BIOTHERAPEUTICS
2017 ANNUAL REPORT
ADVANCING IMMUNO-ONCOLOGY
LETTER FROM THE PRESIDENT & CEO
DEAR IOVANCE BIOTHERAPEUTICS
STOCKHOLDERS,
it has been almost two years since I joined Iovance
Biotherapeutics to develop and ultimately com-
mercialize tumor-infiltrating lymphocytes (TIL) as
a therapeutic option for cancer patients with solid
tumors. While the use of cellular therapies to treat
solid tumors is still novel and has its challenges,
our team’s hard work, persistence, constant
innovation, and your gracious financial support is
beginning to pay off as shown by the advance-
ments we have made in the clinic, manufacturing
and on the regulatory fronts. In fact, there has
never been a more exciting time to be involved
in adoptive cell transfer (ACT) or cancer immu-
notherapy, since Dr. Steven Rosenberg’s seminal
discovery of TIL, where a patient’s own TIL could
be “reenergized” to treat melanoma. We now
have a broad clinical pipeline which includes four
Phase 2 studies in melanoma, cervical, head &
neck and non-small-cell lung cancer (NSCLC). The
NSCLC study is being conducted in collaboration
with MedImmune/AstraZeneca, and is investigat-
ing a TIL plus durvalumab treatment combination
as well as TIL therapy alone.
As we are working feverishly to complete our
clinical trials, Iovance has undergone extensive
changes since 2016 with the addition of three new
board members who bring significant experience
in finance, drug development and forming collab-
orations. Within Iovance, a full drug development
team is in place, with seasoned experts represent-
ing each core function of the company.
Over the past year, vast improvements have
been made in our proprietary manufacturing pro-
cess: our manufacturing time has decreased from
six weeks to 22 days using our newly-developed
Gen 2 technology. Melanoma patients, dosed
with this expedited product, had similar clinical
responses as observed with our original, longer
process. Henceforth, patients in all studies will
receive the product derived from the stream-
lined Gen 2 process. The Gen 2 process not only
significantly reduces the wait time for patients to
receive their expanded TIL, it also allows great
flexibility in scheduling a patient’s dosing since
the product is cryopreserved. Lastly, the cost of
manufacturing per batch has been reduced by
approximately 35%; and most importantly, our
manufacturing success rate now is as high as 95%.
Our lead program investigating TIL in mela-
noma, C-144-01, expanded during 2017 and further
in 2018, and now consists of three cohorts that
can treat up to 85 patients. We released data
from two of these cohorts (i.e., the LN-144 study)
demonstrating objective response rates (ORRs)
of 29–40% in heavily pre-treated patients at two
medical meetings during the year, ASCO 2017 and
SITC 2017. We continue to engage with the FDA
to define the most efficient registration pathway
forward for this product and have received help-
ful and favorable feedback on the appropriate
patient population.
We started patient dosing in two additional new
clinical trials in 2017: one in cervical cancer and
one in head & neck cancer. Enrollment in both
studies continues and the cervical cancer study
has been expanded to include sites in Europe.
Preliminary data in both cervical and head & neck
cancers demonstrate efficacy in each indication.
Although these results come from early analyses
and small sample sizes, it is very encouraging to
observe effectiveness of TIL in other indications,
especially in heavily pre-treated patients with
very few available treatment options. Additionally,
clinical sites have also been identified and recently
activated to support the investigation of TIL for
the treatment of NSCLC.
Our fundraising efforts, in late 2017 and early
2018, yielded $216 million for research and
development. Iovance is unique as it has no debt
and held $307 million in cash at year-end. These
funds are being used to build new generations
of TIL products to propel Iovance forward as a
“Significant progress was made
at Iovance during 2017. We
continue this momentum into
2018 as we further pursue our
vision to make TIL a widely
available cancer therapy.”
leader in cancer treatment and to truly develop
patient- specific immunotherapies in multiple
cancer types.
New collaborations were established in 2017–18,
while maintaining those previously formed. We
continue to work closely with Dr. Rosenberg at
the NCI under a five-year CRADA which is ex-
pected to last through 2021. We have an ongoing
collaboration with the MD Anderson Cancer Cen-
ter to initiate clinical studies in sarcoma, ovarian
and pancreatic cancers. We are working closely
with the Moffitt Cancer Center on multiple clinical
studies including NSCLC and melanoma. And
lastly, we are carefully monitoring and upgrading
relationships with our suppliers and vendors, as
needed, to ensure a continuous supply of raw ma-
terials are available to support Iovance’s current
level of R&D activities.
With respect to current intellectual property, if
granted, patent applications covering our Gen 2
technology alone may provide protection from
competitors through 2038.
In summary, significant progress was made at
Iovance during 2017. We continue this momentum
into 2018 as we further pursue our vision to make
TIL a widely available cancer therapy. We also
believe early-line therapy using TIL combined
with approved agents, may offer patients a deep
and durable clinical response. We intend to further
expand on this strategy during 2018.
We would like to thank our employees, stock-
holders, and clinical investigators who have worked
tirelessly and shown dedication to make these
achievements possible, and look forward to report-
ing further success throughout the coming year.
Dr. Maria Fardis
PRESIDENT & CHIEF EXECUTIVE OFFICER
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transaction period from __________ to __________
Commission file number: 001-36860
IOVANCE BIOTHERAPEUTICS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
999 Skyway Road, Suite 150, San Carlos, California
(Address of Principal Executive Offices)
75-3254381
(I.R.S. Employer
Identification No.)
94070
(Zip Code)
(650) 260-7120
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $ 0.000041666 Par Value per Share
Name Of Each Exchange
On Which Registered
The Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the 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 and posted on its corporate website, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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 (Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate market value of the registrant’s common stock held by non-affiliates on June 30, 2017, the last business day of the registrant’s most recently completed second fiscal
quarter, was approximately $363,066,000. Shares of common stock held by directors and executive officers and any ten percent or greater stockholders and their respective
affiliates have been excluded from this calculation, because such stockholders may be deemed to be "affiliates" of the Registrant. This is not necessarily determinative of affiliate
status of other purposes. As of February 28, 2018, there were 89,445,753 shares of the registrant’s common stock outstanding.
Portions of registrant’s proxy statement relating to registrant’s 2018 Annual Meeting of Stockholders (the “Proxy Statement”) to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, not later than 120 days after the close of the registrant’s fiscal year, are incorporated by reference in Part III of this Annual Report on
Form 10-K. Except with respect to information specifically incorporated by reference in this Annual Report on Form 10-K, the Proxy Statement is not deemed to be filed as part of
this Annual Report on Form 10-K.
Documents Incorporated By Reference
TABLE OF CONTENTS
Page
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings.
Mine Safety Disclosures.
Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence.
Principal Accounting Fees and Services.
Exhibits, Financial Statements Schedules.
10-K Summary.
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Forward-Looking Statements and Market Data
This Annual Report on Form 10-K contains forward-looking statements that are based on management’s beliefs and assumptions and on
information currently available to management. All statements other than statements of historical facts contained in this report are forward-
looking statements. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,”
“should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “aim,” “potential,” “continue,” “ongoing,”
“goal,” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words.
These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to
be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a
reasonable basis for each forward-looking statement contained in this report, we caution you that these statements are based on a combination
of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Forward-looking statements in
this Annual Report on Form 10-K include, but are not limited to, statements about:
the success, cost and timing of our clinical trials;
the success, cost and timing of our product development activities;
the ability of our third-party contract manufactures to continue to manufacture tumor infiltrating lymphocytes, or TIL, in accordance
with our selected process;
the success of competing therapies that are or may become available;
our ability to attract and retain key scientific or management personnel;
the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization
of our product candidates;
the ability and willingness of our third-party research institution collaborators to continue research and development activities relating
to our product candidates;
the potential of our other research and development and strategic collaborations;
our expectations regarding our ability to obtain and maintain intellectual property protection for our manufacturing methods and
product candidates;
our plans to research, develop and commercialize our product candidates;
the size and growth potential of the markets for our product candidates, and our ability to serve those markets;
our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;
regulatory developments in the United States and foreign countries;
fluctuations in the trading price of our common stock; and
our use of cash and other resources.
We caution you that the risks, uncertainties and other factors referenced above may not contain all the risks, uncertainties and other factors that
are important to you. In addition, we cannot guarantee future results, level of activity, performance or achievements. Any forward-looking
statement made by us in this Annual Report on Form 10-K speaks only as of the date of this Annual Report on Form 10-K or as of the date on
which it is made. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether because of
new information, future events or otherwise, after the date of this Annual Report on Form 10-K.
Unless the context requires otherwise, in this report the terms “Iovance,” the “Company,” “we,” “us” and “our” refer to Iovance
Biotherapeutics, Inc.
1
Item 1.
Business
Overview
PART I
We are a clinical-stage biopharmaceutical company focused on the development and commercialization of novel cancer immunotherapy
products designed to harness the power of a patient’s own immune system to eradicate cancer cells. Our lead product candidate, LN-144 for
metastatic melanoma, is an autologous adoptive cell therapy utilizing tumor-infiltrating lymphocytes, or TIL, which are T cells derived from
patients’ tumors. TIL therapy is a platform technology that has already been studied for the treatment of metastatic melanoma and metastatic
cervical cancer by the National Cancer Institute, or NCI. We are investigating the effectiveness and safety of TIL therapy for the treatment of
metastatic melanoma, squamous cell carcinoma of the head and neck, cervical carcinoma, and metastatic non-small cell lung cancer, as well as
other oncology indications.
A patient’s immune system, particularly his or her TIL, plays an important role in identifying and killing cancer cells. TIL product
consists of a polyclonal population of T cells that are designed to recognize a wide variety of cancer-specific mutations. TIL treatment is
designed to target tumors through the polyclonal nature of the TIL product and can potentially overcome the hostile tumor microenvironment
based upon (a) the non-myeloablative chemotherapy that is a component of TIL therapy and (b) the nature of the TIL cells themselves. TIL
therapy involves four steps: (i) growing a patient’s TIL outside the patient’s body, or ex vivo, (ii) administering non-myeloablative
chemotherapy, (iii) infusing the expanded TIL back into the patient, and (iv) subsequent infusions of up to six doses of interleukin-2, or IL-2.
By expanding a patient’s TIL ex vivo, away from the immunosuppressive tumor microenvironment, the T cells can rapidly proliferate. As a
result, billions of TIL cells, when infused back into the patient, are better able to potentially eradicate tumors.
Manufacturing of TIL historically has typically taken 5-6 weeks and has yielded a non-cryopreserved TIL product. We have developed a
new manufacturing method that reduces the duration of manufacture of the TIL product to 22 days and allows for production of a
cryopreserved TIL product. We refer to our new manufacturing method as Generation 2, or Gen 2, manufacturing. We own the intellectual
property associated with Gen 2 manufacturing. In late 2017, we selected Gen 2 as the manufacturing method for TIL product to be used in all
our ongoing and upcoming trials. The cryopreserved TIL product offers greater flexibility in scheduling the dosing of patients, reduces the
period for patients to wait until they receive their TIL product infusion, and reduces the cost of manufacture.
We are pursuing metastatic melanoma as our first target indication because of the promising initial results in this indication generated by
Dr. Steven Rosenberg, M.D., Ph.D., Chief of the Surgery Branch of the NCI, and the commercial opportunity inherent in the significant unmet
need of this patient population. Melanoma is a common type of skin cancer, accounting for 87,110 patients diagnosed and 9,730 deaths in the
United States in 2017, according to the NCI’s Surveillance, Epidemiology and End Results, or SEER program. Patients with metastatic
melanoma following treatment under the current standards of care have a particularly dire prognosis with very few curative treatment options.
We have an on-going Phase 2 clinical trial, C-144-01, of our lead product candidate, LN-144, TIL for the treatment of metastatic
melanoma. This multicenter study is enrolling patients with melanoma whose disease has progressed following treatment with at least one
systemic therapy, including anti-PD-1 and if BRAF mutated, a BRAF inhibitor. The trial is currently active at fourteen U.S. sites. We anticipate
initiating patient dosing in Europe during the first half of 2018. The purpose of the study is to evaluate the efficacy and safety of our autologous
LN-144. As per Response Evaluation Criteria in Solid Tumors version 1.1, or RECIST 1.1 criteria, a reduction in tumor size of at least 30%
qualifies as a Partial Response, or PR, while the Objective Response Rate, or ORR, is defined as the proportion of patients who have either a
PR or a Complete Response, CR, to therapy. The trial’s primary objective is to characterize the efficacy of LN-144 based upon ORR.
Secondary outcome measures for safety and efficacy of LN-144 include Duration of Response, or DOR, and CR rates. We will evaluate other
secondary or exploratory endpoints. On December 13, 2017, we reported updated results from cohort 2 of the C-144-01 study, which used our
Gen 2 manufacturing process. The data reported showed clinically meaningful outcomes with a 40% ORR, which included four PRs, observed
in ten evaluable patients. The evaluable patients had a high tumor burden despite a median of 3.6 prior therapies, including both anti-CTLA 4
and anti-PD-1 treatments. The most common side effects of any grade were pyrexia, anemia and decreased neutrophil count. We have decided
to use our Gen 2 manufacturing process for all ongoing Phase 2 trials and in all future TIL clinical development in trials sponsored by us, and
as a result, cohort 1 of the C-144-01 melanoma study is closed to enrollment, and new patients are being enrolled in cohort 2.
We have received orphan drug designation for LN-144 in the United States to treat malignant melanoma stages IIB-IV. If approved, this
designation provides seven years of market exclusivity in the United States, subject to certain limited exceptions. However, the orphan drug
designation does not convey any advantage in or shorten the duration of the regulatory review or approval process. On August 31, 2017, we
were granted Fast Track designation by the U.S. Food and Drug Administration, or FDA, for LN-144, TIL in advanced melanoma.
In addition to our ongoing trial in metastatic melanoma, we have initiated clinical trials of LN-145, TIL therapy in cervical, head and
neck cancers, and non-small cell lung cancer, or NSCLC. C-145-03 is a Phase 2, multicenter study that will enroll up to 47 patients and will
assess the safety and efficacy of LN-145 for the treatment of patients with recurrent and/or metastatic squamous cell carcinoma of the head and
2
neck. The primary endpoint of this study is efficacy of LN-145 based on ORR. The trial has met the threshold for the first stage of the Simon’s
two-stage design pursuant to which a portion of the patients would be enrolled in the first stage, and, upon achievement of a pre-specified
minimal response rate, enrollment of the second stage would proceed. The trial will therefore continue to enroll patients to the full sample size
of 47 per protocol. In January 2018, we announced preliminary data from C-145-03 which demonstrated that three of the eight patients treated
with LN-145 had a PR, and the ORR in the study to date is 38%. These patients had a median of four prior treatments for their cancer and had
all received prior anti-PD-1 therapy. The most common side effects were pyrexia, chills, and hypotension. C-145-04 is a Phase 2, multicenter
study, designed as a Simon’s two -stage design to enroll up to 47 patients, and will assess the safety and efficacy of LN-145 for the treatment of
patients with recurrent, metastatic, or persistent cervical carcinoma. The study is open for enrollment of patients in the United States and we
anticipate the start of enrollment of patients in Europe in the first half of 2018. In January 2018, we reported preliminary data from C-145-04
which showed that of the two patients that are currently evaluable, one treated with LN-145 had a confirmed PR and one patient had stable
disease. We have amended the protocol so that newly-enrolled patients in both trials can be treated using TIL produced from our Gen 2
manufacturing process.
We are initiating our clinical development around NSCLC, with two studies. One of the studies is an investigator-sponsored Phase 2
study to be conducted at H. Lee Moffitt Cancer Center and Research Institute, or Moffitt, and the other will be sponsored by our company.
Patient enrollment has begun in the investigator-sponsored study in collaboration with researchers at Moffitt, Stand Up To Cancer, and others.
Patients who are treatment naïve to prior anti-PD-1/ PD-L1 with stage IV or recurrent NSCLC will be enrolled in a study combining TIL and
nivolumab. The Iovance-sponsored Phase 2 study in NSCLC patients who are PD-1 and PD-L1 treatment naïve, will initiate in the first half of
2018, in collaboration with MedImmune, the global biologics research and development arm of AstraZeneca. The study with MedImmune will
allow for enrollment with LN-145 alone or in combination with durvalumab. In the future, we plan to initiate additional indications alone or
through collaborations.
We are also initiating clinical trials as part of our strategic alliance with The University of Texas M.D. Anderson Cancer Center, or M.D.
Anderson, in multiple solid tumor cancers using two different TIL manufacturing processes, including our Gen 2 manufacturing process. These
multi-arm clinical trials will evaluate the safety and efficacy of TIL therapy in ovarian cancer, various sarcomas, and pancreatic cancer, and are
expected to begin enrollment in 2018.
Our current product candidate pipeline is summarized in the graphic below:
INDICATION
REGIMEN
N PARTNER
PRECLINICAL
PHASE 1
PHASE 2
Melanoma
TIL LN-144
Cervical Cancer
TIL LN-145
Head & Neck Cancer
TIL LN-145
Non-Small Cell Lung Cancer
TIL LN-145 vs
TIL LN-145 + durvalumab
—
—
—
60
47
47
24
Our current collaboration pipeline is summarized in the graphic below:
INDICATION
REGIMEN
N PARTNER
PRECLINICAL
PHASE 1
Combination TIL ± TBI
101
Combination TIL + Yervoy
Combination TIL + Keytruda
170
Combination TIL + Opdivo
12
23
Melanoma
Melanoma
Melanoma
Melanoma
Ocular (Uveal) Melanoma
Glioblastoma
Pancreatic Cancer
Ovarian, Sarcomas, Pancreatic
TIL
TIL
TIL
TIL
Non-small cell lung cancer
Combination TIL + Opdivo
18
Enrolling
Enrolling
Enrolling
Phase 2 trials to initiate in 2018
PHASE 2
Trial completed,
54% ORR, 24% CR
Trial completed,
publishing results
Enrolling
Phase 2 trials to initiate in 2018
Enrolling
Enrolling
For the studies listed in our collaboration pipeline table, the partner listed above is the sponsor of the clinical trial. Such partner may not
use our Gen 2 manufacturing process, and/or the therapeutic dosing may differ from our clinical trials. As a result, such partner data may not be
representative of our data.
3
2017 Developments
In 2017, we reported several significant events, including the following:
Clinical
We presented clinical data from the first cohort of our Phase 2 trial in metastatic melanoma, known as C-144-01, at the 2017
ASCO Annual Meeting in June.
We began patient dosing in the second cohort of C-144-01, our Phase 2 trial investigating LN-144 for the treatment of
patients with metastatic melanoma and reported preliminary data at the SITC Annual Meeting in November.
We began patient dosing in C-145-03, our Phase 2 trial of LN-145 for the treatment of patients with recurrent and/or
metastatic squamous cell carcinoma of the head and neck.
We began patient dosing in C-145-04, our Phase 2 trial of LN-145 for the treatment of patients with recurrent, metastatic or
persistent cervical carcinoma.
We entered into a new Clinical Grant Agreement, or CGA, with Moffitt to provide funding for a clinical study of TIL therapy
in lung cancer and began patient enrollment in a study in patients with advanced non-small cell lung cancer, or NSCLC,
combining TIL and nivolumab in patients who have progressed on nivolumab.
We entered into a multi-year strategic alliance with M.D. Anderson.
Regulatory
We received Fast Track designation for LN-144 for the treatment of advanced melanoma.
We submitted Clinical Trial Applications, or CTAs, in multiple countries in Europe in support of our Phase 2 clinical trials
and received approval to commence clinical trials in the Netherlands.
Research
We entered into a collaboration with the Ohio State University Comprehensive Cancer Center – Arthur G. James Cancer
Hospital and Richard J. Solove Research Institute, or OSUCCC – James, or Ohio State University, to evaluate TILs, marrow
infiltrating lymphocytes, or MILs, and peripheral-blood associated lymphocytes in acute myeloid leukemia, or AML, and
chronic lymphocytic leukemia, or CLL.
Manufacturing
We entered in to a new three-year Manufacturing Services Agreement, or MSA, with PharmaCell B.V., or PharmaCell, now
a subsidiary of Lonza Group Ltd., in the Netherlands.
We entered in to a new two-year MSA with Moffitt Cancer Center.
We commenced a partnership with TrakCel Ltd., or TrakCel, to build a scheduling and logistics software tool that automates
the supply chain for our TIL therapy.
Corporate
We changed our corporate name from Lion Biotechnologies, Inc. to Iovance Biotherapeutics, Inc. and
reincorporated from a Nevada corporation to a Delaware corporation.
We appointed Timothy E. Morris as our Chief Financial Officer in August 2017.
We raised approximately $53.7 million in net proceeds, after deducting underwriting discounts and offering expenses,
through a public offering that closed in September 2017.
Recent Developments
In January 2018, we closed an underwritten public offering of 15,000,000 shares of our common stock at a public offering price of
$11.50 per share, before underwriting discounts. The shares sold at closing included 1,956,521 shares issued upon the exercise in full by the
underwriter of its option to purchase additional shares at the public offering price less the underwriting discount. The gross proceeds from the
offering, before deducting the underwriting discounts and commissions and other estimated offering expenses payable by us, are $172.5 million
with estimated net proceeds to us of approximately $161.7 million.
On February 26, 2018, Jay Venkatesan, M.D., resigned from our board of directors, effective March 1, 2018. Separately, on March 1,
2018, our board of directors appointed Michael Weiser, M.D., Ph.D., as a director, effective March 15, 2018. Upon joining our board of
4
directors, Dr. Weiser will become a member of its audit committee and nominating and governance committee, and will become the chair of its
compensation committee.
Corporate Strategy
Our goal is to be a leader in the development and commercialization of TIL-based immunotherapies to treat solid tumors. We are
developing a portfolio of TIL-based product candidates with the potential to meaningfully improve survival and quality of life for cancer
patients. Key elements of our strategy include:
Expedite clinical development, regulatory approval, and commercialization of our lead product candidate LN-144 for the treatment
of metastatic melanoma.
Based on results of TIL therapy from NCI-sponsored and our own clinical trials in metastatic melanoma, we are focused on expediting
the development, regulatory approval and commercialization of our lead product candidate, LN-144, for the treatment of patients with
metastatic melanoma. We filed an IND with the FDA in December 2014 to initiate a company-sponsored Phase 2 single-arm, multicenter
clinical trial of LN-144 in patients with metastatic melanoma. We began enrollment of this study in the second half of 2015 and expanded it
into three cohorts in 2017. Cohort 1 evaluated our first-generation TIL manufacturing process, cohort 2 is evaluating our second-generation,
Gen 2, TIL manufacturing process and cohort 3 is evaluating retreatment of certain patients with a second dose of TIL. We announced initial
data from the first two arms of this trial at the ASCO and SITC Annual Meetings in 2017 and presented updated data from ongoing cohort 2 in
December 2017. In 16 and 10 evaluable patients, the ORRs were 29% and 40% from cohorts 1 and 2, respectively.
If results from this company-sponsored multi-center Phase 2 trial present clinically meaningful results for TIL therapy in patients with
metastatic melanoma who have failed to respond to or progressed on at least one line of prior therapy, we plan to initiate discussions with the
FDA in 2018 about a registration path for LN-144 and, when applicable, the filing of a Biologic License Application, or BLA, for approval of
LN-144 as a treatment for patients with metastatic melanoma. We may also initiate discussions with the FDA concerning expedited
development pathways, such as accelerated approval, which we believe may be warranted, given the limited options for patients with advanced
melanoma. However, even if the FDA grants accelerated approval, confirmatory post-approval trials may still be required by the FDA.
Continue to improve our TIL manufacturing process and develop new TIL manufacturing technology to become the preferred
provider of TIL therapy in the U.S. and the rest of the world.
We believe we are the only company in the United States to have a centralized TIL manufacturing process and location. In 2017, we
announced that our internal research and process development efforts had resulted in a second generation TIL manufacturing process, known as
Gen 2, which reduced TIL manufacturing time from 5-6 weeks to 22 days. Gen 2 also produces a cryopreserved product for ease of
administration and handling. The Gen 2 manufacturing process is now being utilized in cohort 2 of our ongoing LN-144 trial and has been
selected for all ongoing and future TIL clinical development. We also intend to include Gen 2 as the manufacturing process for registration for
our discussions with the FDA and eventually the anticipated BLA filing.
Collaborate with governmental, academic and corporate partners to improve and develop TIL therapies for new indications, for use
in combination with other therapies and to evaluate new manufacturing methods.
In addition to our own research and process development efforts, we seek to collaborate with government, academic research
institutions, and corporate partners to improve TIL manufacturing and to develop TIL therapies for new indications. In 2017, we also
announced collaborations with Moffitt, M.D. Anderson, and Ohio State University to evaluate several new solid tumor and hematologic
indications for TIL therapy in clinical and preclinical studies as well as, in some cases, new TIL manufacturing approaches. In September 2016,
we entered into a license agreement with PolyBioCept AB, a corporation organized under the laws of Sweden, or PolyBioCept, and a related
clinical trial with Karolinska University Hospital to evaluate a new cytokine cocktail for TIL manufacturing and the treatment of patients with
pancreatic cancer and glioblastoma. In August 2016, we expanded our Cooperative Research and Development Agreement, or CRADA, with
the NCI for another 5-year term. This collaboration with the NCI is directed at identifying new indications for, and variations of, unmodified
TIL therapy based on human proof-of-concept data. Our CRADA with the NCI addresses human papilloma virus, or HPV-associated cancers
(cervical and head and neck), lung, bladder, and breast cancer.
Academic research institutions
We currently have three CGAs with Moffitt involving investigator-sponsored trials. In December 2017, we announced an agreement
with Moffitt to evaluate TIL therapy in a clinical trial that combines TIL with nivolumab in NSCLC. Dosing in this clinical trial began in late
2017. The Phase 1 study (NCT03215810) is being conducted by Moffitt and is designed to enroll up to 18 patients with advanced NSCLC. In
December 2016, we entered into a three-year Sponsored Research Agreement, or SRA, with Moffitt. The SRA covers research aimed at better
understanding the characterization of T cell subsets that comprise TIL products and to enhance the therapeutic efficacy of TIL. Also in
5
December 2016, we announced a new clinical grant agreement with Moffitt under which we provide support for an ongoing clinical trial at
Moffitt that combines TIL therapy with nivolumab for the treatment of patients with metastatic melanoma.
In September 2017, we entered into a preclinical research collaboration with OSUCCC – James focused on TIL, MIL and peripheral
blood-associated lymphocyte technologies. The collaboration will initially focus on hematologic malignancies in areas of poor prognostic
cancers with high unmet medical need, which include AML and CLL.
In April 2017, we entered into a Strategic Alliance Agreement, or SAA, with M.D. Anderson to conduct clinical and preclinical research
studies of TIL therapies in several new indications, including sarcomas, ovarian cancer, and pancreatic cancer. The collaboration with M.D.
Anderson has multiple components including preclinical research to expand our understanding of TIL and two clinical trials. The trials will be
conducted by M.D. Anderson and will include one study with TIL manufactured (LN-145) by Iovance and one study with TIL manufactured
by M.D. Anderson. In the latter study, Bristol-Myers Squibb Co. will supply a 4-1BB (CD137) agonist antibody, urelumab, for use in the
manufacturing of TIL by M.D. Anderson pursuant to an agreement with us and M.D. Anderson. Both studies will enroll patients with various
sarcomas or platinum-resistant ovarian cancer. We plan to initiate dosing in these studies in 2018. Iovance has rights to certain intellectual
property related to the M.D. Anderson manufacturing method expected to be utilized in the study.
Corporate partners
In December 2017, we announced a new clinical trial under our collaboration with MedImmune. The Phase 2 multicenter study will be
sponsored by us and will enroll up to 24 PD-1/PD-L1 naïve patients and be composed of two cohorts to assess the efficacy and safety of LN-
145 alone and in combination with anti-PD-L1 inhibitor, (durvalumab) (MED14736), in patients with locally advanced or metastatic NSCLC.
This clinical trial is expected to begin enrolling patients in 2018 and will evaluate TIL therapy in combination with durvalumab. We entered
into our collaboration with MedImmune in December 2015 to conduct clinical and preclinical research in immuno-oncology. Under the terms
of the agreement, we will fund and conduct at least one clinical trial combining durvalumab with TIL, for the treatment of patients.
MedImmune will supply durvalumab for the clinical trials. The purpose of the study is to assess the efficacy and safety of TIL alone in this
patient population as well as TIL in combination with durvalumab.
In 2016, we entered into an exclusive license agreement with PolyBioCept to license certain rights to patent applications related to a
cytokine cocktail for expansion of TIL. In connection with this license, we entered into a clinical trial agreement with Karolinska University
Hospital in Sweden to conduct two clinical trials in patients with pancreatic cancer and glioblastoma with TIL manufactured using the cytokine
cocktail. Due to personnel changes at the Karolinska University Hospital, we expect the start of these clinical trials will be delayed to dates that
have not yet been determined. In connection with this license, we also agreed to enter into a sponsored research agreement with the Karolinska
Institute within 90 days after the date of the PolyBioCept Agreement, which date has been extended by amendments to the license. Failure to
amend the license will give PolyBioCept the right to terminate the license (and we will have the right to repayment of $2.2 million).
Establish initial manufacturing capacity for TIL products with contract manufacturing organizations.
We continue to invest in improving the process and efficiency of manufacturing our product candidates and to build a centralized
manufacturing capability in the United States and Europe for TIL manufacturing. Currently we use several contract manufacturing
organizations, or CMOs, to supply our TIL-based products for our clinical trials. CMOs limit the amount of upfront capital investment;
however, we may establish our own manufacturing facilities in the future for better margins and rapid implementation of innovative changes.
We intend to carefully manage our cost structure, and reduce the long-term cost of manufacturing our products, although there can be no
assurance that we will be able to reduce our manufacturing costs to commercially attractive levels.
In 2017, we entered into a three-year MSA and related statements of work with PharmaCell B.V., or PharmaCell, a contract
manufacturing services company based in the Netherlands, to manufacture our autologous cell therapy products for use in European clinical
trials. PharmaCell was subsequently acquired by Lonza Group Ltd., or Lonza. Lonza will manufacture TIL products in its clinical and
commercial facility in Geleen, the Netherlands.
Also in 2017, we entered into a two-year MSA and related statements of work with Moffitt, to manufacture our autologous cell therapy
products. Currently, we do not anticipate extending the term of this agreement.
In 2016, we entered into a three-year MSA and related statements of work with WuXi AppTec, Inc., or WuXi, in order to increase our
TIL manufacturing capacity in facilities with both clinical and commercial capability. We have extended the term of the related statements of
work until May 2020.
Iovance-Sponsored Trials
6
We currently have three ongoing Phase 2 clinical studies and intend to initiate an additional Phase 2 study in the first half of 2018. The
three ongoing studies include LN-144 for metastatic melanoma, LN-145 for recurrent, metastatic or persistent cervical carcinoma and LN-145
for recurrent and/or metastatic squamous cell carcinoma of the head and neck. We plan to initiate a study with LN-145 in NSCLC in 2018.
Each of the clinical trials includes autologous TIL infusion followed by IL-2 after a non-myeloablative chemotherapy preparative regimen for
the treatment of patients with metastatic melanoma. Additional information about the clinical studies is as follows:
LN-144 - Metastatic Melanoma
We are developing LN-144 to treat metastatic melanoma. Melanoma is a common type of skin cancer, accounting for approximately
87,110 patients diagnosed and 9,730 deaths each year in the United States according to the American Cancer Society, Cancer Facts and Figures
estimates for 2017. Our ongoing Phase 2 trial, C-144-01, (NCT02360579), is a prospective, 3-cohort interventional study evaluating LN-144 in
metastatic melanoma patients who have progressed after prior anti-PD-1 therapy and if BRAF mutant, after BRAF inhibitor. Patients enrolled
in this trial to date have typically failed several prior treatment regimens.
Patients with metastatic melanoma who have failed at least one treatment under the current standards of care have an unfavorable
prognosis with very few curative treatment options. The National Comprehensive Cancer Network, or NCCN, has updated its
recommendations for the treatment of patients with unresectable or metastatic melanoma. Initial therapy can include checkpoint inhibitors
either alone or in combination (ipilimumab, nivolumab, pembrolizumab), targeted therapies for patients with BRAF mutations
(dabrafenib/trametinib, vemurafenib/cobimetinib combinations or single agents) or participating in a clinical trial. For patients not responding
or progressing and who have an adequate clinical status, agents selected from the previous list but of a different therapeutic class can be used as
well as high dose IL-2. NCCN experts also recommend participating in a clinical trial at any stage of disease. Patients who do not respond to
the current second-line therapies have very few treatment options and typically have a very poor prognosis, with limited median survival
measured in months.
LN-145 - Head and Neck Cancer
We are developing LN-145 to treat head and neck cancers. In June 2017, we enrolled our first patient in our ongoing Phase 2 trial, C-
145-03, (NCT03083873) for the treatment of patients with recurrent and/or metastatic squamous cell carcinoma of the head and neck, who have
failed one prior therapy. The trial has met the initial efficacy threshold for the first stage of the Simon’s two stage design, which is an initial
evaluation of patient response. The trial will therefore continue to enroll patients to the full sample size of 47 per protocol. We have amended
the protocol so that newly enrolled patients can be treated using LN-145 produced from the Gen 2 manufacturing process. In January 2018, we
announced preliminary data from this study which demonstrated that three of the eight patients treated with LN-145 had a reduction in tumor
size of at least 30% and qualified as a PR, and the ORR in the study to date is 38%. These patients had a median of 4 prior treatments for their
cancer and had all received prior anti-PD-1 therapy. The most common side effects were pyrexia, chills, and hypotension.
According to estimates from the SEER program, approximately 63,030 people were diagnosed with head- and neck-related cancers, and
approximately 13,360 head- and neck-related cancer deaths occurred in the United States in 2017.
LN-145 - Cervical Cancer
We are developing LN-145 to treat cervical cancer. In August 2017, we enrolled our first patient in our ongoing Phase 2 trial, C-145-04
(NCT03108495) for the treatment of patients with recurrent, metastatic or persistent cervical carcinoma who have failed one prior therapy. The
study is enrolling patients in the United States and is expected to start enrollment of patients in Europe in the first half of 2018. We have
amended the protocol so that newly enrolled patients can be treated with LN-145 produced from the Gen 2 manufacturing process. In January
2018, we reported preliminary data from C-145-04 which showed that of the two patients that are currently evaluable, one treated with LN-145
had a confirmed PR and one patient had stable disease.
According to estimates from the SEER program, approximately 12,820 women were diagnosed with cervical cancer, and approximately
4,210 cervical cancer-related deaths occurred in the United States in 2017.
LN-145 - Non-Small Cell Lung Cancer
We are developing LN-145 for NSCLC. Under our collaboration with MedImmune, we plan to initiate a two-cohort Phase 2 trial, IOV-
LUN-201, alone or in combination with durvalumab for the treatment of patients with locally advanced metastatic NSCLC. Patients in this
study will be naïve to PD-1 or PD-L1 therapy. The study is expected to begin enrollment in 2018. Patients will be treated with LN-145
produced from the Gen 2 manufacturing process.
According to estimates from the SEER program, approximately 222,500 people were diagnosed with lung and bronchus cancers, and
approximately 155,870 deaths occurred related to these cancers in the United States in 2017.
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Other Trials
TIL in Other Solid Tumor Indications
We are collaborating with M.D. Anderson on clinical trials to evaluate TIL therapy in sarcomas, ovarian cancer and pancreatic cancer.
These trials are expected to begin enrolling patients in the first half of 2018. Patients in these studies will be treated with LN-145 or TIL
manufactured by M.D. Anderson.
We are also collaborating with Karolinska University Hospital to conduct clinical trials of TIL manufactured using a novel cytokine
cocktail for TIL expansion in pancreatic cancer and glioblastoma. Due to personnel changes at the Karolinska University Hospital, we expect
the start of these clinical trials will be delayed to dates that have not yet been determined.
TIL in Combination with Other Immunotherapy Drugs
Checkpoint inhibitors are a new class of immunotherapy drugs which seek to overcome one of cancer’s main defenses against an
immune system attack. PD-1 is a checkpoint protein found on immune cells called T cells. It normally acts as a type of “off switch” that helps
prevent T cells from attacking other cells in the body. It does this by attaching to PD-L1, a protein found on both normal and cancerous cells,
which may then shut down an attack by a T cell. Some cancer cells have large amounts of PD-L1 expressed on their surfaces, which helps them
evade T cell attack.
We are collaborating with Moffitt on a clinical trial (NCT03215810) that is currently enrolling patients to evaluate TIL therapy in
combination with the checkpoint inhibitor nivolumab in NSCLC. An additional clinical trial (NCT03374839) is being conducted by Moffitt to
evaluate TIL therapy in combination with nivolumab in metastatic melanoma. We have also previously collaborated with Moffitt on a clinical
trial (NCT01701674) to evaluate TIL therapy in combination with the checkpoint inhibitor ipilimumab. This trial has been completed and we
await publication of the results.
Under our CRADA, we are collaborating with the NCI (NCT02621021) to evaluate TIL therapy in combination with the checkpoint
inhibitor pembrolizumab in a 170-patient clinical trial in patients with advanced melanoma. This study is currently enrolling.
Immune system
The immune system recognizes danger signals and responds to threats at a cellular level. The most significant components of the cellular
aspect of the adaptive immune response are T cells, or T lymphocytes, so called because they mature in the thymus and are distinguished from
B cells which mature in the bone marrow. T cells can be distinguished from other white blood cells by T cell receptors present on their cell
surface. These receptors contribute to tumor surveillance by helping T cells recognize infected cells as well as cancerous cells. T cells are
involved in both sensing and killing infected or cancerous cells, as well as coordinating the activation of other cells in an immune response.
Although the immune system is designed to identify foreign or abnormal proteins expressed on tumor cells, this process is often
defective, or not operating optimally, in cancer patients. The defective process sometimes occurs when the cancer cells closely resemble
healthy cells and go unnoticed or if tumors lose their protein expression. Additionally, cancer cells employ a number of mechanisms to escape
immune detection to suppress the effect of the immune response. Some tumors also encourage the production of regulatory T cells that prevent
cytotoxic T cells from attacking the cancer.
Cancer immunotherapy
Despite the progress that has been made over the past several decades, effective treatment of cancer, especially solid tumors, continues
to be challenging. Some reasons solid tumors are so difficult to treat are: (i) in many solid tumors, multiple genes (as many as hundreds or
thousands of genes) are mutated, and solid tumors are heterogeneous, (ii) it is not always clear which particular mutations are critical, and (iii)
tumors can adapt and find a way to evade treatments that target a single mutation. In addition, the tumor can suppress the patient’s natural
immune response. When T cells with cancer-specific receptors are absent, present in low numbers, of poor quality, or rendered inactive by
suppressive mechanisms employed by tumor tissue, the cancer can grow and spread to various organs. In addition, standard of care treatments
for cancer can be deleterious to T cells' ability to kill cancer.
We believe that adoptive cell therapy, with the use of human cells as therapeutic entities to reengage the immune system, may be the
next significant advancement in the treatment of cancer. These cellular therapies may avoid the long-term side effects associated with current
treatments and have the potential to be effective regardless of the type of previous treatments patients have experienced. We believe TIL
therapy, in particular, has the potential to treat solid tumors by increasing the effectiveness and number of a patient's cancer-specific T cells.
TIL therapy is polyclonal, and we believe that it is capable of targeting multiple tumor antigens on cancer cells. Furthermore, the non-
8
myeloablative lymphodepleting chemotherapy administered prior to TIL infusion is capable of suppressing the hostile tumor
microenvironment, which we believe will enhance the efficacy of TIL therapy.
Tumor-infiltrating lymphocytes
Adoptive cell therapy with TIL involves the following steps:
1. Excision: After a surgical resection of a lesion, a patient’s TIL are removed from suppressive tumor microenvironment
2. Extraction: Tumor is fragmented and placed in media for TIL to leave the tumor
3. Expansion: TIL expanded exponentially ex vivo to yield 109 – 1011 TIL
4. Preparation and Infusion: Patient receives non-myeloablative lymphodepletion to eliminate potentially suppressive tumor
microenvironment and maximize engraftment and potential potency of TIL therapy; patient is infused with their expanded
TIL and up to 6 doses of IL-2 to promote activation, proliferation and anti-tumor cytolytic activity of TIL.
1. EXCISE
2. EXTRACT
3. EXPAND
4. PREPARE
& INFUSE
9
Currently, our Gen 2 manufacturing process takes 22 days from receipt of the patient's tumor. The final TIL product is shipped to the
institution for infusion of the TIL back into the patient. We currently treat patients with a single infusion of TIL, although our protocols allow
for evaluation of more than one administration of TIL. After infusion, TIL can potentially infiltrate the tumor microenvironment to eliminate
large numbers of cancer cells. TIL can also further proliferate in the body. TIL therapy can potentially overcome several mechanisms of tumor
escape to which endogenous T cells may be susceptible due to the hostile tumor microenvironment.
Historical clinical results with TIL in metastatic melanoma
To date, hundreds of metastatic melanoma patients have already been treated with TIL therapy produced locally using different
manufacturing methods at different academic institutions and hospitals in the United States, Europe, Canada, and Israel. At NCI, clinical
responses have been relatively consistent in several trials: over 50% of the melanoma patients treated with TIL have an objective response (i.e.
tumor regression of 50% or more, as defined by RECIST criteria) and approximately 22-24% of patients have a complete response with no
evidence of disease remaining after only one administration. Many patients respond to TIL therapy despite experiencing tumor progression
after previously being treated with other therapies.
In September 2015, Dr. Rosenberg, a recognized pioneer in immuno-oncology and adoptive cell therapy using TIL, presented updated
findings from a Phase 2 clinical trial of TIL therapy in metastatic melanoma at the American Association for Cancer Research Inaugural
International Cancer Immunotherapy Conference. Data was presented from a 101 patient, Phase 2 clinical trial conducted at the NCI. In the
trial, patients with advanced metastatic melanoma were equally divided in two groups. Both groups were treated according to a standard TIL
protocol using nonmyeloablative, or NMA, chemotherapy, with the second group also receiving total body irradiation. 54% of the patients
treated with TIL therapy achieved an objective response. An objective response occurs when there is a complete remission or a partial
remission of the tumor. Out of the 101 patients, 24, or 24%, had experienced a complete remission and 23 of the 24, or 96%, showed ongoing
durability of this response at 30 to 47 months following treatment, at the time of publication. Median follow-up time was approximately 40.9
months. Overall survival, or OS, was approximately 80% at 12 months, and median OS had not yet been achieved. Median progression-free
survival was approximately 8-10 months. This observation was also presented by Dr. Stephanie Goff at the 2016 ASCO meeting and published
in the Journal of Clinical Oncology in June 2016.
Overall Survival of patients in TIL ± TBI study
Source: Goff, S.L. et al. Randomized, Prospective Evaluation Comparing Intensity of Lymphodepletion Before Adoptive Transfer of
Tumor-Infiltrating Lymphocytes for Patients With Metastatic Melanoma. Journal of Clinical Oncology, 34(20), 2389-2397.
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Clinical results with TIL in other solid tumor indications
Under our CRADA with the NCI, we are providing research and development and clinical funding for the development of unmodified
TIL therapy for a variety of solid tumor indications, including HPV-associated cancers (cervical, head and neck), bladder, breast, and lung
cancers. The NCI has completed a clinical trial involving TIL therapy to treat advanced HPV-positive cervical cancer. Data from this trial was
published in the Journal of Clinical Oncology in April 2015 and in Science in April 2017. Out of nine cervical cancer patients treated with
HPV-TIL, two experienced complete remissions reported as ongoing at 54 and 46 months. Another patient experienced a three-month partial
remission. Additionally, the NCI has ongoing trials to treat patients using TIL with colorectal cancer, gastric cancer, pancreatic cancer,
hepatocellular carcinoma and cholangiocarcinoma and lung cancer. Depending on results from the research and development and clinical trials
conducted at the NCI under our CRADA, we may pursue the development and regulatory approval of TIL therapy for additional indications.
Safety
We continue to enroll patients in our ongoing TIL programs and we closely monitor our studies to learn about all safety events
occurring. Some of such events may be associated with TIL therapy. To date, however, the largest set of data for TIL therapy was generated by
the NCI as part of their multiple clinical studies. Per publications from the NCI, toxicities or adverse events during TIL therapy have been
mostly associated with either the lymphodepletion regimen or the high-dose IL-2 therapy given after TIL infusion as described by Goff et al. in
the Journal of Clinical Oncology in June 2016. The standard approach to the administration of high-dose IL-2 is to continue dosing until
patients can no longer tolerate treatment. Our trials, however, have limited administration of IL-2 to up to 6 doses. Treatment-related toxicities
reported by Goff et al. included febrile neutropenia, bacteremia, atrial fibrillation, sepsis, and cardiac arrhythmia in the NMA arm.
In our ongoing C-144-01 trial with LN-144 in metastatic melanoma, pyrexia, anemia, neutrophil and platelet count decrease, febrile
neutropenia, and fatigue were, thus far, observed as the most common treatment emergent adverse events of any grade in cohort 2, and febrile
neutropenia and neutrophil and platelet count decrease were, thus far, observed as the most common treatment emergent serious adverse events
of any grade in cohort 1. Pyrexia, chills, hyponatremia, and hypotension were the most common treatment emergent adverse events by
preferred term in our ongoing C-145-03 trial in recurrent and/or metastatic squamous cell carcinoma of the head and neck. As additional
patients are enrolled in the program, the safety profile of TIL therapy may change.
Next Generation TIL Product Strategies
We hold an exclusive license from the NCI to a patent family directed to select TIL for various cell surface markers in order to treat
patients with metastatic melanoma. The license to this next-generation TIL technology was developed to achieve a potentially more potent and
efficient TIL production by selecting for TIL that express various activating receptors, including 4-1BB and PD-1. TIL that express these
proteins are associated with higher tumor reactivity, so potentially fewer of the enriched cells are needed to be therapeutically effective.
Selected TIL technology has the potential to reduce the time and cost of manufacturing. We have not yet progressed this technology into
clinical trials.
In addition to selected TIL, we are evaluating strategies to genetically engineer TIL, and to pre-condition tumors from which we expand
TIL so that more TIL are present at the time of tumor excision.
Process Development, Manufacturing, and Manufacturing Agreements
Our first generation TIL manufacturing process was based on the NCI’s original manufacturing and processing of TIL, which we
modified so that it could be reproduced in a Good Manufacturing Process, or cGMP, environment. This first-generation process expanded the
number of TIL over a 5-6-week period and produced a non-cryopreserved product for administration to the patient. Our Gen 2 TIL
manufacturing process was developed by our internal research and process development team. This process, is currently in use in cohort 2 of
the C-144-01 trial with LN-144 in metastatic melanoma. We presented early data from cohort 2 late in 2017 and have selected Gen 2 for
product registration and all ongoing and future TIL clinical development.
The Gen 2 manufacturing process begins with the collection of the patient’s tumor, which is then sent to a central manufacturing facility,
where the T cells are isolated. These cells are stimulated to proliferate, then propagated in cell culture flasks until sufficient cells are available
for infusion back into the patient. The TIL is then washed and put in media suitable for cryopreservation and infusion. The final product is
shipped back to the clinical center where they can be administered to the patient. The following diagram illustrates our Gen 2 TIL
manufacturing process.
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Express courier from
clinical site to CMO
Cut into fragments
ex vivo
culture
+ IL-2
Tumor Fragment Culture (Pre-REP) 11 days
Rapid Expansion (REP) 11 days
Direct
to REP
Excise
tumor
NMA-LD
preconditioning
therapy
Thaw and
infuse. Follow
by IL-2
administration
Express courier
in cryoshipper
from CMO to
clinical site
LN2 cryopreserved
TIL infusion product
controlled rate
freeze
-150o C
Harvest
Expansion
ex vivo
scale up
IL-2 +
OKT3
Co-culture TIL
and feeder cells
We have entered into MSAs with WuXi, Moffitt and PharmaCell, pursuant to which they have agreed to manufacture, package, ship and
handle quality assurance and quality control of certain clinical trials for our TIL products working closely with our employees. We have two
suites for clinical manufacturing at WuXi, and one of those suites is also available to manufacture TIL for commercial use. Cell processing
activities will be conducted at all companies under cGMP, using qualified equipment and materials. We believe that all materials and
components utilized in the production of the final TIL product are readily available from qualified suppliers. We have also commenced a
partnership with TrakCel to build a scheduling and logistics software tool that automates the supply chain for our TIL therapy. We expect to
rely on these CMOs, to meet anticipated clinical trial demands. In the future, we may rely on them or other third parties, or develop our own
manufacturing capabilities for the manufacturing and processing of TIL-based product candidates for our clinical trials. To meet projected
needs for commercial sale quantities, we may develop our own commercial manufacturing facility to supply and process products. Developing
our own manufacturing capabilities may be costlier than we anticipate or result in significant delays. If we are unable to develop our own
manufacturing capabilities, we will rely on CMOs, including both current and alternate suppliers, to ensure sufficient capacity is available for
commercial purposes.
Personalized Patient Product Management
In September 2017, we entered into a partnership with TrakCel to build a scheduling and logistics software tool that automates the
supply chain for our TIL therapy products. The TrakCel software will electronically link us with our clinical sites, CMOs and couriers to
schedule and track TIL therapies for each patient. The TrakCel software is also intended to help manage capacity utilization and throughput and
will provide efficiencies in the delivery of TIL treatment.
The TrakCel software is also designed to ensure chain of identity for each patient’s product. Because our product candidates are
specifically manufactured for each individual patient, we will be required to maintain a chain of identity with respect to the patient’s tumor as it
moves from the patient to the manufacturing facility, through the manufacturing process, and back to the patient.
Orphan Drug Designation
During 2015, we received an orphan drug designation for LN-144 in the United States to treat malignant melanoma stages IIB-IV. If
approved, this designation provides seven years of market exclusivity in the United States, subject to certain limited exceptions. However, the
orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review or approval process.
Fast Track Designation
In August 2017, we announced that the FDA had granted Fast Track designation for LN-144, for the treatment of advanced melanoma.
The FDA’s Fast Track process is designed to facilitate the development and expedite the review of drugs that treat serious conditions and fill an
unmet medical need. Fast Track designation allows more frequent meetings and communications with the FDA to discuss the drug’s
development plans and review process. The Fast Track designation also allows for a rolling review of a company’s BLA.
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Commercialization Plan
We currently have no sales, marketing or commercial product distribution capabilities. As we make progress towards registration of LN-
144, we plan to build our own sales and commercialization capabilities in support of commercialization of TIL.
We have not yet decided on a commercial strategy for our TIL products. Our commercial strategy for markets outside the U.S. may
include the use of strategic partners, distributors, a contract sales force or the establishment of our own commercial infrastructure. We plan to
further evaluate these alternatives as we approach approval for one of our product candidates.
As additional product candidates advance through our pipeline, our commercial plans may change. Clinical data, size of the
development programs, size of the target market, size of a commercial infrastructure, intellectual property protection and manufacturing needs
may all influence our U.S., Europe and rest-of-world strategies.
Intellectual Property
Intellectual property is of importance in our field and in biotechnology generally. We seek to protect and enhance proprietary
technology, inventions, and improvements that are commercially important to the development of our business by seeking, maintaining, and
defending patent rights, whether developed internally or licensed from third parties. We also plan to rely on regulatory protection afforded
through orphan drug designations, available regulatory exclusivities and patent term extensions where available. To achieve this objective, a
strategic focus for us has been to identify and license key patents that provide protection and serve as an optimal platform to enhance our
intellectual property and technology base.
We have also engaged in the development of our own patent portfolio based on internal research and development activities in 2016. As
a result, we now own a number of pending patent applications in the fields of TIL therapy, TIL manufacturing processes, and TIL expansion
methods, and we expect to further develop our patent portfolio as a strategic focus in 2018.
Research, Development and License Agreements
Currently, preclinical research and development is conducted with the NCI under the CRADA, with Moffitt under our SRA, and at our
own internal research and development laboratory in Tampa, Florida. We also have preclinical collaborations with M.D. Anderson and Ohio
State University. We sponsor our own clinical trials and also have clinical collaborations with the NCI under our CRADA, and with Moffitt,
M.D. Anderson, and Karolinska University Hospital under clinical trial agreements.
In addition, we own the exclusive, co-exclusive, and non-exclusive licenses to certain patent and other intellectual property rights with
the National Institutes of Health, or NIH, Moffitt, M.D. Anderson Cancer Center and PolyBioCept described below in this Annual Report on
Form 10-K.
National Institutes of Health and the National Cancer Institute
Cooperative Research and Development Agreement
In August 2011, we signed a five-year CRADA with the NCI to work with Dr. Steven Rosenberg on developing adoptive cell
immunotherapies that are designed to destroy metastatic melanoma cells using a patient’s tumor infiltrating lymphocytes.
In January 2015, we executed an amendment to the CRADA to include four new indications. As amended, in addition to metastatic
melanoma, the CRADA included the development of TIL therapy for the treatment of patients with bladder, lung, triple-negative breast, and
HPV-associated cancers.
In August 2016, we entered into a second amendment to the CRADA. The principal changes effected by the second amendment
included (i) extending the term of the CRADA by another five years to August 2021, and (ii) modifying the focus on the development of
unmodified TIL as a stand-alone therapy or in combination with FDA-licensed products and commercially available reagents routinely used for
adoptive cell therapy. The parties will continue the development of improved methods for the generation and selection of unmodified TIL with
anti-tumor reactivity in metastatic melanoma, bladder, lung, breast, and HPV-associated cancers.
Pursuant to the terms of the CRADA, as amended, we are currently required to make quarterly payments of $0.5 million to the NCI for
support of research activities. To the extent we license patent rights relating to TIL-based product candidates under this agreement, we will be
responsible for all patent-related expenses and fees, past and future, relating to the TIL-based product candidate. The extended CRADA has a
five-year term expiring in August 2021. Either party may unilaterally terminate the CRADA for any reason or for no reason at any time by
providing written notice at least 60 days before the desired termination date. We recorded costs associated with the CRADA of $2.0 million,
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$1.8 million and $2.0 million in the years ended December 31, 2017, 2016 and 2015, respectively. These costs were recorded as research and
development expenses.
Patent License Agreement Related to the Development and Manufacture of TIL
Effective October 5, 2011, we entered into a Patent License Agreement with the NIH which was subsequently amended on February 9,
2015 and October 2, 2015. Pursuant to the Patent License Agreement as amended, or the Patent License Agreement, the NIH granted us
licenses, including exclusive, co-exclusive, and non-exclusive licenses, to certain technologies relating to unmodified autologous TIL adoptive
cell therapy products for the treatment of metastatic melanoma, lung, breast, bladder and HPV-positive cancers. In consideration for the
exclusive rights granted under the Patent License Agreement, we agreed to pay the NIH a non-refundable upfront licensing fee in the amount of
$0.4 million. We also agreed to pay customary royalties based on a percentage of net sales of a licensed product (which percentage is in the
mid-single digits), a percentage of revenues from sublicensing arrangements, and lump sum benchmark payments upon the successful
completion of clinical studies involving licensed technologies, the receipt of the first FDA approval or foreign equivalent for a licensed product
or process resulting from the licensed technologies, the first commercial sale of a licensed product or process in the United States, and the first
commercial sale of a licensed product or process in any foreign country. We will also be responsible for all costs associated with the
preparation, filing, maintenance and prosecution of the patent applications and patents covered by the Patent License Agreement.
Exclusive Patent License Agreement Related to TIL Selection
On February 10, 2015, we entered into an Exclusive Patent License Agreement with the NIH under which we received an exclusive
license to the NIH’s rights to patent-pending technologies related to methods for improving adoptive cell therapy through potentially more
potent and efficient production of TIL from melanoma tumors by selecting for T-cell populations that express various inhibitory receptors.
Unless terminated sooner, the license shall remain in effect until the last licensed patent right expires.
In consideration for the exclusive rights granted under the Exclusive Patent License Agreement, we agreed to pay the NIH a non-
refundable upfront licensing fee in the amount of $0.8 million. We also agreed to pay customary royalties based on a percentage of net sales of
a licensed product (which percentage is in the mid-single digits), a percentage of revenues from sublicensing arrangements, and lump sum
benchmark payments upon the successful completion of clinical studies involving licensed technologies, the receipt of the first FDA approval
or foreign equivalent for a licensed product or process resulting from the licensed technologies, the first commercial sale of a licensed product
or process in the United States, and the first commercial sale of a licensed product or process in any foreign country. We will also be
responsible for all costs associated with the preparation, filing, maintenance and prosecution of the patent applications and patents covered by
the Exclusive Patent License Agreement.
The costs associated with the NIH patent licenses in the year ended December 31, 2017 were immaterial, while there were $0.4 million
in costs associated with these licenses in each of the years ended December 31, 2016 and 2015.
H. Lee Moffitt Cancer Center
Research Collaboration and Clinical Grant Agreements with Moffitt Cancer Center
In September 2014, we entered into a research collaboration agreement with Moffitt to jointly engage in translational research and
development of adoptive cell therapy with TIL for improved anti-tumor properties and manufacturing process.
In December 2016, we entered into an SRA with Moffitt, or the Moffitt SRA. At the same time, we entered into a CGA with Moffitt to
support an ongoing clinical trial at Moffitt that combines TIL therapy with nivolumab for the treatment of patients with metastatic melanoma.
In June 2017, we entered into a second CGA with Moffitt to support a new clinical trial at Moffitt that combines TIL therapy with nivolumab
for the treatment of patients with non-small cell lung cancer. In the years ended December 31, 2017, 2016 and 2015, we recorded research and
development costs of $1.2 million, $0.7 million, and $0.7 million, respectively, in connection with the research collaboration and clinical grant
agreements with Moffitt.
Exclusive License Agreement with Moffitt
We entered into a license agreement with Moffitt, or the Moffitt License, effective as of June 28, 2014, under which we received a
world-wide license to Moffitt’s rights to patent-pending technologies related to methods for improving TIL for adoptive cell therapy. Unless
earlier terminated, the term of the license extends until the earlier of the expiration of the last issued patent related to the licensed technology or
20 years after the effective date of the license agreement.
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Pursuant to the Moffitt License, we paid an upfront licensing fee in the amount of $0.1 million. A patent issuance fee will also be
payable under the Moffitt License, upon the issuance of the first U.S. patent covering the subject technology. In addition, we agreed to pay
milestone license fees upon completion of specified milestones, customary royalties based on a specified percentage of net sales (which
percentage is in the low single digits) and sublicensing payments, as applicable, and annual minimum royalties beginning with the first sale of
products based on the licensed technologies, which minimum royalties will be credited against the percentage royalty payments otherwise
payable in that year. We will also be responsible for all costs associated with the preparation, filing, maintenance and prosecution of the patent
applications and patents covered by the Moffitt License related to the treatment of any cancers in the United States, Europe and Japan and in
other countries we may designate in agreement with Moffitt.
PolyBioCept and Karolinska University Hospital
PolyBioCept Exclusive and Co-Exclusive License Agreement
In September 2016, we entered into an Exclusive and Co-Exclusive License Agreement, or the PolyBioCept Agreement, with
PolyBioCept. PolyBioCept has filed two patent applications with claims related to a cytokine cocktail for use in expansion of lymphocytes, one
of which has been abandoned. Under the PolyBioCept Agreement, we received the exclusive right and license to PolyBioCept’s intellectual
property to develop, manufacture, market and genetically engineer TIL produced by expansion, selection and enrichment using a proprietary
cytokine cocktail. We also received a co-exclusive license (with PolyBioCept) to develop, manufacture and market genetically engineered TIL
under the same intellectual property. The licenses are for the use in all cancers and are worldwide in scope, with the exception that the uses in
melanoma are not included for certain countries of the former Soviet Union.
We paid PolyBioCept a total of $2.5 million as an upfront exclusive license payment. We will also have to make additional milestone
payments to PolyBioCept under the PolyBioCept Agreement if, and when, (i) certain product development milestones are achieved, (ii) certain
regulatory approvals have been obtained from the FDA and/or the European Medicines Agency, and (iii) certain product sales targets are
achieved. The milestone payments will be payable both in cash (U.S. dollars) and in shares of our common stock. If all the foregoing product
development, regulatory approval and sales milestone payments are met, we will have to pay PolyBioCept an additional $8.7 million and will
have to issue to PolyBioCept a total 2,219,376 shares of unregistered common stock. In addition to these potential payments, we reimbursed
PolyBioCept $0.2 million in expenses related to the transfer of know-how and paid PolyBioCept $0.1 million as a clinical trials management
fee. We also agreed to separately engage PolyBioCept as a consultant to provide certain product development and research related services in a
one-year agreement for up to $0.2 million, subject to the consent of the Karolinska Institute to the services to be performed by its employees
thereunder. Such consent was not granted, so this one-year services agreement was not entered into with PolyBioCept. The PolyBioCept
Agreement has an initial term of 30 years and may be extended for additional five-year periods. We recognized $0.2 million in costs associated
with this agreement in the year ended December 31, 2017, while we recognized $2.7 million in connection with this agreement in the year
ended December 31, 2016, as research and development expense. The $2.5 million upfront exclusive license payment was included in the $2.7
million expensed during 2016.
Karolinska University Hospital and Karolinska Institute Agreements
In connection with the execution of the PolyBioCept Agreement, we also (i) entered into a clinical trials agreement with the Karolinska
University Hospital to conduct clinical trials in glioblastoma and pancreatic cancer at the Karolinska University Hospital, and (ii) agreed to
enter into a sponsored research agreement with the Karolinska Institute for the research of the cytokine cocktail in additional indications. We
agreed to enter into the sponsored research agreement within 90 days after the date of the PolyBioCept Agreement, which date has been
extended by amendments to the PolyBioCept Agreement. To date we have not executed this sponsored research agreement. Failure to enter into
the sponsored research agreement or further amend the PolyBioCept Agreement will give PolyBioCept the right to terminate the PolyBioCept
Agreement (and we shall be entitled to repayment of $2.2 million in payments previously made). We will pay the Karolinska Institute an
additional $2.6 million in connection with these other related agreements. In the year ended December 31, 2016, we paid Karolinska University
Hospital $1.6 million to conduct these clinical trials. The $1.6 million payment was classified as prepaid expense and is being expensed in
accordance with our research and development expense accounting policy (see Note 1 in the Notes to Financial Statements in Part IV of this
Annual Report on Form 10-K). Accordingly, we recognized $0.3 million, and $0.1 million in connection with this agreement as research and
development expense in the years ended December 31, 2017 and 2016, respectively.
M.D. Anderson Cancer Center
Strategic Alliance Agreement
In April 2017, we entered into the SAA with M.D. Anderson under which we and M.D. Anderson agreed to conduct clinical and
preclinical research studies. Per the terms of the SAA, we agreed to provide total funding not to exceed approximately $14.2 million for the
performance of the multi-year studies under the SAA. In return, we will acquire all rights to inventions resulting from the studies and have been
granted a non-exclusive, sub-licensable, royalty-free, and perpetual license to specified background intellectual property of M.D. Anderson
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reasonably necessary to exploit, including the commercialization of, any invention. We have also been granted certain rights in clinical data
generated by M.D. Anderson outside of the clinical trials to be performed under the SAA. The SAA’s term shall continue in effect until the
later of the fourth anniversary of the SAA or the completion or termination of the research and receipt of all deliverables due to us from M.D.
Anderson thereunder. In the year ended December 31, 2017, we paid $1.4 million under the SAA which amount has been classified as a long-
term asset and will be amortized to research and development expenses in accordance with our research and development accounting policy,
based on enrollment and other factors. There were no costs recognized in association with the SAA with M.D. Anderson in the year ended
December 31, 2017.
The Ohio State University Comprehensive Cancer Center – Arthur G. James Cancer Hospital and Richard J. Solove Research
Institute
In September 2017, we entered into a preclinical research collaboration with OSUCCC – James focused on TIL, MIL and peripheral
blood-associated lymphocyte technologies. The collaboration will initially focus on hematologic malignancies in areas of poor prognostic
cancers with high unmet medical need, which include AML and CLL. There were no costs recognized in association with this preclinical
research collaboration in the year ended December 31, 2017.
MedImmune
In December 2015, we entered into a collaboration agreement to conduct clinical and preclinical research in immuno-oncology with
MedImmune, or the MedImmune Agreement. Under the terms of the MedImmune Agreement, we will fund and conduct at least one clinical
trial combining MedImmune's PD-L1 inhibitor, durvalumab, with TIL for the treatment of patients. MedImmune will supply durvalumab for
the clinical trials. The purpose of the trials is to establish a potential dosing regimen for this combination therapy and assess its safety and
efficacy. In December 2017, we announced that we would conduct a trial of TIL therapy in combination with durvalumab in non-small cell
lung cancer. The trial will enroll patients with Stage III or IV NSCLC who are PD-1 and PD-L1 naïve. This trial is expected to start enrolling
patients in 2018.
Competition
The biotechnology and pharmaceutical industries put significant resources in developing novel and proprietary therapies for the
treatment of cancer. We compete with multiple entities who have developed and are developing immuno-oncology therapies, including large
and specialty pharmaceutical and biotechnology companies, academic research institutions and governmental agencies and public and private
research institutions, as well as companies developing novel targeted therapies for cancer. Universities and public and private research
institutions in the U.S. and Europe are also potential competitors. For example, a Phase 3 study comparing TIL to standard ipilimumab in
patients with metastatic melanoma is currently being conducted in Europe by the Netherlands Cancer Institute, the Copenhagen County Herlev
University Hospital, and the University of Manchester. While these universities and public and private research institutions primarily have
educational objectives, they may develop proprietary technologies that lead to other FDA-approved therapies or that secure patent protection.
We anticipate that we will face possibly increasing competition as new drugs and therapies enter the market and advanced technologies become
available.
Due to their promising clinical therapeutic effect in clinical exploratory trials, we anticipate substantial direct competition from other
organizations developing advanced T-cell therapies. In particular, we expect to compete with other new therapies for our lead indications, such
as melanoma, developed by companies such as Bristol-Myers Squibb, Merck, Nektar Therapeutics, Incyte, and others. We also may compete
with therapies based on genetically engineered T cells rendered reactive against tumor-associated antigens prior to their administration to
patients. Genetically engineered T cells are being pursued by several companies, including Adaptimmune, Celgene (in collaboration with
bluebird bio as well as through Celgene’s subsidiary Juno Therapeutics), Gilead Sciences, Novartis and others. To date, these technologies
have been applicable to hematologic malignancies, but it is conceivable that such genetic modification may be applied for solid tumor
indications and create competition with us.
Competition for late stage melanoma patients may come, if approved, from several compounds currently under development. NKTR-
214, a pegylated version of IL-2, a CD122 agonist, under development by Nektar Therapeutics, in combination with nivolumab has reported 7
out of 11 stage 4 treatment naïve melanoma patients reported a partial or complete response. NKTR-214 activates cancer-fighting T cells and
natural killer cells directly in the tumor, and it boosts PD-1 expression. Several companies are targeting Indoleamine 2,3-dioxygenase (known
as IDO) a protein that suppresses the immune system that cancer cells sometimes hijack. NewLink Genetics reported results from a 60-person
phase 2 study evaluating indoximod in combination with pembrolizumab showing 52% of patients had either a complete response or partial
response. Incyte Corporation has also reported results from its IDO inhibitor, epacadostat in combination with pembrolizumab showing a 58%
overall response rate in advanced melanoma patients.
While other types of cancer immunotherapies may potentially be used in combination with TIL, such as checkpoint inhibitors, to
enhance efficacy, we also expect substantial direct competition from other types of immunotherapies. We face competition from
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immunotherapy treatments offered by companies such as Amgen, AstraZeneca, Bristol-Myers Squibb, Merck, and Roche. Immunotherapy is
also being pursued by several biotechnology companies as well as by large-cap pharmaceutical companies. We cannot predict whether other
types of immunotherapies may be enhanced and show greater efficacy. As a result, we may have direct and substantial competition from such
immunotherapies in the future.
Many potential competitors, either alone or with their strategic partners, have substantially greater financial, technical and human
resources than we do. Accordingly, our competitors may be more successful than us in obtaining approval for treatments and achieving
widespread market acceptance and may render our treatments obsolete or non-competitive. Mergers and acquisitions in the biotechnology and
pharmaceutical industries may result in even more resources being concentrated among a smaller number of our competitors. These
competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical study sites
and patient registration for clinical studies, as well as in acquiring technologies complementary to, or necessary for, our programs. Smaller or
early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established
companies.
Our commercial success may depend in part on our ability to obtain and maintain patent and other proprietary protection for
commercially important technology, inventions and know-how related to our business; defend and enforce our patents; preserve the
confidentiality of our trade secrets; and operate without infringing the valid enforceable patents and proprietary rights of third parties. Our
ability to stop third parties from making, using, selling, offering to sell or importing our products may depend on the extent to which we have
rights under valid and enforceable patents or trade secrets that cover these activities. With respect to both licensed and company-owned
intellectual property, we cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any
patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the
future will be commercially useful in protecting our commercial products and methods of manufacturing the same. We may rely, in some
circumstances, on trade secrets to protect our technology. However, trade secrets can be difficult to protect.
We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees,
consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by
maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have
confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate
remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the
extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to
the rights in related or resulting know-how and inventions.
Government Regulations
The FDA and other regulatory authorities at federal, state, and local levels, as well as in foreign countries, extensively regulate, among
other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage,
distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring, and post-approval reporting of biologics
such as those we are developing. We, along with our third-party contractors, will be required to navigate the various preclinical, clinical and
commercial approval and post-approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies
or seek approval or licensure of our product candidates. The process of obtaining regulatory approvals and the subsequent compliance with
appropriate federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources.
Biologic products are regulated by the FDA under a combination of the Federal Food, Drug, and Cosmetic Act, or FFDCA, and Public
Health Services Act, or PHSA, and the FDA’s implementing regulations. Failure to comply with regulatory requirements may result in
significant regulatory actions. Such actions may include refusal to approve pending applications, license suspension or revocation, withdrawal
of an approval, imposition of a clinical hold or termination of clinical trials, warning letters, untitled letters, cyber letters, modification of
promotional materials or labeling, provision of corrective information, imposition of post-market requirements including the need for additional
testing, imposition of distribution or other restrictions under Risk Evaluation and Mitigation Strategies, or REMS, product recalls, product
seizures or detentions, refusal to allow imports or exports, total or partial suspension of production or distribution, FDA debarment, injunctions,
fines, consent decrees, corporate integrity agreements, debarment from receiving government contracts and new orders under existing
contracts, exclusion from participation in federal and state healthcare programs, restitution, disgorgement, or civil or criminal penalties,
including fines and imprisonment, and adverse publicity, among other adverse consequences.
The process required by the FDA before biologic product candidates may be marketed in the United States generally involves the
following:
completion of preclinical laboratory tests and animal studies performed in accordance with the FDA’s current Good Laboratory
Practices, or GLP, regulation, as well as manufacturing development and formulation studies;
submission to the FDA of an investigational new drug application, or IND, which must become effective before clinical trials may
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begin and must be updated annually or when significant changes are made;
approval by an independent Institutional Review Board, or IRB, or ethics committee at each clinical site centrally before the trial is
begun;
performance of adequate and well-controlled human clinical trials to establish the safety, and efficacy of the proposed biologic
product candidate for its intended purpose;
preparation of and submission to the FDA of a BLA, after completion of pivotal clinical trial(s);
satisfactory completion of an FDA Advisory Committee review, if applicable;
a determination by the FDA within 60 days of its receipt of a BLA to file the application for review;
satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the proposed product
is produced to assess compliance with current Good Manufacturing Practices, or cGMP, and to assure that the facilities, methods
and controls are adequate to preserve the biological product’s continued safety, purity and potency, and of selected clinical sites to
assess compliance with current Good Clinical Practices, or cGCPs; and
FDA review and approval of the BLA to permit commercial marketing of the product for particular indications for use in the United
States, which must be updated periodically when changes are made.
The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for
our product candidates will be granted on a timely basis, if at all. Prior to beginning the first clinical trial with a new product candidate, we
must submit an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to
humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical studies. The IND also
includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic characteristics
of the product; chemistry, manufacturing, and controls information; and any available human data or literature to support the use of the
investigational product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30
days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the proposed clinical trial. In
such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions
before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during trials due to safety concerns or
non-compliance. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.
Human immunotherapy products are a new category of therapeutics. Because this is a relatively new and expanding area of novel
therapeutic interventions, there can be no assurance as to the length of the trial period, the number of patients the FDA will require to be
enrolled in the trials in order to establish the safety, efficacy, purity and potency of immunotherapy products, or that the data generated in these
trials will be acceptable to the FDA to support marketing approval.
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators
in accordance with cGCPs, which include the requirement that all research subjects provide their informed consent for their participation in any
clinical study. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used
in monitoring safety and the effectiveness criteria to be evaluated, and a statistical analysis plan. A separate submission to the existing IND
must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments.
Investigators must also provide certain information to the clinical trial sponsors to allow the sponsors to make certain financial disclosures to
the FDA.
Furthermore, an independent IRB for each site proposing to conduct the clinical trial or centrally must review and approve the plan for
any clinical trial, its informed consent form and any subject communications, before the clinical trial begins at that site, and upon amendment
of the trial, and must monitor the study until completed. An IRB considers, among other things, whether the risks to individuals participating in
the trials are minimized and are reasonable in relation to anticipated benefits and whether the planned human subject protections are adequate.
Informed consent must be received from each study subject prior to participation in a clinical study. Progress reports detailing the results of the
clinical trials must also be submitted at least annually to the FDA and the IRB and more frequently if serious adverse events or other significant
safety information is found.
Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the
subjects are being exposed to an unacceptable health risk, that the trial is not being conducted in accordance with regulatory or IRB
requirements, or that the trial is unlikely to meet its stated objectives. Sponsors may also discontinue studies or development programs for
many reasons, including changing business objectives. Some studies also include oversight by an independent group of qualified experts
organized by the clinical study sponsor, known as a data safety monitoring board, or DSMB, which provides recommendations and assessments
for whether or not a study should move forward at designated check points based on access to certain data from the study. Following a review
by a DSMB, the study may be halted if there is an unacceptable safety risk for subjects or on other grounds, such as failure to demonstrate
efficacy. There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries. For
instance, we are required to register certain clinical trials and post the results of certain completed clinical trials on a government-sponsored
database, ClinicalTrials.gov, within specified timeframes. Failure to do so can result in enforcement actions and adverse publicity.
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For purposes of BLA approval, human clinical trials are typically conducted in three sequential phases that may overlap.
Phase 1 - The investigational product is initially introduced into healthy human subjects or patients with the target disease or
condition. These studies are designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the
investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on
effectiveness.
Phase 2 - The investigational product is administered to a limited patient population with a specified disease or condition to
evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and safety
risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3
clinical trials.
Phase 3 - The investigational product is administered to an expanded patient population in adequate and well-controlled studies to
further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety, generally at
multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the
investigational product and to provide an adequate basis for product approval. Typically, two Phase 3 studies are required by the
FDA for product approval.
Phase 4 - In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is
approved to gain more information about the product. These so-called Phase 4 studies may be made a condition to approval of the
BLA.
Additional types of data may also help to support a BLA, such as real-world evidence and patient experience data. Phase 1, Phase 2 and
Phase 3, and Phase 4 testing, if applicable, may not be completed successfully within a specified period, if at all, and there can be no assurance
that the data collected will support FDA approval or licensure of the product. Concurrent with clinical trials, companies may complete
additional animal studies and develop additional information about the biological characteristics of the product candidate and must finalize a
process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be
capable of consistently producing quality batches of the product candidate and, among other things, must develop methods for testing the
identity, strength, quality and purity of the final product, or for biologics, the safety, purity and potency. Additionally, appropriate packaging
must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable
deterioration over its shelf life and manufacturing processes must be validated.
The manufacture of investigational biologics for the conduct of human clinical trials is subject to cGMP requirements. Investigational
biologics and active ingredients imported into the United States are also subject to regulation by the FDA relating to their labeling and
distribution. Further, the export of investigational products outside of the United States is subject to regulatory requirements of the importing
country as well as U.S. export requirements under the FFDCA. Additional United States and foreign laws and regulations may also be
applicable to the handling, import, export, and transportation of biological materials, including tissue samples.
During the development of a new therapeutic, a sponsor may be able to request a Special Protocol Assessment, or SPA, the purpose of
which is to reach an agreement with the FDA on the Phase 3 clinical trial protocol design and analysis that will form the primary basis of
product approval and an efficacy claim, as well as preclinical carcinogenicity trials and stability studies. An SPA may only be modified with
the agreement of the FDA and the trial sponsor, or if the director of the FDA reviewing division determines that a substantial scientific issue
essential to determining the safety or efficacy of the product was identified after the testing began. An SPA is intended to provide assurance
that, in the case of clinical trials, if the agreed upon clinical trial protocol is followed, the clinical trial endpoints are achieved, and there is a
favorable risk-benefit profile, the data may serve as the primary basis for an efficacy claim in support of a BLA. However, SPA agreements are
not a guarantee of approval of a product candidate or any permissible claims about the product candidate. In particular, SPAs are not binding
on the FDA if, among other reasons, previously unrecognized public health concerns arise during the performance of the clinical trial, other
new scientific concerns regarding the product candidate’s safety or efficacy arise, or if the sponsoring company fails to comply with the agreed
upon clinical trial protocol.
In addition, under the Pediatric Research Equity Act, or PREA, a BLA or supplement to a BLA for a new active ingredient, indication,
dosage form, dosage regimen, or route of administration, must contain data that are adequate to assess the safety and effectiveness of the
product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric
subpopulation for which the product is safe and effective. Also, under the FDA Reauthorization Act of 2017, beginning in 2020, sponsors
submitting applications for product candidates intended for the treatment of adult cancer which are directed at molecular targets that the FDA
determines to be substantially relevant to the growth or progression of pediatric cancer must submit, with the application, reports from
molecularly targeted pediatric cancer investigations designed to yield clinically meaningful pediatric study data, using appropriate
formulations, to inform potential pediatric labeling. 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. Orphan products are also exempt from PREA requirements.
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The FDA also may require submission of REMS, to ensure that the benefits of the biologic outweigh the risks. The REMS plan could
include medication guides, physician communication plans, and elements to assure safe use, such as restricted distribution methods, patient
registries, or other risk minimization tools. An assessment of the REMS must also be conducted at set intervals. Following product approval, a
REMS may also be required by the FDA if new safety information is discovered and the FDA determines that a REMS is necessary to ensure
that the benefits of the biologic outweigh the risks.
BLA Submission and Review by the FDA
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product
development, nonclinical studies and clinical trials are submitted to the FDA as part of a BLA requesting approval to market the product for
one or more indications. The BLA must include all relevant data available from pertinent preclinical and clinical studies, including negative or
ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls,
and proposed labeling, among other things. Data can come from company-sponsored clinical studies intended to test the safety and
effectiveness of a use of the product, or from a number of alternative sources, including studies initiated by investigators. The submission of a
BLA requires payment of a substantial User Fee to the FDA, and the sponsor of an approved BLA is also subject to annual program fees. These
fees are typically increased annually. A waiver of user fees may be obtained under certain limited circumstances.
Once a BLA has been submitted, the FDA has sixty days to determine whether it will accept the application for filing. The FDA accepts
applications for filing if it determines that the application is substantially complete to permit a substantive review. The FDA may request
additional information rather than accept a BLA for filing. In this event, the application must be resubmitted with the additional information.
The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA
begins an in-depth substantive review.
The FDA’s goal is to review the application within ten months after it accepts the application for filing, or, if the application relates to a
serious or life-threatening indication and, if approved, the product would provide a significant improvement in safety and efficacy, six months
after the FDA accepts the application for filing, which is referred to as priority review. The review process is often significantly extended if the
FDA requests additional information or clarification. The FDA reviews a BLA to determine, among other things, whether a product is safe,
pure and potent and the facility in which it is manufactured, processed, packed, or held meets standards designed to assure the product’s
continued safety, purity and potency.
The FDA may convene an advisory committee to provide clinical insight on application review questions. Before approving a novel
biologic, the FDA must either refer that biologic to an external advisory committee or provide in an action letter, a summary of the reasons why
the FDA did not refer the product candidate to an advisory committee. An advisory committee is typically a panel that includes clinicians and
other experts, which review, evaluate, and make a recommendation as to whether the application should be approved and under what
conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when
making decisions.
Before approving a BLA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not
approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and
adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will
typically inspect one or more clinical sites to assure compliance with cGCP.
If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the
deficiencies in the submission and often will request additional testing, clinical studies, application modifications, or information in a complete
response letter, or CRL. A CRL indicates that the review cycle for the application is complete and that the application is not ready for approval.
If a CRL is issued, the applicant may either: resubmit the BLA, addressing all the deficiencies identified in the letter; withdraw the application;
or request an opportunity for a hearing. Notwithstanding the submission of any requested additional information, the FDA ultimately may
decide that the application does not satisfy the regulatory criteria for approval. Data obtained from clinical trials are not always conclusive and
the FDA may interpret data differently than an applicant interprets the same data.
If the FDA finds that a BLA is approvable, the FDA may issue an approval letter. An approval letter authorizes commercial marketing
of the product with specific prescribing information for specific indications. However, even if the FDA approves a product, it may limit the
approved indications for use of the product, require that contraindications, warnings, or precautions be included in the product labeling,
including a boxed warning, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a product’s safety
and efficacy 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 under a REMS which can materially affect the potential
market and profitability of the product. The FDA may also not approve label statements that are necessary for successful commercialization
and marketing.
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If compliance with the pre- and post-marketing regulatory standards are not maintained or if problems occur after the product reaches
the marketplace, the FDA may also withdraw the product approval. Further, should new safety information arise, additional testing, product
labeling, or FDA notification may be required.
A sponsor may seek approval of its product candidate under programs designed to accelerate the FDA’s review and approval of new
drugs and biological products that meet certain criteria. Specifically, new drugs and biological products are eligible for Fast Track designation
if they are intended to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the
condition. For a Fast Track designation, the FDA may consider sections of the BLA for review on a rolling basis before the complete
application is submitted if relevant criteria are met. Fast Track-designated products are also eligible for more frequent FDA interactions. A Fast
Track-designated product candidate may also qualify for priority review, under which the FDA sets the target date for FDA action on the BLA
at six months after the FDA accepts the application for filing. Priority review is granted when there is evidence that the proposed product would
be a significant improvement in the safety or effectiveness of the treatment, diagnosis, or prevention of a serious condition. If criteria are not
met for priority review, the application is subject to the standard FDA review period of 10 months after the FDA accepts the application for
filing. Priority review designation does not change the scientific/medical standard for approval or the quality of evidence necessary to support
approval.
Under the accelerated approval program, the FDA may approve a BLA on the basis of either a surrogate endpoint that is reasonably
likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is
reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or
prevalence of the condition and the availability or lack of alternative treatments. To qualify for accelerated approval, the product must be
intended to treat a serious condition and must generally provide a meaningful advantage over available therapies. Post-marketing studies or
completion of ongoing studies after marketing approval are required to verify the biologic’s clinical benefit in relationship to the surrogate
endpoint or ultimate outcome in relationship to the clinical benefit. If this trial is not conducted, if it fails to verify the benefit, if other evidence
demonstrates that the product is not safe, pure or potent, or if the applicant disseminates false or misleading promotional material, the FDA
may withdraw approval of the application on an expedited basis. Sponsors of accelerated approval products must further submit promotional
materials to the FDA before dissemination.
In addition, the Food and Drug Administration Safety and Innovation Act, or FDASIA, which was enacted and signed into law in 2012,
established the new breakthrough therapy designation. A sponsor may seek FDA designation of its product candidate as a breakthrough therapy
if the product candidate is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening
disease or condition and preliminary clinical evidence indicates that the therapy may demonstrate substantial improvement over existing
therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Sponsors
may request the FDA to designate a breakthrough therapy at the time of or any time after the submission of an IND, but ideally before an end-
of-Phase 2 meeting with the FDA. If the FDA designates a breakthrough therapy, it may take actions appropriate to expedite the development
and review of the application, which may include holding meetings with the sponsor and the review team throughout the development of the
therapy; providing timely advice to, and interactive communication with, the sponsor regarding the development of the drug to ensure that the
development program to gather the nonclinical and clinical data necessary for approval is as efficient as practicable; involving senior managers
and experienced review staff, as appropriate, in a collaborative, cross-disciplinary review; assigning a cross-disciplinary project lead for the
FDA review team to facilitate an efficient review of the development program and to serve as a scientific liaison between the review team and
the sponsor; and considering alternative clinical trial designs when scientifically appropriate, which may result in smaller trials or more
efficient trials that require less time to complete and may minimize the number of patients exposed to a potentially less efficacious treatment.
Breakthrough designation also allows the sponsor to file sections of the BLA for review on a rolling basis.
Recently, through the 21st Century Cures Act, or Cures Act, Congress also established another expedited program, called a Regenerative
Medicine Advanced Therapy, or RMAT, designation. The Cures Act directs the FDA to facilitate an efficient development program for and
expedite review of RMATs. To qualify for this program, the product must be a cell therapy, therapeutic tissue engineering product, human cell
and tissue product, or a combination of such products, and not a product solely regulated as a human cell and tissue product. The product must
be intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition, and preliminary clinical evidence must indicate
that the product has the potential to address an unmet need for such disease or condition. Advantages of the RMAT designation include all the
benefits of the Fast Track and breakthrough therapy designation programs, including early interactions with the FDA. These early interactions
may be used to discuss potential surrogate or intermediate endpoints to support accelerated approval.
In August 2017, we announced that the FDA had granted Fast Track designation for LN-144, for advanced metastatic melanoma. The
Fast Track designation does not change the standards for approval but may expedite the development or approval process.
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Orphan Drugs
During 2015, we received an orphan drug designation for LN-144 in the United States to treat malignant melanoma stages IIB-IV. We
plan to seek orphan drug designation for some or all our other product candidates in specific orphan indications in which there is a medically
plausible basis for the use of such products.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare disease or
condition, defined as a disease or condition with a patient population of fewer than 200,000 individuals in the United States, or a patient
population greater than 200,000 individuals in the United States and when there is no reasonable expectation that the cost of developing and
making available the drug or biologic in the United States will be recovered from sales in the United States for that drug or biologic.
Additionally, sponsors must present a plausible hypothesis for clinical superiority to obtain orphan drug designation if there is a product
already approved by the FDA that is intended for the same indication and that is considered by the FDA to be the same product as the already
approved product. This hypothesis for clinical superiority must be demonstrated to obtain orphan exclusivity. Orphan drug designation must be
requested before submitting a BLA. After the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its
potential orphan use are disclosed publicly by the FDA.
If a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the
disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any
other applications, including a full BLA, to market the same biologic, as sameness is defined in FDA’s regulations, for the same indication for
seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or if the
FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan
drug to meet the needs of patients with the disease or condition for which the drug was designated. Orphan drug exclusivity does not prevent
the FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or
condition. Among the other benefits of orphan drug designation are tax credits for certain research, opportunities for certain research grant
funding, and a waiver of the BLA application fees. The tax credit, however, was recently limited through Congress’s tax reform efforts. Despite
these benefits, the orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review or approval
process.
A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which
it received orphan designation. In addition, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines
that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet
the needs of patients with the rare disease or condition. The FDA may also approve a product deemed to be the same as an approved orphan
product for the same orphan indication, despite periods of exclusivity, if the new product is demonstrated to be clinically superior to the former
product.
Market and Data Exclusivity and Biosimilars
While the FDA may eventually license products, as further described below, that are biosimilar to any of our product candidates that are
approved, our products may receive periods of regulatory exclusivity, in addition to orphan drug exclusivity for those products with orphan
drug designations, providing additional protection from certain forms of competition. For instance, our products may receive 12 years of
reference product exclusivity that begins running at the time of first licensure. During this time, the FDA may not make an approval of a
biosimilar product effective and may not accept a biosimilar application for four years from the date of licensure. However, certain changes and
supplements to an approved BLA, and subsequent applications filed by the same sponsor, manufacturer, licensor, predecessor in interest, or
other related entity do not qualify for the exclusivity period. The PHSA also includes provisions to protect reference products that have patent
protection. The biosimilar product sponsor and reference product sponsor may, but are not required to, exchange certain patent and product
information for the purpose of determining whether there should be a legal patent challenge. Based on the outcome of negotiations surrounding
the exchanged information, the reference product sponsor may bring a patent infringement suit and injunction proceedings against the
biosimilar product sponsor. The biosimilar applicant may also be able to bring an action for declaratory judgment concerning the patent.
The Biologics Price Competition and Innovation Act, or BPCIA, created an abbreviated approval pathway for biological products shown
to be highly similar to or interchangeable with an FDA-licensed reference biological product. Accordingly, if we receive FDA licensure, we
may face competition from biosimilar products. Biosimilarity sufficient to reference a prior FDA-approved product requires a high similarity to
the reference product notwithstanding minor differences in clinically inactive components, and no clinically meaningful differences between
the biological product and the reference product in terms of safety, purity, and potency. Biosimilarity must be shown through analytical studies,
animal studies, and at least one clinical trial, absent a waiver by the FDA. There must be no difference between the reference product and a
biosimilar in conditions of use, route of administration, dosage form, and strength. A biosimilar product may be deemed interchangeable with a
prior approved product if it meets the higher hurdle of demonstrating that it can be expected to produce the same clinical results as the
reference product and, for products administered multiple times, the biologic and the reference biologic may be switched after one has been
previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.
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Pediatric Exclusivity and Patent Term Extension
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. This six-month exclusivity may be
granted if a 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, whatever regulatory periods
of exclusivity that already cover the product are extended by six months.
If approved, biologics may also be eligible for periods of U.S. patent term restoration. If granted, patent term restoration extends the
patent life of a single unexpired patent that has not previously been extended, for a maximum of five years. The total patent life of the product
with the extension also cannot exceed fourteen years from the product’s approval date. Subject to the prior limitations, the period of the
extension is calculated by adding half of the time from the effective date of an IND to the initial submission of a marketing application, and all
the time between the submission of the marketing application and its approval. This period may also be reduced by any time that the applicant
did not act with due diligence. Whether any of our product candidates will be eligible for patent term restoration is currently unknown. Even if
any of our product candidates are found to be eligible for patent term protection, the applicable authorities may subsequently determine that we
are not eligible for such restoration periods.
Post-Approval Requirements
Any products for which we receive FDA approvals are subject to continuing regulation by the FDA, including, among other things,
record-keeping requirements, reporting of adverse experiences with the product and deviations, annual reporting and monitoring and providing
the FDA with updated safety and efficacy information, product sampling and distribution requirements, certain electronic records and
signatures, fulfilling post-marketing study and REMS commitments, and complying with FDA promotion and advertising requirements, which
include, among other things, standards for direct-to-consumer advertising, restrictions on promoting products for uses or in patient populations
that are not described in the product’s approved uses (known as “off-label use”), limitations on industry-sponsored scientific and educational
activities, and requirements for promotional activities involving the internet. Although physicians may prescribe legally available products for
off-label use, if they deem such use to be appropriate in their professional medical judgment, manufacturers may not market or promote such
off-label uses.
In addition, quality control and manufacturing procedures must continue to conform to applicable manufacturing requirements after
approval to ensure the long-term stability of the product. cGMP regulations require among other things, quality control and quality assurance as
well as the corresponding maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP.
Manufacturers and other entities involved in the manufacture and distribution of approved products are required to register their establishments
with the FDA and certain state agencies that list their products, and are subject to periodic unannounced inspections by the FDA and certain
state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the
areas of production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result
in restrictions on a product, manufacturer, or holder of an approved BLA, including, among other things, withdrawal of approval, recall or
withdrawal of the product from the market. In addition, changes to the manufacturing process are strictly regulated, and depending on the
significance of the change, may require prior FDA approval or notification before being implemented. Other types of changes to the approved
product, such as adding new indications and claims, are also subject to further FDA review and approval.
Moreover, the Drug Quality and Security Act, or DQSA, imposes obligations on manufacturers of biopharmaceutical products related to
product tracking and tracing. As part of this legislation, manufacturers are required to provide certain information regarding the products to
individuals and entities to which product ownership is transferred, label products with a product identifier, and keep certain records regarding
the product. The transfer of information to subsequent product owners by manufacturers must be done electronically. Manufacturers must also
verify that purchasers of the manufacturers’ products are appropriately licensed. Further, under this legislation, manufactures have product
investigation, quarantine, disposition, and notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated
products that would result in serious adverse health consequences of death to humans, as well as products that are the subject of fraudulent
transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or
death. Similar requirements additionally are and will be imposed through this legislation on other companies within the biopharmaceutical
product supply chain, distributors and dispensers. With regard to manufacturers, however, the FDA recently delayed its enforcement of the
provisions of the law related to the use of product identifiers until November 2018.
As previously mentioned, the FDA may also require Phase 4 testing and surveillance to monitor the effects of an approved product.
Discovery of previously unknown problems with a product or the failure to comply with applicable FDA requirements can have negative
consequences, including adverse publicity, judicial or administrative enforcement, warning letters from the FDA, mandated corrective
advertising or communications with doctors, and civil or criminal penalties, among others. Newly discovered or developed safety or
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effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and
may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new
legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our products under
development.
Additional Biologic Requirements
To help reduce the increased risk of the introduction of adventitious agents, the PHSA emphasizes the importance of manufacturing
controls for products whose attributes cannot be precisely defined. The PHSA also provides authority to the FDA to immediately suspend
licenses in situations where there exists a danger to public health, to prepare or procure products in the event of shortages and critical public
health needs, and to authorize the creation and enforcement of regulations to prevent the introduction or spread of communicable diseases in
the United States and between states.
After a BLA is approved, the product may also be subject to official lot release as a condition of approval. As part of the manufacturing
process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is
subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA, together with a release protocol
showing the results of all the manufacturer's tests performed on the lot. The FDA may also perform certain confirmatory tests on lots of some
products before releasing the lots for distribution by the manufacturer.
In addition, the FDA conducts laboratory research related to the regulatory standards on the safety, purity, potency, and effectiveness of
biological products. After approval of biologics, manufacturers must address any safety issues that arise, are subject to recalls or a halt in
manufacturing, and are subject to periodic inspection after approval.
Other Healthcare Laws and Compliance Requirements
Our sales, promotion, medical education and other activities following product approval will be subject to regulation by numerous
regulatory and law enforcement authorities in the United States in addition to the FDA, including potentially the Federal Trade Commission,
the Department of Justice, the Centers for Medicare & Medicaid Services, other divisions of the Department of Health and Human Services and
state and local governments. Our promotional and scientific/educational programs must comply with the federal Anti-Kickback Statute, the
Foreign Corrupt Practices Act, or FCPA, the False Claims Act, or FCA, the Veterans Health Care Act, physician payment transparency laws,
privacy laws, security laws, and additional state laws similar to the foregoing.
The federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying,
soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing,
leasing, ordering or arranging for the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal
healthcare programs, in whole or in part. The term remuneration has been interpreted broadly to include anything of value. The federal Anti-
Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers,
purchasers, and formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some
common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may
be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception
or safe harbor. Failure to meet all the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the
conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based
on a cumulative review of all its facts and circumstances. Our practices may not in all cases meet all the criteria for protection under a statutory
exception or regulatory safe harbor.
Additionally, the intent standard under the federal Anti-Kickback Statute was amended by the Patient Protection Affordable Care Act of
2010, as amended by the Health Care and Education Reconciliation Act of 2010, which is collectively referred to as the Affordable Care Act,
or ACA, to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it
in order to have committed a violation. In addition, the ACA codified case law that a claim including items or services resulting from a
violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.
The civil monetary penalties statute imposes penalties against any person or entity who, among other things, is determined to have
presented or caused to be presented a claim to a federal healthcare program that the person knows or should know is for an item or service that
was not provided as claimed or is false or fraudulent.
Additionally, the FCPA, and similar worldwide anti-bribery laws, generally prohibit companies and their intermediaries from making,
offering or authorizing improper payments or other items of value, directly or indirectly, to foreign officials, political parties, or candidates for
the purpose of obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply
with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the
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corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for
international operations. Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil
fines, imprisonment, disgorgement, oversight, and debarment from government contracts. We cannot assure you that our internal control
policies and procedures will protect us from reckless or negligent acts committed by our employees, future distributors, partners, collaborators
or agents. Violations of these laws, or allegations of such violations, could result in fines, penalties or prosecution and have a negative impact
on our business, results of operations and reputation.
The FCA imposes liability on persons who, among other things, knowingly present or cause to be presented false or fraudulent claims
for payment to, or approval by the federal government knowingly making or using, or causing to be made or used a false statement or record
material to a claim to the federal government, or avoiding, decreasing or concealing an obligation to pay money to the federal government. The
civil FCA has been or can be used to assert liability on the basis of kickbacks and other improper referrals, improperly reported government
pricing metrics such as Best Price and Average Manufacturer Price, improper promotion of uses not expressly approved by the FDA in a drug’s
label, false statements associated with government grants, and allegations of misrepresentations with respect to services rendered, as well as
claims for payment that are inaccurate or fraudulent, that are for services not provided as claimed, or for services that are not medically
necessary. FCA claims may be based on noncompliance with regulatory requirements under an implied certification theory if material to the
government’s decision to buy or pay for a drug. Intent to deceive is not required to establish liability under the civil FCA. Civil FCA liability
may also be imposed for Medicare or Medicaid overpayments caused by understated rebate amounts that are not refunded within 60 days of
discovering the overpayment, even if the overpayment was not caused by a false or fraudulent act. Actions under the FCA may be brought by
the government or as a qui tam action by a private individual in the name of the government. If the government intervenes in a qui tam action,
and prevails, the qui tam plaintiff will share in the proceeds from damages and fines or settlement funds. If the government declines to
intervene, the qui tam plaintiff may pursue the case alone. Violations of the FCA can result in significant monetary penalties and treble
damages. The government may further prosecute conduct under the criminal FCA, which prohibits the making or presenting of a claim to the
government knowing the claim to be false, fictitious or fraudulent. Unlike the civil FCA, conviction requires proof of intent to submit a false
claim.
Payment or reimbursement of prescription drugs by Medicaid or Medicare requires manufacturers of the drugs to submit pricing
information to the Centers for Medicare & Medicaid Services, or CMS. The Medicaid Drug Rebate statute requires manufacturers to calculate
and report price points, which are used to determine Medicaid rebate payments shared between the states and the federal government and
Medicaid payment rates for the drug. For drugs paid under Medicare Part B, manufacturers must also calculate and report their Average Sales
Price or ASP, which is used to determine the Medicare Part B payment rate for the drug. Drugs that are approved under a Biologic License
Application, or BLA, or an NDA, including 505(b)(2) drugs, are subject to an additional inflation penalty which can substantially increase
rebate payments. In addition, for BLA and NDA drugs, the Veterans Health Care Act, or VHCA, requires manufacturers to calculate and report
to the Veterans Administration, or VA, a different price called the Non-Federal Average Manufacturing Price, which is used to determine the
maximum price that can be charged to certain federal agencies, referred to as the Federal Ceiling Price, or FCP. Like the Medicaid rebate
amount, the FCP includes an inflation penalty. A Department of Defense regulation requires manufacturers to provide this discount on drugs
dispensed by retail pharmacies when paid by the TRICARE Program. All these price reporting requirements create risk of submitting false
information to the government, and potential FCA liability.
The VHCA also requires manufacturers of covered drugs participating in the Medicaid program to enter into Federal Supply Schedule
contracts with the VA through which their covered drugs must be sold to certain federal agencies at FCP and to report pricing information. This
necessitates compliance with applicable federal procurement laws and regulations and subjects us to contractual remedies as well as
administrative, civil, and criminal sanctions. In addition, the VHCA requires manufacturers participating in Medicaid to agree to provide
different mandatory discounts to certain Public Health Service grantees and other safety net hospitals and clinics.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, also created federal criminal statutes that prohibit,
among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or
fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, a healthcare
benefit program, regardless of whether the payor is public or private, knowingly and willfully embezzling or stealing from a health care benefit
program, willfully obstructing a criminal investigation of a health care offense, and knowingly and willfully falsifying, concealing, or covering
up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for,
healthcare benefits, items, or services relating to healthcare matters. The ACA amended the intent requirement of certain of these criminal
statutes under HIPAA so that a person or entity no longer needs to have actual knowledge of the statute, or the specific intent to violate it, to
have committed a violation.
In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and other healthcare
providers. The ACA, among other things, imposed new reporting requirements on drug manufacturers for payments or other transfers of value
made by them to physicians and teaching hospitals, as well as ownership and investment interests held by physicians, other healthcare
providers, and their immediate family members. Failure to submit required information may result in civil monetary penalties of up to an
aggregate of $150,000 per year (or up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value or
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ownership or investment interests that are not timely, accurately and completely reported in an annual submission. Certain states also mandate
implementation of commercial compliance programs, impose restrictions on drug manufacturer marketing practices and/or require the tracking
and reporting of gifts, compensation and other remuneration to physicians and other healthcare professionals.
We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our
business. HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and their respective implementing
regulations, including the final omnibus rule published on January 25, 2013, imposes specified requirements relating to the privacy, security
and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards
directly applicable to “business associates,” defined as a person or entity that performs certain functions or activities that involve the use or
disclosure of protected health information in connection with providing a service for or on behalf of, or provide services to, a covered entity.
HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other
persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal
HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and
security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same
effect.
To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which
may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and
implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.
If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be
subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our
operations, exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our
ability to operate our business and our financial results.
Coverage and Reimbursement
Sales of pharmaceutical products depend significantly on the availability of third-party coverage and reimbursement. Third-party payors
include Medicare, Medicaid, and other government programs at the federal and state level, managed care providers, private health insurers and
other organizations. Third party payors decide which drugs they will pay for on behalf of their beneficiaries and establish reimbursement levels
for health care. Although we currently believe that third-party payors will provide coverage and reimbursement for our product candidates, if
approved, these third-party payors are increasingly challenging the price and examining the cost-effectiveness of medical products and
services. In addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. We may need to
conduct expensive clinical studies to demonstrate the comparative cost-effectiveness of our products. The product candidates that we develop
may not be considered cost-effective. It is time consuming and expensive for us to seek coverage and reimbursement from third-party payors.
Moreover, a payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved,
especially for product candidates such as ours, which are used in the inpatient setting, usually resulting in no separate reimbursement for
pharmaceuticals. Reimbursement may not be available or sufficient to allow us to sell our products on a competitive and profitable basis.
Medicare is a federally-funded program managed by CMS through local contractors that administer coverage and reimbursement for
certain healthcare items and services furnished to the elderly and disabled. Medicare Part A covers inpatient hospitalization and Medicare Part
B covers outpatient medical services. Medicare coverage of drugs and biological products and payment rates to providers are established by
federal law and regulations. Medicaid is an insurance program for certain categories of low income patients who are otherwise uninsured and is
both federally and state funded and managed by each state. The federal government sets general guidelines for Medicaid and requires rebates
on outpatient drugs and biological products, including those administered by physicians if the cost is billed separately. Each state creates
specific regulations that govern its individual program, including supplemental rebate programs that prioritize coverage for drugs on the state
Preferred Drug List. Government laws and regulations also establish price controls on prescription drugs purchased by government agencies
that provide health care and certain federally funded hospital outpatient departments and clinics. In the United States, private health insurers
and other third-party payors often provide reimbursement for products and services based on the level at which the government provides
reimbursement through the Medicare or Medicaid programs for such products and services. These restrictions and limitations influence the
purchase of healthcare services and products. In addition, government programs like Medicaid include substantial penalties for increasing
commercial prices over the rate of inflation which can affect realization and return on investment.
In the United States, the European Union, and other potentially significant markets for our product candidates, government authorities
and private third-party payors are increasingly attempting to limit or regulate the price of medical products and services, particularly for new
and innovative products and therapies, which often has resulted in average selling prices lower than they would otherwise be. Manufacturers
frequently must rebate a portion of the prescription price to the third-party payors as a condition of coverage, which can greatly reduce
realization on the sale. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of
medical products and services, in addition to their safety and efficacy, and are developing increasingly sophisticated methods of controlling
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healthcare costs. They may limit coverage to specific drug products on an approved list, or formulary, which might not include all the FDA-
approved drug products for a particular indication, or they may control costs, particularly for new expensive therapies, by requiring prior
authorization or imposing other restrictions before covering certain products, or they may condition payment based on achieving performance
metrics. Legislative proposals to reform healthcare or reduce costs under government programs may result in lower reimbursement for our
product candidates or exclusion of our product candidates from coverage.
Achieving favorable CMS coverage and reimbursement is usually a significant gating issue for successful introduction of a new product,
because Medicare and Medicaid can represent a sizeable share of the market and because private payors often rely on the lead of the
governmental payors in rendering coverage and reimbursement determinations. Further, the increased emphasis on managed healthcare in the
United States and on country and regional pricing and reimbursement controls in the European Union will likely put additional pressure on
product pricing, reimbursement, and utilization, which may adversely affect our future product sales and results of operations. These pressures
can arise from rules and practices of managed care groups, competition within therapeutic classes, availability of generic equivalents, judicial
decisions and governmental laws and regulations related to Medicare, Medicaid, and healthcare reform, pharmaceutical coverage and
reimbursement policies, and pricing in general. Patients who are prescribed treatments for their conditions and providers performing the
prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Sales of our product
candidates will therefore depend substantially, both domestically and abroad, on the extent to which the costs of our products will be paid by
health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health
administration authorities, such as Medicare and Medicaid, private health insurers, and other third-party payors.
As a result of the above, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity
and cost-effectiveness of our products, in addition to the costs required to obtain FDA approvals. Our product candidates may not be
considered medically necessary or cost-effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate
reimbursement rate will be approved. Adequate third-party reimbursement may not be available to ensure acceptance and use of our products
and product candidates or enable us to maintain price levels sufficient to realize an appropriate return on our investment in drug development.
Legislative and regulatory proposals to reform healthcare or reduce costs under government insurance programs may result in lower
reimbursement for our products and product candidates or exclusion of our products and product candidates from coverage. The cost
containment measures that healthcare payors and providers are instituting and any healthcare reform could significantly reduce our revenues
from the sale of any approved product candidates. We cannot provide any assurances that we will be able to obtain and maintain third-party
coverage or adequate reimbursement for our product candidates in whole or in part.
Healthcare Reform
The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to
change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the
United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing
healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of
these efforts and has been significantly affected by major federal and state legislative initiatives.
In addition, other legislative and regulatory changes have been proposed and adopted since the ACA was enacted. These changes
include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, starting in 2013, which will remain in effect
through 2025 unless additional Congressional action is taken. In January 2013, the American Taxpayer Relief Act of 2012, which, among other
things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, increased the statute of
limitations period for the government to recover overpayments to providers from three to five years. In 2017, CMS promulgated a rule reducing
Medicare Part B reimbursement to hospitals for drugs purchased under the 340B program by 30%. Although hospital trade associations filed a
lawsuit challenging the regulation, the final rule is now in effect. These new laws may result in additional reductions in Medicare and other
healthcare funding, which could have a material adverse effect on customers for our product candidates, if approved, and, accordingly, our
financial operations.
Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in payments
from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate
revenue, attain profitability or commercialize our drugs.
The cost of pharmaceuticals continues to generate substantial governmental and third-party payor interest and states have begun to take
action to increase transparency in drug pricing through mandatory reporting requirements. We expect that the pharmaceutical industry will
experience pricing pressures due to the trend toward managed healthcare, the increasing influence of managed care organizations, and
additional legislative proposals. Our results of operations could be adversely affected by current and future healthcare reforms. While we
cannot predict whether any proposed cost-containment measures will be adopted or otherwise implemented in the future, the announcement or
adoption of these proposals could have a material adverse effect on our ability to obtain adequate prices for our product candidates and operate
profitably.
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Foreign Regulation
In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and
commercial sales and distribution of our products to the extent we choose to develop or sell any products outside of the United States. The
approval process varies from country to country and the time may be longer or shorter than that required to obtain FDA approval. The
requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.
In the EU, member states require both regulatory clearances by the national competent authority and a favorable ethics committee
opinion prior to the commencement of a clinical trial. Under the EU regulatory systems, marketing authorization applications may be submitted
under either a centralized or decentralized procedure. The centralized procedure provides for the grant of a single marketing authorization that
is valid for all EU member states. It is compulsory for medicines produced by certain biotechnological processes. Because our products are
produced in that way, we would be subject to the centralized process. Under the centralized procedure, pharmaceutical companies submit a
single marketing authorization application to the European Medicines Agency. Once granted by the European Commission, a centralized
marketing authorization is valid in all EU member states, as well as the European Economic Area countries of Iceland, Liechtenstein and
Norway. By law, a company can only start to market a medicine once it has received a marketing authorization.
Employees
As of December 31, 2017, we had 63 employees, 46 of whom were engaged in research and development activities and 17 of whom
were engaged in business development, finance, or administrative support. None of our employees are subject to a collective bargaining
agreement. We consider our relationship with our employees to be good. Our future performance depends significantly upon the continued
service of our key scientific, technical and senior management personnel.
Available Information
We maintain a website at www.iovance.com and make available there, free of charge, our periodic reports filed with the Securities and
Exchange Commission (SEC), as soon as is reasonably practicable after filing. The public may read and copy any materials we file with the
SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at http:/www.sec.gov that contains reports,
proxy and information statements, and other information regarding issuers such as us that file electronically with the SEC.
Item 1A.
Risk Factors
The risks described below may not be the only ones relating to our company. Additional risks that we currently believe are immaterial
may also impair our business operations. Our business, financial conditions and future prospects and the trading price of our common stock
could be harmed as a result of any of these risks. Investors should also refer to the other information contained or incorporated by reference in
this Annual Report on Form 10-K, including our financial statements and related notes, and our other filings from time to time with the
Securities and Exchange Commission.
Risks Related to Our Business
We have a history of operating losses; we expect to continue to incur losses and we may never be profitable.
We are a clinical-stage biotechnology company focused on the development and commercialization of novel cancer immunotherapy
products designed to harness the power of a patient's own immune system to eradicate cancer cells. We do not have products approved for
commercial sale and have not generated revenue from operations. As of December 31, 2017, we had an accumulated deficit of $249.2 million.
In addition, during the fiscal year ended December 31, 2017, we incurred a net loss of $92.1 million. Since our inception we have not generated
any revenues from operations. We do not expect to generate any meaningful product sales or royalty revenues for the foreseeable future. We
expect to incur significant additional operating losses in the future as we expand our development and clinical trial activities in support of
demonstrating the effectiveness of our products.
Our ability to achieve long-term profitability is dependent upon obtaining regulatory approvals for our products and successfully
commercializing our products alone or with third parties. However, our operations may not be profitable even if any of our products under
development are successfully developed and produced and thereafter commercialized.
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We have limited experience in operating our current business, which makes it difficult to evaluate our business plan and our
prospects.
We have only a limited operating history in our current line of business on which a decision to invest in our company can be based. The
future of our company currently is dependent upon our ability to implement our business plan, as that business plan may be modified from time
to time by our management. While we believe that we have a sound business plan and research and development strategy, we have only a
limited operating history against which we can test our plans and assumptions, and investors therefore cannot evaluate the likelihood of our
success.
We face the problems, expenses, difficulties, complications and delays normally associated with a small, biotechnology company, many
of which are beyond our control. Accordingly, our prospects should be considered in light of the risks, expenses and difficulties frequently
encountered in the establishment of a new business developing technologies in an industry that is characterized by a number of market entrants
and intense competition. Because of our size and limited resources, we may not possess the ability to successfully overcome many of the risks
and uncertainties frequently encountered by early stage companies involved in the rapidly evolving field of immunotherapy. If our research and
development efforts are successful, we may also face the risks associated with the shift from development to commercialization of new
products based on innovative technologies. There can be no assurance that we will be successful in developing our new business.
We are substantially dependent on the success of our product candidates and cannot guarantee that these product candidates will
successfully complete development, receive regulatory approval, or be successfully commercialized.
We currently have no products approved for commercial distribution. We have invested a significant portion of our efforts and financial
resources in the development of our current product candidates, LN-144 and LN-145 and expect that we will continue to invest heavily in our
current product candidates, as well as in any future product candidates we may develop. Our business depends entirely on the successful
development and commercialization of our product candidates, which may never occur. Our ability to generate revenues in the future is
substantially dependent on our ability to develop, obtain regulatory approval for, and then successfully commercialize our product candidates.
We currently generate no revenue from the sale of any products, and we may never be able to develop or commercialize a marketable product.
Our product candidates will require additional clinical and non-clinical development, regulatory approval, commercial manufacturing
arrangements, establishment of a commercial organization, significant marketing efforts, and further investment before we generate any
revenue from product sales. We cannot assure you that we will meet our timelines for our current or future clinical trials, which may be delayed
or not completed for a number of reasons.
We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA or
comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates or regulatory
approval that will allow us to successfully commercialize our product candidates. If we do not receive FDA approval with the necessary
conditions to allow successful commercialization, and then successfully commercialize our product candidates, we will not be able to generate
revenue from those product candidates in the United States in the foreseeable future, or at all. Any significant delays in obtaining approval for
and commercializing our product candidates will have a material adverse impact on our business and financial condition.
We have not previously submitted a Biologics License Application, or BLA to the FDA, or similar marketing application to comparable
foreign authorities, for any product candidate, and we cannot be certain that our current or any future product candidates will be successful in
clinical trials or receive regulatory approval.
Our product candidates are susceptible to the risks of failure inherent at any stage of product development, including the appearance of
unexpected adverse events or failure to achieve primary endpoints in clinical trials. Further, our product candidates may not receive regulatory
approval even if they are successful in clinical trials.
If approved for marketing by applicable regulatory authorities, our ability to generate revenues from our product candidates will depend
on our ability to:
create market demand for our product candidates through our own marketing and sales activities, and any other arrangements to
promote these product candidates that we may otherwise establish;
receive regulatory approval for claims that are necessary or desirable for successful marketing;
hire, train, and deploy a sales force or contract with a third party for a sales force to commercialize product candidates in the United
States;
manufacture product candidates in sufficient quantities and at acceptable quality and manufacturing cost to meet commercial
demand at launch and thereafter;
establish and maintain agreements with wholesalers, distributors, and group purchasing organizations on commercially reasonable
terms;
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create partnerships with, or offer licenses to, third parties to promote and sell product candidates in foreign markets where we
receive marketing approval;
maintain patent and trade secret protection and regulatory exclusivity for our product candidates;
launch commercial sales of our product candidates, whether alone or in collaboration with others;
achieve market acceptance of our product candidates by patients, the medical community, and third-party payors;
achieve appropriate reimbursement for our product candidates;
effectively compete with other therapies or competitors; and maintain a continued acceptable safety profile of our product
candidates following launch.
We have limited experience as a company conducting clinical trials and face risks due to the need to rely on third parties.
We have limited experience conducting pre-clinical and clinical trials and have no experience as a company in filing and supporting the
applications necessary to gain marketing approvals. 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 product candidate’s safety, purity, and
potency for that indication. Securing marketing approval also requires the submission of information about the product manufacturing process
to, and inspection of manufacturing facilities and clinical trial sites by, applicable regulatory authorities. Clinical testing is expensive and can
take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. We have
limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval.
Prior to 2015, all the preclinical and clinical trials relating to our product candidates had been conducted by the NCI. We have recruited
a team that has experience with clinical trials; however, we as a company have limited experience in conducting clinical trials. In part because
of this lack of experience, we cannot be certain that our ongoing clinical trials will be completed on time, if at all, will progress according to
our plans or expectations, or that our planned clinical trials will be initiated, progress according to our plans or expectations, or be completed
on time, if they are completed at all.
Large-scale trials require significant financial and management resources, and reliance on third-party clinical investigators, CROs,
CMOs, or consultants. Relying on third-party clinical investigators, CROs or CMOs may force us to encounter delays and challenges that are
outside of our control.
We rely on third party CROs and clinical trial sites to conduct, supervise, and monitor our clinical trials for our product candidates. We
expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions, and clinical
investigators, to conduct our clinical trials. While we have agreements governing their activities, we have limited influence over their actual
performance and control only certain aspects of their activities. The failure of these third parties to successfully carry out their contractual
duties or meet expected deadlines could substantially harm our business because we may be delayed in completing or unable to complete the
clinical trials required to support future approval of our product candidates, or we may not obtain marketing approval for or commercialize our
product candidates in a timely manner or at all. Moreover, these agreements might terminate for a variety of reasons, including a failure to
perform by the third parties. If we need to enter into alternative arrangements, that could delay our product development activities and
adversely affect our business.
Our reliance on these third parties for development activities will reduce our control over these activities. Nevertheless, we are
responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific
standards and our reliance on the CROs, clinical trial sites, and other third parties does not relieve us of our regulatory responsibilities. For
example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan
and protocols for the trial and for ensuring that our preclinical trials are conducted in accordance with GLPs, as appropriate. Moreover, the
FDA and comparable foreign regulatory authorities require us to comply with standards, commonly referred to as GCPs, for conducting,
recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights,
integrity, and confidentiality of trial participants are protected. Regulatory authorities enforce these requirements through periodic inspections
of trial sponsors, clinical investigators, and trial sites. If we, our CROs, clinical trial sites, or other third parties fail to comply with applicable
GCPs or other regulatory requirements, we or they may be subject to enforcement or other legal actions, the clinical data generated in our
clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical
trials. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our
clinical trials complies with GCP regulations.
In addition, we will be required to report certain financial interests of our third-party investigators if these relationships exceed certain
financial thresholds or meet other criteria. The FDA or comparable foreign regulatory authorities may question the integrity of the data from
those clinical trials conducted by investigators that are determined to have conflicts of interest.
In addition, our clinical trials must be conducted with product candidates that were produced under cGMP regulations. Our or our
contractors’ failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
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We also are required to register certain clinical trials and post the results of certain completed clinical trials on a government sponsored
database, ClinicalTrials.gov, within specified timeframes. Failure to do so can result in enforcement actions and adverse publicity.
Our CROs, clinical trial sites, and other third parties may also have relationships with other entities, some of which may be our
competitors, for whom they may also be conducting clinical trials or other therapeutic development activities that could harm our competitive
position. In addition, these third parties are not our employees, and except for remedies available to us under our agreements with them, we
cannot control whether or not they devote sufficient time and resources to our ongoing clinical, non-clinical, and preclinical programs. If these
third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with
regulatory requirements or our stated protocols, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised
due to the failure to adhere to our protocols, regulatory requirements or for other reasons, our trials may be repeated, extended, delayed, or
terminated and we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be
able to, or may be delayed in our efforts to, successfully commercialize our product candidates, or we or they may be subject to regulatory
enforcement actions. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs
could increase and our ability to generate revenues could be delayed. To the extent we are unable to successfully identify and manage the
performance of third party service providers in the future, our business may be materially and adversely affected.
If any of our relationships with these third parties terminate, we may not be able to enter into arrangements or do so on commercially
reasonable terms. Switching or adding additional contractors involves additional cost and requires management time and focus. In addition,
there is a natural transition period when a new third party commences work. As a result, delays could occur, which could compromise our
ability to meet our desired development timelines. Though we carefully manage our relationships with our third-party service providers, there
can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a
material adverse impact on our business, financial condition and prospects or results of operations.
We also rely on other third parties to distribute our products for the clinical trials that we conduct. Any performance failure on the part
of our distributors could delay clinical development or marketing approval of our product candidates or any additional product candidates or
commercialization of our product candidates, if approved, producing additional losses and depriving us of potential product revenue.
We may encounter substantial delays in our clinical trials or may not be able to conduct our trials on the timelines we expect and we
may be required to conduct additional clinical trials or modify current or future clinical trials based on feedback we receive from the FDA.
Clinical testing is expensive, time consuming, and subject to uncertainty. We cannot guarantee that any current or future clinical studies
will be conducted as planned or completed on schedule, if at all, or that any of our product candidates will receive regulatory approval. We
initiated clinical trials in patients with metastatic melanoma, cervical and head and neck cancers. We plan to initiate trials in new indications.
Even as these trials progress, issues may arise that could require us to suspend or terminate such clinical trials. A failure of one or more clinical
studies can occur at any stage of testing, and our future clinical studies may not be successful. Events that may prevent successful or timely
initiation or completion of clinical development, or product approval include:
inability to generate sufficient preclinical data to support the initiation of clinical studies;
regulators or Institutional Review Boards, or IRBs may not authorize us or our investigators to commence a clinical trial, conduct a
clinical trial at a prospective trial site, or amend trial protocols, or regulators or IRBs may require that we modify or amend our
clinical trial protocols;
delays in reaching a consensus with regulatory agencies on study design;
the FDA or comparable foreign regulatory authorities may disagree with our intended indications, study design or our interpretation
of data from preclinical studies and clinical trials or find that a product candidate’s benefits do not outweigh its safety risks;
the FDA or comparable foreign regulatory authorities may not accept data from studies with clinical trial sites in foreign countries;
the FDA may not allow us to use the clinical trial data from a research institution to support an IND if we cannot demonstrate the
comparability of our product candidates with the product candidate used by the relevant research institution in its clinical studies;
delays in of failure to reach an agreement on acceptable terms with prospective CROs and clinical study sites, the terms of which
can be subject to extensive negotiation and may vary significantly among different CROs and clinical study sites;
delays in obtaining required IRB approval at each clinical study site;
imposition of a temporary or permanent clinical hold, suspensions or terminations by regulatory agencies, IRBs, or us for various
reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable
health risks, undesirable side effects, or other unexpected characteristics of the product candidate, or due to findings of undesirable
effects caused by a chemically or mechanistically similar therapeutic or therapeutic candidate;
delays in recruiting suitable patients to participate in our clinical studies;
we may have delays in adding new investigators or clinical trial sites, or we may experience a withdrawal of clinical trial sites;
failure by our CROs, clinical trial sites, patients, or other third parties, or us to adhere to clinical study requirements, including
regulatory, contractual or protocol requirements;
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failure to perform in accordance with the FDA’s current good clinical practices, or cGCPs, requirements, or applicable regulatory
guidelines in other countries;
the number of patients required for clinical trials of our product candidates may be larger than we anticipate or enrollment in these
clinical trials may be slower than we anticipate;
patients that enroll in our studies may misrepresent their eligibility or may otherwise not comply with the clinical trial protocol,
resulting in the need to drop such patients from the study or clinical trial, increase the needed enrollment size for the study or
clinical trial or extend the study’s or clinical trial’s duration;
patients dropping out of a study;
occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
changes in regulatory requirements and guidance that require amending or submitting new clinical protocols to regulatory
authorities and IRBs, and which may cause delays in our development programs, or changes to regulatory review times;
there may be regulatory questions or disagreements regarding interpretations of data and results, or new information may emerge
regarding our product candidates;
changes in the standard of care on which a clinical development plan was based, which may require new or additional trials;
the cost of clinical studies of our product candidates being greater than we anticipate, or we may have insufficient funds for a
clinical trial or to pay the substantial user fees required by the FDA upon the filing of a BLA;
clinical studies of our product candidates producing negative or inconclusive results may fail to provide sufficient data and
information to support product approval, or our studies may fail to reach the necessary level of statistical or clinical significance,
which may result in our deciding, or regulators requiring us, to conduct additional clinical studies, or preclinical studies, or abandon
product development programs;
we may not be able to demonstrate that a product candidate provides an advantage over current standards of care or current or
future competitive therapies in development;
there may be changes to the therapeutics or their regulatory status which we are administering in combination with our product
candidates;
the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing
processes or our manufacturing facilities for clinical and future commercial supplies;
the FDA or comparable regulatory authorities may take longer than we anticipate to make a decision on our product candidates;
transfer of our manufacturing processes to our contract manufacturers or other larger-scale facilities operated by a CMO and delays
or failure by our CMOs or us to make any necessary changes to such manufacturing process; and
delays in manufacturing, testing, releasing, validating, or importing/exporting sufficient stable quantities of our product candidates
for use in clinical studies or the inability to do any of the foregoing, including as a result of any quality issues associated with the
contract manufacturer.
We also may conduct clinical and preclinical research in collaboration with other biotechnology and biologics entities in which we
combine our technologies with those of our collaborators. Such collaborations may be subject to additional delays because of the management
of the trials, contract negotiations, the need to obtain agreement from multiple parties, and the necessity of obtaining additional approvals for
therapeutics used in the combination trials. These combination therapies will require additional testing and clinical trials will require additional
FDA regulatory approval and will increase our future cost of expenses.
Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to
generate revenue. In addition, if we make manufacturing or formulation changes to our product candidates, we may be required to, or we may
elect to, conduct additional studies to bridge our modified product candidates to earlier versions. These changes may require the FDA approval
or notification, may not have their desired effect and the FDA may not accept data from prior versions of the product to support an application,
delaying our clinical trials or programs or necessitating additional clinical or preclinical studies. By example, we changed our manufacturing
process from Gen 1 to Gen 2 to decrease the production time and allow for the cryopreservation of the product. We may find that this update
has unintended consequences that necessitates additional development and manufacturing work, additional clinical and preclinical studies, or
that results in non-approval of a BLA.
Clinical study delays could shorten any periods during which our products have patent protection and may allow our competitors to
bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our
business and results of operations.
Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that
our data are insufficient for approval and require additional preclinical, clinical or other studies. The number and types of preclinical studies
and clinical trials that will be required for regulatory approval also varies depending on the product candidate, the disease or condition that the
product candidate is designed to address, and the regulations applicable to any particular product candidate. Approval policies, regulations or
the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development
and may vary among jurisdictions. It is possible that neither of our product candidates nor any product candidates we may seek to develop in
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the future will ever obtain the appropriate regulatory approvals necessary for us or any future collaborators to commence product sales. Any
delay in completing development, obtaining or failure to obtain required approvals could also materially adversely affect our ability or that of
any of our collaborators to generate revenue from any such product candidate, which likely would result in significant harm to our financial
position and adversely impact our stock price.
It may take longer and cost more to complete our clinical trials than we project, or we may not be able to complete them at all.
For budgeting and planning purposes, we have projected the date for the commencement of future trials, and continuation and
completion of our ongoing clinical trials. However, a number of factors, including scheduling conflicts with participating clinicians and clinical
institutions, and difficulties in identifying and enrolling patients who meet trial eligibility criteria, may cause significant delays. We may not
commence or complete clinical trials involving any of our products as projected or may not conduct them successfully.
We have opened enrollment of our company-sponsored, Phase 2 clinical trials to establish the feasibility of our product, and to assess its
overall safety in patients with metastatic melanoma, cervical and head and neck cancers. However, we may experience difficulties in patient
enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with their protocols depends,
among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. In addition, our clinical
trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this
competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials
may instead opt to enroll in a trial being conducted by one of our competitors. Accordingly, we cannot guarantee that the trial will progress as
planned or as scheduled. Delays in patient enrollment may result in increased costs or may affect the timing or outcome of our ongoing clinical
trial and planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of
our product candidates.
We expect to rely on medical institutions, academic institutions or CROs to conduct, supervise or monitor some or all aspects of clinical
trials involving our products. We will have less control over the timing and other aspects of these clinical trials than if we conducted them
entirely on our own. If we fail to commence or complete, or experience delays in, any of our planned clinical trials, our stock price and our
ability to conduct our business as currently planned could be harmed.
We currently anticipate that we will have to rely on our CMOs to manufacture our adoptive cell therapy products for clinical trials. If
they fail to commence or complete, or experiences delays in, manufacturing our adoptive cell therapy products, our planned clinical trials will
be delayed, which will adversely affect our stock price and our ability to conduct our business as currently planned.
Clinical trials are expensive, time-consuming and difficult to design and implement, and our clinical trial costs may be higher than
for more conventional therapeutic technologies or drug products.
Clinical trials are expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements.
Because our product candidates are based on new cell therapy technologies and manufactured on a patient-by-patient basis, we expect that they
will require extensive research and development and have substantial manufacturing costs. In addition, costs to treat patients with
relapsed/refractory cancer and to treat potential side effects that may result from our product candidates can be significant. Some clinical trial
sites may not bill, or obtain coverage from, Medicare, Medicaid, or other third-party payors for some or all of these costs for patients enrolled
in our clinical trials, and we may be required by those trial sites to pay such costs. Accordingly, our clinical trial costs are likely to be
significantly higher per patient than those of more conventional therapeutic technologies or drug products. In addition, our proposed
personalized product candidates involve several complex and costly manufacturing and processing steps, the costs of which will be borne by
us. Depending on the number of patients we ultimately enroll in our trials, and the number of trials we may need to conduct, our overall clinical
trial costs may be higher than for more conventional treatments.
Our clinical trials may fail to demonstrate adequately the safety and efficacy of our product candidates, which would prevent or delay
regulatory approval and commercialization.
The clinical trials of our product candidates are, and the manufacturing and marketing of our products will be, subject to extensive and
rigorous review and regulation by numerous government authorities in the United States and in other countries where we intend to test and
market our product candidates. Before obtaining regulatory approvals for the commercial sale of any of our product candidates, we must
demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and
effective for use in each target indication. Because our product candidates are subject to regulation as biological drug products, we will need to
demonstrate that they are safe, pure, and potent for use in their target indications. Each product candidate must demonstrate an adequate risk
versus benefit profile in its intended patient population and for its intended use. The risk/benefit profile required for product licensure will vary
depending on these factors and may include not only the ability to show tumor shrinkage, but also adequate duration of response, a delay in the
progression of the disease, and/or an improvement in survival. For example, response rates from the use of our product candidates may not be
sufficient to obtain regulatory approval unless we can also show an adequate duration of response. Regulatory authorities may ultimately
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disagree with our chosen endpoints or may find that our studies or study results do not support product approval. Clinical testing is expensive
and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process.
The results of preclinical studies and early clinical trials of our product candidates with small patient populations may not be predictive of the
results of later-stage clinical trials or the results once the applicable clinical trials are completed. Preliminary, single cohort, or top-line results
from clinical studies may not be representative of the final study results. The results of studies in one set of patients or line of treatment may
not be predictive of those obtained in another and the results in various human clinical trials reported in scientific and medical literature may
not be indicative of results we obtain in our clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety
and efficacy traits despite having progressed through preclinical studies and initial clinical trials. Preclinical studies may also reveal
unfavorable product candidate characteristics, including safety concerns.
We expect there may be greater variability in results for products processed and administered on a patient-by-patient basis, as
anticipated for our product candidates, than for “off-the-shelf” products, like many other drugs. There is typically an extremely high rate of
attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials may fail to
show the desired safety and efficacy profile despite having progressed through preclinical studies and initial clinical trials. Many companies in
the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety
issues, notwithstanding promising results in earlier trials. Most product candidates that begin clinical trials are never approved by regulatory
authorities for commercialization.
In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product
candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient
populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. Our current and
future clinical trial results may not be successful. Moreover, should there be a flaw in a clinical trial, it may not become apparent until the
clinical trial is well advanced. Further, because we currently plan to develop our product candidates for use with other oncology products, the
design, implementation, and interpretation of the clinical trials necessary for marketing approval may be more complex than if we were
developing our product candidates alone.
In addition, even if such trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will
interpret the results as we do, and more trials could be required before we submit our product candidates for approval. To the extent that the
results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, we may be required
to expend significant resources, which may not be available to us, to conduct additional trials in support of potential approval of our product
candidates.
We have reported preliminary results for clinical trials of our product candidates, including TIL for the treatment of metastatic
melanoma, cervical cancer, and head and neck cancers. These preliminary results, which include assessments of efficacy such as ORR, are
subject to substantial risk of change due to small sample sizes, and may change as patients are evaluated or as additional patients are enrolled in
these clinical trials. These outcomes may be unfavorable, deviate from our earlier reports, and/or delay or prevent regulatory approval or
commercialization of our product candidates, including candidates for which we have reported preliminary efficacy results. In clinical studies
where a staged expansion is expected, such as studies using a Simon’s two stage design, these outcomes may result in the failure to meet an
initial efficacy threshold for the first stage. Furthermore, other measures of efficacy for these clinical trials and product candidates may not be
as favorable.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise
adversely affected.
The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a
sufficient number of patients who remain in the trial until its conclusion. We may experience difficulties or delays in patient enrollment in our
clinical trials for a variety of reasons, including:
the size and nature of the patient population;
the severity of the disease under investigation;
the patient eligibility criteria defined in the protocol;
the size of the study population required for analysis of the trial’s primary endpoints;
the proximity of patients to trial sites;
the design of the trial;
our ability to recruit clinical trial investigators with the appropriate competencies and experience;
the efforts to facilitate timely enrollment in clinical trials and the effectiveness of recruiting publicity;
the patient referral practices of physicians;
competing clinical trials for similar therapies or other new therapeutics not involving cell-based immunotherapy;
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clinicians’ and patients’ perceptions as to the potential advantages and side effects of the product candidate being studied in relation
to other available therapies, including any new drugs or treatments that may be approved for the indications we are investigating;
clinical investigators enrolling patients who do not meet the enrollment criteria, requiring the inclusion of additional patients in the
clinical trial;
our ability to obtain and maintain patient consents; and
the risk that patients enrolled in clinical trials will not complete a clinical trial, return for post-treatment follow-up, or follow the
required study procedures. For instance, patients, including patients in our control groups, may withdraw from the clinical trial if
they are not experiencing improvement in their underlying disease or condition. Withdrawal of patients from our clinical trials may
compromise the quality of our data.
In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our
product candidates, and this competition will reduce the number and types of patients available to us, because some patients who might have
opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Because the number of qualified
clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitor’s use,
which will reduce the number of patients who are available for our clinical trials at such clinical trial sites. Moreover, because our product
candidates represent a departure from more commonly used methods for cancer treatment, potential patients and their doctors may be inclined
to use conventional therapies, such as chemotherapy and approved immunotherapies, rather than enroll patients in any future clinical trial. In
addition, potential enrollees may opt to participate in alternate clinical trials because of the length of time between the time that their tumor is
excised and the TIL is infused back into the patient.
Even if we are able to enroll a sufficient number of patients in our clinical trials, delays in patient enrollment or small population size
may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials
and adversely affect our ability to advance the development of our product candidates.
Our product candidates may cause undesirable side effects or have other properties that could halt their clinical development,
prevent their regulatory approval, limit their commercial potential or result in significant negative consequences.
Results of our trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics.
Undesirable side effects caused by our product candidates could cause us, IRBs, or regulatory authorities to interrupt, delay or halt clinical
trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign
regulatory authorities. Even if we were to receive product approval, such approval could be contingent on inclusion of unfavorable information
in our product labeling, such as limitations on the indicated uses for which the products may be marketed or distributed, a label with significant
safety warnings, including boxed warnings, contraindications, and precautions, a label without statements necessary or desirable for successful
commercialization, or requirements for costly post marketing testing and surveillance, or other requirements, including REMS, to monitor the
safety or efficacy of the products, and in turn prevent us from commercializing and generating revenues from the sale of our current or future
product candidates.
If unacceptable toxicities arise in the development of our product candidates, we, an IRB or the FDA or comparable foreign regulatory
authorities could order us to cease clinical trials, order our clinical trials to be placed on clinical hold, or deny approval of our product
candidates for any or all targeted indications. The FDA or comparable foreign regulatory authorities may also require additional data, clinical,
or pre-clinical studies should unacceptable toxicities arise. We may need to abandon development or limit development of that product
candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more
acceptable from a risk/benefit perspective. Toxicities associated with our trials and products may also negatively impact our ability to conduct
clinical trials using TIL therapy in larger patient populations, such as in patients that have not yet been treated with other therapies or have not
yet progressed on other therapies.
Treatment-related side effects could also affect patient recruitment or the ability of enrolled subjects to complete our trials or result in
potential product liability claims. Such toxicities, which may arise from TIL therapy in general, including co-therapies, may include, for
example, pyrexia, anemia, neutrophil and platelet count decrease, febrile neutropenia, fatigue, chills, hyponatremia, and hypotension. In
addition, these side effects may not be appropriately recognized or managed by the treating medical staff, as toxicities resulting from
personalized cell therapy are not normally encountered in the general patient population and by medical personnel. Any of these occurrences
may harm our business, financial condition and prospects significantly.
The manufacture of our product candidates is complex, and we may encounter difficulties in production, particularly with respect to
process development or scaling-out of our manufacturing capabilities. If we, or any of our third-party manufacturers encounter such
difficulties, our ability to provide supply of our product candidates for clinical trials or our products for patients, if approved, could be
delayed or stopped, or we may be unable to maintain a commercially viable cost structure.
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Our product candidates are biologics and the process of manufacturing our products is complex, highly-regulated and subject to multiple
risks. The manufacture of our product candidates involves complex processes, including harvesting tumor fragments from patients, multiplying
the T cells to obtain the desired dose, and ultimately infusing the T cells back into a patient. As a result of the complexities, the cost to
manufacture biologics is generally higher than traditional small molecule chemical compounds, and the manufacturing process is less reliable
and is more difficult to reproduce. Our manufacturing process will be susceptible to product loss or failure due to logistical issues associated
with the collection of tumor cells, or starting material, from the patient, shipping such material to the manufacturing site, shipping the final
product back to the patient, and infusing the patient with the product, manufacturing issues associated with the differences in patient starting
tumors, interruptions in the manufacturing process, contamination, equipment failure, improper installation or operation of equipment, vendor
or operator error, inconsistency in cell growth, and variability in product characteristics. Even minor deviations from normal manufacturing
processes could result in reduced production yields, product defects, and other supply disruptions. If for any reason we lose a patient’s tumor,
or later-developed product at any point in the process, or if any product does not meet the applicable specifications, the manufacturing process
for that patient will need to be restarted and the resulting delay may adversely affect that patient’s outcome. If microbial, viral, or other
contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such
manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination.
Because our product candidates are manufactured specifically for each individual patient, we will be required to maintain a chain of
identity with respect to the patient’s tumor as it moves from the patient to the manufacturing facility, through the manufacturing process, and
back to the patient. Maintaining such a chain of identity is difficult and complex, and failure to do so could result in adverse patient outcomes,
loss of product, or regulatory action including withdrawal of our products from the market. Further, as product candidates are developed
through preclinical to late stage clinical trials towards approval and commercialization, it is common that various aspects of the development
program, such as manufacturing methods, are altered along the way to optimize processes and results. Such changes carry the risk that they will
not achieve these intended objectives, and any of these changes could cause our product candidates to perform differently and affect the results
of planned clinical trials or other future clinical trials or otherwise necessitate the conduct of additional studies.
Currently, our product candidates are manufactured using processes developed or modified by us or by our third-party research
institution collaborators that we may not intend to use for more advanced clinical trials or commercialization. We have selected Gen 2 as the
manufacturing process for product registration, and all ongoing and future company-sponsored clinical trials. Although we believe Gen 2 is a
commercially viable process, there are risks associated with scaling to the level required for advanced clinical trials or commercialization,
including, among others, cost overruns, potential problems with process scale-out, process reproducibility, stability issues, lot consistency, and
timely availability of raw materials. As a result of these challenges, we may experience delays in our clinical development and/or
commercialization plans. We may ultimately be unable to reduce the cost of goods for our product candidates to levels that will allow for an
attractive return on investment if and when those product candidates are commercialized.
Our current manufacturing strategy involves the use of CMOs. Currently our product candidates are manufactured by WuXi,
PharmaCell, and Moffitt. Should we continue to use CMOs, we may not succeed in maintaining our relationships with our current CMOs or
establishing relationships with additional or alternative CMOs. Our product candidates may compete with other products and product
candidates for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that
are both capable of manufacturing for us and willing to do so. If our CMOs should cease manufacturing for us, we would experience delays in
obtaining sufficient quantities of our product candidates for clinical trials and, if approved, commercial supply. Further, our CMOs may breach,
terminate, or not renew these agreements. If we were to need to find alternative manufacturing facilities it would significantly impact our
ability to develop, obtain regulatory approval for or market our product candidates, if approved. The commercial terms of any new arrangement
could be less favorable than our existing arrangements and the expenses relating to the transfer of necessary technology and processes could be
significant.
Reliance on third-party manufacturers entails exposure to risks to which we would not be subject if we manufactured the product
candidate ourselves, including:
inability to negotiate manufacturing agreements with third parties under commercially reasonable terms;
reduced day-to-day control over the manufacturing process for our product candidates as a result of using third-party manufacturers
for all aspects of manufacturing activities;
reduced control over the protection of our trade secrets and know-how from misappropriation or inadvertent disclosure;
termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that may be costly or damaging
to us or result in delays in the development or commercialization of our product candidates; and
disruptions to the operations of our third-party manufacturers or suppliers caused by conditions unrelated to our business or
operations, including the bankruptcy of the manufacturer or supplier.
In the future, we may seek to establish our own manufacturing capabilities and infrastructure, including a manufacturing facility. We
would expect that development of our own manufacturing facility would provide us with enhanced control of material supply for both clinical
trials and the commercial market, enable the more rapid implementation of process changes, and allow for better long-term margins. However,
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we have no experience as a company in developing a manufacturing facility and may never be successful in developing our own manufacturing
facility or capability. We may establish multiple manufacturing facilities as we expand our commercial footprint to multiple geographies,
which may lead to regulatory delays or prove costly. Even if we are successful, our manufacturing capabilities could be affected by cost-
overruns, unexpected delays, equipment failures, labor shortages, natural disasters, power failures, and numerous other factors that could
prevent us from realizing the intended benefits of our manufacturing strategy and have a material adverse effect on our business.
The manufacture of biopharmaceutical products requires significant expertise and capital investment, including the development of
advanced manufacturing techniques and process controls. Manufacturers of therapeutics often encounter difficulties in production, particularly
in scaling up initial production. These problems include difficulties with production costs and yields, quality control, including stability of the
product candidate and quality assurance testing, shortages of qualified personnel, and compliance with strictly enforced federal, state, and
foreign regulations.
Moreover, any problems or delays we or our CMOs experience in preparing for commercial scale manufacturing of a product candidate
or component may result in a delay in FDA approval of the product candidate or may impair our ability to manufacture commercial quantities
or such quantities at an acceptable cost, which could result in the delay, prevention, or impairment of clinical development and
commercialization of our product candidates and could adversely affect our business. Furthermore, if we or our commercial manufacturers fail
to deliver the required commercial quantities of our product candidates on a timely basis and at reasonable costs, we would likely be unable to
meet demand for our products and we would lose potential revenues.
In addition, the manufacturing process and facilities for any products that we may develop is subject to FDA and foreign regulatory
authority approval processes, and we or our CMOs will need to meet all applicable FDA and foreign regulatory authority requirements,
including cGMPs, on an ongoing basis. The cGMP requirements include quality control, quality assurance, and the maintenance of records and
documentation. The FDA and other regulatory authorities enforce these requirements through facility inspections. Manufacturing facilities
must be approved by the FDA pursuant to inspections that will be conducted after we submit our marketing applications to the agency.
Manufacturers are also subject to continuing FDA and other regulatory authority inspections following marketing approval. Further, we, in
cooperation with our CMOs, must supply all necessary chemistry, manufacturing, and control documentation in support of a BLA on a timely
basis.
Our, or our CMO’s, manufacturing facilities may be unable to comply with our specifications, cGMPs, and with other FDA, state, and
foreign regulatory requirements. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants,
or to inadvertent changes in the properties or stability of product candidate that may not be detectable in final product testing. If we or our
CMOs are unable to reliably produce products to specifications acceptable to the FDA or other regulatory authorities, or in accordance with the
strict regulatory requirements, we may not obtain or maintain the approvals we need to commercialize such products. Even if we obtain
regulatory approval for any of our product candidates, there is no assurance that either we or our CMOs will be able to manufacture the
approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the
requirements for the potential launch of the product, or to meet potential future demand. Deviations from manufacturing requirements may
further require remedial measures that may be costly and/or time-consuming for us or a third party to implement and may include the
temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such
remedial measures imposed upon us or third parties with whom we contract could materially harm our business.
Even to the extent we use and continue to use CMOs, we are ultimately responsible for the manufacture of our products and product
candidates. A failure to comply with these requirements may result in regulatory enforcement actions against our manufacturers or us,
including fines and civil and criminal penalties, which could result in imprisonment, suspension or restrictions of production, suspension,
injunctions, delay or denial of product approval or supplements to approved products, clinical holds or termination of clinical studies, warning
or untitled letters, regulatory authority communications warning the public about safety issues with the biologic, refusal to permit the import or
export of the products, product seizure, detention, or recall, operating restrictions, suits under the civil False Claims Act, corporate integrity
agreements, consent decrees, or withdrawal of product approval.
Any of these challenges could delay completion of clinical trials, require bridging clinical trials or the repetition of one or more clinical
trials, increase clinical trial costs, delay approval of our product candidate, impair commercialization efforts, increase our cost of goods, and
have an adverse effect on our business, financial condition, results of operations and growth prospects.
Cell-based therapies rely on the availability of reagents, specialized equipment, and other specialty materials, which may not be
available to us on acceptable terms or at all. For some of these reagents, equipment, and materials, we rely or may rely on sole source
vendors or a limited number of vendors, which could impair our ability to manufacture and supply our products.
Manufacturing our product candidates will require many reagents, which are substances used in our manufacturing processes to bring
about chemical or biological reactions, and other specialty materials and equipment, some of which are manufactured or supplied by small
companies with limited resources and experience to support commercial biologics production. We currently depend on a limited number of
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vendors for certain materials and equipment used in the manufacture of our product candidates. Some of these suppliers may not have the
capacity to support clinical trials and commercial products manufactured under cGMP by biopharmaceutical firms or may otherwise be ill-
equipped to support our needs. We also do not have supply contracts with many of these suppliers and may not be able to obtain supply
contracts with them on acceptable terms or at all. Accordingly, we may experience delays in receiving key materials and equipment to support
clinical or commercial manufacturing.
For some of these reagents, equipment, and materials, we rely and may in the future rely on sole source vendors or a limited number of
vendors. An inability to continue to source product from any of these suppliers, which could be due to a number of issues, including regulatory
actions or requirements affecting the supplier, adverse financial or other strategic developments experienced by a supplier, labor disputes or
shortages, unexpected demands, or quality issues, could adversely affect our ability to satisfy demand for our product candidates, which could
adversely and materially affect our product sales and operating results or our ability to conduct clinical trials, either of which could
significantly harm our business.
As we continue to develop and scale our manufacturing process, we expect that we will need to obtain rights to and supplies of certain
materials and equipment to be used as part of that process. We may not be able to obtain rights to such materials on commercially reasonable
terms, or at all, and if we are unable to alter our process in a commercially viable manner to avoid the use of such materials or find a suitable
substitute, it would have a material adverse effect on our business. Even if we are able to alter our process so as to use other materials or
equipment, such a change may lead to a delay in our clinical development and/or commercialization plans. If such a change occurs for product
candidate that is already in clinical testing, the change may require us to perform both ex vivo comparability studies and to collect additional
data from patients prior to undertaking more advanced clinical trials.
The deviations in our proposed new products from existing products may require us to perform additional testing, which will
increase the cost, and extend the time for obtaining approval.
Our TIL based therapy is based on the adoptive cell therapy technology that we licensed from the NIH and that is presently in use as a
physician-sponsored investigational therapy for the treatment of Stage IV metastatic melanoma in the United States at the NCI, M.D. Anderson
Cancer Center, and Moffit. These current methods of treatment are very labor intensive and expensive, which has limited its widespread
application. We have developed a new process, Gen 2, that we anticipate will enable more efficient manufacturing of TIL. We may have
difficulty demonstrating that the products produced from our new processes are identical to the existing products. The FDA may require
additional clinical testing before permitting a larger clinical trial with the new processes, and the product may not be as efficacious in the new
clinical trials. Cellular products are not considered as well characterized products because there are hundreds of markers present on these cells,
and even small changes in manufacturing processes could alter the cell types. It is unclear at this time which of those markers are critical for
success of these cells to combat cancer, so our ability to predict the outcomes with newer manufacturing processes is limited. The changes that
we have made to the historical manufacturing process may require additional testing, which may increase costs and timelines associated with
these developments.
In addition to developing a TIL based therapy on existing ACT technology, we are currently evaluating the desirability of conducting
clinical trials of our products in combination with other existing drugs. These combination therapies will require additional testing and clinical
trials will require additional FDA regulatory approval and will increase our future cost of development.
We will be unable to commercialize our products if our trials are not successful.
Our research and development programs are at an early stage. We must demonstrate our products’ safety and efficacy in humans through
extensive clinical testing. We may experience numerous unforeseen events during, or as a result of, the testing process that could delay or
prevent commercialization of our products, including but not limited to the following:
safety and efficacy results in various human clinical trials reported in scientific and medical literature may not be indicative of
results we obtain in our clinical trials;
after reviewing test results, we or our collaborators may abandon projects that we might previously have believed to be promising;
we, our collaborators or regulators, may suspend or terminate clinical trials if the participating subjects or patients are being
exposed to unacceptable health risks;
the effects our potential products have may not be the desired effects or may include undesirable side effects or other characteristics
that preclude regulatory approval or limit their commercial use if approved;
manufacturers may not meet the necessary standards for the production of the product candidates or may not be able to supply the
product candidates in a sufficient quantity; and
regulatory authorities may find that our clinical trial design or conduct does not meet the applicable approval requirements.
Clinical testing is very expensive, can take many years, and the outcome is uncertain. It can take as much as 12 months or more before
we learn the results from any clinical trial using our adoptive cell therapy with TIL. The data collected from our clinical trials may not be
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sufficient to support approval by the FDA of our TIL-based product candidates for the treatment of solid tumors. The clinical trials for our
products under development may not be completed on schedule and the FDA may not ultimately approve any of our product candidates for
commercial sale. If we fail to adequately demonstrate the safety and efficacy of any product candidate under development, we may not receive
regulatory approval for those products, which would prevent us from generating revenues or achieving profitability.
Our research and development efforts have been to a large extent dependent upon the CRADA.
Although we opened our own research and development laboratory in 2014, we are continuing to fully develop our research and
development capabilities. In addition, we conduct a portion of our research and development under the CRADA with the NCI. Under the
CRADA, the NCI currently engage in research and development related to the development of improved methods of large scale unmodified
TIL generation for the treatment of patients with metastatic melanoma, bladder, lung, breast, and HPV-associated cancers. We are obligated to
make annual payments of $2.0 million under the CRADA. In addition, although the CRADA has a five-year term, either party to the CRADA
has the right to terminate the CRADA upon 60 days’ notice to the other party. As a result, no assurance can be given that the NCI will not
terminate, or that we will renew, the CRADA that expires in August 2021 and that the CRADA will, therefore, remain in effect until we
complete our desired research thereunder.
We have limited control over the nature or timing of the NCI’s clinical trials and limited visibility into their day-to-day activities. The
research we are funding constitutes only a small portion of the NCI’s overall research. Other research being conducted by Dr. Rosenberg may
at times receive higher priority than research on our programs. These factors could adversely affect the timing of our IND filings and our ability
to conduct future planned clinical trials.
Under the CRADA, we have an option to negotiate commercialization licenses from the NIH to intellectual property relating to TIL-
based product candidates developed as part of the CRADA research plan. However, we would have to negotiate with the NIH for such a
license. There can be no assurance that we would be able to successfully complete such negotiations and ultimately acquire the rights to the
intellectual property surrounding the additional product candidates that we may seek to acquire. Further, to the extent we would like to
negotiate a license to a patent filed before the CRADA was entered into, another party may object to the NIH granting us a license during a 30-
day public notification period, and the NIH may decide not to grant us the license.
We collaborate with governmental, academic and corporate partners to improve and develop TIL therapies for new indications for
use in combination with other therapies and to evaluate new TIL manufacturing methods, the results of which, because the manufacturing
processes are not within our control, may be incorrect or unreliable.
In addition to our own research and process development efforts, we seek to collaborate with government, academic research institutions
and corporate partners to improve TIL manufacturing and to develop TIL therapies for new indications. In 2017, we announced collaborations
with Moffitt, M.D. Anderson and Ohio State University to evaluate several new solid tumor and hematologic indications for TIL therapy in
clinical and preclinical studies as well as, in some cases, new TIL manufacturing approaches. In September 2016, we entered into a license
agreement with PolyBioCept and a related clinical trial with Karolinska University Hospital to evaluate a new cytokine cocktail for TIL
manufacturing and the treatment of patients with pancreatic cancer and glioblastoma. The results of these collaborations may be used to support
our filing with the FDA of INDs to conduct more advanced clinical trials of our product candidates, or to otherwise analyze or make
predictions or decisions with respect to our current or future product candidates. However, because the majority of our collaborations are
conducted at outside laboratories and we do not have complete control over how the studies are conducted or the manufacturing methods used
to manufacture TIL product, the results of such studies, which we may use as the basis for our conclusions, projections or decisions with
respect to our current or future product candidates, may be incorrect or unreliable, Additionally, we may use third party data to analyze, reach
conclusions or make predictions or decisions with respect to our product candidates that may be incomplete, inaccurate or otherwise unreliable.
We will need additional financing to fund our operations and complete the development and commercialization of our various
product candidates, and if we are unable to obtain such financing, we may be unable to complete the development and commercialization of
our product candidates. Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to
relinquish rights to our technologies or product candidates.
Our operations have consumed substantial amounts of cash since inception. From our inception to December 31, 2017, we have an
accumulated deficit of $249.2 million. In addition, our research and development and our operating costs have also been substantial and are
expected to increase. We expect to continue to spend substantial amounts to continue the clinical development of our product candidates. As of
December 31, 2017, we had $145.4 million in cash and cash equivalents. In January 2018, we closed an underwritten public offering of our
common stock. The net proceeds from the offering, after deducting the underwriting discounts and commissions and other estimated offering
expenses payable by us, were $161.7 million. Accordingly, we believe that our existing cash, cash equivalents and short-term investments will
be sufficient to fund our operations for at least the next 24 months from the date this Annual Report on Form 10-K is issued. However,
changing circumstances may cause us to increase our spending significantly faster than we currently anticipate, and we may require additional
capital for the further development and commercialization of our product candidates and may need to raise additional funds sooner if we
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choose to expand more rapidly than we presently anticipate. Moreover, our fixed expenses such as rent, minimum payments to our contract
manufacturers, and other contractual commitments, including those for our research collaborations, are substantial and are expected to increase
in the future.
We will need to obtain additional financing to fund our future operations, including completing the development and commercialization
of our product candidates. Our future funding requirements will depend on many factors, including, but not limited to:
Progress, timing, scope and costs of our clinical trials, including the ability to timely initiate clinical sites, enroll subjects and
manufacture TIL for treatment for patients in our ongoing, planned and potential future clinical trials;
Time and cost necessary to obtain regulatory approvals that may be required by regulatory authorities to execute clinical trials or
commercialize our product;
Our ability to successfully commercialize our product candidates, if approved;
Our ability to have clinical and commercial product successfully manufactured consistent with FDA and European Medicines
Agency, or EMA, regulations;
Amount of sales and other revenues from product candidates that we may commercialize, if any, including the selling prices for
such potential products and the availability of adequate third-party coverage and reimbursement for patients;
Sales and marketing costs associated with commercializing our products, if approved, including the cost and timing of building our
marketing and sales capabilities;
Terms and timing of our current and any potential future collaborations, licensing or other arrangements that we have established or
may establish;
Cash requirements of any future acquisitions or the development of other product candidates;
Costs of operating as a public company;
Time and cost necessary to respond to technological, regulatory, political and market developments;
Costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and
Costs associated with any potential business or product acquisitions, strategic collaborations, licensing agreements or other
arrangements that we may establish.
Until we can generate a sufficient amount of revenue, we may finance future cash needs through public or private equity offerings,
license agreements, debt financings, collaborations, strategic alliances and marketing or distribution arrangements. Additional funds may not be
available when we need them on terms that are acceptable to us, or at all. We have no committed source of additional capital and if we are
unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be required to delay or reduce the scope of or
eliminate one or more of our research or development programs or our commercialization efforts. Our current license and collaboration
agreements may also be terminated if we are unable to meet the payment obligations under those agreements. As a result, we may seek to
access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital
at that time.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be
diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of
indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our
ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that
could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and
licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses
on terms unfavorable to us.
Subject to various spending levels approved by the Board of Directors, our management will have broad discretion in the use of the
net proceeds from our capital raises, including our January 2018 and September 2017 public offerings, and may not use them effectively.
Our management will have discretion in the application of the net proceeds from our capital raises, including our January 2018 and
September 2017 public offerings, and our stockholders will not have the opportunity as part of their investment decision to assess whether the
net proceeds from those capital raises are being used appropriately. You may not agree with our decisions, and our use of the proceeds from our
capital raises may not yield any return to stockholders. Because of the number and variability of factors that will determine our use of the net
proceeds from our capital raises, including our January 2018 and September 2017 public offerings, their ultimate use may vary substantially
from their currently intended use. Our failure to apply the net proceeds of our capital raises, including our January 2018 and September 2017
public offerings, effectively could compromise our ability to pursue our growth strategy and we might not be able to yield a significant return,
if any, on our investment of those net proceeds. Stockholders will not have the opportunity to influence our decisions on how to use our net
proceeds from capital raises, including our January 2018 and September 2017 public offerings. Pending their use, we may invest the net
proceeds from our capital raises, including our January 2018 and September 2017 public offerings, in short-term, investment-grade, interest-
bearing instruments and U.S. government securities. These temporary investments are not likely to yield a significant return.
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The use of our net operating loss carryforwards and research tax credits may be limited.
Our net operating loss carryforwards and any future research and development tax credits may expire and not be used. As of December
31, 2017, we had U.S. federal net operating loss carryforwards of approximately $143.3 million. Our net operating loss carryforwards arising in
taxable years ending on or prior to December 31, 2017 will begin expiring in 2027 if we have not used them prior to that time. Net operating
loss carryforwards arising in taxable years ending after December 31, 2017 are no longer subject to expiration under the Internal Revenue Code
of 1986, as amended, or the Code. Additionally, our ability to use any net operating loss and credit carryforwards to offset taxable income or
tax, respectively, in the future will be limited under Sections 382 and 383 of the Code, respectively, if we have a cumulative change in
ownership of more than 50% within a three-year period.
We have performed an IRC Section 382 analysis as of December 31, 2017. Per the analysis, the May 2013 recapitalization, private
placements in 2014 and 2016 may have already triggered such an ownership change. As a result, the federal and state carryforwards associated
with the net operating loss and credit deferred tax assets were reduced by the amount of tax attributes estimated to expire during their
respective carryforward periods. In addition, since we will need to raise substantial additional funding to finance our operations, we may
undergo further ownership changes in the future. Any such annual limitation may significantly reduce the utilization of the net operating loss
carryforwards and research tax credits before they expire. In addition, certain states have suspended use of net operating loss carryforwards for
certain taxable years, and other states are considering similar measures. As a result, we may incur higher state income tax expense in the future.
Depending on our future tax position, continued suspension of our ability to use net operating loss carryforwards in states in which we are
subject to income tax could have an adverse impact on our results of operations and financial condition.
Recently enacted tax reform legislation in the U.S. could adversely affect our business and financial condition.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“Tax Act”) was signed into law, making significant changes to the Internal
Revenue Code. Changes under the Tax Act include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax
years beginning after December 31, 2017, a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings,
limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction
for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore
earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important
exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or
repealing many business deductions and credits (including reducing the business tax credit for certain clinical testing expenses incurred in the
testing of orphan drugs). The overall impact of the new federal tax law is uncertain, and our business and financial condition could be adversely
affected. For example, because of the tax rate decrease, our deferred tax assets and our corresponding valuation allowance against these
deferred tax assets have been reduced and may continue to be adversely impacted. In addition, it is uncertain if and to what extent various states
will conform to Tax Act and what effect that legal challenges will have on the Tax Act, including litigation in the U.S. and international
challenges brought at organizations such as the World Trade Organization. The impact of the Tax Act on holders of our common stock is also
uncertain and could be adverse. Investors should consult with their legal and tax advisors with respect to this legislation and the potential tax
consequences of investing in or holding our common stock.
We are subject to extensive regulation, which can be costly, time consuming and can subject us to unanticipated delays; even if we
obtain regulatory approval for some of our products, those products may still face regulatory difficulties.
Our potential products, cell processing and manufacturing activities, are subject to comprehensive regulation by the FDA in the United
States and by comparable authorities in other countries. The process of obtaining FDA and other required regulatory approvals, including
foreign approvals, is expensive and often takes many years and can vary substantially based upon the type, complexity and novelty of the
products involved. In addition, regulatory agencies may lack experience with our technologies and products, which may lengthen the regulatory
review process, increase our development costs and delay or prevent their commercialization.
No adoptive cell therapy using TIL has been approved for marketing in the FDA. Consequently, there is no precedent for the successful
commercialization of products based on our technologies. In addition, we have had only limited experience in filing and pursuing applications
necessary to gain regulatory approvals, which may impede our ability to obtain timely FDA approvals, if at all. We have not yet sought FDA
approval for any adoptive cell therapy product. We will not be able to commercialize any of our potential products until we obtain FDA
approval, and so any delay in obtaining, or inability to obtain, FDA approval would harm our business.
If we violate regulatory requirements at any stage, whether before or after marketing approval is obtained, we may face a number of
regulatory consequences, including refusal to approve pending applications, license suspension or revocation, withdrawal of an approval,
imposition of a clinical hold or termination of clinical trials, warning letters, untitled letters, cyber letters, modification of promotional
materials or labeling, provision of corrective information, imposition of post-market requirements including the need for additional testing,
imposition of distribution or other restrictions under a REMS, product recalls, product seizures or detentions, refusal to allow imports or
exports, total or partial suspension of production or distribution, FDA debarment, injunctions, fines, consent decrees, corporate integrity
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agreements, debarment from receiving government contracts, and new orders under existing contracts, exclusion from participation in federal
and state healthcare programs, restitution, disgorgement, or civil or criminal penalties, including fines and imprisonment, and adverse publicity,
among other adverse consequences. Additionally, we may not be able to obtain the labeling claims necessary or desirable for the promotion of
our products. We may also be required to undertake post-marketing trials. In addition, if we or others identify side effects after any of our
adoptive cell therapies are on the market, or if manufacturing problems occur, regulatory approval may be withdrawn, and reformulation of our
products may be required.
We may not be able to license new TIL technology from the NIH and others.
An element of our intellectual property portfolio is to license additional rights and technologies from the NIH. Our inability to license
the rights and technologies that we have identified, or that we may in the future identify, could have a material adverse impact on our ability to
complete the development of our products or to develop additional products. No assurance can be given that we will be successful in licensing
any additional rights or technologies from the NIH and others. Failure to obtain additional rights and licenses may detrimentally affect our
planned development of additional product candidates and could increase the cost, and extend the timelines associated with our development of
such other products.
The market opportunities for our product candidates may be limited to those patients who are ineligible for or have failed prior
treatments and may be small.
The FDA often approves new therapies initially only for use in patients with relapsed or refractory metastatic disease. We expect to
initially seek approval of our product candidates in this setting and are currently studying these patient populations. Subsequently, for those
products that prove to be sufficiently beneficial, if any, we would expect to seek approval in earlier lines of treatment and potentially as a first
line therapy, but there is no guarantee that our product candidates, even if approved, would be approved for earlier lines of therapy, and, prior
to any such approvals, we may have to conduct additional clinical trials.
Our projections of both the number of people who have the cancers we are targeting, as well as the subset of people with these cancers
who are in a position to receive second or third line therapy, and who have the potential to benefit from treatment with our product candidates,
are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of
clinics, patient foundations, or market research by third parties, and may prove to be incorrect. Further, new studies or approvals of new
therapeutics may change the estimated incidence or prevalence of these cancers. The number of patients may turn out to be lower than
expected. Additionally, the potentially addressable patient population for our product candidates may be limited or may not be amenable to
treatment with our product candidates and may also be limited by the cost of our treatments and the reimbursement of those treatment costs by
third-party payors. For instance, we expect LN-144 to initially target a small patient population that suffers from metastatic melanoma. Even if
we obtain significant market share for our product candidates, because the potential target populations are small, we may never achieve
profitability without obtaining regulatory approval for additional indications.
We are required to pay substantial royalties and lump sum benchmark payments under our license agreements with the NIH and
PolyBioCept, and we must meet certain milestones to maintain our license rights.
Under our license agreements with the NIH for our adoptive cell therapy technologies, we are currently required to pay both substantial
benchmark payments and royalties to that institution based on our revenues from sales of our products utilizing the licensed technologies.
Likewise, under our license agreement with PolyBioCept, we are required to make lump sum payments if, and when certain product sales
targets are achieved. These payments could adversely affect the overall profitability for us of any products that we may seek to commercialize
under the NIH or PolyBioCept licenses. In order to maintain our license rights under the NIH and PolyBioCept license agreements, we will
need to meet certain specified milestones, subject to certain cure provisions, in the development of our product candidates. There is no
assurance that we will be successful in meeting these milestones on a timely basis, or at all.
Because our current products represent, and our other potential product candidates will represent novel approaches to the treatment
of disease, there are many uncertainties regarding the development, the market acceptance, third-party reimbursement coverage and the
commercial potential of our product candidates.
Human immunotherapy products are a new category of therapeutics. Because this is a relatively new and expanding area of novel
therapeutic interventions, there are many uncertainties related to development, marketing, reimbursement, and the commercial potential for our
product candidates. There can be no assurance as to the length of the trial period, the number of patients the FDA will require to be enrolled in
the trials in order to establish the safety, efficacy, purity and potency of immunotherapy products, or that the data generated in these trials will
be acceptable to the FDA to support marketing approval. The FDA may take longer than usual to come to a decision on any BLA that we
submit and may ultimately determine that there is not enough data, information, or experience with our product candidates to support an
approval decision. The FDA may also require that we conduct additional post-marketing studies or implement risk management programs, such
as REMS until more experience with our product candidates is obtained. Finally, after increased usage, we may find that our product candidates
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do not have the intended effect or have unanticipated side effects, potentially jeopardizing initial or continuing regulatory approval and
commercial prospects.
We may also find that the manufacture of our product candidates is more difficult than anticipated, resulting in an inability to produce a
sufficient amount of our product candidates for our clinical trials or, if approved, commercial supply. Moreover, because of the complexity and
novelty of our manufacturing process, there are only a limited number of manufacturers who have the capability of producing our product
candidates. Should any of our contract manufacturers no longer produce our product candidates, it may take us significant time to find a
replacement, if we are able to find a replacement at all.
There is no assurance that the approaches offered by our products will gain broad acceptance among doctors or patients or that
governmental agencies or third-party medical insurers will be willing to provide reimbursement coverage for proposed product candidates.
Moreover, we do not have verifiable internal marketing data regarding the potential size of the commercial market for our product candidates,
nor have we obtained current independent marketing surveys to verify the potential size of the commercial markets for our current product
candidates or any future product candidates. Since our current product candidates and any future product candidates will represent novel
approaches to treating various conditions, it may be difficult, in any event, to accurately estimate the potential revenues from these product
candidates. Accordingly, we may spend significant capital trying to obtain approval for product candidates that have an uncertain commercial
market. The market for any products that we successfully develop will also depend on the cost of the product. We do not yet have sufficient
information to reliably estimate what it will cost to commercially manufacture our current product candidates, and the actual cost to
manufacture these products could materially and adversely affect the commercial viability of these products. Our goal is to reduce the cost of
manufacturing and providing our therapies. However, unless we can reduce those costs to an acceptable amount, we may never be able to
develop a commercially viable product. If we do not successfully develop and commercialize products based upon our approach or find
suitable and economical sources for materials used in the production of our products, we will not become profitable, which would materially
and adversely affect the value of our common stock.
Our TIL therapy may be provided to patients in combination with other agents provided by third parties. The cost of such combination
therapy may increase the overall cost of TIL therapy and may result in issues regarding the allocation of reimbursements between our therapy
and the other agents, all of which may affect our ability to obtain reimbursement coverage for the combination therapy from third party medical
insurers.
No assurance can be given that we will be able to develop a new, FDA-compliant, more efficient, lower cost manufacturing process
upon which our business plan to commercialize TIL-based products is dependent.
Pursuant to the CRADA, and in cooperation with our contract manufacturers and potentially other manufacturers, we have developed
and are developing improved methods for the generating and selecting autologous TILs, and to develop methods for large-scale production of
autologous TILs that are in accord with current cGMP procedures. Developing a new, scaled-up, pharmaceutical manufacturing process that
can more efficiently and cost effectively, and in a more automated manner measure, produce and control the physical and/or chemical attributes
of our products in a cGMP facility is subject to many uncertainties and difficulties. We have never manufactured our adoptive cell therapy
product candidate on a commercial scale, nor have our partners. As a result, we cannot give any assurance that we will be able to establish a
manufacturing process that can produce our products in compliance with the applicable regulatory requirements, at a cost or in quantities
necessary to make them commercially viable. Moreover, our third-party manufacturers will have to continually adhere to current cGMP
regulations enforced by the FDA through its facilities inspection program. If the facilities of these manufacturers cannot pass a pre-approval
plant inspection, the FDA pre-market approval of our products will not be granted. In complying with cGMP and foreign regulatory
requirements, we and any of our third-party manufacturers will be obligated to expend time, money and effort in production, record-keeping
and quality control to assure that our products meet applicable specifications and other requirements. If we or any of our third-party
manufacturers fail to comply with these requirements, we may be subject to regulatory action. No assurance can be given that we will be able
to develop such a manufacturing process, or that our partners will thereafter be able to establish and operate such a production facility.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit
commercialization of our product candidates.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk
if we commercialize any products. For example, we may be sued if our product candidates cause or are perceived to cause injury or are found
to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations
of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of
warranties. Claims could also be asserted under state consumer protection acts. Large judgements have also been awarded in class action
lawsuits based on therapeutics that had unanticipated side effects. If we cannot successfully defend ourselves against product liability claims,
we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require
significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
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decreased demand for our product candidates;
injury to our reputation;
withdrawal of clinical trial participants or sites and potential termination of clinical trial sites or entire clinical programs;
initiation of investigations by regulators, refusal to approve marketing applications or supplements, and withdrawal or limitation of
product approvals;
costs to defend the related litigation;
a diversion of management’s time and our resources;
substantial monetary awards to trial participants or patients;
product recalls, withdrawals or labeling, marketing or promotional restrictions;
loss of revenue;
significant negative media attention;
exhaustion of any available insurance and our capital resources;
the inability to commercialize any product candidate; and
a decline in our share price.
Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims
could prevent or inhibit the commercialization of products we develop, alone or with corporate collaborators. Our insurance policies may also
have various exclusions, and we may be subject to a product liability claim for which we have no coverage. While we have obtained clinical
trial insurance for our Phase 2 clinical trials, we may have to pay amounts awarded by a court or negotiated in a settlement that exceed our
coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.
Even if our agreements with any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be
available or adequate should any claim arise.
We face significant competition from other biotechnology and pharmaceutical companies and from non-profit institutions.
Competition in the field of cancer therapy is intense and is accentuated by the rapid pace of technological development. Research and
discoveries by others may result in breakthroughs which may render our products obsolete even before they generate any revenue. There are
products that are approved and currently under development by others that could compete with the products that we are developing. Many of
our potential competitors have substantially greater research and development capabilities and approval, manufacturing, marketing, financial
and managerial resources and experience than we do. Our competitors may:
develop safer, more convenient or more effective immunotherapies and other therapeutic products;
develop therapies that are less expensive or have better reimbursement from private or public payors;
reach the market more rapidly, reducing the potential sales of our products; or
establish superior proprietary positions.
Potential competitors in the market for treating metastatic melanoma are companies such as Bristol-Myers Squibb, Roche/Genentech,
Merck, Amgen, Pfizer, and Novartis, which already have products on the market or in development. Other companies, such as Celgene, Juno
Therapeutics, Gilead Sciences and Adaptimmune, which are focused on genetically engineered T-cell technologies to treat cancer, may also be
competitors. All of these companies, and most of our other current and potential competitors have substantially greater research and
development capabilities and financial, scientific, regulatory, manufacturing, marketing, sales, human resources, and experience than we do.
Many of our competitors have several therapeutic products that have already been developed, approved and successfully commercialized, or
are in the process of obtaining regulatory approval for their therapeutic products in the United States and internationally. Our competitors may
obtain regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in competitors establishing
a strong market position before we are able to enter the market.
Universities and public and private research institutions in the U.S. and Europe are also potential competitors. For example, a Phase 3
study comparing TIL to standard ipilimumab in patients with metastatic melanoma is currently being conducted in Europe by the Netherlands
Cancer Institute, the Copenhagen County Herlev University Hospital, and the University of Manchester. While these universities and public
and private research institutions primarily have educational objectives, they may develop proprietary technologies that lead to other FDA
approved therapies or that secure patent protection that we may need for the development of our technologies and products.
Our lead product candidate, LN-144, is a therapy for the treatment of metastatic melanoma. Currently, there are numerous companies
that are developing various alternate treatments for melanoma. Accordingly, LN-144 faces significant competition in the melanoma treatment
space from multiple companies. Even if we obtain regulatory approval of LN-144, the availability and price of our competitors’ products could
limit the demand and the price we are able to charge for our melanoma therapy. We may not be able to implement our business plan if the
acceptance of our products is inhibited by price competition or the reluctance of physicians to switch from other methods of treatment to our
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product, or if physicians switch to other new therapies, drugs or biologic products or choose to reserve our product for use in limited
circumstances.
Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated
among a smaller number of our competitors. Early stage companies may also prove to be significant competitors, particularly through
collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified
scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring
technologies complementary to, or necessary for, our programs.
We are dependent on third parties to support our research, development and manufacturing activities and, therefore, are subject to
the efforts of these parties and our ability to successfully collaborate with these third parties.
As a result of our current strategy to outsource most of our manufacturing, we rely very heavily on third parties to perform for us the
manufacturing of our products for our clinical trials. We also license a significant portion of our technology from others and, except for the Gen
2 process which we have developed internally, at this time, we do not own any intellectual properties or technologies. We intend to rely upon
our contract manufacturers to produce large quantities of materials needed for clinical trials and potentially product commercialization. Third
party manufacturers may not be able to meet our needs with respect to timing, quantity or quality. If we are unable to contract for a sufficient
supply of needed materials on acceptable terms, or if we should encounter delays or difficulties in our relationships with manufacturers, our
clinical testing may be delayed, thereby delaying the submission of products for regulatory approval or the market introduction and subsequent
sales of our products. Any such delay may lower our revenues and potential profitability.
In addition, in order to supplement our own efforts to improve TIL manufacturing and develop TIL therapies in new indications in
clinical trials, we currently work and collaborate with government and academic research institutions, medical institutions and corporate
partners such as the NCI, Moffitt, MedImmune, and the Karolinska University Hospital. We also intend to continue to enter into additional
third-party collaborative agreements in the future. However, we may not be able to successfully negotiate any additional collaborative
arrangements. If established, these relationships may not be scientifically or commercially successful. The success of these and future
collaborations and joint development arrangements may be subject to numerous risks and uncertainties, including the inability or unwillingness
of our partners to perform in the manner, or to the extent anticipated, and may also be subject to disagreements regarding the rights, interests,
and performance of the counterparties under our licenses and development agreements. Disagreements between parties to a collaboration
arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercialization
of the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to
resolve if neither of the parties has final decision-making authority under the collaboration agreement.
With regard to future collaboration efforts, we face significant competition in seeking appropriate collaborators. Our ability to reach a
definitive agreement for collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the
terms and conditions of the proposed collaboration and, an evaluation by the proposed collaborator of a number of similar or unique factors.
Collaborations with biopharmaceutical companies and other third parties often are terminated or allowed to expire by the other party.
Any such termination or expiration would adversely affect us financially and could harm our business reputation. Any collaboration may pose a
number of risks, including the following:
collaborators may not perform their obligations as expected;
collaborators may not pursue development and commercialization of any product candidates that achieve regulatory approval or
may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the
collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create
competing priorities;
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a
product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
collaborators could fail to make timely regulatory submissions for a product candidate;
collaborators may not comply with all applicable regulatory requirements or may fail to report safety data in accordance with all
applicable regulatory requirements;
collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our
products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed or
can be commercialized under terms that are more economically attractive than ours;
product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product
candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product
candidates;
a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may
not commit sufficient resources to the marketing and distribution of such product candidate or product;
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disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of
development, might cause delays or termination of the research, development or commercialization of product candidates, might
lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which
would be time consuming and expensive;
collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a
way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to
potential litigation;
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;
collaborator may be involved in a business combination, resulting in the decreased emphasis or termination of development or
commercialization of any product candidate subject to the collaboration agreement;
termination of a collaboration agreement may make it more difficult to attract new collaborators and our and our products’ or
product candidates’ reputation in the medical, business, and financial communities could be adversely affected.
If any third-party collaborator breaches or terminates its agreement with us or fails to conduct its activities in a timely manner, the
commercialization of our products under development could be slowed down or blocked completely. It is possible that our collaborators will
change their strategic focus, pursue alternative technologies or develop alternative products, either on their own or in collaboration with others,
as a means for developing treatments for the diseases targeted by our collaborative programs. The effectiveness of our collaborators in
marketing our products will also affect our revenues and earnings.
Our collaborators will also be required to comply with the applicable regulatory requirements, and, as such, are subject to the same risks
as we are. If they do not or are not able to comply with these requirements, we may not be able to use the data generated through their studies
to support our future investigational or marketing applications. Collaborator noncompliance may also expose them and us to regulatory
enforcement actions.
No assurance can be given that we will be able to successfully collaborate with our partners as anticipated and that our current or future
collaborations and clinical trials will be completed as contemplated, support the regulatory approval of our current product candidates, or result
in any viable additional product candidates. For instance, to the extent that these collaborators conduct their studies with manufacturing
processes that are different than ours or product that is different than ours, the results generated from their studies may not be seen in our
current or future studies that employ our manufacturing processes and the results generated from their studies may not support approval of our
product candidates.
If we are unable to obtain or maintain suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the
development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its
potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or
commercialization activities at our own expense.
Development of a product candidate intended for use in combination with an already approved product may present more or
different challenges than development of a product candidate for use as a single agent.
We are currently developing LN-144 and LN-145 for use along with IL-2. We and our collaborators are also studying TIL therapy along
with other products, such as durvalumab. The development of product candidates for use in combination with another product may present
challenges. For example, the FDA may require us to use more complex clinical trial designs, in order to evaluate the contribution of each
product and product candidate to any observed effects. It is possible that the results of these studies could show that any positive study results
are attributable to the already approved product. Moreover, following product approval, the FDA may require that products used in conjunction
with each other be cross labeled for combined use. To the extent that we do not have rights to already approved products, this may require us to
work with another company to satisfy such a requirement. Moreover, developments related to the already approved products may impact our
clinical trials for the combination as well as our commercial prospects should we receive marketing approval. Such developments may include
changes to the approved product’s safety or efficacy profile, changes to the availability of the approved product, and changes to the standard of
care.
A Fast Track product designation or other designation to facilitate product candidate development may not lead to faster
development or a faster regulatory review or approval process, and it does not increase the likelihood that our product candidates will
receive marketing approval.
We were granted Fast Track designation by the FDA for LN-144 in advanced melanoma. We may seek Fast Track designation for other
of our current or future product candidates. Receipt of a designation to facilitate product candidate development is within the discretion of the
FDA. Accordingly, even if we believe one of our product candidates meets the criteria for a designation, the FDA may disagree. In any event,
the receipt of such a designation for a product candidate may not result in a faster development process, review, or approval compared to
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product candidates considered for approval under conventional the FDA procedures and does not assure ultimate marketing approval by the
FDA. In addition, the FDA may later decide that the products no longer meet the designation conditions.
While LN-144 has received orphan drug designation, there is no guarantee that we will be able to maintain this designation, receive
this designation for any of our other product candidates, or receive or maintain any corresponding benefits, including periods of
exclusivity.
We received orphan drug designation for LN-144 in the United States to treat malignant melanoma stages IIB-IV. We may also seek
orphan drug designation for our other product candidates, as appropriate. Orphan designation, however, may be lost if the indication for which
we develop our designated product candidates do not meet the orphan criteria. Moreover, following product approval, orphan exclusivity may
be lost if the FDA determines, among other reasons, that the request for designation was materially defective or if the manufacturer is unable to
assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition. Even if we obtain orphan exclusivity,
that exclusivity may not effectively protect the product from competition because different products can be approved for the same condition
and the same product can be approved for different conditions. Even after an orphan product is approved, the FDA can subsequently approve a
product containing the same principal molecular features for the same condition if the FDA concludes that the later product is clinically
superior in that it is shown to be safer or more effective or makes a major contribution to patient care.
Moreover, the FDA may grant orphan drug designations to multiple of the same products for the same indication. If another sponsor
receives FDA approval for an orphan drug designated product that is the same as our product candidates and intended for the same indication
before we do, we would be prevented from launching our product in the United States for this indication for a period of at least 7 years.
In response to a court decision regarding the plain meaning of the exclusivity provision of the Orphan Drug Act, the FDA may undertake
a reevaluation of aspects of its orphan drug regulations and policies. We do not know if, when, or how the FDA may change the orphan drug
regulations and policies, and it is uncertain how any changes might affect our business. Depending on what changes the FDA may make to its
orphan drug regulations and policies, our business, financial condition, results of operations, and prospects could be harmed.
As a condition of approval, the FDA may require that we implement various post-marketing requirements and conduct post-
marketing studies, any of which would require a substantial investment of time, effort, and money, and which may limit our commercial
prospects.
As a condition of biologic licensing, the FDA is authorized to require that sponsors of approved BLAs implement various post-market
requirements, including REMS and Phase 4 studies. By example, when the FDA approved Novartis’ Kymriah in August 2017, a CAR-T cell
therapy for the treatment of patients up to 25 years of age with B-cell precursor acute lymphoblastic leukemia (ALL) that is refractory or in
second or later relapse, the FDA required significant post-marketing commitments, including a Phase 4 study, revalidation of a test method, and
a substantial REMS program that included, among other requirements, the certification of hospitals and their associated clinics that dispense
Kymriah, which certification includes a number of requirements, the implementation of a Kymriah training program, and limited distribution
only to certified hospitals and their associated clinics. If we receive approval of our product candidates, the FDA may determine that similar or
additional post-approval requirements are necessary to ensure that our product candidates are safe, pure, and potent. To the extent that we are
required to establish and implement any post-approval requirements, we will likely need to invest a significant amount of time, effort, and
money. Such post-approval requirements may also limit the commercial prospects of our product candidates.
If we are unable to establish effective marketing and sales capabilities or enter into agreements with third parties to market and sell
our product candidates, if they are approved, we may be unable to generate product revenues.
We currently do not have a commercial infrastructure for the marketing, sale, and distribution of biopharmaceutical products. If
approved, in order to commercialize our products, we must build our marketing, sales, and distribution capabilities or make arrangements with
third parties to perform these services, which will take time and require significant financial expenditures and we may not be successful in
doing so. Even if we are able to effectively establish a sales force and develop a marketing and sales infrastructure, our sales force and
marketing teams may not be successful in commercializing our current or future product candidates. To the extent we rely on third parties to
commercialize any products for which we obtain regulatory approval, we would have less control over their sales efforts, and could be held
liable if they failed to comply with applicable legal or regulatory requirements.
We have no prior experience in the marketing, sale, and distribution of biopharmaceutical products, and there are significant risks
involved in the building and managing of a commercial infrastructure. The establishment and development of commercial capabilities,
including compliance plans, to market any products we may develop will be expensive and time consuming and could delay any product
launch, and we may not be able to successfully develop this capability. We, or our collaborators, will have to compete with other
pharmaceutical and biotechnology companies to recruit, hire, train, manage, and retain marketing and sales personnel. In the event we are
unable to develop a marketing and sales infrastructure, we may not be able to commercialize our current or future product candidates, which
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would limit our ability to generate product revenues. Factors that may inhibit our efforts to commercialize our current or future product
candidates include:
the inability to recruit, train, manage, and retain adequate numbers of effective sales and marketing personnel;
the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe our current
or future product candidates;
our inability to effectively oversee a geographically dispersed sales and marketing team;
the costs associated with training sales and marketing personnel on legal and regulatory compliance matters and monitoring their
actions;
an inability to secure adequate coverage and reimbursement by government and private health plans;
the clinical indications for which the products are approved and the claims that we may make for the products;
limitations or warnings, including distribution or use restrictions, contained in the products’ approved labeling;
any distribution and use restrictions imposed by the FDA or to which we agree as part of a mandatory REMS or voluntary risk
management plan;
liability for sales or marketing personnel who fail to comply with the applicable legal and regulatory requirements;
the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to
companies with more extensive product lines; and
unforeseen costs and expenses associated with creating an independent sales and marketing organization or engaging a contract
sales organization.
If our product candidates do not achieve broad market acceptance, the revenues that we generate from their sales will be limited.
We have never commercialized a product candidate for any indication. Even if our product candidates are approved by the appropriate
regulatory authorities for marketing and sale, they may not gain acceptance among physicians, patients, third-party payors, and others in the
medical community. If any product candidate for which we obtain regulatory approval does not gain an adequate level of market acceptance,
we may not generate significant product revenues or become profitable. Market acceptance of our product candidates by the medical
community, patients, and third-party payors will depend on a number of factors, some of which are beyond our control. For example,
physicians are often reluctant to switch their patients and patients may be reluctant to switch from existing therapies even when new and
potentially more effective or safer treatments enter the market.
Efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant
resources and may not be successful. If any of our product candidates is approved but does not achieve an adequate level of market acceptance,
we may not generate significant revenues and we may not become profitable. The degree of market acceptance of any of our product
candidates will depend on a number of factors, including:
the efficacy of our product candidates;
the prevalence and severity of adverse events associated with such product candidates;
the clinical indications for which the products are approved and the approved claims that we may make for the products;
limitations or warnings contained in the Product’s FDA-approved labeling, including potential limitations or warnings for such
products that may be more restrictive than other competitive products;
changes in the standard of care for the targeted indications for such product candidates;
the relative difficulty of administration of such product candidates;
cost of treatment versus economic and clinical benefit in relation to alternative treatments or therapies;
the availability of adequate coverage or reimbursement by third parties, such as insurance companies and other healthcare payors,
and by government healthcare programs, including Medicare and Medicaid;
the extent and strength of our marketing and distribution of such product candidates;
the safety, efficacy, and other potential advantages over, and availability of, alternative treatments already used or that may later be
approved for any of our intended indications;
distribution and use restrictions imposed by the FDA with respect to such product candidates or to which we agree as part of a
mandatory risk evaluation and mitigation strategy or voluntary risk management plan;
the timing of market introduction of such product candidates, as well as competitive products;
our ability to offer such product candidates for sale at competitive prices;
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
the extent and strength of our third-party manufacturer and supplier support;
the approval of other new products for the same indications;
adverse publicity about the product or favorable publicity about competitive products; and
potential product liability claims.
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Our efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant
resources and may never be successful. Even if the medical community accepts that our product candidates are safe and effective for their
approved indications, physicians and patients may not immediately be receptive to such product candidates and may be slow to adopt them as
an accepted treatment of the approved indications. If our current or future product candidates are approved but do not achieve an adequate level
of acceptance among physicians, patients, and third-party payors, we may not generate meaningful revenues from our product candidates, and
we may not become profitable.
Our product candidates may face competition sooner than anticipated.
The enactment of the Biologics Price Competition and Innovation Act, or BPCIA, created an abbreviated pathway for the approval of
biosimilar and interchangeable biological products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and
approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand
product. Under the BPCIA, the FDA cannot make an approval of an application for a biosimilar product effective until 12 years after the
original branded product was approved under a BLA. Certain changes, however, and supplements to an approved BLA, and subsequent
applications filed by the same sponsor, manufacturer, licensor, predecessor in interest, or other related entity do not qualify for the 12-year
exclusivity period.
Our product candidates may qualify for the BPCIA’s 12-year period of exclusivity. However, there is a risk that the FDA will not
consider our product candidates to be reference products for competing products, potentially creating the opportunity for biosimilar competition
sooner than anticipated. Additionally, this period of regulatory exclusivity does not block companies pursuing regulatory approval via their
own traditional BLA, rather than via the abbreviated pathway. Changes may also be made to this exclusivity period as a result of future
legislation as there has been ongoing efforts to reduce the period of exclusivity. Even if we receive a period of BPCIA exclusivity for our first
licensed product, if subsequent products do not include a modification to the structure of the product that impacts safety, purity, or potency, we
may not receive additional periods of exclusivity for those products. Moreover, the extent to which a biosimilar, once approved, will be
substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet
clear, and will depend on a number of marketplace and regulatory factors that are still developing. Medicare Part B encourages use of
biosimilars by paying the provider the same percentage of the reference product, average sale price, or ASP as a mark-up, regardless of which
product is reimbursed. It is also possible that payors will give reimbursement preference to biosimilars even over reference biologics absent a
determination of interchangeability.
We will need to obtain FDA approval of any proposed product names, and any failure or delay associated with such approval may
adversely affect our business.
Any name we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured a
formal trademark registration from the U.S. Patent and Trademark Office, or USPTO. The FDA typically conducts a review of proposed
product names, including an evaluation of the potential for confusion with other product names. The FDA may also object to a product name if
it believes the name inappropriately implies medical claims or contributes to an overstatement of efficacy. If the FDA objects to any of our
proposed product names, we may be required to adopt alternative names for our product candidates. If we adopt alternative names, we would
lose the benefit of any existing trademark applications for such product candidate and may be required to expend significant additional
resources in an effort to identify a suitable product name that would qualify under applicable trademark laws, not infringe the existing rights of
third parties, and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a timely manner or at
all, which would limit our ability to commercialize our product candidates.
Our internal computer systems, or those used by our contract research organizations or other contractors or consultants, may fail or
suffer security breaches.
Despite the implementation of security measures, our internal computer systems and those of our contract research organizations and
other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and
telecommunication and electrical failures. If such an event was to occur and cause interruptions in our operations, it could result in a disruption
of our drug development programs. For example, the loss of clinical study data from completed or ongoing clinical studies for a product
candidate could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the
extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of
confidential or proprietary information, we could incur liability and the further development of any product candidates could be delayed.
We will need to grow the size and capabilities of our organization, and we may experience difficulties in managing this growth.
Our operations are dependent upon the services of our executives and our employees who are engaged in research and development. The
loss of the services of our executive officers or senior research personnel could delay our product development programs and our research and
development efforts. In order to develop our business in accordance with our business plan, we will have to hire additional qualified personnel,
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including in the areas of research, manufacturing, clinical trials management, regulatory affairs, and sales and marketing. We are continuing
our efforts to recruit and hire the necessary employees to support our planned operations in the near term. However, competition for qualified
employees among companies in the biotechnology and biopharmaceutical industry is intense, and no assurance can be given that we will be
able attract, hire, retain and motivate the highly skilled employees that we need. Future growth will impose significant added responsibilities on
members of management, including:
identifying, recruiting, integrating, maintaining, and motivating additional employees;
managing our internal development efforts effectively, including the clinical and FDA review process for our product candidates,
while complying with our contractual obligations to contractors and other third parties; and
improving our operational, financial and management controls, reporting systems, and procedures.
Our future financial performance and our ability to commercialize our product candidates will depend, in part, on our ability to
effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-
to-day activities in order to devote a substantial amount of time to managing these growth activities. Our efforts to manage our growth are
complicated by the fact that nearly all of our executive officers have joined us since June 2016. This lack of long-term experience working
together may adversely impact our senior management team’s ability to effectively manage our business and growth.
We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors
and consultants to provide certain services. There can be no assurance that the services of these independent organizations, advisors and
consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are
unable to effectively manage our outsourced activities or if the quality, compliance or accuracy of the services provided by consultants is
compromised for any reason, our clinical trials may be extended, delayed, or terminated, and we may not be able to obtain regulatory approval
of our product candidates or otherwise advance our business. There can be no assurance that we will be able to manage our existing consultants
or find other competent outside contractors and consultants on economically reasonable terms, if at all.
If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and
contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates
and, accordingly, may not achieve our research, development, and commercialization goals on a timely basis, or at all.
If we engage in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our stockholders,
cause us to incur debt or assume contingent liabilities, and subject us to other risks.
We may evaluate various acquisitions and strategic partnerships, including licensing or acquiring complementary products, intellectual
property rights, technologies, or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:
increased operating expenses and cash requirements;
the assumption of additional indebtedness or contingent liabilities;
the issuance of our equity securities;
assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with
integrating new personnel;
the diversion of our management’s attention from our existing product programs and initiatives in pursuing such a strategic merger
or acquisition;
retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships;
risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing
products or product candidates and regulatory approvals; and
our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking the
acquisition or even to offset the associated acquisition and maintenance costs.
Depending on the size and nature of future strategic acquisitions, we may acquire assets or businesses that require us to raise additional
capital or to operate or manage businesses in which we have limited experience. Making larger acquisitions that require us to raise additional
capital to fund the acquisition will expose us to the risks associated with capital raising activities. Acquiring and thereafter operating larger new
businesses will also increase our management, operating and reporting costs and burdens. In addition, if we undertake acquisitions, we may
issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in
significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities and this inability could
impair our ability to grow or obtain access to technology or products that may be important to the development of our business.
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We may rely on third parties to perform many essential services for any products that we commercialize, including services related to
warehousing and inventory control, distribution, government price reporting, customer service, accounts receivable management, cash
collection, and adverse event reporting. If these third parties fail to perform as expected or to comply with legal and regulatory
requirements, our ability to commercialize our current or future product candidates will be significantly impacted and we may be subject to
regulatory sanctions.
We may retain third-party service providers to perform a variety of functions related to the sale and distribution of our current or future
product candidates, key aspects of which will be out of our direct control. These service providers may provide key services related to
warehousing and inventory control, distribution, customer service, accounts receivable management, and cash collection. If we retain a service
provider, we would substantially rely on it as well as other third-party providers that perform services for us, including entrusting our
inventories of products to their care and handling. If these third-party service providers fail to comply with applicable laws and regulations, fail
to meet expected deadlines, or otherwise do not carry out their contractual duties to us, or encounter physical or natural damage at their
facilities, our ability to deliver product to meet commercial demand would be significantly impaired and we may be subject to regulatory
enforcement action.
In addition, we may engage third parties to perform various other services for us relating to adverse event reporting, safety database
management, fulfillment of requests for medical information regarding our product candidates and related services. If the quality or accuracy of
the data maintained by these service providers is insufficient, or these third parties otherwise fail to comply with regulatory requirements
related to adverse event reporting, we could be subject to regulatory sanctions.
Additionally, we may contract with a third-party to calculate and report pricing information mandated by various government programs.
If a third party fails to timely report or adjust prices as required or errs in calculating government pricing information from transactional data in
our financial records, it could impact our discount and rebate liability, and potentially subject us to regulatory sanctions or False Claims Act
lawsuits.
The SEC has issued an administrative order against us that may make it more difficult for us to raise capital in the future.
On April 10, 2017, the SEC issued an administrative order that requires us to cease and desist from committing or causing any violations
and any future violations of Sections 5(b), 17(a), and 17(b) of the Securities Act of 1933, as amended, or the Securities Act, and of Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The order was entered into as part of our settlement with the SEC in
the investigation titled In the Matter of Certain Stock Promotion. The SEC’s investigation, in part, involved the conduct of our former Chief
Executive Officer and director, Manish Singh, during the period between September 2013 and April 2014, and the failure by authors of certain
articles about our company to disclose that they were compensated by one of our former investor relations firms. The foregoing order may
negatively impact our reputation with current and future investors, will disqualify us from effecting private placement transactions in reliance
upon any of the exemptions from Securities Act registration afforded by Regulation D, and will limit our ability to make certain
communications in future public offerings. As a result, the SEC's order will make it more difficult for us to raise capital in future private and
public offerings. We currently anticipate that we will have to raise additional capital in the future to fund our future research, development and
commercialization efforts.
We are, and in the future may be, subject to Federal or state securities or related legal actions that could adversely affect our results
of operations and our business.
Shortly after the SEC announced settlements with us, with other public companies, and with unrelated parties in the In the Matter of
Certain Stock Promotion investigation, two securities class action complaints were filed in the U.S. District Court for the Northern District of
California against our company, Manish Singh, and two of our other former officers. On July 20, 2017, the plaintiff in one of the cases filed a
notice to voluntarily dismiss that case, and the court entered an order dismissing the complaint on July 21, 2017. On July 26, 2017, the court
appointed a movant as lead plaintiff. On September 8, 2017, the lead plaintiff, individually and on behalf of all others similarly situated, filed
an amended complaint seeking class action status in the United States District Court for the Northern District of California (Jay Rabkin v. Lion
Biotechnologies, Inc., et al., case no. 3:17cv0286) against us, two of our former officers, and the managing member of our former investor
relations firm. The amended complaint alleges, among other things, that the defendants violated various provisions of the Securities Exchange
Act of 1934 by making materially false and misleading statements, or by failing to make certain disclosures, regarding the actions taken by
Manish Singh, our former Chief Executive Officer and a former director, and our former investor relations firm that were the subject of the In
the Matter of Certain Stock Promotions SEC investigation. On December 15, 2017, a purported shareholder derivative complaint, Kevin Fong
v. Manish Singh, et al. (case no. 17:1806), was filed against us, as nominal defendant, and certain of our current and former officers and
directors, and others, as defendants, in the U.S. District Court for the District of Delaware. The complaint alleges breaches of fiduciary duties,
unjust enrichment, and violations of Section 14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder arising from
the Securities and Exchange Commission’s investigation in the In the Matter of Certain Stock Promotions matter and our April 10, 2017
settlement thereof, and seeks unspecified damages on behalf of our company and injunctive relief. We intend to vigorously defend against these
complaints. However, based on the very early stage of the aforementioned litigation, it is not possible to estimate the amount or range of
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possible loss that might result from an adverse judgment or a settlement of these matters. Furthermore, litigation is inherently uncertain, and
there is no assurance as to the outcome of this, or other future cases. We could incur substantial unreimbursed legal fees, settlements,
judgments and other expenses in connection with these or other legal and regulatory proceedings that may not qualify for coverage under, or
may exceed the limits of, our applicable directors’ and officers’ liability insurance policies and could have a material adverse effect on our
financial condition, liquidity and results of operations. The currently pending cases also may distract the time and attention of our officers and
directors or divert our other resources away from our ongoing commercial and development programs. An unfavorable outcome in these
matters could damage our business and reputation or result in additional claims or proceedings against us.
Risks Related to Government Regulation
The FDA regulatory approval process is lengthy and time-consuming, and we may experience significant delays in the clinical
development and regulatory approval of our product candidates.
We have not previously submitted a BLA to the FDA, or similar approval filings to comparable foreign authorities. A BLA must include
extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and effectiveness for each desired
indication. The BLA must also include significant information regarding the chemistry, manufacturing and controls for the product. We expect
the novel nature of our product candidates to create further challenges in obtaining regulatory approval. For example, the FDA has limited
experience with commercial development of cell therapies for cancer. Accordingly, the regulatory approval pathway for our product candidates
may be uncertain, complex, expensive and lengthy, and approval may not be obtained.
We may also experience delays in completing planned clinical trials for a variety of reasons, including delays related to:
the availability of financial resources to commence and complete the planned trials;
reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to
extensive negotiation and may vary significantly among different CROs and trial sites;
obtaining approval at each clinical trial site by an independent institutional review board, or IRB, or central IRB;
recruiting suitable patients to participate in a trial;
having patients complete a trial or return for post-treatment follow-up;
clinical trial sites deviating from trial protocol or dropping out of a trial;
adding new clinical trial sites; or
manufacturing sufficient quantities of qualified materials under cGMPs and applying them on a subject by subject basis for use in
clinical trials.
We could also encounter delays if physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of
our product candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may
be suspended or terminated by us, the IRBs for the institutions in which such trials are being conducted by the FDA or other regulatory
authorities, or recommended for suspension or termination by Data Monitoring Committees due to a number of factors, including failure to
conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial
site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects,
failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of
adequate funding to continue the clinical trial. If we experience termination of, or delays in the completion of, any clinical trial of our product
candidates, the commercial prospects for our product candidates will be harmed, and our ability to generate product revenue will be delayed. In
addition, any delays in completing our clinical trials will increase our costs, slow down our product development and approval process and
jeopardize our ability to commence product sales and generate revenue.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be
successful in obtaining regulatory approval of our product candidates in other jurisdictions.
In order to market and sell our products outside the United States, we or our third-party collaborators may be required to obtain separate
marketing approvals and comply with numerous and varying regulatory requirements. Obtaining and maintaining regulatory approval of our
product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other
jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval
process in others. Approval policies and requirements may vary among jurisdictions. For example, even if the FDA grants marketing approval
of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and
promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and
administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical
trials as clinical studies conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions
outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In
some cases, the price that we intend to charge for our products is also subject to approval. We or our collaborators may not be able to file for
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regulatory approval of our product candidates in international jurisdictions or obtain approvals from regulatory authorities outside the United
States on a timely basis, if at all.
We may also submit marketing applications in other countries. Regulatory authorities in jurisdictions outside of the United States have
requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign
regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and
could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in
international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market
potential of our product candidates will be harmed.
We are, and if we receive regulatory approval of our product candidates, will continue to be subject to ongoing regulatory obligations
and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply
with regulatory requirements or experience unanticipated problems with our product candidates.
Any regulatory approvals that we receive for our product candidates will require surveillance to monitor the safety and efficacy of the
product candidate. The FDA may also require a risk evaluation and mitigation strategy, or REMS, to approve our product candidates, which
could entail requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted
distribution methods, patient registries and other risk minimization tools. The FDA may also require post-approval Phase 4 studies. Moreover,
the FDA and comparable foreign regulatory authorities will continue to closely monitor the safety profile of any product even after approval. If
the FDA or comparable foreign regulatory authorities become aware of new safety information after approval of any of our product candidates,
they may withdraw approval, require labeling changes or establishment of a REMS or similar strategy, impose significant restrictions on a
product’s indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance.
Any such restrictions could limit sales of the product.
In addition, we, our contractors, and our collaborators are and will remain responsible for FDA compliance, including requirements
related to product design, testing, clinical and pre-clinical trials approval, manufacturing processes and quality, labeling, packaging,
distribution, adverse event and deviation reporting, storage, advertising, marketing, promotion, sale, import, export, submissions of safety and
other post-marketing information and reports such as deviation reports, registration, product listing, annual user fees, and recordkeeping for our
product candidates. We and any of our collaborators, including our contract manufacturers, could be subject to periodic unannounced
inspections by the FDA to monitor and ensure compliance with regulatory requirements. Application holders must further notify the FDA, and
depending on the nature of the change, obtain FDA pre-approval for product and manufacturing changes. The cost of compliance with post-
approval regulations may have a negative effect on our operating results and financial condition.
Later discovery of previously unknown problems with our product candidates, including adverse events of unanticipated severity or
frequency, that the product is less effective than previously thought, problems with our third-party manufacturers or manufacturing processes,
or failure to comply with regulatory requirements, may result in, among other things:
restrictions on the marketing, distribution, or manufacturing of our product candidates, withdrawal of the product from the market,
or voluntary or mandatory product recalls;
restrictions on the labeling of our product candidates, including required additional warnings, such as black box warnings,
contraindications, precautions, and restrictions on the approved indication or use;
modifications to promotional pieces;
changes to product labeling or the way the product is administered;
liability for harm caused to patients or subjects;
fines, restitution, disgorgement, warning letters, untitled letters, cyber letters, or holds on or termination of clinical trials;
refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation
of license approvals;
product seizure or detention, or refusal to permit the import or export of our product candidates;
injunctions or the imposition of civil or criminal penalties, including imprisonment;
FDA debarment, debarment from government contracts, and refusal of future orders under existing contracts, exclusion from
federal healthcare programs, consent decrees, or corporate integrity agreements;
regulatory authority issuance of safety alerts, Dear Healthcare Provider letters, press releases, or other communications containing
warnings or other safety information about the biologic;
reputational harm; or
the product becoming less competitive.
Any of these events could further have other material and adverse effects on our operations and business and could adversely impact our
stock price and could significantly harm our business, financial condition, results of operations, and prospects.
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The FDA’s and other regulatory authorities’ policies may change, and additional government regulations may be enacted that could
prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government
regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt
to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we
may lose any marketing approval that we may have obtained, be subject to other regulatory enforcement action, and we may not achieve or
sustain profitability.
If we fail to comply with federal and state healthcare and promotional laws, including fraud and abuse and information privacy and
security laws, we could face substantial penalties and our business, financial condition, results of operations, and prospects could be
adversely affected.
As a pharmaceutical company, we are subject to many federal and state healthcare laws, including the federal Anti-Kickback Statute, the
federal civil and criminal False Claims Act, the civil monetary penalties statute, the Medicaid Drug Rebate statute and other price reporting
requirements, the Veterans Health Care Act of 1992, the federal Health Insurance Portability and Accountability Act of 1996 (as amended by
the Health Information Technology for Economics and Clinical Health Act), the Foreign Corrupt Practices Act of 1977, the Patient Protection
and Affordable Care Act of 2010, and similar state laws. Even though we do not and will not control referrals of healthcare services or bill
directly to Medicare, Medicaid, or other third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and
abuse and patients’ rights are and will be applicable to our business. If we do not comply with all applicable fraud and abuse laws, we may be
subject to healthcare fraud and abuse enforcement by both the federal government and the states in which we conduct our business.
Laws and regulations require calculation and reporting of complex pricing information for prescription drugs, and compliance will
require us to invest in significant resources and develop a price reporting infrastructure, or depend on third parties to compute and report our
drug pricing. Pricing reported to CMS must be certified. Non-compliant activities expose us to FCA risk if they result in overcharging agencies,
underpaying rebates to agencies, or causing agencies to overpay providers.
If we or our operations are found to be in violation of any federal or state healthcare law, or any other governmental regulations that
apply to us, we may be subject to penalties, including civil, criminal, and administrative penalties, damages, fines, disgorgement, debarment
from government contracts, refusal of orders under existing contracts, exclusion from participation in U.S. federal or state health care
programs, corporate integrity agreements, and the curtailment or restructuring of our operations, any of which could materially adversely affect
our ability to operate our business and our financial results. If any of the physicians or other healthcare providers or entities with whom we
expect to do business, including our collaborators, is found not to be in compliance with applicable laws, they may be subject to criminal, civil,
or administrative sanctions, including but not limited to, exclusions from participation in government healthcare programs, which could also
materially affect our business.
In particular, if we are found to have impermissibly promoted any of our product candidates, we may become subject to significant
liability and government fines. We, and any of our collaborators, must comply with requirements concerning advertising and promotion for any
of our product candidates for which we or they obtain marketing approval. Promotional communications with respect to therapeutics are
subject to a variety of legal and regulatory restrictions and continuing review by the FDA, Department of Justice, Department of Health and
Human Services’ Office of Inspector General, state attorneys general, members of Congress, and the public. When the FDA or comparable
foreign regulatory authorities issue regulatory approval for a product candidate, the regulatory approval is limited to those specific uses and
indications for which a product is approved. If we are not able to obtain FDA approval for desired uses or indications for our products and
product candidates, we may not market or promote our products for those indications and uses, referred to as off-label uses, and our business
may be adversely affected. We further must be able to sufficiently substantiate any claims that we make for our products including claims
comparing our products to other companies’ products and must abide by the FDA's strict requirements regarding the content of promotion and
advertising.
While physicians may choose to prescribe products for uses that are not described in the product’s labeling and for uses that differ from
those tested in clinical studies and approved by the regulatory authorities, we are prohibited from marketing and promoting the products for
indications and uses that are not specifically approved by the FDA. These off-label uses are common across medical specialties and may
constitute an appropriate treatment for some patients in varied circumstances. Regulatory authorities in the United States generally do not
restrict or regulate the behavior of physicians in their choice of treatment within the practice of medicine. Regulatory authorities do, however,
restrict communications by biopharmaceutical companies concerning off-label use.
The FDA and other agencies actively enforce the laws and regulations regarding product promotion, particularly those prohibiting the
promotion of off-label uses, and a company that is found to have improperly promoted a product may be subject to significant sanctions. The
federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several
companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees of permanent
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injunctions under which specified promotional conduct is changed or curtailed. Thus, we and any of our collaborators will not be able to
promote any products we develop for indications or uses for which they are not approved.
In the United States, engaging in the impermissible promotion of our products, following approval, for off-label uses can also subject us
to false claims and other litigation under federal and state statutes, including fraud and abuse and consumer protection laws, which can lead to
civil and criminal penalties and fines, agreements with governmental authorities that materially restrict the manner in which we promote or
distribute therapeutic products and do business through, for example, corporate integrity agreements, suspension or exclusion from
participation in federal and state healthcare programs, and debarment from government contracts and refusal of future orders under existing
contracts. These false claims statutes include the federal civil False Claims Act, which allows any individual to bring a lawsuit against a
biopharmaceutical company on behalf of the federal government alleging submission of false or fraudulent claims or causing others to present
such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government decides to intervene and
prevails in the lawsuit, the individual will share in the proceeds from any fines or settlement funds. If the government declines to intervene, the
individual may pursue the case alone. These False Claims Act lawsuits against manufacturers of drugs and biologics have increased
significantly in volume and breadth, leading to several substantial civil and criminal settlements, up to $3.0 billion, pertaining to certain sales
practices and promoting off-label uses. In addition, False Claims Act lawsuits may expose manufacturers to follow-on claims by private payors
based on fraudulent marketing practices. This growth in litigation has increased the risk that a biopharmaceutical company will have to defend
a false claim action, pay settlement fines or restitution, as well as criminal and civil penalties, agree to comply with burdensome reporting and
compliance obligations, and be excluded from Medicare, Medicaid, or other federal and state healthcare programs. If we or our future
collaborators do not lawfully promote our approved products, if any, we may become subject to such litigation and, if we do not successfully
defend against such actions, those actions may have a material adverse effect on our business, financial condition, results of operations and
prospects.
Although an effective compliance program can mitigate the risk of investigation and prosecution for violations of these laws, the risks
cannot be entirely eliminated. Moreover, achieving and sustaining compliance with applicable federal and state fraud laws may prove costly.
Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses
and divert our management’s attention from the operation of our business.
Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, which could
make it difficult for us to sell our product candidates profitably.
In both domestic and foreign markets, sales of our product candidates, if approved, depend on the availability of coverage and adequate
reimbursement from third-party payors. Such third-party payors include government health programs such as Medicare and Medicaid, managed
care providers, private health insurers, and other organizations. In addition, because our product candidates represent new approaches to the
treatment of cancer, we cannot accurately estimate the potential revenue from our product candidates.
Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs
associated with their treatment. Obtaining coverage and adequate reimbursement from governmental healthcare programs, such as Medicare
and Medicaid, and commercial payors is critical to new product acceptance.
Government authorities and third-party payors decide which drugs and treatments they will cover and the amount of reimbursement.
Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost
therapeutic alternatives are already available or subsequently become available. If reimbursement is not available, or is available only to limited
levels, our product candidates may be competitively disadvantaged, and we, or our collaborators, may not be able to successfully
commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us,
or our collaborators, to establish or maintain a market share sufficient to realize a sufficient return on our or their investments. Alternatively,
securing favorable reimbursement terms may require us to compromise pricing and prevent us from realizing an adequate margin over cost.
Reimbursement by a third-party payor may depend upon a number of factors, including, but not limited to, the third-party payor’s
determination that use of a product is:
a covered benefit under its health plan;
safe, effective and medically necessary;
appropriate for the specific patient;
cost-effective; and
neither experimental nor investigational.
Obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and
costly process that could require us to provide to the payor supporting scientific, clinical and cost-effectiveness data for the use of our products.
Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain
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profitability or may require co-payments that patients find unacceptably high. Patients are unlikely to use our product candidates unless
coverage is provided, and reimbursement is adequate to cover a significant portion of the cost of our product candidates.
In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. Therefore,
coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often
a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each
payor separately, with no assurance that coverage and adequate reimbursement will be obtained.
Prices paid for a drug also vary depending on the class of trade. Prices charged to government customers are subject to price controls,
including ceilings, and private institutions obtain discounts through group purchasing organizations. Net prices for drugs may be further
reduced by mandatory discounts or rebates required by government healthcare programs and demanded by private payors. It is also not
uncommon for market conditions to warrant multiple discounts to different customers on the same unit, such as purchase discounts to
institutional care providers and rebates to the health plans that pay them, which reduces the net realization on the original sale.
In addition, federal programs impose penalties on manufacturers of drugs marketed under an NDA or BLA, in the form of mandatory
additional rebates and/or discounts if commercial prices increase at a rate greater than the Consumer Price Index-Urban, and these rebates
and/or discounts, which can be substantial, may impact our ability to raise commercial prices. Regulatory authorities and third-party payors
have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications, which could affect our
ability or that of our collaborators to sell our product candidates profitably. These payors may not view our products, if any, as cost-effective,
and coverage and reimbursement may not be available to our customers, or those of our collaborators, or may not be sufficient to allow our
products, if any, to be marketed on a competitive basis. Cost control initiatives could cause us, or our collaborators, to decrease, discount, or
rebate a portion of the price we, or they, might establish for products, which could result in lower than anticipated product revenues. If the
realized prices for our products, if any, decrease or if governmental and other third-party payors do not provide adequate coverage or
reimbursement, our prospects for revenue and profitability will suffer.
Assuming coverage is approved, the resulting reimbursement payment rates might not be adequate. If payors subject our product
candidates to maximum payment amounts or impose limitations that make it difficult to obtain reimbursement, providers may choose to use
therapies which are less expensive when compared to our product candidates. Additionally, if payors require high copayments, beneficiaries
may decline prescriptions and seek alternative therapies. We may need to conduct post-marketing studies in order to demonstrate the cost-
effectiveness of any future products to the satisfaction of hospitals and other target customers and their third-party payors. Such studies might
require us to commit a significant amount of management time and financial and other resources. Our future products might not ultimately be
considered cost-effective. Adequate third-party coverage and reimbursement might not be available to enable us to maintain price levels
sufficient to realize an appropriate return on investment in product development.
Third-party payors, whether domestic or foreign, or governmental or commercial, are developing increasingly sophisticated methods of
controlling healthcare costs. In addition, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new
technologies and are challenging the prices charged. We, and our collaborators, cannot be sure that coverage will be available for any product
candidate that we, or they, commercialize and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement for
drug products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries where
they may be sold at lower prices than in the United States. An inability to promptly obtain coverage and adequate payment rates from both
government-funded and private payors for any our product candidates for which we obtain marketing approval could have a material adverse
effect on our operating results, our ability to raise capital needed to commercialize products, and our overall financial condition.
There have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at broadening
the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the
future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to
contain or reduce costs of healthcare and/or impose price controls may adversely affect:
the demand for our product candidates, if we obtain regulatory approval;
our ability to set a price that we believe is fair for our products;
our ability to generate revenue and achieve or maintain profitability;
the level of taxes that we are required to pay; and
the availability of capital.
Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from
private payors, which may adversely affect our future profitability. A particular challenge for our product candidates arises from the fact that
they will primarily be used in an inpatient setting. Inpatient reimbursement generally relies on stringent packaging rules that may mean that
there is no separate payment for our product candidates. Additionally, data used to set the payment rates for inpatient admissions is usually
several years old and would not take into account all of the additional therapy costs associated with the administration of our product
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candidates. If special rules are not created for reimbursement for immunotherapy treatments such as our product candidates, hospitals might not
receive enough reimbursement to cover their costs of treatment, which will have a negative effect on their adoption of our product candidates.
We are subject to new legislation, regulatory proposals, and healthcare payor initiatives that may increase our costs of compliance,
and adversely affect our ability to market our products, obtain collaborators, and raise capital.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed
changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-
approval activities, and affect our ability, or the ability of our collaborators, to profitably sell any products for which we obtain marketing
approval. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more
rigorous coverage criteria and in additional downward pressure on the price that we, or our collaborators, may receive for any approved
products.
Since enactment of the ACA in 2010, in both the United States and certain foreign jurisdictions, there have been a number of legislative
and regulatory changes to the health care system that could impact our ability to sell our products profitably. In August 2011, the Budget
Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit
Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach
required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of
Medicare payments to providers up to 2% per fiscal year, which went into effect on April 1, 2013 and were to remain in effect until 2024. The
Bipartisan Budget Act of 2015 extended the 2% sequestration to 2025. In January 2013, the American Taxpayer Relief Act of 2012, or ATRA,
was approved which, among other things, reduced Medicare payments to several providers, including hospitals, imaging centers and cancer
treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five
years. On January 20, 2017, the new administration signed an Executive Order directing federal agencies with authorities and responsibilities
under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or
regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices, and, for
that reason, some final regulations have yet to take effect. In December 2017, Congress repealed the individual mandate for health insurance
required by the ACA and could consider further legislation to repeal other elements of the ACA. At the end of 2017, CMS promulgated
regulations that reduce the amount paid to hospitals for outpatient drugs purchased under the 340B program, and some states have enacted
transparency laws requiring manufacturers to report information on drug prices and price increases.
Additional federal and state healthcare reform measures may be adopted in the future that may result in more rigorous coverage criteria,
increased regulatory burdens and operating costs, decreased net revenue from our pharmaceutical products, decreased potential returns from
our development efforts, and additional downward pressure on the price that we receive for any approved drug. Any reduction in
reimbursement from Medicare or other government healthcare programs may result in a similar reduction in payments from private payors. The
implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain
profitability or commercialize our products.
Legislative and regulatory proposals may also be made to expand post-approval requirements and restrict sales and promotional
activities for drugs. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance, or
interpretations will be changed, or what the impact of such changes on the marketing approvals of our product 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 to more stringent product labeling and post-marketing testing and other requirements.
In addition, there have been a number of other legislative and regulatory proposals aimed at changing the pharmaceutical industry. For
instance, the enacted Drug Quality and Security Act imposes obligations on manufacturers of pharmaceutical products related to product
tracking and tracing. Compliance with the federal track and trace requirements may increase our operational expenses and impose significant
administrative burdens. As a result of these and other new proposals, we may determine to change our current manner of operation, provide
additional benefits, or change our contract arrangements, any of which could have a material adverse effect on our business, financial
condition, and results of operations.
Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.
In international markets, reimbursement and health care payment systems vary significantly by country, and many countries have
instituted price ceilings on specific products and therapies. In some countries, particularly the countries of the European Union, the pricing of
prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take
considerable time after the receipt of marketing approval for a product. To obtain coverage and reimbursement or pricing approval in some
countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available
therapies. There can be no assurance that our products will be considered cost-effective by third-party payors, that an adequate level of
reimbursement will be available, or that the third-party payors’ reimbursement policies will not adversely affect our ability to sell our products
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profitably. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our
business could be harmed, possibly materially.
Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other
improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of employee fraud or other illegal activity by our employees, independent contractors, consultants,
commercial partners and vendors. Misconduct by these parties could include intentional, reckless and/or negligent conduct that fails to: comply
with the laws of the FDA and other similar foreign regulatory bodies, provide true, complete and accurate information to the FDA and other
similar foreign regulatory bodies, comply with manufacturing standards we have established, comply with healthcare fraud and abuse laws in
the United States and similar foreign fraudulent misconduct laws, or report financial information or data accurately or to disclose unauthorized
activities to us. If we obtain FDA approval of any of our product candidates and begin commercializing those products in the United States, our
potential exposure under such laws will increase significantly, and our costs associated with compliance with such laws are also likely to
increase. These laws may impact, among other things, our current activities with principal investigators and research patients, as well as
proposed and future sales, marketing and education programs. In particular, the promotion, sales and marketing of healthcare items and
services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks,
self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing
and promotion, structuring and commission(s), certain customer incentive programs and other business arrangements generally. Activities
subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials.
We have adopted a code of business conduct and ethics, but it is not always possible to identify and deter employee misconduct, and the
precautions we take to detect and prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or in
protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations.
Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that
governmental and enforcement authorities will conclude that our, or our employees’, consultants’, collaborators’, contractors’, or vendors’
business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other
healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our
rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties,
damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs,
contractual damages, reputational harm, diminished profits and future earnings, compliance agreements, withdrawal of product approvals, and
curtailment of our operations, among other things, any of which could adversely affect our ability to operate our business and our results of
operations. In addition, the approval and commercialization of any of our product candidates outside the United States will also likely subject
us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
Risks Related to Our Intellectual Property
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, or lawsuits accusing our products of
patent infringement, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe the patents of our licensors. To counter infringement or unauthorized use, we may be required to file
infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that one or
more of our patents is not valid or is unenforceable or may 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. An adverse result in any litigation or defense proceedings could put one or more of our
patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing.
Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of
employee resources from our business. In the event of a successful claim of infringement against us, we may be enjoined from manufacturing,
use, and marketing our products, or may have to pay substantial damages, including treble damages and attorneys’ fees for willful
infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which may be impossible or
require substantial time and monetary expenditure.
Periodic maintenance fees on any issued patent are due to be paid to the United States Patent and Trademark Office, or USPTO, and
foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require
compliance with several procedural, documentary, fee payment and other similar provisions during the patent application process. While an
inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are
situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of
patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application
include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly
legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material
adverse effect on our business.
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We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.
The cost to us of any litigation or other proceeding relating to intellectual property rights, even if resolved in our favor, could be
substantial. Some of our competitors may be better able to sustain the costs of complex patent litigation because they have substantially greater
resources. If there is litigation against us, we may not be able to continue our operations.
Should third parties file patent applications, or be issued patents claiming technology also used or claimed by us, we may be required to
participate in interference proceedings in the USPTO to determine priority of invention. We may be required to participate in interference
proceedings involving our issued patents and pending applications. We may be required to cease using the technology or to license rights from
prevailing third parties as a result of an unfavorable outcome in an interference proceeding. A prevailing party in that case may not offer us a
license on commercially acceptable terms.
Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court or the USPTO.
If we or one of our licensing partners initiate legal proceedings against a third party to enforce a patent covering one of our product
candidates, the defendant could counterclaim that the patent covering our product candidate, as applicable, is invalid and/or unenforceable. In
patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are
numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Third parties may also raise similar claims
before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination,
post grant review, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in
revocation or amendment to our patents in such a way that they no longer cover our product candidates. The outcome following legal assertions
of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no
invalidating prior art, of which we, our patent counsel and the patent examiner were unaware during prosecution. If a defendant were to prevail
on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product
candidates. Such a loss of patent protection could have a material adverse impact on our business.
If we are unable to protect our proprietary rights, we may not be able to compete effectively or operate profitably.
Our success is dependent in part on maintaining and enforcing the patents and other proprietary rights that we have licensed and may
develop, and on our ability to avoid infringing the proprietary rights of others. Certain of our intellectual property rights are licensed from
another entity, and as such the preparation and prosecution of these patents and patent applications was not performed by us or under our
control. Furthermore, patent law relating to the scope of claims in the biotechnology field in which we operate is still evolving and,
consequently, patent positions in our industry may not be as strong as in other more well-established fields. The patent positions of
biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain
unresolved. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date.
The issuance of a patent is not conclusive as to its validity or enforceability and it is uncertain how much protection, if any, will be given
to the patents we have licensed from the NIH, Moffitt or M.D. Anderson if any these parties, or we, attempt to enforce the patents and/or if they
are challenged in court or in other proceedings, such as oppositions, which may be brought in foreign jurisdictions to challenge the validity of a
patent. A third party may challenge the validity or enforceability of a patent after its issuance by the Patent Office. It is possible that a
competitor may successfully challenge our patents or that a challenge will result in limiting their coverage. Moreover, the cost of litigation to
uphold the validity of patents and to prevent infringement can be substantial. If the outcome of litigation is adverse to us, third parties may be
able to use our patented invention without payment to us. Moreover, it is possible that competitors may infringe our patents or successfully
avoid the patented technology through design innovation. To stop these activities, we may need to file a lawsuit. These lawsuits are expensive
and would consume time and other resources, even if we were successful in stopping the violation of our patent rights. In addition, there is a
risk that a court would decide that our patents are not valid and that we do not have the right to stop the other party from using the inventions.
There is also the risk that, even if the validity of our patents were upheld, a court would refuse to stop the other party on the grounds that its
activities are not covered by, that is, do not infringe, our patents.
Should third parties file patent applications, or be issued patents claiming technology also used or claimed by our licensor(s) or by us in
any future patent application, we may be required to participate in interference proceedings in the USPTO to determine priority of invention for
those patents or patent applications that are subject to the first-to-invent law in the United States, or may be required to participate in derivation
proceedings in the USPTO for those patents or patent applications that are subject to the first-inventor-to-file law in the United States. We may
be required to participate in such interference or derivation proceedings involving our issued patents and pending applications. We may be
required to cease using the technology or to license rights from prevailing third parties as a result of an unfavorable outcome in an interference
proceeding or derivation proceeding. A prevailing party in that case may not offer us a license on commercially acceptable terms.
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We cannot prevent other companies from licensing most of the same intellectual properties that we have licensed or from otherwise
duplicating our business model and operations.
Certain intellectual properties that we are using to develop TIL-based cancer therapy products were licensed to us by the NIH. The
issued or pending patents that the NIH licensed to us are exclusive, and specific with respect to melanoma, breast, HPV-associated, bladder and
lung cancers. No assurance can be given that the NIH has not previously licensed, or that the NIH hereafter will not license to other
biotechnology companies some or all of the non-exclusive technologies available to us under the NIH License Agreement. In addition, one
pending U.S. patent application in the NIH License Agreement is not owned solely by the NIH. No assurance can be given that NIH’s co-
owner of the certain pending U.S. patent application in the NIH License Agreement has not previously licensed, or that the co-owner thereafter
will not license, to other biotechnology companies some or all of the technologies available to us. Co-ownership of these intellectual properties
will create issues with respect to our ability to enforce the intellectual property rights in courts, and will create issues with respect to the
accountability of one entity with respect to the other.
Since the NCI, Moffitt, M.D. Anderson, and others already use TIL therapy for the treatment of metastatic melanoma and other
indications, their methods and data are also available to third parties, who may want to enter into our line of business and compete against us.
Other than the Gen 2 manufacturing process, we currently do not own any exclusive rights on our entire product portfolio that could be used to
prevent third parties from duplicating our business plan or from otherwise directly competing against us. While additional technologies that
may be developed under our CRADA may be licensed to us on an exclusive basis, no assurance can be given that our existing exclusive rights
and will be sufficient to prevent others from competing with us and developing substantially similar products.
The use of our technologies could potentially conflict with the rights of others.
Our potential competitors or others may have or acquire patent rights that they could enforce against us. If they do so, then we may be
required to alter our products, pay licensing fees or cease activities. If our products conflict with patent rights of others, third parties could bring
legal actions against us or our collaborators, licensees, suppliers or customers, claiming damages and seeking to enjoin manufacturing, use and
marketing of the affected products. If these legal actions are successful, in addition to any potential liability for damages (including treble
damages and attorneys’ fees for willful infringement), we could be required to obtain a license to continue manufacturing, promoting the use or
marketing the affected products. We may not prevail in any legal action and a required license under the patent may not be available on
acceptable terms or at all.
We previously reported that we conducted an extensive freedom-to-operate, or FTO, analysis of the then current patent landscape with
respect to our lead product candidate, and based on that analysis, that we believe that we have FTO for our lead TIL product candidate.
Because patent applications do not publish for 18 months, and because the claims of patent families can change over time, no FTO analysis can
be considered exhaustive. We are undertaking additional FTO analyses of our manufacturing processes, our lead TIL products, and
contemplated future processes and products. However, the area of patent and other intellectual property rights in biotechnology remains an
evolving area with many risks and uncertainties. As such, we expect our FTO analyses will be ongoing.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other biopharmaceutical companies, our success is dependent on intellectual property, particularly patents. Obtaining
and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity, and is therefore costly, time-
consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent
reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and
weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the
future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the
U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would
weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. While we do not
believe that any of the patents owned or licensed by us will be found invalid based on this decision, we cannot predict how future decisions by
the courts, the U.S. Congress or the USPTO may impact the value of our patents.
We have limited foreign intellectual property rights and may not be able to protect our intellectual property rights throughout the
world.
We have limited intellectual property rights outside the United States. Filing, prosecuting and defending patents on product candidates in
all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United
States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property
rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from
practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into
the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to
60
develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but
enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual
property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions.
The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other
intellectual property protection, particularly those relating to biopharmaceutical products, which could make it difficult for us to stop the
infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our
patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business,
could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke
third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any,
may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate
to obtain a significant commercial advantage from the intellectual property that we develop or license.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed
confidential information of third parties.
We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously
employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or
independent contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees’
former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims,
litigation could result in substantial cost and be a distraction to our management and employees.
Risks Related to Our Securities
Our existing directors and executive officers hold a substantial amount of our common stock and may be able to influence
significant corporate decisions.
As of December 31, 2017, our officers and directors beneficially owned approximately 11% of our outstanding common stock. These
stockholders, if they act together, may be able to materially affect the outcome of matters presented to our stockholders, including the election
of our directors and other corporate actions such as:
A merger with or into another company;
A sale of substantially all of our assets; and
Amendments to our certificate of incorporation.
Additionally, the decisions of these stockholders may conflict with our interests or those of our other stockholders and the market price
of our stock may be adversely affected by market volatility.
Our stock price may be volatile, and our stockholders' investment in our stock could decline in value.
The market price of our common stock is likely to be volatile and could fluctuate widely in response to many factors, including but not
limited to:
announcements of the results of clinical trials by us or our competitors;
developments with respect to patents or proprietary rights;
announcements of technological innovations by us or our competitors;
announcements of new products or new contracts by us or our competitors;
actual or anticipated variations in our operating results due to the level of development expenses and other factors;
changes in financial estimates by securities analysts and whether our earnings meet or exceed such estimates;
conditions and trends in the pharmaceutical, biotechnology and other industries;
receipt, or lack of receipt, of funding in support of conducing our business;
regulatory developments within, and outside of, the United States;
litigation or arbitration;
general volatility in the financial markets;
general economic, political and market conditions and other factors; and
the occurrence of any of the risks described in this Annual Report on Form 10-K.
61
You may experience future dilution as a result of future equity offerings or other equity issuances.
We will have to raise additional capital in the future. To raise additional capital, we may in the future offer additional shares of our
common stock or other securities convertible into or exchangeable for our common stock at prices that may be lower than the current price per
share of our common stock. In addition, investors purchasing shares or other securities in the future could have rights superior to existing
stockholders. The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into
common stock, in future transactions may be higher or lower than the price per share paid by investors in prior offerings. Any such issuance
could result in substantial dilution to our existing stockholders.
Future sales of our common stock in the public market could cause our stock price to fall.
Our stock price could decline as a result of sales of a large number of shares of our common stock or the perception that these sales
could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the
future at a time and at a price that we deem appropriate.
As of February 15, 2018, we had 89,016,751 shares of common stock outstanding. In addition, we had 20,736,737 shares of common
stock equivalents that would increase the number of common stock outstanding if these instruments were exercised or converted, including
stock options and restricted stock units to purchase common stock based on vesting requirements, warrants to purchase common stock and
common stock issuable upon the conversion of preferred stock. The issuance and subsequent sale of the shares underlying these common stock
equivalents could depress the trading price of our common stock.
In addition, in the future, we may issue additional shares of common stock or other equity or debt securities convertible into common
stock in connection with a financing, acquisition, litigation settlement, employee arrangements or otherwise. For example, in January 2018, we
issued 15,000,000 shares of common stock in connection with an underwritten public offering. Such issuances could result in substantial
dilution to our existing stockholders and could cause our stock price to decline.
If securities or industry analysts do not publish research or reports about our company, or if they issue adverse or misleading
opinions regarding us or our stock, our stock price and trading volume could decline.
Although we have research coverage by securities and industry analysts, if coverage is not maintained, the market price for our stock
may be adversely affected. Our stock price also may decline if any analyst who covers us issues an adverse or erroneous opinion regarding us,
our business model, our intellectual property or our stock performance, or if our clinical trials and operating results fail to meet analysts’
expectations. If one or more analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial
markets, which could cause our stock price or trading volume to decline and possibly adversely affect our ability to engage in future financings
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our
financial results. As a result, we could become subject to sanctions or investigations by regulatory authorities and/or stockholder litigation,
which could harm our business and have an adverse effect on our stock price.
As a public reporting company, we are subject to various regulatory requirements, including the Sarbanes-Oxley Act of 2002, which
requires our management to assess and report on our internal controls over financial reporting. Nevertheless, in future years, our testing, or the
subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls that we would be
required to remediate in a timely manner to be able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act each year. If we
are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act each year, we could be subject to sanctions or
investigations by the SEC, Nasdaq or other regulatory authorities which would require additional financial and management resources and
could adversely affect the market price of our common stock. In addition, material weaknesses in our internal controls could result in a loss of
investor confidence in our financial reports.
Our board could issue one or more additional series of preferred stock without stockholder approval with the effect of diluting
existing stockholders and impairing their voting and other rights.
Our certificate of incorporation authorizes the issuance of up to 50,000,000 shares of “blank check” preferred stock (of which only
17,000 have been designated as the Series A Convertible Preferred Stock and 11,500,000 designated as Series B Convertible Preferred Stock)
with designations, rights and preferences as may be determined from time to time by our board of directors. Our board is empowered, without
stockholder approval, to issue one or more series of preferred stock with dividend, liquidation, conversion, voting or other rights which could
dilute the interest of, or impair the voting power of, our common stockholders. The issuance of a series of preferred stock could be used as a
method of discouraging, delaying or preventing a change in control. For example, it would be possible for our board of directors to issue
preferred stock with voting or other rights or preferences that could impede the success of any attempt to effect a change in control of our
company.
62
We do not anticipate paying cash dividends for the foreseeable future, and therefore investors should not buy our stock if they wish
to receive cash dividends.
We have never declared or paid any cash dividends or distributions on our common stock. We currently intend to retain our future
earnings to support operations and to finance expansion and, therefore, we do not anticipate paying any cash dividends on our common stock in
the foreseeable future.
Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to
change our management and hinder efforts to acquire a controlling interest in us, and the market price of our common stock may be lower
as a result.
There are provisions in our certificate of incorporation and amended and restated bylaws that may make it difficult for a third party to
acquire, or attempt to acquire, control of our company, even if a change in control was considered favorable by you and other stockholders. For
example, our board of directors will have the authority to issue up to 50,000,000 shares of preferred stock and to fix the price, rights,
preferences, privileges, and restrictions of the preferred stock without any further vote or action by our stockholders. The issuance of shares of
preferred stock may delay or prevent a change in control transaction. As a result, the market price of our common stock and the voting and
other rights of our stockholders may be adversely affected. An issuance of shares of preferred stock may result in the loss of voting control to
other stockholders.
In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which regulates
corporate acquisitions by prohibiting Delaware corporations from engaging in specified business combinations with particular stockholders of
those companies. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction.
They could also have the effect of discouraging others from making tender offers for our common stock, including transactions that may be in
your best interests. These provisions may also prevent changes in our management or limit the price that investors are willing to pay for our
stock.
Our certificate of incorporation designates the state or federal courts located in the State of Delaware as the sole and exclusive
forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to
obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our certificate of incorporation provides that, subject to limited exceptions, the state and federal courts located in the State of Delaware
will be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of
breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim
against us arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our amended bylaws,
or (4) any other action asserting a claim against us that is governed by the internal affairs doctrine. Any person or entity purchasing or
otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our
certificate of incorporation described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial
forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us
and our directors, officers, and employees. Alternatively, if a court were to find these provisions of our certificate of incorporation inapplicable
to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with
resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
We may be subject to claims for rescission or damages in connection with certain sales of shares of our common stock in the open
market.
In January 2014, the SEC declared effective a registration statement that we filed to cover the resale of shares issued and sold (or to be
issued and sold) by certain selling stockholders. On March 11, 2016, that registration statement (and the prospectus contained therein) became
ineligible for future use, and selling stockholders could no longer sell any shares of our common stock in open market transactions by means of
that prospectus. We believe that certain stockholders did sell up to 128,500 shares of our common stock in open market transactions in May
2016 by means of the ineffective registration statement. Accordingly, those sales were not made in accordance with Sections 5 and 10(a)(3) of
the Securities Act, and the purchasers of those shares may have rescission rights (if they still own the shares) or claims for damages (if they no
longer own the shares). In addition, we also may have indemnification obligations to the selling stockholders. The amount of any such liability
is uncertain.
63
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
San Carlos Lease
Since October 2016, our corporate headquarters consisted of 8,733 square feet of space that we lease in San Carlos, California. The
corporate headquarters lease is for a term of 54 months and will expire in April 2021. Monthly lease payments are approximately $38,000.
In April 2017, we entered into a sublease agreement with Teradata US, Inc., pursuant to which we agreed to sublease office space
located adjacent to our corporate headquarters in San Carlos, California for approximately $26,000 per month. The space consists of
approximately 11,449 rentable square feet and will expire on October 31, 2018.
New York Lease
We leased office space in New York for a monthly rental of approximately $18,000 a month from January 2017 through July 2017. In
June 2017, we entered into an agreement to lease office space in New York, New York from August 1, 2017 to July 31, 2018 for approximately
$9,000 a month.
Tampa Lease
Our research and development facilities consist of 8,673 square feet in a facility located at the University of South Florida Research Park
in Tampa, Florida. The lease expires in November 2019 and rent payments are approximately $20,000 per month.
We believe that our existing facilities are adequate to meet our current needs, and that suitable additional alternative spaces will be
available in the future on commercially reasonable terms.
Item 3.
Legal Proceedings.
Class Action Lawsuit and Derivative Lawsuit. On April 10, 2017, the SEC announced settlements with us and with other public
companies and unrelated parties in the In the Matter of Certain Stock Promotion investigation. Our settlement with the SEC is consistent with
our previous disclosures (including in our Annual Report on Form 10-K that we filed with the SEC on March 9, 2017). On April 14, 2017, a
purported shareholder filed a complaint seeking class action status in the United States District Court, Northern District of California for
violations of the federal securities laws (Leonard DeSilvio v. Lion Biotechnologies, Inc., et al., case no. 3:17cv2086) against our company and
three of our former officers and directors. On April 19, 2017, a second class action complaint (Amra Kuc vs. Lion Biotechnologies, Inc., et al.,
case no. 3:17cv2086) was filed in the same court. Both complaints allege, among other things, that the defendants violated the federal securities
laws by making materially false and misleading statements, or by failing to make certain disclosures, regarding the actions taken by Manish
Singh, our former CEO, and our former investor relations firm that were the subject of the In the Matter of Certain Stock Promotions SEC
investigation. On July 20, 2017, the plaintiff in the Kuc case filed a notice to voluntarily dismiss that case. The court entered an order
dismissing the Kuc complaint on July 21, 2017. On July 26, 2017, the court appointed a movant as lead plaintiff. On September 8, 2017, the
lead plaintiff filed an amended complaint (Jay Rabkin v. Lion Biotechnologies, Inc., et al., case no. 3:17cv0286) seeking class action status that
alleges, among other things, that the defendants violated the federal securities laws by making materially false and misleading statements, or by
failing to make certain disclosures, regarding the actions taken by Manish Singh and our former investor relations firm that were the subject of
the In the Matter of Certain Stock Promotions SEC investigation. On October 6, 2017, the court entered an order setting a schedule for the case,
which includes a briefing schedule for motions to dismiss and a hearing date of December 22, 2017, which hearing was subsequently
rescheduled by the court for January 5, 2018. On January 4, 2018, the court entered an order vacating and deeming the briefing on motions to
dismiss submitted without oral argument. On February 5, 2018, court entered an order dismissing two of Plaintiff’s six claims with leave to
amend.
On December 15, 2017, a purported shareholder derivative complaint, Kevin Fong v. Manish Singh, et al. (case no. 17:1806), was filed
against us, as nominal defendant, and certain of our current and former officers and directors, and others, as defendants, in the U.S. District
Court for the District of Delaware. The complaint alleges breaches of fiduciary duties, unjust enrichment, and violations of Section 14(a) of the
Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder arising from the Securities and Exchange Commission’s investigation
in the In the Matter of Certain Stock Promotions matter and our April 10, 2017 settlement thereof, and seeks unspecified damages on behalf of
our company and injunctive relief.
64
We intend to vigorously defend against the foregoing complaints. Based on the very early stage of the litigation, it is not possible to
estimate the amount or range of possible loss that might result from an adverse judgment or a settlement of these matters.
Solomon Capital, LLC. On April 8, 2016, a lawsuit titled Solomon Capital, LLC, Solomon Capital 401(K) Trust, Solomon Sharbat and
Shelhav Raff v. Lion Biotechnologies, Inc. was filed by Solomon Capital, LLC, Solomon Capital 401(k) Trust, Solomon Sharbat and Shelhav
Raff against us in the Supreme Court of the State of New York, County of New York (index no. 651881/2016). The plaintiffs allege that,
between June and November 2012 they provided to us $0.1 million and that they advanced and paid on our behalf an additional $0.2 million.
The complaint further alleges that we agreed to (i) provide them with promissory notes totaling $0.2 million, plus interest, (ii) issue a total of
111,425 shares to the plaintiffs (before the 1-for-100 reverse split of our common stock effected in September 2013), and (iii) allow the
plaintiffs to convert the foregoing funds into our securities in the next transaction. The plaintiffs allege that they should have been able to
convert their advances and payments into shares of our common stock in the restructuring that was effected in May 2013. Based on the
foregoing, the plaintiffs allege causes for breach of contract and unjust enrichment and demand judgment against us in an unspecified amount
exceeding $1.5 million, plus interest and attorneys’ fees.
On June 3, 2016, we filed an answer and counterclaims in the lawsuit. In its counterclaims, we allege that the plaintiffs misrepresented
their qualifications to assist us in fundraising and that they failed to disclose that they were under investigation for securities laws violations.
We are seeking damages in an amount exceeding $0.5 million and an order rescinding any and all agreements that the plaintiffs contend
entitled them to obtain stock in our company.
On April 19, 2017, the Court granted plaintiffs’ counsel’s motion to withdraw from the case. On May 25, 2017, the plaintiffs filed a
notice that they had hired new counsel. On June 7, 2017, the judge presiding over the case recused herself because of a conflict of interest
arising from her relationship with plaintiffs’ new attorneys. The case has been assigned to a new judge, and briefing on a motion to dismiss has
occurred, with oral argument on the motion to dismiss scheduled for April 20, 2018.
We intend to vigorously defend the complaint and pursue our counterclaims.
Litigation Involving Dr. Steven Fischkoff. On June 13, 2017, in an action titled Steven Fischkoff v. Lion Biotechnologies, Inc. and
Maria Fardis, Dr. Steven Fischkoff, our former Vice President and Chief Medical Officer, filed a lawsuit against us in the Supreme Court of
the State of New York, County of New York. Dr. Fischkoff was dismissed by us on March 28, 2017. Dr. Fischkoff was terminated “for cause”
as that term is defined in his employment agreement. In his complaint, Dr. Fischkoff alleges breaches of his employment agreement and
violation of New York Labor Law for failure to pay monies purportedly owed to him, and seeks to recover amounts including severance pay
and retention bonus (totaling $0.3 million), a prorated incentive bonus, and amounts relating to unvested options to 150,000 shares of our
common stock, together with prejudgment interest, costs, expenses and attorneys’ fees. On July 5, 2017, we filed a removal petition and
removed the lawsuit to the United States District Court for the Southern District of New York, where the case has been assigned case no. 17-
cv-05041. On July 14, 2017, we filed a partial answer and counterclaims against Dr. Fischkoff, denying his allegations, and alleging breach of
contract and related claims, breach of fiduciary duty, and state and federal trade secret misappropriation and related claims, and sought a
temporary restraining order and preliminary injunction against Dr. Fischkoff. On July 18, 2017, the court issued a temporary restraining order
against Dr. Fischkoff requiring him to return our company materials, prohibiting him from disclosing or using our company materials, and
granting expedited discovery, which is currently proceeding.
We intend to vigorously defend against Dr. Fischkoff’s lawsuit and pursue our counterclaims. Based on the very early stage of the
litigation, it is not possible to estimate the amount or range of (i) a possible loss that might result from an adverse judgment or settlement of this
action, or (ii) the potential recovery that might result from a favorable judgment or a settlement of this action.
Other Matters. During the second quarter of 2016, warrants representing 128,500 shares were exercised. The 128,500 shares of common
stock had previously been registered for re-sale. However, we believe that these 128,500 warrant shares were sold by the holders in open
market transactions in May 2016 at a time when the registration statement was ineffective. Accordingly, those sales were not made in
accordance with Sections 5 and 10(a)(3) of the Securities Act, and the purchasers of those shares may have rescission rights (if they still own
the shares) or claims for damages (if they no longer own the shares). The amount of any such liability is uncertain and as such, an accrual for
any potential loss has not been made. We believe that any claims brought against it would not result in a material impact to our financial
position or results of operations. We have not accrued a loss for a potential claim associated with this matter as we are unable to estimate any at
this time.
Other
In addition to the items noted above, we may be involved, from time to time, in legal proceedings and claims arising in the ordinary
course of our business. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. We accrue amounts, to
the extent they can be reasonably estimated, that we believe are adequate to address any liabilities related to legal proceedings and other loss
contingencies that we believe will result in a probable loss. While there can be no assurances as to the ultimate outcome of any legal
65
proceeding or other loss contingency involving us, management does not believe any pending matter will be resolved in a manner that would
have a material adverse effect on our financial position, results of operations or cash flows. Regardless of outcome, litigation can have an
adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 4. Mine Safety Disclosures.
Not Applicable.
PART II
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Since June 28, 2017, our common stock has been listed for trading on the Nasdaq Global Market under the symbol “IOVA”. From
February 26, 2015 through June 27, 2017, our common stock was listed for trading on the Nasdaq Global Market under the symbol “LBIO”.
Fiscal Year Ended December 31, 2017
First quarter
Second quarter
Third quarter
Fourth quarter
Fiscal Year Ended December 31, 2016
First quarter
Second quarter
Third quarter
Fourth quarter
Stockholders
$
$
High
Low
8.30 $
7.50
8.60
9.54
High
Low
7.54 $
8.65
9.29
8.07
6.60
4.90
4.45
6.60
4.54
4.90
7.78
5.80
As of December 31, 2017, there were approximately 51 holders of record of our common stock. In addition, we had two holders of
record who owned shares of our Series A Convertible Preferred Stock and 10 holders of record who owned shares of our Series B Convertible
Preferred Stock.
Dividends
We have never declared or paid any cash dividends on our common stock or any other securities. We anticipate that we will retain all
available funds and any future earnings, if any, for use in the operation of our business and do not anticipate paying cash dividends in the
foreseeable future. Payment of future cash dividends, if any, will be at the discretion of the board of directors after considering various factors,
including our financial condition, operating results, current and anticipated cash needs.
Under the terms of our Series A Convertible Preferred Stock, we may not declare, pay or set aside any dividends on shares of any class
or series of capital stock (other than dividends on shares of common stock payable in shares of common stock) unless the holders of our Series
A Convertible Preferred Stock first receive, or simultaneously receive, an equal dividend on each outstanding share of Series A Convertible
Preferred Stock.
Under the terms of our Series B Convertible Preferred Stock, holders shall be entitled to receive dividends on shares equal (on an as-if-
converted-to-Common-Stock basis) to and in the same form as dividends (other than dividends in the form of common stock) actually paid on
shares of our Series A Convertible Preferred Stock, common stock or other junior securities when, as and if such dividends (other than
dividends in the form of common stock) are paid on shares of our Series A Convertible Preferred Stock, common stock or other junior
securities. No other dividends shall be paid on shares of Series B Convertible Preferred Stock, and we may not pay dividends (other than
dividends in the form of common stock) on shares of our Series A Convertible Preferred Stock, common stock or other junior securities unless
it simultaneously complies with the previous sentence.
Unregistered Sales of Equity Securities
None.
Repurchases of Common Stock
There were no share repurchases during the three months ended December 31, 2017.
66
Stock Performance Graph
The following graph illustrates a comparison of the total cumulative stockholder return on our common stock since December 31, 2013,
to two indices: the Russell 3000 and the NASDAQ Biotechnology Index. The stockholder return shown in the graph below is not necessarily
indicative of future performance, and we do not make or endorse any predictions as to future stockholder returns.
Equity Compensation Plan Information
Information regarding our equity compensation plans is incorporated by reference from the information in our Proxy Statement for our
2018 Annual Meeting of Stockholders, which we will file with the SEC within 120 days after the end of the fiscal year to which this Annual
Report on Form 10-K relates.
Item 6.
Selected Financial Data (in thousands, except per share information)
The statements of operations data for the years ended December 31, 2017, 2016 and 2015 and the balance sheet data as of December
31, 2017 and 2016 have been derived from our audited financial statements included elsewhere in this Annual Report on Form 10-K. The
statements of operations data for the years ended December 31, 2014 and 2013 and the balance sheet data as of December 31, 2015, 2014 and
2013 have been derived from our audited financial statements not included in this Annual Report on Form 10-K. The following selected
financial data should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and financial statements and related notes to those statements included elsewhere in this Annual Report on Form 10-K.
Net revenue
Operating expenses:
Research and development
General and administrative
Cost of Lion transaction - related party
Other income (loss)
Net loss
Net loss Per Common Share
Total assets
Total liabilities
Total stockholders' equity
2017
2016
$
- $
Years Ended December 31,
2015
(in thousands)
- $
- $
2014
2013
- $
-
71,615
21,262
-
813
(92,064 ) $
(1.41 ) $
26,941
26,698
-
745
(52,894 ) $
(1.85 ) $
15,470
12,390
-
200
(27,660 ) $
(0.62 ) $
3,849
8,192
-
6
(12,035 ) $
(0.48 ) $
2,154
3,831
16,656
(2,741 )
(25,382 )
(3.47 )
2017
2016
As of December 31,
2015
2014
2013
155,373 $
9,892 $
145,481 $
171,886 $
4,968 $
166,918 $
105,653 $
1,630 $
104,023 $
46,507 $
1,662 $
44,845 $
19,877
2,270
17,604
$
$
$
$
$
67
See "Management's Discussion and Analysis of Financial Condition and Results of Operations" below, and the financial statements and
accompanying notes and previously filed Annual Reports on Form 10-K for further information regarding our results and financial position for
periods reported herein and for known factors that will impact comparability of future results.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our
financial statements and the notes to those financial statements that are included elsewhere in this report. Our discussion includes forward-
looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and
intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result
of a number of factors, including those set forth under the “Business” section and elsewhere in this report. We use words such as “anticipate,”
“estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar
expressions to identify forward-looking statements. All forward-looking statements included in this report are based on information available
to us on the date hereof and, except as required by law, we assume no obligation to update any such forward-looking statements.
Overview
We are a clinical-stage biopharmaceutical company focused on the development and commercialization of novel cancer immunotherapy
products designed to harness the power of a patient’s own immune system to eradicate cancer cells. Our lead product candidate, LN-144 for
metastatic melanoma, is an autologous adoptive cell therapy utilizing tumor-infiltrating lymphocytes, or TIL, which are T cells derived from
patients’ tumors. TIL therapy is a platform technology that has already been studied for the treatment of metastatic melanoma and metastatic
cervical cancer by the National Cancer Institute, or NCI. We are investigating the effectiveness and safety of TIL therapy for the treatment of
metastatic melanoma, squamous cell carcinoma of the head and neck, cervical carcinoma, and metastatic non-small cell lung cancer, as well as
other oncology indications.
We have an on-going Phase 2 clinical trial, C-144-01, of our lead product candidate, LN-144, TIL for the treatment of metastatic
melanoma. This multicenter study is enrolling patients with melanoma whose disease has progressed following treatment with at least one
systemic therapy, including anti-PD-1 and if BRAF mutated, a BRAF inhibitor. The trial is currently active at fourteen U.S. sites. We anticipate
initiating patient dosing in Europe during the first half of 2018. The purpose of the study is to evaluate the efficacy and safety of our autologous
LN-144. We have decided to use our Gen 2 manufacturing process for all ongoing Phase 2 trials and in all future TIL clinical development in
trials sponsored by us, and as a result, cohort 1 of the C-144-01 melanoma study is closed to enrollment, and new patients are being enrolled in
cohort 2.
In addition to our ongoing trial in metastatic melanoma, we have initiated clinical trials of LN-145, TIL therapy in cervical, head and
neck cancers, and non-small cell lung cancer, or NSCLC. C-145-03 is a Phase 2, multicenter study that will enroll up to 47 patients and will
assess the safety and efficacy of LN-145 for the treatment of patients with recurrent and/or metastatic squamous cell carcinoma of the head and
neck. The trial will therefore continue to enroll patients to the full sample size of 47 per protocol. The study is open for enrollment of patients
in the United States and we anticipate the start of enrollment of patients in Europe in the first half of 2018. In January 2018, we reported
preliminary data from C-145-04 which showed that of the two patients that are currently evaluable, one treated with LN-145 had a confirmed
PR and one patient had stable disease. We have amended the protocol so that newly-enrolled patients in both trials can be treated using TIL
produced from our Gen 2 manufacturing process.
We are initiating our clinical development around NSCLC, with two studies. One of the studies is an investigator-sponsored Phase 2
study to be conducted at H. Lee Moffitt Cancer Center and Research Institute, or Moffitt, and the other will be sponsored by our company.
Patient enrollment has begun in the investigator-sponsored study in collaboration with researchers at Moffitt, Stand Up To Cancer, and others.
Patients who are treatment naïve to prior anti-PD-1/ PD-L1 with stage IV or recurrent NSCLC will be enrolled in a study combining TIL and
nivolumab. The Iovance-sponsored Phase 2 study in NSCLC patients who are PD-1 and PD-L1 treatment naïve, will initiate in the first half of
2018, in collaboration with MedImmune, the global biologics research and development arm of AstraZeneca. The study with MedImmune will
allow for enrollment with LN-145 alone or in combination with durvalumab. In the future, we plan to initiate additional indications alone or
through collaborations.
We are also initiating clinical trials as part of our strategic alliance with The University of Texas M.D. Anderson Cancer Center, or M.D.
Anderson, in multiple solid tumor cancers using two different TIL manufacturing processes, including our Gen 2 manufacturing process. These
multi-arm clinical trials will evaluate the safety and efficacy of TIL therapy in ovarian cancer, various sarcomas, and pancreatic cancer, and are
expected to begin enrollment in 2018.
Our current product candidate pipeline is summarized in the graphic below:
68
Our current collaboration pipeline is summarized in the graphic below:
For the studies listed in our collaboration pipeline table, the partner listed above is the sponsor of the clinical trial. Such partner may not
use our Gen 2 manufacturing process, and/or the therapeutic dosing may differ from our clinical trials. As a result, such partner data may not be
representative of our data.
We raised approximately $53.7 million in net proceeds, after deducting underwriting discounts and offering expenses, through a public
offering that closed in September 2017. In January 2018, we closed an underwritten public offering of 15,000,000 shares of our common stock
at a public offering price of $11.50 per share, before underwriting discounts. The shares sold at closing included 1,956,521 shares issued upon
the exercise in full by the underwriter of its option to purchase additional shares at the public offering price less the underwriting discount. The
gross proceeds from the offering, before deducting the underwriting discounts and commissions and other estimated offering expenses payable
by us, are $172.5 million with estimated net proceeds to us of approximately $161.7 million.
Financial Overview
Research and development activities are central to our business model. Product candidates in later stages of clinical development
generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of
later-stage clinical trials. As a clinical stage company that is currently engaged in the development of novel cancer immunotherapy products,
we have not yet generated any revenues from our biotechnology business or otherwise since our formation. Our ability to generate revenues in
the future will depend on our ability to complete the development of our product candidates and to obtain regulatory approval for them. Our
major sources of funding to date have been proceeds from various public and private offerings of our equity securities (both common stock and
preferred stock), option and warrant exercises, and interest income.
Results of Operations for the Years Ended December 31, 2017 and 2016
Revenues
We did not generate any revenues during the years ended December 31, 2017 and 2016, respectively, and we do not anticipate that we
will generate any revenues during 2018 from the sale or licensing of our product candidates.
Costs and expenses
69
Research and Development Expense (in thousands)
Research and development
Stock-based compensation expense included in research and
development expense
Years Ended December 31,
2017
2016
Increase (Decrease)
%
$
$
71,615 $
26,941
44,674
5,270
3,267
2,003
166 %
61 %
Research and development expense for the year ended December 31, 2017 increased by $44.7 million, or 166%, compared to the year
ended December 31, 2016, inclusive of stock-based compensation. The increase was primarily attributable to a $22.1 million increase in drug
manufacturing costs due to an increase in the number of manufacturing facilities, development and technology transfer related to the Gen 2
manufacturing process, a $9.2 million increase in costs related to our clinical trials as a result of the initiation of two new clinical trials in 2017
along with an increase in the number of sites and patients enrolled in both existing and new clinical trials, a $6.2 million increase in payroll and
related expenses primarily due to an increase in headcount, an increase of $2.3 million related to consultants and outside services contracted
with to perform research and development activities on our behalf, an increase of $1.7 million in lab consumables and tumors, and a $2.0
million increase in non-cash stock-based compensation expense in the year ended December 31, 2017 as compared to the year ended December
31, 2016.
We expect our research and development expenses to increase over the next several years as we continue to conduct our clinical trial for
our products and as we increase our research and development efforts in other cancer indications. However, it is difficult to determine with
certainty the duration and completion costs of our current or future preclinical programs and clinical trials of our product candidates.
The duration, costs and timing of our clinical trials and development of our product candidates will depend on a number of factors that
include, but are not limited to, the number of patients that enroll in the trial, per patient trial costs, number of sites included in the trial,
discontinuation rates of patients, duration of patient follow-up, efficacy and safety profile of the product candidate, and the length of time
required to enroll eligible patients. Additionally, the probability of success for our product candidate will depend on a number of factors,
including competition, manufacturing capability and cost efficiency, and commercial viability.
General and Administrative Expense (in thousands)
General and administrative
Stock-based compensation expense included in general and
administrative
Years Ended December 31,
2017
2016
Increase (Decrease)
%
$
$
21,262 $
26,698
(5,436 )
6,698
15,637
(8,939 )
-20 %
-57 %
General and administrative expense for the year ended December 31, 2017 decreased by $5.4 million, or 20%, compared to the year
ended December 31, 2016, inclusive of stock-based compensation. The change was primarily attributable to a $8.9 million decrease in stock-
based compensation expense, driven by expense incurred in connection with the separation of our former Chief Executive Officer and Chief
Financial Officer from our company in June and August of 2016, respectively, offset by a $2.4 million increase in legal fees.
General and administrative expenses include personnel costs for our employees engaged in general and administrative activities, legal
fees, audit and tax fees, consultants and professional services, and general corporate expenses. We anticipate general and administrative
expenses will increase in 2018 as we continue to support our expanded research and development efforts.
Interest Income (in thousands)
Interest Income
Years Ended December 31,
2017
2016
Increase (Decrease)
%
$
$
813 $
745
68
9 %
Interest income results from our interest-bearing cash and investment balances. Interest income for the year ended December 31, 2017
increased due to the higher average cash balances as a result of the proceeds received from our equity financings in September 2017 and June
2016, and higher interest rates in 2017.
70
Results of Operations for the Years Ended December 31, 2016 and 2015
Revenues
We did not generate any revenues during the years ended December 31, 2016 and 2015, respectively.
Costs and expenses
Research and Development Expense (in thousands)
Research and development
Stock-based compensation expense included in research and
development expense
Years Ended December 31,
2016
2015
Increase (Decrease)
%
$
$
26,941 $
15,470
11,471
3,267
2,248
1,019
74 %
45 %
Research and development expense for the year ended December 31, 2016 increased by $11.5 million, or 74%, compared to the year
ended December 31, 2015, inclusive of stock-based compensation. The increase was primarily attributable to a $3.2 million increase in drug
manufacturing costs, expenses incurred under the PolyBioCept agreement in the amount of $2.7 million, a $2.4 million increase in payroll and
related expenses primarily due to an increase in headcount, an increase of $1.3 million related to consultants contracted with to perform
research and development activities on our behalf, a $0.9 million increase in costs related to our clinical trials, and a $1.0 million increase in
non-cash stock-based compensation expense.
General and Administrative Expense (in thousands)
General and administrative
Stock-based compensation expense included in general and
administrative
Years Ended December 31,
2016
2015
Increase (Decrease)
%
$
$
26,698 $
12,390
14,308
15,637
6,275
9,362
115 %
149 %
General and administrative expense for the year ended December 31, 2016 increased by $14.3 million, or 115%, compared to the year
ended December 31, 2015, inclusive of stock-based compensation. The increase was primarily attributable to a $9.4 million increase in stock-
based compensation expense primarily due to the accelerated vesting of equity awards upon the termination of employment of our former Chief
Executive Officer and our former Chief Financial Officer, and the increase in the number of our employees, a $1.5 million increase in payroll
and related expenses primarily due to the increase in headcount, a $0.9 million increase due to severance payments to our former Chief
Executive Officer and our former Chief Financial Officer, and a $2.4 million increase in consulting and legal-related expenses.
Interest Income (in thousands)
Interest Income
Years Ended December 31,
2016
2015
Increase (Decrease)
%
$
$
745 $
200
545
273 %
Interest income for the year ended December 31, 2016 increased by $0.5 million, or 273%, compared to the year ended December 31,
2015 due to the higher cash balances in 2016 as a result of the proceeds received from our equity financings in 2015 and June 2016.
Net Loss
We had a net loss of $92.1 million, $52.9 million and $27.7 million for the years ended December 31, 2017, 2016 and 2015,
respectively. The increase in our net losses in 2017, as compared to 2016, was due to the continued expansion of our research and development
activities, increased clinical trials and manufacturing activities, and the overall growth of our corporate infrastructure. We anticipate that we
will continue to incur net losses in the future as we further invest in our research and development activities, including our clinical
development. The increase in our net loss during 2016, as compared to 2015, was also due to the continued expansion of our research and
development activities, increased clinical trials and manufacturing activities, and the overall growth of our corporate infrastructure. In addition,
our general and administrative expenses increased in 2016 due to the increase in headcount and the acceleration of stock-based equity awards
related to the termination of certain executives.
71
Liquidity and Capital Resources
We have incurred losses and generated negative cash flows from operations since inception. We expect to continue to incur significant
losses in 2018 and may incur significant losses and negative cash flows from operations for the foreseeable future. We have funded our
operations primarily through issuance of equity securities.
On December 28, 2017, we filed a shelf registration statement with the Securities and Exchange Commission, or SEC, for the issuance
of common stock, preferred stock, warrants, rights, debt securities and units up to an aggregate amount of $250 million, of which $42.5 million
consists of unsold securities previously registered under the 2016 Shelf Registration Statement (see below), and which we refer to as the 2017
Shelf Registration Statement. The 2017 Registration Statement was declared effective on January 19, 2018. We completed an offering of
common stock in January 2018 utilizing the 2017 Shelf Registration Statement (see below). In the future, we may periodically offer one or
more of these securities in amounts, prices and terms to be announced when and if the securities are offered. At the time, any of the securities
covered by the 2017 Shelf Registration Statement are offered for sale, a prospectus supplement will be prepared and filed with the SEC
containing specific information about the terms of any such offering.
On December 23, 2016, we filed a shelf registration statement with the SEC for the issuance of common stock, preferred stock,
warrants, rights, debt securities and units up to an aggregate amount of $100 million, which we refer to as the 2016 Shelf Registration
Statement. On January 11, 2017, the 2016 Shelf Registration Statement was declared effective by the SEC. We completed an offering of
common stock in September 2017 utilizing the 2016 Shelf Registration Statement (see below).
In September 2017, we sold 8,846,154 shares of our common stock in an underwritten public offering at a public offering price of
$6.50 per share, under the 2016 Shelf Registration Statement. We received gross proceeds of approximately $57.5 million and net proceeds
of approximately $53.7 million, after deducting underwriting discounts and offering expenses.
In January 2018, we announced the closing of our public offering of 15,000,000 shares of our common stock at a public offering price of
$11.50 per share, before underwriting discounts, which included 1,956,521 shares issued upon the exercise in full by the underwriter of its
option to purchase additional shares at the public offering price less the underwriting discount, under the 2017 Shelf Registration Statement.
The gross proceeds from the offering, before deducting the underwriting discounts and commissions and other estimated offering expenses
payable by us, are $172.5 million with estimated net proceeds to us of approximately $161.7 million.
We are currently engaged in the development of therapeutics to fight cancer. We do not have any commercial products and have not yet
generated any revenues from our biopharmaceutical business. We currently do not anticipate that we will generate any revenues during 2018
from the sale or licensing of any products. We have incurred a net loss of $92.1 million for the year ended December 31, 2017 and used $78.7
million of cash in our operating activities for the year ended December 31, 2017. As of December 31, 2017, we had $145.4 million of cash and
cash equivalents, stockholders’ equity of $145.5 million and had working capital of $139.4 million.
We expect to further increase our research and development activities, which will increase the amount of cash we will use during 2018
and beyond. Specifically, we expect increased spending on clinical trials, research and development activities, higher payroll expenses as we
increase our professional and scientific staff and continue our expansion of manufacturing activities. Based on the funds we have available as
of the date of the filing of this Annual Report on Form 10-K, which includes the net proceeds of approximately $161.7 million raised in
connection with our January 2018 public offering, we believe that we have sufficient capital to fund our anticipated operating expenses for at
least 24 months from the date of filing this report.
Cash Flows
Cash Flows from Operating, Investing and Financing Activities (in thousands):
Years Ended December 31,
2016
2015
2017
Net cash (used in) provided by :
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash and cash equivalents
Operating Activities
$
$
(78,709 ) $
58,677
58,688
38,656 $
(32,668 ) $
8,894
96,904
73,130 $
(18,381 )
(71,208 )
78,267
(11,322 )
Net cash used in operating activities of $78.7 million for the year ended December 31, 2017, resulted primarily from our net loss
of $92.1 million, adjusted by a non-cash charge of $12.0 million for stock-based compensation expense, a $4.6 million increase in accrued
72
liabilities primarily due to increases in activities by our company, a $3.6 million increase in long-term assets and a $0.9 million increase in
prepaids, both due to timing of certain upfront payments associated with our research agreements, and $1.0 million in non-cash depreciation
expense.
Net cash used in operating activities of $32.7 million for the year ended December 31, 2016, resulted primarily from our net loss
of $52.9 million, adjusted by $18.9 million for stock-based compensation expense, a $2.8 million increase in prepaids due to timing of certain
upfront payments associated with our research agreements, and a $3.4 million increase in accrued liabilities primarily due to increases in
activities by our company.
Net cash used in operating activities of $18.4 million for the year ended December 31, 2015, resulted primarily from our net loss
of $27.7 million, adjusted by $8.5 million for stock-based compensation expense.
Investing Activities
Net cash provided by investing activities of $58.7 million for the year ended December 31, 2017, consisted primarily of $59.7 million of
proceeds from the maturities of short-term investments, offset by $1.0 million used for the purchase of property and equipment.
Net cash provided by investing activities of $8.9 million for the year ended December 31, 2016, consisted primarily of $1.5 million used
for the purchase of property and equipment, and $110.2 million used for purchases of short-term investments, offset by $120.7 million of
proceeds from the maturities of short-term investments.
Net cash used in investing activities of $71.2 million for the year ended December 31, 2015, consisted primarily of $1.1 million used for
the purchase of property and equipment, and $140.7 million used for purchases of short-term investments, offset by $70.6 million of proceeds
from the maturities of short-term investments.
Financing Activities
Net cash provided by financing activities of $58.7 million for the year ended December 31, 2017, consisted primarily of net proceeds of
$53.7 million from the issuance of shares in a private offering at $6.50 per share after deducting expenses of the offering, $5.6 million from the
exercise of options, $0.7 million of proceeds exercise of warrants, offset by $1.3 million in connection with tax payments made by our
company in connection with vested restricted stock.
Net cash provided by financing activities of $96.9 million for the year ended December 31, 2016, consisted primarily of net proceeds of
$95.7 million from the issuance of shares in a private offering at $4.75 per share after deducting expenses of the offering, $1.2 million of
proceeds exercise of warrants, $0.6 million from the exercise of options offset by $0.6 million in connection with tax payments made by our
company in connection with vested restricted stock awards.
Net cash provided by financing activities of $78.3 million for the year ended December 31, 2015, consisted primarily of net proceeds of
$68.3 million from the issuance of shares in a private offering at $8.00 per share after deducting expenses of the offering, $9.7 million of
proceeds exercise of warrants and $0.3 million from the exercise of options.
Significant Accounting Policies and Recent Accounting Standards
See Note 2 of the financial statements for a discussion of our significant accounting policies, including the discussion of recently issued
and adopted accounting standards.
Contractual Obligations
We acquire assets still in development and enter into research and development arrangements with third parties that often require
milestone and royalty payments to the third-party contingent upon the occurrence of certain future events linked to the success of the asset in
development. Milestone payments may be required, contingent upon the successful achievement of an important point in the development life-
cycle of the pharmaceutical product (e.g., approval of the product for marketing by a regulatory agency). If required by the arrangement, we
may have to make royalty payments based upon a percentage of the sales of the pharmaceutical product in the event that regulatory approval
for marketing is obtained. Because of the contingent nature of these milestone payments, they are not included in the table of contractual
obligations.
These arrangements may be material individually, and in the event that milestones for multiple products covered by these arrangements
were reached in the same period, the aggregate charge to expense could be material to the results of operations in any one period. In addition,
73
these arrangements often give us the discretion to unilaterally terminate development of the product, which would allow us to avoid making the
contingent payments.
Our current non-cancelable contractual obligations as of December 31, 2017 that will require future cash payments are as follows (in
thousands):
Contractual Obligations
Operating lease obligations
Total
Total
$
$
2,387 $
2,387 $
Off-Balance Sheet Arrangements
2018
Payments due by period
2020
2019
2021
1,023 $
1,023 $
700 $
700 $
495 $
495 $
169 $
169 $
2022
Therafter
-
- $
-
- $
At December 31, 2017, we had no obligations that would require disclosure as off-balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our exposure to interest rate risk relates primarily to our investment portfolio. The fair market value of fixed rate securities may be
adversely impacted due to fluctuations in interest rates, while floating rate securities may produce less income than expected if interest rates
fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer
losses in principal if forced to sell securities which have declined in market value due to changes in interest rates. The primary objective of our
investment activities is to preserve principal while at the same time improving yields without significantly increasing risk. To achieve this
objective, our cash and cash equivalents are primarily held in cash deposits and money market funds. As of December 31, 2017, we did not
hold any short-term investments and we believe we do not have any material exposure to changes in the fair value of our investment portfolio
as a result of changes in interest rates. Assuming a hypothetical change in interest rates of one percentage point, change in the fair value of our
total investment portfolio as of December 31, 2017 would not have had a material effect on our results of operations or cash flows for that
period.
Inflation Risk
Inflation has not had a material effect on our business, financial condition or results of operations during the years ended
December 31, 2017, 2016 or 2015.
Item 8.
Financial Statements and Supplementary Data
Financial Statements are referred to in Item 15, listed in the Index to Financial Statements as a part of this Annual Report on Form 10-K,
and are incorporated herein by this reference.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures:
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange
Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s
rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the 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 the desired control objectives, and in reaching a reasonable level of assurance, management is required to
apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation, under the supervision and with
the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design
74
and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
(b) Management’s Annual Report on Internal Control Over Financial Reporting:
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial
reporting as of December 31, 2017 based on the framework in Internal Control—Integrated Framework 2013 issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal
control over financial reporting was effective as of December 31, 2017.
The independent registered public accounting firm, Marcum LLP, has issued an attestation report on our internal control over financial
reporting. The report on the audit of internal control over financial reporting is included in this Annual Report on Form 10-K.
(c) Changes in Internal Control Over Financial Reporting:
There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K because we will file a definitive Proxy
Statement for the Annual Meeting of Stockholders pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the Proxy Statement),
not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and the applicable information included in
the Proxy Statement is incorporated herein by reference.
Item 10.
Directors, Executive Officers, and Corporate Governance
Information required by this Item 10 will be presented in the Proxy Statement “Election of Directors,” “Management Executive
Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Board of Directors and Corporate Governance,” and is
incorporated herein by reference.
Item 11.
Executive Compensation
The information required by this Item is incorporated herein by reference to the sections entitled “Executive Compensation,” "Executive
Compensation—Compensation Discussion and Analysis" and “Directors’ Compensation” in the Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated herein by reference to the sections entitled “Security Ownership of Certain
Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Proxy Statement.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated herein by reference to the section entitled “Certain Relationships and Related
Transactions” in the Proxy Statement.
Item 14.
Principal Accountant’s Fees and Services
Information required by this Item is incorporated herein by reference to the section of the Proxy Statement entitled “Principal
Accountant Fees and Services.”
75
Item 15.
Exhibits, Financial Statements Schedules
PART IV
The Company’s financial statements and related notes thereto are listed and included in this Annual Report on Form 10-K beginning on
page F-1. The following exhibits are filed with, or are incorporated by reference into, this Annual Report on Form 10-K.
Item 16.
Form 10-K Summary
We may voluntarily include a summary of information required by Form 10-K under this Item 16. We have elected not to include such
summary information.
76
Exhibit
2.1
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
4.1
4.2
10.1
10.2
10.3
EXHIBIT INDEX
Description
Plan of Conversion (incorporated herein by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed with the
Commission on June 2, 2017).
Articles of Conversion (incorporated herein by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed with
the Commission on June 2, 2017).
Certificate of Conversion (incorporated herein by reference to Exhibit 3.2 of Registrant’s Current Report on Form 8-K filed
with the Commission on June 2, 2017).
Certificate of Incorporation of Registrant (incorporated herein by reference to Exhibit 3.3 of Registrant’s Current Report on
Form 8-K filed with the Commission on June 2, 2017).
Certificate of Designations of Rights, Preferences and Privileges of Series A Convertible Preferred Stock (incorporated herein
by reference to Exhibit 3.4 of Registrant’s Registration Statement on Form S-3 filed with the Commission on July 31, 2017).
Certificate of Designations of Rights, Preferences and Privileges of Series B Preferred Stock (incorporated herein by reference
to Exhibit 3.5 of Registrant’s Registration Statement on Form S-3 filed with the Commission on July 31, 2017).
Certificate of Amendment of Certificate of Incorporation of Registrant (incorporated herein by reference to Exhibit 3.1 of
Registrant’s Current Report on Form 8-K filed with the Commission on June 27, 2017).
Bylaws of Registrant (incorporated herein by reference to the Exhibit 3.4 to Registrant’s Current Report on Form 8-K filed with
the Commission on June 2, 2017).
Amendment to the Bylaws of Registrant (incorporated herein by reference to the Exhibit 3.2 to Registrant’s Current Report on
Form 8-K filed with the Commission on June 27, 2017).
Form of Warrant (incorporated herein by reference to Registrant’s Form 8-K filed with the Commission on October 31, 2013).
Specimen of Stock Certificate.
Genesis Biopharma, Inc. 2010 Equity Compensation Plan (incorporated herein by reference to the Registrant’s Annual Report
on Form 10-K filed with the Commission on March 31, 2010).
Form of Stock Option Agreement for grants under the Genesis Biopharma Inc. 2010 Equity Incentive Plan (incorporated herein
by reference to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 31, 2010).
Genesis Biopharma, Inc. 2011 Equity Compensation Plan (incorporated herein by reference to Registrant’s Form 8-K filed with
the Commission on October 20, 2011).
10.4
Form of ISO Stock Option Agreement for grants under the Genesis Biopharma Inc. 2011 Equity Incentive Plan (incorporated
10.5
10.6
10.7
10.8
10.9
herein by reference to Exhibit 10.4 of the Registrant’s Form 8-K filed with the Commission on October 20, 2011).
Form of NQSO Stock Option Agreement for grants under the Genesis Biopharma Inc. 2011 Equity Incentive Plan
(incorporated herein by reference to the Registrant’s Form 8-K filed with the Commission on October 20, 2011).
Lion Biotechnologies, Inc. 2014 Equity Incentive Plan, as amended (incorporated herein by reference to Appendix A to
Registrant’s definitive Proxy Statement on Schedule 14C filed with the Commission on July 7, 2016).
Form of ISO Stock Option Agreement under 2014 Equity Incentive Plan (incorporated herein by reference to the Registrant’s
Form S-8 filed with the Commission on June 18, 2015).
Form of NQSO Stock Option Agreement under 2014 Equity Incentive Plan (incorporated herein by reference to the
Registrant’s Form S-8 filed with the Commission on June 18, 2015).
Patent License Agreement between the Company and the National Institutes of Health effective October 5, 2011 (incorporated
herein by reference to the Registrant’s Form 8-K/A filed with the Commission on December 13, 2011).*
10.10
Cooperative Research and Development Agreement for Intramural-PHS Clinical Research, dated August 5, 2011, between the
10.11
10.12
10.13
10.14
10.15
U.S. Department of Health and Human Services, as represented by the National Cancer Institute and the Company.
(incorporated herein by reference to the Registrant’s Form 8-K/A (No.2) filed with the Commission on November 29, 2011).
Form of Director Stock Award Agreement (incorporated herein by reference to the Registrant’s Form 8-K filed with the
Commission on July 25, 2013).
Form of Registration Rights Agreement by and among Lion Biotechnologies, Inc. and the Investors thereunder (incorporated
herein by reference to the Registrant’s Form 8-K filed with the Commission on October 31, 2013).
Cooperative Research and Development Agreement for the Development and Evaluation of the NCI Proprietary Adoptive Cell
Transfer Immunotherapy Using Tumor Infiltrating Lymphocytes in Patients with Metastatic Melanoma, Bladder, Lung, Triple-
negative Breast, and HPV-associated Cancers, Utilizing Lion Biotechnologies, Inc.’s Business Development Expertise in
Adoptive Cell Transfer Immunotherapy, executed by Lion Biotechnologies, Inc. on January 22, 2015 (incorporated herein by
reference to the Registrant’s Form 8-K filed with the Commission on January 26, 2015).*
Patent License Agreement, dated February 9, 2015, by and between the Company and the National Institutes of Health.
(incorporated herein by reference to the Registrant’s Form 10-K filed with the Commission on March 16, 2015).*
Patent License Agreement, dated February 10, 2015, by and between the Company and the National Institutes of Health.
(incorporated herein by reference to the Registrant’s Form 10-K filed with the Commission on March 16, 2015).*
77
Exhibit
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
Description
First Amendment to Patent License Agreement-Exclusive, effective October 2, 2015, between the Company and the National
Institutes of Health (incorporated herein by reference to the Registrant’s Form 10-Q filed with the Commission on November 6,
2015).*
Form of Securities Purchase Agreement, dated June 2, 2016, among Lion Biotechnologies, Inc. and the Investors thereunder
(incorporated herein by reference to the Registrant’s Form 8-K filed with the Commission on June 3, 2016).
Form of Registration Rights Agreement, dated June 2, 2016, by and among Lion Biotechnologies, Inc. and the Investors
thereunder. (incorporated herein by reference to the Registrant’s Form 8-K filed with the Commission on June 3, 2016).
Severance Agreement and General Release, dated June 1, 2016, between Lion Biotechnologies, Inc. and Dr. Elma Hawkins
(incorporated herein by reference to the Registrant’s Form 8-K filed with the Commission on June 3, 2016).#
Board Adviser Agreement, dated June 1, 2016, between Lion Biotechnologies, Inc. and Dr. Elma Hawkins (incorporated herein
by reference to the Registrant’s Form 8-K filed with the Commission on June 3, 2016).#
Form of Retention Bonus Agreement (incorporated herein by reference to the Registrant’s Form 8-K filed with the Commission
on June 3, 2016).#
Office Lease between Lion Biotechnologies, Inc. and Hudson Skyway Landing, LLC (incorporated herein by reference to the
Registrant’s Form 8-K filed with the Commission on August 8, 2016).
Amendment #2 Cooperative Research and Development Agreement # 02734, dated August 18, 2016, between the National
Cancer Institute, and Registrant (incorporated herein by reference to the Registrant’s Form 10-Q filed with the Commission on
November 4, 2016).
10.24
Exclusive and Co-Exclusive License Agreement, dated September 14, 2016, between Lion Biotechnologies, Inc.
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
and PolyBioCept AB (incorporated herein by reference to the Registrant’s Form 10-Q filed with the Commission on November
4, 2016).*
Executive Employment Agreement, dated January 27, 2017, by and among Lion Biotechnologies, Inc. and Michael T. Lotze
(incorporated herein by reference to the Registrant’s Form 10-Q filed with the Commission on May 9, 2016).#
Amended and Restated Manufacturing Services Agreement, dated December 18, 2017, between WuXi AppTec, Inc. and
Iovance Biotherapeutics, Inc.*
2018 Corporate Goals and Cash Bonus Plan (incorporated herein by reference to the Registrant’s Form 8-K filed with the
Commission on February 12, 2018).
Strategic Alliance Agreement, between Lion Biotechnologies, Inc. and The University of Texas M.D. Anderson Cancer Center,
effective April 17, 2017 (incorporated herein by reference to the Registrant’s Form 10-Q filed with the Commission on August
3, 2017).*
Sublease Agreement, entered into as of April 28, 2017, between Lion Biotechnologies, Inc. and Teradata US, Inc. (incorporated
herein by reference to the Registrant's Current Report on Form 8-K filed with the Commission on May 1, 2017).
Executive Employment Agreement, effective August 14, 2017, between Timothy E. Morris and Iovance Biotherapeutics, Inc.
(incorporated herein by reference to the Registrant’s Form 10-Q filed with the Commission on November 2, 2017).#
Consulting Agreement, dated as of September 8, 2017, between Iovance Biotherapeutics, Inc. and Iain Dukes, D. Phil.
(incorporated herein by reference to the Registrant's Current Report on Form 8-K filed with the Commission on September 15,
2017).#
Executive Employment Agreement, effective September 30, 2016, between Frederick G. Vogt and Lion Biotechnologies, Inc.#
Executive Employment Agreement, dated January 22, 2016, between Lion Biotechnologies, Inc. and Steven A. Fischkoff
(incorporated herein by reference to the Registrant’s Form 10-Q filed with the Commission on May 9, 2016).#
10.34
First Amendment to the Strategic Alliance Agreement between Lion Biotechnologies, Inc., and The University of Texas M.D.
Anderson Cancer Center, effective August 2, 2017.
10.35
Second Amendment to the Strategic Alliance Agreement between Iovance Biotherapeutics, Inc., and The University of Texas
21.1
23.1
23.2
31.1
31.2
32.1
32.2
101
M.D. Anderson Cancer Center, effective February 16, 2018.
Subsidiaries of the Company (incorporated herein by reference to the Registrant’s Form 10-K filed with the Commission on
March 9, 2017).
Consent of Independent Registered Public Accounting Firm.
Consent of Independent Registered Public Accounting Firm.
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
Section 1350 Certification of Chief Executive Officer (furnished herewith).
Section 1350 Certification of Chief Financial Officer (furnished herewith).
The following financial information from the Annual Report on Form 10-K of Iovance Biotherapeutics, Inc. for the year ended
December 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (1) Balance Sheets as of December 31,
2017 and 2016; (2) Statements of Income for the years ended December 31, 2017 and 2016; (3) Statements of Shareholders’
Equity for the years ended December 31, 2017 and 2016; (4) Statements of Cash Flows for the years ended December 31, 2017
and 2016; and (5) Notes to Financial Statements.
78
* Certain portions of the Exhibit have been omitted based upon a request for confidential treatment filed by us with the Commission. The
omitted portions of the Exhibit have been separately filed by us with the Commission.
# Indicates a management contract or compensatory plan or arrangement.
79
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 12, 2018
IOVANCE BIOTHERAPEUTICS, INC.
By:
/s/ Maria Fardis
Name: Maria Fardis
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Maria Fardis
Maria Fardis
/s/ Timothy E. Morris
Timothy E. Morris
/s/ Merrill A. McPeak
Merrill A. McPeak
/s/ Sanford J. Hillsberg
Sanford J. Hillsberg
/s/ Ryan D. Maynard
Ryan D. Maynard
/s/ Iain Dukes
Iain Dukes
/s/ Wayne Rothbaum
Wayne Rothbaum
Chief Executive Officer (Principal
Executive Officer) and Director
March 12, 2018
Chief Financial Officer and Treasurer
(Principal Financial Officer and Accounting Officer)
March 12, 2018
Director
Director
Director
Director
Director
March 12, 2018
March 12, 2018
March 12, 2018
March 12, 2018
March 12, 2018
80
IOVANCE BIOTHERAPEUTICS, INC.
Index to Financial Statements
Contents
Reports of Independent Registered Public Accounting Firms
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
F-1
F-3
F-4
F-5
F-6
F-7
F-9
F-10
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee of the
Board of Directors and Shareholders of
Iovance Biotherapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Iovance Biotherapeutics, Inc. (the “Company”) as of December 31, 2017
and 2016, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two
years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the
results of its operations and its cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting
principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the
Company's internal control over financial reporting as of December 31, 2017, based on the criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated March
12, 2018, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's
financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits
included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for
our opinion.
/s/ Marcum LLP
We have served as the Company’s auditor since 2016.
Marcum LLP
New York, NY
March 12, 2018
F - 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Iovance Biotherapeutics (formerly Lion Biotechnologies, Inc.)
We have audited the accompanying consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows of Iovance
Biotherapeutics, Inc. (formerly Lion Biotechnologies, Inc.) for the year ended December 31, 2015. 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of
Iovance Biotherapeutics, Inc. (formerly Lion Biotechnologies, Inc.) for the year ended December 31, 2015, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Weinberg & Company, P.A.
Weinberg & Company, P.A.
Los Angeles, California
March 11, 2016
F - 2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Audit Committee of the
Board of Directors and Shareholders
of Iovance Biotherapeutics, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Iovance Biotherapeutics, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2017, based on
criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets as of December 31, 2017 and 2016 and the related consolidated statements of operations, comprehensive loss,
stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2017 and the related notes of the Company,
and our report dated March 12, 2018, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying “Management’s Annual Report on Internal Control
over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our
audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
/s/ Marcum LLP
Marcum LLP
New York, NY
March 12, 2018
F - 3
IOVANCE BIOTHERAPEUTICS, INC.
Consolidated Balance Sheets
(In thousands, except share and per share information)
ASSETS
Current Assets
Cash and cash equivalents
Short-term investments
Prepaid expenses and other current assets
Total Current Assets
Property and equipment, net
Long-term assets
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable
Accrued expenses
Total Current Liabilities
Commitments and contingencies (Note 11)
December 31, December 31,
2017
2016
$
$
$
145,373 $
-
3,917
149,290
2,450
3,633
155,373 $
106,717
59,753
3,042
169,512
2,374
-
171,886
1,232 $
8,660
9,892
863
4,105
4,968
Stockholders’ Equity
Series A Convertible Preferred stock, $0.001 par value; 17,000 shares authorized, 1,694 shares issued and
outstanding, as of December 31, 2017 and December 31, 2016, respectively (aggregate liquidation value
of $1,694)
Series B Convertible Preferred stock, $0.001 par value; 11,500,000 shares authorized, 7,378,241 and
7,946,673 shares issued and outstanding as of December 31, 2017 and December 31, 2016, respectively
(aggregate liquidation value of $35,047)
Common stock, $0.000041666 par value; 150,000,000 shares authorized, 73,164,914 and 62,248,074
shares issued and outstanding as of December 31, 2017 and December 31, 2016, respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
$
-
7
-
8
3
394,651
-
(249,180 )
145,481
155,373 $
3
323,994
29
(157,116 )
166,918
171,886
The accompanying notes are an integral part of these consolidated financial statements.
F - 4
IOVANCE BIOTHERAPEUTICS, INC.
Consolidated Statements of Operations
(In thousands, except per share information)
Revenues
Costs and expenses
Research and development
General and administrative
Total costs and expenses
Loss from operations
Other income
Interest income
Net Loss
Deemed dividend related to beneficial conversion feature of convertible preferred
stock
Net Loss Attributable to Common Stockholders
Net Loss Per Common Share, Basic and Diluted
Years ended December 31,
2016
2015
2017
$
- $
- $
-
71,615
21,262
92,877
26,941
26,698
53,639
15,470
12,390
27,860
(92,877 )
(53,639 )
(27,860 )
$
$
813
(92,064 ) $
745
(52,894 ) $
-
(92,064 )
(1.41 ) $
(49,454 )
(102,348 )
(1.85 ) $
200
(27,660 )
-
(27,660 )
(0.62 )
Weighted-Average Common Shares Outstanding, Basic and Diluted
65,242
55,268
44,410
The accompanying notes are an integral part of these consolidated financial statements.
F - 5
IOVANCE BIOTHERAPEUTICS, INC.
Consolidated Statements of Comprehensive Loss
(in thousands)
Net Loss
Other comprehensive income:
Unrealized (loss) gain on short-term investments
Comprehensive Loss
Years ended December 31,
2016
2015
2017
$
(92,064 ) $
(52,894 ) $
(27,660 )
$
(29 )
(92,093 ) $
(19 )
(52,913 ) $
48
(27,612 )
The accompanying notes are an integral part of these consolidated financial statements.
F - 6
IOVANCE BIOTHERAPEUTICS, INC.
Consolidated Statements of Stockholders' Equity
(In thousands, except share information)
Series A Convertible Series B Convertible
Preferred Stock
Shares Amount Shares
Preferred Stock
Common Stock
Additional Accumulated other
Paid-In Comprehensive Accumulated Stockholders'
Total
Amount Shares
Amount Capital
Income
Deficit
Equity
Balance - January 1, 2015
5,694 $
-
- $
- 33,750,188 $
2 $ 121,405 $
- $
(76,562 ) $
44,845
Stock-based compensation
expense
Common stock issued upon
exercise of warrants
Common stock issued upon
exercise of stock options
Conversion of convertible
preferred stock into common
stock
(4,000 )
Common stock issued for
services
Common stock sold in public
offering, net of offering costs
Cancellation of restricted shares
Unrealized gain on short- term
investments
Net loss
6,752
3,880,210
9,705
42,387
255
2,000,000
15,000
1,771
9,200,000
68,307
(340,065 )
-
6,752
9,705
255
-
1,771
68,307
-
48
(27,660 )
(27,660 )
48
Balance - December 31, 2015
1,694
-
-
- 48,547,720
2 208,195
48
(104,222 )
104,023
Stock-based compensation
expense
Tax payments related to shares
witheld for vested restricted
stock awards
Common stock issued upon
exercise of warrants
Common stock issued upon
exercise of stock options
Common stock sold in private
placement, net of offering costs
Preferred stock sold in private
placement, net of offering costs
Conversion of convertible
preferred stock into common
stock
Cancellation of restricted
shares, net
Beneficial conversion feature of
preferred stock
Deemed dividend on beneficial
conversion feature of preferred
stock
Unrealized loss on short- term
18,904
(642 )
592,132
-
1,235
100,480
626
9,684,000
1
44,008
11,368,633
11
51,665
(3,421,960 )
(3 ) 3,421,960
3
(98,218 )
-
(49,454 )
49,454
(19 )
F - 7
18,904
(642 )
1,235
626
44,009
51,676
-
-
(49,454 )
49,454
(19 )
Series A Convertible Series B Convertible
Preferred Stock
Shares Amount Shares
Preferred Stock
Amount Shares
Common Stock
Additional Accumulated other
Paid-In Comprehensive Accumulated Stockholders'
Total
Amount Capital
Income
Deficit
Equity
(52,894 )
(52,894 )
investments
Net loss
Balance - December 31, 2016
1,694
- 7,946,673
8 62,248,074
3 323,994
29
(157,116 )
166,918
Stock-based compensation
expense
Tax payments related to shares
witheld for vested restricted
stock awards
Common stock issued upon
exercise of warrants
Common stock issued upon
exercise of stock options
Conversion of convertible
preferred stock into common
stock
Common stock sold in public
offering, net of offering costs
Vesting of restricted shares
issued for services
Unrealized loss on short- term
investments
Net loss
11,968
-
(1,252 )
265,000
-
662
1,011,284
-
5,616
(568,432 )
(1 )
568,432
1
8,846,154
-
53,662
225,970
-
0
(29 )
11,968
(1,252 )
662
5,616
-
53,662
-
(29 )
(92,064 )
(92,064 )
Balance - December 31, 2017
1,694 $
- 7,378,241 $
7 73,164,914 $
3 $ 394,651 $
- $
(249,180 ) $
145,481
The accompanying notes are an integral part of these consolidated financial statements.
F - 8
IOVANCE BIOTHERAPEUTICS, INC.
Consolidated Statements of Cash Flows
(In thousands)
Cash Flows From Operating Activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Amortization of discount (premium) on investments
Stock-based compensation expense
Changes in assets and liabilities:
Prepaid expenses and other assets
Accounts payable
Accrued expenses
Other assets
Net cash used in operating activities
Cash Flows From Investing Activities
Purchase of short- term investments
Maturities of short- term investments
Purchase of property and equipment
Net cash provided by (used in) investing activities
Cash Flows From Financing Activities
Tax payments related to shares withheld for vested restricted stock
Proceeds from the issuance of common stock upon exercise of warrants
Proceeds from the issuance of common stock upon exercise of options
Proceeds from the issuance of preferred stock and common stock, net
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and Cash Equivalents, Beginning of Period
Cash and Cash Equivalents, End of Period
Supplemental Disclosures of Cash Flow Information:
Cash paid for income taxes
Interest paid
Supplemental disclosure of non-cash investing and financing activities:
Unrealized (loss) gain on short-term investments
Acquisitions of property and equipment under accounts payable
Deemed dividend related to a beneficial conversion feature
Conversion of convertible preferred stock to common stock
$
$
$
Years Ended December 31,
2016
2015
2017
$
(92,064 ) $
(52,894 ) $
(27,660 )
952
19
11,968
(875 )
369
4,555
(3,633 )
(78,709 )
978
(74 )
18,904
(2,765 )
(250 )
3,433
-
(32,668 )
999
0
8,523
(211 )
(290 )
258
-
(18,381 )
-
59,705
(1,028 )
58,677
(110,249 )
120,664
(1,521 )
8,894
(140,665 )
70,600
(1,143 )
(71,208 )
(1,252 )
662
5,616
53,662
58,688
38,656
106,717
145,373 $
- $
-
(29 ) $
-
-
1
(642 )
1,235
626
95,685
96,904
73,130
33,587
106,717 $
- $
-
(19 ) $
155
49,454
3
0
9,705
255
68,307
78,267
(11,322 )
44,909
33,587
-
-
48
-
-
-
The accompanying notes are an integral part of these consolidated financial statements.
F - 9
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL ORGANIZATION, BUSINESS AND LIQUIDITY
General Organization and Business
Iovance Biotherapeutics, Inc. (the “Company”) is a biopharmaceutical company focused on the development and commercialization of novel
cancer immunotherapy products designed to harness the power of a patient’s own immune system to eradicate cancer cells. The Company’s
lead program is an adoptive cell therapy (“ACT”) utilizing tumor-infiltrating lymphocytes (“TIL”), which are T cells derived from patients’
tumors, for the treatment of metastatic melanoma. The TIL are extracted from the tumor tissue, expanded in the Company’s manufacturing
suites and then infused back into the patient to fight their cancer. On June 1, 2017, the Company reincorporated from Nevada to Delaware. On
June 27, 2017, the Company changed its corporate name from Lion Biotechnologies, Inc. to Iovance Biotherapeutics, Inc.
Liquidity
The Company is currently engaged in the development of therapeutics to fight cancer, specifically solid tumors. The Company does not have
any commercial products and has not yet generated any revenues from its business. The Company currently does not anticipate that it will
generate any revenues during the 12 months from the date these financial statements are issued, from the sale or licensing of any of its product
candidates. The Company has incurred a net loss of $92.1 million for the year ended December 31, 2017 and used $78.7 million of cash in its
operating activities during the year ended December 31, 2017. As of December 31, 2017, the Company had $145.4 million of cash and cash
equivalents. In January 2018, the Company announced the closing of its underwritten public offering of 15,000,000 shares of the Company’s
common stock at a public offering price of $11.50 per share, before underwriting discounts, which included 1,956,521 shares issued upon the
exercise in full by the underwriter of its option to purchase additional shares at the public offering price less the underwriting discount. The
gross proceeds from the offering, before deducting the underwriting discounts and commissions and other estimated offering expenses payable
by the Company, are $172.5 million, with estimated net proceeds to the Company of approximately $161.7 million.
The Company expects to further increase its research and development activities, which will increase the amount of cash used during 2018 and
beyond. Specifically, the Company expects continued spending on clinical trials, continued and expansion of manufacturing activities, higher
payroll expenses as the Company increases its professional and scientific staff and research and development activities. Based on the funds the
Company has available as of the date these financial statements are issued, which includes the net proceeds of approximately $161.7 million
raised in connection with the Company’s January 2018 public offering, the Company believes that it has sufficient capital to fund its
anticipated operating expenses for at least 24 months from the date these financial statements are issued.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
Cash and Cash Equivalents
All highly liquid investments with an original maturity date of three months or less when purchased that are readily convertible into cash and
have an insignificant interest rate risk are considered to be cash equivalents.
Short-term Investments
The Company's short-term investments are classified as “available-for-sale”. The Company includes these investments in current assets and
carries them at fair value. Unrealized gains and losses on available-for-sale securities are included in accumulated other comprehensive income
(loss). The amortized cost of debt securities is adjusted for the amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Gains and losses on securities sold are recorded based on the specific identification method and are
included in interest income in the statement of operations. The Company has not incurred any realized gains or losses from sales of securities to
date.
Management assesses whether declines in the fair value of short-term investments are other than temporary. If the decline is judged to be other
than temporary, the cost basis of the individual security is written down to fair value and the amount of the write down is included in the
statement of operations within other expense, net. In determining whether a decline is other than temporary, management considers various
factors including the length of time and the extent to which the market value has been less than cost, the financial condition and near-term
prospects of the issuer and the Company's intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in market value. To date, the Company has not recorded any impairment charges on short-term investments related to
other-than-temporary declines in market value.
F - 10
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2017, the Company did not have any short-term investments. At December 31, 2016, the Company’s short-term investments
were invested in short-term fixed income debt securities and notes of domestic and foreign high credit issuers and in money market funds. The
Company’s investment policy limits investments to certain types of instruments such as certificates of deposit, money market instruments,
obligations issued by the U.S. government and U.S. government agencies as well as corporate debt securities, and places restrictions on
maturities and concentration by type and issuer.
Property and Equipment, net
Property and equipment is stated at cost, net of accumulated depreciation and amortization. The cost of property and equipment is depreciated
or amortized on the straight-line method over the following estimated useful lives:
Computer equipment
Office furniture and equipment
Lab equipment
Leasehold improvements
2 years
5 years
2-5 years
Lesser of the remaining life of the asset or the lease-term
Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized. Gains and
losses on disposals are included within operating expenses in the statements of operations.
Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. If there is indication of impairment, management prepares an estimate of future cash flows expected to result
from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is
recognized to write down the asset to its estimated fair value. For the years ended December 31, 2017, 2016 and 2015, the Company did not
recognize any impairments for its property and equipment.
Fair value of financial instruments
Cash and cash equivalents and short-term investments are carried at fair value. As of December 31, 2017 and 2016, the Company had no
liabilities measured at fair value.
Loss per Share
Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per
share is computed using the weighted average number of shares of common stock outstanding during the period increased to include the
number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued.
At December 31, 2017, 2016 and 2015, the following outstanding common stock equivalents have been excluded from the calculation of net
loss per share because their impact would be anti-dilutive.
2017
2015
As of December 31,
2016
6,072,368 6,233,150 2,693,237
6,301,216 6,566,216 7,202,216
847,000
-
321,252
-
20,713,407 22,150,123 11,063,705
847,000
7,378,241 7,946,673
7,084
-
550,000
114,582
847,000
Stock options
Warrants
Series A Convertible Preferred*
Series B Convertible Preferred*
Restricted stock awards
Restricted stock units
* on an as-converted basis
F - 11
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements
Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and
Disclosures, fair value is defined as the price at which an asset could be exchanged, or a liability transferred in a transaction between
knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on
observable market prices or parameters or derived from such prices or parameters. Where observable prices or parameters are not available,
valuation models are applied.
Assets and liabilities recorded at fair value in the Company’s financial statements are categorized based upon the level of judgment associated
with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to
fair valuation of these assets and liabilities, are as follows:
Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets at the reporting date. Active markets are those in which
transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2—Are inputs, other than quoted prices included in Level 1, that are either directly or indirectly observable for the asset or liability
through correlation with market data at the reporting date and for the duration of the instrument’s anticipated life.
The fair valued assets the Company holds that are generally assessed under Level 2 are corporate bonds and commercial paper. The Company
utilizes third party pricing services in developing fair value measurements where fair value is based on valuation methodologies such as models
using observable market inputs, including benchmark yields, reported trades, broker/dealer quotes, bids, offers and other reference data. The
Company uses quotes from external pricing service providers and other on-line quotation systems to verify the fair value of investments
provided by its third-party pricing service providers. The Company reviews independent auditor’s reports from its third-party pricing service
providers particularly regarding the controls over pricing and valuation of financial instruments and ensure that its internal controls address
certain control deficiencies, if any, and complementary user entity controls are in place.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities and which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the reporting
date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
The Company does not have fair valued assets classified under Level 3.
As of December 31, 2017, the Company had no financial assets measured at fair value on a recurring basis.
As of December 31, 2016, financial assets measured at fair value on a recurring basis are categorized in the table below based upon the lowest
level of significant input to the valuations (in thousands):
Commercial paper
Corporate debt securities
US Government agency securities
Total
Use of Estimates
Assets at Fair Value as of December 31, 2016
Level 1
Level 2
Level 3
Total
$
$
- $
-
-
- $
29,178 $
26,578
3,997
59,753 $
- $
-
-
- $
29,178
26,578
3,997
59,753
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”)
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates include valuation of short-term investments, the useful lives of property
and equipment, accounting for potential liabilities, the valuation allowance associated with the Company’s deferred tax assets, and the
assumptions made in valuing stock instruments issued for services.
F - 12
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Iovance Biotherapeutics, Inc. and its wholly-owned subsidiary,
Iovance Biotherapeutics GmbH (formerly Lion Biotechnologies GmbH). All intercompany accounts and transactions have been eliminated.
The U.S. dollar is the functional currency for all the Company's consolidated operations.
Stock-Based Compensation
The Company periodically grants stock options and warrants to employees and non-employees in non-capital raising transactions as
compensation for services rendered. The Company accounts for stock option grants to employees based on the authoritative guidance provided
by the FASB where the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for
stock option grants to non-employees in accordance with the authoritative guidance of the FASB where the value of the stock compensation is
determined based upon the measurement date at either a) the date at which a performance commitment is reached, or b) at the date at which the
necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized
over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-
employee, option grants are immediately vested, and the total stock-based compensation charge is recorded in the period of the measurement
date.
The fair value of the Company's common stock option grants is estimated using a Black-Scholes option pricing model, which uses certain
assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends.
Compensation expense is recorded based upon the value derived from the Black-Scholes option pricing model, and based on actual experience.
The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.
During the years ended December 31, 2016 and 2015, the Company estimated forfeitures at the time of grant and revised those estimates in
subsequent periods if actual forfeitures differed from those estimates. Effective January 1, 2017, the Company adopted ASU 2016-09 and
elected to recognize forfeitures when they occur using a modified retrospective approach, which did not have a material impact on its
consolidated financial statements.
The Company has in the past issued restricted shares of its common stock for share-based compensation programs. The Company measures the
compensation cost with respect to restricted shares issued to employees based upon the estimated fair value of the equity instruments at the date
of the grant, which is recognized as an expense over the period during which an employee is required to provide services in exchange for the
award.
The fair value of restricted stock units is based on the closing price of the Company’s common stock on the grant date.
Total stock-based compensation expense related to all of the Company’s stock-based awards was recorded on the statements of operations as
follows (in thousands):
Research and development
General and administrative
Total stock-based compensation expense
$
$
5,270 $
6,698
11,968 $
3,267 $
15,637
18,904 $
2,248
6,275
8,523
Total stock-based compensation broken down based on each individual instrument was as follows (in thousands):
Years Ended December 31,
2016
2017
2015
Years Ended December 31,
2016
2017
2015
Stock option expense
Restricted stock award expense
Restricted stock unit expense
Total stock-based compensation expense
$
$
10,862 $
34
1,072
11,968 $
16,453 $
989
1,462
18,904 $
6,752
1,771
-
8,523
F - 13
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Research and Development Expenses
Research and development expenses include personnel and facility-related expenses, outside contracted services including clinical trial costs,
manufacturing and process development costs, research costs and other consulting services. Research and development costs are expensed as
incurred. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities
are deferred and amortized over the period that the goods are delivered, or the related services are performed, subject to an assessment of
recoverability.
Clinical development costs are a significant component of research and development expenses. The Company has a history of contracting with
third parties that perform various clinical trial activities on its behalf in connection with the ongoing development of its product candidates. The
financial terms of these contracts are subject to negotiations and may vary from contract to contract and may result in uneven payment flow.
The Company accrues and expenses costs for clinical trial activities performed by third parties based upon estimates of the percentage of work
completed over the life of the individual study in accordance with agreements established with contract research organizations and clinical trial
sites. The Company determines its estimates through discussions with internal clinical personnel and outside service providers as to the
progress or stage of completion of trials or services and the agreed upon fee to be paid for such services.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in
executive, finance, accounting, legal, investor relations, facilities, business development and human resources functions. Other significant costs
include facility costs not otherwise included in research and development expenses, sublicense royalty expenses, legal fees relating to corporate
matters, insurance, public company expenses relating to maintaining compliance with Nasdaq listing rules and Securities and Exchange
Commission (“SEC”) requirements, insurance and investor relations costs, and fees for accounting and consulting services. General and
administrative costs are expensed as incurred, and the Company accrues for services provided by third parties related to the above expenses by
monitoring the status of services provided and receiving estimates from its service providers, and adjusting its accruals as actual costs become
known.
Income taxes
The Company accounts for income taxes using the asset and liability method whereby deferred tax assets are recognized for deductible
temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes
a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. ASC Topic 740-10-40 provides guidance on de-recognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. The Company will classify as income tax expense any interest and penalties. The Company has no
material uncertain tax positions for any of the reporting periods presented.
Concentrations
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents.
The Company maintains cash balances at two financial institutions. At times, the amounts on deposit exceed the federally insured limits.
Management believes that the financial institutions which hold the Company’s cash are financially sound and, accordingly, minimal credit risk
exists. As of December 31, 2017 and 2016, respectively, the Company’s cash balances were in excess of insured limits maintained at the
financial institutions.
F - 14
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Preferred Stock
The Company applies the accounting standards for distinguishing liabilities from equity 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.
Convertible Instruments
The Company applies the accounting standards for derivatives and hedging and for distinguishing liabilities from equity when accounting for
hybrid contracts that feature conversion options. The accounting standards require companies to bifurcate conversion options from their host
instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include
circumstances in which (i) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to
the economic characteristics and risks of the host contract, (ii) the hybrid instrument that embodies both the embedded derivative instrument
and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair
value reported in earnings as they occur and (iii) a separate instrument with the same terms as the embedded derivative instrument would be
considered a derivative instrument. The derivative is subsequently marked to market at each reporting date based on current fair value, with the
changes in fair value reported in results of operations.
Conversion options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of
equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation
from the host instrument.
The Company also records, when necessary, deemed dividends for the intrinsic value of the conversion options embedded in preferred stock
based upon the difference between the fair value of the underlying common stock at the commitment date of the transaction and the effective
conversion price embedded in the preferred stock.
Recent Accounting Standards
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting. This ASU identifies areas for simplification involving several aspects of accounting for share-based payment
transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock
compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This
ASU will be effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. The Company
adopted this ASU in the beginning of fiscal year 2017 Upon adoption, the Company elected to recognize forfeitures when they occur using a
modified retrospective approach, which did not have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which establishes a new lease accounting model for lessees. The
updated guidance requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with
additional qualitative and quantitative disclosures. The amended guidance is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2018, with early adoption permitted. The Company has not yet selected a transition date and is currently
evaluating the impact of the adoption of this standard on its consolidated financial statements.
Segment reporting
The Company operates in one segment, focused on developing and commercializing ACT using autologous TIL for the treatment of metastatic
melanoma and other solid cancers.
Subsequent Events
Management evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the
review, management did not identify any recognized or non-recognized subsequent events which would have required an adjustment or
disclosure in the financial statements, except as described in Note 15.
F - 15
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reclassifications
Certain amounts within the balance sheets and statements of operations and stockholders’ equity for the prior periods have been reclassified to
conform with the current period presentation. These reclassifications had no impact on the Company's previously reported financial position or
cash flows for any of the periods presented.
NOTE 3. CASH AND CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
Cash and cash equivalents, and short-term investments consist of the following (in thousands):
Cash - Demand deposits
Cash equivalents - Money market funds
Cash and cash equivalents total
Commercial paper
Corporate debt securities
US Government agency securities
Short-term investments total
December 31, December 31,
2017
2016
$
$
54,092 $
91,281
145,373 $
76,071
30,646
106,717
December 31, December 31,
2017
2016
$
$
- $
-
-
- $
29,178
26,578
3,997
59,753
Money market funds and short-term investments include the following securities with gross unrealized gains and losses (in thousands):
As of December 31, 2017
Money market funds
As of December 31, 2016
Money market funds
Commercial paper
Corporate debt securities
US Government agency securities
Total
Gross
Gross
Unrealized Unrealized
Cost
Gains
Losses
$
91,281 $
- $
Fair Value
91,281
- $
Gross
Gross
Unrealized Unrealized
Cost
Gains
$
$
30,646 $
29,118
26,606
4,000
90,370 $
Losses
Fair Value
30,646
- $
29,178
-
26,578
(29 )
3,997
(3 )
90,399
(32 ) $
- $
60
1
-
61 $
Unrealized gains and losses are included in accumulated other comprehensive income.
F - 16
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. BALANCE SHEET COMPONENTS
Property and equipment, net consists of the following (in thousands):
Lab equipment
Leasehold improvements
Computer equipment
Office furniture and equipment
Construction in progress
Total Property and equipment, cost
Less: Accumulated depreciation and amortization
Property and equipment, net
December 31, December 31,
2017
2016
$
$
3,207 $
1,726
349
188
13
5,483
(3,033 )
2,450 $
2,405
1,381
245
148
276
4,455
(2,081 )
2,374
Depreciation expense for the years ended December 31, 2017, 2016 and 2015 was $1.0 million, $1.0 million and $1.0 million, respectively.
Accrued liabilities consist of the following (in thousands):
Accrued payroll and employee related expenses
Legal and related services
Clinical related
Manufacturing related
Deferred rent
Accrued other
December 31, December 31,
2017
2016
$
$
2,613 $
935
3,310
876
430
496
8,660 $
1,581
927
614
437
422
124
4,105
F - 17
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. STOCKHOLDERS’ EQUITY
Preferred stock
The Company’s certificate of incorporation authorizes the issuance of up to 50,000,000 shares of “blank check” preferred stock. At December
31, 2017, 17,000 shares were designated as Series A Convertible Preferred Stock (“Series A Preferred Stock”) and 11,500,000 shares were
designated as Series B Preferred Stock (“Series B Preferred Stock”).
Series A Convertible Preferred Stock
A total of 17,000 shares of Series A Preferred Stock have been authorized for issuance under the Company’s Certificate of Designation of
Preferences and Rights of Series A Convertible Preferred Stock. The shares of Series A Preferred Stock have a stated value of $1,000 per share
and are initially convertible into shares of common stock at a price of $2.00 per share, subject to adjustment.
The Series A Preferred Stock may, at the option of each investor, be converted into fully paid and non-assessable shares of the Company’s
common stock. The holders of shares of Series A Preferred Stock do not have the right to vote on matters that come before the Company’s
stockholders. In the event of any dissolution or winding up of the Company, proceeds shall be paid pari passu among the holders of the
Company’s common stock and preferred stock, pro rata based on the number of shares held by each holder. The Company may not declare, pay
or set aside any dividends on shares of capital stock of the Company (other than dividends on shares of common stock payable in shares of
common stock) unless the holders of the Series A Preferred Stock shall first receive an equal dividend on each outstanding share of Series A
Preferred Stock.
During the year ended December 31, 2017, no shares of Series A Preferred Stock were converted into shares of common stock. During the
years ended December 31, 2016 and 2015, 4,000 and 11,306 shares, respectively, of Series A Preferred Stock were converted into 2,000,000
and 5,653,000 shares of common stock, respectively. The common shares issued were determined on a formula basis of 500 common shares for
each share of Series A Preferred Stock converted.
Series B Preferred Stock
A total of 11,500,000 shares of Series B Preferred Stock are authorized for issuance under the Company’s Series B Certificate of Designation
of Rights, Preferences and Privileges of Series B Preferred Stock. The shares of Series B Preferred Stock have a stated value of $4.75 per share
and are convertible into shares of the Company’s common stock at an initial conversion price of $4.75 per share.
Holders of Series B Preferred Stock are entitled to dividends on an as-if-converted basis in the same form as any dividends actually paid on
shares of the Series A Preferred Stock or the Company’s common stock. So long as any Series B Preferred Stock remains outstanding, the
Company may not redeem, purchase or otherwise acquire any material amount of the Series A Preferred Stock or any securities junior to the
Series B Preferred Stock.
During the year ended December 31, 2017 568,432 shares of Series B Preferred Stock were converted into 568,432 shares of common stock,
and during the year ended December 31, 2016, 3,421,960 shares of Series B Preferred Stock were converted into 3,421,960 shares of common
stock. 7,378,241 shares of Series B Preferred Stock remained outstanding at December 31, 2017.
2016 Private Placement
On June 2, 2016, the Company entered into a securities purchase agreement with various institutional and individual accredited investors to
raise gross proceeds of $100 million in a private placement (the “2016 Private Placement”). On June 7, 2016, the Company completed the 2016
Private Placement. In the 2016 Private Placement, the Company issued (i) 9,684,000 shares of its common stock and (ii) 11,368,633 shares of
its newly created Series B Preferred Stock. The shares of common stock and Series B Preferred Stock were sold for $4.75 per share. The shares
of Series B Preferred initially were not convertible into common stock and, except as required by law, are non-voting. On July 7, 2016, the
Company filed a proxy statement with the SEC with respect to a stockholders meeting that was held on August 16, 2016 at which the
stockholders were asked to vote on a proposal to permit the Series B Preferred Stock to become convertible into shares of the Company’s
common stock and to permit the issuance of shares of common stock upon such conversion. The requisite stockholder approval was obtained
and, as a result, on August 16, 2016 the Series B Preferred Stock became convertible into shares of common stock at an initial conversion price
of $4.75 per share.
F - 18
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has also evaluated its convertible preferred stock in accordance with the provisions of ASC 815, Derivatives and Hedging,
including consideration of embedded derivatives requiring bifurcation. The issuance of the convertible preferred stock could generate a
beneficial conversion feature (“BCF”), which arises when a debt or equity security is issued with an embedded conversion option that is
beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market
price of the underlying stock at the commitment date. The Company recognized the BCF by allocating the intrinsic value of the conversion
option, which is the number of shares of common stock available upon conversion multiplied by the difference between the effective
conversion price per share and the fair value of common stock per share on the commitment date, to additional paid-in capital, resulting in a
discount on the convertible preferred stock. As the convertible preferred stock may be converted immediately, the Company recognized a BCF
of $49.5 million as a deemed dividend in the statements of operations. This one-time, non-cash charge impacted net loss attributable to
common stockholders and loss per share for the year ended December 31, 2016.
The Company received net proceeds of approximately $95.7 million from the 2016 Private Placement, after paying placement agent fees and
estimated offering expenses.
Public Offering
On September 25, 2017, the Company sold 8,846,154 shares of its common stock in an underwritten public offering at $6.50 per share for net
proceeds of $53.7 million after deducting underwriting discounts and expenses of the offering.
Warrants
A summary of the status of stock warrants at December 31, 2017, and the changes during the three years then ended, is presented in the
following table:
Shares
Under
Warrants
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
(in thousands)
Outstanding at January 1, 2015
Issued
Exercised
Expired/Cancelled
Outstanding at December 31, 2015
Issued
Exercised
Expired/Cancelled
Outstanding at December 31, 2016
Issued
Exercised
Expired/Cancelled
Outstanding at December 31, 2017
11,084,426 $
-
(3,882,210 )
-
7,202,216 $
-
(592,132 )
(43,868 )
6,566,216 $
-
(265,000 )
-
6,301,216 $
2.51
-
2.50
-
2.51
-
2.50
2.50
2.51
-
2.50
-
2.51
0.8 years $
34,651
F - 19
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. STOCK BASED COMPENSATION
Stock Plans
As of October 14, 2011, the Company adopted the 2011 Equity Incentive Plan (the “2011 Plan”). Employees, directors, consultants and
advisors of the Company are eligible to participate in the 2011 Plan. The 2011 Plan initially had 180,000 shares of common stock reserved for
issuance in the form of incentive stock options, non-qualified options, common stock, and grant appreciation rights. The 2011 Plan was not
approved by the Company’s stockholders within the required one-year period following its adoption and, accordingly, no incentive stock
options can be granted under that plan. In August 2013, the Company’s Board of Directors and a majority of the Company’s stockholders
approved an amendment to increase the number of shares available under the 2011 Plan from 180,000 shares to 1,700,000 shares, and an
amendment to increase the number options or other awards that can be granted to any one person during a twelve (12) month period from
50,000 shares to 300,000 shares. The foregoing amendment to the 2011 Plan became effective in September 2013. On August 20, 2014, the
Company’s Board of Directors amended the 2011 Plan to increase the number of shares available for issuance upon the exercise of stock
options under the 2011 Plan from 1,700,000 to 1,900,000 shares, effective immediately. As of December 31, 2017, 725,267 shares were
available for future grant under the 2011 Plan.
On September 19, 2014, the Company’s Board of Directors (the “Board”) adopted the Iovance Biotherapeutics, Inc. 2014 Equity Incentive Plan
(the “2014 Plan”). The 2014 Plan was approved by the Company’s stockholders at the Company’s 2014 Annual Meeting of Stockholders held
in November 2014. The 2014 Plan, as approved by the stockholders, authorized the issuance up to an aggregate of 2,350,000 shares of the
Company’s common stock. On April 10, 2015, the Board amended the 2014 Plan to increase the total number of shares that can be issued
under the 2014 Plan to 4,000,000 shares of the Company’s common stock. The increase in shares available for issuance under the 2014 Plan
was approved by the Company’s stockholders at the Company’s 2015 Annual Meeting of Stockholders in June 2015.
On August 16, 2016, the Company’s stockholders approved an increase in the total number of shares that can be issued under the 2014 Plan to
9,000,000 shares of the Company’s common stock. At December 31, 2017, 2,516,992 shares were available for grant under the Company’s
2014 Plan.
Restricted Stock Units
On June 1, 2016, the Company entered into a restricted stock unit agreement with the Company’s new Chief Executive Officer, Maria Fardis,
Ph.D., pursuant to which the Company granted Dr. Fardis 550,000 non-transferrable restricted stock units at fair market value of $5.87 per
share as an inducement of employment pursuant to the exception to The Nasdaq Global Market rules that generally require stockholder
approval of equity incentive plans. The 550,000 restricted stock units vest in installments as follows: (i) 137,500 restricted stock units vested
upon the first anniversary of the effective date of Dr. Fardis’ employment agreement; (ii) 275,000 restricted stock units vest upon the
satisfaction of certain clinical trial milestones; and (iii) 137,500 restricted stock units vest in equal monthly installments over the 36-month
period following the first anniversary of the effective date of Dr. Fardis’ employment, provided that Dr. Fardis has been continuously employed
with the Company as of such vesting dates.
Stock-based compensation expense for restricted stock units (“RSUs”) is measured based on the closing fair market value of the Company's
common stock on the date of grant. As of December 31, 2017, $0.7 million of total unrecognized compensation costs related to non-vested
RSUs are scheduled to be recognized over a weighted average period of 2.5 years.
During the years ended December 31, 2017 and 2016, the Company recognized $1.1 million and $1.5 million, respectively, in stock-based
compensation expense related to RSUs.
F - 20
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Options
A summary of the status of stock options at December 31, 2017, and the changes during the three years then ended, is presented in the
following table:
Number
of
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
(in thousands)
Outstanding at January 1, 2015
Granted
Exercised
Expired/Forfeited
Outstanding at December 31, 2015
Granted
Exercised
Expired/Forfeited
Outstanding at December 31, 2016
Granted
Exercised
Expired/Forfeited
Outstanding at December 31, 2017
Exercisable at December 31, 2017
Exercisable at December 31, 2016
1,857,877 $
1,171,984
(42,387 )
(294,237 )
2,693,237 $
4,407,983
(100,480 )
(767,590 )
6,233,150 $
2,188,800
(1,011,284 )
(1,338,298 )
6,072,368 $
2,769,205 $
2,496,695 $
7.31
8.12
-
2.88
8.12
6.86
6.23
8.12
7.24
6.68
5.55
6.79
7.42
7.96
7.35
7.9 years $
6.4 years $
4.1 years $
6,199
2,457
1,839
The total pre-tax intrinsic value of stock options exercised during the year ended December 31, 2017, 2016 and 2015 was $2.6 million, $0.2
million and $0.0 million, respectively.
The weighted average grant date fair value for employee options granted under the Company's stock option plans during the year ended
December 31, 2017, 2016 and 2015 was $6.58, $6.78 and $8.77, per option respectively.
As of December 31, 2017, $19.5 million of total unrecognized compensation costs related to non-vested employee options are scheduled to be
recognized over a weighted average period of 1.9 years.
The following table summarizes the assumptions relating to options granted pursuant to the Company’s equity incentive plans for the years
ended December 31, 2017, 2016 and 2015:
Expected dividend yield
Risk-free interest rate
Expected term (in years)
Expected volatility
Years Ended December 31,
2016
0%
2.16 % - 1.18%
6.50 - 5.07
209.69% - 190.46% 213.60% - 189.40% 218.00% - 207.00%
2017
0%
2.34 % - 1.72%
6.50 - 5.13
2015
0%
1.56%
6.00
Expected Dividend Yield —The Company has never paid dividends and does not expect to pay dividends in the foreseeable future.
Risk-Free Interest Rate —The risk-free interest rate was based on the market yield currently available on United States Treasury securities with
maturities approximately equal to the option’s expected term.
Expected Term —The expected term of the stock option grants was calculated using the “simplified” method in accordance with the SEC Staff
Accounting Bulletin 107. The “simplified” method was used since the Company believes its historical data does not provide a reasonable basis
upon which to estimate expected term and the Company does not have enough option exercise data from its grants issued to support its own
estimate as a result of vesting terms and changes in the stock price. The “simplified” method, as permitted by the SEC, is calculated as the
average of the time-to-vesting and the contractual life of the options.
F - 21
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Expected Volatility —The expected volatility is based on the historical volatility for the Company's stock over a period equal to the expected
terms of the options.
Forfeiture Rate —The Company recognizes forfeitures as they occur.
Each of the inputs discussed above is subjective and generally requires significant management judgment.
During the years ended December 31, 2017, 2016 and 2015, the Company recorded compensation costs of $10.9 million, $16.5 million and
$6.8 million, respectively, relating to the vesting of stock options.
A summary of outstanding, exercisable and vested stock options as of December 31, 2017 is as follows (in thousands, except per share
amounts):
Options Outstanding
Exercisable
Range of Exercise Prices
$5.05 - $5.86
$5.87 - $6.58
$6.59 - $7.43
$7.44 - $7.57
$7.58 - $9.00
$9.01 - $117
Weighted Average
Remaining
Contractual
Life
Number of
Shares
Weighted Average
Exercise
Price Per Share
Aggregate
Intrinsic
Value
Number of
Shares
Weighted Average
Remaining
Contractual
Life
Weighted Average
Exercise
Price Per Share
Aggregate
Intrinsic
Value
959,200
932,550
897,500
1,358,166
864,286
1,060,666
6,072,368
8.16 $
7.90
7.51
8.91
7.37
6.90
7.86 $
5.32 $
6.02
6.99
7.52
7.83
10.46
7.42 $
390,000
421,712
323,790
434,370
401,273
798,060
6,199 2,769,205
6.31 $
6.77
4.25
8.67
5.50
6.33
6.40 $
5.43
6.08
6.94
7.54
7.81
10.90
7.96 $
2,457
Restricted Common Stock Awards
The following table summarizes restricted common stock awards activity:
Non-vested shares, January 1, 2015
Granted
Vested
Forfeited
Non-vested shares, December 31, 2015
Granted
Vested
Forfeited
Non-vested shares, December 31, 2016
Granted
Vested
Forfeited
Non-vested shares, December 31, 2017
Weighted Average
Number Grant Date
of Shares
Fair Value
782,500 $
15,000
(284,748 )
(191,500 )
321,252 $
-
(274,167 )
(40,001 )
7,084 $
-
(7,084 )
-
- $
7.04
8.44
4.31
6.81
6.96
-
6.90
7.02
6.48
-
(6.48 )
-
-
During the years ended December 31, 2017, 2016 and 2015, the Company recorded compensation costs of $0.0 million, $1.0 million and $1.8
million, respectively, in connection with these awards and is recognized as expense in the accompanying statements of operations. As of
December 31, 2017, there were no outstanding unvested restricted common stock awards.
F - 22
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE.7 EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution plan covering substantially all U.S. employees under Section 401(k) of the Internal Revenue
Code of 1986, as amended (the “IRC”). The Company's matching contribution to the plan was $0.3 million, $0.1 million and $0.0 million for
the years ended December 31, 2017, 2016 and 2015, respectively.
NOTE 8. SEPARATION AGREEMENTS
In June 2016, the Company entered into a separation agreement with Dr. Elma Hawkins, its former Chief Executive Officer. Under the terms of
the agreement, Dr. Hawkins vesting was accelerated on certain outstanding options and she was entitled to receive a severance payment of
approximately $0.5 million. The Company recorded approximately $5.0 million in additional share-based compensation expense related to this
acceleration of the equity awards during the year ended December 31, 2016.
In July 2016, Molly Henderson, the former Chief Financial Officer provided the Board with written notice under her Employment Agreement,
dated June 5, 2015, that she would terminate her employment with the Company for “good reason” effective August 16, 2016. In connection
with this event all unvested options were accelerated and she received a severance payment of approximately $0.4 million, representing one
year’s salary. The Company recorded approximately $4.5 million in additional share-based compensation expense related to the acceleration of
the equity awards during the year ended December 31, 2016.
NOTE 9. INCOME TAXES
Net deferred tax assets (liabilities) are summarized as follows (in thousands):
Deferred income tax asset:
Net operating loss carry forward
Stock-based compensation
Tax credit carryforwards
Reserves and accruals
Deferred tax asssets before valuation allowance
Less: valuation allowance
Net deferred income tax assets
Deferred tax liabilities:
Depreciation and amortization
Net deferred tax assets (liabilities)
Reconciliation of the effective income tax rate to the U.S. statutory rate is as follows:
As of December 31,
2016
2017
$
33,300 $
4,568
9,323
733
47,924
(47,849 )
75
23,912
9,562
8,167
139
41,780
(41,402 )
378
$
(75 )
- $
(378 )
-
Years ended December 31,
2016
2017
2015
Federal statutory tax rate
Orphan Drug & Research credits
Permanent and other differences
Tax rate change
State tax, net of federal benefit
Valuation allowance
Effective tax rate
(34 )%
0
4
23
-
(7 )%
7 %
- %
(34 )%
(8 )
4
-
(4 )
(42 )%
42 %
- %
(34 )%
(12 )
10
-
(5 )
(41 )%
41 %
- %
F - 23
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of income tax expense (benefit) are as follows (in thousands):
Years ended December 31,
2016
2015
2017
Federal:
Current
Deferred
State and Local
Current
Deferred
Change in Valuation Allowance
Total income tax expense (benefit)
$
- $
(7,391 )
- $
(19,050 )
-
944
6,447
- $
-
(3,007 )
22,057
- $
$
-
(9,724 )
-
(1,887 )
11,611
-
The Company had net operating loss carryovers (“NOLs”) for federal and state income tax purposes of approximately $143.3 million and $66.3
million, respectively, as of December 31, 2017. The federal NOLs will expire beginning in 2027 through 2037. The state NOLs will expire if
unused in years 2030 through 2037.
The Company’s utilization of NOLs is subject to an annual limitation due to ownership changes that have occurred previously or that could
occur in the future as provided in Section 382 of the IRC (“Section 382”), as well as similar state provisions. Section 382 limits the utilization
of NOLs when there is a greater than 50% change of ownership as determined under the regulations. Since its formation, the Company has
raised capital through the issuance of capital stock and various convertible instruments which, combined with the purchasing shareholders’
subsequent disposition of these shares, has resulted in an ownership change as defined by Section 382, and could result in an ownership change
in the future upon subsequent disposition.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“Tax Act”) was signed into law making significant changes to the Internal
Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after
December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition
tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company has calculated its 2017 year-
end income tax provision with its best estimate of the impact of the Act in accordance with its understanding of the Act and guidance available
as of the date of this filing. The tax rate decrease resulted in a reduction of $20.8 million in the Company’s deferred tax assets, and a
corresponding decrease of the same amount in the valuation allowance against these deferred tax assets.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred
tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon future generation for taxable income during the
periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of
all the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets
and has therefore established a full valuation allowance. For the years ended December 31, 2017, 2016 and 2015, the change in the valuation
allowance was approximately $6.4 million, $22.1 million and $11.6 million, respectively.
The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain
positions that the company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-
than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return
and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized
(or amount of net operating loss carry forward or amount of tax refundable is reduced) for unrecognized tax benefit because it represents an
enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of
ASC 740.
If applicable, interest costs related to the unrecognized tax benefits are required to be calculated and would be classified as “Other Income
(Expense)” in the consolidated statement of operations. Penalties would be recognized as a component of “General and Administrative
Expenses” in the consolidated statement of operations.
F - 24
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the beginning and ending balances of the unrecognized tax benefits during the years ended December 31, 2017, 2016 and
2015 is as follows (in thousands):
Years ended December 31,
2016
2017
2015
Unrecognized benefit—beginning of period
Gross decreases—prior period tax positions
Gross increases—current period tax positions
Unrecognized benefit—end of period
$
$
- $
2,780
1,331
4,111 $
- $
-
-
- $
-
-
-
-
No interest or penalties on unpaid tax were recorded during the years ended December 31, 2017, 2016 and 2015, respectively. The Company
does not anticipate any significant changes within 12 months of this reporting date of its uncertain tax positions.
The Company files tax returns in the U.S. federal and state jurisdictions. The tax years beginning with the year ended December 31, 2007
remain open to examination by tax authorities to the extent of the utilization of net operating losses and credit carryovers. The Company is not
currently under examination by income tax authorities in federal, state or other foreign jurisdictions.
NOTE 10. LICENSES AND AGREEMENTS
National Institutes of Health (NIH) and the National Cancer Institute (NCI)
Cooperative Research and Development Agreement (CRADA)
In August 2011, the Company signed a five-year Cooperative Research and Development Agreement (“CRADA”) with the National Cancer
Institute (NCI”) to work with Dr. Steven Rosenberg on developing adoptive cell immunotherapies that are designed to destroy metastatic
melanoma cells using a patient’s tumor infiltrating lymphocytes.
In January 2015, the Company executed an amendment to the CRADA (the “Amendment”) to include four new indications. As amended, in
addition to metastatic melanoma, the CRADA included the development of TIL therapy for the treatment of patients with bladder, lung, triple-
negative breast, and Human Papilloma Virus (“HPV”)-associated cancers.
In August 2016, the NCI and the Company entered into a second amendment to the CRADA (the “Second Amendment”). The principal
changes effected by the Second Amendment included (i) extending the term of the CRADA by another five years to August 2021, and (ii)
modifying the focus on the development of unmodified TIL as a stand-alone therapy or in combination with U.S. Food and Drug
Administration (“FDA”) licensed products and commercially available reagents routinely used for adoptive cell therapy. The parties will
continue the development of improved methods for the generation and selection of TIL with anti-tumor reactivity in metastatic melanoma,
bladder, lung, breast, and HPV-associated cancers.
Pursuant to the terms of the CRADA, the Company is currently required to make quarterly payments of $0.5 million to the NCI for support of
research activities. To the extent the Company licenses patent rights relating to a TIL-based product candidate, the Company will be
responsible for all patent-related expenses and fees, past and future, relating to the TIL-based product candidate. In addition, the Company may
be required to supply certain test articles, including TIL, grown and processed under cGMP conditions, suitable for use in clinical trials, where
the Company holds the investigational new drug application for such clinical trial. The extended CRADA has a five-year term expiring in
August 2021. The Company or the NCI may unilaterally terminate the CRADA for any reason or for no reason at any time by providing
written notice at least 60 days before the desired termination date. During the years ended December 31, 2017, 2016 and 2015, the Company
recorded costs associated with the CRADA of $2.0 million, $1.8 million and $2.0 million, respectively, as research and development expenses.
F - 25
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Patent License Agreement Related to the Development and Manufacture of TIL
Effective October 5, 2011, the Company entered into a patent license agreement (the “Patent License Agreement”) with the National Institutes
of Health, an agency of the United States Public Health Service within the Department of Health and Human Services (“NIH”), which was
subsequently amended on February 9, 2015 and October 2, 2015. Pursuant to the Patent License Agreement, as amended, the NIH granted the
Company licenses, including exclusive, co-exclusive, and non-exclusive licenses, to certain technologies relating to autologous tumor
infiltrating lymphocyte adoptive cell therapy products for the treatment of metastatic melanoma, lung, breast, bladder and HPV-positive
cancers. The Patent License Agreement requires the Company to pay royalties based on a percentage of net sales (which percentage is in the
mid-single digits), a percentage of revenues from sublicensing arrangements, and lump sum benchmark royalty payments on the achievement
of certain clinical and regulatory milestones for each of the various indications and other direct costs incurred by the NIH pursuant to the
agreement.
Exclusive Patent License Agreement Related to TIL Selection
On February 10, 2015, the Company entered into an exclusive patent license agreement (the “Exclusive Patent License Agreement”) with the
NIH under which the Company received an exclusive license to the NIH’s rights to patent-pending technologies related to methods for
improving adoptive cell therapy through more potent and efficient production of TIL from melanoma tumors by selecting for T-cell
populations that express various inhibitory receptors. Unless terminated sooner, the license shall remain in effect until the last licensed patent
right expires.
In consideration for the exclusive rights granted under the Exclusive Patent License Agreement, the Company paid the NIH a non-refundable
upfront licensing fee in the amount of $0.8 million. The Company also agreed to pay customary royalties based on a percentage of net sales of
a licensed product (which percentage is in the mid-single digits), a percentage of revenues from sublicensing arrangements, and lump sum
benchmark payments upon the successful completion of clinical studies involving licensed technologies, the receipt of the first FDA approval
or foreign equivalent for a licensed product or process resulting from the licensed technologies, the first commercial sale of a licensed product
or process in the United States, and the first commercial sale of a licensed product or process in any foreign country. The Company will also be
responsible for all costs associated with the preparation, filing, maintenance and prosecution of the patent applications and patents covered by
the Exclusive Patent License Agreement.
During the year ended December 31, 2017, the costs associated with the NIH patent licenses were immaterial. During the years ended
December 31, 2016 and 2015, the Company recorded $0.4 million and $0.4 million, respectively, as research and development expenses
associated with the NIH patent licenses.
H. Lee Moffitt Cancer Center
Research Collaboration and Clinical Grant Agreements with Moffitt
In September 2014, the Company entered into a research collaboration agreement with the H. Lee Moffitt Cancer Center (“Moffitt”) to jointly
engage in translational research and development of adoptive tumor-infiltrating lymphocyte cell therapy with improved anti-tumor properties
and process.
In December 2016, the Company entered into a new three-year Sponsored Research Agreement with Moffitt (the “Moffitt SRA”). At the same
time, the Company entered into a clinical grant agreement with Moffitt to support an ongoing clinical trial at Moffitt that combines TIL therapy
with nivolumab for the treatment of patients with metastatic melanoma. In June 2017, the Company entered into a second clinical grant
agreement with Moffitt to support a new clinical trial at Moffitt that combines TIL therapy with nivolumab for the treatment of patients with
non-small cell lung cancer. In the years ended December 31, 2017, 2016 and 2015, the Company recorded research and development costs of
$1.2 million, $0.7 million, and $0.7 million, respectively, in connection with the research collaboration and clinical grant agreements with
Moffit.
F - 26
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Exclusive License Agreement with Moffitt
The Company entered into a license agreement with Moffitt (the “Moffitt License”), effective as of June 28, 2014, under which the Company
received a world-wide license to Moffitt’s rights to patent-pending technologies related to methods for improving TIL for adoptive cell therapy.
Unless earlier terminated, the term of the license extends until the earlier of the expiration of the last issued patent related to the licensed
technology or 20 years after the effective date of the license agreement.
Pursuant to the Moffitt License, the Company paid an upfront licensing fee in the amount of $0.1 million. A patent issuance fee will also be
payable under the Moffitt License, upon the issuance of the first U.S. patent covering the subject technology. In addition, the Company agreed
to pay milestone license fees upon completion of specified milestones, customary royalties based on a specified percentage of net sales (which
percentage is in the low single digits) and sublicensing payments, as applicable, and annual minimum royalties beginning with the first sale of
products based on the licensed technologies, which minimum royalties will be credited against the percentage royalty payments otherwise
payable in that year. The Company will also be responsible for all costs associated with the preparation, filing, maintenance and prosecution of
the patent applications and patents covered by the Moffitt License related to the treatment of any cancers in the United States, Europe and
Japan and in other countries designated by the Company in agreement with Moffitt. During the years ended December 31, 2017, 2016 and
2015, the Company did not record any costs associated with Moffitt License.
PolyBioCept and Karolinska University Hospital
PolyBioCept Exclusive and Co-Exclusive License Agreement
On September 14, 2016, the Company entered into an exclusive and co-exclusive license agreement (the “PolyBioCept Agreement”) with
PolyBioCept AB, a corporation organized under the laws of Sweden (“PolyBioCept”). PolyBioCept has filed two patent applications with
claims related to a cytokine cocktail for use in expansion of lymphocytes, one of which has been abandoned. Under the PolyBioCept
Agreement, the Company received the exclusive right and license to PolyBioCept’s intellectual property to develop, manufacture, market and
genetically engineer TIL produced by expansion, selection and enrichment using a proprietary cytokine cocktail. The Company also received a
co-exclusive license (with PolyBioCept) to develop, manufacture and market genetically engineered TIL under the same intellectual property.
The licenses are for the use in all cancers and are worldwide in scope, with the exception that the uses in melanoma are not included for certain
countries of the former Soviet Union.
The Company paid PolyBioCept a total of $2.5 million as an upfront exclusive license payment. The Company will also have to make
additional milestone payments to PolyBioCept under the PolyBioCept Agreement if, and when, (i) certain product development milestones are
achieved, (ii) certain regulatory approvals have been obtained from the FDA and/or the European Medicines Agency, and (iii) certain product
sales targets are achieved. The milestone payments will be payable both in cash (U.S. dollars) and in shares of the Company’s common stock.
If all of the foregoing product development, regulatory approval and sales milestone payments are met, the Company will have to pay
PolyBioCept an additional $8.7 million and will have to issue to PolyBioCept a total 2,219,376 shares of unregistered common stock. In
addition to these potential payments, the Company reimbursed PolyBioCept $0.2 million in expenses related to the transfer of know-how and
paid PolyBioCept $0.1 million as a clinical trials management fee. The Company also separately engaged PolyBioCept as a consultant to
provide certain product development and research related services in a one-year agreement for up to $0.2 million, subject to the consent of the
Karolinska Institute to the services to be performed by its employees thereunder. The PolyBioCept Agreement has an initial term of 30 years
and may be extended for additional five-year periods. The Company recognized $0.2 million in connection with this agreement in the year
ended December 31, 2017. The Company recognized $2.7 million in connection with this agreement in the year ended December 31, 2016, as
research and development expense, which amount included the $2.5 million upfront exclusive license payment.
F - 27
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Karolinska University Hospital and Karolinska Institute Agreements
In connection with the execution of the PolyBioCept Agreement, the Company also (i) entered into a clinical trials agreement with the
Karolinska University Hospital to conduct clinical trials in glioblastoma and pancreatic cancer at the Karolinska University Hospital, and (ii)
agreed to enter into a sponsored research agreement with the Karolinska Institute for the research of the cytokine cocktail in additional
indications. The Company agreed to enter into the sponsored research agreement within 90 days after the date of the PolyBioCept Agreement,
which date has been extended by amendments to the PolyBioCept Agreement. Failure to enter into the sponsored research agreement or further
amend the PolyBioCept Agreement will give PolyBioCept the right to terminate the PolyBioCept Agreement, while the Company will have the
right to recoup $2.2 million of the payments it made under the PolyBioCept Agreement. The Company will pay the Karolinska Institute an
additional $2.6 million in connection with these other related agreements. In the years ended December 31, 2016, the Company paid Karolinska
University Hospital $1.6 million under the clinical trials agreement to conduct the clinical trials. The $1.6 million payment was classified as a
prepaid expense and is being expensed in accordance with the Company’s research and development expense accounting policy (see Note 1).
Accordingly, the Company recognized $0.3 million and $0.1 million in connection with this agreement as research and development expense in
the years ended December 31, 2017 and 2016, respectively.
M.D. Anderson Cancer Center
Strategic Alliance Agreement
On April 17, 2017, the Company entered into a Strategic Alliance Agreement (the “SAA”) with M.D. Anderson Cancer Center (“M.D.
Anderson”) under which the Company and M.D. Anderson agreed to conduct clinical and preclinical research studies. The Company agreed in
the SAA to provide total funding not to exceed approximately $14.2 million for the performance of the multi-year studies under the SAA. In
return, the Company will acquire all rights to inventions resulting from the studies and has been granted a non-exclusive, sub-licensable,
royalty-free, and perpetual license to specified background intellectual property of M.D. Anderson reasonably necessary to exploit any
invention, including the commercialization thereof. The Company has also been granted certain rights to clinical data generated by M.D.
Anderson outside of the clinical trials to be performed under the SAA. The SAA’s term shall continue in effect until the later of the fourth
anniversary of the SAA or the completion or termination of the research and receipt by the Company of all deliverables due from M.D.
Anderson thereunder. As of December 31, 2017, the Company had paid $1.4 million under the SAA. This amount has been recorded under
long-term assets on the Company’s consolidated balance sheets and will be amortized to research and development expenses in accordance
with the Company’s research and development accounting policy, based on enrollment and other factors. The Company did not recognize any
research and development expense associated with the M.D. Anderson SAA for the year ended December 31, 2017.
MedImmune
In December 2015, the Company entered into a collaboration agreement (the “MedImmune Agreement”) with MedImmune, the global
biologics research and development arm of AstraZeneca (“MedImmune”), to conduct clinical and preclinical research immuno-oncology.
Under the MedImmune Agreement, the Company will fund and conduct at least one clinical trial combining MedImmune's PD-L1
inhibitor, durvalumab, with TIL for the treatment of patients. MedImmune will supply durvalumab for the clinical trials. The purpose of the
studies is to establish a dosing regimen for this combination therapy and assess its safety and efficacy.
WuXi Apptech, Inc. (“WuXi”)
In November 2016, the Company entered into that a three-year manufacturing and services agreement with WuXi pursuant to which WuXi
agreed to provide manufacturing and other services. Under the agreement, the Company entered into two statements of work for two cGMP
manufacturing suites to be established and operated by WuXi for Lion, one of which is expected to be capable of being used for the
commercial manufacture of our products. The fee payable under the first statement of work for the use of one of the manufacturing suites
during the first year of the agreement, including the fees for the necessary personnel, is $2.5 million. The second statement of work, under
which WuXi agreed to establish and operate a second, dedicated facility for a late stage/commercial manufacturing cGMP suite requires the
Company to pay approximately $5.85 million during the first year of the agreement. The Company and WuXi have extended the term of the
related statements of work until May 2020. During the years ended December 31, 2017 and 2016, the Company recorded costs associated with
agreements with WuXi of $13.9 million and $2.4 million, respectively, as research and development expenses.
F - 28
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. COMMITMENTS AND CONTINGENCIES
Facilities Leases
Tampa Lease
In December 2014, the Company commenced a five-year non-cancellable operating lease with the University of South Florida Research
Foundation for a 5,115 square foot facility located in Tampa, Florida. The facility is part of the University of South Florida research park and is
used as the Company’s research and development facilities. The Company has the option to extend the lease term of this facility for an
additional five-year period on the same terms and conditions, except that the base rent for the renewal term will be increased in accordance
with the applicable consumer price index.
In April 2015, the Company amended the original lease agreement to increase the rentable space to 6,043 square feet. In September 2016, the
Company further increased the rentable space to 8,673 square feet. The per square foot cost and term of the lease were unchanged, and rent
payments are approximately $20,000 per month. The lease expires in November 2019.
San Carlos Lease
On August 4, 2016, the Company entered into an agreement to lease 8,733 square feet in San Carlos, California. The term of the lease is 54
months subsequent to the commencement date and will expire in April 2021. Monthly lease payments are approximately $38,000.
On April 28, 2017, the Company entered into a sublease agreement with Teradata US, Inc., pursuant to which the Company agreed to sublease
certain office space located adjacent to the Company's headquarters for approximately $26,000 per month. The space consists of approximately
11,449 rentable square feet in the building located in San Carlos, California and will expire on October 31, 2018.
New York Lease
The Company leased office space in New York for a monthly rental of approximately $18,000 a month from January 2017 through July 2017.
On June 5, 2017, the Company entered into an agreement whereby the Company will lease office space from August 1, 2017 to July 31, 2018,
for approximately $9,000 a month.
The Company recognizes rental expense on the facilities on a straight-line basis over the lease term. Differences between the straight-line rent
expense and rent payments are classified as deferred rent liability on the balance sheet.
As of December 31, 2017, the Company's future minimum lease payments under non-cancelable operating leases are as follows (in thousands):
Year
2018
2019
2020
2021
Operating
Lease
Commitments
1023
$
700
495
169
2,387
$
Rent expense for the years ended December 31, 2017, 2016 and 2015 was $1.0 million, $0.7 million and $0.3 million, respectively.
F - 29
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. LEGAL PROCEEDINGS
Class Action Lawsuit and Derivative Lawsuit. On April 10, 2017, the SEC announced settlements with us and with other public companies and
unrelated parties in the In the Matter of Certain Stock Promotion investigation. The Company’s settlement with the SEC is consistent with its
previous disclosures (including in the Company’s Annual Report on Form 10-K that it filed with the SEC on March 9, 2017). On April 14,
2017, a purported shareholder filed a complaint seeking class action in the United States District Court, Northern District of California for
violations of the federal securities laws (Leonard DeSilvio v. Lion Biotechnologies, Inc., et al., case no: 3:17cv2086) against the Company and
three of its former officers and directors. On April 19, 2017, a second class action complaint (Amra Kuc vs. Lion Biotechnologies, Inc., et al.,
case no: 3:17cv2086) was filed in the same court. Both complaints allege, among other things, that the defendants violated the federal
securities laws by making materially false and misleading statements, or by failing to make certain disclosures, regarding the actions taken by
Manish Singh, the Company’s former CEO, and the Company’s former investor relations firm that were the subject of the In the Matter of
Certain Stock Promotions SEC investigation. On July 20, 2017, the plaintiff in the Kuc case filed a notice to voluntarily dismiss that case. The
court entered an order dismissing the Kuc complaint on July 21, 2017. On July 26, 2017, the court appointed a movant as lead plaintiff. On
September 8, 2017, the lead plaintiff filed an amended complaint (Jay Rabkin v. Lion Biotechnologies, Inc., et al., case no. 3:17cv0286)
seeking class action status that alleges, among other things, that the defendants violated the federal securities laws by making materially false
and misleading statements, or by failing to make certain disclosures, regarding the actions taken by Manish Singh and the Company’s former
investor relations firm that were the subject of the In the Matter of Certain Stock Promotions SEC investigation. On October 6, 2017, the court
entered an order setting a schedule for the case, which includes a briefing schedule for motions to dismiss and a hearing date of December 22,
2017, which hearing was subsequently rescheduled by the court for January 5, 2018. On January 4, 2018, the court entered an order vacating
and deeming the briefing on motions to dismiss submitted without oral argument. On February 5, 2018, court entered an order dismissing two
of Plaintiff’s six claims with leave to amend.
On December 15, 2017, a purported shareholder derivative complaint, Kevin Fong v. Manish Singh, et al. (case no. 17:1806), was filed against
the Company, as nominal defendant, and certain of its current and former officers and directors, and others, as defendants, in the U.S. District
Court for the District of Delaware. The complaint alleges breaches of fiduciary duties, unjust enrichment, and violations of Section 14(a) of the
Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder arising from the Securities and Exchange Commission’s investigation
in the In the Matter of Certain Stock Promotions matter and the Company’s April 10, 2017 settlement thereof, and seeks unspecified damages
on behalf of the Company and injunctive relief.
The Company intends to vigorously defend against the foregoing complaints. Based on the very early stage of the litigation, it is not possible to
estimate the amount or range of possible loss that might result from an adverse judgment or a settlement of these matters.
Solomon Capital, LLC. On April 8, 2016, a lawsuit titled Solomon Capital, LLC, Solomon Capital 401(K) Trust, Solomon Sharbat and Shelhav
Raff v. Lion Biotechnologies, Inc. was filed by Solomon Capital, LLC, Solomon Capital 401(k) Trust, Solomon Sharbat and Shelhav Raff
against the Company in the Supreme Court of the State of New York, County of New York (index no. 651881/2016). The plaintiffs allege that,
between June and November 2012 they provided to the Company $0.1 million and that they advanced and paid on the Company’s behalf an
additional $0.2 million. The complaint further alleges that the Company agreed to (i) provide them with promissory notes totaling $0.2 million,
plus interest, (ii) issue a total of 111,425 shares to the plaintiffs (before the 1-for-100 reverse split of the Company’s common stock effected in
September 2013), and (iii) allow the plaintiffs to convert the foregoing funds into the Company’s securities in the next transaction. The
plaintiffs allege that they should have been able to convert their advances and payments into shares of the Company’s common stock in the
restructuring that was effected in May 2013. Based on the foregoing, the plaintiffs allege causes for breach of contract and unjust enrichment
and demand judgment against the Company in an unspecified amount exceeding $1.5 million, plus interest and attorneys’ fees.
On June 3, 2016, the Company filed an answer and counterclaims in the lawsuit. In its counterclaims, the Company alleges that the plaintiffs
misrepresented their qualifications to assist it in fundraising and that they failed to disclose that they were under investigation for securities
laws violations. The Company is seeking damages in an amount exceeding $0.5 million and an order rescinding any and all agreements that the
plaintiffs contend entitled them to obtain stock in the Company.
On April 19, 2017, the Court granted plaintiffs’ counsel’s motion to withdraw from the case. On May 25, 2017, the plaintiffs filed a notice that
they had hired new counsel. On June 7, 2017, the judge presiding over the case recused herself because of a conflict of interest arising from her
relationship with plaintiffs’ new attorneys. The case has been assigned to a new judge, and briefing on a motion to dismiss has occurred, with
oral argument on the motion to dismiss scheduled for April 20, 2018.
The Company intends to vigorously defend the complaint and pursue its counterclaims.
F - 30
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Litigation Involving Dr. Steven Fischkoff. On June 13, 2017, in an action titled Steven Fischkoff v. Lion Biotechnologies, Inc. and Maria
Fardis, Dr. Steven Fischkoff, the Company’s former Vice President and Chief Medical Officer, filed a lawsuit against the Company in the
Supreme Court of the State of New York, County of New York. Dr. Fischkoff was dismissed by the Company on March 28, 2017. Dr.
Fischkoff was terminated “for cause” as that term is defined in his employment agreement. In his complaint, Dr. Fischkoff alleges breaches of
his employment agreement and violation of New York labor law for failure to pay monies purportedly owed to him, and seeks to recover
amounts including severance pay and retention bonus (totaling $0.3 million), a prorated incentive bonus, and amounts relating to unvested
options to 150,000 shares of the Company’s common stock, together with prejudgment interest, costs, expenses and attorneys’ fees. On July 5,
2017, the Company filed a removal petition and removed the lawsuit to the United States District Court for the Southern District of New York,
where the case has been assigned case no. 17-cv-05041. On July 14, 2017, the Company filed a partial answer and counterclaims against Dr.
Fischkoff, denying his allegations, and alleging breach of contract and related claims, breach of fiduciary duty, and state and federal trade
secret misappropriation and related claims, and sought a temporary restraining order and preliminary injunction against Dr. Fischkoff. On July
18, 2017, the court issued a temporary restraining order against Dr. Fischkoff requiring him to return Company materials, prohibiting him from
disclosing or using Company materials, and granting expedited discovery, which is currently proceeding.
The Company intends to vigorously defend against Dr. Fischkoff’s lawsuit and pursue the Company’s counterclaims. Based on the very early
stage of the litigation, it is not possible to estimate the amount or range of (i) a possible loss that might result from an adverse judgment or
settlement of this action, or (ii) the potential recovery that might result from a favorable judgment or a settlement of this action.
Other Matters. During the second quarter of 2016, warrants representing 128,500 shares were exercised. The 128,500 shares of common stock
had previously been registered for re-sale. However, the Company believes that these 128,500 warrant shares were sold by the holders in open
market transactions in May 2016 at a time when the registration statement was ineffective. Accordingly, those sales were not made in
accordance with Sections 5 and 10(a)(3) of the Securities Act, and the purchasers of those shares may have rescission rights (if they still own
the shares) or claims for damages (if they no longer own the shares). The amount of any such liability is uncertain and as such, an accrual for
any potential loss has not been made. The Company believes that any claims brought against it would not result in a material impact to the
Company’s financial position or results of operations. The Company has not accrued a loss for a potential claim associated with this matter as it
is unable to estimate any at this time.
The Company may be involved, from time to time, in legal proceedings and claims arising in the ordinary course of its business. Such matters
are subject to many uncertainties and outcomes are not predictable with assurance. The Company accrues amounts, to the extent they can be
reasonably estimated, that it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that the
Company believes will result in a probable loss. While there can be no assurances as to the ultimate outcome of any legal proceeding or other
loss contingency involving the Company, management does not believe any pending matter will be resolved in a manner that would have a
material adverse effect on the Company’s financial position, results of operations or cash flows. Regardless of outcome, litigation can have an
adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
NOTE 13. QUARTERLY UNAUDITED RESULTS
The results of operations by quarter for the years ended December 31, 2017 and 2016 are as follow:
Revenue
Net loss attributable to common
stockholders
Net loss per share, basic and diluted
Weighted average shares used in
computing net loss per share, basic and
diluted
2017
2016
(in thousands, except per share information)
Q1
$
Q2
- $
Q3
- $
Q4
- $
Q1
- $
Q2
- $
Q3
- $
Q4
- $
-
$ (20,684 ) $ (23,377 ) $ (22,149 ) $ (25,854 ) $
(6,884 ) $ (11,563 ) $ (68,212 ) $ (15,689 )
$
(0.33 ) $
(0.37 ) $
(0.35 ) $
(0.36 ) $
(0.14 ) $
(0.23 ) $
(1.15 ) $
(0.25 )
62,286 62,457 63,332 72,794 48,548 51,082 59,113 62,130
F - 31
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. RELATED PARTY TRANSACTIONS
Sanford J. Hillsberg, one of the Company’s directors, is an attorney at TroyGould PC. TroyGould PC rendered and continues to render legal
services to the Company. The Company paid TroyGould PC $0.7 million, $0.8 million and $0.7 million, during the years ended December 31,
2017, 2016 and 2015, respectively. Mr. Hillsberg did not directly provide any legal services to the Company during the periods noted. As of
December 31, 2017 and 2016, the Company had $0.1 million and $0.1 million in liabilities owing to TroyGould PC related to legal services,
respectively.
On September 14, 2017, the Company entered into a three-year consulting agreement with Iain Dukes, D. Phil, the Chairman of the Board. As
compensation for his consulting services, the Company granted Dr. Dukes a stock option to purchase up to 150,000 shares of the Company’s
common stock, at an exercise price of $7.30 per share. Under the consulting agreement, Dr. Dukes agreed to provide the Company with
services regarding business development opportunities, licensing transactions and technology acquisitions by the Company, and any such
strategic initiatives appropriate for the Company that Dr. Dukes may identify. The granted stock options vest in 12 quarterly installments (with
1/12th of the option shares having vested on the date of grant). The vesting of the granted stock options will accelerate, and the entire award
will become fully vested upon the closing of a significant licensing transaction, a material product acquisition, a material strategic transaction,
or upon a change of control transaction. The Company recognized $0.2 million in stock-based compensation expense related to this consulting
agreement during the year ended December 31, 2017.
NOTE 15. SUBSEQUENT EVENT
In January 2018, the Company announced the closing of its underwritten public offering of 15,000,000 shares of the Company’s common stock
at a public offering price of $11.50 per share, before underwriting discounts, which included 1,956,521 shares issued upon the exercise in full
by the underwriter of its option to purchase additional shares at the public offering price less the underwriting discount. The gross proceeds
from the offering, before deducting the underwriting discounts and commissions and other estimated offering expenses payable by the
Company, are $172.5 million, with estimated net proceeds to the Company of approximately $161.7 million.
F - 32
BOARD OF DIRECTORS
OFFICERS
Iain Dukes, D.Phil.
Maria Fardis, Ph.D.
VENTURE PARTNER, ORBIMED ADVISORS LLC
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
Maria Fardis, Ph.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Sanford J. Hillsberg
ATTORNEY, TROYGOULD PC
Ryan Maynard
CHIEF FINANCIAL OFFICER, BLADE THERAPEUTICS, INC.
IOVANCE BIOTHERAPEUTICS, INC.
Timothy E. Morris
CHIEF FINANCIAL OFFICER
Frederick G. Vogt, Ph.D., Esq.
GENERAL COUNSEL
General Merrill A. McPeak
CHIEF OF STAFF, U.S. AIR FORCE (RET.)
Wayne Rothbaum
PRESIDENT, QUOGUE CAPITAL, LLC
Michael Weiser, M.D., Ph.D.
PRINCIPAL, ACTIN BIOMED, LLC
2017 AUDITORS
Marcum LLP
SECURITIES COUNSEL
TroyGould PC
NEW YORK, NEW YORK
LOS ANGELES,
CALIFORNIA
SECURITIES LISTING
The Nasdaq
Global Market
COMMON STOCK: IOVA
REGISTRAR &
TRANSFER AGENT
Continental
Stock Transfer
1 STATE STREET,
30TH FLOOR
CORPORATE
HEADQUARTERS
999 SKYWAY ROAD
SUITE 150
SAN CARLOS, CA 94070
TEL: (650) 260–7120
NEW YORK, NY 10004
INFO@IOVANCE.COM
TEL: (212) 845–3215
WEBSITE
WWW.IOVANCE.COM
CORPORATE
HEADQUARTERS
999 SKYWAY ROAD
SUITE 150
SAN CARLOS, CA 94070
TEL: (650) 260–7120
INFO@IOVANCE.COM
WEBSITE
WWW.IOVANCE.COM