed manner or
the interested stockholder acquired at least 85% of our outstanding voting stock in the transaction in which
such person became an interested stockholder. A “business combination” includes, among other things, a
merger or consolidation involving us and the “interested stockholder” and the sale of more than 10% of our
assets. In general, an “interested stockholder” is any entity or person beneficially owning 15% or more of
our outstanding voting stock and any entity or person affiliated with or controlling or controlled by such
entity or person.
No Stockholder Action by Written Consent; Special Meeting of Stockholders
Our Certificate of Incorporation and our Bylaws provide do not provide for action by written
consent, which may require our stockholders to wait for a regularly scheduled annual meeting to change the
composition of our Board. Our Certificate of Incorporation and our Bylaws also provide that special
meetings of our stockholders may be called only by the Board or by our chief executive officer or, if the
office the chief executive officer is vacant, our president. In no event may our stockholders call a special
meeting of stockholders. Our Certificate of Incorporation and Bylaws require the affirmative vote of the
holders of at least 75% of the shares of our capital stock issued and outstanding and entitled to vote to
amend or repeal these provisions.
Advance Notification of Stockholder Nominations and Proposals
Our Bylaws provide that stockholders seeking to bring business before an annual meeting of
stockholders, or to nominate candidates for election as directors at an annual meeting of stockholders, must
meet specified procedural requirements. These provisions may preclude stockholders from bringing matters
before an annual meeting of stockholders or from making nominations for directors at an annual or special
meeting of stockholders.
Exhibit 10.25
November 16, 2020
Daniel Soland
[Street Address]
[City, State, Zip Code]
Dear Daniel,
On behalf of Idera Pharmaceuticals, Inc., ("Company"), we are pleased to offer you the position of
Senior Vice President & Chief Operating Officer, reporting directly to Vin Milano, President &
CEO. This role will report to our Exton Pennsylvania office. Your start date will be determined
upon your acceptance of this offer. A summary of the terms of your employment follows.
Exempt Base Salary
Your base salary will be based on a semi-monthly pay schedule at the rate of USD $17,708.34.
This annualizes to a full-time equivalent of USD $425,000.16 and will be subject to customary tax
withholdings and other payroll deductions. The Company utilizes a semi-monthly pay period,
which ends on the 15th and the last day of the month. This position is considered an exempt
position for purposes of federal wage-hour law, which means that you will not be eligible for
overtime time pay for hours actually worked in excess of 40 in a given work week.
Annual Incentive Plan
Subject to the terms of the Company's Annual Incentive Plan (AIP) then in effect, you are eligible
to earn a target incentive award of 40% of your annual base salary. Awards are discretionary and
the determination of this discretionary award is subject to evaluation of performance at the
corporate and individual levels, and other performance criteria as they apply to your position. AIP
will be pro-rated in your first year of hire, based on your start date.
Benefits
You will be eligible to participate in Idera's benefit plans in accordance with the terms and
conditions of each plan. Benefits currently include, but are not limited to, medical, dental, vision,
life and disability insurance, flexible spending accounts, and a 401(k) savings plan. Full details of
these programs, as well as vacation and holidays, will be provided to you under separate cover.
Equity Grant
Upon joining the Company, you will be granted 200,000 options of Idera Common Stock at an
exercise price which is equal to the fair market value on the date of hire. This grant is governed by
Idera's Stock Incentive Plan and are granted at the discretion of the Compensation Committee of
the Board of Directors.
Waiver and Amendment
No amendment to this offer shall be valid unless in writing and signed by you and the Head of
Human Resources on behalf of the Company.
Daniel Soland
November 16, 2020
Page 2
Employment at Will
While we both fully intend to begin our relationship on a positive note, it is essential to understand
our employment arrangement. The Company is an “at will” employer, which means that either of
us can terminate our employment arrangement at any time and for any reason or no reason.
For purposes of federal immigration law, you will be required to provide the company with
documentary evidence of your identity and eligibility for employment in the United States. Such
documentation must be provided to the Company within three (3) business days of your date of
hire, or our employment relationship with you may be terminated.
Your employment is fully contingent upon a satisfactory background check and your execution
and ongoing compliance with the attached Idera Pharmaceuticals’ Non-Disclosure Agreement,
Code of Business Conduct and Ethics Agreement and our Insider Trading and Public Disclosure
Policies. If the foregoing is satisfactory, please indicate your agreement by signing and returning
to us the enclosed copy of this letter, together with a signed copy of the Non-Disclosure
Agreement and a signed Acknowledgement and Understanding form of the Code of Business
Conduct and Ethics agreement.
Please carefully review the terms and conditions of this offer as outlined in this letter. Feel free to
contact Christina Amendola at 484-348-1665 if there is anything further we can do to assist you.
Please confirm your acceptance of this offer by signing the attached copy of this letter; including
specifying your actual start date. If we do not receive these executed documents by the end of the
business day on 11/17/2020, the offer set forth in this letter shall terminate.
Congratulations Daniel! This position is critical to the continued success and growth of Idera. We
are excited to welcome you to Idera and look forward to having you join the team.
Sincerely,
/S/ JILL CONWELL
Jill Conwell
Head of Human Resources
Agreed and Accepted,
/S/ DANIEL SOLAND
Daniel Soland
Date: November 16, 2020
Start Date: January 4, 2021
Exhibit 10.26
SEVERANCE AND CHANGE OF CONTROL AGREEMENT
CHANGE OF CONTROL AGREEMENT by and between Idera Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), and Daniel Soland (the "Executive"), dated as of February
19, 2021.
WHEREAS, the Board of Directors of the Company (the "Board"), has determined that it is
in the best interests of the Company and its shareholders to assure that the Company will have
the continued dedication of the Executive, notwithstanding the possibility, threat, or occurrence of
a Change of
Control (as defined below) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a
pending or threatened Change of Control and to encourage the Executive's full attention and
dedication to the Company currently and in the event of any threatened or pending Change of
Control, and to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations;
WHEREAS, the Executive was hired as Senior Vice President and Chief Operating Officer
(“COO”) of the Company with a start date of January 4, 2021;
WHEREAS, in recognition of the Executive’s hiring as COO, the Company and Executive
now desire to enter into this Severance and Change of Control Agreement, which is generally
consistent with the change of control and severance protection provided to the Company’s most
senior officers (the “Agreement”).
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter
set forth, the parties hereto, each intending to be legally bound, do hereby agree as follows:
1. Certain Definitions.
a) The "Effective Date" shall be the first date during the "Change of Control Period" (as
defined in Section 1(b)) on which a Change of Control occurs. Anything in this
Agreement to the contrary notwithstanding, if the Executive's employment with the
Company is terminated or the Executive ceases to be an officer of the Company prior
to the date on which a Change of Control occurs, and it is reasonably demonstrated
that such termination of employment (1) was at the request of a third party who has
taken steps reasonably calculated to effect the Change of Control or (2) otherwise
arose in connection with or in anticipation of the Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date immediately prior
to the date of such termination of employment. If prior to the Effective Date, the
Executive’s employment with the Company terminates, then the Executive shall have
no further rights under this Agreement, except with respect to benefits under Section
6(e), if applicable, or unless such termination of Employment was in anticipation of the
Change of Control in which case the termination shall be deemed to have occurred
after the consummation of the Change of Control.
b) The "Change of Control Period" is the period commencing on the date hereof and
ending on December 31, 2018 provided, that commencing on December 31, 2017 and
each December 31 thereafter (each such date to be referred to as the “Renewal
Date”), the term of this Agreement shall automatically be extended, without any further
action by the Company or
the Executive, so as to terminate two years from such Renewal Date; provided,
however that if the Company shall give notice in writing to the Executive at least thirty
(30) days prior to a Renewal Date (the “Pending Renewal Date”), stating that the
Change of Control Period shall not be extended, then the Change of Control Period
shall expire two years from the Pending Renewal Date.
2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean the
occurrence of any of the following events:
a) Change in the composition of the Board over a period of thirty-six consecutive months
or less such that a majority of the members of the Board ceases to be comprised of
individuals who are Continuing Members; for such purpose, a "Continuing Member"
shall mean an individual who is a member of the Board on the date of this Agreement
and any successor of a Continuing Member who is elected to the Board or nominated
for election by action of a majority of Continuing Members then serving on the Board;
b) any merger or consolidation that results in the voting securities of the Company
outstanding immediately prior thereto representing (either by remaining outstanding or
by being converted into voting securities of the surviving or acquiring entity) less than
60% of the combined voting power of the voting securities of the Company or such
surviving or acquiring entity outstanding immediately after such merger or
consolidation;
c) any sale of all or substantially all of the assets of the Company;
the complete liquidation or dissolution of the Company; or
d)
the acquisition of "beneficial ownership" (as defined in Rule 13d-3 under the Exchange
e)
Act) of securities of the Company representing 50% or more of the combined voting
power of the Company's then outstanding securities (other than through a merger or
consolidation or an acquisition of securities directly from the Company) by any
"person," as such term is used in Sections 13(d) and 14(d) of the Exchange Act, other
than the Company, any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportion as their ownership of
stock of the Company; provided however that, where applied to compensation subject
to Section 409A of the Internal Revenue Code and the guidance issued thereunder
(“Section 409A”), any acceleration of or change in payment shall only apply (if required
by Section 409A) if the Change in Control is also a change in control event described
in Treasury Regulation 1.409A-3(i)(5).
3. Employment Period. Subject to the terms and conditions hereof, the Company hereby
agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in
the employ of the Company, for the period commencing on the Effective Date and ending on
the last day of the twenty-fourth month following the month in which the Effective Date occurs
(the "Employment Period").
4. Terms of Employment.
a) Position and Duties.
i. During the Employment Period, (A) the Executive's position (including status,
offices, titles and reporting requirements), authority, duties and responsibilities
shall be at least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time during the 90-day
period immediately preceding the Effective Date and (B) the Executive's
services shall be
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performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
ii. During the Employment Period, and excluding any periods of vacation and sick
leave to which the Executive is entitled, the Executive agrees to devote his full
business time to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to perform faithfully
and efficiently such responsibilities. During the Employment Period it shall not
be a violation of this Agreement for the Executive to (A) serve on corporate,
civic or charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company
in accordance with this Agreement. It is expressly understood and agreed that
to the extent that any such activities
have been conducted by the Executive prior to the Effective Date, the
continued conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date.
b) Compensation.
i. Base Salary. During the Employment Period, the Executive shall receive an
annual base salary ("Annual Base Salary"), which shall be paid at no less than
a monthly rate, at least equal to twelve times the highest monthly base salary
paid or payable to the Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the month in which
the Effective Date occurs. During the Employment Period, the Annual Base
Salary shall be reviewed at least annually and shall be increased at any time
and from time to time as shall be substantially consistent with increases in base
salary awarded in the ordinary course of business to other peer executives of
the Company and its affiliated companies. Any increase in Annual Base Salary
shall not serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" includes any company controlled by, controlling or under
common control with the Company.
ii. Annual Bonus. In addition to Annual Base Salary, the Executive shall be
awarded, for each fiscal year during the Employment Period, an annual cash
bonus (the "Annual Bonus"; which shall include, without limitation, any annual
cash bonus plan or program provided to Executive or any other similar plan) in
cash at least equal to the greatest of (a) the average (annualized for any fiscal
year consisting of less than twelve full months or with respect to which the
Executive has been employed by the Company for less than twelve full
months) bonus paid or that has been earned and accrued, but unpaid to the
Executive by the Company and its affiliated companies in respect of the three
fiscal years immediately preceding the fiscal year in which the Effective Date
occurs, (b) the Annual Bonus paid for the fiscal year
-3-
immediately preceding the fiscal year in which the Effective Date occurs, or (c)
the 100 percent target bonus payout amount determined in accordance with the
terms of the Company’s bonus plans for senior executives for the fiscal year
immediately preceding the Effective Date, the fiscal year in which the Effective
Date occurs or any fiscal year following the Effective Date and prior to the then
current fiscal year, whichever is highest (the “Target Bonus”). Each such Annual
Bonus shall be paid no later than the 15th day of the third month of the fiscal
year next following the fiscal year for which the Annual Bonus is awarded,
unless the Executive shall elect to defer the receipt of such Annual Bonus
pursuant to any nonqualified plan of the Company. Notwithstanding anything
herein to the contrary, any portion of Annual Base Salary or Annual Bonus
electively deferred by the Executive pursuant to a qualified or a non-qualified
plan shall be included in determining the Annual Base Salary and Annual
Bonus. If the fiscal year of any successor to this Agreement, as described by
Section 11(c) herein, is different than the Company’s fiscal year at the time of
the Effective Date, then the Executive shall be paid (i) the Annual Bonus that
would have been paid upon the end of Company’s fiscal year in which the
Effective Date Occurs, and (ii) a pro-rata Annual Bonus for any months of
service performed following the end of the Company’s fiscal year, but prior to
the first day of the successor’s fiscal year immediately following the Change of
Control. The Annual Bonuses thereafter shall be based on the successor’s first
full fiscal year beginning after the Change of Control and successive fiscal
years thereafter. Any partial months shall be rounded to the nearest whole
number using normal mathematical convention.
iii.
Incentive, Savings and Retirement Plans. In addition to Annual Base Salary
and Annual Bonus payable as hereinabove provided, the Executive shall be
entitled to participate during the Employment Period in all incentive, savings
and retirement plans, practices, policies and programs applicable to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans practices, policies and programs provide the Executive with
incentive, savings and retirement benefits opportunities, in each case, less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the one-year
immediately preceding the Effective Date, or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to other
peer executives of the Company and its affiliated companies.
iv. Welfare Benefit Plans. During the Employment Period, the Executive and/or the
Executive's family, as the case may be, shall be eligible for participation in and
shall receive all benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies (including,
without limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance plans
and programs) and applicable to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices, policies and
programs provide benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in effect at any
time during the one-year period
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immediately preceding the Effective Date, or, if more favorable to the Executive,
those provided generally at any time after the Effective Date to other peer
executives of the Company and its affiliated companies.
v. Expenses. During the Employment Period, the Executive shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by the
Executive upon submission of appropriate accountings in accordance with the
most favorable policies, practices and procedures of the Company and its
affiliated companies in effect at any time during the one-year period
immediately preceding the Effective Date or, if more favorable to the Executive,
as in effect at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
vi. Fringe Benefits. During the Employment Period, the Executive shall be entitled
to fringe benefits in accordance with the most favorable plans, practices,
programs and policies of the Company and its affiliated companies in effect at
any time during the one-year period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
vii. Office and Support Staff. During the Employment Period, the Executive shall be
entitled to an office or offices of a size and with furnishings and other
appointments, and to exclusive personal secretarial and other assistance, at
least equal to the most favorable of the foregoing provided to the Executive by
the Company and its affiliated companies at any time during the one-year
period immediately preceding the Effective Date or, if more favorable to the
Executive, as provided at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
viii. Vacation. During the Employment Period, the Executive shall be entitled to paid
vacation in accordance with the most favorable plans, policies, programs and
practices of the Company and its affiliated companies as in effect at any time
during the one-year period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter with respect to
other peer incentives of the Company and its affiliated companies.
5. Termination of Employment.
a) Death or Disability. The Executive's employment shall terminate automatically upon
the Executive's death during the Employment Period. If the Company determines in
good faith that the Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of "Disability" set forth below), it may give to the
Executive written notice in accordance with Section 13(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the Executive's
employment with the Company shall terminate effective on the 30th day after receipt of
such notice by the Executive (the "Disability Effective Date"), provided that, within the
30 days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement, "Disability"
means the absence of the Executive from the
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Executive's duties with the Company on a full-time basis for 180 consecutive business
days as a result of incapacity due to mental or physical illness which is determined to
be total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative (such agreement
as to acceptability not to be withheld unreasonably).
b) Cause. The Company may terminate the Executive's employment during the
Employment Period for "Cause". For purposes of this Agreement, "Cause" means (i)
an act or acts of personal dishonesty taken by the Executive and intended to result in
substantial personal enrichment of the Executive at the expense of the Company, (ii)
repeated violations by the Executive of the Executive's obligations under Section 4(a)
of this Agreement (other than as a result of incapacity due to physical or mental illness)
which are demonstrably willful and deliberate on the Executive's part, which are
committed in bad faith or without reasonable belief that such violations are in the best
interests of the Company and which are not remedied in a reasonable period of time
after receipt of written notice from the Company or (iii) the conviction of the Executive
of a felony involving moral turpitude. The Company shall provide the Executive with 30
days written notice of any determination of Cause and provide the Executive, for a
period of 30 days following such notice, with the opportunity to appear before the
Board, with or without legal representation, to present arguments and evidence on his
behalf and following such presentation to the Board, the Executive may only be
terminated for Cause if the Board (excluding the Executive if he is a member of the
Board), by unanimous consent reasonably determines in good faith that his actions
did, in fact, constitute for Cause.
c) Good Reason. The Executive's employment may be terminated during the
Employment Period by the Executive for Good Reason. For purposes of this
Agreement, "Good Reason" means:
i. A material diminution in the Executive’s base compensation;
ii. A material diminution in the Executive’s authority, duties and responsibilities as
in effect immediately prior to the Change of Control or, if applicable, the Date of
Termination;
iii. A material change in the geographic location in which Executive’s principal
office was located immediately prior to the Change of Control or, if applicable,
the Date of Termination, such that it makes it unreasonable for the Executive to
commute to the Company’s offices four or more business days per week;
iv. Any other action or inaction that constitutes a material breach by the
Company of this Agreement or any other agreement under which the
Executive provides services;
provided, however, that Good Reason shall not exist unless the Executive
has given written notice to the Company within ninety (90) days of the initial
existence of the Good Reason event or condition(s) giving specific details
regarding the event or condition; and unless the Company has had at least
thirty (30) days to cure such Good Reason event or condition after the
delivery of such written notice and has failed to cure such event or condition
to the reasonable satisfaction of the Executive within such thirty (30) day
cure period.
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d) Notice of Termination. Any termination by the Company for Cause or by the
Executive for Good Reason shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 13(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than fifteen
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any
right of the Executive or the Company hereunder or preclude the Executive or
the Company from asserting such fact or circumstance in enforcing the
Executive's or the Company’s rights hereunder.
e) Date of Termination. "Date of Termination" means the date of receipt of the
Notice of Termination or any later date (taking into account any applicable
notice and cure period) specified therein, as the case may be; provided
however, that (i) if the Executive's employment is terminated by the Company
other than for Cause, death or Disability, the Date of Termination shall be the
date on which the Company notifies the Executive of such termination, and (ii)
if the Executive's employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
a) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for (i) payment of the sum of the following
amounts: (A) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (B) the product of (I) the Target
Bonus for the fiscal year in which the Date of Termination occurs and (II) a
fraction, the numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365, and (C)
any accrued and unpaid Annual Bonus amounts, compensation or vacation
pay, in each case, to the extent not yet paid by the Company (the amounts
described in subparagraphs (A), (B) and (C) are hereafter referred to as
"Accrued Obligations" and shall be paid to the Executive’s estate or beneficiary,
as applicable, in a lump sum in cash within 30 days of the Date of Termination),
and (ii) any other benefits or compensation payable under any employee
benefit plan in accordance with the applicable plans’ terms, including, without
limitation, any non-qualified plan; Subject to the provisions of Section 9 hereof,
but, otherwise, anything herein to the contrary notwithstanding, the Executive's
family shall be entitled to receive benefits at least equal to the most favorable
benefits provided by the Company and any of its affiliated companies to
surviving families of peer executives of the Company and such affiliated
companies under such plans,
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programs, practices and policies relating to family death benefits, if any, as in
effect with respect to other peer executives and their families at any time during
the one year period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect on the date
of the Executive's death with respect to other peer executives of the Company
and its affiliated companies and their families.
b) Disability. If the Executive's employment is terminated by reason of the
Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment of
the Accrued Obligations (which shall be paid in a lump sum in cash within 30
days of the Date of Termination). Subject to the provisions of Section 9 hereof,
but, otherwise, anything herein to the contrary notwithstanding, the Executive
shall be entitled after the Disability Effective Date to receive disability and other
benefits at least equal to the most favorable of those provided by the Company
and its affiliated companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, as in effect with respect to other peer executives and their
families at any time during the one year period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter with respect to other peer executives
of the Company and its affiliated companies and their families.
c) Cause, Other than for Good Reason. If the Executive's employment shall be
terminated by the Company for Cause or by the Executive other than for Good
Reason (and other than by reason of his death or disability) during the
Employment Period, this Agreement shall terminate without further obligations
to the Executive other than the obligation to pay to the Executive Annual Base
Salary through the Date of Termination. In such case, such amounts shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination. The Executive shall, in such event, also be entitled to any benefits
required by law that are not otherwise provided by this Agreement.
d) Termination Following a Change of Control by the Company without Cause or
by the Executive for Good Reason. Following a Change of Control if the
Executive is terminated by the Company without Cause or he resigns for Good
Reason during the Employment Period, then the Executive shall be entitled to
each and all of the following:
i.
the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination (A) the Executive's Annual Base
Salary through the Date of Termination to the extent not theretofore
paid, (B) the product of (I) the Target Bonus for the fiscal year in which
the Date of Termination occurs and (II) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365, and (C) any
accrued and unpaid Annual Bonus amounts, compensation or vacation
pay, in each case, to the
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extent not yet paid by the Company
ii.
the Company shall pay to the Executive a lump sum amount in cash
within 30 days after the Date of Termination (such amount shall be
hereinafter referred to as the “Change of Control Payment”) equal to the
product of (X) one point five (1.5) multiplied by the sum of (i) (Y) the
Annual Base Salary for the fiscal year immediately preceding the Date
of Termination and (ii) the greatest of (a) the average (annualized for
any fiscal year consisting of less than twelve full months or with respect
to which the Executive has been employed by the Company for less
than twelve full months) bonus paid or that has been earned and
accrued, but unpaid to the Executive by the Company and its affiliated
companies in respect of the three fiscal years immediately preceding
the fiscal year in which the Date of Termination occurs, (b) the Annual
Bonus paid for the fiscal year immediately preceding the fiscal year in
which the Date of Termination occurs, or (c) the Target Bonus for the
fiscal year in which the Date of Termination occurs ; and
iii.
the Company shall pay to the Executive in a lump sum in cash within 30
days the amount equal to one point five (1.5) times the Company share
of the annual group medical and/or dental insurance premium for such
coverage that was in place for the Executive immediately prior to the
Date of Termination; and
iv. notwithstanding any other provisions to the contrary contained herein or
in any option agreement, restricted stock agreement or other equity
compensation agreement, between the Company and the Executive, or
any stock option, restricted stock or other equity compensation plans
sponsored by the Company, unless such agreement or plan expressly
references and supercedes this Agreement, then all unvested options,
restricted stock or stock appreciation rights which Executive then holds
to acquire securities from the Company shall be immediately and
automatically vested and/or exercisable as of the Date of Termination,
and the Executive shall have the right to exercise any such options or
stock appreciation rights for the longer of (A) the period of time provided
for in the applicable equity award agreement or plan, or (B) the shorter
of one year after the Date of Termination or the remaining term of the
applicable equity award.
e) Termination by the Company Without Cause or by Executive for Good Reason.
If the Executive's employment with the Company shall be terminated by the
Company without Cause or by the Executive for Good Reason (as defined in
Section 5(c) without regard to whether a Change of Control has occurred) at
any time prior to the Effective Date, then the Executive shall be entitled to each
and all of the following:
i.
the Company shall pay the Executive within 30 days after the Date of
Termination (A) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, and (B) any accrued and
unpaid Annual Bonus amounts, compensation or vacation pay, in each
case,
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to the extent not yet paid by the Company
ii.
the Company shall pay the Executive within 30 days after the Date of
Termination the product of (I) the greater of (a) the average bonus paid
or that has been earned and accrued, but unpaid to the Executive by
the Company and its affiliated companies in respect of the three fiscal
years immediately preceding the fiscal year in which the Date of
Termination occurs, and (b) the Annual Bonus paid for the fiscal year
immediately preceding the Date of Termination (both (a) and (b)
annualized for any fiscal year consisting of less than twelve full months
or with respect to which the Executive has been employed by the
Company for less than twelve full months), and (c) the Executive’s
target Annual Bonus and (II) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365,
iii.
the Company shall continue to pay the Executive his Base Salary from
the Date of Termination, according to the Company’s normal payroll
schedule and practices and subject to applicable tax withholding, for
duration of the severance period. The severance period shall be equal
to the lesser of (a) the number of months the Executive has been
employed by the Company and (b) one (1) year. For purposes of this
Section 6(e)(iii), the calculation of months shall include any fraction of a
month; and
iv. To the extent the Executive participated in the Company’s group
medical/dental insurance immediately prior to the Date of Termination, if
Executive elects to continue receiving group medical and/or dental
insurance under the continuation coverage rules known as COBRA, the
Company shall pay the Company share of the premium for such
coverage that it pays for active and similarly-situated employees who
receive the same type of coverage (single, family, or other) until the end
of the period for which the Company is paying Executive his current
base salary pursuant to Section 6(e)(iii).
f) Mitigation. The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of
any compensation or benefits provided to the Executive in any subsequent
employment.
g) Other Severance Benefits. The severance pay and benefits provided for in
Section 6(e) shall be in lieu of any other severance or termination pay to which
the Executive may be entitled under any Company severance or termination
plan, program, practice or arrangement. The Executive's entitlement to any
other compensation or benefits shall be determined in accordance with the
Company's employee benefit plans and other applicable programs, policies and
practices then in effect.
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7. Non-exclusivity of Rights. Except as provided in Section 6, nothing in this Agreement
shall prevent or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plans, programs, policies or practices, provided by the
Company or any of its affiliated companies and for which the Executive may qualify,
nor shall anything herein limit or otherwise affect such rights as the Executive may
have under any other agreements with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is otherwise entitled to
receive under any plan, policy, practice or program of the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program except as explicitly modified by
this Agreement.
8. Full Settlement.
a) The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, except as provided in Section 6(d)
(ii), such amounts shall not be reduced whether or not the Executive obtains
other employment.
b) Prior to the occurrence of a Change of Control, the Company agrees to
reimburse the Executive for all legal fees and expenses which the Executive
may reasonably incur as a result of any contest by the Company, the Executive
or others of the validity or enforceability of, or liability under, any provision of
this Agreement or any guarantee of performance thereof, if the Executive
prevails in such contest. Following a Change of Control, the Company agrees
to pay promptly as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any
contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof.
c)
If there shall be any dispute between the Company and the Executive (i) in the
event of any termination of the Executive’s employment by the Company,
whether such termination was for Cause, or (ii) in the event of any termination
of employment by the Executive, whether Good Reason existed, then, unless
and until there is a final, nonappealable judgment by a court of competent
jurisdiction declaring that such termination was for Cause or that the
determination by the Executive of the existence of Good Reason was not made
in good faith, the Company shall pay all amounts, and provide all benefits, to
the Executive and/or the Executive’s family or other beneficiaries, as the case
may be, that the Company would be required to pay or provide pursuant to
Section 6(d) as though such termination were by the Company without Cause,
or by the Executive with Good Reason; provided, however, that the Company
shall not be required to pay any disputed amount pursuant to this paragraph
except upon receipt of an undertaking
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by or on behalf of the Executive to repay all such amounts to which the
Executive is ultimately adjudged by such court not to be entitled.
9. 280G Protection.
a)
In the event that the Executive shall become entitled to payment and/or
benefits provided by this Agreement or any other amounts in the “nature of
compensation” (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, any person whose actions
result in a change of ownership or effective control covered by Section 280G(b)
(2) of the Internal Revenue Code (the “Code”) or any person affiliated with the
Company or such person) as a result of such change in ownership or effective
control (collectively the “Company Payments”), and such Company Payments
will be subject to the tax (the “Excise Tax”) imposed by Section 4999 of the
Code (and any similar tax that may hereafter be imposed by any taxing
authority) the Company shall pay to the Executive the greater of the following,
whichever gives the Executive the highest net after-tax amount (after taking
into account federal, state, local and social security taxes at the maximum
marginal rates) (x) the Company Payments or (y) one dollar less than the
amount of the Company Payments that would subject the Executive to the
Excise Tax. In the event that the Company Payments are required to be
reduced pursuant to the foregoing sentence, then the Company Payments shall
be reduced as mutually agreed between the Company and the Executive or, in
the event the parties cannot agree, in the following order (1) any lump sum
severance based on Base Salary or Annual Bonus, (2) any other cash amounts
payable to the Executive, (3) any benefits valued as parachute payments; and
(4) acceleration of vesting of any equity.
b) For purposes of determining whether any of the Company Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (x) the Company
Payments shall be treated as “parachute payments” within the meaning of
Section 280G(b)(2) of the Code, and all “parachute payments” in excess of the
“base amount” (as defined under Code Section 280G(b)(3) of the Code) shall
be treated as subject to the Excise Tax, unless and except to the extent that, in
the opinion of the Company’s independent certified public accountants
appointed prior to any change in ownership (as defined under Section 280G(b)
(2) of the Code) or tax counsel selected by such accountants or the Company
(the “Accountants”) such Company Payments (in whole or in part) either
expressly do not constitute “parachute payments,” represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the “base amount” or are otherwise not
subject to the Excise Tax, and (y) the value of any non-cash benefits or any
deferred payment or benefit shall be determined by the Accountants. All
determinations hereunder shall be made by the Accountants which shall
provide detailed supporting calculations both to the Company and the
Executive at such time as it is requested by the Company or the Executive. If
the Accountants determine that payments under this Agreement must be
reduced pursuant to this paragraph, they shall furnish the Executive with a
written opinion to such effect. The determination of the Accountants shall be
final and binding upon
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the Company and the Executive.
c)
In the event of any controversy with the Internal Revenue Service (or other
taxing authority) with regard to the Excise Tax, the Executive shall permit the
Company to control issues related to the Excise Tax (at its expense), provided
that such issues do not potentially materially adversely affect the Executive, but
the Executive shall control any other issues. In the event the issues are
interrelated, the Executive and the Company shall in good faith cooperate so as
not to jeopardize resolution of either issue, but if the parties cannot agree the
Executive shall make the final determination with regard to the issues. In the
event of any conference with any taxing authority regarding the Excise Tax or
associated income taxes, the Executive shall permit the representative of the
Company to accompany the Executive, and the Executive and the Executive’s
representative shall cooperate with the Company and its representative.
10. Confidential Information. The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during the Executive's
employment by the Company or any of its affiliated companies and which shall not be
or become public knowledge (other than by acts by the Executive or representatives of
the Executive in violation of this Agreement). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other than
the Company and those designated by it. In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
11. Successors.
a) This Agreement is personal to the Executive and without the prior written
consent of the Company shall not be assignable by the Executive otherwise
than by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Executive's legal representatives.
b) This Agreement shall inure to the benefit of and be binding upon the Company
and its successors and assigns.
c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken
place. The Company shall provide written evidence to the Executive to
document compliance with the foregoing sentence within ten (10) business
days of the Effective Date. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to
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its business and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise. In addition, the Executive
shall be entitled, upon exercise of any outstanding stock options or stock
appreciation rights of the Company, to receive in lieu of shares of the
Company’s stock, shares of such stock or other securities of such successor as
the holders of shares of the Company’s stock received pursuant to the terms of
the merger, consolidation or sale.
12. Compliance With Section 409A of the Internal Revenue Code. To the extent
applicable, it is intended that this Agreement comply with the provisions of Section
409A of the Code (hereinafter referred to as “Section 409A”). This Agreement shall be
administered in a manner consistent with its intent, and any provision that would cause
the Agreement to fail to satisfy Section 409A shall have no force and effect until
amended to comply with Section 409A. Notwithstanding any provision of this
Agreement to the contrary, in the event any payment or benefit hereunder is
determined to constitute non-qualified deferred compensation subject to Section 409A,
then to the extent necessary to comply with Section 409A, such payment or benefits
shall not be made, provided or commenced until six (6) months after the Executive’s
“separation from service” as such phrase is defined for the purposes of Section 409A.
13. Release. The Executive agrees that, with the exception of the Accrued Obligations
due to him in accordance with the terms hereunder, that the payment of any severance
under this Agreement to the Executive by the Company, is subject to and conditioned
on Executive executing a general release of the Company in a form and scope
determined by the Company in its sole discretion (the “Release Agreement”), without
Executive revoking such Release Agreement within fifty-two (52) days of the Date of
Termination (the “Consideration Period”) and provided that (a) if the Date of
Termination occurs in one calendar year and the Consideration Period (including the
payment date) expires during the following calendar year, then notwithstanding
anything herein to the contrary, the payments of severance under Section 6(e) will be
paid by the Company to the Executive in the second calendar year; (b) the Executive
continues to comply with the provisions of the Non-Competition Agreement; and (c)
prior to the expiration of the Consideration Period (i) Executive provides satisfactory
evidence to the Company that he has returned all Company property, confidential
information and documentation to the Company, and (ii) provides the Company with a
signed written resignation of Executive’s status as an officer of the Company or any of
its affiliates, if applicable.
14. Miscellaneous.
a) This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended
or modified otherwise than by a written agreement executed by the parties
hereto or their respective successors and legal representatives.
b) All notices and other communications hereunder shall be in writing and shall
be given by hand delivery to the other party or by registered or certified mail,
return
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receipt requested, postage prepaid, addressed as follows:
If to the Executive:
505 Natalie Drive
West Chester PA 19382
If to the Company:
Idera Pharmaceuticals, Inc.
505 Eagleview Blvd.
Suite 212
Exton PA 19341
Attention: Chief Executive Officer
or to such other address as either party shall have furnished to the other in writing in
accordance herewith. Notices and communications shall be effective when actually
received by the addressee.
c) The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.
d) The Company may withhold from any amounts payable under this Agreement such
Federal, state or local taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
e) The Executive's or the Company’s failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or any other
provision thereof.
f) This Agreement contains the entire understanding of the Company and the Executive
with respect to the rights and other benefits that the Executive shall be entitled during
the Employment Period, and in connection therewith shall supersede all prior oral and
written communications with the Executive with respect thereto; provided, however,
that the Invention, Non-Disclosure and Non-Competition Agreement, option or other
equity agreements or other employment agreement by and between the Company and
Executive shall remain in full force and effect and if the Company’s separation policy
would provide greater benefits to the Executive than this Agreement, then the
Executive may elect to receive benefits under the Company’s separation policy in lieu
of the benefits provided hereunder. Nothing herein shall affect the application of the
Company’s separation policy in lieu of the benefits provided hereunder. Nothing herein
shall affect the application of the Company’s separation policy prior to the Effective
Date.
g) The Executive and the Company acknowledge that, except as may otherwise be
provided under this Agreement or any other written agreement between the Executive
and the Company, prior to the Effective Date, the employment of the Executive by the
Company is “at will” and may be terminated by either the Executive or the Company at
any time. Notwithstanding anything contained herein, if during or prior to the
Employment Period,
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the Executive shall terminate employment with the Company other than for Good
Reason, then the Executive shall have no liability to the Company.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the
authorization from its Board of Directors, the Company has caused these presents to be executed
in its name on its behalf, all as of the day and year first above written.
[Signature page follows]
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IDERA PHARMACEUTICALS, INC.
By:
/S/ VINCENT J.
MILANO
Vincent J. Milano
Chief Executive Officer
EXECUTIVE
/S/ DANIEL SOLAND
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Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 No. 333-152669) pertaining to the 2008 Stock Incentive Plan of Idera Pharmaceuticals,
Inc.
(2) Registration Statement (Form S-8 No. 333-176067) pertaining to the 2008 Stock Incentive Plan and 1995 Employee Stock
Purchase Plan of Idera Pharmaceuticals, Inc.
(3) Registration Statement (Form S-8 No. 333-191076) pertaining to the 2013 Stock Incentive Plan of Idera Pharmaceuticals,
Inc.
(4) Registration Statement (Form S-8 No. 333-197062) pertaining to the 2013 Stock Incentive Plan of Idera Pharmaceuticals,
Inc.
(5) Registration Statement (Form S-8 No. 333-202691) pertaining to Inducement Stock Option Awards of Idera Pharmaceuticals,
Inc.
(6) Registration Statement (Form S-8 No. 333-206129) pertaining to the 2013 Stock Incentive Plan, as amended, of Idera
Pharmaceuticals, Inc.
(7) Registration Statement (Form S-8 No. 333-210090) pertaining to an Inducement Stock Option Award of Idera
Pharmaceuticals, Inc.
(8) Registration Statement (Form S-1 as amended by Form S-3/A No. 333-136610) of Idera Pharmaceuticals, Inc.
(9) Registration Statement (Form S-1 as amended by Form S-3/A No. 333-187155) of Idera Pharmaceuticals, Inc.
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
Registration Statement (Form S-2 as amended by Form S-3/A No. 333-109630) of Idera Pharmaceuticals, Inc.
Registration Statement (Form S-3 No. 333-119943) of Idera Pharmaceuticals, Inc.
Registration Statement (Form S-3 No. 333-126634) of Idera Pharmaceuticals, Inc.
Registration Statement (Form S-3 No. 333-131804) of Idera Pharmaceuticals, Inc.
Registration Statement (Form S-3 No. 333-133455) of Idera Pharmaceuticals, Inc.
Registration Statement (Form S-3 No. 333-133456) of Idera Pharmaceuticals, Inc.
Registration Statement (Form S-3 No. 333-139830) of Idera Pharmaceuticals, Inc.
Registration Statement (Form S-3 as amended by Form S-3/A No. 333-185392) of Idera Pharmaceuticals, Inc.
Registration Statement (Form S-3 No. 333-186312) of Idera Pharmaceuticals, Inc.
Registration Statement (Form S-3 No. 333-189700) of Idera Pharmaceuticals, Inc.
Registration Statement (Form S-3 No. 333-191073) of Idera Pharmaceuticals, Inc.
Registration Statement (Form S-3 No. 333-210140) of Idera Pharmaceuticals, Inc.
Registration Statement (Form S-8 No. 333-217665) pertaining to an Inducement Stock Option Award of Idera
Pharmaceuticals, Inc.
Registration Statement (Form S-8 No. 333-219740) pertaining to the 2017 Employee Stock Purchase Plan of Idera
Pharmaceuticals, Inc.
Registration Statement (Form S-8 No. 333-219741) pertaining to the 2013 Stock Incentive Plan, as amended, of
Idera Pharmaceuticals, Inc.
Registration Statement (Form S-8 No. 333-232609) pertaining to the 2017 Employee Stock Purchase Plan of Idera
Pharmaceuticals, Inc.
(26)
(27)
(28)
(29)
(30)
Registration Statement (Form S-8 No. 333-232610) pertaining to the 2013 Stock Incentive Plan, as amended, of
Idera Pharmaceuticals, Inc.
Registration Statement (Form S-3 No. 333-238868) of Idera Pharmaceuticals, Inc.
Registration Statement (Form S-3 No. 333-240361) of Idera Pharmaceuticals, Inc.
Registration Statement (Form S-3 No. 333-240366) of Idera Pharmaceuticals, Inc.
Registration Statement (Form S-3 No. 333-248560) of Idera Pharmaceuticals, Inc.
of our report dated March 1, 2021, with respect to the financial statements of Idera Pharmaceuticals, Inc. included in this Annual
Report (Form 10-K) of Idera Pharmaceuticals, Inc. for the year ended December 31, 2020.
Philadelphia, Pennsylvania
March 1, 2021
/s/ ERSNT & YOUNG LLP
Exhibit 31.1
Certification of Chief Executive Officer pursuant to Exchange
Act Rules 13a-14 and 15d-14, as adopted pursuant to
Section 302 of Sarbanes-Oxley Act of 2002
I, Vincent J. Milano, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Idera Pharmaceuticals, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this annual report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred
during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control and financial reporting.
Dated: March 1, 2021
/s/ Vincent J. Milano
Vincent J. Milano
Chief Executive Officer
Exhibit 31.2
Certification of Chief Financial Officer pursuant to Exchange
Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of
Sarbanes-Oxley Act of 2002
I, John J. Kirby, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Idera Pharmaceuticals, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this annual report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred
during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control and financial reporting.
Dated: March 1, 2021
/s/ John J. Kirby
John J. Kirby
Chief Financial Officer
Exhibit 32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Idera Pharmaceuticals, Inc. (the “Company”) for the period
ended December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned, Vincent J. Milano, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C.
Section 1350, that to his knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
A signed original of this written statement has been provided to Idera Pharmaceuticals, Inc. and will be retained by
Idera Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Dated: March 1, 2021
/s/ Vincent J. Milano
Vincent J. Milano
Chief Executive Officer
Exhibit 32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Idera Pharmaceuticals, Inc. (the “Company”) for the period
ended December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned, John J. Kirby, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350,
that to his knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
A signed original of this written statement has been provided to Idera Pharmaceuticals, Inc. and will be retained by
Idera Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Dated: March 1, 2021
/s/ John J. Kirby
John J. Kirby
Chief Financial Officer